1. 1
INTRODUCTION
When India achieved Independence in 1947, the national consensus was in favour
of rapid industrialization of the economy which was seen not only as the key to
economic development but also to economic sovereignty. In the subsequent years,
India's Industrial Policy evolved through successive Industrial Policy Resolutions.
Specific priorities for industrial development were also laid down in the successive
Five Year Plans. Building on the so-called Bombay Plan in the pre-Independence
era, the first Industrial Policy Resolution announced in 1948 laid down broad
contours of the strategy of industrial development. At that time the Constitution of
India had not taken final shape nor was the Planning Commission constituted.
Moreover, the necessary legal framework was also not put in place. Not
surprisingly therefore, the Resolution was somewhat broad in its scope and
direction. The main aim of industrial resolution policies was to facilitate the private
players and liberalized them. There were two phase first one is restrictive era
which consist of Industrial policy resolution1948,1956,1977.The other one is the
liberalized era which consist of Industrial policy resolution 1980, 1991.
RELEVANCE/SIGNIFICANCE
The Government of India set out in their Resolution dated 6 April, 1948 the policy
which they proposed to pursue in the industrial field. The Resolution emphasized
the importance to the economy of securing a continuous increase in production and
its equitable distribution, and pointed out that the State must play of progressively
active role in the development of Industries. It laid down that besides arms and
ammunition, atomic energy and railway transport, which would be the monopoly
of the Central Government, the State would be 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. The rest of the industrial field was left open to private enterprise
though it was made clear that the State would also progressively participate in this
field. In 1948, immediately after Independence, Government introduced the
Industrial Policy Resolution. This outlined the approach to industrial growth and
development. It emphasized the importance to the economy of securing a
continuous increase in production and ensuring its equitable distribution. After the
adoption of the Constitution and the socio-economic goals, the Industrial Policy
was comprehensively revised and adopted in 1956. To meet new challenges, from
time to time, it was modified through statements in 1977, 1980 and 1991. The
2. 2
Industrial Policy Resolution of 1948 was followed by the Industrial Policy
Resolution of 1956 which had as its objective the acceleration of the rate of
economic growth and the speeding up of industrialization as a means of achieving
a socialist pattern of society. In 1956, capital was scarce and the base of
entrepreneurship not strong enough. Hence, the 1956 Industrial Policy Resolution
gave primacy to the role of the State to assume a predominant and direct
responsibility for industrial development. The Industrial Policy Statement of 1977
laid emphasis on decentralization and on the role of small-scale, tiny and cottage
industries. Then the liberal era was started with the introduction of Industrial
policy resolution 1980& 1991. The Industrial Policy Statement of 1980 focused
attention on the need for promoting competition in the domestic market,
technological up gradation and modernization. Globalization, privatization
,liberalization these three term facilitate the Indian market with the introduction of
Industrial policy resolution 1991.
POSITIONING / APPLICABILITIES
The restrictive era consist of Industrial policy resolution 1948,1956 &1977 and the
liberalized era consist of industrial resolution policy 1980 and 1991.
Industrial policy resolution 1948
The first Industrial Policy Resolution announced in 1948 laid down broad contours
of the strategy of industrial development.
Features:
•Division of the Industrial sector into 4 major categories.
•Small and Cottage Industries were given privileges.
•Considered the importance of private participation
Division of Industrial sector into four major categories
1.State Monopoly(Arms and ammunition, Atomic Energy,Rail Transport)
2. Mixed Sector(Industry will be promoted by joint venture of Govt and
private.)Six industries were specified(Coal, Iron & Steel, Aircraft Mfg, Ship
Building, Telephone, Telegraph & Wireless (Excluding Radio),Mineral Oils.). The
existing can continue and after 10 years, the government will take over those
undertakings by paying a compensation which is fair and equitable.
3. 3
3.The field of government control. The government will regulate Industries in this
category(Automobiles, Heavy Machinery, Heavy Chemicals, Fertilizers, Sugar,
Paper, Cement,Cotton, Woollen textiles etc)
4. The field of private enterprises. All the other Industries
The resolution emphised on the following-
1.The importance to the economy of securing a continuous in increase in
production
2.Its equitable distribution
3.State must play of progressing active role in the development of industry
4.It laid down that besides arms & ammunition, automic energy & railway
transport which would be the monopoly of the central government.The state
wouldl be exclusively responsible for the establishment of new undertaking in six
basic industry except where in the national interest the state itself found it
necessary to secure the cooperation of private entsrprise.
5.The rest of the industrial field was left open to private enterprise though it was
made clear that the state would also progressively participate in this field.
