BUREAUCRACY & INDUSTRIAL POLICY …128552/FULLTEXT01.pdf · BUREAUCRACY & INDUSTRIAL POLICY...

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BUREAUCRACY & INDUSTRIAL POLICY IMPLEMENTATION: THE CASE OF INDIA D. Deo Sharma, Dept. of Business Administration Uppsala University, Uppsala, Sweden. Hans Jansson, Dept. of Business Administration University of Lund, Lund, Sweden. M. Saqib, The Indian Council for Research on International Economic Relations, New Delhi, India. Our gratitude to SAREC for providing us finantial support for this research.

Transcript of BUREAUCRACY & INDUSTRIAL POLICY …128552/FULLTEXT01.pdf · BUREAUCRACY & INDUSTRIAL POLICY...

BUREAUCRACY & INDUSTRIAL POLICY IMPLEMENTATION: THE CASEOF INDIA

D. Deo Sharma, Dept. of Business AdministrationUppsala University, Uppsala, Sweden.

Hans Jansson, Dept. of Business AdministrationUniversity of Lund, Lund, Sweden.

M. Saqib, The Indian Council for Research onInternational Economic Relations,New Delhi, India.

Our gratitude to SAREC for providing us finantial support forthis research.

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INTRODUCTION

Industrial development is a dear aim to all modern governmentsand societies. Huge sums of money and other resources arespent annually to advance industrial development. Variousmethods and mechanisms have been applied, some more successfulthan the others. Some countries have relied upon centralizedplanning and state intervention, others more on the marketfortes to achieve the aim. India is one country in which thestate have traditionally played a significant part inindustrialization. Through centralized planning (Five YearPlans), Industrial Policy etc Indian government have tried toadvance and guide industrial development. The results aremixed.

India have passed a number of Industrial Policy Resolutionssinte Independence. But the implementations is tardy.Increasingly it has been realized that the intentionsunderlying Industrial Policy Resolutions have notmaterialized. A number of explanations have been advanced andsteps taken to remedy the ills. It has been suggested that thegovernment ministries dealing with industrial development needimprovement, the administrative system needs modernizationsand streamlining. But the positive results of these moves arelimited.

The purpose of this paper is to investigate and analyse whythe administrative structure developed (the ministries) failedto implement intentions underlying Industrial Policy in India.We try to answer the question why the Indian bureaucracy isunable to implement Industrial Policy. These failures manifestthemselves in a number of shapes, namely, delay in processingand granting industrial licenses, inappropriate projects areimplemented, administrative irregularities and corruption etc.Our basic point is that the ambition to improve and Streamlineimplementation of Industrial Policy through changes inadministrative rules, regulations, and procedures is unlikelyto succeed. The problems are more fundamental.

The paper is based on interviews with the finns in India. Anumber of finns operating in India were interviewed. A fewpeople in the ministries were also interviewed.

Although the present analysis is based on Indian experience itis also applicable to a number of other countries. A number ofother countries have pursued a similar policy and tried toaccelerate industrial development through state interventionand planning. Their experience is similar to the Indiaexperience. The details indeed vary but the problems and thecauses of the problems are often the same.

The paper starts with a discussion on traditional view onpolicy implementation. An effort is made to point out why thisview is inappropriate for the purpose of this paper. Insteadan Institutional view is relied upon and it is pointed outthat three different types of organizations are engaged inIndustrial Policy implementation. This framework is, then,

applied to analyse Industrial Policy implementation in India.It is pointed out that in the present Indian system toimplement Industrial Policy the authority structure and theresponsibility structure are not in confonnity. Moreover, theministries function more as Inspectors than as Promoters toaccelerate industrial development.

THE NATURE OF INDUSTRIAL POLICY

While deliberating on the industrial policy fonnulation andimplementation there is an overwhelming tendency to adapt therational actor view of organizations. Organisations are viewedas instruments for achieving a well formulated aim or goal(Scott, 1981, Ch. 3). It is presumed that the industrialpolicy formulation aims at industrial development and theimplementation is pursued to achieve this aim. The discussionis based on the proposition 'how the things should be' and not

'as things are'. The discussion based on the Weberian viewi:esumes that industrial policy of'a country is formulated bythe national leadership and polititians with the view totransform the industrial structure of the nation and either topreserve or enhance the competitiveness of the domestic finns.The national leadership does the job of industrial policyformulation with sincere aims and the national well being isthe overwhelming if not the sole purpose in this exercise. Asin the traditional organizations theory it is presumed thatthe national leadership does not entertain any other aims thanthe development and maintenance of competitiveness of thenational industries. The policies thus formulated are (shouldbe) then implemented in the most effective manner to optimizereturns to the nation. In this metaphor, the nationalbureaucracy too is presumed to be acting in the best interestsof the nation while implementing the national industrialpolicy. In a typical rational perspective any discrepancybetween the fonnulated policy and its implementation isexplained as deviation, an undesirable att, and should notexist. In this view the gap between the industrial policy andits implementation is eliminate by way of enactingadministrative rules and procedures which are more rationaland one which assign well defined tasks to each position inthe national bureaucracy. In this view, moreover, governmentsare pro-active players in shaping and changing the industrialsituation in the country. In this normative literaturedecision making is merely a means to achieve an outcome (toatt). Otherwise decision lack an independent value.

It is presumed that by rationalizing rules and streamliningthe administrative procedures and the administrative structureit should be possible to eliminate the gap between theindustrial policy as formulated by the national leadership andits implementation by the national bureaucracy. The roats ofthe entire problem is identified as the non-rationaladministration and bureaucracy. By streamlining theadministration (that is, the various ministries) the goals ofthe national industrial policy can be achieved.

In this discussion a significant omission is that governmentsand ministries are treated in the same manner as any other

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bureaucracy. It is indeed accepted that governments arepolitital bodies and function on different principles than theone idealized by Weber. Governments are politital bodies,elected by the citizens for a limited duration with the statedpurpose to voice their views and protect their interests in apolitital arena. Such bodies are far from the idealbureaucracy identified in the traditional organizationliterature where employment is based on a technical andrational criteria, namely, possession of knowledge and skillsto perform a task. Such organizations function in a radieallydifferent manner and follow radieally different principlesthan the commercial organization of the modern world. Anadditional feature of this normative literature is thecompatibility between decision making authority and theresponsibility for the caused out-come. Those who enjoy theauthority to make decisions are also held responsible for theoutcome.

