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The Industrial Policy of India

The Industrial Policy of India:- Government involvement impacts the industry's ownership, structure, and performance


The Industrial Policy of India:- Government involvement impacts the industry’s ownership, structure, and performance. It takes the form of regulations, the administration of payments, or other forms of monetary support.
It consists of protocols, guiding principles (i.e., the economic ideology), policies, rules and regulations, benefits and punishments, the tariff policy, the labor policy, the government’s stance on foreign direct investment, etc.


The Industrial Policy of India

The government of India’s industrial policy does have the following major objectives:

to maintain sustained productivity growth, generate work opportunities, achieve optimal human resource utilization, achieve international competitiveness, and make India an important partner and player in the international arena.
India’s industrial policies since independence

The Industrial Policy Resolution of 1948 set forth the general guidelines for the policy and defined the State’s role in industrial development as an entrepreneur and a supervisor.
It was made very obvious that India would use a mixed economic model.
It divided the industries into four categories:
Sectors of Strategic Industry (Public): It contained three fields where the Central Government held a monopoly. These included rail transportation, atomic energy, and weapons and ammunition.
Six industries were identified as “Key Industries” or “Basic Industries” (public-private sector), including coal, iron & steel, shipbuilding, aircraft production, manufacture of telephone, telegraph, wireless apparatus, and mineral oil.

  • These industries were to be set up by the Central Government.
  • However, the existing private-sector enterprises were allowed to continue.

18 important industries were included in the “Controlled Private Sector,” including “Heavy Chemicals,” “Sugar,” “Cotton Textile & Woollen Industry,” “Cement,” “Paper,” “Salt,” “Machine Tools,” “Fertilizer,” “Rubber,” “Air and Sea Transportation,” “Motor, Tractor, and Electricity,” etc
However these industries remain in the private sector, the national govt has direct control over them after discussing them with the state and local governments.

Other Industries (Private and Cooperative Sector): The private sector was free to engage in any other industries that weren’t covered by the aforementioned three categories.

The Industrial Policy Resolution, of 1948, was put into effect in 1951 with the passage of the Industries (Development and Regulation) Act.

The government updated its initial industrial strategy (i.e., the policy of 1948) through the 1956 Industrial Policy Statement.

It was referred to as the “Bible of State Capitalism” or the “Economic Constitution of India.”
The 1956 Policy placed a strong emphasis on the need to develop a large and expanding cooperative sector, increase the size of the public sector, support the separation of ownership and management in private industries, and, above all, halt the growth of private monopolies.

Up until June 1991, it served as the fundamental foundation for the government’s industrial policy.

Industries were divided into three categories by IPR in 1956.

The State alone was in charge of the 17 industries that made up Schedule A. Four of these 17 industries—arms and ammunition, atomic energy, railways, and air transport—had Central Government monopolies. State governments formed new units in the remaining industries.

12 industries made up of Schedule B were accessible to both the public and private sectors, but the State progressively took them over.
The third category, which was available to the private sector, consisted of all the other industries that weren’t covered by the different two Schedules. The State does reserve the right to engage in any form of industrial production, though.
The IPR of 1956 emphasized the significance of cottage and small-scale businesses for increasing employment prospects and for furthering economic decentralization.
The Resolution further urged efforts to preserve industrial harmony and the equitable distribution of production profits to the laboring masses in line with democratic socialism’s professed goals.

Criticism: The private sector strongly disagreed with the IPR 1956 because it greatly limited the potential for private sector expansion.
A system of licensing was used to maintain state control over the industry.

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The Industrial Policy of India(Industrial Licenses)

Industrial Licenses
  • In order to open a new industry or to expand production, obtaining a license from the government was a prerequisite.
  • Opening new industries in economically backward areas was incentivized 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.

1977 Industrial Policy Statement The Janata Government declared its New Industrial Policy in a statement to the Parliament in December 1977.
The fundamental goal of this program was to effectively promote small, widely distributed industries in rural and small-town settings.
This policy divided the small sector into three categories: cottage and household, micro, and small-scale industries.
Basic industries, capital goods industries, high technology industries, and other industries outside the list of reserved items for the small-scale sector were all designated as large-scale industrial sectors in the 1977 Industrial Policy.
In order to prevent any unit of the same company group from acquiring a dominant and monopolistic position in the market, the 1977 Industrial Policy limited the scope of large business houses.

