The Licensing Policy before 1991 discouraged small entrepreneurs to set up new enterprises.
It also encouraged favouritism and corruption. It benefited only the big industrial houses.
The need to obtain a license to start an industry was misused by some industrial houses. The big industrial houses would get a license not for starting a firm but to prevent competitors from starting new firms. The excessive regulation of what came to be called permit license raj prevented certain firms from becoming more Efficient.