The traditional literature with emphasise on 'how the thingsshould be' rather than 'how the things really are' is oflimited value in understanding national and polititaldecisions making and implementation. Industrial policy belongsto precisely this realm. This, however, does not imply thatnational governments are either less rational or are notinterested in industrial development but that there areinherent features in governmental organizations which make thetask of industrial policy formulation and implementationdifficult and less feasible in the manner orescribed by thetraditional writers on organization.

LEGITIMACY

Industrial policy formulation and implementation is apolitital att guided by the principle of survival forpolitital actors. An important goal in industrial polformulation is to assure survival of the policy formu. . _

t h eicy.lating

bodies and this is achievect through gaining legitimacy andsupport of the powerful actors in the environment.

Industrial policy formulation is an att undertaken bygovernments with the aim to gain visibility and to show thatthe government is doing or is going to do something to theproblems to which the society is exposed, namely, industrialbackwardness, regional imbalance etc. This is done in order torespond to the demands to which a government is exposed.Industrial policy is, then, formulated in reaction to or in aneffort to pacify the environmental demands. Not doing anythingcould be fatal. The society may believe that government 'oughtto be able to solve the problem' and that government must dosomething to remedy an unpleasant state of affair. Governmentsmust proclaim that they exercise control over the affairs ofthe state. Whether the government is really in a position toexercise that control is an entirely different issue. Thegovernment may or may not know this and may or may not exceptthe same. Through a formal industrial policy formulation and aformal procedure to implement the same (a separate department,tommission etc) governments signal to the environment that itis both capable of and is actually responding to the demands

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of the societv. The societv oresumes that the measuresoutlined by the governmentZwill be implemented. Otherwise,there is no reason why the government should go through thetiresome process of formulating an industrial policy.

In the Indian case Industrial policy formulation is anintegral part of the policy of self-reliance. It signals tothe Indian society that the politital leaderships is able toas well as willing to chart out the fate of the country. Byinstitutionalizing the entire process and instituting separateministries for the purpose the aim of the government isprimarily to signal to the environment its commicment andcapability to remedy an 'undesirable' situation and to respondto the needs of the Indian society. This is a means to achievelegitimacy (Brunsson, 1986).

Legitimacy is the process by which organizations justify theirright to procure resources from the environment to survive andprosper (Maurer, 1978, pp. 158-162). Organizations must accedeto the aims and the goals of the environment to seek resourceswhich could be finantial or none finantial. The environmentfacing organizations is, however, multi-faced. No organizationinteracts with an environment which is homogeneous and uniformand exerts only one demand. The environment is composed ofsegments with conflicting interests all of whom would demand'their pound of the flash' from the organization. One segmentof the environment may demand return in the shape of dividendin order to supply finantial resources, the other section(s)may demand growth, protection of the existing employment orcreation of new employment opportunities etc. The conflictingdemands are a source of problem and frequently organizationsare unable to satisfy demands by all the segments at the sametime or at all times.

At a rreneral leve1 the environment facins an orsanization canbe di;ided into technical respective insfitutionalenvironments (Scott & Meyer, 1983, pp. 129-153). The latterdefines the rules and regulations tÖ_which an organizationmust tonform in order to secure support and assistance fromthe environment where as the former is the one with whichorganizations interacts to effectively and efficientlyexchange output to secure survival (ibid, p. 140).

The importante of the two above mentioned dimensions oflegitimacy varies. For commercial organizations of the typeTNCs the evaluation is primarily based on commercial criteria.In the free market economies these organizations compete atthe market place to sel1 products and services and to exchangefinantial and other input resources from the environment. The'primary' criteria for evaluation is commercial and thereforethese must adhere to the commercial norms (profit, growth etc)imposed by the environment. Failing to meet these criteriaWill jeopardize their chances to survive. However, theseorganizations too must accede to the institutional normsregarding pollution control, regional development, andtonsumer needs, to mention just a few.

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Government as organizations, however, are exposed to adifferent set of demands. These are politital organizationsnot exposed to the free play of market fortes. The governmentbodies are manned by the elected representatives of people torepresent divergent and conflicting interests in the society.These are primarily exposed to the institutional environmentand must respond to the same (Brunsson, 1983). By their verynature these organizations are politital with inbuiltconflicts. A clear output is missing and indeed these neversel1 anything to the market. Their survival is assured as longas they are able to reflect and respond to the divergentinterests and conflicts that prevail in the institutionalenvironment.

The divergente between the above mentioned two dimension oflegitimacy could be problematic. Indeed, neither of the twoare absolute and both are present simultaneously for all theorganizations. There is also a conflict between the two, themore of the one may lead to the less of the other. There is acontinuum along which organizations can be ranked. On the oneend are the organizations with strong emphasis on efficiencyin market terms, that is, produce goods and services on termsno less effective than the competitors. These organizationsemphasize the management of their internal and externalrelationships. Internally they must efficiently divide thework, establish an organizational structure to produce thegoods and services, evolve a hierarchy to achieve cordinationand resolve and minimize internal conflicts, developinformation collecting and interpretation routines andprocedures (Simon, 1957; March 6 Simon, 1958). Externally theymust manage their relationships with the actors in theenvironment, that is, the players in the market place,customers, suppliers, distributors etc (Meyer & Rowan, 1977,P.354). This is the technical aspect of operation of anorganization. The problem for these organizations is to make acorrect judgement on the products and the services required bythe environment.

Other organizations, however, function on a differentprinciple and their primary aim is survival (Selznick, 1948).These organizations succeed because of their ability toisomorphasize with the institutional rules and regulationsrather than their ability to produce qoods and servicesrequired by the environment (Meyer & Rowan, 1977, p. 354). Thesuccess of these organizations is guided by their ability toreflect and integrate the norms, values, and myths thatprevail in the institutional environment. These are effectiveand efficient not in the sense that they produce goods andservices at competitive price and effectively serve the marketbut because of their ability to integrate into their structureand processes the norms and values entertained by theenvironment. Such organizations are exposed to two crucialproblems. Firstly, the institutional rules and myths areinconsistent and conflict with each other. The differentsegments of the environment entertain different myths,institutional rules, norms, and values. Setondly, achievinginstitutional acceptante may conflict with the organizational

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ability to efficiently produce the goods and services requiredby the technical environment.

