INTRODUCTION

When India achieved Independence in 1947, the national consensus was in favour of rapid industrialization of the economy which was seen not only as the key to economic development but also to economic sovereignty. In the subsequent years, India's Industrial Policy evolved through successive Industrial Policy Resolutions. Specific priorities for industrial development were also laid down in the successive Five Year Plans. Building on the so-called Bombay Plan in the pre-Independence era, the first Industrial Policy Resolution announced in 1948 laid down broad contours of the strategy of industrial development. At that time the Constitution of India had not taken final shape nor was the Planning Commission constituted. Moreover, the necessary legal framework was also not put in place. Not surprisingly therefore, the Resolution was somewhat broad in its scope and direction. The main aim of industrial resolution policies was to facilitate the private players and liberalized them. There were two phase first one is restrictive era which consist of Industrial policy resolution1948,1956,1977.The other one is the liberalized era which consist of Industrial policy resolution 1980, 1991.

RELEVANCE/SIGNIFICANCE

The Government of India set out in their Resolution dated 6 April, 1948 the policy which they proposed to pursue in the industrial field. The Resolution emphasized the importance to the economy of securing a continuous increase in production and its equitable distribution, and pointed out that the State must play of progressively active role in the development of Industries. It laid down that besides arms and ammunition, atomic energy and railway transport, which would be the monopoly of the Central Government, the State would be exclusively responsible for the establishment of new undertakings in six basic industries-except where, in the national interest, the State itself found it necessary to secure the cooperation of private enterprise. The rest of the industrial field was left open to private enterprise though it was made clear that the State would also progressively participate in this field. In 1948, immediately after Independence, Government introduced the Industrial Policy Resolution. This outlined the approach to industrial growth and development. It emphasized the importance to the economy of securing a continuous increase in production and ensuring its equitable distribution. After the adoption of the Constitution and the socio-economic goals, the Industrial Policy was comprehensively revised and adopted in 1956. To meet new challenges, from time to time, it was modified through statements in 1977, 1980 and 1991. The

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Industrial Policy Resolution of 1948 was followed by the Industrial Policy Resolution of 1956 which had as its objective the acceleration of the rate of economic growth and the speeding up of industrialization as a means of achieving a socialist pattern of society. In 1956, capital was scarce and the base of entrepreneurship not strong enough. Hence, the 1956 Industrial Policy Resolution gave primacy to the role of the State to assume a predominant and direct responsibility for industrial development. The Industrial Policy Statement of 1977 laid emphasis on decentralization and on the role of small-scale, tiny and cottage industries. Then the liberal era was started with the introduction of Industrial policy resolution 1980& 1991. The Industrial Policy Statement of 1980 focused attention on the need for promoting competition in the domestic market, technological up gradation and modernization. Globalization, privatization ,liberalization these three term facilitate the Indian market with the introduction of Industrial policy resolution 1991.

POSITIONING / APPLICABILITIES

The restrictive era consist of Industrial policy resolution 1948,1956 &1977 and the liberalized era consist of industrial resolution policy 1980 and 1991.

Industrial policy resolution 1948

The first Industrial Policy Resolution announced in 1948 laid down broad contours of the strategy of industrial development.Features:•Division of the Industrial sector into 4 major categories.•Small and Cottage Industries were given privileges.•Considered the importance of private participationDivision of Industrial sector into four major categories

1.State Monopoly(Arms and ammunition, Atomic Energy,Rail Transport)

2. Mixed Sector(Industry will be promoted by joint venture of Govt and private.)Six industries were specified(Coal, Iron & Steel, Aircraft Mfg, Ship Building, Telephone, Telegraph & Wireless (Excluding Radio),Mineral Oils.). The existing can continue and after 10 years, the government will take over those undertakings by paying a compensation which is fair and equitable.

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3.The field of government control. The government will regulate Industries in this category(Automobiles, Heavy Machinery, Heavy Chemicals, Fertilizers, Sugar, Paper, Cement,Cotton, Woollen textiles etc)

4. The field of private enterprises. All the other IndustriesThe resolution emphised on the following-1.The importance to the economy of securing a continuous in increase in production2.Its equitable distribution3.State must play of progressing active role in the development of industry4.It laid down that besides arms & ammunition, automic energy & railway transport which would be the monopoly of the central government.The state wouldl be exclusively responsible for the establishment of new undertaking in six basic industry except where in the national interest the state itself found it necessary to secure the cooperation of private entsrprise.5.The rest of the industrial field was left open to private enterprise though it was made clear that the state would also progressively participate in this field.

