New Industrial Policy 2017 and 25 Years of Economic Liberalisation

India opened its economy in 1991 because it had almost run out of foreign currency. Twenty-five years later, the country’s forex reserves hit record highs, but not everything went according to plan. Manufacturing barely budged, formal jobs shrank, and fiscal discipline remained elusive. Against this mixed backdrop, the government drafted a new industrial policy in 2017 to chart the course for the next two decades. Both stories run together: the forward-looking blueprint of the New Industrial Policy and a candid look at what 25 years of liberalisation actually delivered.

The New Industrial Policy 2017: A Two-Decade Blueprint

In 2017, the Department of Industrial Policy and Promotion (DIPP) released a draft Industrial Policy with three overarching goals: create jobs for the next twenty years, promote transfer of foreign technology to Indian firms, and attract USD 100 billion in FDI (Foreign Direct Investment) every year.

The policy was not just about attracting money. It laid out a ten-point agenda to reshape the entire industrial landscape. These aims can be grouped into four broad themes: building competitiveness, preparing for the future, supporting the workforce, and ensuring sustainability.

Building Competitive Indian Industries

The first set of aims focused on making Indian industry stronger and more visible on the global stage:

Global brands from India : The policy aimed to create world-recognised brands by strengthening connections between Indian and global SMEs (Small and Medium Enterprises) and by intensifying FDI inflows. The idea was simple: more collaboration with international firms brings better practices, technology, and market access.
Reducing the cost of doing business : Industrial competitiveness suffers when basic costs are too high. The policy called for bringing down the cost of infrastructure inputs like power and logistics, easing the regulatory burden on businesses, lowering the cost of capital, and improving labour productivity. Each of these factors directly affects whether a factory in India can compete with one in Vietnam or China.
Establishing complete value chains : Rather than just exporting raw materials or assembling imported components, the policy pushed for building end-to-end value chains within India or across partner countries. It identified sunrise sectors (emerging industries with high growth potential) like renewable energy, food processing, and electronics as priority areas. Owning the full value chain means capturing more of the economic benefit at each stage.

Getting Ready for the Technology Revolution

The second group of aims looked ahead to the changes that artificial intelligence and digital systems were about to bring:

Advancing technology for productivity : The policy recognised that advances in technology are essential to keep Indian industry competitive. It specifically called attention to preparing for artificial intelligence and related technologies that were beginning to reshape manufacturing globally.
Building digital infrastructure : Next-generation digital technologies need reliable digital backbone systems. The policy pushed for building this infrastructure while giving equal attention to cyber security and the protection of critical systems. Without secure digital foundations, adopting new technology would create more risks than benefits.

Supporting Workers and Small Businesses

The third cluster of aims dealt with the human side of industrial growth:

Focus on labour-intensive sectors : India’s biggest economic advantage is its young, large workforce. The policy targeted sectors like textiles, leather, and footwear that can absorb large numbers of workers. Expanding these industries is key to turning the demographic dividend (the economic growth potential from having a large working-age population) into real prosperity.
Improving MSME access to capital : Small businesses are the backbone of Indian industry, but they often struggle to get bank loans. The policy proposed opening up alternative financing channels such as crowdfunding (raising small amounts from many people), peer-to-peer (P2P) lending (direct borrowing between individuals through online platforms), and the MUDRA scheme (Micro Units Development and Refinance Agency, a government initiative providing loans to micro enterprises).
Simplifying GST : The Goods and Services Tax had been introduced to unify India’s fragmented tax system, but the policy acknowledged that it needed further simplification. It specifically flagged the inverted duty structure (a situation where the tax on raw materials is higher than on finished goods, making domestic production uncompetitive) as a problem requiring urgent resolution.

Sustainable and Responsible Growth

The final set of aims addressed the environmental dimension:

Green manufacturing : The policy called for reducing the carbon emissions and resource footprint of Indian industry. This meant transitioning towards green manufacturing (production methods that minimise pollution and waste), adopting smart technologies, and actively minimising industrial waste. Growth could not come at the cost of the environment.
Innovation ecosystem : The policy stressed the need for the right models of technology transfer and stronger linkages between academia, research institutions, and industry. A transparent IPR (Intellectual Property Rights) regime and continued support for initiatives like Startup India and Make in India would provide the ecosystem within which innovation could thrive.