Figure 1: Dimensions of Legitimacy.

Institutional--_

High Middle LOW

High

MiddleTechnical

LOW

The different types of organizations in an environment possessdifferent degrees of the respective types of legitimacy(figure 1) and a balante must be achieved. The absente of oneor the other could be fatal for the continued survival of theorganization. One the other hand, it is difficult tosimultaneously achieve high legitimacy stores on both thedimensions.

GAINING LEGITIMACY: BUSINESS, PARTICIPATIVE, & ADMINISTRATIVEORGANIZATIONS.

Legitimacy is vital but its supply not assured. As discussedin the previous section legitimacy could be assured byproducing output consistent with the norms, values, and mythsin the environment, or through adapting process and proceduresvalued and considered legitimate by the environment. In thisconnection we distinguish between three different types oforganizations, namely, Business Organizations, ParticipativeOrganizations, and Administrative Organizations. These arediscussed below.

Business Organizations

Through producing the valued output organizations satisfy theneeds of certain segments in the environment. Similarly, byproducing good finantial results organizations meet the needsand demands exerted by certain segments in the environment andgain access to the finantial resources. In other words, suchorganizations gain legitimacy primarily based on their abilityto be competitive and produce output considered legitimate bythe environment. What output is produced and the criteria forevaluating efficiency are laid down by the environment. Theseare conunercial organizations. Low costs production, highquality products etc are their basis for success and thetechnical legitimacy permeate these organizations. In general,the criteria to evaluate organizations is pre-specified andclear and, consequently, the goals of the organizations arewell defined. These are machine like bureaucracies where causeand effect are well defined (Morgan, 1986, ch. 2). This,

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however, does not imply that the goals of these organizationsare the same over time. Indeed, goals change over time andorganizations try to achieve either only one or a few of thegoals at a time. This results in bargaining and side payments(Cyert & March, 1962). At one time the organization may optfor one goal (profit) at another time an alternative goal(growth, market share etc). The existence of a well definedgoal (which enables the organization to achieve legitimacy) isimportant and helps the organization to shape the technicalcore or the production process. Goals also provided theorganization with criteria for decision making to achievetechnical efficiency. The assistance to make 'appropriate'decisions appears in the shape of which criteria to apply inmaking decisions, which alternatives to take intoconsiderations, how to evaluate the same, and lastly, how toobtain a prferential ordering among the various alternativecourses of action (Scott, 1981, ch. 4). In these organizationspreferences about the outcomes of an action and the causationis well defined and understood. Well defined goals lead towell defined criteria and make the task of the decision maker'easy' and less cumbersome. The process of decision makingbecomes efficient and effective. In absente of well definedgoals these organization may face problems in makingdecisions. Moreover, these organizations must develop and relyupon strong coordinating mechanisms to integrate thefunctioning of the various parts of the organization. Thecordination can be achieved by rules, procedures, or ideology.These are Business Organizations and strive for outputrationality.

TNCs belong to this category. These are commercialorganizations with world-wide operations. The goals of theseorganizations are unambiguous, but may change over time. Thesefinns emphasize the efficiency aspect of industrialdevelopment and try to gain legitimacy through presentingtheir case in terms of industrial effectiveness (in economicterms), technical upgradation, international competitiveness,and providing superior goods and services. These gainlegitimacy through emphasis on a free play of market fortesand free tompetition.

Another argument pursued by the TNCs is based on adhering tothe national laws and feelings and the willingness (throughdecision making or structuring operations in a particularcountry) to suit the lotal environment. JVS and other forms ofcontractual agreements and structuring strategies are theexamples (Sharma, 1983, ch.7-9). The different strutturalconfugrations provide different degrees of legitimacy.Moreover, this may also influence in which segment of theenvironment the finn is able to gain legitimacy. Structuring,a highly visible strategy, is an important instrument to gainlegitimacy.

Participative Organizations

Not all organizations fit the above depiction. Examples arepolitital organizations. As discussed earlier polititalorganizations achieve legitimacy primarily by means of their

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ability to reflect and respond to the inconsistencies, normsand values that prevail in the environment. The goals areunclear and so are the preferences about the outcome, but thecausation is unambiguous but not the means and the procedureto achieve the same (Thompson & Tuden, 1959). In the processgoals loose value and meaning whereas adherence to the socialrules and procedures gain their own life and value. The normin these organizations is not to pursue any fixed rules,regulations, or procedures but to reflect the inconsistentnorms and values in the environment and this is the source oflegitimacy. Occaslonally the divergent interests representedin such organizations compromise, otherwise it is sufficientto reflect conflicts and difforr::-es of opinion.

It is more important to reflect the divergent norms andinterests in the organizations than to achieve a goal. It ismore important to be democratic then to be technicallyefficient and be able to earn profit or achieve a high growthrate. Rather than reflecting a single dominant goal at a timethese organizations reflect a number of or no goals. A clearranking among the goals is missing. The aim of theorganization is survival and in the struggle to surviveorganizations coopt a number of divergent and conflictinggoals and aims which is a source of legitimacy (Selznick,1948). Indeed, the organization may even lack a clear tutgoal. These organizations lack internal rules and the purposeis to freely exchange views and opinion. The existence ofrules could be inimical to their purpose, that is, to freelyexchange and reflect the norms and values prevailing in theenvironment. The principle that guide the working of theseorganizations is that 'we agree to disagree'. In extreme casesthe differente of opinion could be as wide as to characterizethese organizations as 'crowd'. Divergent interests and normsin the environment are incorporated in the organizations togain legitimacy (ibid., 1948). These organizations seekrationality in participation and significant amounts ofresources are devoted to 'demonstrative' activities. This isparticipative legitimacy and the outcome is speeches, papers,meeting, directives, and documents etc.

An example is parliament. Through a democratic representativeelection process parliaments (try to) incorporate a widevariety of interests and opinions. The people in theparliament are professional polititians and the views and theinterests these present during a debate is expected to reflectthe interests of their constituency. Birgersson andWesterståhl (1979) in their study described the Swedishparliament as a scene in which the various actors presenttheir respective alternative and preference. These havesymbolic value, an instrumental value is missing. Olsen (1983)described the Norwegian parliament as an arena which representthe divergent thinkings, values and norms in the country. Itscapacity to influence the substance of the polititalactivities of the nation or to att as a pro-active polititalforte was limited.

