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Essay on Industrial Policy

The Industrial Policy plan of a country is its official strategic effort to encourage the development and growth of the manufacturing sector of the economy. Industrial policies are sector specific, unlike broader macroeconomic policies. They are often considered to be interventionist as opposed to laissez-faire economics. Many types of industrial policies contain common elements with other types of interventionist practices such as trade policy and fiscal policy.

There have been attempts since the 80s to liberalise the industrial policy framework. But it is the new industrial policy of July 24, 1991 that has really ushered in an era of reforms and liberalisation. The two principal instruments of industrial policy before the reform were a system of industrial licensing and a system of import licensing designed to foster import substituting industries.

The overall objectives of industrial policy in India have been periodically articulate in the Industrial Policy Resolutions of 1948, 1956 and 1973, the Industrial Policy Statements of 1980 and 1990 and the New Industrial Policy of July, 1991 and August, 1991.

Essay # 1. Industrial Policy of 1948:

Industrial Policy Resolution of April, 1948 classified industries into four categories, which are as follows:

1. Classification:

(i) Defence and strategic industries such as manufacture of arms and ammunition, production and control of atomic energy and ownership and management of railways were to be the exclusive monopoly of Central Government.

(ii) In the case of basic and key industries such as coal, iron and steel, aircraft manufacture, ship building etc. all new units were to be set-up by the state while the old units were to continue to be run by the private entrepreneurs for the next ten years when the question of their nationalisation was to be decided.

(iii) Some industries were to remain in private ownership but subject to overall regulation and control by the government. Such industries included automobiles and tractors, sugar, cement, cotton and woollen textiles etc.,

(iv) Rest of the industries was to remain with the private sector where government was to exercise only an overall general control.

2. Policy towards Foreign Capital:

The Industrial Policy 1948 made it clear that the Government will welcome foreign capital in India provided such capital comes without any strings or conditions attached to such foreign investments. It also emphasized that foreign capital will be allowed in joint participation with Indian capital and that majority in management and control will remain in Indian hands.

3. Role of Cottage and Small Scale Industries:

The Industrial Policy 1948 emphasised the role of cottage and small scale industries in economic development. It sought to provide encouragement to these industries in India’s industrial development programmes because these industries make use of local resources and provide larger employment opportunities. The Industrial Policy of 1948 thus laid down the foundation of a mixed economy wherein the public sector (the state) and the private sector were to co-exist and work in their demarcated areas.

Essay # 2. Industrial Policy of 1956:

The Industrial Policy Resolution:

1956 classified industries into three categories. The first category comprised 17 industries (included in Schedule A of the Resolution) exclusively under the domain of the Government. These included inter alia, railways, air transport, arms and ammunition, iron and steel and atomic energy. The second category comprised 12 industries (included in Schedule B of the Resolution), 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. Another objective spelt out in the Industrial Policy Resolution – 1956 was the removal of regional disparities through development of regions with low industrial base.

Essay # 3. Industrial Policy Measures in 1970s:

Monopolies Inquiry Commission (MIC) was set up in 1964 to review various aspects pertaining to concentration of economic power and operations of industrial licensing under the IDR Act, 1951. In 1969, the monopolies and restrictive Trade Practices (MRTP) Act was introduced to enable the Government to effectively control concentration of economic power.

The new Industrial Licensing Policy of 1970 classified industries into four categories. First category, termed as ‘Core Sector’, consisted of basic, critical and strategic industries. Second category termed as ‘Heavy Investment Sector’, comprised projects involving investment of more than Rs.50 million. The third category, the ‘Middle Sector’ consisted of projects with investment in the range of Rs. 10 million to Rs. 50 million.

The fourth category was ‘De-licensed Sector’, in which investment was less than Rs.10 million and was exempted from licensing requirements. The industrial licensing policy of 1970confined the role of large business houses and foreign companies to the core, heavy and export oriented sectors.

