Industrial Policies of India
This article deals with ‘Industrial Policies of India.’ This is part of our series on ‘Economics’ which is important pillar of GS-3 syllabus . For more articles , you can click here .
- Economic development of a country particularly depends on the process of industrialisation. At the time of Independence, India inherited a weak and shallow industrial base. Therefore , during the post–Independence period, the Government of India put special emphasis on the development of a solid industrial base.
- From time to time Government of India declared their Industrial Policies which basically moulded the nature & structure of Indian economy.
Industrial Policy Resolution, 1948
- Announced on 8 April,1948 .
- It was decided that model of the economy would be ‘Mixed Economy’.
|Central List||Important industries were here like coal, power, railways ,civil aviation, ammunition, defence etc. .|
|State List||Industries of medium importance were put here – medicine, textile, cycles, 2 wheelers .|
|Rest industries||Rest of industries were left open for all private sector investment with many having compulsory licensing provisions.|
- Policy was to be reviewed after 10 years.
Industrial Policy Resolution,1956
Government was encouraged by previous success & announced it after 8 years only. This policy structured the nature of economy till 1991.
Main provisions of Policy
1 . Reservation of Industries
- Clear-cut classification was made into three schedules
|Schedule A||Contains 17 areas in which centre was given monopoly. Industries setup under this provision were called Public Sector Undertakings (PSUs) (by 1991 number of PSU=254). PSU included those industries as well which were taken over between 1960 to 1980 under nationalisation drive .|
|Schedule B||12 areas in which state was supposed to take up initiative with more expansive follow-up by private sector. It also included the provisions of Compulsory licensing Neither state nor private sector had monopoly in these industries .|
|Schedule C||All areas not covered in Schedule A & B. Private sector has provisions to setup industries. Many of them had provision of licensing .|
2 . Provision of Licensing
- All Schedule B & number of Schedule C industries came under this .
- This provision is also called LICENCE- QUOTA -PERMIT RAJ.
3 . Expansion of Public Sector
- Expansion of public sector was pledged for accelerated industrialisation & growth of economy .
- Emphasis was on heavy industry .
4 . Regional Disparity
- To tackle regional disparities, upcoming PSUs were to be setup more in backward areas (although it was completely against Theory of Industrial location).
5 . Emphasis on Small Industry
- Committed on promoting small scale industries as well as Khadi & Village industry .
6 . Agriculture Sector
- Agriculture sector was pledged as priority .
Industrial Policy of 1969
- It was aimed at solving the short comings of Industrial Policy of 1956.
- Experts &
Industrialists were of view that licensing was serving opposite purpose
than it was mooted . Main
aim behind Licensing policy was socialist & nationalist feeling so
- Exploitation of resources could be done for development of all.
- Price-control of goods purchased from licensed industries .
- Checking concentration of economic power .
- Channelizing investment into desired direction.
licensing policy wasn’t serving this purpose as
- Powerful industrial houses were able to procure fresh licenses at expense of budding entrepreneurs.
- Older & well established business houses were capable of creating hurdles for new ones with help of different kinds of trade practices & forcing latter to agree for sell-out & takeovers .
Policy of 1969 introduced Monopolistic & Restrictive Trade Practices(MRTP) Act. Main features of MRTP
- It was aimed at checking & regulating trade & commercial practices of the firms along with checking the monopoly & concentration of economic power.
- Firms with assets worth ₹ 25 crore (which was later increased to ₹50 crore in 1980 and ₹100 crore in 1985) or more were put under obligation of taking permission from government of India before expansion, greenfield venture & takeover of other firm .
- For redressal of prohibited & restricted practices of trade, Government setup MRTP Commission.
Industrial Policy Statement , 1973
1 . Core Industries
- Policy introduced new classification of Core Industries.
- It includes 6 industries which were of fundamental importance for development of other industries – Iron & Steel ,Cement, Coal, Crude Oil, Oil Refining & electricity
- Note : At that time there was 6 Core Industries. Now they are 8
- Crude Oil
- Refinery Products
- Natural Gas
2. Private Companies
- Private Companies may apply for licenses under Core industries if they aren’t covered under Schedule A .
- They were eligible only if their total assets were above ₹20 crore.