The same interest groups are, then, represented in the variouscommittees, sub-committees, and the other politital bodies of

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the parliament. During the deliberation on national industrialpolicy representatives of the different segments of theenvironment struggle in order to gain inclusion of theirinterest in the policy and the powerful interest groups aresuccessful. Raising the interest of one segment in thesociety, however, is no guarantee for its inclusion in thefinal policy document. But these 'must' be raised even if itis evident that the effort is 'futile' from instrumental pointof view. Raising an issue during the debate in the parliamenthas the symbolic value (Larsson, 1986). The participants inthe debate, moreover, react to the happening in the societyand a pro-active behaviours is rare (Jacobsson, 1989, p. 16;Brunsson & Jönsson, 1978). Important is, therefore, not totake initiative, but to wait and see the unfolding future.

Administrative Organizations

Lastly, there are organizations which are different from theabove two in the sense that these are 'rule following'organizations. These are Administrative Organizationsdifferent from the Participative Organizationa in the sensethat the former does not necessarily seek and encourageparticipation by the different segments of the environment.But these organizations do integrate and reflect the valuesand norms of the environment by way of pursuing and followingrules, regulations, and administrative procedures. It isassumed that the rules, regulations, and procedures whichguide the functioning of these organizations emanate fromenvironmental values and norms and reflect the same andpursuing these rules, regulations, and procedures is a sourceof legitimacy. It is neither essential that the differentsegments of the environment are represented in theorganization nor a free exchange of views is encouraged.

On the other hand, these organizations are also different fromthe Business Organization and lack a well defined goal. In asense the goal of these organization is to follow rules,regulations, and procedures and the measurement of theiroutput is not done in the same manner as in the BusinessOrganizations, namely, profit, growth rate, market share etc.These organizations lack quantitative outcomes and a lot ofcontroversy surround on what these organization do and howeffective these are. The holders of a position are expected tobe objective without their own preferences or goals.

An example is the ministerial leve1 bureaucracy in India. Theministries are manned by bureaucrats with lifetime employment.They are expected to follow the rules and regulations enactedby the national parliament. The structure is hierarchical andbefore a decision is reached files have to trave1 long. Thetomposition of the bureaucracy is not based on group interestsand bureaucrats are not the representatives of the differentsegments of the Indian society. They are an independent forte,employed to interpret and enforte rules and regulations. Whiledoing so the bureaucracy is expected to follow certain formalprocedures of symbolic value. These organizations,consequently, seek procedural rationality and for the

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organization action have little independent value where asrule, regulations, and procedure following is valued.

Although we identified three pure types of organizations,these are merely ideal types and may not be present inpractice. Moreover, it is possible that within a singleorganization all these characteristics are present but to avarying degree. Also some parts of an organization mayresemble one description, but the others any of the remainingtwo.

Achieving Legitimacy & Loose ioupling

The conflict between the two dimensions of legitimacy isproblematic and must be 'resolved'. Three different mechanismsare identified, namely, talk, decision and action (Brunsson,1986 , p. 144). To this we add one more, namely, denial.Organizations may achieve legitimacy in the environmentthrough talks, that is, talks that they nurse goals consideredlegitimate by (certain segments in) the environment. Or thatthis is already being done. Through talks organizations signalto the environment the value these assign to the norms and thevalues of the environment. Talks are less expensive andprovide flexibility to the organization to watch and see.Talks are also suitable as an intermediate solution until thefuture is more vivid and better known. One need not to decidewhat to do in the future, these is postponed until a suitableand a more appropriate solution is available.

Similarly, a decision is made and presented to theenvironment. Decision creates a feeling that something isbeing done. In the society a 'decision' is more or lessautomatically attached to its implementation (action) althoughthe decision maker may have shown no such inclination. Thissignals the willingness of the organization to adhere to thenorms and values of the environment (Jacobsson, 1989). Adecision is more definite than talk, but like talks, could bevague and change. The organization may not promise a definitetime table for implementing the decision in order to keep theoptions open. Alternatively, decisions could be vague and donot provide the decision maker the criteria to select betweenthe various alternatives, to rank them in a prferential orderetc. These have two advantages, namely, that the decisionmaker receives a freedom of action and still achieveslegitimacy, and setondly, due to the ambiguity, decisions areinterpreted differently by the conflicting interest groups.Lastly, by acting in the manner prescribed by the environmentorganizations achieve legitimacy. An specific aspect of talkis denial, that is, the policy makers may consistently denycomplains that the interests, values, and the norms of anspecific segment of the environment is being neglect either atthe policy formulation stage or later while implementing thepolicy. This can be done either orally or in writing. Theorganization may simply deny that the policy is against theinterests of a particular segment of the environment or thatthe policy is being implemented in a manner inimical to theinterest of a particular segment of the environment.

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Organizations may simultaneously make use of all these threemechanisms to achieve legitimacy, and moreover, the three are'loosely coupled' or 'de-coupled' (Weick, 1969). The loosecoupling could be on a number of different shapes, namely, intime, in chronological order, by subjett matter, differentenvironment, and in different organizational units (Brunsson,1989, p.33; Jacobsson, 1989). Organizations do not equallyemphasize the three mechanisms all the time, talk at one time,decision at another, and action at a third. Organizations mayalso use all the three simultaneously, but talks for onesegment of the environment, decision for another, and actionfor the third. In the last case, organizations de-couple thesegments in their formal structure. One segment may seekinstitutional legitimacy the other may seek technicallegitimacy (Meyer & Rowan, 1977; Jacobsson, 1989, ch. 6).Loose coupling can also be based on subjett matter, talk onone subjett, decision or action on the others. Segmentation isalso possible by project group which deal with action, othersare engaged in talks. Consequently, loose coupling is amechanism to manage environmental demands and not a mechanismprimarily developed to resolve intra finn conflicts.