Industrial policy resolution 1956
The Industrial Policy Resolution - 1956 was shaped by the Mahalanobis Model of
growth, which suggested that emphasis on heavy industries would lead the
economy towards a long term higher growth path. The Resolution widened the
scope of the public sector. The objective was to accelerate economic growth and
boost the process of industrialization as a means to achieving a socialistic pattern
of society. Given the scarce capital and inadequate entrepreneurial base, the
Resolution accorded a predominant role to the State to assume direct responsibility
for industrial development. All industries of basic and strategic importance and
those in the nature of public
utility services besides those requiring large scale investment were reserved for the
public sector. The Industrial Policy Resolution - 1956 classified industries into
three categories. The first category comprised 17 industries exclusively under the
domain of the Government. These are railways, air transport, arms and
ammunition, iron and steel and atomic energy. The second category comprised 12
industries 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.
It was envisaged that the State would facilitate and encourage development of
these industries in the private sector, in accordance with the programmes
4. 4
formulated under the Five Year Plans, by appropriate fiscal measures and ensuring
adequate infrastructure. Despite the demarcation of industries into separate
categories, the Resolution was flexible enough to allow the required adjustments
and modifications in the national interest.
Industrial policy resolution 1977
This resolution policy emphasized decentralization of industrial sector with
increased role for small scale, tiny and cottage industries. It also provided for close
interaction between industrial and agricultural sectors. Highest priority was
accorded to power generation and transmission. It expanded the list of items
reserved for exclusive production in the small scale sector from 180 to
more than 500. This Policy also issued a list of industries where no foreign
collaboration of financial or technical nature was allowed as indigenous
technology was already available. Fully owned foreign companies were allowed
only in highly export oriented sectors or sophisticated technology areas. For all
approved foreign investments, companies were completely free to repatriate capital
and remit profits, dividends, royalties, etc. Further, in order to ensure balanced
regional development, it was decided not to issue fresh licenses for setting up new
industrial units within certain limits of large metropolitan cities.
Industrial policy resolution 1980
The industrial Policy resolution 1980 placed accent on promotion of competition in
the domestic market, technological upgradatrion and modernization of industries.
Some of the socio-economic objectives of IPR 1980 were i) optimum utilisation of
installed capacity, ii) higher productivity, iii) higher employment levels, iv)
removal of regional disparities, v) strengthening of agricultural base, vi) promotion
of export oriented industries and vi) consumer protection against high prices and
poor quality. A number of policy measures were initiated towards technological
and managerial modernization to improve productivity, quality and to reduce cost
of production. The public sector was freed from a number of constraints and was
provided with greater autonomy.
Industrial policy resolution 1991
The Industrial resolution Policy 1991 stated that “the Government will continue to
pursue a 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 increased
5. 5
competitiveness for the benefit of common man". It further added that "the spread
of industrialization to backward areas of the country will be actively promoted
through appropriate incentives, institutions and infrastructure investments”. The
objective of IPR 1991 was to maintain sustained growth in productivity, enhance
gainful employment and achieve optimal utilization of human resources, to attain
international competitiveness, and to transform India into a major partner and
player in the global arena.
Foreign equity liberalization
Recognising the complementarily of domestic and foreign investment, foreign
direct investment was accorded a significant role in policy announcements of 1991.
Foreign direct investment (FDI) up to 51 per cent foreign equity in high priority
industries requiring large investments
and advanced technology was permitted. Foreign equity up to 51 percent was also
allowed in trading companies primarily engaged in export activities. These
important initiatives were expected to provide a boost to investment besides
enabling access to high technology and marketing expertise of foreign companies.
License liberalization
A substantial modification of Industry Licencing Policy was deemed necessary
with a view to ease restraints on capacity creation, respond to emerging domestic
and global opportunities by improving productivity. Accordingly, the Policy
included abolition of industrial licensing for most industries, barring a handful of
industries for reasons of security and strategic concerns, social and environmental
issues. Compulsory licencing was required only in respect of 18 industries. These
included, coal and lignite, distillation and brewing of alcoholic drinks, cigars and
cigarettes, drugs and pharmaceuticals, white goods, hazardous chemicals. The
small scale sector continued to be reserved. Norms for setting up industries (except
for industries subject to compulsory licensing) in cities with more than one million
population were further liberalised.
Export promotion & Import liberalization
With a view to inject technological dynamism in the Indian industry, the
Government provided automatic approval for technological agreements related to
high priority industries and eased procedures for hiring of foreign technical
expertise.
