Industrial Policies of Industrial Policies of IndiaIndia

HISTORICAL BACKGROUNDHISTORICAL BACKGROUND► During the British rule in India, the government policy During the British rule in India, the government policy

towards industry and business was indifferent. The towards industry and business was indifferent. The first century of British rule saw the decline of nearly all first century of British rule saw the decline of nearly all indigenous industries for many reasons—indigenous industries for many reasons—technological, economic, and political.technological, economic, and political.

► Modern industrial enterprises in India developed only Modern industrial enterprises in India developed only after 1850. Its earliest manifestations came in the after 1850. Its earliest manifestations came in the wake of the construction of railways, which made it wake of the construction of railways, which made it essential to have modern workshops for repair and essential to have modern workshops for repair and maintenance of the rolling stock.maintenance of the rolling stock.

► The first isolated attempt at officially encouraging the The first isolated attempt at officially encouraging the growth of large-scale industry took place around 1900.growth of large-scale industry took place around 1900.

► The Second World War was a major watershed in the The Second World War was a major watershed in the development of government–business relations in development of government–business relations in India.India.

GOVERNMENT’S ROLEGOVERNMENT’S ROLE►Pandit Jawaharlal Nehru laid the foundation of modern Pandit Jawaharlal Nehru laid the foundation of modern

India. His India. His vision and determination have left a lasting vision and determination have left a lasting impression on impression on every facet of national endeavour since every facet of national endeavour since independence.independence.

►The goals and objectives set out for the nation by Pandit The goals and objectives set out for the nation by Pandit Nehru on Nehru on the eve of independence were as follows:the eve of independence were as follows:

1. Rapid agricultural and industrial development of the country,1. Rapid agricultural and industrial development of the country,2. Rapid expansion of opportunities for gainful employment,2. Rapid expansion of opportunities for gainful employment,3. Progressive reduction of social and economic disparities, and3. Progressive reduction of social and economic disparities, and4. Removal of poverty and attainment of self-reliance.4. Removal of poverty and attainment of self-reliance.

►The financial and the balance of payment crises that the The financial and the balance of payment crises that the nation nation faced from the onset of the 1990s compelled the faced from the onset of the 1990s compelled the acceptance of acceptance of deregulation, reduced role for public deregulation, reduced role for public sector, making the public sector, making the public sector efficient and surplus sector efficient and surplus generating, and much reliance in generating, and much reliance in general on the private general on the private sector for industrial and infrastructure sector for industrial and infrastructure development.development.

In this context, the following aspects In this context, the following aspects deserve special consideration:deserve special consideration:

• • Government role as a promoter, caretaker, and regulator,Government role as a promoter, caretaker, and regulator,• • Promoting and protecting the small-scale sector,Promoting and protecting the small-scale sector,• • Facilitating the revival of sick units,Facilitating the revival of sick units,• • Facilitating the development of Indian companies for the globalFacilitating the development of Indian companies for the global market,market,• • Promoting inflow of foreign capital and technology,Promoting inflow of foreign capital and technology,• • Promoting and maintaining ecological balance,Promoting and maintaining ecological balance,• • Promoting the social role of business,Promoting the social role of business,• • Developing adequate infrastructural facilities for the overallDeveloping adequate infrastructural facilities for the overall development of the economy, anddevelopment of the economy, and• Formulating and operating industrial policies conducive to Formulating and operating industrial policies conducive to

balance industrial and economic growth.balance industrial and economic growth.

MEANING AND OBJECTIVES OF MEANING AND OBJECTIVES OF INDUSTRIAL POLICIESINDUSTRIAL POLICIES

►Meaning: Meaning:

Industrial policy means rules, Industrial policy means rules, regulations, principles, policies, and regulations, principles, policies, and procedures laid down by government for procedures laid down by government for regulating, developing, and controlling regulating, developing, and controlling industrial undertakings in the country.industrial undertakings in the country.