The overarching message was clear: a comprehensive, action-oriented industrial policy would allow industry to serve as the true engine of growth, adding more value and creating more jobs across the economy.

Economic Liberalisation: A 25-Year Report Card

The 1991 reforms are often called a turning point for India. They were. But the full picture has both bright spots and blind spots that are worth examining honestly.

Why Reforms Happened in the First Place

India did not liberalise by choice. By 1991, the country’s foreign exchange reserves had fallen to dangerously low levels, barely enough to pay for a few weeks of imports. Years of unchecked government borrowing, a rigid system of industrial licensing, and a closed economy had brought India to the edge of a payments crisis. The government had no option but to open up.

The response was dramatic. The licence raj (the elaborate system of government permits required to start or expand any business) was dismantled. Trade barriers came down. Foreign investment was welcomed. Private companies could enter sectors that had been reserved for the government.

Where Reforms Delivered

Twenty-five years on, several outcomes justified the reformers’ confidence:

End of the licence raj : Deregulation and de-licensing created an investment-friendly environment. The government monopoly over large sectors was broken, and the inspector raj (the system where government inspectors held excessive power over businesses) was abolished. This brought greater efficiency and competition into the economy. The private sector expanded into infrastructure, mining, telecom, and many other areas.
Rise of the middle class : The economic growth unleashed by reforms created millions of new jobs and business opportunities. India’s rapidly growing middle class, visible in every city today, is a direct outcome of the post-liberalisation boom.
Service sector transformation : Opening up the service sector was perhaps the biggest success story. Services now contribute over 60% of India’s GDP. Exports in IT, BPO (Business Process Outsourcing), and KPO (Knowledge Process Outsourcing) became globally significant, earning foreign exchange and creating high-quality employment.
Foreign exchange reserves rebuilt : The crisis that triggered reforms was about running out of foreign currency. That problem was decisively solved. Increasing FDI inflows and growing service exports rebuilt India’s reserves to record levels, giving the country a comfortable cushion against external shocks.

Where Reforms Fell Short

Not everything improved. Several areas that the reforms were expected to fix remained stubbornly problematic:

Manufacturing stayed flat : The share of manufacturing in GDP was about 16% in 1990-91. After 25 years of reform, it stood at just 16.2%. The services boom partially explains this, since services grew so fast that other sectors shrank in relative terms. But manufacturing also simply did not grow to its potential. For a country with hundreds of millions of young workers, this was a missed opportunity.
Fiscal deficit persisted : Runaway government borrowing was one of the root causes of the 1991 crisis, so reining in the deficit should have been a priority. It was not achieved. By 2014-15, the combined fiscal deficit as a share of GDP was actually higher than it had been in 1995-96. The government continued to spend more than it earned, year after year.
Quality of spending deteriorated : Even more worrying than the size of the deficit was what the money was being spent on. In 1990-91, capital expenditure (spending on productive assets like roads, bridges, and public infrastructure) accounted for 30% of total central government spending. Over time, this share collapsed to just 12.5%. The government was borrowing more but spending an ever-larger share on salaries, subsidies, and interest payments rather than building the physical foundations of growth.
Tax collection lagged behind growth : Despite robust GDP growth, the government could not collect enough tax. India’s tax-to-GDP ratio stayed stuck at around 16-17%. Widespread tax evasion and a large number of exemptions and concessions given to businesses meant the government did not get its fair share of the growing economic pie.
Formal employment actually shrank : Before liberalisation, 37.11% of employees worked in the formal sector (jobs with contracts, benefits, and legal protections). Instead of this share increasing as the economy grew, it fell steadily, reaching just 21.15% by 2013. Growth was heavily concentrated in the informal economy, where workers have few protections and no social security.
Health outcomes lagged behind poorer neighbours : Economic growth should translate into better health. India’s under-five mortality rate did improve significantly, falling from 125.8 per thousand in 1990 to 47.7 per thousand in 2015. But here is the uncomfortable truth: Bangladesh and Nepal, countries with far smaller economies, achieved even greater reductions over the same period. More money clearly does not automatically mean better health outcomes; how the money is spent matters just as much.

Reform as a Continuing Process

Economic reform is not a one-time event. It is a process that must keep evolving. The present government has continued the trajectory by opening almost all sectors to 100% foreign investment and carrying forward the spirit of the 1991 reforms. But the unfinished agenda, manufacturing growth, fiscal discipline, formal job creation, and better social outcomes, remains large and urgent.