Industrial Policy

GJSM
Industrial Policy and Licensing
Monday, July 15, 2019 Business Environment 1

Industrial Policy- Meaning
 It covers rules, regulations, principles,
policies, & procedures laid down by
government for regulating & controlling
industrial undertakings in the country.
 It prescribes the respective roles of the public,
private, joint, cooperative large, medium &
small scale sectors for the development of
industries.

Industrial Policy Contd...
 It incorporates fiscal & monetary

policies, tariff policy, labor policy.
 It shows the government attitude not
only towards external assistance but
also toward public & private sectors.
Various Industrial Policies-
 Industrial Policy of 1948-

 Large scale industries were divided
into four categories-
I. Public Sector
II. Public cum private sector
III. Private sector
IV. Private and co-operative sector

 Large scale industries were divided
into 3 categories-
I. Public Sector
II. Public cum private sector
III. Private sector

 Main features-
a. Small-scale industries
b. Role of large scale industries
c. Restricting the growth of big business houses
d. Expanded role of public sector
e. Indigenous and foreign technology
f. Licensing policy
g. Foreign trade

 Main features-
a. Redefining of small scale units
b. Khadi and village industries
c. Handicraft and handloom industry
d. Effective management of public sector
e. Price stability
f. Development of backward regions.

New Industrial Policy
 Announced in 1991
 Expanded the scope of private sector by
opening up most of the industries for the
private sector.
 Objectives:
 To build on the gains already made
 To correct the distortions or weakness that may have crept in
 To maintain a sustained growth in productivity and gainful
employment
 To attain international competitiveness
 To liberalize the policy regarding FDI
 To emphasize on research and development capabilities.

Role of Public Sector - Redesigned
 No. of industries reserved for it

pruned to 3
a. Atomic energy
b. Railways
c. Atomic minerals
 Selective privatization
 Delicensing
 Removal of MRTP restrictions
 Liberalization of foreign investment

Main focus
 Deregulating Indian industry

 Allowing industry freedom and
flexibility in responding to market
forces
 Providing policy which facilitates
and fosters growth of Indian
industry

Policy measures
 Liberalization of Industrial Licensing Policy
 No industrial approval required for
industries not requiring compulsory
licensing
 Liberalization of Locational policy (to shift
industries from big congested cities to
rural and backward areas)
 Non Resident Indians scheme
 Liberalization policy for FDI

Evaluation
 Would make our industries competitive
 Companies could establish new
undertakings and plans of expansion,
mergers and takeovers without prior
govt. approval
 Would improve public sector performance
 Relaxation in FDI would attract foreign
investors and technology
 Thrust of new industrial policy would step
up the growth rate of industrial
production through efficient use of
resources

Why Policy Desirable
 Knowledge spillover
 Infant Industry
 Co-ordination failure
 Informational Externalities

Why Policy Undesirable
 Influenced by special interests

 Knowledge deficit
 Distortion of market and production
patterns

Instruments used by Industrial
Policy
 Use of tariffs and non-tariff barriers

and subsidies
 Import substitution
 Reserved Industries
 Licensing Requirements
 Tax Incentives

INDUSTRIAL LICENSING

Introduction
 Industries (Development and Regulation)
Act, 1951 – regulates the development
and controls the activities of industrial
sector
 Objectives –
 To take necessary steps for the development
of industries
 To regulate the pattern and direction of
industrial development
 To control the activities, performance and
results of industrial undertakings in the public
interest.

 A license is a written permission from the government to
an industrial undertaking to manufacture specified articles
included in the schedule to the Act.
 License contains particulars of industrial undertaking, its
location, the articles to be manufactured, its capacity on
the basis of maximum utilization of plant and machinery.
Also subject to a validity period within which licensed
capacity should be established.
 After 1991 all industries exempt from obtaining license,

except for
 Industries reserved for public sector
 Industries retained under compulsory licensing
 Items of manufacture reserved for small scale sector
 If proposal attracts locational restriction

Compulsory Licensing
 Distillation and brewing of alcoholic drinks
 Cigars and cigarettes of tobacco and
manufactured tobacco substitutes
 Aerospace and defense equipment
 Industrial explosive including gun powder,
nitrocellulose etc.
 Hazardous chemicals

 Industrial undertakings exempt from obtaining
license are required to file
 Industrial Entrepreneur Memorandum and
obtain an acknowledgement from Secretariat
of Industrial Assistance
 Locational Policy
 Free to select any location
 At least 25kms away from Standard Urban Ares

limits or located in an area designated as
“industrial area”
 Industries manufacturing electronics, computer
software and printing, or any other industry that
may be classified as a ‘non-polluting industry’; or
 Industries located in an area designated as an
‘industrial area’ before July 25, 1991.
Business Environment 20
Critical Evaluation of Licensing System
a) Lengthy procedure
b) Corruption
c) Excessive control
d) Against competition
e) Politics based
f) Poor follow-up

Industrial Policy

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GJSM

Industrial Policy and Licensing

Monday, July 15, 2019 Business Environment 1

Monday, July 15, 2019 Business Environment 2

 It incorporates fiscal & monetary

 Industrial Policy of 1948-

II. Public cum private sector

III. Private sector

IV. Private and co-operative sector

Monday, July 15, 2019 Business Environment 4

II. Public cum private sector

III. Private sector

Monday, July 15, 2019 Business Environment 5

Monday, July 15, 2019 Business Environment 6

Monday, July 15, 2019 Business Environment 7

Monday, July 15, 2019 Business Environment 8

 No. of industries reserved for it

Monday, July 15, 2019 Business Environment 9

 Deregulating Indian industry

Monday, July 15, 2019 Business Environment 10

Monday, July 15, 2019 Business Environment 11

Monday, July 15, 2019 Business Environment 12

Monday, July 15, 2019 Business Environment 13

 Influenced by special interests

Monday, July 15, 2019 Business Environment 14

 Use of tariffs and non-tariff barriers

Monday, July 15, 2019 Business Environment 15

Monday, July 15, 2019 Business Environment 16

Monday, July 15, 2019 Business Environment 17

 After 1991 all industries exempt from obtaining license,

Monday, July 15, 2019 Business Environment 18

Monday, July 15, 2019 Business Environment 19

 At least 25kms away from Standard Urban Ares

Monday, July 15, 2019 Business Environment 21

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