Indian Industrial Policies

by Mr. DJ

Indian Industrial Policies


  • Government action to influence the ownership & structure of the industry and its performance. It takes the form of pay­ing subsidies or providing finance in other ways, or of regulation.
  • It includes procedures, principles (i.e., 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.

Indian Industrial Policies

Industrial Policy Resolution of 1948:

In a mixed economy of our sort, the govern­ment should declare its industrial policy clearly indicating what should be the sphere of the State and of the private enterprise. A mixed economy means co-existence of the two sectors public and private. This the Govern­ment of India did by a policy resolution on 30 April 1948 called the first Industrial Policy Resolution of 1948, which made it clear that India was going to have a mixed economy.

The Industrial Policy Resolution, 1948, drawn in the context of our objectives of Democratic Socialism through mixed eco­nomic structure, divided the industrial structure into four groups:

1. Basic and strategic industries such as arms and ammunition, atomic energy, railways, etc., shall be the exclusive mo­nopoly of the State.

2. The second group consisted of key indus­tries like coal, iron and steel, ship-build­ing, manufacture of telegraph, telephone, wireless apparatus, mineral oils, etc. In such cases the State took over the exclu­sive responsibility of all future develop­ment and the existing industries were al­lowed to function for ten years after which the State would review the situa­tion and explore the necessity of nation­alisation.

3. In the third group, 18 industries includ­ing automobiles, tractors, machine tools, etc., were allowed to be in the private sec­tor subject to government regulation and supervision.

4. All other industries were left open to the private sector. However, the State might participate and/or intervene if circum­stances so demanded.

To ensure the supply of capital goods and modern technology, the 1PR1948, encouraged the free flow of foreign capital. The Govern­ment ensured that there would be no discrimi­nation between Indian and foreign undertak­ings; facilities would be given for remittance of profit and due compensation would be paid in case a foreign undertaking was national­ised. The IPR also emphasised the importance of small-scale and cottage industries in the In­dian economy.

The Industries (Development and Regula­tion) Act was passed in 1951 to implement the Industrial Policy Resolution, 1948.

Industrial Policy Statement of 1956:

On 30 April 1956, the Government revised its first Industrial Policy (i.e., the policy of 1948), and announced the Industrial Policy of 1956. The reasons for the revision were: (i) introduc­tion of the Constitution of India, (ii) adoption of a planned economy, and (iii) declaration by the Parliament that India was going to have a socialist pattern of society.

All these principles were incorporated in the revised industrial policy as its most avowed objectives. And this revised policy provided the basic framework for the government’s policy in regard to in­dustries till June 1991.

The 1956 Policy empha­sises, inter alia, 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. “The IPR 1956 has been known as the Economic Constitution of India” or “The Bible of State Capitalism”.

The Resolution classified industries into three categories having regard to the role which the State would play in each of them:

1. Schedule A consisting of 17 industries would be the exclusive responsibility of the State.

2. Out of these 17 industries, four industries, namely arms and ammunition, atomic en­ergy, railways and air transport would be Central Government monopolies; new units in the remaining industries would be developed by the State Governments.

3. Schedule B, consisting of 12 industries, would be open to both the private and public sectors; however, such industries would be progressively State-owned.

4. 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 classification of industries into three categories did not mean that they were being placed in water-tight compartments. In appro­priate cases, the private sector might be al­lowed to produce an item falling within Schedule A for meeting its own requirements. Further, heavy industries in the public sector might obtain their requirements from the pri­vate sector while the private sector, in turn, would rely on the public sector for many of its requirements.

Objectives Of Industrial Policies

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

  • to maintain a sustained growth in productivity;
  • to enhance gainful employment;
  • 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.

Also Read MCQs or Objective Questions

New Industrial Policy During Economic Reforms of 1991

The long-awaited liberalised industrial policy was announced by the Government of India in 1991 in the midst of severe economic instability in the country. The objective of the policy was to raise efficiency and accelerate economic growth.

Features of New Industrial Policy

  • De-reservation of Public sector: Sectors that were earlier exclusively reserved for public sector were reduced. However, pre-eminent place of 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
      • Specified 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 efficiency and competitiveness.
  • Liberalisation of Foreign Investment: This was the first 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 respect of MRTP companies and dominant undertakings. MRTP Act was replaced by the Competition Act 2002.

Outcomes of New Industrial Policies

  • 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 benefitted the export sector of the country.

Limitations of Industrial Policies in India

  • 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 inflow of investments: In the current phase of investment following liberalisation, while substantial investments have been flowing into a few industries, there is concern over the slow pace of investments in many basic and strategic industries such as engineering, power, machine tools, etc.
  • Displacement of labour: Restructuring and modernisation of industries as a sequel to the new industrial policy led to displacement of labour.
  • Absence of incentives for raising efficiency: Focussing attention on internal liberalisation without adequate emphasis on trade policy reforms resulted in ‘consumption-led growth’ rather than ‘investment’ or ‘export-led growth’.
  • Vaguely defined industrial location policy: The New Industrial Policy, while emphasised the detrimental effects of damage to the environment, failed to define a proper industrial location policy, which could ensure a pollution free development of industrial climate.

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