Industrial Policy of India (1948-2022), Explanation and features

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The Industrial Policy of India is a set of standards and measures formulated by the Government of India to assess the progress of economic conditions in various sectors of India, including the labor market.

These include policies, rules, regulations, incentives and penalties, tariff policies, labour policies, government attitudes toward foreign capital and manufacturing sectors, etc.

The ultimate goal of all these industrial policies is to achieve economic growth and development of the country in various sectors.

Let’s take a look at the key features of major industrial policies in India.

Main objectives of the Industrial Policy

◉ The main objectives of the Industrial Policy of the Government are:

• To maintain sustained growth in productivity.

• To enhance gainful employment.
• To attain international competitiveness.

• To achieve optimal utilization of human resources.

• To transform India into a major partner and player in the global arena.

◉ To achieve these objectives, the Policy focus is on __

• Deregulating Indian industry.

• Allowing freedom and flexibility to the industry in responding to market forces; and

• Providing a policy regime that facilitates and fosters the growth of Indian industry.

◉ To implement the industrial policy as per the objectives, till now India announced 6 major industrial policies (1948, 1956, 1973, 1977, 1980, 1991).

◉ The first industrial policy of India started in 1948.

Let us explain the industrial policy of India and its salient features.

Major Industrial Policy of India Short Notes

First industrial policy of India – 1948 (IPR – 1948)

Features of Industrial Policy of India – 1948

• It was the first Industrial Policy of India.

• In this industrial policy India adopted the system of the Mixed Economy.

• The Industrial Policy Resolution of 1948 was presented in the parliament by the then Industry Minister Dr. Shyama Prasad Mukherjee.

• This policy was called “Socialization of vacuum”.

• Under this policy, large industries were classified into four categories, They
are:

1. Strategic Industries (Public Sector)
2. Basic / Key industries (Public-cum-Private Sector)
3. Controlled Private Sector industries
4. Other industries (Private & Cooperative sector)

Strategic Industries (Public Sector)

• These were the Industries with exclusive Central government monopoly.

• This category included three industries, they are:
1. Arms and Ammunition
2. Atomic Energy
3. Rail transport.

Basic / Key industries (Public-cum-Private Sector)

• This category included six industries, they are:
1. Coal
2. Iron and Steel
3. Aircraft manufacturing
4. Shipbuilding
5. Manufacture of telephone
6. Telegraph and wireless apparatus and Mineral oil

• These 6 Industries are designated as “Key Industries” or “Basic Industries”.

Controlled Private Sector industries

• The Industries under this category are indirectly controlled by the central government through strong regulation.

Eighteen industries were kept in the Controlled Private Sector industries including Heavy Chemicals, Sugar, Automobiles, Cotton & Woollen textiles, Paper, Salt Fertilizer, Tractors, Electricity, Machine tools, and Air and sea transport.

Other industries (Under Private & Cooperative sector)

• All other industries which were not included in the three categories mentioned above were kept open to the private sector.

Industrial Policy Resolution of 1956 (IPR – 1956)

Features of Industrial Policy Resolution – 1956

• This Policy was based on the P.C Mahalanobis model.

• This industrial policy is also known as the ‘Economic Constitution of India’ or the ‘Bible of State Capitalism’.

• Expansion of the public sector became the directive principle of state policy.

Pandit Jawaharlal Nehru termed the PSUs-‘temples of modern India.

• IPR-1956 also known as ‘License-Quota-Permit’ regime.

• Emphasis on small industries and khadi and village industries.

• Most important industrial policy of India by the experts.

• Industrial Policy Resolution – 1956 emphasis on heavy industries.

• The fourfold classification of the industrial policy of 1948 was changed to a threefold classification in the Industrial Policy Resolution – 1956.

◉ The threefold classification is:

Schedule A Industries

• Total of 17 industries were added to Schedule A.

• The Center has complete exclusive rights/monopoly over these 17 industries.

• IPR – 1956 known as the ‘Central Public Sector Undertakings (CPSUs)’, later these getting popularity as Public Sector Undertakings (PSUs).

• Number of PSUs set up by the Government of India went to 254 in 1991.