Limitation to public sector
Asked to puplic sector not to go further extension otherwise it will leads to
disinvestment. Major initiatives towards restructuring of public sector units (PSUs)
were initiated, in view of their low productivity, over staffing, lack of
technological upgradation and low rate of return. In order to raise resources and
ensure wider public participation PSUs, it was decided to offer its shareholding
stake to mutual funds, financial institutions, general public and workers. Similarly,
6. 6
in order to revive and rehabilitate chronically sick PSUs, it was decided to refer
them to the Board for Industrial and Financial Reconstruction (BIFR). The Policy
also provided for greater managerial autonomy to the Boards of PSUs.
NAVARATNA & Commercial autonomy
The public sectors who were performing well joined in NAVARTNA & got
commercial autonomy.
PROBLEMS WITH INDUSTRIAL POLICY RESOLUTION
1948,1956,1977&1980
The private sectors were not satisfied with these policies. The IPR 1948 emphased
on puplic sector where as there was no foreign collaboration & upgradation of
foreign technology in IPR 1956.The IPR 1977 focused on only small scale
industry. The evolution of post-Independence economic policy discussed above
had three basic features: autarchic trade policy, extension of public sector, and
direct, discretionary and quantitative controls on the private sector. These features
interacted in the institutional environment of functioning markets and private
ownership of means of production to generate perverse incentives that constricted
the operation of the market forces and private economic agents and resulted in a
low rate of economic growth of 3.5 per cent per annum despite the doubling of the
rates of domestic savings and investment over the
thirty year period 1950-80. Public sector units were expected to operate efficiently
and generate resources for further investment. Instead, they were saddled with
multiplicity of often-conflicting objectives, they had to accept politically driven
inappropriate administered prices for their products and services, and were
subjected to bureaucratic and political interference, which made their efficient
operation difficult. They also faced the 'soft-budget constraint' with neither penalty
for losses nor rewards for efficient functioning. Poor performance of public sector
units had multiplier effects through inefficient, low quality and often irregular and
fluctuating supplies of infrastructure services and universal intermediate inputs
(like iron and steel and financial services), which partly contributed to the
inefficiencies of the private sector units. At the macro level, they became a drain
on the exchequer through their recurring losses instead of generating resources for
investment.
7. 7
A CRITICAL ANALYSIS
In 1948, immediately after Independence, Government introduced the Industrial
Policy Resolution. This outlined the approach to industrial growth and
development. It emphasised the importance to the economy of securing a
continuous increase in production and ensuring its equitable distribution. After the
adoption of the Constitution and the socio-economic goals, the Industrial Policy
was comprehensively revised and adopted in 1956. To meet new challenges, from
time to time, it was modified through statements in 1977 and 1980. The wide
ranging economic reforms in India since 1991 involved a major shift in the
development strategy. The earlier strategy adopted public sector dominated
autarchic investment planning of industrialisation with direct discretionary controls
on private investment. The interaction of this strategy with the institutional
framework of functioning markets and predominant private ownership of means of
production pushed the economy into persistent low growth equilibrium. Economic
reforms of 1991 aim at putting the economy on a sustained and rapid growth path
through greater participation in international division of labor and private capital
movements, and greater reliance on private initiative and markets, and the
consequent shift to market-friendly policy regime. Trade policy deregulation
started slowly in the 1970s under the compulsions of the oil price hikes and the
breakdown of the Bretton Woods system of fixed exchange rates(Mitra and
Tendulkar 1994) gathered some pace in the 1980s supplemented by hesitant
relaxation in domestic industrial licensing. The result was the emergence of the
Indian economy out of the low growth equilibrium. The growth rate of aggregate
GDP that got stuck around 3.5 per cent per annum for thirty years till 1980-81 rose
to 5.7 per cent per annum in the decade of the 1980s. However, this coincided with
unsustainable fiscal and external deficits leading to the macroeconomic crisis of
1990. The combined external (balance of payments) and internal (fiscal) crisis
provided the necessity as well as opportunity to correct the inefficiencies in the
public policy framework that was directly responsible for India's inferior economic
performance. The result was a strong dose of macroeconomic stabilization as also
microeconomic structural adjustment-oriented policy reforms.
