Policies of India (Industrial Policy)
Industrial policy
An industrial policy in the Indian economy refers to set of Government Guidelines and strategies aim at directing and promoting the development of the Industrial sector often including measures to regulate pacific industries encourage investment and foster domestic manufacturing with clinical policies including the 1948 Industrial policy dissolution. The 1956 policy emphasizing public sector investment and the 1991 New Industrial Policy which dictate towards liberalization and reduce government control.
Industrial Policy Resolution, 1948
Announced on April 8, 1948 this was not only the first industrial policy statement of India, but it decided the model of the economic system (mixed economy), too. Thus, it was the first economic policy of the country. The major highlights of the policy are given below:
(i). India will be a mixed economy.
(ii). Some of the important industries were put under the Central List such as coal, power, railways, civil aviation, arms, and ammunition, defence, etc.
(iii). Some other industries (usually of medium category) were put under a State List such as paper, medicines, textiles, cycles, rickshaws, two-wheelers, etc.
(iv). Rest of the industries (not covered by either the central or the state list) were left open for private sector investment - with many of them having the provision of compulsory licensing.
(v). There was a 10 year period for review of the policy.
Industrial Policy Resolution, 1956
The Government was encouraged by the impact of the industrial policy of 1948 and it was only after eight years that the new and more crystallised policies were announced for the Indian industries. The new industrial policy of 1956 had the following major provisions:
Reservation of Industries
A clear-cut classification of industries (also known as the Reservation Of Industries) were affected with three schedules:
Schedule A
This schedule had 17 industrial areas in which the Centre was given monopoly. The industries set up under this provision were known as the Central Public Sector Undertakings (CPSUs) later getting popularity as 'PSUs'. Though the number of industries were only 17, the number of PSUs set up by the Government of India went to 254 by 1991. These included those industrial units too which were taken over by government between 1960 to 1980 under the nationalization drives. These industries belonged to Schedule B and C (other than Schedule A).
Schedule B
There were 12 industrial areas put under this schedule in which the state government were supposed to take up the initiatives with a more expensive follow up by the private sector. This schedule also carried the provisions of compulsory licensing. It should be noted here that neither the states nor the private sector had monopolies in these industries unlike Schedule A, which provided monopoly to the Centre.
Schedule C
All industrial areas left out of Schedule A and B were put under this in which the private enterprises had the provisions to set up industries. Many of them had the provisions of licensing and have necessarily to fit into the framework of the social and economic policy of the state and were subject to control and regulation in terms of the Industries Development and Regulation (IDR) Act and other relevant legislations.
The above classification of industries had an in-built bias in favor of government-owned companies (the CPSUs) which went according to the ideas of the planning process, too. Thus, expansion of the public sector became almost a directive principle of economic policy and the PSUs did expand in the coming times.
It was this industrial policy in which the then PM Pandit Jawaharlal Nehru had termed the PSUs the 'temples of modern India', symbolically pointing to their importance. There was a time soon after Independence when the PSUs were regarded as the principal instrument for raising savings and growth in the economy. The rapid expansion of PSUs accounted for more than half of the GDP of the economy by 1988-89.
Provision of Licensing
One of the most important developments of independent India, the provision of compulsory licensing for industries was cemented in this policy. All the schedule B industries and a number of schedule C industries came under this provision. This provision established the so-called 'License-Quota-Permit' regime (raj) in the economy.
Expansion of the Public Sector
Expansion of the public sector was pledged for the accelerated industrialization and growth in the economy, glorification of government companies did start with this policy. This emphasis was on heavy industries.
Regional Disparity
To tackle the widening regional disparity, the policy committed to set up the upcoming PSUs in the comparatively backward and underdeveloped regions/areas in the economy.
Emphasis on Small Industries
There was emphasis on small industries as well as the khadi and village industries, to empower the self reliance of the Indian Economy and lessen the imports of things which can be made in India.
Agricultural Sector
The agricultural sector was pledged as priority, because agriculture sector consist of more than 50% of India employment. So its government duty to help these farmers and reform the agriculture sector.
