LESSON – 12
INDUSTRIAL POLICY
OBJECTIVES
After going through this lesson, you should be able to
- Understand the meaning of Industrial policy
- Know the Provision of Industrial Policy of 1948, 1956, 1977, 1980 and 1991
STRUCTURE
12.1. Meaning of Industrial Policy
12.2. Industrial Policy Resolution of 1948
12.2.1 Objectives
12.2.2 Classification of Industries
12.2.3 Features
12.2.4 Defects of the policy
12.3. Industrial Policy Resolution of 1956
12.3.1 Objectives
12.3.2 New classification of Industries
12.3.3 Criticisms
12.4. Industrial Policy Resolution 1977
12.5. Industrial Policy Statement of 1980
12.6. New Industrial Policy 1991
Unit Questions
12.1. Meaning of INdustrial Policy
The term ‘Industrial Policy’ refers to the Government’s policy towards the establishment of industries, their working and management. It includes all those principles, regulations, rules, etc., which would influence the industrialisation of the country and also nationalisation of industries. The industrial development of a country largely depends on the industrial policy adopted by the Government During the British days, the Government followed a policy of laissez-faire in industrial development and it was only a spectator without actively participating as an entrepreneur. Only during war periods some measures were taken up by the Government which were nothing but adhoc measures to meet the exigency. The dawn of independence created new hopes and aspirations in the field of industry a the responsibility of industrialisation of the country devolved on the Indian Government which embarked upon a policy of actively promoting the much needed industrialisation of the country Industrial activity in the country since then is carried on the basis of policy statements made by the Government from time to time.
12.2. Industrial Policy Resolution of 1948
12.2.1 Objectives
The Industrial Policy was designed to achieve the following objectives (i) the establishment of a social order wherein justice and equality of opportunity shall be secured to all the people (ii) the promotion of standard of living of people by exploiting resources; (iii) increase in production-both agricultural and industrial; (iv) offering of opportunities to all for employment; (v) the need for careful planning and integration of efforts and the establishment of a National Planning Commission; (vi) the determination of state responsibility and private enterprise in industrialisation and (vii) the regulation of private enterprise.
12.2.2 Classification
The Government classified the industries into four categories: (i) State monopolies; (ii) Basic and Key Industries; (ii/) Private industries controlled and regulated by State; and (iv) Completely private sector industries.
Defence, arms and ammunitions, atomic energy, strategic industries and railways were brought under the first category, viz., complete State control. Basic and key industries, viz., iron and steel, aircraft manufacture, ship building, telephone, telegraph and wireless apparatus, and mineral oils were brought under State control while starting new undertakings, and the existing units were allowed to continue in the private sector. The Government would consider nationalisation of basic and key industries in private sector after 10 years. Twenty important industries, such as cotton textiles, sugar, cement, paper, heavy chemicals, etc., were brought under the third category. These industries under private sector were subjected to state control and regulation. All other industries were brought under private sector without any state interference.
Cottage and small industries were allowed to play their part in the economic development of the country through co-operatives.
12.2.3 Features
1. The first feature of the Industrial Policy Resolution, 1948 is the middle course it had taken between laissez-faire and collectivism. Indian industries saw the dawn of ‘mixed economy’ and the participation of the public and the private enterprises in specified fields of production.
2. The policy underlined better labour-management relations and also fair deal to the labour.
3. Policy regarding foreign capital was also clarified. As a rule, the major interest and ownership and control was to be in Indian hands.
4. An assurance of a sound tariff policy designed to prevent unfair foreign competition was forthcoming.
12.2.4 Defects of the Policy
(i) Damage to Private Enterprise: The Policy Resolution of 1948 did the greatest damage to private enterprise in our country. The State undertook responsibilities for a large part of the country’s industrial development; but it did not have necessary resources in finance, technical and managerial man-power.
The limit of 10 years prescribed to consider nationalisation in the policy is the biggest drawback which had seriously affected the growth of private enterprise. By giving enormous powers to the State, the security of private enterprise was unnecessarily reduced.