Industrial policy resolution 1956

The Industrial Policy Resolution - 1956 was shaped by the Mahalanobis Model of growth, which suggested that emphasis on heavy industries would lead the economy towards a long term higher growth path. The Resolution widened the scope of the public sector. The objective was to accelerate economic growth and boost the process of industrialization as a means to achieving a socialistic pattern of society. Given the scarce capital and inadequate entrepreneurial base, the Resolution accorded a predominant role to the State to assume direct responsibility for industrial development. All industries of basic and strategic importance and those in the nature of publicutility services besides those requiring large scale investment were reserved for the public sector. The Industrial Policy Resolution - 1956 classified industries into three categories. The first category comprised 17 industries exclusively under the domain of the Government. These are railways, air transport, arms and ammunition, iron and steel and atomic energy. The second category comprised 12 industries which were envisaged to be progressively State owned but private sector was expected to supplement the efforts of the State. The third category contained all the remaining industries and it was expected that private sector would initiate development of these industries but they would remain open for the State as well. It was envisaged that the State would facilitate and encourage development of these industries in the private sector, in accordance with the programmes

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formulated under the Five Year Plans, by appropriate fiscal measures and ensuring adequate infrastructure. Despite the demarcation of industries into separate categories, the Resolution was flexible enough to allow the required adjustments and modifications in the national interest.

Industrial policy resolution 1977This resolution policy emphasized decentralization of industrial sector with increased role for small scale, tiny and cottage industries. It also provided for close interaction between industrial and agricultural sectors. Highest priority was accorded to power generation and transmission. It expanded the list of items reserved for exclusive production in the small scale sector from 180 tomore than 500. This Policy also issued a list of industries where no foreign collaboration of financial or technical nature was allowed as indigenous technology was already available. Fully owned foreign companies were allowed only in highly export oriented sectors or sophisticated technology areas. For all approved foreign investments, companies were completely free to repatriate capital and remit profits, dividends, royalties, etc. Further, in order to ensure balanced regional development, it was decided not to issue fresh licenses for setting up new industrial units within certain limits of large metropolitan cities.

Industrial policy resolution 1980The industrial Policy resolution 1980 placed accent on promotion of competition in the domestic market, technological upgradatrion and modernization of industries. Some of the socio-economic objectives of IPR 1980 were i) optimum utilisation of installed capacity, ii) higher productivity, iii) higher employment levels, iv) removal of regional disparities, v) strengthening of agricultural base, vi) promotion of export oriented industries and vi) consumer protection against high prices and poor quality. A number of policy measures were initiated towards technological and managerial modernization to improve productivity, quality and to reduce cost of production. The public sector was freed from a number of constraints and was provided with greater autonomy.

Industrial policy resolution 1991The Industrial resolution Policy 1991 stated that “the Government will continue to pursue a sound policy framework encompassing encouragement of entrepreneurship, development of indigenous technology through investment in research and development, bringing in new technology, dismantling of the regulatory system, development of the capital markets and increased

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competitiveness for the benefit of common man". It further added that "the spread of industrialization to backward areas of the country will be actively promoted through appropriate incentives, institutions and infrastructure investments”. The objective of IPR 1991 was to maintain sustained growth in productivity, enhance gainful employment and achieve optimal utilization of human resources, to attain international competitiveness, and to transform India into a major partner and player in the global arena.Foreign equity liberalizationRecognising the complementarily of domestic and foreign investment, foreign direct investment was accorded a significant role in policy announcements of 1991. Foreign direct investment (FDI) up to 51 per cent foreign equity in high priority industries requiring large investmentsand advanced technology was permitted. Foreign equity up to 51 percent was also allowed in trading companies primarily engaged in export activities. These important initiatives were expected to provide a boost to investment besides enabling access to high technology and marketing expertise of foreign companies.License liberalizationA substantial modification of Industry Licencing Policy was deemed necessary with a view to ease restraints on capacity creation, respond to emerging domestic and global opportunities by improving productivity. Accordingly, the Policy included abolition of industrial licensing for most industries, barring a handful of industries for reasons of security and strategic concerns, social and environmental issues. Compulsory licencing was required only in respect of 18 industries. These included, coal and lignite, distillation and brewing of alcoholic drinks, cigars and cigarettes, drugs and pharmaceuticals, white goods, hazardous chemicals. The small scale sector continued to be reserved. Norms for setting up industries (except for industries subject to compulsory licensing) in cities with more than one million population were further liberalised.Export promotion & Import liberalizationWith a view to inject technological dynamism in the Indian industry, the Government provided automatic approval for technological agreements related to high priority industries and eased procedures for hiring of foreign technical expertise.Limitation to public sectorAsked to puplic sector not to go further extension otherwise it will leads to disinvestment. Major initiatives towards restructuring of public sector units (PSUs) were initiated, in view of their low productivity, over staffing, lack of technological upgradation and low rate of return. In order to raise resources and ensure wider public participation PSUs, it was decided to offer its shareholding stake to mutual funds, financial institutions, general public and workers. Similarly,