Loose coupling has advantages as well as disadvantages. Itsadvantage lies in that organizations can function in a moreadaptive manner. It also allows all the segments in theenvironment to gain representation in the policy (at differenttimes, at different locations in the government, and todifferent extent). The problem lies in that it is difficult toknow how decisions are made, by whom, and when. The holisticapproach is lost. Merely some parts of the problem is solvedat a time and the various parts of the organization may movein different direction.

In the industrial policy arena all these mechanisms areapplied. Firstly, policy fonnulation and implementation arede-coupled. The former is more a politital process andachieved on the principles of the Participative Organizations.The latter is done by the government ministries which areAdministrative Organizations. The policy formulation is doneat the politital leve1 in which the different segments in thesociety participate, either through parliamentaryrepresentation or through some other politital att. Thevarious segments in the environment try to gain representationin the industrial policy through politital parties, tradeassociation, lobbying etc. Efforts are made to bring in labourrepresentation, industry owners, the regional interests etc.The wider the representation in these discussions anddeliberations the better it is, more views are reflected andmore conflict and divergent interest participate. In additionto the parliament, prior to its finalization the industrialpolicy draft is dispatthed to the divergent interests andviews seeked. The idea is not necessarily ta include all theseinterests in the industrial policy but make ensure that as fewas possible are left out. In the Indian case, in addition, theopinion of the state governments are taken into consideration.It is to (look) be democratic and this can not be achieved byexcluding powerful segments in the environment.

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The implementation task is assigned to the bureaucracy at theleve1 of the various ministries. At this leve1 important is tofollow the rules, regulations, and procedures in handling thevarious applications (concerning industrial ventures)submitted to the government. These gain legitimacy throughpursuing the bureaucratic rules, regulation and procedures. Itis more important to process an application according to therules, regulations, and procedures than the out come.

The situation becomes still more problematic as in theseorganizations rules, regulations, and procedures are unclearas the goals are unclear and fail to provide guidante indecision making. Thereby, a tommon situation is that eitherthere are no rules to follow, or there are too many of these(with a number of 'ifs' and 'thens'). The latter being moretommon. In either case, this provides either too little or toomuch latitude in decision making.

The emphasis on the use of the mechanisms to gain legitimacydiffers with the type of organization. For the Participativeorganizations the most important mechanism is talk followed bydecision. In the Administrative Organization this is decision,and in the Business Organizations the most important mechanismis action (table 1).

Table 1: Mechanisms to Gain Legitimacy

Type of Organization the dominantmechanism

example

Business actionParticipative talkAdministrative decision

TNCsparliamentministries

INDIAN INDUSTRIAL POLICY FORMULATION L IMPLEMENTATION

In the following pages the Industrial Policy implementation isanalysed. To gain a better understanding of the discussionfirst the policy formulation is briefly presented. Thediscussion is incomplete as the aim is merely to distuss thesegments in the Indian society that influence industrialpolicy formulation. The process itself is not analysed.

INDUSTRIAL POLICY FORMULATION

In the following discussion we distinguish between industrialpolicy fonnulation and its implementation. The former is morepolitital than the latter.

The industrial policy formulation is a politital att. This isdone by government bodies in which the elected representativesof the people deliberate (representing the variousgeographical, social, economic and a number of other

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interests). Governments try to include as many divergentinterests as possible. A failure on this count Will imply thatthe support for the industrial policy Will be narrow whichWill lead to resistance from strong and powerful groups in thesociety. A wide participation implies that the divergentinterests gain influence in the decision making and to theextent possible their norms, values, and views are reflectedin the industrial policy. For this reason the industrialpolicy must be formulated in a 'correct' manner, namely, in ademocratic manner in which the divergent interests are allowedan 'equal' participation. The more democratic the procedure isand the larger number of divergent interests are representedthe greater the chances that the industrial policy Will beaccepted by a larger section of the environment.

The industrial policy formulation is, consequently, guided bythe politital realities in the environment. But the same isless appropriate as a guide for action as these are beambiguous and vague. In its efforts to integrate the interestsof the divergent elements in the environment the govemmentmay end up producing a policy which Will include a number ofdifferent wishes and desires, unable to provide clues on howto implement the policy. The various segments of the societymay interpret the industrial policy in different waysdepending upon their group interest. The same policy documentmay lead to any number of interpretations all depending uponwho (which group) interprets the policy document. Moreover,over time the interpretation of the industrial policy may alsovary depending upon the evolution and change in theenvironment.

In the tontext of India we see industrial policy formulationas an instrument for legitimation of the policies pursued bythe government. Indian society is composed of a number ofgroups with conflicting and contradictory interests anddemands. This is partly reflected in the sectoral tompositionof the society, the distribution of GNP etc. The GNPdistribution in the Indian economy shows that in the beginningof the 10's farming sector contributed around 50% of thenational GNP. In the same year the industrial sectorcontributed a much smaller percentage in the Indian GNP. Overthe previous two decades the figures have gradually changedand by 1989-90 the contribution of the agriculture sector inthe Indian GNP was down to approximately 33%, whereas theindustrial sector contributed a slightly less than 30%. Thefarming sector is a strong and influential in shaping theindustrial policy. Farmers demand more resources foragriculture (at the cost of the other sectors in the economy)and want the development and establishment of industries whichserves their interest (fertilizer industry, agro basedindustries etc). Another strong influence is the villagesector, as around 70% of the Indian population lives invillages. No government can alienate either of the two groups.These two influential segments are accommodated in theindustrial policy formulation and implementation in a numberof ways. Firstly, there are clauses in the Industrial policywhich protect the interests of these segments. The developmentof fertilizer and agro based industries is encouraged. Around

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40% of the national budget is spent on the agriculture sectorand the allied industries. The same is achieved through highlyvisible acts, such as establishment of separate ministries ordepartment. There is separate department for fertilizerindustry, and the agro-based industries. To further improvethe legitimacy of the government in the rural areas there isseparate department for small scale industries, cottageindustries etc. A number of incentives and subsidies aresupplied.

The different region in the country demand development oftheir respective regions. Poor regions want larger resourcesallocation at the cost of the rich and industrial developmentis considered as an instrument for improving the economicplight. State governments vie for industrial projects and wantto advance their own interests. Through representation in thenational parliament, the National Development Council etcstates influence the industrial policy formulation andimplementation. The interest of each state and region impingesupon the industrial policy decision in a number of ways. Forexample, as a custom members from each region and state isincluded in the federal cabinet. They make sure that theinterests of their state and region is represented in theindustrial policy. The Indian Industrial Policy, therefore,advocate regional balante and minimizing disparity among thevarious states. It is widely accepted although that this is apipe dream. This is more a talk than a reality.

