Industrial Policy in India

A brief outline of Industrial Policy.

After Independence, the Government of India adopted an approach to develop Industrial sector of India. India adopted several Industrial Policy resolution to develop the Industrial sector.

Industrial Policy Prior to 1991.

Industrial Policy Resolution, 1948.

The resolution was issued on April 6, 1948. The resolution accepted the importance of both private and public sectors for the development of the industrial sector.

The 1948 Resolution also accepted the importance of the small and cottage industries as they are suited for the utilisation of local resources and are highly labour intensive.

The 1948 Resolution divided the Industries into following four categories.

Industrial Policy Resolution, 1956.

The Policy Resolution of 1956, laid the following objectives for the growth of the Industrial sector:

1. To accelerate the rate of growth and to speed up the pace of Industrialisation.
2. To develop heavy industries and machine making industries.
3. Expansion of Public Sector.
4. To reduce disparities in Income and Wealth.
5. Development of a competitive Cooperative Sector.
6. To Prevent concentration of Business in few hands and Restriction in Creation of Monopolies.

The objectives were chosen carefully with the aim of creating employment and reducing poverty.

The 1956 Resolution further divided the Industries into three Categories.

To sum up, the 1956 Resolution, emphasised on the mutual dependence and existence of the public and private sectors. The only 4 industries in which private sector are not allowed were Arms & Ammunition, Railways, Air Transport and Atomic Energy. In all other sector, either private sector was allowed to operate freely or will provide help to the government sector as and when needed.

Industries (Development & Regulation) Act, 1951.

The Industries Act was passed by the Parliament on October 1951 to control and regulate the process of Industrial development in the country. The Acts main task was to regulate the Industrial sector.

The specific objectives of the Act were:

1. Regulation of Industrial Investment and Production according to Five Year Plans.
2. Protection of small-scale enterprises from giant enterprises.
3. Prevention of Monopolies and concentration of ownership of industries in few hands.
4. Balanced Growth and Equitable development of all the regions.
5. It was also believed that the State is best suited to promote balanced growth by; channelizing investment in the most important sectors; Correlate supply and demand; eliminate competition; ensure optimum utilisation of social capital.

Major Provisions of the Act

Restrictive Provisions: It contains all measure provision to curb unfair trade practices.

Registration: The provisions make registration of industries mandatory irrespective of whether they are private or public in nature. The expansion of the existing business also required licencing and permission.

Examination and Monitoring of the Industries: After granting of license, it is the responsibility of the state to monitor the performance of the industries. If at any point in time, the industrial unit was found not up to the mark, underutilising its resources or charging excessive prices, the government could set up an enquiry against the unit.

Cancellation of the Licence: The government has the power to cancel the licence granted to the industrial unit if found, engaging in wrongful behaviour.

Reformative Provisions:

The category involved following provisions.

Direct Control by the Government: Under this provision, the government could set up an enquiry against the industrial unit and can order reform process, if it was not being run properly.

Control on Price, Distribution and Supply: The Government was empowered by the act to control and regulate the prices, supply and distribution of the goods produced.

Problems of the Excessive Restrictions imposed by the Government.

Liberalisation measures adopted in the 1980s

1. Exemption from Licensing.
2. Relaxation to MRTP Act and FERA guidelines.
3. Delicensing of large range of industries.
4. Re-endorsed of capacity: Benefits were granted under this scheme to industries who successfully achieve capacity utilisation of 90 percent.
5. Broad Banding of Industries: Under this, the government branded the industries into broad categories. For example; cars, jeeps, tractors, light and heavy commercial vehicles are branded as Four-Wheelers.
6. Promotion of Economies of scale in production processes to reduce cost by allowing firms to expand.
7. Development of Backward Areas.
8. Incentives were provided to the Exporters.
9. Promotion of Small Scale Industries by increasing their Investment limits.
10. New Industrial Policy, 1991.