Chapter - 03 Industrial Policy
HISTORICAL BACKGROUND During the British rule in India, the government policy towards industry and business was indifferent. The first century of British rule saw the decline of nearly all indigenous industries i for many reasons technological, l economic, and political. Modern industrial enterprises in India developed only aft er 1850. Its earliest manifestations came in the wake of the construction of railways, which made it essential to have modern workshops for repair and maintenance of the rolling stock. The first isolated attempt at officially encouraging the growth of large-scale industry took place around 1900. The Second World War was a major watershed in the development of government business relations in India.
GOVERNMENT S ROLE Pandit Jawaharlal Nehru laid the foundation of modern India. His vision and determination have left a lasting impression on every facet of national endeavour since independence. The goals and objectives set out for the nation by Pandit Nehru on the eve of independence were as follows: 1. Rapid agricultural and industrial development of the country, 2. Rapid expansion of opportunities for gainful employment, 3. Progressive reduction of social and economic disparities, and 4. Removal of poverty and attainment of self-reliance. The financial and the balance of payment crises that the nation faced from the onset of the 1990s compelled the acceptance of deregulation, reduced role for public sector, making the public sector efficient and surplus generating, and much reliance in general on the private sector for industrial and infrastructure development.
In this context, the following aspects deserve special consideration: Government role as a promoter, caretaker, and regulator, Promoting and protecting the small-scale scale sector, Facilitating the revival of sick units, Facilitating i the development of Indian companies for the global l market, Promoting inflow of foreign capital and technology, Promoting and maintaining ecological balance, Promoting the social role of business, Developing adequate infrastructural facilities for the overall development of the economy, and Formulating and operating industrial policies conducive to balance industrial and economic growth.
MEANING AND OBJECTIVES OF INDUSTRIAL POLICIES Meaning: Industrial policy means rules, regulations, principles, policies, and procedures laid down by government for regulating, developing, and controlling industrial undertakings in the country.
Objectives Industrial policy statements have been announced from 1948 onwards, Some of the important objectives can be identified as follows: Achieving a socialistic pattern of society, Preventing undue concentration ti of economic power, Achieving industrial development, Achieving economic growth, Reducing disparities in regional development, Developing heavy and capital goods industry, Providing opportunities for gainful employment, Expanding the public sector for achieving socialism, Achieving faster economic growth, Ahi Achieving i a self-sustained sustained economy, Alleviating poverty, Protecting and developing a healthy small-scale scale sector, Building up a large and growing cooperative sector, Updating technology and modernisation of industry, and Liberalisation and globalisation of economy.
INDUSTRIAL POLICIES Industrial Policy Resolution of 1948. Industrial Policy Resolution of 1956. Industrial Policy Statement of 1973. Industrial Policy Statement of 1977. Industrial Policy Statement of 1980. The New Industrial Policy of 1991.
Industrial Policy Resolution of 1948 The Government of India announced its fi rst Industrial Policy Resolution on April 6, 1948. The policy resolution laid stress on the role of the state in the development of industry. The industrial activities were divided into four broad areas: 1. Items under the central government control arms and ammunition production and control of atomic energy, ownership and control of railway transport, and others; 2. Items under the state government control coal, coal, iron and steel, aircraft manufacture, shipbuilding, manufacture of telephones, telegraphs, and wireless apparatus; 3. Items of basic importance planned and regulated by the Central government salt, automobiles, tractors, heavy machinery, fertiliser, cement, sugar, paper, and so on; and 4. Items for the private sector all other items left to the private sector.
Industrial Policy Resolution of 1956 The second Industrial Policy Resolution was announced on April 30, 1956. The basic objectives of the policy included the following: 1. Speeding up the process of industrialisation i i in India, 2. Developing heavy and capital goods industries, 3. Expanding an effective public sector, 4. Accelerating the rate of economic growth, 5. Building up a large and growing cooperative sector, 6. Encouraging g private sector industries, 7. Preventing private monopolies, 8. Developing small-scale, scale, village, and cottage industries, 9. Achieving balanced economic development, 10. Participation of workers in management, and 11. Maintenance of industrial peace.