(ii) Lack of Co-ordination: The Industrial Policy when put to actual practice exhibited lack of co-ordination between the Union Government and the State Governments. Poor experience, lack of technical know-how and inadequate integration between policy and procedure in public sector, the misdirected enthusiasm of nationalisation without proper climate and resources, the suspicion of the private sector, etc., all resulted in the slow and poor development of industries.
(iii) Evils of Bureaucracy: The ‘mixed economy’ instead of taking the merits of socialism and capitalism, exhibited the evils of the two. The evils of nepotism, favouritism, red-tape, bureaucratic top heavy administration, etc., percolated in all spheres of industrial undertaking of the State.
12.3. Industrial Policy Resolution of 1956
The Industrial Policy was revised in 1956.
12.3.1 Objectives
The objectives and outlines of Industrial Policy Resolution of 1956 were:
(1) Reduction of disparities in income and wealth; (ii) Prevention of monopolies and concentration of economic power; (iii) Building up a large and growing public sector; (iv) Developing heavy and machine making industries; and (v) to accelerate the rate of industrialisation and economic growth.
12.3.2 New Classification of Industries
Under the revised policy of 1956, the industries were reclassified into three categories, viz, Schedule A, Schedule B, and the test of the industries.
Under Schedule A, seventeen industries were listed and made purely state-owned. Though the existing private units were not disturbed, future development of these was the exclusive operation of the public sector. Twelve industries were brought under Schedule B. ‘These twelve were brought under mixed sector where the industries would be progressively owned by the State. and private enterprise would have the opportunity to develop singly or in participation with the States. All the remaining industries or residual industries were brought under the third category, viz., private sector. But the Government retained the right of starting its own unit at any time.
12.3.3 Criticism of the 1956 Industrial Policy
The Industrial Policy of 1956 increased the scope of Government participation in industries and reduced the part of private enterprise. This was criticised as unfair. Eugene Black, President of the World Bank observed that it “could only result in imposing heavy additional burdens on the already over strained financial and administrative resources of the public sector.” Dr. John Mathai criticised that the order of emphasis should be the reverse and free enterprise should be given greater scope, and State enterprises should confine to cases where they were absolutely indispensable. Dr.C.H. Bhaba went to the extent of saying that the “policy statement is a beginning which will ultimately lead to the extinction of entrepreneurial activities in our country.
12.4. INDUSTRIAL POLICY RESOLUTION 1977
The main elements of the policy were ;
1. Development of Small Scale Sector : The Janata policy statement categorically mentioned : “The emphasis on industrial policy so far has been mainly on large industries, neglecting cottage industries completely and relegating small industries to a minor role. The main thrust of the new industrial policy will be on effective promotion of cottage and small industries widely dispersed in rural areas and small towns. The small sector was classified into three categories.
a) Cottage and household industries which provide self-employment on a wide scale;
b) Tiny sector incorporating investment in industrial units in machinery and equipment up to Rs. 1 lakh.
c) Small scale industries comprising industrial units with an investment up to Rs. 10 lakhs and in case of ancillaries with an investment in fixed capital upto Rs. 15 lakhs.
2. Areas for Large Scale Sector : According to the 1977 Industrial Policy Statement, the role of large-scale industry would 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 the agricultural sector. The Industrial Policy, therefore prescribed the following areas for large-scale sector.
a) Basic Industries
b) Capital goods industries
c) High technology industries
d) Other industries which were outside the list of reserved items for the small-scale sector, and which were considered essential for the development of the economy.
3. Approach Towards Large Business Houses : To ensure that no unit of business group acquired a dominant or monopolistic position in the market, large industrial houses would have to rely on their own internally generated resources for financing new projects or expansion of the existing ones.
4. Expanding Role of Public Sector : The 1977 Industrial Policy Statement specified that the public sector would not only be the producer of important and strategic goods of basic nature, but it would also be used effectively as a stabilising force for maintaining essential supplies for the consumer.