It placed a strong emphasis on lowering the likelihood of labor disturbance. From the shop floor to the board level, the government promoted worker involvement in management.
Serious criticism was leveled at the 1977 Industrial Policy since it did not include any practical steps to reduce the dominance of large-scale units and did not plan any socioeconomic changes to the economy to reduce the influence of multinational corporations and huge business houses.

The 1980 Industrial Policy reaffirmed its belief in the Foreign Exchange Regulation and the Monopolies and Restrictive Trade Practices (MRTP) Act and sought to advance the idea of economic federation, increase public sector efficiency, and buck the trend of industrial production over the previous three years.

New Industrial Policy in the 1991 Economic Reforms

In the midst of the nation’s acute economic instability, the Government of India announced the long-awaited liberalized industrial policy in 1991. The policy’s goal was to boost productivity and quicken economic expansion.

Features of New Industrial Policy

Public sector de-reservation: Less space was allotted to the public sector. However, the public sector maintained its leading position in five key industries, including mining, mineral oils, rail transportation, atomic energy, and guns and ammunition.

The public sector currently controls only two industries: nuclear energy and railroad operations.

De-licensing: Removal of Industrial Licensing requirements for all projects with the exception of a select few industries.
Currently, an industrial license is only necessary for 4 sectors linked to security, strategy, and environmental concerns:
Defense and aerospace technology using electronics
certain toxic substances
Business explosives
tobacco cigarettes, cigars, and artificial tobacco alternatives
Government holdings in public sector companies have been reduced to increase their effectiveness and competitiveness.
Foreign company majority stakes in India were first permitted under this industrial policy’s liberalization of foreign investment. Up to 51% of FDI was permitted in 47 high-priority industries. FDI up to 74% was permitted for export trading houses.

Today, the government permits 100% FDI in a wide range of economic sectors.
Automatic approvals for technology-related deals. Foreign technology agreement.

The threshold asset limits for MRTP businesses and dominant undertakings were removed as a result of an amendment to the MRTP Act. Competition Act 2002 took the place of the MRTP Act.

the results of new industrial policies

The “License, Permit, and Quota Raj” was abolished by the 1991 policy. It made an effort to liberalize the economy by lowering administrative barriers to industrial expansion.

The Government’s workload was decreased by the Public Sector’s limited involvement.

The strategy allowed for more open licensing, privatization, the lifting of the asset cap on MRTP enterprises, and easier access for multinational corporations.

All of this greater competition ultimately resulted in decreased pricing for many commodities, including electronics. Due to the opening of practically all sectors to private investment, both domestic and foreign investment was attracted.
Special efforts were made to increase exports as a result of the policy. Export Oriented Units, Export Processing Zones, Agri-Export Zones, Special Economic Zones, and most recently National Investment and Manufacturing Zones are just a few concepts that have come into existence. All of these have benefited the nation’s export industry.

Limitations of Industrial Policies in India

All of this greater competition ultimately resulted in decreased pricing for many commodities, including electronics. Due to the opening of practically all sectors to private investment, both domestic and foreign investment was attracted.
Special efforts were made to increase exports as a result of the policy. Export Oriented Units, Export Processing Zones, Agri-Export Zones, Special Economic Zones, and most recently National Investment and Manufacturing Zones are just a few concepts that have come into existence. All of these have benefited the nation’s export industry.

Lack of incentives to increase efficiency: Focusing on internal liberalization without placing enough emphasis on trade policy reforms led to “consumption-led growth” as opposed to “investment-led” or “export-led growth.”
Vaguely defined industrial location policy: The New Industrial Strategy highlighted the negative impacts of environmental harm but failed to specify an industrial location policy that could guarantee the establishment of an industrial climate free from pollution.
Way ahead
Since 1991, industrial policies in India have shifted from being primarily socialist in 1956 to becoming capitalistic.
India today has an industrial policy regime that is much more liberalized and focuses on attracting more foreign investment and reducing regulations.

In the 2018 World Bank Report on Doing Business, India was rated 77th. The Bankruptcy and Insolvency Act of 2017 and the Goods and Services Tax (GST) reforms are noteworthy and will benefit the manufacturing sector in the long run.
Make in India and Startup India campaigns have improved the business environment in the nation.

However, issues with electricity availability and cost, credit restrictions, high unit labor costs as a result of labor laws, political intervention, and other regulatory burdens continue to be obstacles to the industrial sector’s steady expansion in India.

A new Industrial Policy is required to improve the nation’s manufacturing sector. In December 2018, the government felt the necessity to unveil a new Industrial Policy that would serve as a guide for all commercial firms in the nation.

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