ObjectivesObjectivesIndustrial policy statements have been announced from 1948 onwards, Some of Industrial policy statements have been announced from 1948 onwards, Some of

thethe important objectives can be identified as follows:important objectives can be identified as follows: • • Achieving a socialistic pattern of society,Achieving a socialistic pattern of society,• • Preventing undue concentration of economic power,Preventing undue concentration of economic power,• • Achieving industrial development,Achieving industrial development,• • Achieving economic growth,Achieving economic growth,• • Reducing disparities in regional development,Reducing disparities in regional development,• • Developing heavy and capital goods industry,Developing heavy and capital goods industry,• • Providing opportunities for gainful employment,Providing opportunities for gainful employment,• • Expanding the public sector for achieving socialism,Expanding the public sector for achieving socialism,• • Achieving faster economic growth,Achieving faster economic growth,• • Achieving a self-sustained economy,Achieving a self-sustained economy,• • Alleviating poverty,Alleviating poverty,• • Protecting and developing a healthy small-scale sector,Protecting and developing a healthy small-scale sector,• • Building up a large and growing cooperative sector,Building up a large and growing cooperative sector,• • Updating technology and modernisation of industry, andUpdating technology and modernisation of industry, and• • Liberalisation and globalisation of economy.Liberalisation and globalisation of economy.

INDUSTRIAL POLICIESINDUSTRIAL POLICIES

• • Industrial Policy Resolution of 1948.Industrial Policy Resolution of 1948.

• • Industrial Policy Resolution of 1956.Industrial Policy Resolution of 1956.

• • Industrial Policy Statement of 1973.Industrial Policy Statement of 1973.

• • Industrial Policy Statement of 1977.Industrial Policy Statement of 1977.

• • Industrial Policy Statement of 1980.Industrial Policy Statement of 1980.

• • The New Industrial Policy of 1991.The New Industrial Policy of 1991.

Industrial Policy Resolution of Industrial Policy Resolution of 19481948

The Government of India announced its fi rst Industrial Policy Resolution The Government of India announced its fi rst Industrial Policy Resolution on April 6, 1948. The policy resolution laid stress on the role of the on April 6, 1948. The policy resolution laid stress on the role of the state in the development of industry. The industrial activities were state in the development of industry. The industrial activities were divided into four broad areas:divided into four broad areas:

1.1. Items under the central government control—arms and ammunition Items under the central government control—arms and ammunition production and control of atomic energy, ownership and control of production and control of atomic energy, ownership and control of railway transport, and others;railway transport, and others;

2. Items under the state government control—coal, iron and steel, 2. Items under the state government control—coal, iron and steel, aircraft manufacture, shipbuilding, manufacture of telephones, aircraft manufacture, shipbuilding, manufacture of telephones, telegraphs, and wireless apparatus;telegraphs, and wireless apparatus;

3. Items of basic importance planned and regulated by the Central 3. Items of basic importance planned and regulated by the Central government— salt, automobiles, tractors, heavy machinery, fertiliser, government— salt, automobiles, tractors, heavy machinery, fertiliser, cement, sugar, paper, and so on; andcement, sugar, paper, and so on; and

4. Items for the private sector—all other items left to the private sector.4. Items for the private sector—all other items left to the private sector.

Industrial Policy Resolution of Industrial Policy Resolution of 19561956

The second Industrial Policy Resolution was announced on April The second Industrial Policy Resolution was announced on April 30,30,

1956. The basic objectives of the policy included the following:1956. The basic objectives of the policy included the following:

1. Speeding up the process of industrialisation in India,1. Speeding up the process of industrialisation in India,2. Developing heavy and capital goods industries,2. Developing heavy and capital goods industries,3. Expanding an effective public sector, 3. Expanding an effective public sector, 4. Accelerating the rate of economic growth,4. Accelerating the rate of economic growth,5. Building up a large and growing cooperative sector,5. Building up a large and growing cooperative sector,6. Encouraging private sector industries,6. Encouraging private sector industries,7. Preventing private monopolies,7. Preventing private monopolies,8. Developing small-scale, village, and cottage industries,8. Developing small-scale, village, and cottage industries,9. Achieving balanced economic development,9. Achieving balanced economic development,10. Participation of workers in management, and10. Participation of workers in management, and11. Maintenance of industrial peace.11. Maintenance of industrial peace.

Industrial Policy Statement of Industrial Policy Statement of 19731973

An industrial policy statement was made in a press note on An industrial policy statement was made in a press note on FebruaryFebruary

2, 1973. The main features of Industrial Policy Statement of2, 1973. The main features of Industrial Policy Statement of1973 were as follows:1973 were as follows:

1.1. The statement declared that the state would be directly The statement declared that the state would be directly responsible for the future development of industries.responsible for the future development of industries.