Importance
This is considered as the most important industrial policy of India by the experts as it decided not only the industrial expansion but structured the very nature and scope of the economy till 1991 with minor modifications in it except the new industrial policy of 1991 which affected deeper and structural changes in it with which India started a wider process of economic reforms.
Industrial Policy Statement, 1969
This was basically a licensing policy which aimed at solving the shortcoming of the licensing policy the shortcomings of the licensing policy started by the Industrial Policy of 1956. The experts and industrialists (new comers) complained that the industrial licensing policy was serving just the opposite purpose for which it was mooted. Inspired by the socialistic ideals and nationalistic feelings the licensing policy had the following reasons:
(i). exploitation of resources for the development of all;
(ii). priority of resource exploitation for the industries;
(iii). price-control of the goods produced by the licensed industries;
(iv). checking concentration of economic power;
(v). channelizing investment into desired direction (according to the planning process).
In practice, the licensing policy was not serving the above-given purpose properly. A powerful industrial house was always able to procure fresh licenses at the cost of a new budding entrepreneur. The price regulation policy via licensing was aimed at helping the public by providing cheaper goods, but it indirectly served the private licensed industries ultimately (as central subsidies were given to the private companies from where it was to benefit the poor in the form of cheaper goods). Similarly, the older and well-established industrial houses were capable of creating hurdles for the newer ones with the help of different kinds of trade practices forcing the latter to agree for sell-outs and takeovers.
A number of committees on industrial licensing policy review pointed out several shortcomings of the policy, but it also accepted the useful role in industrial incensing policy was announced which affected the following major changes in the area:
(i). The Monopolistic and Restrictive Trade Practices (MRTP) Act was passed. The Act intended to regulate the trading and commercial practices of the firms and checking monopoly and concentration of economic power.
(ii). The firms with assets of Rs. 25 crore or more were put under obligation of taking permission from the Government of India before any expansion, greenfield venture and takeover of other firms (as per the MPTP Act). Such firms came to be known as the 'MRTP Companies'. The upper limit (known as the 'MRTP limit' ) for such companies was revised upward to Rs. 50 crore in 1980 and Rs. 100 crore in 1985.
(iii). For the redressal of the prohibited and restricted practices of trade, the government did set up an MRTP Commission.
Industrial Policy Statement, 1973
The Industrial Policy Statement of 1973 introduced some new thinking into the economy with major ones being as follows:
(i). A new classificatory term i.e., core industries was created. The industries which were of Fundamental importance for the development of industries were put in this category such as iron and steel, cement, coal, crude oil, oil refining and electricity. In the future, these industries came to be known as basic industries, infrastructure industries in the country.
(ii). Out of the six core industries defined by the policy, the private sector may apply for licenses for the industries which were not a part of Schedule A of the Industrial Policy, 1956. The private firms eligible to apply for such licenses were supposed to have their total assets at Rs. 20 crore or more.
(iii). Some of the Industries were put under the reserved list in which only the small or medium industries could be set up.
(iv). The concept of 'joint sector' was developed which allowed partnership among Centre, State and the private sector while setting up some industries. The governments had the discretionary power to exit such ventures in future. Here, the government wanted to promote the private sector with state support.
(v). The Government of India had been facing the foreign exchange crunch during that time. To regulate foreign exchange the Foreign Exchange Regulation Act (FERA) was passed in 1973. Experts have called it a 'draconian' Act which hampered the growth and modernization of Indian industries.
(vi). A limited permission of foreign investment was given with the multinational corporations (MNCs) being allowed to set up their subsidies in the country.
Industrial Policy Statement, 1977
The Industrial Policy Statement of 1977 was chalked out by a different political set up from the past with a different political favour- the dominant voice in the government was having an anti-Indira stance with an inclination towards the Gandhian-socialistic views towards the economy. We see such elements in this policy statement:
(i). Foreign investment in the unnecessary areas were prohibited (opposite to the IPS of 1973 which promoted foreign investment via technology transfer in the areas of lack of capital or technology). In practice, there was a complete 'no' to foreign investment.
(ii). Emphasis on village industries with a redefinition of the small and cottage industries.
