Chapter 4

Indian Industrial
Policies

Industrial Policy | Meaning

Industrial policy means rules, regulations,

principles, policies and procedures laid
down by government for regulating,
developing, and controlling industrial
undertakings in the country.
It prescribes the respective roles of the
public, private, joint, and co-operative
sectors for the development of industries.
It also indicates the role of the large,
medium and small scale sector.

Industrial Policy | Meaning

It incorporates fiscal and monetary

policies, tariff policy, labour policy, and
the government attitude towards foreign
capital, and role to be played by
multinational corporations in the
development of the industrial sector.

Industrial Policy | Objectives

Industrial policy statements have been

announced from 1948 onwards.
A number of objectives have been projected
by the Government of India while making
industrial policy declarations.
Industrial Development and Regulation Act
(IDR Act) was enacted in 1951.
Some of the important objectives can be
identified as follows:
1.
2.
3.
4.

Achieving a socialistic pattern of society.

Preventing undue concentration of economic
power.
Achieving industrial development.
Reducing disparities in regional development.

Industrial Policy | Objectives

6.

7.
8.
9.
10.

11.

12.

Providing opportunities for gainful

employment.
Achieving a self-sustained economy.
Achieving faster economic growth.
Alleviating poverty.
Protecting and developing a healthy smallscale sector.
Updating technology and modernization of
industry.
Liberalization and globalization of economy.

Industrial Policy Resolutions

NEW EONOMIC POLICY 1991

Industrial Policy Resolution

1948

The Government of India announced its first

industrial policy resolution on 6 April,1948.
The policy resolution laid stress on the role
of the state in the development of industry.
The industrial activities were divided into
four broad areas:
1.

Items under central government control

Manufacture of arms and ammunition, The
production and control of atomic energy,
Ownership and management of railway
transport, etc.

Industrial Policy Resolution

1948
2.

3.

Items under the state government control

Coal, Iron and Steel, Aircraft manufacture,
Shipbuilding, Manufacture of telephone,
telegraph and wireless apparatus, excluding
radio receiving sets, Mineral oils, etc.
Items of basic importance (planned &
regulated by central government)
Salt, Automobiles and Tractors, Electric
Engineering, Other Heavy Machinery, Machine
Tools, Heavy Chemicals, Fertilizers and
Pharmaceuticals, Power, Cotton and Woollen
Textiles, Cement, Sugar, Paper and Newsprint,
etc.

Industrial Policy Resolution

1948
4.

Items for Private Sector

The rest of the industrial field will be open
to private enterprise.

It also emphasised on securing a

continuous increase in production and
its equitable distribution.
Importance was given to small scale
and cottage industries.

Objective of IDR Act 1951

Empowering the Government to take

necessary steps to regulate the pattern
of
industrial
development
through
licensing.
This paved the way for the Industrial
Policy Resolution of 1956, which was the
first comprehensive statement on the
strategy for industrial development in
India.

Industrial Policy Resolution

1956

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 Industrial Policy Resolution - 1956 classified
industries into three categories:

Category 1: includes 17 industries - exclusively under the

domain of the Government. These included railways, air
transport, arms and ammunition, iron and steel and atomic
energy.
Category 2: includes 12 industries - which were envisaged
to be progressively State owned but private sector was
expected to supplement the efforts of the State.
Category 3: 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.

Industrial Policy Resolution

1956

Industrial Policy Resolution (30 April, 1956)

was also regarded as the Economic
Constitution of India.
Major Objectives of Industrial Policy
Resolution (30 April, 1956) are as follows:
1.
2.
3.

Improving living standards and working

conditions for the mass of the people.
To reduce disparities in income and wealth.
To prevent private monopolies and
concentration of economic power.

Industrial Policy Resolution

1956
4.
5.

6.
7.
8.
9.

Development of transport facilities.

The State will progressively assume a
predominant and direct responsibility for
setting up new industrial undertakings and for
developing transport facilities.
Undertake State trading on an increasing scale.
Planned and rapid development.
Expand public sector.
Disparities in levels of development between
different regions should be progressively
reduced.

Industrial Policy Measures in

1960s and 1970s

Monopolies Inquiry Commission (MIC) was set up in

1964 to review various aspects pertaining to
concentration of economic power and operations of
industrial licensing under the IDR Act, 1951.
In 1969, Monopolies and Restrictive Trade Practices
(MRTP) Act was introduced to enable the Government
to effectively control concentration of economic
power.
The MRTP Act, 1969 defined large business houses as
those with assets of Rs. 200 million and above. Large
industries were designated as MRTP companies and
were eligible to participate in industries that were not
reserved for the Government or the Small scale
sector.

Industrial Licensing Policy

1970

The new Industrial Licensing Policy of 1970

classified industries into four categories:

Category 1: termed as Core Sector, consisted of

basic, critical and strategic industries.
Category 2: termed as Heavy Investment Sector,
comprised projects involving investment of more
than Rs.50 million.
Category 3: the Middle Sector consisted of projects
with investment in the range of Rs.10 million to
Rs.50 million.
Category 4: Delicensed Sector, in which
investment was less than Rs.10 million and was
exempted from licensing requirements.

