Regional Development Policy

1
First Plan (51-55) period of pure ad
hocism -               No particular plan for
regional development -               Some
attention to regions that suffered from natural
calamities.
Second and third plan (56-61 and 61-66) period
of increasing awareness of regional imbalances
Second plan -                 Second plan
expresses awareness of the problem but states
that these can be dealt only in the long run.
-        Also the problem of regional
disparities was treated as the same as the
problem of disparities in industrialization. -    
    The location of public sector industrial
units in backward regions was partially in
response to this. -         Licenses issued to
private entrepreneurs were also keeping this in
mind. -         Freight equalization policy for
steel- selling steel at same price at all
railheads. -         Establishment of industrial
estates- at least one in all states based on
criteria for backward region.
 
 
2
Third Plan -         Plan document had a
full-fledged chapter on regional
development. -         It admits that in the
short run there is a trade off between growth and
regional imbalances. -         Size and pattern
of plan outlays to reduce inter state
disparities. -         Rural works programme in
rural areas, development plans for building
social and economic overheads in the backward
areas. -         Planning commission draws a set
of development indicators to be used by the
states to identify intrastate disparity.  

• Plan Holidays from 1968 onwards deliberate
  policies to improve level of living of people in
  regions identified as backward.
• A concerted regional policy was discussed at the
  National Development Council (NDC) in 1968.
• The arbitrary form Centre state financial
  transfers to stop .
• Gadgil formula comes to being (90 weight to
  indicators of needs of the state and 10 to the
  state tax effort)
• Two working committees
• Pande committee to identify industrially
  backward regions
• - WANCHOO committee- To identify various
  development rebates , subsidies and incentives
  for industrialists to start firms in the
  backward regions.
•  
•  

3

• Fourth Plan period (69-74 )-
•  
• Admits that in the short run there is trade off
  between growth and regional disparity but points
  that even in the short run there is need to keep
  the industrial disparity from accentuating
  further.
• Agriculture, for the first time identified as a
  source of regional balancing policy measure.
• Drought Prone Area Programme in 70-71 to promote
  development of minor and major irrigation,
  afforestation, soil conservation etc,
• SFDA scheme0 small farmers development scheme
• MFAL marginal farmers and agricultural
  labourers scheme (to provide subsidiary
  occupation for employment)
• TDAP Tribal development
• HADP Hill Area Development Programme
• -         - At the same time industrial dispersal
  was also given great importance.
• - As earlier public sector units continued to be
  located in backward regions and licenses to large
  private institutions were issued only in the
  backward regions.
• - Concessional finance from financial
  institutions to 230 districts and 8 union
  territories identified as backward for starting
  small and medium industries.
• - Transport subsidy central govt. offered 50
  of the transport cost of raw material to the new
  industrial units to be established in backward
  states.
• - Investment subsidy- central govt to provide 10
  of the fixed capital for new start ups in the
  backward regions.

4
FifthPlan (74-78) -         Change in attitude
towards regional development problem -        
For the first time they acknowledge there need
not be a trade off between growth and regional
development. -         The fall of government and
the emergency led t the following of the policies
of the fourth plan without much
changes, -         And the coming of the janata
govt led to a drastic revision of the plan o     
SFDA and MFAL were merged together o      DPAP
continued o      Desert Development Programme
also launched o      TDAP was extended and an
Integrated Tribal Development Programme was
introduced.   -         Micro level planning to
treat the village as a unit came up. -        
District Industrial Centre to build , under which
all facilties for setting up smll and village
industries to be provided form one place.
-         IRDP scheme comes into being bringing
together many other poverty and employment
programme  
5
Sixth Plan (80-85) -                    National
Committee for the Development of Backward Areas
(NCDBA) was constituted with the goals o     
Identifying the backward areas o      Review the
working of the existing schemes for stimulating
industrial development in backward areas o     
To recommend methods to mitigate regional
disparity
The NCDBA commented that - Central investment
subsidy and the scheme of concessional finance
had benefited a small number of districts mostly
near the industrially developed
states -Industrial estates programme had not
helped to relocate the industries away from
metropolitan areas -Licensing policy being a
negative instrument could not attract investment
to the backward regions. The NCDBA recommended
the following -sub plans for the development of
backward areas -specially allocated funds for
the local planning and implementation for
backward areas -financial discipline wherein
the states should be forced to spend the allotted
amounts to the backward regions within the given
period, rather than spending on forward regions
within the states The NCDBA also found that
-Industries tend to cluster at certain
locations. -Entrepreneurs were interested in the
subsidies and incentives provided by the
government. -Hence they recommended growth
centers in various backward regions for the
country with an industrial development authority
in the region, which provide basic infrastructure
facilities.
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• Seventh (85-90)
• laid emphasis on role of agriculture for reducing
  regional imbalances.
• Increase productivity in rice, coarse cereals,
  pulses and oilseeds in the eastern region and in
  dry land and rain fed regions through out the
  country.
• Area development programme like the drought prone
  area programme, desert development programme,
  hill and tribal area development programme was
  expected to raise the agricultural productivity
  in the backward region.
• Human resource development through
  universalisation of education, meeting the
  minimum needs of water supply, rural roads, rural
  electrification etc.

