1991 and after: delicensing, dereservation and the unfinished deregulation agenda

Detail

A. The starting point: four controls before 1991

• NCERT (Class 11, LPG: An Appraisal) lists four controls that shaped Indian industry before 1991:
• Industrial licensing: a firm needed government permission to start a unit, close it, or change how much it produced.
• No private entry into many industries, which were kept for the public sector.
• SSI reservation: some goods could be made only by small-scale industries (SSI).

• Price and distribution controls: the government fixed the prices of some goods and decided who could get them.

• Why these controls hurt:

• Licences were slow and could be bought through influence, so red tape and rent-seeking grew. (Rent-seeking means earning money from government favours, not from producing more.)
• Firms could not grow to efficient size, so costs stayed high and quality stayed low.

• Output was fixed by permit, not by demand, so shortages and black markets appeared.

• The Statement on Industrial Policy (24 July 1991) and later steps took these controls apart.

B. Delicensing: from licence-raj to a short list

• Delicensing means removing the rule that a firm needs a government licence to set up or expand a unit.
• 1991: compulsory licensing was cut to 18 industries.

• Today only 5 remain, mainly for health, safety or security reasons: 1. alcoholic drinks 2. tobacco products (cigars and cigarettes) 3. electronic aerospace and defence equipment 4. industrial explosives 5. specified hazardous chemicals

• NCERT is outdated here. Its list still includes drugs and pharmaceuticals, which have since been delicensed. Check the current DPIIT list before the exam.

C. Dereservation: public sector and SSI

• Dereservation means removing items or sectors from the exclusive control of the public sector or of SSI.
• Public-sector reservation: 17 industries in 1991 → 8 soon after → today only atomic energy (specified) and railway operations.

• Result: private firms entered sectors such as telecom, civil aviation, power and mining.

• SSI reservation: items were dereserved step by step. The list was abolished in 2015.

• Why: reservation kept small firms small, because a firm that grew beyond the SSI limit lost its protection. Large firms were barred from these products, so India lost scale and export markets (for example toys and garments) to China.

• Prices: most prices were freed. Today they are market-determined in most industries.

D. Other 1991 changes

• MRTP thresholds scrapped:
• Under the MRTP Act (Monopolies and Restrictive Trade Practices Act, 1969), big business houses above an asset limit needed extra approval to expand.
• 1991 removed this asset limit. The law now controls bad conduct (cartels, abuse of dominance) and not size.

• This shift led to the Competition Act 2002, which is enforced by the Competition Commission of India (CCI).

• FDI:

• FDI (foreign direct investment) means a foreign company buying a lasting ownership stake in an Indian firm.
• In 1991, automatic approval up to 51% in 34 industries was allowed. "Automatic" means no prior government approval was needed.

• Example: a foreign firm could own 51 of every 100 shares of an Indian company in these industries and control it, without waiting for a government clearance.

• Phased manufacturing programmes (PMPs) abolished. PMPs forced firms to raise the share of locally made parts on a fixed timetable.

• Location curbs eased. Controls on where a factory could be set up were relaxed, except near big cities.
• The full macro package (fiscal, trade, exchange rate) is covered in lpg-reforms-1991.

E. Second-generation deregulation: why reform is "unfinished"

• 1991 removed the controls on entering an industry. The problems that remain are the rules on running a firm and closing it: inspections, filings, permits and criminal penalties. Most of these sit with states and ministries.

E1. Ease of doing business (EoDB)

• EoDB means how simple it is to start, run and close a firm.
• India's World Bank Doing Business rank rose from 142 (DB2015) to 63 (DB2020), a gain of 79 places.
• Doing Business was discontinued in September 2021. Data irregularities had been reported inside the World Bank in June 2020, and an investigation followed [9].
• Business Ready (B-READY) replaced it from 2024 [9]:
• It has 3 pillars: Regulatory Framework, Public Services and Operational Efficiency [9].
• It covers 10 topics that follow a firm's life cycle, with about 1,200 indicators per economy [9].
• The 2024 edition covered 50 economies. It also looks at three cross-cutting themes: digital adoption, environmental sustainability and gender [9].

• B-READY 2025 has been released [9].

• BRAP (Business Reform Action Plan) is run by DPIIT and ranks states and UTs on reforms they carry out [8]:

• Its areas include single-window clearance, land, labour, inspections, taxation and environmental approvals [8].
• DPIIT has also launched a District BRAP, which takes the same idea down to district level [8].
• Why it matters: many business rules (land, building permits, inspections) are state subjects. Competition between states pushes reform where the Centre cannot act alone.

E2. Single-window clearance

• Single-window clearance means an investor gets all approvals through one interface instead of visiting many offices.
• National Single Window System (NSWS):
• Launched in 2021 by DPIIT [7].
• It grew out of the Budget's idea of an Investment Clearance Cell [7].
• It links approvals of 32 Central Departments and 32 State Governments and gives access to over 698 central and 7,435 state approvals [7].
• It has granted over 8,29,750 approvals since launch [7].

• All proposals that need government approval under the FDI approval route now go through the NSWS portal [7].

• States also run their own single windows.

E3. Compliance burden and decriminalisation

• Compliance burden means the time and cost of many licences, filings and procedures. It hits small firms hardest, because a small firm cannot hire a compliance team.
• ORF-TeamLease (2022) counted about 69,000 compliances and 26,000 imprisonment clauses for businesses.

• Why jail clauses matter:

  • A clerical slip can carry a criminal case.
  • Owners fear harassment by inspectors.
  • As a result, firms stay small or informal to avoid notice.

• Jan Vishwas (Amendment of Provisions) Act 2023: decriminalised 183 provisions in 42 Central Acts handled by 19 Ministries/Departments [NCERT scaffold][2].

