Think Learn & Perform (TLP)

The Only Dedicated Platform for UPSC Mains Answer Writing

Day 13 – Q 2.Examine the significance of an effective exit policy in the greater discourse of liberalisation in India. What measures have been taken by the government on this front? Are they effective? Critically examine.

2. Examine the significance of an effective exit policy in the greater discourse of liberalisation in India. What measures have been taken by the government on this front? Are they effective? Critically examine. 

भारत में उदारीकरण के वृहत प्रवचन में एक प्रभावी निकास नीति के महत्व की जाँच करें। इस मोर्चे पर सरकार ने क्या उपाय किए हैं? क्या वे प्रभावी हैं? समलोचनात्मक जांच करें।


The introduction of reforms in India and the consequent liberalisation of the economy has exposed the entrepreneurs to an ever increasing competition. One of the important sets of policy measures since then relates to reforms in the labour sector of which the EXIT policy remains unaddressed.


  • The term ‘exit’ means the right of an industrial unit to close down. Exit policy means the policy regarding the retrenchment of the surplus labour force resulting from restructuring of industrial units and workers displaced by the closure of sick units. 
  • Exit may become necessary due to strategic reasons, financial constraints and environmental changes. Therefore, exit policy refers to the policy concerned with the action to be taken regarding surplus manpower in companies, owing to a variety of reasons, such as, restructuring, retrenchment, closure, or technological developments. 

The significance of an effective exit policy in India is due to the following factors: 

  • Closure of sick units would be beneficial for the country’s economy. Banks, financial institutions, state governments and the central government would be freed form the burden of providing incentives, subsidies and other concessions to keep the sick units going, the resources so saved can be invested for the growth of healthy units.
  • An exit policy will ensure that the legitimate dues of displaced workers are paid to them speedily and satisfactorily. Without such a policy, these workers have to lose their dues.
  • Closure of sick units may cause temporary unemployment. But the investment made out of the sale proceeds would create permanent employment.
  • Maintenance of sick units provides more benefit to inefficient and corrupt employers responsible for sickness than to the workers.
  • Sick units will ultimately close down exit policy or no exit policy.
  • Several countries such as Singapore, Malaysia, Thailand and Indonesia have carried out economic reforms with exit policies. The result of such policies has been encouraging. A similar policy would be beneficial for India.
  • Integration of an economy with the world economy would be incomplete without an exit policy. Indian companies would face a competitive disadvantage in the absence of freedom to retrench surplus labour.
  • In the absence of an exit policy, labour is the biggest loser. The legitimate interests of workers are protected, only when there is a legal closure of a sick unit.

A well-laid out exit route should be provided both in the interest of workers and the economy. 

Some of the measures introduced with regards to Exit policy in India include:

Voluntary Retirement Scheme (VRS)-

  • The most important measure is the introduction of Voluntary Retirement Scheme(VRS). It is the most humane technique to provide overall reduction in the existing strength of the employees. It is also known as ‘Golden Handshake’ as it is the golden route to retrenchment.

National Renewal Fund (NRF)-

  • The government of India created this fund on February 4, 1992 to provide a safety net for labour. The fund would provide assistance for retraining and redeployment of labour arising as a result of modernization and technology upgradation and also provide compensation to workers.

Scheme of Counselling, Retraining and Redeployment (CRR) of rationalized employees of Central Public Sector Undertakings (CPSUs)-

  • The objective and scope of the scheme is to provide opportunities of counselling, retraining and redeployment to the rationalized employees of Central Public Sector Enterprises (CPSEs) rendered redundant as a result of modernization, technology upgradation and manpower restructuring in the Central PSEs.

Insolvency and Bankruptcy Code 2016- 

  • The RBI is using this to force banks to get tough with defaulting promoters, forcing them to sell assets to repay debts and make their companies solvent. This is a revolutionary change.
  • The larger question of effectiveness of these measure’s is muddled due to procedural deficiencies, bureaucratic red-tapism as well as legacy of the license permit raj system. IBC has been a welcome exception where-in larger insolvency proceedings have been effective while the issues of small and medium entities remain thus affecting the Exit mechanism and labour issues.
  • At the same time, it is important to note that Exit policy is not the ideal remedy for tackling industrial sickness. It may benefit employers as they siphon off funds from old units to newer ones.
  • To minimise the adverse effects of closure of a unit on labour, several options like social security nets, insurance schemes and other employee benefit schemes have been in place which have been successful to an extent.


There is no specific policy or law dealing with exit, and the actions are governed under the existing laws and regulations as and where they are applicable. However, the exit policy is gradually coming under formation and informed opinion is that a time may come when there will be adequate political will to enact and implement it.

Print Friendly, PDF & Email