 
Eighth Plan (92-97) -Acknowledged existence of
problem of imbalanced development of states.
However no strong measures were taken for the
same
 
7

• Ninth Plan (97-02)
• Warned of widening regional disparities due to
  the greater freedom in choice of location
  available with industry after economic
  liberalization. Besides states are vying for more
  regional share of investment by competing to give
  greater concessions and incentives for
  investment.
• The ninth plan states that It will be necessary
  to deliberately bias public investment in favor
  of the less well-off states.
• Poverty is identified to be localized and the
  process of growth may exclude many in receiving
  the gains.
• looks back on the seventh plan and instead of
  relying completely on industrial location for
  correcting regional imbalances the ninth plan
  takes the view that agriculture and rural
  development can have a positive role in reducing
  regional imbalances.
• Accordingly the proposals are
•  
• o     Increase in productivity of agriculture in
  backward areas
• o     Increase in the degree of integration of
  the rural areas and the rest of the country
  through improved transportation and communication
  and marketing services.

8
 
Tenth Plan (02-07) Recognizes the issue of
widening regional disparities but is relegated in
importance to other issues   -The Tenth Plan
differs from the earlier Plans in one major
respect and that is that it specifies targets for
the growth rate for each State in consultation
with the state governments. -The achievement of
rate of a growth of 8 per cent during the Tenth
Five Year Plan will critically hinge on the
achievement of higher rates of growth in the GSDP
vis-à-vis the growth rates achieved during the
Eighth and the Ninth Plans. It may, however, be
mentioned that even if all the States perform as
targeted, the inter-State income disparities are
unlikely to decline. -The Tenth Plan aims at
reversing the pace of increase in inequality, and
creating the necessary pre-conditions to help the
worse-off States to catch up. The reduction in
regional disparities could perhaps follow in the
subsequent plans. Raising the growth rates is
also important from the point of view of reducing
the poverty levels prevailing in the country.  
9
State wise Growth Target for the Tenth Five Year
Plan
10
Critique -                     the question off
trade of between growth and regional
balance -                     industrial
disparity and regional disparity are one and the
same. -                     Most of these
programme were not sustainable without government
funds  
11
Industrial Location Policy

• (i)Location of Public Sector Enterprises
• (ii)  Industrial Licensing
• (iii) Growth Centres Approach.
• (iv) MRTP Industries Location
• (v)Small Scale Industries Location
• (vi)Location Policy for Metropolitan cities.

12

• Location Policy of Public Sector Enterprises
• -the claims of relatively backward areas without
  giving up essential technical and economic
  criteria.
• -location of many public sector units in Madhya
  Pradesh, Bihar and Orissa during the Second plan
  period.
• -During the Fifth Plan period (1974-79) to make
  contribution in consumer industries like cement,
  paper, drugs, textiles and pharmaceuticals.
• -But during the sixth plan period-central sector
  projects not stimulating small and ancillary
  units and did not succeed in backward states like
  M.P, Orissa, and Bihar.
• blocking basic infrastructure like power and
  water in these backward states
• The mounting losses, inefficient management of
  public sector units
• During the Eighth plan period the sectors that
  were exclusively demarcated for public sector
  investments were reduced.-
• sick Public sector units were subjected to Sick
  Industrial companies Act 1985 (SICA) and sick
  units were referred to institutions like Board
  for Industrial and Financial Reconstruction1987
  (BIFR) for revival or rehabilitaion.
• 1996-97, the disinvestment commission was set up
  for equity disinvestment of PSE's.
• -         The public sector units as an agent to
  level regional imbalances does not exist any
  longer.
•  

