Industrial Policies in India

Western economies had chosen Industries/Industrial Sector as prime moving force of their economies. They had seen huge success in the growth and development of their economies with Industrialisation by the time India became independent.

After India became independent, it was reeling under abject mass poverty, illiteracy, shortage of food grains and poor healthcare etc., which called for immediate attention. However, on the other hand, industrial development, building infrastructure, science and technology and higher education, etc. also need some attention.

Development of all these sectors requires heavy capital investment, which India could not afford. Hence, having seen the success of Industrialisation in western economies and Industries as the dominant political force then, India adopted the Industrial sector as prime moving force (priority to industrial development).

Since the government of the time had decided upon a dominant role for the state in the economy, the governments took steps for the expansion of the Public Sector Undertakings (PSUs) to glorious heights. Hence the successive governments have brought about different industrial policies to the effect for the faster development of the economy.

Understanding industrial policies are important to understand the Indian economy and the subsequent reform process that the country followed later in the 1990s.

Industrial Policy 1948

It was the first industrial policy statement of India (also known as first economic policy)
It decided mixed economy as a model of Indian economic system- Both Public and Private have a role in economic production, distribution etc.
It puts industries under Two lists:
- Central List: It includes Industries like coal, power, railways, civil aviation, arms and ammunition, defence, etc.
- State List: textiles, two-wheelers, paper, medicines, cycles, rickshaws etc.
- Industries not covered in Central and State Lists were left open for private sector investment. And many industries in this list require compulsory licencing.
It set a 10 year period for review of the policy.

Industrial Policy 1956

The 1948 Industrial Policy succeeded with the growth of PSUs and government had to refine it in 1956, i.e. 8 years after the policy. The key provisions of 1956 policy as follows:

‘Licence-Quota-Permit’ Raj
Reservation of Industries into three Schedules:
- Schedule A: It had 17 industrial areas in which the Centre was accorded complete These industries were called Central PSUs.
- Schedule B: It contained 12 industrial areas which could be set up by the state governments and private sector. These industries require compulsory licensing.
- Schedule C: All other industries are placed in this schedule. These industries could be set up by private enterprises subject to license and observance of the social and economic policy of the state.
Regional Disparity: Mandated setting up of new PSUs in the backward and underdeveloped regions.
Prominence to small industries as well as the khadi and village industries.
Priority to the Agricultural Sector
During this policy, Nehru referred to PSU as Temples of modern India.
PSU contribute to the growth of the economy
The rapid expansion of PSUs accounted for more than half of the GDP of the economy by 1988–89.
This policy was considered an important policy as it decided the nature of the economy.

Industrial Policy 1969

The License Raj led to monopoly of well-established industries which cornered the new industries with the help of different kinds of trade practices forcing the latter to agree for sell-outs and takeovers. To avoid these shortcomings, this policy was drafted.

The Monopolistic and Restrictive Trade Practices (MRTP) Act was passed to:
- regulate the trading and commercial practices of the firms
- check monopoly
- Prevent the concentration of economic power.
As per the MRTP Act, the firms with assets of ₹25 crores or more were obligated to take government permission before any expansion, greenfield venture and takeover of other firms. Such companies came to be known as the ‘MRTP Companies’.
The upper limit- known as the ‘MRTP limit’- for such companies was revised upwards to ₹50 crores in 1980 and ₹100 crores in 1985.
Government set up an MRTP Commission for the redressal of the prohibited and restricted practices of the trade.

Industrial Policy 1973

The industries that are fundamental for the development of industries were put in this category such as iron and steel, cement, coal, crude oil, oil refining and electricity. These industries were called ‘Core Industries’.
Later 2 more industries (fertilizers, natural gas) were added to the core Industries list.
The private sector (with total assets more than 20 crores) may apply for licences for the industries which were not a part of schedule A of the Industrial Policy, 1956.
Joint Sector: To promote the private sector, the concept of ‘joint sector’ was developed. That is, the policy allowed partnership among the Centre, state and the private sector while setting up some industries.
Reserved list: Small and medium industries were put on the Reserved List.
FERA: During the time, the Government of India had been facing the foreign exchange crisis. In 1973, the government passed the Foreign Exchange Regulation Act (FERA) to regulate foreign exchange.
Limited permission to Foreign companies: Multinational Corporations (MNCs) were allowed to set up subsidiaries in the country.

Industrial Policy 1977

With political turmoil at the centre during the time, the Janata government could form the government, which took an anti-Indira stance and set the policy. Major provisions:

The policy inclined towards the Gandhian-socialistic pattern of the economy
The policy prohibited foreign investment in unnecessary areas.
Stress on village industries: Redefined the small and cottage industries
Decentralised industrialisation:
- It aims to link the masses to the process of industrialisation.
- District Industries Centres (DICs) were set up to promote the expansion of small and cottage industries at a mass scale
Focus on production levels and the prices of essential commodities.

Industrial Policy 1980

Indira Gandhi came back to power again. And modified the previous industrial policy. The major provisions of the policy were as given below:

Simplified Industrial licencing process.
Foreign investment via the technology transfer route was allowed again- as in 1973 policy.
The ‘MRTP Limit’ was increased to ₹50 crores to promote setting up of bigger companies.
The District Industries Centres DICs were continued with.
Further liberalised the expansion of private industries

Industrial Policy 1986

The key provisions of the policy are:

Further relaxed norms for foreign investment with more industrial areas being open for their entries. Till then the dominant route of foreign investment was i.e., technology transfer, but the policy allowed the equity holding of the MNCs in the Indian subsidiaries up to 49 per cent (i.e. the Indian partner holds 51 per cent shares).
The ‘MRTP Limit’ was increased up to ₹100 crore—promoting the idea of bigger companies.
Further simplified industrial licencing. That means, industries requiring compulsory licencing reduced to 64 industries
Focus on the sunrise industries such as telecommunication, computerisation and electronics.
Emphasis on modernisation and profitability of public sector undertakings (PSU).
Incentives to Industries based on imported raw materials.
Within the FERA regime, some relaxations regarding the use of foreign exchange were permitted so as to assimilate essential technology into Indian industries and achieve international standard.
The government launched Technology Missions to promote Agriculture on modern scientific lines.

These industrial policies were attempted at liberalising the economy without explicit mention of ‘economic reforms’. These policies set the ground for economic reforms, as they depend more on foreign capital that led to the Balance of payment problem later.

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