Industrial Policy Statement of 1973 An industrial policy statement was made in a press note on February 2, 1973. The main features of Industrial Policy Statement of 1973 were as follows: 1. The statement declared that the state would be directly responsible for the future development of industries. 2. The role of public sector was further stressed in attaining i a socialistic pattern of society. 3. As an initiative towards the development of joint sector units, they were supposed to function under the direction of the government. 4. Foreign investment was allowed only in specific industries. 5. Small- scale and cooperative sectors were assigned a special role to play. Small and medium sectors were given preferential treatment. 6. In the area of agricultural produce, cooperative enterprises were encouraged.
Industrial Policy Statement of 1977 The Janta Party came to power in March 1977. The Janta Party government presented to Parliament an industrial policy on December 23, 1977. The major objectives set in the policy were as follows: 1. Preventing of monopoly and concentration of economic power, 2. Maximising production of consumer goods, and 3. Making industry responsive to social needs. The basic elements of the Janta government s industrial policy were as follows: 1. Development of small-scale scale industries, cottage industries, tiny sector units, village and household industries, 2. Encouraging the large-scale industrial units for meeting the minimum needs of the population, 3. Reversing the process of growth of large industries which grew with the help of funds from public financial institutions, 4. Public sector was to be used as a producer and supplier of essential consumer goods, 5. Import of technology only in high-priority areas, and 6. Restricted foreign collaboration the the ownership and control were to remain in Indian hands.
New Industrial Policy Statement of 1980 The Congress came to power again in 1980. The Union Minister of State announced the new industrial policy on July 23, 1980. The socio-economic objectives of the 1980 Industrial Policy were as given below: 1. Optimum utilisation of the installed capacity, 2. Higher employment generation, 3. Achieving higher productivity and maximum production, 4. Development of industrially backward areas, 5. Promotion of agro-based industries, 6. Faster promotion of export-oriented oriented and import-substitution industries, 7. Consumer protection against high prices and bad quality, 8. Promoting economic federalism with spread of investment in rural as well as urban areas, and 9. Revival of the economy by overcoming infrastructural gaps.
The following policy measures were specified to achieve these objectives 1. Promoting the process of rural industrialisation, 2. Removing regional imbalances, 3. Regulating the excess capacity in the private sector, 4. Efficient operational management of the public sector, 5. Developing small-scale scale sector by increasing the limit of investment, 6. Automatic expansion in large-scale industrial units, and 7. Dealing with industrial sickness effectively.
New Industrial Policy of 1991 As a part of the liberalisation, a new industrial policy was announced by the Government of India in two parts, on July 24, 1991 and August 6, 1991, respectively. Some of the major aspects of the industrial policy were e as follows: o Automatic clearance introduced for import of capital goods Existing and new industrial units provided with broad-banding banding facility Pre-eminent eminent role of public sector in eight core areas Part of government s shareholding in public sector is proposed to be disinvested, Chronic loss-making public sector units to be referred to the Board of Industrial and Financial Reconstruction (BIFR) A simplified procedure for new projects was introduced to manufacture goods not covered by compulsory licensing. Decisive contribution was expected from foreign investment Industrial policy for the small-scale scale sector announced on August 6, 1991
Objectives: The objectives of the 1991 policy included 1. Reducing or minimising the bureaucratic control of the industrial economy of India, 2. Liberalisation of industrial and economic activities for integrating the Indian economy with the world economy, 3. Removing restrictions on foreign direct investment, 4. Freeing the domestic entrepreneur from excessive MRTP restrictions, and 5. Streamlining the role of public sector enterprises.
