INDUSTRIAL%20POLICY%20IN%20INDIA:%20ISSUES,%20OBJECTIVES%20

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INDUSTRIAL POLICY IN INDIA ISSUES, OBJECTIVES
EXPERIENCE

• Dr. Raj Agrawal

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Structure

• Industrial Policy Objectives Evolution
• Current Status
• Evaluation

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Background

• Planning and Industrial policy evolution highly
  inter-twined
• Objectives of industrial policy articulated in
  the Industrial Policy Resolutions of 1948 and
  1956
• Specific priorities and strategies spelt out in
  successive five year plans to be implemented by
• A system of licensing provided for by the
  Industries (Development Regulation) Act, 1951
  and
• A system of import licensing and foreign trade
  policies meant to promote import substituting
  industrialization
• Licensing ensured realization of physical
  targets for capacity set by the plan, trade
  policy sought to promote domestic
  industrialization by physical allocation of
  imports by products.

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Industrial Policy Resolution 1948

• Outlined the approach to industrial growth and
  development
• Emphasized the importance of securing a
  continuous increase in production and ensuring
  its equitable distribution.

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Industrial Policy Resolution 1948

• Progressively active role for the State in the
• development of Industries.
• State monopoly Arms and ammunition, atomic
  energy and railway transport
• State 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.

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Industrial Policy Resolution 1948

• Rest of the industrial field open to private
  enterprise though the State would
  alsoprogressively participate in this field.

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Industrial Policy Resolution 1956

• After the adoption of the Constitution and the
  socio-economic goals, the Industrial Policy was
  comprehensively revised and adopted in 1956.
• Sought to accelerate the rate of economic growth
  and speed up industrialization to achieve a
  socialist pattern of society.
• Capital was scarce the base of entrepreneurship
  not strong enough. Hence, the gave primacy to the
  role of the State to assume a predominant and
  direct responsibility for industrial development.

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Industrial Policy Resolution 1956

• Objectives
• Improvement in living standards and working
  conditions for the mass of the people.
• Reduction in income and wealth disparities
• Prevention of private monopolies and
  concentration of economic power in different
  fields in the hands of small numbers of
  individuals.

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Industrial Policy Resolution 1956

• Progressively predominant and direct
  responsibility for the State in setting up new
  industrial undertakings and for developing
  transport facilities
• Undertake State trading on an increasing scale.
• Equal opportunity for the private sector to
  develop and expand.

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Industrial Policy Resolution 1956

• Private sector to develop on the principle of
  cooperation increasing proportion of the private
  sector activities to develop on cooperative
  lines.
• The adoption of the socialist pattern of society
  as the national objective.
• The need for planned and rapid development.

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Industrial Policy Resolution 1956

• Public sector All industries of basic and
  strategic importance, or in the nature of public
  utility services.
• The State can undertake any type of industrial
  production.

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Industrial Policy Resolution 1956

• Categorization of industries
• i) Set of industries the future development of
  which will be the exclusive responsibility of the
  State
• ii) Category of industries which will be
  progressively state-owned and in which the State
  will, therefore, generally take the initiative in
  establishing new undertakings, but in which
  private enterprise will also be expected to
  supplement the efforts of the State.

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Industrial Policy Resolution 1956

• iii) Rest of industries left to the initiative
  andenterprise of the private sector.
• Stress the role of cottage and village and small
  scale industries in the development of the
  national economy.
• Disparities in levels of development between
  different regions should be progressively
  reduced.

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Industrial Policy 1973

• Certain structural distortions called for policy
  changes in IPR 1956
• Provide for a closer interaction between the
  agricultural and industrial sectors
• Highest priority to the generation and
  transmission of power.
• Identify products to be reserved for the small
  scale sector list of industries exclusively
  reserved for the small scale sector expanded from
  180 items to more than 500 items.

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Industrial Policy 1973

• Within the small scale sector, a tiny sector was
  also defined with investment in machinery
  andequipment up to Rs.1 lakh located in
  townswith a population lt 50,000 according
  to1971 census figures, and in villages.
• Proposal for special legislation to protect
  cottage and household industries

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Industrial Policy 1973

• Compulsory export obligations, merely for
  ensuring the foreign exchange balance of the
  project, would no longer be insisted upon while
  approving new industrial capacity.
• In the areas of price control of agricultural
  andindustrial products, the prices would be
  regulatedto ensure an adequate return to the
  investor.

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Industrial Policy 1977

• Emphasis on
• producing inputs needed by a large number of
  smaller units and making adequate marketing
  arrangements.
• upgrading the technology of small units.
• Promoting the development of a system of linkages
  between nucleus large plants and the satellite
  ancillaries

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Industrial Policy 1977

• Emphasis on
• the development of small scale industries, the
  investment limit in the case of tiny units was
  enhanced to Rs.2 lakh, of a small scale units to
  Rs.20 lakh and of ancillaries to Rs.25 lakh.
• building buffer stocks of essential raw materials
  for the Small Scale Industries for operation
  through the SmallIndustries Development
  Corporations in the Statesand the National Small
  Industries Corporation inthe Centre.