2. The role of public sector was further stressed in attaining a 2. The role of public sector was further stressed in attaining a socialistic pattern of society.socialistic pattern of society.

3. As an initiative towards the development of joint sector units, they 3. As an initiative towards the development of joint sector units, they were supposed to function under the direction of the government.were supposed to function under the direction of the government.

4. Foreign investment was allowed only in specific industries. 5. 4. Foreign investment was allowed only in specific industries. 5. Small-scale and cooperative sectors were assigned a special role Small-scale and cooperative sectors were assigned a special role to play. Small and medium sectors were given preferential to play. Small and medium sectors were given preferential treatment.treatment.

6. In the area of agricultural produce, cooperative enterprises were 6. In the area of agricultural produce, cooperative enterprises were encouraged.encouraged.

Industrial Policy Statement of Industrial Policy Statement of 19771977

► The Janta Party came to power in March 1977. The Janta Party government presented to The Janta Party came to power in March 1977. The Janta Party government presented to Parliament an industrial policy on December 23, 1977. The major objectives set in the Parliament an industrial policy on December 23, 1977. The major objectives set in the policy were as follows:policy were as follows:

1. Preventing of monopoly and concentration of economic power,1. Preventing of monopoly and concentration of economic power,2. Maximising production of consumer goods, and2. Maximising production of consumer goods, and3. Making industry responsive to social needs.3. Making industry responsive to social needs.

► The basic elements of the Janta government’s industrial policy were as follows:The basic elements of the Janta government’s industrial policy were as follows:

1. Development of small-scale industries, cottage industries, tiny sector units, village 1. Development of small-scale industries, cottage industries, tiny sector units, village and householdand household

industries,industries,2. Encouraging the large-scale industrial units for meeting the minimum needs of the 2. Encouraging the large-scale industrial units for meeting the minimum needs of the population,population,3. Reversing the process of growth of large industries which grew with the help of funds 3. Reversing the process of growth of large industries which grew with the help of funds from publicfrom public

financial institutions,financial institutions,4. Public sector was to be used as a producer and supplier of essential consumer goods,4. Public sector was to be used as a producer and supplier of essential consumer goods,5. Import of technology only in high-priority areas, and5. Import of technology only in high-priority areas, and6. Restricted foreign collaboration—the ownership and control were to remain in Indian 6. Restricted foreign collaboration—the ownership and control were to remain in Indian hands.hands.

New Industrial Policy Statement New Industrial Policy Statement of 1980of 1980

The Congress came to power again in 1980. The Union Minister of StateThe Congress came to power again in 1980. The Union Minister of State announced the new industrial policy on July 23, 1980. The socio-announced the new industrial policy on July 23, 1980. The socio-

economiceconomic objectives of the 1980 Industrial Policy were as given below:objectives of the 1980 Industrial Policy were as given below:

1. Optimum utilisation of the installed capacity,1. Optimum utilisation of the installed capacity,2. Higher employment generation,2. Higher employment generation,3. Achieving higher productivity and maximum production,3. Achieving higher productivity and maximum production,4. Development of industrially backward areas,4. Development of industrially backward areas,5. Promotion of agro-based industries,5. Promotion of agro-based industries,6. Faster promotion of export-oriented and import-substitution 6. Faster promotion of export-oriented and import-substitution

industries,industries,7. Consumer protection against high prices and bad quality,7. Consumer protection against high prices and bad quality,8. Promoting economic federalism with spread of investment in rural as 8. Promoting economic federalism with spread of investment in rural as

well aswell as urban areas, andurban areas, and9. Revival of the economy by overcoming infrastructural gaps.9. Revival of the economy by overcoming infrastructural gaps.

The following policy measures were The following policy measures were specified to achieve these objectivesspecified to achieve these objectives

1. Promoting the process of rural industrialisation,1. Promoting the process of rural industrialisation,2. Removing regional imbalances,2. Removing regional imbalances,3. Regulating the excess capacity in the private 3. Regulating the excess capacity in the private

sector,sector,4. Efficient operational management of the public 4. Efficient operational management of the public

sector,sector,5. Developing small-scale sector by increasing the 5. Developing small-scale sector by increasing the

limit of investment,limit of investment,6. Automatic expansion in large-scale industrial units, 6. Automatic expansion in large-scale industrial units,

andand7. Dealing with industrial sickness effectively.7. Dealing with industrial sickness effectively.

