Introduction and Meaning of Industrial Policy

The extent and pattern of industrialization in a country is highly influenced by its industrial policy. Industrial policy is a comprehensive concept. It is a package of policy measures which covers various issues connected with different industrial undertakings of the country. Industrial policy covers all those procedures, principles, policies, rules and regulations which control such industrial enterprises and shape the pattern of industrialization. It consists of fiscal policy, monetary policy, tariffs policy, labor policy and Government's attitude not only towards external assistance but towards the public and private sectors also. Before independence there was no proper policy determining industrial development of the country. It was only after India attained independence in 1947 that an effort was made to begin the era of planned industrial development. It is in this background that we have to study the evolution of Industrial Policy in India and see how far it has worked as a tool in realizing the goal of planned development.

Industrial Policy Resolution, 1948 Industrial Policy Resolution, 1948 : The first Prime Minister of India, Shri. Jawaharlal Nehru declared the industrial policy of the Government of India on April 6, 1948. The Industrial Policy Resolution of 1948 aimed at acceleration of the industrial development of the country. The resolution contemplated a mixed economy which included both the public sector as well as the private sector in the industrial front. This policy divided the Indian industries into four broad categories;

(a) In the first category the industries were to be the exclusive monopoly of the Central
Government. This category included the manufacture of arms and ammunition, the production and control of atomic energy and the ownership and management of railway transport. (b) The second category covered coal, iron and steel, aircraft manufacture, ship building, manufacture of telephone, telegraphs and wireless apparatus etc. The State would have the exclusive right in setting up new undertakings included in this category; however existing units of such industries would continue to be run by the private industrial undertakings. (c) The third category consisted of private industries of basic importance that Central Government felt it necessary to regulate but ownership of these industries was left in private hands. Such industries were salt, automobiles, tractors, electric engineering, heavy machinery, machine tools, heavy chemicals, fertilizers, non-ferrous metals, paper, cement, newsprint, air and sea transport etc. (d) The fourth category comprised of the remainder of the industrial field which was kept open to private sector including both individual as well as cooperative. The State control over these industries would be of a general nature only. Some other elements of this policy resolution were as follows: (i) Cottage and Small Scale Industries: The Industrial Policy Resolution of 1948, laid special emphasis on the development of cottage and small scale industries. These industries held an important position in the national economy. (ii) Role of Foreign Capital: The Resolution recognized the need for security and participation of foreign capital and enterprise especially in respect of industrial technique and knowledge for enhancing the pace of industrialization in the country. The Government also accepted in view of the national interest that the investment of foreign capital will be put under complete regulation and major control will remain in Indian hands.

1.

(iii) Mixed Economy: The policy was to lay down the foundation of mixed economy with the participation of both public and private sector for accelerating the pace of industrial development in the country. (iv) Others: Proper steps were also taken in this policy to design a suitable tariff policy, taxation policy and also for maintaining sound industrial relations between labour and management.

Industrial Policy Resolution, 1956

Since the adoption of 1948 Resolution, a number of significant developments had taken place in India. Among these developments, the more important were: (i) New constitution of India which. Guaranteed certain Fundamental rights and provided for Directive Principles of State Policy. (ii) Completion of the First Five Year Plan and the commencement of the Second Plan. (iii) Acceptance by the Parliament of the Socialist pattern of society as the objective of social and economic policy. These important developments necessitated a fresh statement of Industrial policy Resolution was adopted in April, 1956, replacing the Resolution of 1948. The Industrial Policy Resolution, 1956 (IPR, 1956) was known as the Economic Constitution of India. The Resolution had the following objectives; (i) The development of heavy arid machine making industries. (ii) The expansion of the public sector. (iii) The establishment of a large and growing cooperative sector and (iv) Encouragement to the diffusion of ownership and management of the private sector.