• Jan Vishwas 2.0 (the scaffold said "status — verify"; here is the update):
• 2025 Bill: introduced on 18 August 2025 and sent to a Select Committee [3]. It proposed to amend 355 provisions in 17 laws: 288 to be decriminalised for ease of doing business and 67 to be amended for ease of living [3].
• 2026 Bill: introduced on 27 March 2026 in place of the 2025 Bill. It amends 80 Central Acts [2]. It passed the Lok Sabha on 1 April 2026 and the Rajya Sabha on 2 April 2026 [2]. Presidential assent was not confirmed in the source retrieved; verify.
• Key features of the 2026 Bill [2]:
  • Progressive enforcement: a first breach gets an advisory or warning; civil penalties come only for repeat breaches.
  • Improvement notices for first offences under some Acts, such as the Legal Metrology Act.
  • Imprisonment replaced by civil penalties in several sectors, including drugs, highways and copyright.
  • Adjudicating officers fix penalties, and appellate authorities hear appeals. Cases no longer need to go to criminal courts.
  • Automatic revision of fines: they rise by 10% of the minimum amount every 3 years.
  • Worked example: if the minimum penalty is ₹10,000, it goes up by ₹1,000 every 3 years, to ₹11,000 after year 3 and ₹12,000 after year 6. The fine keeps its deterrent value without Parliament having to amend the law again.

E4. Regulatory cholesterol and the Economic Survey 2024-25

• Regulatory cholesterol means the build-up of too many outdated rules. Like cholesterol in the arteries, it clogs business, raises costs, and holds back investment and jobs.
• The term comes from the Economic Survey 2024-25. The Survey's Chapter 5 is titled "Medium Term Outlook: Deregulation Drives Growth" [6].
• The Survey's main points:
• Systemic deregulation is the main domestic lever for growth [5].
• It calls for a "deregulation stimulus" to raise average growth over the next two decades, while India can still gain from its demographic dividend (the growth boost from having a large working-age population) [5].
• It sets out a three-step process for states [5]:
  1. identify areas to deregulate;
  2. compare their rules with other states and countries;
  3. estimate what each rule costs individual firms.

• The Survey's call for deeper deregulation is aimed especially at MSMEs [5].

• High-Level Committee for Regulatory Reforms (announced in Budget 2025-26) [4]:

• It will review all non-financial-sector regulations, certifications, licences and permissions [4].
• It is to make recommendations within one year [4].
• Its aim is trust-based economic governance and easier inspections and compliances. States are encouraged to join [4].

• The source retrieved gives no update on its current status; verify.

• The four labour codes are covered in employment-informal-sector.

F. Summary: then vs now

Control	1991 onwards	Today
Compulsory licensing	Cut to 18 industries	5 industries (NCERT list still shows drugs & pharma)
Public-sector reservation	17 → 8	Atomic energy (specified), railway operations
SSI reservation	Items dereserved step by step	List abolished 2015
Prices	Most decontrolled	Market-determined in most industries
MRTP	Asset limits scrapped	Competition Act 2002, CCI
Criminal penalties	Untouched in 1991	Jan Vishwas 2023 (183 provisions / 42 Acts), 2026 Bill (80 Acts) [2]

Prelims Hooks

• Compulsory licensing today covers 5 industries: alcoholic drinks, tobacco (cigars/cigarettes), electronic aerospace & defence equipment, industrial explosives, specified hazardous chemicals. Drugs and pharmaceuticals are no longer on the list, a common trap.
• Industries reserved for the public sector today: only atomic energy (specified) and railway operations. In 1991 there were 17, cut to 8.
• SSI reservation list: fully abolished in 2015.
• The 1991 policy scrapped MRTP asset thresholds. This led to the Competition Act 2002 and the CCI, which regulate conduct, not size.
• FDI in 1991: automatic approval up to 51% in 34 industries.
• World Bank Doing Business: India rose from 142 (DB2015) to 63 (DB2020). The index was discontinued in September 2021. B-READY (2024) replaced it, with 3 pillars, 10 topics and 50 economies in its first edition [9].
• BRAP is run by DPIIT and ranks states/UTs. The World Bank does not run it [8].
• NSWS (2021) is a DPIIT platform linking 32 central departments and 32 states [7].
• Jan Vishwas Act 2023: 183 provisions, 42 Acts, 19 ministries. Jan Vishwas Bill 2026: 80 Central Acts, with fines rising 10% every 3 years [2].
• "Regulatory cholesterol" and the "deregulation stimulus" come from the Economic Survey 2024-25. The High-Level Committee for Regulatory Reforms comes from Budget 2025-26 and covers non-financial regulations [4][5].

Mains Points

• 1991 freed entry, but running a business is still heavily regulated.
• Licensing and reservation are almost gone.
• But about 69,000 compliances and 26,000 jail clauses (ORF-TeamLease, 2022) still raise costs.

• So the Economic Survey 2024-25 argues that the next growth push must come from deregulation, much of it at state level [5].

• Decriminalisation builds trust between the state and business.

• Jan Vishwas replaces jail with civil penalties and warnings for a first breach [2].
• This cuts harassment by inspectors and the load on courts.

• Trade-off: penalties must still deter real harm (for example in drugs or the environment). That is why fines are revised every 3 years and appeals are provided for [2].

• Keeping MSMEs small through reservation backfired.

• Reservation stopped firms from growing ("dwarfism") and handed markets such as toys to competitors abroad. It was abolished in 2015.

• MSMEs are now helped through easier rules and credit rather than protection [5].

• Cooperative-competitive federalism drives reform.

• BRAP rankings, District BRAP and NSWS integration push states to compete on reforms [7][8].
• B-READY's wider focus on public services and operational efficiency [9] means India must improve how rules work in practice, not just what the laws say.