New Industrial Policy of 1991New Industrial Policy of 1991► As a part of the liberalisation, a new industrial policy was As a part of the liberalisation, a new industrial policy was

announced by the Government of India in two parts, on July 24, announced by the Government of India in two parts, on July 24, 1991 and August 6, 1991, respectively. Some of the major 1991 and August 6, 1991, respectively. Some of the major aspects of the industrial policy were as follows:aspects of the industrial policy were as follows:

► Automatic clearance introduced for import of capital goodsAutomatic clearance introduced for import of capital goods► Existing and new industrial units provided with broad-banding Existing and new industrial units provided with broad-banding

facilityfacility► Pre-eminent role of public sector in eight core areasPre-eminent role of public sector in eight core areas► Part of government’s shareholding in public sector is proposed Part of government’s shareholding in public sector is proposed

to be disinvested,to be disinvested,► Chronic loss-making public sector units to be referred to the Chronic loss-making public sector units to be referred to the

Board of Industrial and Financial Reconstruction (BIFR)Board of Industrial and Financial Reconstruction (BIFR)► A simplified procedure for new projects was introduced to A simplified procedure for new projects was introduced to

manufacture goods not covered by compulsory licensing.manufacture goods not covered by compulsory licensing.► Decisive contribution was expected from foreign investmentDecisive contribution was expected from foreign investment► Industrial policy for the small-scale sector announced on August Industrial policy for the small-scale sector announced on August

6, 19916, 1991

Objectives:Objectives:The objectives of the 1991 policy The objectives of the 1991 policy includedincluded1. Reducing or minimising the bureaucratic control of 1. Reducing or minimising the bureaucratic control of

the industrial economy of India,the industrial economy of India,2. Liberalisation of industrial and economic activities 2. Liberalisation of industrial and economic activities

for integrating the Indian economy with the world for integrating the Indian economy with the world economy,economy,

3. Removing restrictions on foreign direct investment,3. Removing restrictions on foreign direct investment,4. Freeing the domestic entrepreneur from excessive 4. Freeing the domestic entrepreneur from excessive

MRTP restrictions, andMRTP restrictions, and5. Streamlining the role of public sector enterprises.5. Streamlining the role of public sector enterprises.

Among the areas covered, the most important Among the areas covered, the most important ones ones

are:are:

1. Industrial licensing,1. Industrial licensing,

2. Foreign investment,2. Foreign investment,

3. Technology transfer and import of foreign 3. Technology transfer and import of foreign technology,technology,

4. Public sector policy,4. Public sector policy,

5. Policy relating to MRTP Act, and5. Policy relating to MRTP Act, and

6. An exclusive small-sector policy.6. An exclusive small-sector policy.

Focus of industrial policy of Focus of industrial policy of 19911991

►Deregulating Indian IndustryDeregulating Indian Industry►Allowing the industry freedom and Allowing the industry freedom and

flexibility in responding to market flexibility in responding to market forcesforces

►Providing a policy regime that facilities Providing a policy regime that facilities and fosters growth of Indian Industryand fosters growth of Indian Industry

Features of Industrial Features of Industrial policy,1991policy,1991

►INDUSTRIAL LICENCINGINDUSTRIAL LICENCING►FOREIGN INVESTMENTFOREIGN INVESTMENT►FOREIGN TECHNOLOGY AGREEMENTSFOREIGN TECHNOLOGY AGREEMENTS►PUBLIC SECTOR POLICYPUBLIC SECTOR POLICY►MRTP ACTMRTP ACT►LIBERALISATION OF LOCALISATION LIBERALISATION OF LOCALISATION

POLICYPOLICY►EXPANSION AND DIVERSIFICATION OF EXPANSION AND DIVERSIFICATION OF

EXISTING UNITSEXISTING UNITS

INDUSTRIAL POLICY INDUSTRIAL POLICY REFORMS 1993-94REFORMS 1993-94

►13 Minerals, earlier reserved for public 13 Minerals, earlier reserved for public sector were opened.sector were opened.

