E Content for

M. A. II semester
CC- 8
Geography of India

Industrial Policy of India

Meaning
▪ 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.

Objectives
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.

Industrial Policies in India since Independence

▪ Industrial Policy Resolution of 1948- It defined the broad contours of the
policy delineating the role of the State in industrial development both as an
entrepreneur and authority.

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

o It classified 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.
• Basic/Key Industries (Public-cum-Private Sector): 6
industries viz. coal, iron & steel, aircraft manufacturing, ship-building,
manufacture of telephone, telegraph & wireless apparatus, and mineral
oil were designated as “Key Industries” or “Basic Industries”.

• These industries were to be set-up by the Central

Government.
• However, the existing private sector enterprises were
allowed to continue.
 • Important Industries (Controlled Private Sector): It included
18 industries including heavy chemicals, sugar, cotton textile & woollen
industry, cement, paper, salt, machine tools, fertiliser, rubber, air and sea
transport, motor, tractor, electricity etc.

• These industries continue to remain under private

sector however, the central government, in consultation with the
state government, had general control over them.
• Other Industries (Private and Cooperative Sector): All other
industries which were not included in the above mentioned three
categories were left open for the private sector.
o The Industries (Development and Regulation) Act was passed in
1951 to implement the Industrial Policy Resolution, 1948.
▪ Industrial Policy Statement of 1956 : Government revised its first Industrial
Policy (i.e.the policy of 1948) through the Industrial Policy of 1956.

o It was regarded as the “Economic Constitution of India” or “The

Bible of State Capitalism”.
o 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.
o It provided the basic framework for the government’s policy in regard to
industries till June 1991.
o IPR, 1956 classified 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 pri-
vate sector. However, the State reserved the right to undertake any type
of industrial production.
 o 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
o 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.
o 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 significantly.

• The sector was kept under state control through a system

of licenses.
Industrial 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.

o The main thrust of this policy was the effective promotion of cottage
and small industries widely dispersed in rural areas and small towns.
o In this policy the small sector was classified into three groups—
cottage and household sector, tiny sector and small scale industries.
o The 1977 Industrial Policy prescribed different areas for large scale
industrial sector- Basic industries,Capital goods industries, High technology
industries and Other industries outside the list of reserved items for the small
scale sector.
o The 1977 Industrial Policy restricted the scope of large business
houses so that no unit of the same business group acquired a dominant and
monopolistic position in the market.
o It put emphasis on reducing the occurrence of labour unrest. The
Government encouraged the worker’s participation in management from
shop floor level to board level.
 o Criticism: The industrial Policy 1977, was subjected to serious criticism
as there was an absence of effective measures to curb the dominant position
of large scale units and the policy did not envisage any socioeconomic
transformation of the economy for curbing the role of big business houses
and multinationals.
▪ Industrial Policy of 1980 sought to promote the concept of economic
federation, to raise the efficiency of the public sector and to reverse the trend of
industrial production of the past three years and reaffirmed its faith in
the Monopolies and Restrictive Trade Practices (MRTP) Act and the Foreign
Exchange Regulation Act (FERA).
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 sec-
tor in 5 core areas like arms and ammunition, atomic energy, mineral oils, rail
transport and mining was continued.

o 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.

o 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.

o 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.

o 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.

Future
▪ Industrial policies in India have taken a shift from predominantly Socialistic
pattern in 1956 to Capitalistic since 1991.
▪ India now has a much liberalised industrial policy regime focusing on increased
foreign investment and lesser regulations.
▪ India ranked 77th on World Bank’s Doing Business Report 2018. Reforms
related to insolvency resolution (Bankruptcy and Insolvency Act, 2017) and
the Goods and Services Taxes (GST) are impressive and will result in long-term
gains for the industrial sector.
▪ Campaigns such as Make in India and Start up India have helped to enhance
the business ecosystem in the country.
▪ However, electricity shortages and high prices, credit constraints, high unit
labour costs due to labour regulations, political interference and other regulatory
burdens continue to remain challenges for firm growth of the industrial sector in
India.
▪ 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.