Industrial sector of India -1

Industrial sector of India-

Industry plays one of the important important role in economic development of any country and in India it also plays very important role .

Industrial Policy-

• Industrial policy refers to the guidelines, regulations, principles, policies, and procedures established by the government to oversee, improve, and manage industrial activities within the nation.

History of Industrial Policies in India

 1.Industrial Policy Resolution, 1948

• In 1948, the first Industrial Policy Resolution was introduced, outlining a strategy for industrial development.

• The policy emphasized the state's role in promoting industrial growth and development.

It Divided industrial activities into three broad parts-

A.Items under central government control - 

• Industries and activities that are generally considered to be under government control or regulation include the manufacturing of arms and ammunition, the production and management of atomic energy, and the ownership and operation of railway transportation systems, among others.

B.Items under the state government -

• Industries such as coal mining, iron and steel production, aircraft manufacturing, shipbuilding, and the manufacture of telephone, telegraph, and wireless equipment (excluding radio receiving sets), as well as mineral oil production, are all important sectors in the economy.

C.Items for Private Sector - 

• Private enterprise will be permitted in the remaining industrial field.

• To prioritize the advancement of small-scale and cottage industries, significant emphasis will be placed on their development.

2.Industrial Policy Resolution, 1956

• It was the second comprehensive statement on industrial development of India after the Industrial Policy of 1948.

It divided the industries into 3 parts-

Schedule A-

• those industries which were to be an exclusive responsibility of the centre.

• The industries set up under this provision were known as the Central Public Sector Undertakings (CPSUs).

• It consisted of total 17 industries.

Schedule B-

• The progressive state-owned enterprises are expected to be established by the state, with private enterprise playing a supplementary role.

• It consisted of total 12 industries

Schedule C-

• Schedule C pertains to those industries that are not covered under Schedule A or B.

• In general, the development and growth of these industries are left to the private sector's initiative and enterprise.

• However, some of these industries may require licensing provisions to operate.

Some of the objectives of this policy were-

• Improving living standards and working conditions for the mass of the people.

• Development of transport facilities.

• To prevent private monopolies and concentration of economic power.

• Incentives to Labours.

• Reducing Regional disparities.

• Expansion of public sectors.

• Emphasis on agriculture and small scale industries.

• Provision of Licensing for Schedule B and Schedule C industries.

3.Industrial Policy Statement, 1969

• This policy was introduced with the goal of addressing the limitations of the licensing policy that was implemented under the Industrial Policy of 1956.

The Monopolistic and Restrictive Trade Practices (MRTP) Act was passed and it has following provisions-

1.The Act intended to regulate the trading and commercial practices of the firms and checking monopoly and concentration of economic power.

2.Companies with assets valued at ₹ 25 crore (which was later raised to ₹50 crore in 1980 and ₹100 crore in 1985) or more were required to obtain permission from the Indian government prior to expanding, launching a new venture, or acquiring other companies.

3.For redressal of prohibited & restricted practices of trade, the government set up the MRTP Commission.

4.Industrial Policy Statement, 1973

• The Industrial Policy Statement of 1973 aimed to foster closer interaction between the agricultural and industrial sectors.

• The policy prioritized the generation and transmission of power above other factors.

• New term “Core Industries” was included. And in total 6 core industries were there- Iron and Steel Industry, Cement, Coal, Crude Oil, Oil Refining and Electricity.

• Basic industries and infrastructure industries will be the terms used to describe certain industries in the future.

• Private companies may apply for Core industry licenses if they are not included in Schedule A.

• Certain industries were placed on a reserved list, allowing only MSMEs to establish businesses.

• The joint sector concept was introduced, allowing collaboration between the Centre, state, and private sectors when establishing specific industries.

• Limited foreign investment was permitted, and multinational companies were permitted to establish subsidiaries in India.

• Foreign Exchange Regulation Act was introduced to regulate foreign exchange in India.

4.Industrial Policy Statement, 1977

• The Industrial Policy Statement of 1977 called for greater decentralization of the industrial sector and increased participation from small-scale, tiny, and cottage industries.

• The list of items exclusively produced in the small-scale sector expanded from 180 to over 500.

• The statement also called for foreign companies that diluted their foreign equity up to 40% under the Foreign Exchange Regulation Act (FERA) 1973 to be treated equally with Indian companies.

• The District Industries Centres (DICs) were established to support the growth of small and cottage industries on a large scale.

• In 1977, the Policy Statement outlined a list of industries where foreign collaboration in financial or technical areas was prohibited due to the availability of indigenous technology.

5.Industrial Policy Resolution, 1980

• It focused on promotion of competition in the domestic market, technological upgradatrion and modernization of industries.

• Industrial licencing was simplified.

• To promote the growth of small-scale industries, the investment limit for small-scale units has been increased to Rs.2 million and Rs.2.5 million for ancillary units.

6.Industrial Policy Resolution of 1985 & 86

• MRTP limit was increased to ₹100 crores.

• FERA regime was relaxed.

• The regulations governing foreign investment were eased, allowing for greater simplicity and the opening up of additional areas for foreign investment.

• The modernization & profitability aspects of PSU was emphasized.

7.New Industrial policy 1991

Reasons for formulation of new industrial Policy-

• High Inflation due economic failure at that time.

• Declining foreign exchange reserves due to Economic crisis at international level.

• Low amount of remittances from gulf countries due to gulf war.

• Balance of payment crisis in India.

• High fiscal deficit I.e.  8.5% of GDP in 1991.

Main Features of New Industrial Policy, 1991

• In broader terms this policy introduced LPG reforms in India I.e Liberalization, Privatization, and Globalization

A. De-licensing-

• A policy was implemented that abolished industrial licensing for all industries except for a short list of 18 industries.

• This list of 18 industries was further pruned in 1999 whereby the number reduced to six industries and at present there  are only four industries

B. De-reservation -

• The IPR (Industrial Policy Resolution) of 1956 reduced the number of industries reserved for the Central Government from several to only eight.

At present there are only 3 industries -

• Nuclear energy.

• Nuclear research and other related activities.

• Railways

C. Abolition of MRTP

• MRTP was abolished and later on it was replaced competition act

D. Compulsion of Phased Production Abolished

• After the elimination of the requirement for phased production, private companies are now free to produce multiple goods and models simultaneously.

E. Compulsion to Convert Loans into Shares Abolished-

• It was abolished to give industries more independence and strengthen liberalization.

F. Privatizing and reforms in PSUs-

• The Government decided to refer chronically sick PSUs to the Board for Industrial and Financial Reconstruction (BIFR) as part of their revival and rehabilitation efforts.

• As per the policy, PSUs' Boards were granted greater managerial autonomy.

G. Location of industries-

A classification was made for industries into polluting and non-polluting categories, and a straightforward criterion for determining their location was declared.

Non-Polluting -

• Such industries can be set up anywhere.

Polluting -

• Such industries can be set up at least 25 km away from million cities.

H. Foreign direct investment (FDI)

• FDI up to 51 per cent foreign equity in high priority industries requiring large investments and advanced technology was permitted.

• The government of India allowed trading companies that are primarily engaged in export activities to have up to 51 percent foreign equity participation.

I. Foreign Exchange Management Act (FEMA)

• The Foreign Exchange Regulation Act (FERA), known for its strict and harsh regulations, was replaced by the Foreign Exchange Management Act (FEMA) in 2000-01.

J. India Joined WTO

• India joined WTO to tackle balance of payment crisis.