►Number of Industries reserved for public Number of Industries reserved for public sector were reduced to 6.sector were reduced to 6.

►Number of items in respect of which Number of items in respect of which Industrial Licensing was compulsory was Industrial Licensing was compulsory was reduced to 15 reduced to 15

►Sick Industrial Companies Act 1985 was Sick Industrial Companies Act 1985 was amended to facilitate early detection of amended to facilitate early detection of sickness in company.sickness in company.

Industrial policy reforms Industrial policy reforms 1994-951994-95

► Industrial licensing for almost all bulk Industrial licensing for almost all bulk drugs abolisheddrugs abolished

►Automatic approval of foreign Investment Automatic approval of foreign Investment upto 51% and foreign technology upto 51% and foreign technology agreements permitted for all bulk drugs, agreements permitted for all bulk drugs, and formulations, barring only few.and formulations, barring only few.

►Basic telecommunication services opened Basic telecommunication services opened to private participation, including foreign to private participation, including foreign investments.investments.

► Import duties on capital goods reduced Import duties on capital goods reduced to 15% on export related capital to 15% on export related capital goods,25%for project import and most goods,25%for project import and most capital goods.capital goods.

►Continued reforms in custom duties, Continued reforms in custom duties, including reduction of peak tariff tax including reduction of peak tariff tax rate, etc.rate, etc.

THE NEW SMALL-SCALE SECTOR POLICY THE NEW SMALL-SCALE SECTOR POLICY OF 1991OF 1991

► The new policy on tiny, small, and village The new policy on tiny, small, and village enterprises envisages almost a U-turn in enterprises envisages almost a U-turn in policy stimulants and structure of micro and policy stimulants and structure of micro and small enterprises in the country.small enterprises in the country.

ObjectivesObjectivesThe primary objective of the small-scale industrial The primary objective of the small-scale industrial policy during the 1990s would be to impart more policy during the 1990s would be to impart more vitality and growth impetus to the sector,vitality and growth impetus to the sector,

The other objectives are as follows:The other objectives are as follows:1. To decentralise and delicense the sector,1. To decentralise and delicense the sector,2. To deregulate and debureaucratise the 2. To deregulate and debureaucratise the

sector,sector,3. To review all statutes, regulations, and 3. To review all statutes, regulations, and

procedures and effect suitable modificationsprocedures and effect suitable modifications wherever necessary,wherever necessary,4. To promote small enterprise, especially 4. To promote small enterprise, especially

industries in the tiny sector,industries in the tiny sector,

5. To motivate small and sound entrepreneurs to set 5. To motivate small and sound entrepreneurs to set up new green enterprises in theup new green enterprises in the

country,country,6. To involve traditional and reputed voluntary 6. To involve traditional and reputed voluntary

organisations in the intensive development organisations in the intensive development of Khadi and Village Industrial Commission (KVIC) of Khadi and Village Industrial Commission (KVIC)

through area approach,through area approach,7. To maintain a sustained growth in productivity and 7. To maintain a sustained growth in productivity and

attain competitiveness in the marketattain competitiveness in the market economy, especially in the international markets,economy, especially in the international markets,8. To industrialise the backward areas of the country,8. To industrialise the backward areas of the country,9. To accelerate the process of development of 9. To accelerate the process of development of

modern small enterprisesmodern small enterprises,,

Salient Features of New Salient Features of New PolicyPolicy

1. Equity participation up to 24 per cent by other industrial undertakings (including foreign companies).1. Equity participation up to 24 per cent by other industrial undertakings (including foreign companies).2. Legislation to limit financial liability of new or non-active partner-entrepreneurs to the capital invested.2. Legislation to limit financial liability of new or non-active partner-entrepreneurs to the capital invested.3. Hike in investment limit for tiny sector, up from Rs 2 lakh to Rs 5 lakh.3. Hike in investment limit for tiny sector, up from Rs 2 lakh to Rs 5 lakh.4. Services sector to be recognised as tiny sector.4. Services sector to be recognised as tiny sector.5. Support from National Equity Fund for projects upto Rs 10 lakh.5. Support from National Equity Fund for projects upto Rs 10 lakh.6. Single-window loans to cover projects up to Rs 20 lakh. Banks too to be involved.6. Single-window loans to cover projects up to Rs 20 lakh. Banks too to be involved.7. Relaxation of certain provision of labour laws.7. Relaxation of certain provision of labour laws.8. Sub-contracting Exchanges to be set up by industry associations.8. Sub-contracting Exchanges to be set up by industry associations.9. Easier access to institutional finance.9. Easier access to institutional finance.10. Factoring services through SIDBI to overcome the problem-delayed payments. Also, legislation to ensure 10. Factoring services through SIDBI to overcome the problem-delayed payments. Also, legislation to ensure