5. Approach Towards Foreign Collaboration : The Policy statement further elucidated : “As a rule majority interest in ownership and effective control should be in Indian hands though the Government may make exceptions in highly export-oriented and / or sophisticated technology areas. In hundred per cent export-oriented cases the Government may consider even a fully owned foreign company.
7. Approach Towards Sick Units : The Policy Statement suggested a selective approach on the question of sick units. In mentioned: “While the Government cannot ignore the necessity of protecting existing employment the cost of maintaining such employment has also to be taken into account. In many cases, very large amounts of public funds have been pumped into the sick units which have been taken over but they continue to make losses which have to be financed by the public exchequer. This process cannot continue indefinitely”.
12.5. Industrial Policy Statement of 1980
In 1980, when the Congress (I) Government came back to power with Indira Gandhi as Prime Minister, the Industrial Policy of the Government was restated on July 23, 1980 . This new policy was in fact only an updated and refurbished version of the 1956 Industrial Policy Resolution. This policy statement of 1980 reiterated the basic Policy Resolution of 1956.
The objectives of the Policy Statement of 1980 were as follows:
(a) Facilitating an increase in industrial production through optimum utilization of installed capacity;
(b) Rapid and balanced industrialisation of the country and increasing the availability of goods at reasonable prices;
(c) Solving the problems of major industrial inputs like energy, transport and coal;
(d) Correcting of regional imbalances through a preferential treatment to agro-based industries, and promoting optimum inter-sectoral relationship;
(e) Promoting economic federalism through co-ordinated development of small, medium and large enterprises;
(f) Promotion of export-oriented and import substitution industries; and
(g) Higher employment generation.
In order to achieve these objectives, the policy statement reiterated its faith in public sector. At the same time it emphasised the vital role of private sector in pursuing the goal of self-reliance and modernisation.
To generate more employment and also production, it was decided to permit and recognise additional capacities in industries over and above the originally endorsed capacities. Further, stress was laid on the improvement of technology and allocation of funds for research and development.
Several steps were initiated to implement the Policy Statement of July 1980. In order to promote the growth of small-scale industries, investment limits for small-scale sector had been raised from Rs. 10 lakhs to Rs.20 lakhs. The investment limits for ancillary units had been increased from Rs. 15 lakhs to Rs.25 lakhs, Installed capacities in excess of licensed capacities in 34 selected industries had been regularised. These included basic industries and those producing mass consumption goods not reserved for the small sector, provided the firms were not units to which the Monopoly and Restrictive Trade Practices Act, 1969, or the Foreign Exchange Regulation Act, 1973 applied.
In order to encourage production for export, exemptions had been given in the locational policy and production for export had been excluded to computing licensed capacity.
To encourage production of alternative sources of energy, the Government delicensed the manufacture of equipment for exploitation of such source of energy like solar insulation, wind power bio-mass including bio-gas, geo-thermal energy, tidal power and sea power. Thus the Industrial Policy Statement gave ample scope for the private sector to expand its activities and even set up industries in the sector reserved for the State in 1956 Resolution.
12.6. NEW INDUSTRIAL POLICY 1991
The Government of India announced a New Industrial Policy (NIP) on July 24, 1991 . The main objective of the NIP are to build on the gains already made, correct the distortions and weaknesses that might have crept in, rejuvenate the dormant industrial sector, maintain a sustained growth in productivity and gainful employment and attain international competitiveness. All sectors are expected to grow and operate in harmony with each other to realise the broad national objectives of industrial development.
The New Industrial Policy aims at bringing out radical changes in the following spheres: (a) Industrial Licensing (b) Foreign investment (c) Foreign Technology Agreements (d) Public Sector Management; and (e) Monopolies and Restrictive Trade Practices Act.