Main Features
Important provisions of the Resolution of 1956 were as follows: 1. New Classification of Industries: The most distinguishing feature of IPR, 1956 was the classification of the entire industrial sector into three schedules as follows: (a) Schedule A: Schedule A consisted of 17 industries and the future development of these industries was to be the exclusive responsibility of the state. The industries that had been put under this category are of basic and strategic importance requiring enormous amount of capital for their development. (b) Schedule B: In the second category, there were 12 industries which were progressively state owned and in which the state would generally take the initiative in establishing these new undertakings. At the same time, private enterprises would be ('xpected to supplement the efforts of the State in this field. (c) Schedule C : All remaining industries come under the third category. The future development of these industries had been left to the initiative and enterprise of the private sector. 2. No Water Tight Compartmentation : In appropriate cases, private units might produce an item in schedule A for meeting the industry's own requirements or as by products. Further, heavy industries in the public sector could obtain some of their requirements of higher components from the private. Moreover, the state reserved the right to enter schedule C, when the needs of planning required or for other important reasons. Therefore, the public and private sector were expected to operate closely together inspite of the fact that public sector was the major partner. 3. Fair and Non-Discriminatory Treatment for the Private Sector: In order that the private sector may feel confident and function efficiently, the state would ensure infrastructural facilities like power, transport and other services to this sector. The state may also grant financial assistance to the private sector especially when the amount involved is substantial. The State would continue to provide fair and nondiscriminatory treatment to both public and private enterprises when both exist side by side in a particular industry. 4. Encouraging Cottage and Small Scale Industries: The state would continue to support village, cottage and small scale industries by restricting the volume of production in the large scale industrial units by differential taxation or by direct subsidies. 5. Removing Regional Disparities: The Resolution supported the idea of balanced and co-ordinated development of the industrial sector in each region for attaining higher standards of living. To achieve this aim, transport, power supply and other facilities were to be made available to the backward sectors.
6. Labour Welfare: The Resolution stressed that in a socialist democracy the importance of labour must be recognized and labour must be given a share in management in the form of participation and Joint Consultations. The Resolution stressed the need for improving the living and working conditions of workers and also to raise their standards of efficiency. 7. Technical and Managerial Personnel: The Resolution of 1956 stressed the need for technical and managerial personnel in the public sector units and for the development of cottage and small scale units. For imparting training at the supervisory level and for organising

apprenticeship trainings on a large scale, technical staff cells were to be opened in public sector. Training in management and administration was also emphasised. 8. Decentralization of Power: In this Resolution, emphasis was placed on the itnportance of decentralization of the management of the Public enterprises. 9. Attitude Towards Foreign Capital: While recognizing the need for foreign capital in the industrialization of the economy, the Government insisted upon the progressive Indianisation of foreign concerns. Thus, the Resolution maintained the same attitude as incorporated in our Industrial Policy 1948. This Policy Resolution of 1956 resulted in the rapid expansion of the Public sector in basic and heavy industries of the country.

Industrial Policy Statement, 1977

In March 1977, the Janata Dal assumed power in the Parliament and in December 1977, Shri. George Feranandes, the then Union Industry Minister announced the Industrial Policy Statement in the Parliament. The new industrial Policy made radical changes in the old one. While giving reasons for the new Industrial Policy Statement, the Minister stated that for the past 20 years, the Government Policy in the sphere of industry had been governed by the Industrial Policy Resolution of 1956. Though this Resolution had some good elements but its working had resulted in certain distortions in the process of development. Growth of per capita income during the last decade had been 1.5% p.a. which was inadequate to meet the needs of a developing economy. Unemployment had increased rural-urban disparities had widened and the rate of real investment had stagnated. The rate of industrial output had been not more than 4% p.a. on an average. The incidence of industrial sickness had become widespread and some of the major industries were badly affected. The new policy of 1977 made some radical changes in the old one. Salient features of this policy were as follows: 1. Development of Small Scale Industrial Sector: The main thrust of this policy was on effective promotion of cottage and small Industries widely dispersed in rural areas and small towns. It was emphasized that Whatever could be produced by small and cottage industries must only be so produced. The small scale industries were divided into three categories: (a) Cottage and household industries which provide self employment on a large scale. (b) Tiny Sector incorporating investment in industrial units in machinery and equipment upto Rs. 1 lakh and situated in towns with population of less than 80,000. (c) Small sector industries comprising industrial units with an investment upto Rs. 10 lakh and in the case of ancillaries with an investment of fixed capital upto Rs. 15 lakh. To promote small sector the following measures were proposed : (i) Earlier there were 180 items in the list of industries reserved for the small sector. The Government expanded it to 807 items by May 1978. (ii) To help the small and rural entrepreneurs the Government set up in each district an agency called 'District Industries Centre' (DIG). This agency was to provide under one root all the services and support required by these entrepreneurs. (iii) Special assistance for small scale units was proposed. It was also proposed to draw up programmes for the production of footwear and soap. (iv) In the programme of development of village industries, the Government intended to give special place to Khadi, with a view to improve the productivity and earnings of Khadi Spinners and weavers. For this purpose it was proposed to amend the Khadi and Village Industries Act. (v) Separate wing was created in the Industrial Development Bank of India to deal with the credit needs of small, village and cottage Industrial sector. (vi) The Government was to ensure an effective and co-ordinated approach for the development of suitable technology for village and small industries. It was to be linked with the broader programme of all round rural development.
2. Areas for large scale sector: A distinct role of large scale industries had heen recognized in this policy. The role of large scale industries was to be related to the programme for meeting the basic minimum needs of the population through wider dispersal of small scale, and village