Another powerful influence is the organized labour. Labourunions want more employment and want to preserve the interestof their members. De-industrialization and the exit ofindustries from a region or location is resisted. These areaccommodated by policies that prohibit or restritt lay-off andexodus of industries from a location. The middle elass,between 120-200 million strong, wants more Western andimproved tonsumer goods and services which implies modern andefficient industries. With the growth of the Indian cities theinfluence of the Indian middle elass on industrial policy havebecome stronger. Their interest is accommodated throughencouragement to establish tonsumer goods industries (TV, HI-FI etc). The domestic industry developed sinte Independence(through the policy of import substitution) wants continuedprotection against imported goods, whereas the new generationof industrialist want freedom to import and improvement in theinternational competitiveness of the Indian finns. Thisimplies more and liberal import laws. The industrial policy isexpected to seek a balante between these two conflictinginterests. This is achieved through a progressiveliberalization of import laws and through incentives toexport. Moreover, the policy makers continuously talk abouthow bad the situation is, that protection against imports can(should) not continue for ever etc. Taking action is, however,difficult.

While formulating the industrial policy the government isasked to balante among the above mentioned and a number ofother demands imposed by the multi-faced Indian society. Theindustrial policy document tries to accommodate as many as

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possible of these divergent demands and a number or all theseitems are mentioned in the industrial policy documents. Thisallows the government to seek support from the powerfulsegments in the Indian society, namely, labour unions,farmers, and the middle elass. The industrial policy isformulated in a manner which appears to assist farmer, labour,the middle elass, and the domestic industry.

The govemment is, however, not in a position to satisfy thedemands of all these interests through action. The other twomechanisms, namely, talk and decision are used frequently.

Implementing such an industrial policy is difficult as it isambiguous and decision makers in the bureaucracy do notreceive the clear signals on how to make decisions. A lot ofscope is left for individual decision makers to interpret thepolicy document and still to be correct and be in line withthe industrial policy of the country. On the other hand, inthe absente of an unambiguous policy the bureaucracy feelsunsecured in implementing the decision. They may annoy one orthe other powerful group and be a target of attack andcriticism. The combination of insecurity and the widediscretion create inactiveness. One strategy is not to att. Adifferent strategy is to gain legitimacy for what is done andthis is achieved through reference to rules, regulations, andprocedures.

In industrial policy implementation finns primarily interactwith the bureaucracy and the clearance from these instances isa source of legitimacy for the finn. It signals to the societythat the finn makes a positive contribution to the prosperityof the Indian society (otherwise the bureaucracy would rejectthe proposal). For TNCs this implies that the finn brings innew technology, improves the balante of payment situation etc.Thereby, clearance from the bureaucracy is a source oflegitimacy which may help the finn to gain access to lessexpensive capital, and market. Evidently, finns try to showthat they adhere to the rules and regulations enforced by thebureaucracy. Finns invest resources to detect in advance whois going to take care of their file, how he interprets theinformation, and the general trend in the decision making. Forall these reasons a continuous contact with the bureaucracy,both before a project proposal is submitted and when it isunder processing, is essential.

Cultural Factors

In our previous discussion it was stated that environment isthe source of legitimacy. In the Indian environment animportant element is the cultural factor. This is important asthe present day Indian society is composed of at least twogroups, namely, the Western style elite, and the rural Indiarespectively. The behaviour of these two groups is ratherdifferent. The former is more guided by the Western thinking,technology, and economic rationality. The latter are moretraditional, and occasionally fatalistic (Hofstede, 1984). Theelite in the Indian society have always nurtured the myth that

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the India can improve its economic lot through rigourous anddetailed planning. Thus, the Five Year Plans and IndustrialPolicy. In this view industrial development of India should beguided by the policies laid down by the federal government..Amyth prevails that Planning leads to better and moreappropriate industrial development. Moreover, the grandioseFive Year Plans and the Industrial Policy are means for thepolitital parties to vindicate their stand and to showsincerity. These are a means to impress upon the citizens thecapability as well as the willing of the polititians to att.Large plans symbolize the desire of the polititians toaccelerate the growth in the economy, and therefore,preferred. Large plans provide decision makers opportunitiesto allocate finantial resources to a number of differentsegments of the Indian society and seek legitimacy therein.The finantial allocation to each sectors may be small but thiscreates an impression in the society that their interest isbeing taken care of. In addition, large plans also provideopportunities to patronise the different segments of theIndian society. This allows opportunities to the polititaldecision makers to allocate more resources to those segmentswhich they represent (a particular geographical area, state,constituency etc). Individual polititians gain legitimacy andshow to 'clients' that things are moving, action is beingtaken, and his ability to solve the problems facing aparticular segment. The policy makers, following the Hindutradition, seems to be more comfortable with the task ofgrandiose vision and design (Pie, 1985, p. 144).

This is further strengthened by the Indian tradition tocreate patron-client ties (Pie, 1985). In exchange for vote,praise, and homage polititians provide favour. This is a meansto create obligations whereby voters are obliged by thepolititians. This is not uncommon that a polititian Willremind his voters what they received from him in the shape ofemployment opportunity, or development of the area etc. Inexchange the polititian Will seek a prolongation of hismandate. He Will always remind the voters of his goodintention. Talks are more important than action.

The process of implementing the plans and the IndustrialPolicy is hardly ever given a sincere thought. The Indianindustrial bureaucracy, like the other Indian bureaucracies,is expected to function according to the rules and regulationsand each individual occupies a position in the system. Thesystem is hierarchical and the superior-subordinaterelationships evident and important. The lower levels must payrespect to those at the higher levels.

IMPLEMENTING INDUSTRIAL POLICY

In industrial policy implementation primarily two types oforganizations are engaged, namely, Administrative (thebureaucracy) and Business (TNCs etc).

Industrial policy implementation is a bureaucratic phenomena.The policy is implemented by the bureaucracy manned by peoplewho have worked in the same department for years. A number of

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ministries (the Ministry of Industry, the Ministry of textile,the Ministry of Chemicals and Fertilize, the Ministry of Heavyindustries etc) are engaged and these are loosely coupled toeach other and to the rest of the environment by polititalbodies, like the parliament, and the various parliamentarycommittees.

