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Overview of Indian Economy

Industrial Policies

In the broader sense, an industrial policy is any government action which is aimed at affecting the industrial sector. As an instrument of industrialization, any country should formulate industrial policies. Further, in a country like India, where the private sector co-exists in business, it is important to control and regulate the sector. In this article, we will focus on the industrial policies of India.

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Industrial Policies of India

India has a mixed economy which means that the public and private sector exist together.

Therefore, it is important that the government declares industrial policies which clearly indicate the sphere of the State and the private enterprises.

On April 30, 1948, the Government of India passed a policy resolution – The Industrial Policy Resolution, 1948 (IPR, 1948).

industrial policies

                                                                                                                                               Source: Pixabay

It divided the industrial sector into four broad groups:

  1. Group 1 – Basic and strategic industries like arms and ammunition, atomic energy, railways, etc. Further, these were in the exclusive monopoly of the State.
  2. Group 2 – Key industries like coal, iron and steel, shipbuilding, manufacture of telegraph, telephone, mineral oils, etc. The State took over the exclusive responsibility of al future developments in these industries. Also, the existing industries were allowed to function for 10 years. After the end of the tenure, the State would review and take adequate decisions.
  3. Group 3 – A total number of 18 industries including automobiles, tractors, machine tools, etc. The private sector was allowed to open these industries subject to government regulation and supervision.
  4. Group 4 – All the remaining industries. However, the government can participate or intervene if the need arises.

 

The IPR, 1948 also emphasized the importance of small-scale and cottage industries in India. To implement the IPR, 1948, the Government passed the Industries (Development and Regulation) Act in 1951.

Revision #1 – 1956

On April 30, 1956, the Government revisited the IPR, 1948 and announced the Industrial Policy Resolution, 1956 (IPR, 1956). There were three reasons behind the revision:

  1. The introduction of the Constitution of India
  2. The adoption of a planning system
  3. The Parliament‘s declaration of adopting a socialist pattern of the society

According to the IPR, 1956, the industries were classified in the following categories:

  1. Schedule A – A list of 17 industries as the exclusive responsibility of the State. Of these, four industries, namely arms and ammunition, atomic energy, railways, and also air transport become Central Government monopolies and the rest under State Governments.
  2. Schedule B – A list of 12 industries open to both the public and private sectors. However, these industries are progressively State-owned.
  3. Schedule C – All the remaining industries. The private sector had the primary initiative of development. However, they needed to fit within the economic and social priorities and policies of the Government. Further, they were subject to the provisions of the Industries (Development and Regulation) Act, 1951.

The IPR, 1956 also stressed the importance of small-scale and cottage industries for expanding employment opportunities.

Revision #2 – 1977

A Statement in the Parliament in December 1977 modified the Industrial Policy. The main thrust was in favor of the small-scale sector. Further, this was classified into three sub-sectors:

  • Household and Cottage industries which provided large-scale self-employment.
  • Tiny sector industries, if the investment amount was below a specified limit.
  • Small-scale industries, which were larger than the first two categories but had investment within certain limits.

Revision #3 – 1980

Apart from recognizing the need to improve the management of the public sector, the IPR, 1980 provided certain clarifications and extensions.

  • Optimum utilization of installed capacity
  • Higher productivity and more employment
  • Preferential treatment for industrially backward units to remove regional disparities
  • Promotion of export-oriented and also import-substitution industries
  • Extending a preferential treatment to agro-related industries to increase the agriculture base of the economy.

Revision #4 – 1991

On July 24, 1991, the Government of India announced a new, liberalized industrial policy. This policy scrapped the asset limit for Monopolies and Restrictive Trade Practice (MRTP) companies.

Further, it abolished industrial licensing of all projects with a few exceptions. It also raised the limit for foreign participation in the country’s industrial sector. Here are the highlights:

  • The policy abolished industrial licensing for all projects with the exception of a few selected sectors. Further, the exemption from licensing applied to all substantial expansions of existing and new units.
  • It provided for the automatic clearance for import of capital goods.
  • With respect to the Monopolies and Restrictive Trade Practice (MRTP) Act, the policy stated that the pre-entry scrutiny of investment decisions by the MRTP companies was no longer needed.
  • The policy also scrapped the asset limit of the Monopolies and Restrictive Trade Practice (MRTP) companies.
  • It envisaged the divestment of government equity in public sector to mutual funds, financial institutions, the general public, and also the workers. As of 2008, the reservation for the public sector was very limited.
  • There were only two sectors covering the manufacture of certain substances relevant to atomic energy (along with the production of atomic energy) and also the provision of railway transport.
  • The policy provided approval for direct foreign investment of up to 51 percent in certain high-priority industries. The government made these changes in order to increase foreign investment in those sectors.
  • There was an existing locational policy for industries. The IPR, 1991 provided that in locations other than cities with a population of more than one million, the industries do not require any approval.
  • Further, the only exception is those industries which require compulsory licensing.

Solved Question

According to the Industrial Policy Resolution, 1948, how was the industrial sector divided?

Answer:

According to the IPR, 1948, the industrial sector was divided into four groups:

  1. Basic and strategic industries like arms and ammunition, atomic energy, railways, etc.
  2. Key industries like coal, iron and steel, shipbuilding, manufacture of telegraph, telephone, mineral oils, etc.
  3. A total number of 18 industries including automobiles, tractors, machine tools, etc.
  4. All the remaining industries.
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