industries and to the strengthening of agricultural sector. The following areas were prescribed for the large sector. (i) Basic Industries. (ii) Capital Goods Industries. (iii) High technology industries 'and (iv) Other Industries outside the list of reserved items for the small scale sector. 3. Big Business Houses: The Industrial Policy, 1977 stated very clearly "The growth of Large Houses has been disproportionate to the size of their internally generated resources and has been based largely on borrowed funds from Public Financial institutions and banks. This process must be reversed". To ensure that no unit of the same business group acquired a dominant and monopolistic position in the market, the following measures were suggested: (i) The expansion of existing undertakings and establishment of new undertakings will be subject to the provisions of MRTP Act. (ii) Large Industrial houses would have to rely upon their own internally generated resources for financing new projects or expansion of existing ones. The funds of public financial institutions would be available for the small scale sector. (iii) Even in the case of capital intensive fields, where these large industrial houses were dominant. Preference would be given to medium entrepreneurs and the public sector corporations so that further concentration of economic power might be restricted. 4. Role of the Public Sector : The new policy provided for the expansion of the role of public sector in the following areas' : (i) The Public sector would be expected to help ancillary industries and thus, contribute to the growth of decentralised sector. (ii) The Public sector would produce important and strategic goods of basic nature and would also ensure effective supply of essential commodities to other sectors. (iii) The Public sector would make available its technology and management expertise to small scale and cottage industrial sector. 5. Technological Self Reliance : Promotion of technological self reliance through the inflow of technology in sophisticated areas is another feature of this policy. Government would make efforts to buy directly best available technology from abroad for sophisticated and priority sectors in which indigeneous technology is lacking. Government would also endeavour to integrate appropriate techniques of production with the broader programme of all round rural development. 6. Labour Management Relations: The Industrial Policy, 1977 put emphasis on reducing the occurrence of labour unrest. The Government encouraged the worker's participation in management from shop floor to board level. 7. Approach Towards Sick Units: The Policy recommended a consistent line of approach towards sick industrial units of the country. It stated "In future the takeover of management of units would be resorted to selectively". It would also be the policy of the Government to take quick and effective steps for rehabilitation and reconstruction of the units and to ensure professional management of such units on a continuous basis. 8. Licensing Policy: The objective of the licensing policy under this Industrial policy was to regulate the activities of large houses to bring them in line with the country's socio-economic goals, where large scale units, whether belonging to large houses or not, or already engaged in the production of goods reserved for small industries would not be allowed to expand their production capacity while small and cottage industries would be encouraged to expand. 9. Approach towards Foreign Collaborations: The Industrial Policy 1977 stated "In areas where foreign techt:J.ology is not needed existing collaborations will not be renewed". The Policy further stated, "As a rule, majority interest in ownership and effective control should be in Indian hands though the Government may make exceptions in higher export oriented, and/or sophisticated technology areas". In 1.00% export oriented cases the Government may consider even a fully owned foreign company. The Industrial Policy, 1977 was subjected to ser.ious criticism as there was absence of effective measures to curb the dominant position of large scale units and the policy and not envisage any socio-economic transformation of the country for curbing the role of big business houses and MNCs.