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India’s Industrial Policy

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TO THE POINT

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Indian Economy

India’s Industrial Policy

Meaning

Objectives

####### The main objectives of the Industrial Policy of the Government in India are:

09 Aug 2019 15 min read GS Paper - 3 Industrial Policy

Government action to inJuence the ownership & structure of the

industry and its performance. It takes the form of paying subsidies or

providing 3nance in other ways, or of regulation.

It includes procedures, principles (i., the philosophy of a given

economy), policies, rules and regulations, incentives and punishments,

the tariff policy, the labour policy, government’s attitude towards foreign

capital, etc.

to maintain a sustained growth in productivity;

to enhance gainful employment;

Industrial Policies in India since Independence

to achieve optimal utilisation of human resources;

to attain international competitiveness; and

to transform India into a major partner and player in the global arena.

Industrial Policy Resolution of 1948- It de3ned the broad contours of

the policy delineating the role of the State in industrial development

both as an entrepreneur and authority.

It made clear that India is going to have a Mixed Economic Model.

It classiEed industries into four broad areas:

Strategic Industries (Public Sector): It included three industries in

which Central Government had monopoly. These included Arms

and ammunition, Atomic energy and Rail transport.

The 1956 Policy emphasised the need to expand the public sector, to

build up a large and growing cooperative sector and to encourage

the separation of ownership and management in private industries

and, above all, prevent the rise of private monopolies.

It provided the basic framework for the government’s policy in regard

to industries till June 1991.

IPR, 1956 classi3ed industries into three categories

Schedule A consisting of 17 industries was the exclusive

responsibility of the State. Out of these 17 industries, four

industries, namely arms and ammunition, atomic energy, railways

and air transport had Central Government monopolies; new units

in the remaining industries were developed by the State

Governments.

Schedule B, consisting of 12 industries, was open to both the

private and public sectors; however, such industries were

progressively State-owned.

Schedule C- All the other industries not included in these two

Schedules constituted the third category which was left open to

the private sector. However, the State reserved the right to

undertake any type of industrial production.

The IPR 1956, stressed the importance of cottage and small scale

industries for expanding employment opportunities and for wider

decentralisation of economic power and activity

The Resolution also called for efforts to maintain industrial peace; a

fair share of the proceeds of production was to be given to the

toiling mass in keeping with the avowed objectives of democratic

socialism.

####### Industrial Licenses

Criticism: The IPR 1956 came in for sharp criticism from the private

sector since this Resolution reduced the scope for the expansion of

the private sector signiEcantly.

The sector was kept under state control through a system of

licenses.

In order to open new industry or to expand production, obtaining a

license from the government was a prerequisite.

Opening new industries in economically backward areas was

incentivised through easy licensing and subsidization of critical

inputs like electricity and water. This was done to counter regional

disparities that existed in the country.

Licenses to increase production were issued only if the

government was convinced that the economy required more of the

goods.

Industrial Policy Statement, 1977- In December 1977, the Janata

Government announced its New Industrial Policy through a statement

in the Parliament.

The main thrust of this policy was the effective promotion of cottage

and small industries widely dispersed in rural areas and small

towns.

In this policy the small sector was classiEed into three groups

—cottage and household sector, tiny sector and small scale

industries.

The 1977 Industrial Policy prescribed different areas for large scale

public sector in 5 core areas like arms and ammunition, atomic energy,

mineral oils, rail transport and mining was continued.

Presently, only two sectors- Atomic Energy and Railway operations-

are reserved exclusively for the public sector.

De-licensing: Abolition of Industrial Licensing for all projects except for

a short list of industries.

There are only 4 industries at present related to security, strategic

and environmental concerns, where an industrial license is currently

required-

Electronic aerospace and defence equipment

Speci3ed hazardous chemicals

Industrial explosives

Cigars and cigarettes of tobacco and manufactured tobacco

substitutes

Disinvestment of Public Sector: Government stakes in Public Sector

Enterprises were reduced to enhance their efciency and

competitiveness.

Liberalisation of Foreign Investment: This was the 3rst Industrial policy

in which foreign companies were allowed to have majority stake in

India. In 47 high priority industries, upto 51% FDI was allowed. For

export trading houses, FDI up to 74% was allowed.

Today, there are numerous sectors in the economy where

government allows 100% FDI.

Foreign Technology Agreement: Automatic approvals for technology

related agreements.

MRTP Act was amended to remove the threshold limits of assets in

Outcomes of New Industrial Policies

Limitations of Industrial Policies in India

MRTP Act was amended to remove the threshold limits of assets in

respect of MRTP companies and dominant undertakings. MRTP Act

was replaced by the Competition Act 2002.

The 1991 policy made ‘Licence, Permit and Quota Raj’ a thing of the

past. It attempted to liberalise the economy by removing bureaucratic

hurdles in industrial growth.

Limited role of Public sector reduced the burden of the Government.

The policy provided easier entry of multinational companies,

privatisation, removal of asset limit on MRTP companies, liberal

licensing.

All this resulted in increased competition, that led to lower prices in

many goods such as electronics prices. This brought domestic as

well as foreign investment in almost every sector opened to private

sector.

The policy was followed by special efforts to increase exports.

Concepts like Export Oriented Units, Export Processing Zones, Agri-

Export Zones, Special Economic Zones and lately National Investment

and Manufacturing Zones emerged. All these have bene3tted the export

sector of the country.

Stagnation of Manufacturing Sector: Industrial policies in India have

failed to push manufacturing sector whose contribution to GDP is

stagnated at about 16% since 1991.

Distortions in industrial pattern owing to selective inbow of

investments: In the current phase of investment following liberalisation,

while substantial investments have been Jowing into a few industries,

For Mind Map

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rupam shukla − ⚑

 46

There is a need for a new Industrial Policy to boost the manufacturing

sector in the country. Government in December 2018 also felt the need

to introduce a new Industrial Policy that would be a road map for all

business enterprises in the country.

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rupam shukla − ⚑

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