13

• Licensing Policy as a tool for Industrial
  Location
• The Industrial (Development and Regulation) Act
  1951, for regulating location of private
  industrial units.
• All undertakings that satisfied the criteria of
  'factory' came under the Act.
• Regional dispersal was taken into account when
  considering application for licence for
  industries which were not so raw material
  oriented.
• Application was accepted or rejected on the basis
  of regional dispersal that was contemplated on
  that particular industry.
• In 1960, Government exempted all undertakings
  that employed less than 100 workers and whose
  fixed assets did not cross Rs10 lakh in value. In
  1962, the criteria of number of workers was
  deleted. In 1964, the exemption limit was further
  raised to Rs25 lakh. In 1966 a few industries
  were delicensed as private investment was
  sluggish. By 1969 , 41 industries was delicensed.

14
-The industrial policy 1977, decided that
licenses would not be issued for new
establishments within the peripheries of
metropolitan cities. -From 1980, the starting of
the VIth plan period the scope and reach of
licensing declined. -A large number of
industries comprising 25 groups were exempted
from licence during the VIth plan period. -The
New Industrial Policy of 1991 drastically changed
the licensing policy. Industrial licensing was
abolished for all projects except for industries
related to security and strategy concerns, social
reasons, environmental reasons. Licensing was
required only if the firm was to be established
in the vicinity of a metropolitan city. Also
large firms were restricted from entering in
production of items reserved for small scale and
ancillary units. The IDRA no longer is being
used as a tool for industrial dispersal. From
being a positive agent with powers to direct
where to establish industries it has become a
negative tool with powers just to direct where
not to establish firms. It has no control over
size of the undertakings which are established
anywhere in the country.  
15
Location of Small Industries -The Fourth Plan to
promote decentralization and dispersal of
industries and to promote agro-based industries
through a combination of incentives and
disincentives. -During the Fifth Plan period
new programmes for enterpreneurship development,
promotion of industries in rural and backward
areas, ancillary development, and
modernization. -During the VIth Plan the 'tiny'
sector within the small industries were
demarcated. Special attention was to be given to
this sector if they were situated within towns of
population less than 50000. -In the VIIth plan
promotion of SSI's at growth centers was
envisaged. It was done by location of "nucleus
plants' at growth centers which would encourage
ancilliarisation at this region.  -The investment
limit in plant and machinery of Tiny industries
,SSIs, ancillary units and EOUs increased.
government announced many programmes like
preference in land allocation, power connection
to SSI's in 1991. Tiny sector was given special
emphasis with institutional finance and
relaxation in labour laws.   -SSI's were exempt
from all locational conditions subject to the
provisions of the central and state environmental
laws and land use laws.   -Since the
liberalisation policy many items reserved for
SSI's are allowed to be imported under Ordinary
General Licence (OGL) which means the SSI have to
face competition from MNC's and large units from
abroad whereas it is not produced in the country.
 