Among the areas covered, the most important ones are: 1. Industrial licensing, 2. Foreign investment, 3. Technology transfer and import of foreign technology, 4. Public sector policy, 5. Policy relating to MRTP Act, and 6. An exclusive small-sector sector policy.
THE NEW SMALL-SCALE SCALE SECTOR POLICY OF 1991 The new policy on tiny, small, and village enterprises envisages almost a U-turn in policy stimulants and structure of micro and small enterprises in the country.
Objectives The primary objective of the small-scale scale industrial policy during the 1990s would be to impart more vitality and growth impetus to the sector, The other objectives are as follows: 1. To decentralise and delicense the sector, 2. To deregulate and debureaucratise the sector, 3. To review all statutes, regulations, and procedures and effect suitable modifications wherever necessary, 4. To promote small enterprise, especially industries in the tiny sector, 5. To motivate small and sound entrepreneurs to set up new green enterprises in the country, 6. To involve traditional and reputed voluntary organisations in the intensive development of Khadi and Village Industrial Commission (KVIC) through area approach, 7. To maintain a sustained growth in productivity and attain competitiveness in the market economy, especially in the international markets, 8. To industrialise the backward areas of the country, 9. To accelerate the process of development of modern small enterprises,
Salient Features of New Policy 1. Equity participation up to 24 per cent by other industrial undertakings (including foreign companies). 2. Legislation to limit financial liability of new or non-active partner-entrepreneurs entrepreneurs to the capital invested. 3. Hike in investment limit i for tiny sector, up from Rs 2 lakh to Rs 5 lakh. 4. Services sector to be recognised as tiny sector. 5. Support from National Equity Fund for projects upto Rs 10 lakh. 6. Single-window loans to cover projects up to Rs 20 lakh. Banks too to be involved. 7. Relaxation of certain provision of labour laws. 8. Sub-contracting Exchanges to be set up by industry associations. 9. Easier access to institutional finance. 10. Factoring services through SIDBI to overcome the problem-delayed payments. Also, legislation to ensure payment of bills. 11. Women enterprises redefined. 12. Marketing of mass consumption items by National Small Industries Corporation under common brand name. 13. Composite loan under the single-window scheme also to be given by banks. 14. Tiny sector to be accorded priority in government purchase programme. 15. Priority to SSIs and tiny units in allocation of indigenous raw materials. 16. Promises to deregulate and debureacratise small and tiny sectors. 17. PSUs and NSIC to help market products through consortia approach, both domestically and internationally. 18. Janata Cloth Scheme to he replaced by a new scheme which will provide fund for loom modernisation. 19. Compulsory quality control for products that pose rise to health and life. 20. Legislation to ensure payment of small-scale scale industries bills. 21. A special monetary agency to be set up for the small-scale scale sector s credit needs. 22. A new scheme of integrated infrastructure development to be implemented. 23. A TDC to be set up. 24. Incentive and services package to be delivered at the district level. 25. An export development centre to be set up. 26. KVIC and board to be expanded. 27. Investment limit of ancillary units and EOU raised to Rs 75 lakh. 28. Traditional village industries to be given greater thrust.
Small-scale Industries 1. Financial support. 2. Infrastructure facilities. 3. Marketing and exports. 4. Modernisation. 5. Promotion of entrepreneurship. 6. Simplifi cation of rules and procedures. 7. Tapping resources.
Tiny Sector 1. Investment. 2. Broadening the concept of service sector. 3. Locational. 4. Simplification of rules.
Handloom Sector 1. Project package scheme. 2. Welfare packages scheme. 3. Organisation and development scheme. 4. NHDC as a nodal agency.
Handicraft Sector 1. Extending services like supply of raw materials and so on. 2. Market development support and expansion of training facilities. 3. Other village industries. 4. Improving quality. 5. Ensuring better flow of credit from financial institution. 6. Thrust on traditional village industries. 7. Setting up of functional industries estates. 8. Upgrading training programmes. 9. Coordinating with development programmes.