In the backdrop of the Dutt Committee report and establishment of MRTPC, the Government of India announced new Industrial Policy in 1970.

As per this new policy, Industries were divided into 4 parts, which were called as sectors:

(a) Core Sector:

This comprised of basic, critical and strategic industries such as atomic energy, cement, Iron, Steel etc. It was emphasized that the Core sector would be exclusively developed under the Public Sector. The industries required the assets of five Crore or more.

(b) Middle Sector:

These industries required the investment of 1 Crore to 5 crore.

(c) Joint Sector:

Non-Core Heavy Investment Sector or Joint sector, which comprised of those core industries which required assets of five crore, and

(d) De-Licensed Sector:

De-licensed Sector’, in which investment was less than Rs. 1 Crore and was exempted from licensing requirements. So, the major outcome of the Industrial License Policy 1970 was that the role of the large business houses was confined to the core, heavy and export oriented sectors.

Essay # 4. The Industrial Policy Statement – 1973:

In the industry policy statement of 1973, the term “Core Industries” was included.

It referred to the six Core Industries:

1. Iron,

2. Steel Industry Cement,

3. Coal,

4. Crude Oil,

5. Oil Refining, and

6. Electricity.

They were called the basic industries or infrastructure industries. The private players were allowed to apply for licensing in some industries and for that they required 20 Crore assets or more.

In this policy some industries were reserved for small and medium players. The Public Private partnership also was emphasized as a prototype and it was called “Joint Sector” in which a partnership between state, centre and private sector was allowed.

Essay # 5. The Industrial Policy Statement -1977:

Industrial Policy Statement 1977 was announced by the Janta Government. So, it did something reverse to the earlier statement of 1973. In this statement, the foreign investment in the “unnecessary areas” means those which had not role to play in development of the country, was prohibited and this was a complete NO to the foreign investment.

The statement stated that foreign companies that diluted their foreign equity up to 40 per cent under Foreign Exchange Regulation Act (FERA) 1973 were to be treated at par with the Indian companies. The Industry Minister was George Fernandes. Companies like Coca Cola and IBM did not comply with the provisions and George threw the Coke and IBM out of India.

The main feature of the Industrial Policy, 1977 was on the effective promotion of cottage and small scale industries that were to be widely dispersed over rural areas and small towns. The Industrial Policy, 1977 emphasised the need for developing industrial technology that was appropriate in Indian context in the sense that it makes more use of our abundant labour resources without compromising efficiency in production.

The Industrial Policy 1977 recognised the important role of large scale industries in economic development of the country. Under the Industrial Policy 1977 the public sector was given an expanded role. It was given the responsibility of encouraging the development of ancillary industries and contributing to the growth of small scale sector by making available its managerial and technological expertise.

The public sector was also required to participate in consumer goods industries. The Industrial Policy 1977 also proposed a number of measures to curb disproportionate growth of large business houses, vigorous use of Monopolies and Restrictive Trade Practices Act to curb monopoly power of big industries and dispersal of industries away from the metropolitan areas.

Essay # 6. Industrial Policy Statement -1980:

The government decided to raise the efficiency of public sector undertakings. For this purpose, it proposed to strengthen their management and develop management cadres in the field of finance, marketing etc. It also proposed to study the industrial units of the public sector and suggest specific steps for their betterment.

It proposed to promote the concept of economic federalism with the setting up of a few nucleus plants in each district, identified as industrially backward, to generate as many ancillaries small and cottage industries for their development.

The Policy Statement Outlined Clearly its Approach towards Sick Units:

(a) Management of sick units would be taken over only in exceptional cases on grounds of public interest where other means for their revival are not feasible; and

(b) Sick units with adequate potential for revival would be encouraged to merge with healthy units.

For such proposals of merger, the existing tax concessions under section 72-A of the Income Tax Act will be made available more liberally.