(iii). Decentralized industrialization was given attention with the objective of linking the masses to the process of industrialization. The District Industries Centers (DICs) were set to promote the expansion of small and cottage industries at a mass scale.
(iv). Democratic decentralization got emphasized and the Khadi and village industries were restructured.
(v). Serious attention was given on the level of production and the prices of essential commodities of everyday use.
Industrial Policy Resolution, 1980
The year 1980 saw the return of the same political party at the Centre. The new government revised the Industrial Policy of 1977 with few exceptions in the Industrial Policy Resolution, 1980. The major initiatives of the policy were as given below:
(i). Foreign investment via the technology transfer route was allowed again (similar to the provisions of the IPS, 1973).
(ii). The 'MPTP Limit' was revised upward to Rs. 50 crore to promote setting of bigger companies.
(iii). The DICs were continued with.
(iv). Industrial licensing was simplified.
(v). Overall liberal attitude followed towards the expansion of private industries.
Industrial Policy Resolution, 1985 & 1986
The industrial policy resolutions announced by the governments in 1985 and 1986 were very much similar in nature and the latter tried to promote the initiative of the former.
The main highlights of the policies are:
(i). Foreign investment was further simplified with more industrial areas being open for their entries. The dominant method of foreign investment remained as in the past, technology transfer, but now the equity holding of the MNCs in the Indian subsidiaries could be upto 49 percent with the Indian partner holding the rest of the 51 percent shares.
(ii). The 'MRTP Limit' was revised upward to Rs. 100 crore, promoting the idea of bigger companies.
(iii). The provision of industrial licensing was simplified. Compulsory licensing now remained for 64 industries only.
(iv). High level attention on the sunrise industries such as telecommunication, computerization and electronics.
(v). Modernization and the profitability aspects of public sector undertakings were emphasized.
(vi). Industries based on imported raw material got a boost.
(vii). Under the overall regime of FERA, some relaxations concerning the use of foreign exchange was permitted so that essential technology could be assimilated into Indian industries and international standard could be achieved.
(viii). The agriculture sector was attended with a new scientific approach with many technology missions being launched by the government.
These industrial policies were mooted out by the government when the development world was pushing for the formation of the WTO and a new world economic order looked like a reality. Once the world had become one market, only bigger industrial firms could have managed to cater to such a big market. Side by side sorting out the historical hurdles to industrial expansion perpetuated by the past industrial policies, these new industrial policy resolutions were basically a preparation for the globalized future world.
These industrial provisions were attempted at liberalizing the economy without any slogan of 'economic reforms'. The government of the time had the mood and willingness of going for the kind of economic reforms which India pursued post-1991 but it lacked the required political support.
The industrial policies conjoined with the overall micro-economic policy followed by the government had one major loophole that it was more dependent on foreign capital with a big part being costlier ones. Once the economy could not meet industrial performance, it became tough for India was in the grip of a severe the external borrowings, the external events (the Gulf war, 1990-91) vitiated the situation, too. Finally, the end of 1980s India was in the grip of a severe balance of payment crisis with higher rate of inflation (over 13 percent) and higher fiscal (over 8 percent). The deep crisis put the economy in a financial crunch, which made India opt for a new way of economic management in the coming times.
Industrial Policy Statement, 1973
The Industrial Policy Statement of 1973 introduced some new thinking into the economy with major ones being as follows:
(i). A new classificatory term i.e., core industries was created. The industries which were of Fundamental importance for the development of industries were put in this category such as iron and steel, cement, coal, crude oil, oil refining and electricity. In the future, these industries came to be known as basic industries, infrastructure industries in the country.
(ii). Out of the six core industries defined by the policy, the private sector may apply for licenses for the industries which were not a part of Schedule A of the Industrial Policy, 1956. The private firms eligible to apply for such licenses were supposed to have their total assets at Rs. 20 crore or more.
(iii). Some of the Industries were put under the reserved list in which only the small or medium industries could be set up.
(iv). The concept of 'joint sector' was developed which allowed partnership among Centre, State and the private sector while setting up some industries. The governments had the discretionary power to exit such ventures in future. Here, the government wanted to promote the private sector with state support.