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Industrial Policy 1977

• Emphasis on
• Industrial processes and technologies involving
  optimum utilization of energy or the exploitation
  of alternative sources of energy for giving
  special assistance, including finance on
  concessional terms.

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The Industrial Policy Statement 1980

• Formulated wrt the Industrial Policy Resolution
  of 1956 to provide for (i) Optimum utilization
  of installed capacity(ii) Maximum production
  and achieving higher productivity(iii) Higher
  employment generation(iv) Correction of
  regional imbalances(v) Strengthening of the
  agricultural base through agro based industries
  and promotion of optimum inter-sectoral
  relationship
• (vi) Promotion of export-oriented industries

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The Industrial Policy Statement 1980

• (vii) Promotion of economic federalism through
  equitable spread of investment and dispersal of
  returns
• (viii) Consumer protection against high prices
  and bad quality.

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INDUSTRIAL POLICY 1991

• Govt . recognizes the need for
• social and economic justice, to end poverty and
  unemployment and to build a modern, democratic,
  socialist, prosperous and forward-looking India
• India to grow as part of the world economy and
  not in isolation
• Greater emphasis placed on building up ability to
  pay for imports through our own foreign
  exchangeearnings
• development and utilization of indigenous
  capabilities in technology and manufacturing as
  well as itsup gradation to world standards.

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INDUSTRIAL POLICY 1991

• 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 increasingcompetitiven
  ess for the benefit of the commonman.

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INDUSTRIAL POLICY 1991

• The spread of industrialization to backward areas
  of the country will be actively promotedthrough
  appropriate incentives, institutions
  andinfrastructure investments.
• Government will provide enhanced support to the
  small-scale sector so that it flourishes in an
  environment of economic efficiency and
  continuous technological up gradation

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INDUSTRIAL POLICY 1991

• Foreign investment and technology collaboration
  will be welcomed to obtain highertechnology, to
  increase exports and to expand theproduction
  base.
• Government will endeavor to abolish the monopoly
  of any sector or any individualenterprise in any
  field of manufacture, except onstrategic or
  military considerations and open
  allmanufacturing activity to competition.

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INDUSTRIAL POLICY 1991

• The Government will ensure that the public sector
  plays its rightful role in the evolvingsocioecono
  mic scenario of the country.Government will
  ensure that the public sector isrun on business
  lines as envisaged in the IndustrialPolicy
  Resolution of 1956 and would continue toinnovate
  and lead in strategic areas of nationalimportance
  .

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INDUSTRIAL POLICY 1991

• Government will fully protect the interests of
  labour, enhance their welfare and equip them in
  all respects to deal with the inevitability of
  technological changeLabour will be made an equal
  partner in
• progress and prosperity
• Workers participation in management will be
  promoted

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INDUSTRIAL POLICY 1991

• Workers cooperatives will be encouraged
  toparticipate in packages designed to turn
  aroundsick companies.
• The major objectives of the new industrial
  policy package will be to build on the gains
  already made, correct the distortions or
  weaknesses that may have crept in, maintain a
  sustained growth in productivity and gainful
  employment and attain international
  competitiveness.

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INDUSTRIAL POLICY 1991

• Need to preserve the environment and ensure the
  efficient use of available resources.
• Governments policy will be continuity with
  change

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INDUSTRIAL POLICY 1991

• In pursuit of the above objectives,
  Governmenthave decided to take a series of
  initiatives in respect of the policies relating
  to the following areas.A. Industrial
  Licensing.B. Foreign Investment.C. Foreign
  Technology Agreements.D. Public Sector
  Policy.E. MRTP Act.

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INDUSTRIAL POLICY 1991

• Industrial licensing
• Modified industrial licensing policy to ease
  restrictions on capacity creation, respond to
  emerging domestic global opportunities by
  improving productivity
• Abolished industrial licensing for most
  industries but for 18 categories
• Small scale sector reserved
• Foreign Investment
• FDI (up to 51 foreign equity) permitted in high
  priority industries (high investment and
  advanced technology) export oriented
  companies

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INDUSTRIAL POLICY 1991

• Foreign Technology Agreements
• Towards technological dynamism, automatic
  approval for technological agreements related to
  high priority industries eased procedures for
  hiring foreign technical expertise
• Public Sector Policy
• Restructuring pubic sector units, raise
  resources through pubic participation PSUs, refer
  sick units to Board of Industrial Financial
  Reconstruction
• MRTP Act
• Abolished scrutiny of investment decision of MRTP
  companies etc.

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Current Scenario

• Substantial changes
• Only six industries require compulsory licensing
• Only three industries reserved for the public
  sector
• Relation of restriction on FDI FDI up to 100
  under automatic route for most manufacturing
  activities in Special Economic Zones FDI ceiling
  in pvt banking sector up to 74 oil exploration
  (100) natural gas and LNG pipelines (100)
  telecom (74)
• Small Scale industries sector reduced of items
  reserved from 821 (1991) to 506 (2005)

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Lessons from India

• Industrial Policy should not be about
• Controlling Prices
• Controlling Quantity
• Specifying Geographical Location of Activity
• Preemption by Public Sector
• Policy Body, Regulatory Body and Service Provider
  being Government Agencies

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