Schedule B Industries

• Total of 12 industries were added to Schedule B.

• These 12 industries opened for both the public and Private sectors.

• Provisions of compulsory licensing.
• Neither the states nor the private sector had monopolies.

Schedule C Industries

• All other industries except those industries which were listed under Schedule A and B fall under Schedule C Industries.

• These were open to the private sector, but subject to licensing.

Industrial Policy Statement – 1969 (IPS -1969)

Features of Industrial Policy Statement – 1969

• Aimed at solving the shortcomings of the licensing policy.

• Through this industrial policy, the Monopolies and Restrictive Trade Practices (MRTP) Act was introduced.

• To regulate the trading and monopoly and concentration of economic power the MRTP act was passed.

• According to the MRTP Act any company with assets of Rs 25 crore or more was obliged to seek permission from the Government of India before any expansion, greenfield ventures, and takeover of other companies. Such firms came to be known as the ‘MRTP Companies’.

• The upper limit (known as the ‘MRTP limit’) for such companies was revised to Rs 50 crore in 1980 and Rs 100 crore in 1985.

• In the year 2002, the MRTP act was abolished and replaced by Competition Act, 2002.

Read, Flagship Schemes of the Government of India

Industrial Policy Statement, 1973

Features of Industrial Policy Statement – 1973

• In this industrial policy 6 core industries were created.
• These 6 industries are the fundamental importance for the development of all other industries.

• These 6 core industries are:
1. Iron and steel
2. Cement
3. Coal
4. Crude oil
5. Oil refining
6. Electricity

• Above industries known as basic industries or infrastructure industries.

• The concept of ‘Joint Sector’ was introduced where partnerships between the Centre, States, and the private sector were allowed.

Foreign Exchange Regulation Act (FERA),1973 passed.
• The Industrial Policy Statement – 1973 also known as the ‘draconian’ Act.

Industrial Policy Statement – 1977

Features of Industrial Policy Statement – 1977

• This Industrial Policy was introduced by the Janata Government in 1977.

• The Industrial Policy Statement of 1977 emphasized on:

1. Small-scale and Tiny industries.
2. Resurrection of Khadi and village industries.
3. Power generation and transmission sector.
4. Prohibition of Foreign investment in unnecessary areas.

Industrial Policy Resolution – 1980 (IPR – 1980)

Features of Industrial Policy Resolution – 1980

• Foreign investment via the technology transfer routes was allowed again (similar to the provisions of the IPS, 1973).

• The ‘MRTP Limit’ was revised upward to Rs/- 50 crore to promote the setting of bigger companies.

• Industrial licensing was simplified.
• Overall liberal attitude followed towards the expansion of private industries.

Industrial Policy Resolution, 1985 & 1986 (IPR – 1985, 1986)

Features of Industrial Policy Resolution, 1985 & 1986

• Foreign investment was further simplified, the equity holding of the MNCs in the Indian subsidiaries could be up to 49 percent with the Indian partner holding the rest of the 51 percent shares.

• The ‘MRTP Limit’ was revised upward to Rs/ – 100 crore.

• Promoting the idea of bigger companies.

• Only 64 industries bring under compulsory licensing.

Highly focused on sunrise industries such as telecommunication, computerization, and electronics.

• Industries based on imported raw materials got a boost.

New Industrial Policy of India1991

Features of the New Industrial Policy of India, 1991

• This policy was introduced to revitalize the distortions and weaknesses of the industrial structure of the country.

• It focuses on the development of the country rather than regulations.

• Most of the shortcomings of the past industrial policy were amended in the industrial policy of 1991.

• Deregulation of the industrial sector.
• De-reservation of Public sector

• The 17 industries which are reserved for the central government by the IPR, in 1956, were cut down to only 8.

◉ These 8 industries include:

1. Arms & Ammunition
2. Atomic energy
3. Coal
4. Mineral Oils
5. Railway Transport
6. Mining of Iron Ore, Manganese Ore, Gold, Silver
7. Mining of Copper, Lead, Zinc
8. Mining of Atomic Minerals

◉ At present there are only two industries under Central Govt.

