Industrial Policies of India

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 .

Introduction

  • 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 that
    1. Exploitation of resources could be done for development of all.
    1. Price-control of goods purchased from licensed industries .
    2. Checking concentration of economic power .  
    3. Channelizing investment into desired direction.
  • But licensing policy wasn’t serving this purpose as  
    1. Powerful industrial houses were able to procure fresh licenses at expense of budding entrepreneurs.
    2. 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 .
  • Industrial Policy of 1969 introduced Monopolistic & Restrictive Trade Practices(MRTP)  Act. Main features of MRTP act were
    1. It was aimed at checking & regulating trade & commercial practices of the firms along with checking the monopoly & concentration of economic power.
    2. 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 .
    3. 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
    1. Coal 
    2. Crude Oil 
    3. Cement 
    4. Fertilizer 
    5. Electricity 
    6. Refinery Products 
    7. Natural Gas 
    8. Steel

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.

5. FERA

  • 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.

Main Features

  • 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
    1. 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.
    2. MRTP limit was increased to ₹100 crore .
    3. Provision of industrial licensing was further simplified & remained for 64 industries only.
    4. Higher level of attention was given to sunrise industries such as telecommunication, computerisation & electronics.
    5. Modernisation & profitability aspects of PSU emphasised.
    6. 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
    7. 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 Balance of Payment 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
    1. Alcoholic Drinks
    2. Tobacco & cigar products
    3. Defence & electronics aerospace equipment
    4. Industrial Explosives including matchboxes
    5. 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. Globalisation

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

  1. Technological changes like 4th Industrial Revolution, Artificial Intelligence & Automation have changed the nature of industries.
  2. Large number of systemic issues in economy : Labour Laws , Infra Bottlenecks, Logistic weakness etc.
  3. Demographic conditions have changed (With increasing number of old age people, now we have to focus on Longevity Dividend along with Demographic Dividend ).
  4. World has changed (China is losing Demographic Dividend)  .
  5. Nature of Indian economy has changed (49% is contributed by Service Sector)
  6. Rise of Multilateral Trade Agreements and threat it pose to Indian economy
  7. 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

Aim

  1. To increase manufacturing’s share in  GDP to  25%   by 2022
  2. Create  100  million jobs
  3. 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. 
    1. Tax incentives
    2. Relaxed norms for FDI approval 
    3. Providing Rail, Road, energy etc .
    4. 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.