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in order to revive and rehabilitate chronically sick PSUs, it was decided to refer them to the Board for Industrial and Financial Reconstruction (BIFR). The Policy also provided for greater managerial autonomy to the Boards of PSUs.NAVARATNA & Commercial autonomyThe public sectors who were performing well joined in NAVARTNA & got commercial autonomy.

PROBLEMS WITH INDUSTRIAL POLICY RESOLUTION 1948,1956,1977&1980

The private sectors were not satisfied with these policies. The IPR 1948 emphased on puplic sector where as there was no foreign collaboration & upgradation of foreign technology in IPR 1956.The IPR 1977 focused on only small scale industry. The evolution of post-Independence economic policy discussed above had three basic features: autarchic trade policy, extension of public sector, and direct, discretionary and quantitative controls on the private sector. These features interacted in the institutional environment of functioning markets and private ownership of means of production to generate perverse incentives that constricted the operation of the market forces and private economic agents and resulted in a low rate of economic growth of 3.5 per cent per annum despite the doubling of the rates of domestic savings and investment over thethirty year period 1950-80. Public sector units were expected to operate efficiently and generate resources for further investment. Instead, they were saddled with multiplicity of often-conflicting objectives, they had to accept politically driven inappropriate administered prices for their products and services, and were subjected to bureaucratic and political interference, which made their efficient operation difficult. They also faced the 'soft-budget constraint' with neither penalty for losses nor rewards for efficient functioning. Poor performance of public sector units had multiplier effects through inefficient, low quality and often irregular and fluctuating supplies of infrastructure services and universal intermediate inputs (like iron and steel and financial services), which partly contributed to the inefficiencies of the private sector units. At the macro level, they became a drain on the exchequer through their recurring losses instead of generating resources for investment.

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A CRITICAL ANALYSIS

In 1948, immediately after Independence, Government introduced the Industrial Policy Resolution. This outlined the approach to industrial growth and development. It emphasised the importance to the economy of securing a continuous increase in production and ensuring its equitable distribution. After the adoption of the Constitution and the socio-economic goals, the Industrial Policy was comprehensively revised and adopted in 1956. To meet new challenges, from time to time, it was modified through statements in 1977 and 1980. The wide ranging economic reforms in India since 1991 involved a major shift in the development strategy. The earlier strategy adopted public sector dominated autarchic investment planning of industrialisation with direct discretionary controls on private investment. The interaction of this strategy with the institutional framework of functioning markets and predominant private ownership of means of production pushed the economy into persistent low growth equilibrium. Economic reforms of 1991 aim at putting the economy on a sustained and rapid growth path through greater participation in international division of labor and private capital movements, and greater reliance on private initiative and markets, and the consequent shift to market-friendly policy regime. Trade policy deregulation started slowly in the 1970s under the compulsions of the oil price hikes and the breakdown of the Bretton Woods system of fixed exchange rates(Mitra and Tendulkar 1994) gathered some pace in the 1980s supplemented by hesitant relaxation in domestic industrial licensing. The result was the emergence of the Indian economy out of the low growth equilibrium. The growth rate of aggregate GDP that got stuck around 3.5 per cent per annum for thirty years till 1980-81 rose to 5.7 per cent per annum in the decade of the 1980s. However, this coincided with unsustainable fiscal and external deficits leading to the macroeconomic crisis of 1990. The combined external (balance of payments) and internal (fiscal) crisis provided the necessity as well as opportunity to correct the inefficiencies in the public policy framework that was directly responsible for India's inferior economic performance. The result was a strong dose of macroeconomic stabilization as also microeconomic structural adjustment-oriented policy reforms.