I. Atomic energy and nuclear research and other related activities (mining, management, fuel fabrication, export-import, waste management.)

II. Railway Operations (Such as Mass Rapid Transport Systems, High-speed train projects, Locomotives, coach manufacturing, Dedicated freight lines, and Railway electrification, etc.)

◉ De-licensing or the end of red-tapism

• The compulsory provision of licensing belonging to Schedules B and C as per the IPR, 1956 was cut down to only 18.

◉ At present there are only five industries that require industrial licensing. They are:

1. Aerospace and defense-related electronics.
2. Gunpowder, industrial explosives, and detonating fuse.
3. Dangerous chemicals such as Isocyanates, Hydrocyanic acid, Phosgene, etc.
4. Tobacco, cigars & cigarettes, and related products.
5. Distillation & brewing of alcoholic drinks.

◉ Disinvestment of Public Sector
• Government stakes in Public Sector Enterprises were reduced to enhance their efficiency and competitiveness.

◉ Foreign investment
• Government promoted foreign investment (FI) in both its direct and indirect forms.

• Indirect form of foreign investment was called the portfolio investment scheme (PIS)

• To promote FDI the Foreign Investment Promotion Board (FIPB) was established.

◉ Amendment in 1969 MRTP act
• This amendment permitted the MRTP Act to be extended to the public sector and government-owned companies.

• After this amendment, private firms with assets above a certain specified limit no longer needed to take a special permit from the government to invest in de-licensed industries.

• This amendment to the MRTP Act diluted the restriction of the License Quota Raj which restricted the growth of the Indian economy.

◉ Foreign Technology Agreement
• Under this agreement the government will provide automatic approval for technology agreements related to high-priority industries within specified parameters.

Major  Features of Industrial Policy of India

Industrial Policy of India 2022

• After the government adopted transformative economic reforms in 1991, opening up the Indian economy, there has been a significant shift in the country’s industrial policy over the years, resulting in foreign companies investing in India.

• Currently the Government of India has worked out a new industrial policy called “Industrial Policy 2022—Make in India for the world”.

• India’s current industrial policy draft is promoted by the Union Ministry of Commerce and Industry in consultation with other ministries under Prime Minister Narendra Modi’s government.

Major focuses of the Industrial Policy of India 2022

• The new industrial policy aims to increase companies’ access to finance for rapid industrial growth.

• The policy proposes to establish a technology fund that will encourage pioneering companies in the field of advanced technology and identify them for acquisition.

• Under the new industrial policy, one of the proposals is to help small businesses access the corporate bond market.

• The policy also includes plans to develop mega clusters that can integrate with global supply chains and cater to the needs of key sectors such as pharmaceuticals, food processing, heavy engineering, electronics, semiconductors, and automobiles.

• Other key focuses of the plan are:

  • Improving competitiveness
  • Achieving international scale
  • Integration with global supply chains
  • Facilitates the movement of local industries in the value chain
  • Improving the ease of doing business
  • Creating skills and employment.
You can also check State/UT wise Industry/Business/MSME Development Policies from below link 
 Stste/UT wise industrial development

Industrial Policies In India Video Lecture

Frequently Asked Questions on the Industrial Policy of India

Q1. When was the first industrial policy of India announced?

Answer: India’s first industrial policy was announced in 1948.

Q2. Who announced the industrial policy of India?

Answer: Shyama Prasad Mukherjee.
• The first industrial policy of India started on 6th April 1948. It was announced by Shyama Prasad Mukherjee.

Q3. What is meant by the industrial policy?

Answer: The Industrial Policy is a set of initiatives to encourage economically
transformation, that focused on the optimal utilization of human resources,
increasing sustained productivity, enhancing employment generation etc.

Q4. What is the new industrial policy of 1991?

Answer: On July 24, 1991, the Government of India announced its new industrial policy.
• It brings the LPG ( Liberalisation, Privatisation, and Globalisation ) reformation by correcting the distortion and weakness of the Industrial Structure of the country that had developed in 4 decades.

Q5. When was the new industrial policy of India announced?

Answer: 1991

Q6. What is the latest industrial policy of India?

Answer: Industrial Policy of India 2022

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