(v). The Government of India had been facing the foreign exchange crunch during that time. To regulate foreign exchange the Foreign Exchange Regulation Act (FERA) was passed in 1973. Experts have called it a 'draconian' Act which hampered the growth and modernization of Indian industries.
(vi). A limited permission of foreign investment was given with the multinational corporations (MNCs) being allowed to set up their subsidies in the country.
Industrial Policy Statement, 1977
The Industrial Policy Statement of 1977 was chalked out by a different political set up from the past with a different political favour- the dominant voice in the government was having an anti-Indira stance with an inclination towards the Gandhian-socialistic views towards the economy. We see such elements in this policy statement:
(i). Foreign investment in the unnecessary areas were prohibited (opposite to the IPS of 1973 which promoted foreign investment via technology transfer in the areas of lack of capital or technology). In practice, there was a complete 'no' to foreign investment.
(ii). Emphasis on village industries with a redefinition of the small and cottage industries.
(iii). Decentralized industrialization was given attention with the objective of linking the masses to the process of industrialization. The District Industries Centers (DICs) were set to promote the expansion of small and cottage industries at a mass scale.
(iv). Democratic decentralization got emphasized and the Khadi and village industries were restructured.
(v). Serious attention was given on the level of production and the prices of essential commodities of everyday use.
Industrial Policy Resolution, 1980
The year 1980 saw the return of the same political party at the Centre. The new government revised the Industrial Policy of 1977 with few exceptions in the Industrial Policy Resolution, 1980. The major initiatives of the policy were as given below:
(i). Foreign investment via the technology transfer route was allowed again (similar to the provisions of the IPS, 1973).
(ii). The 'MPTP Limit' was revised upward to Rs. 50 crore to promote setting of bigger companies.
(iii). The DICs were continued with.
(iv). Industrial licensing was simplified.
(v). Overall liberal attitude followed towards the expansion of private industries.
Industrial Policy Resolution, 1985 & 1986
The industrial policy resolutions announced by the governments in 1985 and 1986 were very much similar in nature and the latter tried to promote the initiative of the former.
The main highlights of the policies are:
(i). Foreign investment was further simplified with more industrial areas being open for their entries. The dominant method of foreign investment remained as in the past, technology transfer, but now the equity holding of the MNCs in the Indian subsidiaries could be upto 49 percent with the Indian partner holding the rest of the 51 percent shares.
(ii). The 'MRTP Limit' was revised upward to Rs. 100 crore, promoting the idea of bigger companies.
(iii). The provision of industrial licensing was simplified. Compulsory licensing now remained for 64 industries only.
(iv). High level attention on the sunrise industries such as telecommunication, computerization and electronics.
(v). Modernization and the profitability aspects of public sector undertakings were emphasized.
(vi). Industries based on imported raw material got a boost.
(vii). Under the overall regime of FERA, some relaxations concerning the use of foreign exchange was permitted so that essential technology could be assimilated into Indian industries and international standard could be achieved.
(viii). The agriculture sector was attended with a new scientific approach with many technology missions being launched by the government.
These industrial policies were mooted out by the government when the development world was pushing for the formation of the WTO and a new world economic order looked like a reality. Once the world had become one market, only bigger industrial firms could have managed to cater to such a big market. Side by side sorting out the historical hurdles to industrial expansion perpetuated by the past industrial policies, these new industrial policy resolutions were basically a preparation for the globalized future world.
These industrial provisions were attempted at liberalizing the economy without any slogan of 'economic reforms'. The government of the time had the mood and willingness of going for the kind of economic reforms which India pursued post-1991 but it lacked the required political support.
The industrial policies conjoined with the overall micro-economic policy followed by the government had one major loophole that it was more dependent on foreign capital with a big part being costlier ones. Once the economy could not meet industrial performance, it became tough for India was in the grip of a severe the external borrowings, the external events (the Gulf war, 1990-91) vitiated the situation, too. Finally, the end of 1980s India was in the grip of a severe balance of payment crisis with higher rate of inflation (over 13 percent) and higher fiscal (over 8 percent). The deep crisis put the economy in a financial crunch, which made India opt for a new way of economic management in the coming times.
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