16
Backward Areas Development -To negate this
anomaly of Widening regional income disparities
the IIIrd plan proposed setting up of 'Industrial
development Areas' in backward regions. -In
selected areas basic facilities like power, water
and communication were to be provided . During
the Fourth plan period a scheme for concessional
finance and subsidies were introduced in the
backward areas. -In 1978, the Planning
Commission set up NCDBA to study industrial
dispersal. NCDBA submitted its "Report on
Industrial Dispersal' in 1980. A total of 229
districts were identified as backward. The
policies for encouraging industrial growth was
through many incentives like (a) capital
Investment Subsidy (b) Transport Subsidy (c)
Income Tax Concessions, (d) Concessional finance
from financial institution (e) state government
incentives. -During the seventh plan period It
was felt that industries will not be attracted to
backward area by mere subsidies, incentives and
concessions. -Policy should be oriented towards
attracting industries to small district towns
which has not been industrialized so
far. -Towards realisation of this objective the
'growth centres approach' was introduced in the
VIIIth plan simultaneously with the Backward
Areas Development Programme. -In 1990, seventy
two industries were delicensed for MRTP/FERA
companies if they were set up in notified
backward areas. -For Non-MRTP and non-FERA
companies the investment limit was increased to
Rs.50- crores in backward areas against
Rs.15crores in the other regions. -In 1993 a
Five year tax holiday was introduced for new
industries in industrially backward states. This
facility was available irrespective of the size
of the firm.
17
  The Growth Center Approach -The 'growth
center' approach was introduced in 1988. -Its
objective was to develop the infrastructure of
centers that could act as magnets for attracting
industries to these areas. - These centers were
to be endowed with basic facilities like power,
water, telecommunication and banking. Seventy
growth centers were adopted during the Eighth
plan period. The growth canters were adopted on
the basis of population, Area and industrial
backwardness. -A review of this program in the
Ninth plan draft states that " the schemes has
not been able to make much headway during the
VIIIth plan period and not a single center out of
the 66 approved had become functioned upto
31.3.1998" -Resources have become thinly spread
over a large number of centres. -In the Ixth
plan it was decided that work on new growth
centers should not be taken up. -However the
North-East states were given an exception. A
special package involving integrated
infrastructure development centers, transport
subsides, strengthening of institution concerning
enterpreneurship, and human resource development
etc were announced during the period.
18
Location of MRTP industries -The monopolies and
Restrictive Trade Practices Act (MRTP) was passed
in 1969 -These undertakings were eligible to
participate in industries that were not reserved
for small sector public sector, and were of
basic, critical and strategic importance for the
growth of the economy. -During the 7th plan
period the exemption limit was raised to Rs. 100
crore. Also 83 industries were exempted from MRTP
Act for entry of dominant industries. -The
MRTP/FERA companies were also delicensed in
backward area for 72 industry groups. The MRTP
Act was later amended to remove the threshold
limits of assets of MRTP companies. Emphasis was
laid on actual practices of large undertakings
rather than having a pre-entry scrutiny. -The
large industrial houses has thus become on par
with small and medium size industries. They were
not subjected to any locational restrictions
except that of licence requirements in
metropolitan cities.
19
Location Policy for Metropolitan Cities Though,
in 1956 Industrial Policy Resolution (IPR) the
problem of unplanned urbanization' was taken note
of, it was only in 1977 during the Vth plan
concrete action was taken. It was decided that
industrial licenses would not be issued to new
industrial units for location within a certain
limits of large metropolitan cities having a
population of more than a million and urban areas
with a population of more than 5 lakhs as per the
1970 census. During the VIth plan the decay of
small and medium towns in terms of population was
noticed while the metropolises were expanding.
De- industralising metropolitan cities was one
among the strategies to decongest large cities.
To develop the small and medium towns, the
Integrated Development of Small and Medium Towns
(IDSMT) was introduced to provide infrastructure
and other facilities. Since the delicensing era,
starting from 1985 companies that did not come
under the purview of MRTP and FERA acts were
subject to only two conditions. i)                
   they should not be located within the standard
urban area of a million city ii)                
they should not be located within the municipal
limits of a city with more than 5 lakhs    
20
Further in 1989, both MRTP/ FERA companies and
non-MRTP/ Non-FERA companies were subjected to a
uniform location policy. All undertakings
irrespective of size were not given the facility
of producing goods in the delicensed items if
they were established within 50 kms of standard
urban area of cities with 25 lakh population, 30
kms for cities with 15 to 25 lakh, and 15 kms for
cities with 7.5 to 15 lakh population. However,
if the industry was non-polluting in nature and
was in an industrial area established by the
state government then it was not subject to the
above policy. The industrial policy of 1991
abolished the industrial licensing totally except
for a small list of industries. No licence was
required for industries except for locating in
million cities. In million cities, the
differentiated scheme was simplified into a
single distance specification of 25 kms from the
city periphery if they were not in a designated
industrial area within the city and were
polluting industries. The location policy
reveals that while large industrial houses that
came under the MRTP and FERA acts were subject to
legislation regarding location through licensing
prior to 1988 and were not allowed near the
cities, by the policy shift in 1989, these large
firms could be located at a distance of 50 kms of
from the city limits. Further, when the distance
specification was reduced to 25 kms, and with no
licence requirements these firms could be
established even nearer to the metropolises. This
provides them the opportunities to establish
large firms at the peripheries of the city, at
the same time have their corporate offices and
houses within the city.  
21

