Industrial Policy - Overview & Role ⭐
🔹 Meaning of Industrial Policy
Industrial policy is government action aimed at: ➔ Boosting or restructuring economic activities ➔ Providing support based on technology, location, size or age of firms ➔ Addressing market failures like environmental concerns or supply chain issues
It includes: ➔ Subsidies, financing, regulation ➔ Policies, rules, incentives/punishments ➔ Labour & tariff policies, foreign capital rules
🔹 Objectives of India's Industrial Policy
➔ Sustained productivity growth ➔ Gainful employment ➔ Optimal use of human resources ➔ International competitiveness ➔ Make India a global industrial player
⭐ Industrial Policies in India (Since Independence) ⭐
🔹 Industrial Policy Resolution, 1948
✅ Mixed economy model adopted
Classification of Industries:
Strategic Industries (Public sector) ➔ Arms, Atomic Energy, Railways (Central Govt. monopoly)
Basic/Key Industries (Public + Private) ➔ Coal, steel, ship-building, mineral oil etc. ➔ Govt. set up new units; private allowed to continue
Controlled Private Sector ➔ Heavy chemicals, textiles, cement etc. ➔ Govt. control in consultation with states
Other Industries (Private & Co-op sector)
🔧 Implemented via: Industries (Development & Regulation) Act, 1951
🔹 Industrial Policy Statement, 1956
★ Known as "Economic Constitution of India"
Emphasised:
➔ Expanding Public Sector ➔ Cooperative growth ➔ Avoiding private monopolies
Industry Classification:
Schedule A (17 industries) ➔ Exclusive state responsibility ➔ Arms, atomic energy, railways, etc.
Schedule B (12 industries) ➔ Public + Private ➔ Gradually moved to State ownership
Schedule C ➔ All other industries → Private sector allowed, but Govt. retained power to intervene
Also Promoted:
➔ Small-scale & cottage industries ➔ Industrial peace & equitable distribution
Criticism:
➔ Reduced scope for private sector ➔ State licensing system = control-heavy
🔹 Industrial Licensing System
🔹 License needed for opening/expanding industries ➔ Easy licenses in backward areas ➔ Subsidised electricity & water ➔ Increase in production only if demand proven
🔹 Industrial Policy Statement, 1977
💡 Focus: Cottage & small industries
Classification:
Cottage & household
Tiny sector
Small scale industries
🔎 Large industries limited to:
Basic & capital goods
High-tech industries
Non-reserved items only
⚠️ Restricted dominance of large business houses ✅ Encouraged worker participation in management
Criticism:
➔ Lacked proper curbs on monopolies ➔ No plan for socio-economic transformation
🔹 Industrial Policy, 1980
➔ Promote economic federation ➔ Improve public sector efficiency ➔ Reaffirmed MRTP Act & FERA
🔹 New Industrial Policy, 1991
🚨 Came amid economic crisis ➔ Objective: Boost efficiency & growth
Key Features:
✅ De-reservation of public sector ➔ Now only Atomic energy & Railways reserved
✅ De-licensing ➔ Only 4 industries need licenses: ➔ Defence equipment, Hazardous chemicals, Explosives, Cigarettes
✅ Disinvestment in PSUs
✅ Foreign Direct Investment (FDI) liberalised ➔ Up to 51% in 47 industries; 74% in trading ➔ Today: many sectors allow 100% FDI
✅ Foreign Technology agreements eased
✅ MRTP Act amended; replaced by Competition Act, 2002
Outcomes:
➔ Ended "License Raj" ➔ Attracted MNCs & private investment ➔ Promoted exports (SEZs, EPZs, EOUs etc.)
🔹 Limitations of Industrial Policy
🚫 Manufacturing sector stuck at ~16% of GDP 🚫 Uneven investment ➔ Focus on a few industries 🚫 Labour displacement due to modernisation 🚫 Focus on consumption-led growth, not export-led 🚫 No clear industrial location policy
🔹 Way Forward
✅ India moved from Socialism (1956) to Capitalism (1991) ✅ Liberal industrial regime with FDI & fewer controls ✅ Campaigns like Make in India, Start-Up India helped business ecosystem
Still existing issues:
High power costs
Labour laws
Credit constraints
Political interference
📊 Need for New Industrial Policy (proposed in Dec 2018)
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