In Lmplementing industrial policy vague industrial policydocuments provide little assistance and guide-line. Rather theimplementation is guided more by bureaucratic practices,traditions and who is there to implement the policy. Moreover,sinte the industrial policy document itself provides littleassistance in implementation and the goals are unclear it ismore important to adhere to traditions, process, procedures,and rules. The more ambiguous the policies the larger theemphasis on adherence to the rules, procedures, and process.

Companies seeking industrial licenses initiate the move andsubmit application for a lieense (new production, expansionetc). These are then treated and dealt upon within theministries and at the various hierarchical leveis in eachministry until a decision is reached (grant or reject anapplication). In this process a number of gaps develop.Firstly, it is the responsibility of the Company seeking alieense to formulate an appropriate proposal. These possessexpertise, are familiar with the technology and the productionprocess, and clients. In the case of TNCs these are held bythe subsidiary itself or by the parent Company or some otherslster company in the group. These enjoy business related,tirst hand information. These are also commercial risk takers.In the ministries dealing with the licensing application acorresponding leve1 of information and knowledge is missing. Amajority of the people engaged in the decision making are nontechnicians and have never ever engaged in business. Theyavoid ctimmercial risk taking.

I'he bureaucracy, then, achieves legitimacy by emphasizingruies, regulations, and procedures. It is, however, presumedthat these lead to a better industrial situation for thecountry. In this process important is, however, not theintention behind the rules but the wordings of the rules andprocedures.

In the absente of measurable out come (product) the success oftne Administrative Organizations like ministries is based onsurrogate medsures, namely, time taken to process anapoLi&~tlci!, numi?er of questions c-sked (which illustrates thetnorouqhness with which the rules are applied), the number ofpapcars and documents seeked and dealt with, the number ofappiictitions sanctioned or rejected etc). There is, then, anaturai tendency in the bureaucracy to seek more and moreinformation, papers, and ask questions. In this manner theministries shcw to the environment that they are effective,and exarcise control over the business finns, and protect theinterest i:~ the environment.

Moreover, what the ministries may see as a necessary piece ofinformation an2 knowledge for making decision, the companies

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may see as useless, irrelevant, and unnecessary. But thebureaucracy may justify queries and inquiries as they shareresponsibility in case the venture is a failure. Sinte theyhave processed the application its failure can initiatecriticism. An official clearance for a project proposalconfers legitimacy on the project and in case of failure thebureaucracy may have to share the criticism.

A proposal under consideration or scrutiny, however, impliesno such commitment from the bureaucracy. In a resource scarcesociety there is an excuse to prolong the process to grantlicenses merely to keep the states commitment to a proposallow. Applications under consideration implies little or noofficial commitment. Less criticism is faced.

Promoters vs. Inspectors

The industrial policy in India is expected to lead theindustrial development and is awarded a pro-active roll. Bypro-active is implied that goals are specified, alternativesare derived and wieghted against each other, these areoperationlized, and the results are compared. Lastly,corrective action is taken. The pro-active player should knowwhat he wants (Jacobsson, 1989, p. 147). Not only that thestate should remedy the prevailing industrial problems butalso it should foresee the problems and eradicate the same inadvance. The policy implementation agencies are expected to bethe pro-acive catalysts in industrial development andtransformation. They are expected to att as the Promoters andthe pro-active partners in policy implementation.

In reality, however, the situation is different and thebureaucracy merely att as Inspectors and pursues an strategywhich at its best is reactive. A large majority of theventures are conceived by the business finns who fonnulategoals, seek technology, analyse the market and clients,prepare an industrial proposal and submit the same to thebureaucracy. The bureaucracy, in turn, go through theinformation, inspect the proposal, as a rule seek additionalinformation, negotiate with the Company and then finally makea decision. In this process the important thing is to createthe illusion that the rules and regulations are being followedto protect the interest of the country. However, hardly anywhere in this process bureaucracy functions as Promoters ofindustrial development in a pro-active manner. The bureaucracyis reactive and functions as an Inspector.

To be a pro-active Promoter demands that the bureaucracyformulate the proposal, analyse the market, master thetechnology, are informed of the market tompetition and,lastly, but not the least important, are willing to take risk.Indian Ministries and the people employed therein lack these.At the lower leve1 a typical clerk has no business andindustrial experience. The same can be said about the entireministries. Very few, if any, of the higher leve1 decisionmakers have ever worked in a commercial field. A majority ofthese were recruited in the bureaucracy as young officersdirectly after the college or university leve1 education.

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Their first hand knowledge of industrial activities is minimaland their actions are guided by myths and beliefs. Themajority of these people have spent their entire life withinthe government organizations and gradually advanced to thehigher position in the hierarchy. To some extent theirposition in the bureaucracy is contingent upon the number ofyears of experience in the ministry, which generally bearslittle relevante for the future direction of industrialdevelopment of the country. In addition, a number of decisionmakers are educated in subjetts other than technology orbusiness (like languages etc). These are not in a position tomake a suitable judgement on complex commercial and technicalissues.

On the other hand, individual enterprises are expected toformulate an appropriate industrial proposal. They arefamiliar with the market, technology, and tompetition. Theyare also better familiar with the direction of future changes.These are experienced and are in a position to function asPromoters. In reality, however, the law provides the same withfew opportunities to function as a Promoter as every aspect iscontrolled and sanctioned by the bureaucracy. Therefore, eventhese are unable to be the Promoters.

In other words, the Indian system lacks a pro-active Promoterin industrial policy implementation. Hardly any one is able totake initiative, and every party acts more as a reactivepartner.

Authority, Responsibility, & Visibility

The pro-active view in our tontext implies that theministries are assigned the authority as well asresponsibility for the task of implementing the industrialpolicy. The reality is different. We argue that in the Indiansystem the authority and the responsibility structures do notconform to each other.

