INDUSTRIAL POLICIES IN INDIA
Industrial Policy is the set of standards and measures set by the Government to evaluate the progress of the manufacturing sector that ultimately enhances economic growth and development of the country.
The government takes measures to encourage and improve the competitiveness and capabilities of various firms.
Objectives of Industrial Policy
- To maintain steady growth in productivity.
- To create more employment opportunities.
- Utilize the available human resources better
- To accelerate the progress of the country through different means
- To match the level of international standards and competitiveness
Industrial Policy in India:
The various industrial policy introduced by the Indian government are as follows:
- Industrial Policy Resolution, 1948 – It made clear that India is going to have a Mixed Economic Model.
- It classified industries into four broad areas:
- Strategic Industries (Public Sector): It included three industries in which Central Government had monopoly. These included Arms and ammunition, Atomic energy and Rail transport.
- Basic/Key Industries (Public-cum-Private Sector): 6 industries viz. coal, iron & steel, aircraft manufacturing, ship-building, manufacture of telephone, telegraph & wireless apparatus, and mineral oil were designated as “Key Industries” or “Basic Industries”.
- These industries were to be set-up by the Central Government.
- However, the existing private sector enterprises were allowed to continue.
- Important Industries (Controlled Private Sector): It included 18 industries including heavy chemicals, sugar, cotton textile & woolen industry, cement, paper, salt, machine tools, fertiliser, rubber, air and sea transport, motor, tractor, electricity etc.
- These industries continue to remain under private sector however, the central government, in consultation with the state government, had general control over them.
- Other Industries (Private & Cooperative Sector): All other industries which were not included in the above mentioned three categories were left open for the private sector.
- Industrial Policy Resolution, 1956 (IPR 1956)
- This policy laid down the basic framework of Industrial Policy
- This policy is also known as the Economic Constitution of India
It is classified into three sectors
- Schedule A – which covers Public Sector (17 Industries)
- Schedule B – covering Mixed Sector (i.e. Public & Private) (12 Industries) such industries were progressively State-owned.
- Schedule C – only Private Industries
This has provisions for Public Sector, Small Scale Industry, Foreign Investment. To meet new challenges, from time to time, it was modified through statements in 1973, 1977, and 1980.
- Industrial Policy Statement, 1977
- The main thrust of this 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 and other industries outside the list of reserved items for the small-scale sector.
- The 1977 Industrial Policy 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 labour unrest. The Government encouraged the worker’s participation in management from shop floor level to board level.
- Criticism: The industrial Policy 1977, was subjected to serious criticism as there was an absence of effective measures to curb the dominant position of large-scale units and the policy did not envisage any socioeconomic transformation of the economy for curbing the role of big business houses and multinationals
- Industrial Policy Statement, 1980
- The Industrial Policy Statement of 1980 addressed the need for promoting competition in the domestic market, modernization, selective Liberalization, and technological up-gradation.
- Due to this policy, the MRTP Act (Monopolies Restrictive Trade Practices) and FERA Act (Foreign Exchange Regulation Act, 1973) were introduced.
- The objective was to liberalize the industrial sector to increase industrial productivity and competitiveness of the industrial sector.
- The policy laid the foundation for an increasingly competitive export-based and for encouraging foreign investment in high-technology areas.
- New Industrial Policy, 1991
The New Industrial Policy, 1991 had the main objective of providing facilities to market forces and to increase efficiency.
Larger roles were provided by
- L – Liberalization (Reduction of government control)
- P – Privatization (Increasing the role & scope of the private sector)
- G – Globalisation (Integration of the Indian economy with the world economy)
Features of New Industrial Policy:
- De-reservation of public sector: Sectors that were earlier exclusively reserved for public sector were reduced. However, pre-eminent place of public sector in 5 core areas like arms and ammunition, atomic energy, mineral oils, rail transport and mining was continued.
- Presently, only two sectors- Atomic Energy and Railway operations-are reserved exclusively for the public sector.
- De-licensing: Abolition of Industrial Licensing for all projects except for a short list of industries.
There are only 4 industries at present related to security, strategic and environmental concerns, where an industrial license is currently required-
- Electronic aerospace and defense equipment
- Specified hazardous chemicals
- Industrial explosives
- Cigars and cigarettes of tobacco and manufactured tobacco substitutes
- Disinvestment of Public Sector: Government stakes in Public Sector Enterprises were reduced to enhance their efficiency and competitiveness.
- Liberalisation of Foreign Investment:
- This was the first Industrial policy in which foreign companies were allowed to have 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.
- Today, there are numerous sectors in the economy where government allows 100% FDI.
- 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 liberalise the economy by removing bureaucratic hurdles in industrial growth.
- Limited role of Public sector reduced the burden of the Government.
- The policy provided easier entry of multinational companies, privatisation, removal of asset limit on MRTP companies, liberal licensing.
- All this resulted in 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 private sector.
- The policy was followed by special efforts to increase exports. Concepts like Export Oriented Units, Export Processing Zones, Agri-Export Zones, Special Economic Zones and lately National Investment and Manufacturing Zones emerged. All these have benefitted the export sector of the country.
Limitations of Industrial Policies in India
- Stagnation of Manufacturing Sector: Industrial policies in India have failed to push manufacturing sector whose contribution to GDP is stagnated at about 16% since 1991.
- Distortions in industrial pattern owing to selective inflow of investments: In the current phase of investment following liberalization, while substantial investments have been flowing into a few industries, there is concern over the slow pace of investments in many basic and strategic industries such as engineering, power, machine tools, etc.
- Displacement of labor: Restructuring and modernisation of industries as a sequel to the new industrial policy led to displacement of labour.
- Absence of incentives for raising efficiency: Focusing attention on internal liberalisation without adequate emphasis on trade policy reforms resulted in ‘consumption-led growth’ rather than ‘investment’ or ‘export-led growth’.
- Vaguely defined industrial location policy: The New Industrial Policy, while emphasised the detrimental effects of damage to the environment, failed to define a proper industrial location policy, which could ensure a pollution free development of industrial climate.
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