In the private sector, capacity expansion up to 25 percent of installed capacity would be automatically available to the overall capacity including regularised excess capacity. The Industrial Policy, 1980 claimed to follow a pragmatic approach and emphasised measures for increasing industrial production but ignored regarding policy measures to reduce concentration of economic power in private sector and other problems.

The Industrial Policy, 1980 favoured a more capital-intensive pattern of development and thus it attempted various measures of liberalisation for helping the large sector. It underplayed the employment objective.

The Seventh Five Year Plan (1985-1900), recognised the need for consolidation of these strengths and initiating policy measures to prepare the Indian industry to respond effectively to emerging. There was some progress in the process of deregulation during the 1980s. In 1988, all industries, excepting 26 industries specified in the negative list, were exempted from licensing.

The exemption was, subject to investment and locational limitations. The automotive industry, cement, cotton spinning, food processing and polyester filament yarn industries witnessed modernisation and expanded scales of production during the 1980s.

Essay # 7. Industrial Policy Statement- 1991:

The New Industrial Policy, 1991 seeks to liberate the industry from the shackles of licensing system Drastically reduce the role of public sector and encourage foreign participation in India’s industrial development. The New Industrial Policy has made very significant changes in four main areas viz., industrial licensing role of public sector, foreign investment and technology and the MRTP act.

The new industrial policy abolishes the system of industrial licensing for most of the industries under this policy no licenses are required for setting up new industrial units or for substantial expansion in the capacity of the existing units, except for a short list of industries relating to country’s security and strategic concerns, hazardous industries and industries causing environmental degradation. To begin with, 18 industries were placed in this list of industries that require licenses. Through later amendment to the policy, this list was reduced.

The new industrial policy seeks to limit the role of public sector and encourage private sector’s participation over a wider field of industry. Out of the 17 industries reserved for the public sector under the 1956 industrial policy, the new policy de-reserved nine industries and thus limited the scope of public sector to only 8 industries.

Later, a few more industries were de-reserved and now the exclusive area of the public sector remains confined to only 4 industrial sectors which are:

(i) Defence production,

(ii) Atomic energy,

(iii) Railways and

(iv) Minerals used in generation of atomic energy.

Those public enterprises which are chronically sick and making persistent losses would be returned to the Board of Industrial and Financial Reconstruction (BIFR) or similar other high level institutions created for this purpose.

As a measure to raise large resources and introduce wider private participation in public sector units, the government would sell a part of its shareholding of these industries to Mutual Funds, financial institutions, general public and workers. The New Industrial Policy seeks to give greater autonomy to the public enterprises in their day-to-day working.

The trust would be on performance improvement of public enterprises through a mix of greater autonomy and more accountability. Wherever foreign investment was allowed, the share of foreign equity was kept very low so that majority of ownership control remains with Indians.

The maximum limit of foreign equity participation was placed at 40 per cent in the total equity capital of industrial units which were open to foreign investments under the 1991 policy; this limit was raised to 51 per cent. 34 specified more industries were added to this list of 51 per cent foreign equity participation.

Foreign Direct Investments was further liberalised and now 100 per cent foreign equity is permitted the case of mining, including coal and lignite, pollution control related equipment, projects for electricity generation, transmission and distribution, ports, harbours etc.

The New Industrial Policy states that automatic permission will be granted to foreign technology agreements in the high priority industries. Under the amended Act, the MRTP Commission will concern itself only with the control of Monopolies and Restrictive Trade Practices that are unfair and restrict competition to the detriment of consumer s interests.

No prior approval of or clearance from the MRTP Commission is now required for setting up industrial units by the large business houses. The New Industrial Policy seeks to provide greater government support to the small-scale industries so that they may grow rapidly under environment of economic efficiency and technological upgradation.

It said that the government would set up a special board (which was established as Foreign Investments Promotion Board—FIPB) to negotiate with a number of international companies for direct investment in industries in India. It also announced the setting up of a fund (called National Renewal Fund) to provide social security to retrenched workers and provide relief and rehabilitate those workers who have been rendered unemployed due to technological changes.

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