EFFECT ON INDUSTRIAL DEVELOPMENT

After introduction of IPR 1991 equity participation up to 24 per cent of the total shareholding in small scale units by other industrial undertakings has been allowed. The objective therein has been to enable the small sector to access the capital market and encourage modernization, technological up gradation,

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ancillarisation, sub-contracting, etc. With a view to inject technological dynamism in the Indian industry, the Government provided automatic approval for technological agreements related to high priority industries and eased procedures for hiring of foreign technical expertise. A substantial modification of Industry Licensing Policy was deemednecessary with a view to ease restraints on capacity creation, respond to emerging domestic and global opportunities by improving productivity. Accordingly, the Policy Statement included abolition of industrial licensing for most industries, barring a handful of industries for reasons of security and strategic concerns, social and environmental issues. Compulsory licensing was required only in respect of 18 industries.Indian textile IndustryThe importance of the sector in quantity terms as a contribution to GDP, economy, employment and export earning, these cannot be overstated. The varied and diversified production based of Indian textile industry offers, in the free globalised merchandise environment an unique opportunity for expanding export basket from current level of 3.4%. Fiscal duty structure of the textile industry has also influenced to a great extent the growth and the structure of the industry.Small scale industryThe basic thrust of this resolution was to simplify regulations and procedures bydelicensing, deregulating, and decontrolling. Its salient features are:a) SSIs were exempted from licensing for all articles of manufacture.b) The investment limit for tiny enterprises was raised to Rs. 5 lacs irrespective of location.c) Equity participation by other industrial undertakings was permitted up to a limit of 24 percent of shareholding in SSIs.d) Factoring services were to launch to solve the problem of delayed payments to SSIs.e) Priority was accorded to small and tiny units in allocation of indigenous and raw materials.f) Market promotion of products was emphasized through co-operatives, public institutions and other marketing agencies and corporations.

CONCLUSION

After introduction of IPR 1991 Government will continue to pursue a sound policy framework encompassing encouragement of entrepreneurship, development of indigenous technology through investment in research and development, bringing in new technology, dismantling of the regulatory system, development of the

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capital markets and increasing competitiveness for the benefit of the common man. The spread of industrialization to backward areas of the country will be actively promoted through appropriate incentives, institutions and infrastructure investments. Foreign investment and technology collaboration will be welcomed to obtain higher technology, to increase exports and to expand the production base. Government will Endeavour to abolish the monopoly of any sector or any individual enterprise in any field of manufacture, except on strategic or military considerations and open all manufacturing activity to competition. The Government will ensure that the public sector plays its rightful role in the evolving socio-economic scenario of the country. Till the onset of reform process in 1991, industrial licensing played a crucial role in channeling investments, controlling entry and expansion of capacity in the Indian industrial sector. As such industrialization occurred in a protected environment, which led to various distortions. Tariffs and quantitative controls largely kept foreign competition out of the domestic market, and most Indian manufacturers looked on exports only as a residual possibility. Little attention was paid to ensure product quality, undertaking R&D for technological development and achieving economies of scale. The industrial policy announced in 1991, however, substantially dispensed with industrial licensing and facilitated foreign investment and technology transfers, and threw open the areas hitherto reserved for the public sector. This policy emphasized on private players and liberalized them to facilitate the Indian economy by promoting export and liberalized import.

SUMMING UP / RECOMMENDATION

The IPR 1991 focus in the recent years has been on deregulating the Indian industry, enabling industrial restructuring, allowing the industry freedom and flexibility in responding to market forces and providing a business environment that facilitates and fosters overall industrial growth. The future growth of the Indian industry as widely believed, is crucially dependent upon improving the overall productivity of the manufacturing sector, rationalization of the dutystructure, technological upgradation, the search for export markets through promotional efforts and trade agreements and creating an enabling legal environment. In the process of analysing, the present study is expected to improve the understanding of not only the dynamics of the reform process in a democratic coalitional politics but also provide a coherent explanation of the constellation of paradoxical features of the Indian economy at the beginning of the 21st century.

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REFERENCE / SOURCES

1. Liberalization – Its impact on Indian Economy ( Gupta, S.P. )2. Indian Economy ( S. K Mishra, V. K. Puri)3. Magazine4. Internet

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INNCONSISTANCY IN THE INDUSTRIAL POLICY RESOLUTION &

ITS EFFECT ON INDUSTRIAL DEVELOPMENT

Submitted to: –

PROF. S. P. DAS

Submitted by :-

UMESH KUMAR PALAI

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ROLL NO - 58

TABLE OF CONTENTS

INTRODUCTION 1

RELEVANCE/SIGNIFICANCE 1

POSITONING/APPLICABILITY 2

PROBLEM AND PROSPECTS 6

CRITICAL ANALYSIS 7

EFFECT 7

CONCLUSION 8

RECOMMENDATION 9

BIBLIOGRAPHY 8

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