Inspectors enjoy the authority to seek information on aproject (scope, scale, investment, technology etc). Byauthority is implied legitimate power. In the Indian tontextthe bureaucracy enjoys all the power and authority to seekinformation on every aspect of an industrial proposal. In thecase of TNCs additional information on the parent Company canbe asked for. How the information is used or would be used,how the claims made by the finns is rejected or accepted etc.is the sole prerogative of the bureaucracy. The authority thusenjoyed is, however, primarily a 'negative' authority, namely,the authority to say 'no', 'what is not acceptable'. There isa lack of positive authority. The authority of the Indianbureaucracy is based on its power to say 'no' as long as thedenial can be 'legitimstised' by referring to the existingrules, regulations, and procedures irrespective of the meritsof the denial.

Due to the lack of information and the first hand experiencethe bureaucracy is not in a position to make a positive use ofthe available authority. To att in a positive and pro-active

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manner the bureaucracy would require informations andknowledge which is, as mentioned earlier, rare.

The finns, on the other hand, primarily bare theresponsibility and risk. Responsibility to formulate aproject, collect information and submit the whole to thebureaucracy. These also bare the responsibility to collectdata and support their proposal. Lastly, they bare commercialrisk.

There is, consequently, an inbuilt imbalance in the authorityvs. the responsibility structure in the Indian system ofindustrial policy implementation and the balante is in favourof the bureaucracy rather than the business enterprises. Inthe absente of conformity between the responsibility and theauthority structure the latter lives an independent life de-coupled from the former. In process, however, Inspectors (thebureaucracy) skilfully try to show that the authority is usedin conformity with the interest of the society. Illusions hasto be created and this is done with the reference to therules, regulations, and procedures. The application of thepolicy diverge from its intentions and it is still difficultto pin point the responsibility for the failure to implement apolicy.

Due to this dichotomy between the authority and theresponsibility structure the Inspector can deny any proposalput forward by the finns or may keep it pending while seekinginvariably additional information related to the venture.Moreover, as rules and the regulations at the higheradministrative levels are vague the application of negativeauthority is made readily feasible. Important is not what isdone but what can be legitimatized with reference to theexisting rules, regulations, and procedures. If the number ofrules, regulations, and procedures are large and detailed thisleads to a perverse democracy (Crozier,l964), that is, asystem in which no one enjoys the authority to make decisions.If the number of rules, regulations, and procedures are fewand vague it is difficult to pin point the responsibility andhold any one responsible for the failure. A tommon situationis that there are too many laws, frequently so many thathardly any one can keep a trace. A proposal that is acceptablefrom one point of view (industrial growth rate) isunacceptable from another point of view, regional developmentor from the point of view of balante of payment. Avenues toreject or delay a proposal but still gain legitimacy areinfinite.

In exercising authority the Indian administration is primarilyengaged in a ritualistic, ceremonial behaviour. This has to bedone not because it leads to a better and appropriateimplementation of the Industrial Policy, but because this is asource of legitimacy for the bureaucracy. This serves a numberof different purposes. This is a source of feeling (illusion)in the bureaucracy that they control the development. The morequestions are asked the more the feeling of control. To thesociety this gives the impression that the bureaucracy isdoing the task assigned to it. The state is in control of the

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industrial development and its direction. In absente of suchan exercise the industrial policy is characterized as laissezfaire, directionless, too much favourable to the TNCs and theother private sector finns, and indeed, pro-capitalist and asa corollary dangerous, loosing control over the destiny of thenation, and fatal. In this process little attention is givento the questions that are asked, for what reason, and therelevante of the question for implementing the intentions ofthe Industrial Policy. Questioning has the ceremonial valueand synonymous to control (for the sake of the society) by theInspector. Rules, regulations, and procedures create illusionof pro-activeness, control and desirability. In this processof gaining legitimacy important is the visible behaviour, thatis 'how things look like', rather than the real or theinvisible part of the behaviour, that is, 'how things are'(Selznick, 1965). The former as shown to the society deviatesfrom the latter and the two are either de-coupled or are onlyloosely coupled. Evidently, in this process the invisiblebehaviour is more significant for undersigning how theindustrial policy is implemented than the visible behaviourwhich is ceremonial and ritualistic.

Behind the scene bureaucratic decision making is frequentlyguided by other aims and goals than the one mentioned in therules, regulations, and decision making procedures. Kinship,caste, family ties, and personal gain seeking imping upondecision making. Hypocrisy is tommon. The visible (to thepublit) talks, decisions, and actions are de-coupled from theinvisible ones. The former tonforms to the rules, regulations,and procedures, the latter need not do so. Hypocrisy isrewarded as well is rewarding. Behind the scene Inspectorsentertain sufficient avenues to further their own end at costof those of the society. In reality a number of questions areasked by the Inspectors merely to gain favours and to seekpersonal gains. The invisible behaviour allows the bureaucracyto 'feather the nest', namely, to use the organization forpersonal benefits (Perrow, 1986, ch. 1). The people thatoccupy a position in the bureaucracy behave as if they own theposition and successfully try to achieve personal ambitions(power, wealth etc). These come in the shape of money, gifts,free use of applitants cars, guest house etc. Results of oursurvey proves the point. Important is consequently familiarityand the ability to understand and comprehend and adjust to theinvisible actors in the industrial policy implementation aswell as the invisible aspects of the manner in whichindustrial policy is implemented.

The legitimacy of the bureaucracy is not contingent upon itsability to implement the industrial policy in conformity withthe intentions but its ability to hide and minimize theexposure of the invisible behaviour. Important is the abilityto explain the anomalies in the industrial policyimplementation with reference to the existing (missing) rules,regulations, and procedures.

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CONCLUSION

The purpose of this paper is to distuss Industrial Policyimplementation in the Indian tontext. The role of the Indianbureaucracy was discussed and it is pointed out that in thetontext of Indian Industrial Policy bureaucracy is more orless an independent power and pursue's its own 'rules,regulations and procedures'. The purpose of the bureaucraticactions is to gain access to legitimacy and this is achievedthrough rule following.

Behind the scene, however, Indian bureaucracy pursues a numberof goals and aims of its own only a few of which are overt andvisible. These behind the scene activities are important togain a proper understanding on how policies are implemented.This is made easy as the responsibility and the authoritystructures deviate. Those with the authority to make decisionsare not responsible for the outcome. This allows thebureaucracy a wide latitude in decision making and pursuingits aims. In this process decisions are delayed, if these areever made. Moreover, 'incorrect' decisions are not uncommon.

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