payment of bills.payment of bills.11. Women enterprises redefined.11. Women enterprises redefined.12. Marketing of mass consumption items by National Small Industries Corporation under common brand 12. Marketing of mass consumption items by National Small Industries Corporation under common brand

name.name.13. Composite loan under the single-window scheme also to be given by banks.13. Composite loan under the single-window scheme also to be given by banks.14. Tiny sector to be accorded priority in government purchase programme.14. Tiny sector to be accorded priority in government purchase programme.15. Priority to SSIs and tiny units in allocation of indigenous raw materials.15. Priority to SSIs and tiny units in allocation of indigenous raw materials.16. Promises to deregulate and debureacratise small and tiny sectors.16. Promises to deregulate and debureacratise small and tiny sectors.17. PSUs and NSIC to help market products through consortia approach, both domestically and internationally.17. PSUs and NSIC to help market products through consortia approach, both domestically and internationally.18. Janata Cloth Scheme to he replaced by a new scheme which will provide fund for loom modernisation.18. Janata Cloth Scheme to he replaced by a new scheme which will provide fund for loom modernisation.19. Compulsory quality control for products that pose rise to health and life.19. Compulsory quality control for products that pose rise to health and life.20. Legislation to ensure payment of small-scale industries bills.20. Legislation to ensure payment of small-scale industries bills.21. A special monetary agency to be set up for the small-scale sector’s credit needs.21. A special monetary agency to be set up for the small-scale sector’s credit needs.22. A new scheme of integrated infrastructure development to be implemented.22. A new scheme of integrated infrastructure development to be implemented.23. A TDC to be set up.23. A TDC to be set up.24. Incentive and services package to be delivered at the district level.24. Incentive and services package to be delivered at the district level.25. An export development centre to be set up.25. An export development centre to be set up.26. KVIC and board to be expanded.26. KVIC and board to be expanded.27. Investment limit of ancillary units and EOU raised to Rs 75 lakh.27. Investment limit of ancillary units and EOU raised to Rs 75 lakh.28. Traditional village industries to be given greater thrust.28. Traditional village industries to be given greater thrust.

Small-scale IndustriesSmall-scale Industries

1. Financial support.1. Financial support.

2. Infrastructure facilities.2. Infrastructure facilities.

3. Marketing and exports.3. Marketing and exports.

4. Modernisation.4. Modernisation.

5. Promotion of entrepreneurship.5. Promotion of entrepreneurship.

6. Simplifi cation of rules and 6. Simplifi cation of rules and procedures.procedures.

7. Tapping resources.7. Tapping resources.

Tiny SectorTiny Sector

1. Investment.1. Investment.

2. Broadening the concept of service 2. Broadening the concept of service sector.sector.

3. Locational.3. Locational.

4. Simplification of rules.4. Simplification of rules.

Handloom SectorHandloom Sector

1. Project package scheme.1. Project package scheme.

2. Welfare packages scheme.2. Welfare packages scheme.

3. Organisation and development 3. Organisation and development scheme.scheme.

4. NHDC as a nodal agency.4. NHDC as a nodal agency.

Handicraft SectorHandicraft Sector

1. Extending services like supply of raw materials and so on.1. Extending services like supply of raw materials and so on.2. Market development support and expansion of training 2. Market development support and expansion of training

facilities.facilities.3. Other village industries.3. Other village industries.4. Improving quality.4. Improving quality.5. Ensuring better flow of credit from financial institution.5. Ensuring better flow of credit from financial institution.6. Thrust on traditional village industries.6. Thrust on traditional village industries.7. Setting up of functional industries estates.7. Setting up of functional industries estates.8. Upgrading training programmes.8. Upgrading training programmes.9. Coordinating with development programmes.9. Coordinating with development programmes.