The industrial policy of the government is one of the most important documents, which causes a lasting impact on the country’s industry. It is a policy document prepared by the government that establishes how the industrial environment of the country will be performing in the future.

The role of industrial policy is more important in a planned economy like India. Until liberalization occurred, the industry was fully regulated by the government. In a planned economy, the industrial policy defines the areas in which the government will spend and the role it will play in the regulation of the private industry. The last 55 years have seen many changes in India’s industrial policy.

Before independence, the industrial policy of British India was formulated with the sole purpose of exploiting the country’s resources for the benefit of Britain. This was because, before independence, India’s trade balance with Britain was positive, but the balance of payments was adverse.

Shortly after independence, in 1948, India’s first industrial policy was announced, and in 1956 a second more complete industrial policy was announced. This policy remained a general guide for almost all industrial policies that were followed until 1980. To understand the industrial policy, it is essential to understand policymakers and the situation in which the policy was framed.

Almost all the leaders of the Indian freedom movement believed ardently in socialist philosophy, regardless of their political differences. Both Jawahar Lal Nehru and Netaji Subhash Chandra Bose wanted to build a socialist system in India. Even Shaheed-e-Azam Bhagat Singh was a socialist by heart.

These views were reflected in the economic decisions taken by the Free State of India. The objective of India’s Industrial Policy at that time was to achieve equality in society. But in the coming years, India went from being an agriculturally rich nation to one of the poorest nations. Nehru’s model had failed and India had to resort to the characteristics of a capitalist economy.

The Government of the Union promulgated the Securities Contract Act (Regulation) in 1956 (SCR Law) for the regulation of securities exchanges and securities contracts negotiated in securities exchanges and securities contracts negotiated. The SCR Law and the Securities Contract Rules (Regulations) (1957) constitute the legal framework for the regulation of stock exchanges and the protection of the interests of investors.

The Securities and Exchange Board of India Act of 1992 establishes the establishment of the Securities and Exchange Board of India (SEBI) to protect the interest of securities and promote the development of securities and regulate the stock market.

Objectives of industrial policy:

  1. It strives for balanced regional development, that is, tries to ensure that industries are not grouped in specific areas, but are developed in all parts of the country.
  2. Try to ensure that the scarce resources of the nation are used in the interest of the nation and not for the benefit of the profits.
  3. Try to create employment opportunities.
  4. It provides enough power to the government to regulate the industry.
  5. Check the concentration of economic power in a few hands. This happened in South Korea, where a large part of the GDP came from only five large companies.
  6. Promotes entrepreneurship in the nation.
  7. Clearly demarcate the areas where the government will invest and where the private sector will invest, and specify how the government will regulate the industry.
  8. Ensures there is no capital flight.
  9. Its objective is to provide the Indian youth industry with sufficient protection against multinationals.
  10. It provides guidance to financial institutions on which industry they have to provide liberally and where they should restrict the availability of financing.

Let’s understand the journey of several industrial policies:

1. The industrial policy of 1948:

The first industrial policy after independence was announced on April 6, 1948. It was presented by Dr. Shyama Prasad Mukherjee, then Minister of Industry. The main objective of this policy was to accelerate industrial development by introducing a mixed economy where the public and private sectors were accepted as important in the development of the economy. He saw the Indian economy in socialist patterns.
Large industries were classified into four categories:

  1. Industries with exclusive state monopoly/strategic industries: Included industries dedicated to the activity of atomic energy, railways and weapons, and ammunition.
  2. Industries with government control: This category included industries of national importance. 18 categories of this type were mentioned, such as fertilizers, heavy machinery, defense equipment, heavy chemicals, etc.
  3. Industries with a mixed sector: This category included industries that could operate independently in the public or private sector. The government was allowed to review the situation to acquire any existing private company.
  4. Industry in the private sector: Industries that were not mentioned in the previous categories belong to this category. Great importance was attached to small businesses and small industries, which led to the use of local resources and job creation.

2. The industrial policy of 1956:

On April 30, 1956, the Government revised its first Industrial Policy (that is, the 1948 policy) and announced the Industrial Policy of 1956. The characteristics of this policy were:
1. A new classification of industries.
2. Non-discriminatory and fair treatment for the private sector.
3. Promotion of small-scale villages and industries.
4. To achieve development by eliminating regional disparity.
5. Work welfare.

The Resolution classified industrial policy into three categories:

i. Schedule A: Composed of 17 industries would be the sole responsibility of the State. Out of these 17 industries, four industries, namely weapons and ammunition, atomic energy, railways, and air transport would be monopolies of the Central Government; state governments would develop new units in the remaining industries.

ii. Schedule B: Composed of 12 industries, would be open to the public and private sectors; however, such industries would be progressively state-owned.

iii. Schedule C: All other industries not included in these two Programs constitute the third category that was left open to the private sector. However, the State reserved the right to undertake any type of industrial production.

3 Industrial Policy 1977:

The 1977 industrial policy was announced by the Government of Janata, the New Industrial Policy through a declaration in Parliament.
The highlights of this policy are:

  1. The main objective of this policy was the effective promotion of home and small industries widely dispersed in rural areas and small cities.
  2. In this policy, the small sector was classified into three groups: artisanal and domestic sector, tiny sector and small-scale industries.
  3. The 1977 Industrial Policy prescribed different areas for the large-scale industrial sector: basic industries, capital goods industries, high-tech industries and other industries outside the list of items reserved for the small-scale sector.
  4. The 1977 Industrial Policy restricted the reach of large commercial enterprises so that no unit of the same business group acquired a dominant and monopolistic position in the market.
  5. Emphasized reducing the occurrence of labor disturbances. The Government encouraged the participation of workers in management from the workshop level to the board level.

4. The New Industrial Policy(NIP), 1991:

The long-awaited liberalized industrial policy was announced by the Government of India on July 24, 1991. There are several important deviations in the latest policy. The New Industrial Policy has eliminated the asset limit for MRTP companies and abolished the industrial license for all projects, except 18 (now 5) specific groups. It has raised the limit for foreign participation of foreign capital in the country’s industrial landscape.

The new policy has dismantled all unnecessary annoying bureaucratic controls on industrial growth. The new policy has redefined the role of the public sector and has asked the private sector to operate even in those areas that until now were reserved for the public sector.

The characteristics of the NIP, 1991 are as follows:

  1. De-reserve of the public sector and privatization of the public sector through divestment.
  2. Industrial licenses.
  3. Amendments to the Law on monopolies and restrictive business practices (MRTP), 1969.
  4. Liberalized foreign investment policy.
  5. Foreign technology agreements (FTA).
  6. Dilution of protection to small industries and emphasis on improving competitiveness.

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