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INDUSTRIAL POLICY IN INDIA:
ISSUES, OBJECTIVES &
EXPERIENCE
11/11/2022 2
Structure
• Industrial Licensing System
• Policy towards small-scale industries
• Policy towards foreign capital
11/11/2022 3
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.
•
11/11/2022 4
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.
11/11/2022 5
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.
11/11/2022 6
Industrial Policy Resolution 1948
• Rest of the industrial field open to private
enterprise though the State would also
progressively participate in this field.
11/11/2022 7
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.
11/11/2022 8
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.
11/11/2022 9
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.
11/11/2022 10
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.
11/11/2022 11
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.
11/11/2022 12
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.
11/11/2022 13
Industrial Policy Resolution 1956
• iii) Rest of industries left to the initiative and
enterprise 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.
11/11/2022 14
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.
11/11/2022 15
Industrial Policy 1973
• Within the small scale sector, a tiny sector was also
defined with investment in machinery and
equipment up to Rs.1 lakh & located in towns
with a population < 50,000 according to
1971 census figures, and in villages.
• Proposal for special legislation to protect cottage and
household industries
11/11/2022 16
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 and
industrial products, the prices would be regulated
to ensure an adequate return to the investor.
11/11/2022 17
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
11/11/2022 18
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 Small
Industries Development Corporations in the States
and the National Small Industries Corporation in
the Centre.
11/11/2022 19
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.
11/11/2022 20
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;
11/11/2022 21
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.
11/11/2022 22
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 exchange
earnings
– development and utilization of indigenous capabilities
in technology and manufacturing as well as its
up gradation to world standards.
11/11/2022 23
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 increasing
competitiveness for the benefit of the common
man.
11/11/2022 24
INDUSTRIAL POLICY 1991
• The spread of industrialization to backward areas of
the country will be actively promoted
through appropriate incentives, institutions and
infrastructure 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
11/11/2022 25
INDUSTRIAL POLICY 1991
• Foreign investment and technology collaboration will
be welcomed to obtain higher
technology, to increase exports and to expand the
production base.
Government will endeavor 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.
11/11/2022 26
INDUSTRIAL POLICY 1991
• The Government will ensure that the public sector
plays its rightful role in the evolving
socioeconomic scenario of the country.
Government will ensure that the public sector is
run on business lines as envisaged in the Industrial
Policy Resolution of 1956 and would continue to
innovate and lead in strategic areas of national
importance.
11/11/2022 27
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 change
Labour will be made an equal partner in
• progress and prosperity
• Workers’ participation in management will be
promoted
11/11/2022 28
INDUSTRIAL POLICY 1991
• Workers cooperatives will be encouraged to
participate in packages designed to turn around
sick 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.
11/11/2022 29
INDUSTRIAL POLICY 1991
• Need to preserve the environment and ensure the
efficient use of available resources.
• Government’s policy will be continuity with change
11/11/2022 30
INDUSTRIAL POLICY 1991
• In pursuit of the above objectives, Government
have 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.
11/11/2022 31
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
11/11/2022 32
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.
11/11/2022 33
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)
11/11/2022 34
11/11/2022 35
11/11/2022 36
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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industrial_policies_india (1).ppt

  • 1. INDUSTRIAL POLICY IN INDIA: ISSUES, OBJECTIVES & EXPERIENCE
  • 2. 11/11/2022 2 Structure • Industrial Licensing System • Policy towards small-scale industries • Policy towards foreign capital
  • 3. 11/11/2022 3 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. •
  • 4. 11/11/2022 4 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.
  • 5. 11/11/2022 5 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.
  • 6. 11/11/2022 6 Industrial Policy Resolution 1948 • Rest of the industrial field open to private enterprise though the State would also progressively participate in this field.
  • 7. 11/11/2022 7 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.
  • 8. 11/11/2022 8 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.
  • 9. 11/11/2022 9 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.
  • 10. 11/11/2022 10 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.
  • 11. 11/11/2022 11 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.
  • 12. 11/11/2022 12 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.
  • 13. 11/11/2022 13 Industrial Policy Resolution 1956 • iii) Rest of industries left to the initiative and enterprise 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.
  • 14. 11/11/2022 14 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.
  • 15. 11/11/2022 15 Industrial Policy 1973 • Within the small scale sector, a tiny sector was also defined with investment in machinery and equipment up to Rs.1 lakh & located in towns with a population < 50,000 according to 1971 census figures, and in villages. • Proposal for special legislation to protect cottage and household industries
  • 16. 11/11/2022 16 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 and industrial products, the prices would be regulated to ensure an adequate return to the investor.
  • 17. 11/11/2022 17 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
  • 18. 11/11/2022 18 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 Small Industries Development Corporations in the States and the National Small Industries Corporation in the Centre.
  • 19. 11/11/2022 19 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.
  • 20. 11/11/2022 20 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;
  • 21. 11/11/2022 21 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.
  • 22. 11/11/2022 22 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 exchange earnings – development and utilization of indigenous capabilities in technology and manufacturing as well as its up gradation to world standards.
  • 23. 11/11/2022 23 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 increasing competitiveness for the benefit of the common man.
  • 24. 11/11/2022 24 INDUSTRIAL POLICY 1991 • The spread of industrialization to backward areas of the country will be actively promoted through appropriate incentives, institutions and infrastructure 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
  • 25. 11/11/2022 25 INDUSTRIAL POLICY 1991 • Foreign investment and technology collaboration will be welcomed to obtain higher technology, to increase exports and to expand the production base. Government will endeavor 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.
  • 26. 11/11/2022 26 INDUSTRIAL POLICY 1991 • The Government will ensure that the public sector plays its rightful role in the evolving socioeconomic scenario of the country. Government will ensure that the public sector is run on business lines as envisaged in the Industrial Policy Resolution of 1956 and would continue to innovate and lead in strategic areas of national importance.
  • 27. 11/11/2022 27 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 change Labour will be made an equal partner in • progress and prosperity • Workers’ participation in management will be promoted
  • 28. 11/11/2022 28 INDUSTRIAL POLICY 1991 • Workers cooperatives will be encouraged to participate in packages designed to turn around sick 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.
  • 29. 11/11/2022 29 INDUSTRIAL POLICY 1991 • Need to preserve the environment and ensure the efficient use of available resources. • Government’s policy will be continuity with change
  • 30. 11/11/2022 30 INDUSTRIAL POLICY 1991 • In pursuit of the above objectives, Government have 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.
  • 31. 11/11/2022 31 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
  • 32. 11/11/2022 32 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.
  • 33. 11/11/2022 33 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)
  • 36. 11/11/2022 36 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