• The new growth centres approach is to develop
  infrastructure facilities in the small towns.
• The beneficiaries of the facilities provided
  cannot be segmented into large or small unit.
• Also the metropolitan cities location policy
  allows any size of undertakings to be established
  at the periphery of the metropolitan cities.
• This allows large industrial units to be located
  at the peripheries of the city that provide
  access to markets of the city. While the smaller
  firms may be driven out of market due to
  competition.
• It depends on the strength of growth center to
  act as counter magnets to attract enterprises to
  these towns.
• It is but doubtful that large firms MNCs etc
  would turn down the possibility of having their
  production units in the periphery of cities as
  the administration of the unit could be done from
  within the city itself.
• Also, they could avail the facilities of growth
  centres that the lie close to the city.
• This New Industrial Policy, may not be able to
  arrest the growing concentration of industries.
  In fact it may only lead to further widening of
  the regional disparities.
• The policy shifts has become advantageous for the
  entrepreneur to have his production units at the
  peripheries of the city.
• While having his corporate office and residence
  within the city. While the condition of the
  worker in the city as well as the periphery is
  deteriorating .

22
Centre State Financial Transfers   -              
       Imbalance in the fiscal capacity and
constitutional responsibilities of the states.
-                     Constitution makers sought
to overcome this problem by creating the
institution of the finance commission to be
constituted every five years to determine the
share of the states in the revenue from the
shareable taxes under the article 270 and
grant-in-aid to the states in need of them under
article 275. -                     Till now 12
finance commissions have come. -                  
   Finance commission sought to solve vertical
and horizontal imbalances in the
economy. -                     Equalization,
especially regional balance has been one of the
professed goals of the finance commissions since
the 6th FC.
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• Table 1 revenue receipts to expenditure
• -                      Large variations in the
  capacity of the states to finance revenue
  expenditure through their own revenue sources
• -                      Own revenue to
  revenue-expenditure has declined in the second
  period, which means that dependency on center's
  finance is bound to increase
• -                      Richer states meet upto
  2/3rds of their revenue expenditure while poorer
  states have very poor records. Correlation of
  self reliance index with per capita income shows
  0.86, positive and significance

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•  
• Table 2
• Per capita public expenditure
• -wide variations in per capita public expenditure
  across states. Punjab highest, Bihar lowest.
  Clear segregation between poor and rich states.
• - increasing CV initially then some decline
•  - These issues brings out the urgency of
  financial transfers to bring in balances.
•  

27

• Channels of Financial Transfers
• 1.                   Through finance commissions
  including share in taxes and grants
• 2.                    Plan grants through
  planning commission
• 3.                    Other grants from center to
  states
• 4.                    Loans from the Centre
• 5.                    long term loans from the
  developmental financial institutions
• 6.                    Commercial bank loans
•  

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Structure of financial flows   -                  
    the most important content is the bank loans
and it is increasing in importance -              
        all other forms of fiscal and financial
transfers are declining in importance -           
            
29
-                      but the dependence of the
poorer states on the central taxes and grants are
much higher compared to the middle income and
richer states. -                         
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• -       Per capita flows show the regional
  disparities more sharp.
• -                      Poor states have higher
  dependence on centr transpfers, while richer
  states have depenced on bank loans
• -                      Over all the per capita
  fincancial flows is much higher in the richer
  states
• -                      This is because of the
  bank loans
• Fiscal Transfers- the role of finance commission
  and planning commission
•  -                      Though not a
  constitutional body the planning commission is
  an important body in financial devolution.
• -                Financial expenditure classified
  into plan and non-plan expenditures  

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• Inter Governmental Finance Transfer Criteria of
  FCs
• Distribution neutral criteria
• -                      to ensure that across the
  population and across regions the same amount is
  disbursed
• Redistributive criteria
• -                      weightage to poverty and
  backwardness
• fiscal incentives
• -                      to encourage tax efforts
  of the states
•  
• -The twelfth FC has reduced the weight for
  redistributive criteria which would mean
  furthering of regional imbalances
•  
•  

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