3. Reserved List
- Some industries were put under reserved list in which only MSME could setup industry .
4. Joint Sector
- It allowed partnership between center, states & private sector for setting up some industries.
- Government had discretionary power to exit such venture in future.
- Intention was to promote private sector with government support.
- Foreign Exchange Regulation Act was introduced to regulate foreign exchange in India .
- It was draconian law according to experts which hampered countries growth.
6. Foreign Investment
- Limited permission of foreign investment was given with MNCs being allowed to setup subsidiaries in India .
Industrial Policy Statement, 1977
- Political setup at centre changed so did economic policy.
- There was more inclination towards Gandhi -Socialistic view & anti-Indira stance.
- Foreign investment in unnecessary areas prohibited ( in practice it was complete no) . During this period, Coca-Cola, IBM and Chrysler were made to exit India.
- Emphasis was placed on village industry with redefinition of small & cottage industry.
- Decentralised industrialisation was given attention with objective of linking masses to process of industrialisation .
- Khadi & Village industry was to be reconstructed .
- Serious attention was given to level of production & prices of essential commodities of everyday use .
Industrial Policy Resolution , 1980
- Return of same old party & Industrial Policy was revised again in 1980 .
- Foreign investment via technology transfer route was allowed .
- MRTP limit was increased to ₹50 crore to promote setting up of bigger industries .
- Industrial licensing was justified .
- Overall liberal attitude followed towards the expansion of private industries .
Industrial Policy Resolution of 1985 & 86
- Industrial Policy Resolution
of 1985 & 86 were very much similar in nature & latter tried to
promote initiatives of former
- Foreign investment further simplified & more areas were opened . Dominant method of foreign investment was still technology transfer but foreign MNC can hold upto 49% in their subsidiary.
- MRTP limit was increased to ₹100 crore .
- Provision of industrial licensing was further simplified & remained for 64 industries only.
- Higher level of attention was given to sunrise industries such as telecommunication, computerisation & electronics.
- Modernisation & profitability aspects of PSU emphasised.
- Some relaxation was given in FERA regime concerning use of foreign exchange permitted so that essential technology could be assimilated. into Indian industry & international standard can be achieved
- Many technology missions launched in Agricultural sector.
- These industrial policies were mooted out by government when developed world was pushing for formation of WTO.
- These provisions were attempted at liberalising the economy without any slogan of economic reform . The government of the time wanted to go for kind of economic reforms which India pursued after 1991 but it lacked required political support.
- By end of 1980s , India was in grip of severe Balance of Payment crisis with higher inflation (over 17%) & high fiscal deficit (8%). This was magnified by Gulf war & high prices of oil . This led to Balance of Payment crisis, IMF bailout & 1991 LPG reforms
New Industrial Policy (NIP) of 1991 – LPG Reforms
Situation of India leading to LPG reforms
- India was in severe
crisis in 1991 . Reasons for this were several interconnected factors
which were growing unfavourable for Indian economy
- Gulf war of 1990-91 : prices of oil became higher leading to fast depletion of Indian Foreign currency reserves .
- Sharp decline in private remittances from overseas Indian workers in Middle East in wake of gulf war.
- Inflation peaking near 17% & fiscal deficit of central government reaching 8.4%.
- By month of June 1991 , Indian Forex has declined to just 2 weeks of import coverage .
- Financial support that India got from IMF to fight out Balance of Payment crisis of 1990-91 were having a tag of structural readjustment as condition to be fulfilled by Government of India.
- With this policy the government kickstarted the very process of reform in the economy, that is why the policy is taken more as a process than a policy.
New Industrial Policy of 1991
Triple pillars of New Economic Policy were Liberalization, Privatization and Globalization (LPG).
1 . Liberalisation
Liberalization refers to removal of governmental restrictions in all stages in industry.