EFFECT ON INDUSTRIAL DEVELOPMENT
After introduction of IPR 1991 equity participation up to 24 per cent of the total
shareholding in small scale units by other industrial undertakings has been
allowed. The objective therein has been to enable the small sector to access the
capital market and encourage modernization, technological up gradation,
8. 8
ancillarisation, sub-contracting, etc. With a view to inject technological dynamism
in the Indian industry, the Government provided automatic approval for
technological agreements related to high priority industries and eased procedures
for hiring of foreign technical expertise. A substantial modification of Industry
Licensing Policy was deemed
necessary with a view to ease restraints on capacity creation, respond to emerging
domestic and global opportunities by improving productivity. Accordingly, the
Policy Statement included abolition of industrial licensing for most industries,
barring a handful of industries for reasons of security and strategic concerns, social
and environmental issues. Compulsory licensing was required only in respect of 18
industries.
Indian textile Industry
The importance of the sector in quantity terms as a contribution to GDP, economy,
employment and export earning, these cannot be overstated. The varied and
diversified production based of Indian textile industry offers, in the free globalised
merchandise environment an unique opportunity for expanding export basket from
current level of 3.4%. Fiscal duty structure of the textile industry has also
influenced to a great extent the growth and the structure of the industry.
Small scale industry
The basic thrust of this resolution was to simplify regulations and procedures by
delicensing, deregulating, and decontrolling. Its salient features are:
a) SSIs were exempted from licensing for all articles of manufacture.
b) The investment limit for tiny enterprises was raised to Rs. 5 lacs irrespective of
location.
c) Equity participation by other industrial undertakings was permitted up to a limit
of 24 percent of shareholding in SSIs.
d) Factoring services were to launch to solve the problem of delayed payments to
SSIs.
e) Priority was accorded to small and tiny units in allocation of indigenous and raw
materials.
f) Market promotion of products was emphasized through co-operatives, public
institutions and other marketing agencies and corporations.
CONCLUSION
After introduction of IPR 1991 Government will continue to pursue a 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
9. 9
capital markets and increasing competitiveness for the benefit of the common man.
The spread of industrialization to backward areas of the country will be actively
promoted through appropriate incentives, institutions and infrastructure
investments. Foreign investment and technology collaboration will be welcomed to
obtain higher technology, to increase exports and to expand the production base.
Government will Endeavour to abolish the monopoly of any sector or any
individual enterprise in any field of manufacture, except on strategic or military
considerations and open all manufacturing activity to competition. The
Government will ensure that the public sector plays its rightful role in the evolving
socio-economic scenario of the country. Till the onset of reform process in 1991,
industrial licensing played a crucial role in channeling investments, controlling
entry and expansion of capacity in the Indian industrial sector. As such
industrialization occurred in a protected environment, which led to various
distortions. Tariffs and quantitative controls largely kept foreign competition out of
the domestic market, and most Indian manufacturers looked on exports only as a
residual possibility. Little attention was paid to ensure product quality, undertaking
R&D for technological development and achieving economies of scale. The
industrial policy announced in 1991, however, substantially dispensed with
industrial licensing and facilitated foreign investment and technology transfers, and
threw open the areas hitherto reserved for the public sector. This policy
emphasized on private players and liberalized them to facilitate the Indian
economy by promoting export and liberalized import.
SUMMING UP / RECOMMENDATION
The IPR 1991 focus in the recent years has been on deregulating the Indian
industry, enabling industrial restructuring, allowing the industry freedom and
flexibility in responding to market forces and providing a business environment
that facilitates and fosters overall industrial growth. The future growth of the
Indian industry as widely believed, is crucially dependent upon improving the
overall productivity of the manufacturing sector, rationalization of the duty
structure, technological upgradation, the search for export markets through
promotional efforts and trade agreements and creating an enabling legal
environment. In the process of analysing, the present study is expected to improve
the understanding of not only the dynamics of the reform process in a democratic
coalitional politics but also provide a coherent explanation of the constellation of
paradoxical features of the Indian economy at the beginning of the 21st century.
10. 10
REFERENCE / SOURCES
1. Liberalization – Its impact on Indian Economy ( Gupta, S.P. )
2. Indian Economy ( S. K Mishra, V. K. Puri)
3. Magazine
4. Internet
11. 11
INNCONSISTANCY IN THE INDUSTRIAL POLICY
RESOLUTION & ITS EFFECT ON INDUSTRIAL
DEVELOPMENT
Submitted to: –
PROF. S. P. DAS
Submitted by :-
UMESH KUMAR PALAI
ROLL NO - 58
12. 12
TABLE OF CONTENTS
INTRODUCTION 1
RELEVANCE/SIGNIFICANCE 1
POSITONING/APPLICABILITY 2
PROBLEM AND PROSPECTS 6
CRITICAL ANALYSIS 7
EFFECT 7
CONCLUSION 8
RECOMMENDATION 9
BIBLIOGRAPHY 8
