Industrial Policy notes for UPSC, HCS exams
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Industrial Policy notes for UPSC, HCS exams

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Economics

Industrial Policy notes for UPSC, HCS exams

The term, Industrial Policy, refers to the government policy towards industry, their establishments, functioning, growth, and management. Government has from time to time tried to introduce something new to enhance the functioning of industries. It is a policy document prepared by the government that states how the industrial environment of the country will take shape in the future.  

The role of industrial planning is very important in a country like India, because of its widespread diversity. So it is a very important topic to be covered from an exam point of view including UPSC/ HCS. 

Industrial Policy:

  • The action of the Government to influence the ownership and structure of the industry and its performance. It includes paying subsidies or providing finances in other ways or of regulation.
  • It includes procedures, principles, policies, rules and regulations, incentives and punishments, the tariff policy, the labor policy, the government’s attitude towards foreign capital, etc.

Industrial Policy notes for UPSC, HCS exams

Objectives of the Industrial Policy:

  • To maintain sustained growth in productivity.
  • To enhance gainful employment.
  • To achieve optimal utilization of human resources.
  • To attain international competitiveness.
  • To transform India into a major partner and player in the global arena.

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Indutrial Policy since Independence

Industrial Policy Resolution of 1948: 

  • It defined the broad contours of the policy delineating the role of the State in industrial development both as an entrepreneur and authority.
  • The Industries (Development and Regulation) Act was passed in 1951 to implement the Industrial Policy Resolution, 1948.

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According to it, industries were classified into 4 broad areas:

Strategic Industries (Public Sector): 

  • It included Arms and ammunition, Atomic Energy, and Railways over which the Central Government had a monopoly.

Basic/ Key Industries (Public-cum-Private Sector):

  • These industries were to be set up by the Central Government.
  • However, the existing private sector enterprises were allowed to continue.
  • Basic industries included coal, iron & steel, aircraft manufacturing, shipbuilding, manufacture of telephone, telegraph & wireless apparatus, and mineral oil.

Important Industries (Controlled Private Sector):

  • It included 18 industries including heavy chemicals, sugar, cotton textile & woolen industry, cement, paper, salt, machine tools, fertilizer, rubber, air and sea transport, motor, tractor, electricity, etc.
  • These industries continue to remain under the private sector, however, the central government, in consultation with the state government had general control over them.

Other Industries (Private and Cooperative Sector):

  • All other industries which were not included in the above-mentioned three categories were left open for the private sector. 

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Industrial Policy Statement of 1956:

  • It was regarded as the ‘Economic Constitution of India’ or ‘The Bible of State Capitalism’.
  • The 1956 policy emphasized the need to expand the public sector to build up a large and growing cooperative sector and to encourage the separation of ownership and management in private industries and prevent the rise of private monopolies.
  • It stressed the importance of cottage and small-scale industries for expanding employment opportunities and for wider decentralization of economic power and activity.
  • The resolution also called for efforts to maintain industrial peace; a fair share of the proceeds of production was to be given to the toiling mass in keeping with the avowed objectives of democratic socialism.
  • The resolution reduced the scope for the expansion of the private sector significantly as the private sector was kept under state control through a system of licenses.
  • It classified industries into Schedule A, Schedule B, and Schedule C.

Schedule A:

  • It consisted of 17 industries which were the exclusive responsibility of the State.
  • Out of these 17 industries, four namely arms and ammunition, atomic energy, railways, and air transport had Central Government monopolies. 
  • New units in the remaining industries were developed by the State Governments.

Schedule B:

  • It consisted of 12 industries that were open to both the private and public sectors, however, such industries were progressively State-owned.

Schedule C:

  • All the other industries that do not include in Schedule A and B constitute the third category which was left open to the private sector. 
  • However, the State reserved the right to undertake any type of industrial production.
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Industrial Policy Statement, 1977:

  • The main thrust of the policy was the effective promotion of cottage and small industries widely dispersed in rural areas and small towns.
  • In this policy, the small sector was classified into three groups: cottage and household sector, tiny sector, and small-scale industries.
  • The 1977 Industrial Policy prescribed different areas for large scale industrial sector: Basic Industries, Capital goods industries, High technology industries ad other industries outside the list of reserved items for the small scale sector.
  • It restricted the scope of large business houses so that no unit of the same business group acquired a dominant and monopolistic position in the market.
  • It put emphasis on reducing the occurrence of labor unrest. The Government encouraged the participation of the workers from shop floor level to board level.
  • However, the policy lacked effective measures to curb the dominant position of large-scale units and the policy did not envisage any socio-economic transformation of the economy for curbing the role of big business houses and multinationals.

Industrial Policy of 1980:

  • It sought to promote the concept of the economic federation to raise the efficiency of the public sector and to reverse the trend of industrial production of the past 3 years and reaffirmed its faith in the Monopolies and Restrictive Trade Practices (MRTP) Act and the Foreign Exchange Regulation Act (FERA).

New Industrial Policy:

  • Dereservation of Public Sector: Sectors that were earlier exclusively reserved for the public sector were reduced. But the 5 core areas like arms and ammunition, atomic energy, mineral oils, railways, and mining were still reserved for the public sector.
    • Currently, only two sectors - Atomic energy and Railways are reserved exclusively for the public sector.
  • De-licensing: Abolition of Industrial Licensing for all projects except for a shortlist of industries.
  • Disinvestment of Public Sector: Government stakes in Public Sector Enterprises were reduced to enhance their efficiency and competitiveness.
  • Liberalization of Foreign Investment: This was the first industrial policy in which foreign companies were allowed to have a majority stake in India. In 47 high-priority industries, up to 51%, FDI was allowed. For export trading houses, FDI up to 74% was allowed.
  • Foreign Technology Agreement: Automatic approvals for technology-related agreements.
  • MRTP Act was amended to remove the threshold limits of assets in respect of MRTP companies and dominant undertakings. MRTP Act was replaced by the Competition Act 2002.

Outcomes of New Industrial Policies:

The 1991 policy made ‘License, Permit and Quota Raj’ a thing of the past. It attempted to liberalize the economy by removing bureaucratic hurdles in industrial growth.

  • The limited role of the Public sector reduced the burden on the Government.
  • The policy provided easier entry of multinational companies, privatization, removal of asset limit of MRTP companies, liberal licensing.
    • All this resulted in an increased competition that led to lower prices in many goods such as electronics prices. This brought domestic as well as foreign investment in almost every sector opened to the private sector.
  • The policy was followed by Export Oriented Units, Export Processing Zones, Agri-Export Zones, Special Economic Zones, and National Investment and Manufacturing Zones. All these have benefitted the export sector of the country.

Limitations of Industrial Policies in India:

  • Stagnation in the manufacturing sector
  • Distortions in industrial pattern owing to selective inflow of investments.
  • Displacement of labor
  • Absence of incentives for raising efficiency
  • Vague industrial location policy

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