1.1 De Licensing of Industries
- Number of
industries put under compulsory provision of licensing (Schedule B & C) were cut down to 18 in 1991. Now only 5
industries require license and these are
- Alcoholic Drinks
- Tobacco & cigar products
- Defence & electronics aerospace equipment
- Industrial Explosives including matchboxes
- Hazardous Chemicals* (Nitrocellulose, Hydrocyanic Acids, Phosgene & MIC)
1.2 De-reservation of Industries
- Industries which were reserved for Central government in IPR,56 were cut down to 8 from 17 at that time
- Presently only three industries are reserved for central government
|Nuclear Energy||Present government is seriously considering proposal of allowing private sector to enter management of nuclear power plants .|
|Nuclear research||Consist of mining , use , management, fuel fabrication, export-import, waste management of radioactive material & no country allow private industry in this .|
|Railways||Many of the functions related to railways have been allowed private entry but still private sector can’t enter as full fledged railway service provider|
1.3 Location of industries
Industries were categorised into polluting & non polluting & highly simple provision deciding their location was announced
|Non Polluting||Can be setup anywhere|
|Polluting||Can be setup atleast 25 km away from million cities|
1.4 Abolition of phased production
- Compulsion of phased production was abolished.
- Now private firms can go for production of as many goods & models simultaneously as they want.
1.5 Abolition of MRTP
- MRTP limit of ₹ 100 cr was abolished .
- MRTP Act was replaced by Competition Act & MRTP commission replaced by Competition Commission of India (CCI) .
2 . Privatisation
2.1 Privatising PSUs
- Converting public sector companies to private sector companies by reducing Government shareholding to below 50% . Eg : Hindustan Zinc Limited etc. .
2.2 Stopped Nationalisation
- Stopped the practice of nationalisation. Eg : Tata Airlines in 1955 nationalised to Indian Airlines , Nationalisation of Banks etc.
2.3 More sectors opened
- Private sector companies were allowed in Banking, Insurance, aviation, telecom and other sector .
3.1 Joined WTO
- India joined the WTO-regime & gradually relaxed the tariff and non tariff barriers on the imported goods and services.
3.2 Promotion of Foreign Investment
- Promotion of foreign investment was encouraged through both routes i.e. FDI (Direct) & FPI (Portfolio) .
3.3 FERA by FEMA
- Draconian FERA was replaced with Foreign Exchange Management Act (FEMA) which came into effect in 2000-01 with sunset clause of two years .
Need of New Industrial Policy
Why we need new Industrial Policy
- Technological changes like 4th Industrial Revolution, Artificial Intelligence & Automation have changed the nature of industries.
- Large number of systemic issues in economy : Labour Laws , Infra Bottlenecks, Logistic weakness etc.
- Demographic conditions have changed (With increasing number of old age people, now we have to focus on Longevity Dividend along with Demographic Dividend ).
- World has changed (China is losing Demographic Dividend) .
- Nature of Indian economy has changed (49% is contributed by Service Sector)
- Rise of Multilateral Trade Agreements and threat it pose to Indian economy
- Climate Change Problem & Paris deal obligations .
What new Industrial Policy should focus on ?
- Technology & Innovation: Government should provide incentives for artificial intelligence, internet of things, and robotics.
- Ease of Doing Business should be emphasised to attract MNCs in India.
- Infrastructure should be made world class to end logistic problems of Indian economy.
- More focus on Skills & Employability of new workers.
- Focus should be on labour intensive sectors such as textiles, leather and footwear industries etc. .
- Sustainable and responsible industrialization to reduce the carbon emissions
- Access to Capital for MSMEs .
- Create global brands out of India.
- Promote Innovation and R&D via Academia- industry linkages, transparent IPR regime and encouragement to Start-ups.
National Manufacturing Policy , 2011 & NMIZ
- To increase manufacturing’s share in GDP to 25% by 2022
- Create 100 million jobs.
- Creation of NIMZ (NIMZ is important component of NMP, 2011)
NMIZ / National Manufacturing & Investment Zone
- NMIZ is an ‘industrial township’ containing Special Economic Zones, Industrial Parks etc.
- NMIZ are given additional
support by government e.g.
- Tax incentives
- Relaxed norms for FDI approval
- Providing Rail, Road, energy etc .
- Relaxations in the labour laws e.g. easier hiring-firing norms
- NIMZ will be treated as self governing bodies under Article 243(Q-c) of the Constitution.
- India has 15 NMIZ like Manesar-Bawal Investment Region in Haryana etc.