Industrial Policy
Resolution1973

The Industrial Policy Resolution of 1956 still

remained valid, but certain structural
distortions had crept in the system.
The new policies were hence directed
towards removing these distortions.
It provided for a closer interaction between
the agricultural and industrial sectors.
Accorded the highest priority to the
generation and transmission of power.

Industrial Policy Resolution

1973

Special legislation to protect cottage and household

industries was also proposed to be introduced.
It was also decided that compulsory export
obligations, merely for ensuring the foreign
exchange balance of the project, would no longer
be insisted upon while approving new industrial
capacity.
An exhaustive analysis of industrial productswas
made to identify products which are capable
ofbeing produced in the small scale sector.
The list of industries exclusively reserved for the
small scale sector was expanded from 180 items to
more than 500 items.

Industrial Policy
Resolution1977

Industrial Policy Dec 23, 1977 highlights

on producing inputs needed by a large
number of smaller units and making
adequate marketing arrangements.
To boost 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.

Industrial Policy
Resolution1977

Industrial processes and technologies aimed at

optimum utilisation of energy or the
exploitation of alternative sources of energy
would be given special assistance, including
finance on concessional terms.
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
(more than 1 million population) and urban
areas (more than 0.5 million population).

Industrial Policy
Resolution1980

Industrial Policy Statement of July, 1980

was based on Industrial Policy Resolution
(30 April, 1956).
The major objectives are as follows:
1.
2.

3.
4.

Optimum utilisation of installed capacity.

Maximum production and achieving
higher productivity.
Higher employment generation.
Promotion of export-oriented industries.

Industrial Policy
Resolution1980
5.

6.
7.

Consumer protection against high prices

and bad quality.
Correction of regional imbalances.
Strengthening of the agricultural base
through agro based industries and
promotion of optimum inter-sectoral
relationship.

Industrial Policy
Resolution1991

Government
is
pledged
to
launching
a
reinvigorated struggle for social and economic
justice, to end poverty and unemployment and to
build a modern, democratic, socialist, prosperous
and forward-lookingIndia.
Such a society can be built ifIndiagrows as part of
the world economy and not in isolation.
While Government will continue to follow the policy
of self-reliance, there would be greater emphasis
placed on building up our ability to pay for imports
through our own foreign exchange earnings.

Industrial Policy
Resolution1991

Government is also committed to development

and utilisation of indigenous capabilities in
technology and manufacturing as well as its
upgradation to world standards.
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 increasing competitiveness for the
benefit of the common man.

Industrial Policy
Resolution1991

The objective of the Industrial Policy

Statement - 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.
The focus of the policy was to unshackle
the Indian industry from bureaucratic
controls.

Industrial Policy
Resolution1991

The spread of industrialisation 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.
Labour will be made an equal partner in
progress and prosperity.
Workers participation in management will be
promoted.

Industrial Policy
Resolution1991

Need to preserve the environment and ensure the

efficient use of available resources.
Maintain sustained growth in productivity and
gainful employment and attain international
competitiveness.
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:
1.
2.
3.
4.
5.

Industrial Licensing.
Foreign Investment.
Foreign Technology Agreements.
Public Sector Policy.
MRTP Act.

Industrial Policy
Resolution1991

Number of far-reaching reforms :

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.
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.

Industrial Policy
Resolution1991

The
Government
provided
automatic
approval for technological agreements
related to high priority industries and eased
procedures for hiring of foreign technical
expertise.
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.
pre-entry scrutiny of investment decisions of
MRTP companies was abolished.

Industrial Policy Measures

Since 1991

Some of important policy measures initiated

since 1991 are set out below:

Since 1991, promotion of foreign direct

investment has been an integral part of Indias
economic policy.
FDI up to 100 per cent has also been allowed
under automatic route for most manufacturing
activities in Special Economic Zones (SEZs).
In an effort to mitigate regional imbalances, the
Government announced a new North-East
Industrial Policy in December 1997 for promoting
industrialization in the North-Eastern region.

Industrial Policy Measures

Since 1991

The focus of disinvestment process of PSUs has

shifted from sale of minority stakes to strategic
sales.
Electricity Act 2003 has been enacted which
envisaged to delicense power generation and permit
captive power plants.
Various policy measures have facilitated increased
private sector participation in key infrastructure
sectors such as, telecommunication, roads and ports.
Under the framework provided by the Competition
Act 2002, the Competition Commission of India was
set up in 2003 so as to prevent practices having
adverse impact on competition in markets.

Summary LPG Syndrome

EARLIER TILL 1991

NOW AFTER 1991

LICENSING

LIBERALISATION

PLANNING

PRIVATISATION

GOVERNMENT GLOBALISATION