Birdseye view on the Industrial Policy of India

Industrial activity is a major source of stability in an economy. It is more crucial in a planned economy wedded to the achievement of such an objective of economic growth and social justice. Achievement of such an objective requires active State participation in the process of industrialization to give the required directions as demanded by the situation.

An industrial policy provides guidelines for the effective co-ordination of the activities of various sectors of the economy. The evolution of industrial policy in India may be studied in this background to see how far it has worked as a potent tool to realize the goal of planned development.

Industrial Policy Resolution, 1948: The IPR, 1948 created a mixed economy reserving a sphere for the private and public sectors. It divided the industries into four groups:

(i) Industries with exclusive Central Govt. monopoly, arms and ammunitions, atomic energies and railway transport.

(ii) Mixed sector – State controlled new undertaking in coal, iron and steel, air craft, telephone, etc.

(iii) Under State resolution and control consumer goods industries, and

(iv) Under cooperative and private enterprises remainder industries. The policy further emphasized the role of cottage and small scale industries and of foreign capital in industrializing the Indian economy.

Industrial Policy Resolution, 1956: In April 1956, the Govt. of India announced its new industrial policy which acted as a turning point of industrial growth in the economy. The new policy was based on certain important economic and political developments in the country, the adoption of the Constitution of India in 1950, the emphasis on socialistic pattern of society, the success of 1st Five Year Plan and the launching of 2nd Five Year Plan with emphasis on industrialization.

The Industrial Policy Resolution of 1956 laid down the various objectives as follows:

(1) To accelerate the growth-rate of the economy:

(2) To speed up industrialization;

(3) To expand the public sector;

(4) To develop heavy, basic and key industries;

(5) To build up a co-operative sector;

(6) To reduce concentration of wealth and assets in few hands; or to prevent private monopolies and concentration of economic power;

(7) To undertake State trading on increasing scale;

(8) To set up new undertakings and develop new transport facilities by the State.

Important Provisions of IPR, 1956

1. The 1956, IPR divided the industries in to three groups, such as,

(a) Schedule A industries which were under the exclusive monopoly of the State. It included arms and ammunitions, atomic energy, iron and steel, coal, oil, power, heavy machinery, railways and etc.

(b) Schedule B industries comprising 12 industries which would be progressively State-owned. The existing units under this category in private sector will continue, but new units have to be set up by the State. This category included chemicals, fertilizers, drugs, transport and etc.

(c) Schedule C industries comprising all other enterprises development of which has to be left to the private sector.

2. The Industrial Policy also emphasised the mutual co-existence of both the private and public sectors.

3. It emphasised the role of State in the development of private sector through provision of financial assistance and technical guidance.

4. The Policy also encouraged both the cottage and small scale units.

5. The Policy further emphasised to reduce the level of disparity in levels of industrialization between different regions of the country. The Policy also stressed on the balanced development of both agriculture and industry in different regions.

6. The Policy also aimed at establishing proper technical and managerial cadres by providing training facilities in universities and other industrial centers.

7. The Policy also emphasised improving the working conditions of workers for maintaining industrial peace.

8. Emphasis was also given to the role of foreign capital in the economic development of India.

Industrial Policy Statement, 1977:

The main emphasis of Industrial Policy Statement, 1977 was to encourage small scale and cottage industries as against the big industrial houses and multinationals. The areas reserved for public sector were extended further. The Policy emphasised decentralization of industries and development of backward industrial areas. The District Industries Centres were created to serve as a focal point for development of small scale units. The small scale sector was classified into the three categories:

(i) Cottage and small industries providing self-employment on a wide scale;

(ii) Tiny sectors with investment in machinery and equipment up to Rs.1 lakh in town areas and Rs.50, 0007- in rural areas; and

(iii) Small scale sectors with investment of Rs.10 lakhs and in case of ancillary units with an investment in fixed capital up to us 18 lakhs.

The Policy also proposed to revitalize the Khadi and-village industries by drawing special programmes in the Khadi and handloom sectors.

Industrial Policy, 1980: The basic objectives of 1980 Policy were as follows:

(1) Optimum utilisation of the installed capacity,

(2) Maximizing production and achieving higher productivity,

(3) Higher employment generation,

(4) A speedy promotion of export-oriented and import-substitution units,

(5) Strengthening agricultural base by according a preferential treatment to agro-based industries and promoting an inter-sectorial relationship, and

(6) Protecting consumer interest against high prices and bad quality, certain measures were outlined to achieve these objectives. These policies included re-orientation of the public sectors, assistance for the growth of private sectors and promotion of small scale units.

Industrial Policy, 1990:

The Janata Dal Govt.’s 1990 Policy emphasised the growth of small scale and agro-based industries and at the same time, made an effort to permit blanket liberalization with a view to accelerate the growth of medium and large scale units.

New Industrial Policy, 1991:

The basic objective of the New Industrial Policy is to make the industrial economy free from the unnecessary bureaucratic control, to introduce liberalization in order to integrate the Indian economy to the rest of the world, to remove restriction on direct foreign investment and also to free the domestic industrialists from the restriction of M.R.T.P Act. Further the Policy aims to shed the load of public enterprises which have shown a very low rate of return or are incurring losses over the years. The salient features of the New Policy are as follows:

1. Industrial licensing:

The New Industrial Policy abolished all industrial licensing’s irrespective of the level of investment. In all, only 18 industries required compulsory licensing but in April 1993, Government exempted three more industries from licensing keeping only 15 industries required for compulsory licensing. The substantial expansions of existing units were also exempted from licensing.

2. Foreign investment:

(i) In case of 34 priorities industries, 51% equity was given directly to foreign investment like metallurgy, electrical equipments, software, hotel and tourism.

(ii) Clearance has to be given if foreign equity covers the foreign exchange requirement for import of capital goods.

(iii) Direct foreign investment beyond 51% in sectors other than 34 specified industries is also permitted subject to the approval of Government.

(iv) All payments flowing from approval of foreign technology agreement will have to be made through foreign exchange purchase at market rent.

3. Foreign technology agreement: (i) In order to modernize the Indian industries and to bring technological dynamism, the Policy provided automatic approved foreign technology agreements related to high priority industries subject to

(a) Lump sum payment of rupees 1 crore,

(b) 5% royalty for domestic sale,

(c) 8% of export for 7 years from the commencement of production.

(ii) No permission will be necessary for hiring of foreign technicians and foreign testing of indigenously developed technology.

(iii) A specially empowered Foreign Investment Promotion Board has-been constituted to negotiate with international forums to approve direct foreign investment in selected sectors.

4. Public Sector:

(i) Portfolio of public sector has to be reviewed in order to focus the public sector on strategic, hightec and essential infrastructure. The numbers of industries resolved for public sector have been reduced from 17 to 8 and the private sectors were allowed to expand in those selected sectors. Similarly the public sector is also allowed for areas previously not reserved far it.

(ii) Those public sector units earning continuous loss and are conically sick are to be referred to the Board for industrial and financial reconstruction for their revival and rehabilitation. A social security mechanism has to be created to protect the interest of the workers likely to be affected by rehabilitation package.

(iii) In order to raise resources and encourage wide public participation, the Policy intended to disinvest public sector equity in favour of financial institution, mutual funds, employees and general public.