(a) Industrial Licensing: The new policy had abolished industrial licensing for all projects except for a short list of industries related to core sector. According to the new policy: (i) No licences are required to set up new units, expand or diversify the existing line of manufacture except in certain industries related to security and strategic considerations, social reasons, hazardous chemicals and over-riding reasons from environmental angle and items of elite consumption (in all 34 industries). (ii) Areas where security and strategic concerns predominate will continue to be in the public sector. (iii) In projects where imported capital goods are not required, automatic clearance will be given. (iv) A flexible location policy will be followed. (v) The system of phased manufacturing programme is abolished. (vi) No licensing will be required for the broad banding facility. (vii) Mandatory convertibility clause will no longer be applicable to long term loans from the financial institutions for new projects.
b) Foreign Investment: Regarding foreign investment, the following changes have been effected: (i) Approval will be given for direct foreign investment upto 51 per cent of foreign equity in high priority industries. (ii) The payment of dividends will continue to be monitored by the Reserve Bank of India
(c) Foreign Technology Agreements: In the field of foreign technology agreements the following changes have been effected: (i) Automatic permission will be given for foreign technology agreements in high priority industries, upto a lump sum payment of Rs.one crore, 5 per cent of royalty for domestic sales and 8 per cent for exports, subject to a total payment of 8 per cent of sales over a ten year period from date of payment or 7 years from commencement of commercial production. (ii) For other industries other than those specified above, automatic permission will be given subject to the same guidelines as above, if no foreign exchange is required for any payments. (iii) No permission is necessary for hiring of foreign technicians or foreign testing of indigenously developed technologies.
(d) Public Sector Management: One of the striking features of the new industrial policy is the substantive reduction in the role of the public sector in the future industrial development of the country. It may be recalled that the Industrial Policy Resolution of 1956 had accorded primacy to the public sector by reserving exclusively as many as 17 major industries, known as Schedule A industries. Further 12 other industries, known as Schedule B were identified for the entry of the public sector. It was also provided in the Policy Resolution of 1956, that the State will have an over-riding power to start any industry other than these 29 industries specified under Schedule A and Schedule B.
Under the New Industrial Policy, the position and priority of Public Sector industries have been distinctly changed. The priority areas of the public sector industries have been confined to the following: (i) Essential infrastructural goods and services; (ii) exploration and exploitation of oil and mineral resources;
(iii) technology development and building up of manufacturing capacities in crucial areas; and (iv) manufacturing of products, based on strategic considerations, such as defence equipment etc.
(iii) technology development and building up of manufacturing capacities in crucial areas; and (iv) manufacturing of products, based on strategic considerations, such as defence equipment etc.
(e) Monopolies and Restrictive: Trade Practices Act: With the introduction of liberalisation and expansion schemes under NIP, the government has suitably amended the MRTP Act. The government, on 27th September 1991 promulgated an Ordinance to amend the MRTP Act of 1969. According to the amendment, the following changes have been effected: (i) The requirement for large companies to seek prior approval of the Union Government for expansion, establishment of new undertakings, merger, amalgamations, takeover and appointment of Directors has been eliminated. (ii) At the same time, the provisions of the Act have been strengthened so as to give more powers to MRTP Commission with a view to taking effective steps to curb and regulate monopolistic, restrictive and unfair trade practices which are prejudicial to public interest and also to provide for deterrent punishment for contravention of the orders passed by the Commission and the Government. (iii) The amended Act has been made applicable to all undertakings and financial institutions except trade unions and associations of workmen. It means that now public sector units would also be covered under the Act, so far as the provisions of the restrictive trade practices are concerned. Accordingly, consumers now would be able to complain to the MRTP Commission, or the Commission might take notice of unfair and restrictive practices by Electricity and Water supply Authorities, Railways, Airlines, Banks including the financial institutions such as the IDBI and lFCl Chit Funds and Real Estate business. (iv) However, Government undertakings engaged in the production of Defence equipment, specified minerals, atomic energy, and Government mints will continue to be kept out of the purview of the Act from security point of view. (v) In order to cope with the new and enlarged task the MRTP Commission would be strengthened, both in terms of manpower and judicial provisions.
UNIT QUESTIONS
1. State and analyse the Industrial Policy Resolution of 1948.
2. State the main provision of Industrial Policy Resolution of 1956.
3. Describe the New Industrial Policy of 1991.
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