INTRODUCTION

Industrial Policy refers to government's policy towards industries; their establishment, functioning and
growth.

Any Industrial Policy may reflect two aspects:

• First, the ideology of the government, which determines the nature of industrialization.

• Second, the governing rules and principles which provide a framework behind the ideology.

HISTORICAL PERSPECTIVE: INDUSTRIAL POLICY

Till before First World War, the state was not expected to interfere in the industrial field.

The exigencies of II World War forced the state in India to show interest in industry and efforts were
made to formulate policy of post-war industrial reconstruction and development.

1914–1918: First World War

1939–1945: Second World War

HISTORICAL PERSPECTIVE: INDUSTRIAL POLICY

1948: The Industrial Policy Resolution was passed

6th April 1948: First Industrial Policy was declared
26th Jan 1950: The Constitution was adopted
March 1950: India's Planning Commission was constituted
1951: Industrial Development and Regulation Act

Five industrial policies at different time intervals have so far been formulated in India, i.e. Industrial
Policy, 1948, 1956, 1977, 1980 and 1991 respectively.

OBJECTIVES OF INDUSTRIAL POLICY

Following are the objectives of an Industrial Policy:

1. The basic objective of industrial policy is to increase industrial production of the country.

2. Optimizing production by directing the flow of scarce resources in investment areas in

accordance with national priorities.

3. Industrial policy helps in balanced regional development. Industrial policy may contain
provisions for providing facilities or concessions for development of backward areas of the
country.

4. Cordial relations between workers and management are essential for rapid and sustainable
industrialization. A comprehensive industrial policy helps to establish cordial relations.

5. Industrial policy helps in prevention of monopoly and unfair trade practices.

6. An appropriate industrial policy envisions to attract foreign investment.

FIRST INDUSTRIAL POLICY, 1948

First Industrial Policy of independent India was declared by the first Prime Minister of India, Jawaharlal
Nehru on April 06, 1948. The Industrial Policy Resolution of 1948 aimed at acceleration of the industrial
development of the country. The Government suggested to establish mixed economy in India by this
policy.

Industrial Policy Resolution, 1948 was passed at a time when our constitution was not adopted and
there was no legal framework. But the idea was to keep the industries under the exclusive ownership
of Government (Public Sector), Private Sector and Joint sector.

The constitution came into effect in 1950 and in March 1950, India's Planning Commission was
constituted. This was followed by an Industrial (Development and Regulation) Act of IDR Act of 1951.

INDUSTRIAL POLICY, 1956

With the approach of rapid industrial growth and development, the next industrial policy, 1956 gave
primacy to the role of state to assume a predominant and direct responsibility for industrial
development.

The Industrial Policy, 1956 is regarded as the economic constitution of India. The objective of socialistic
pattern had been expressed in the form of industrial development in this policy.

The supporters of private sector criticized this policy that the private sector will be eaten away by the
huge public sector. But this thinking did not prove true. This policy helped in development of both the
public and private sectors.

INDUSTRIAL POLICY, 1977

Industrial Policy, 1977 was declared by non-congress government, Janata Party. The main objective of
this policy was to provide encouragement and incentives to small and cottage industries, against big
industrial houses and multinational companies.

The logic behind it was that due to expansion of small industries, opportunities of employment will
increase on the one side and on the other side concentration of economic power will be under control.

INDUSTRIAL POLICY, 1980

The Industrial Policy, 1980 was mainly guided by considerations of growth. The congress party under
the leadership of Smt. Indira Gandhi again came to power.

This policy was improved version of Industrial Policy, 1956. In this policy, discrimination between small
and large industries was reduced.

This policy favoured a more capital intensive path for development and paved the way for the
expansion of large and big industrial houses.

NEW INDUSTRIAL POLICY, 1991

On July 24, 1991, the Government headed by P.V. Narsimha Rao announced a new industrial policy
which was altogether different from all previous policies.

This policy laid emphasis on increasing foreign collaboration, setting economy free from unnecessary
controls and making public sector to work in a free environment. This policy is also known as Open,
Liberal and Revolutionary Policy.

OBJECTIVES OF NEW INDUSTRIAL POLICY, 1991

1. To abolish the monopoly of any sector in any field of manufacturing except on strategic or
security grounds.

2. To encourage private entrepreneurship and investment in industrial activities.

 3. To enhance support to small scale sector.

4. To bring overall changes in the economic structure of the country and build a sound and
diversified industrial base.

5. To increase the competitiveness of industries for the welfare of the common man.

6. To maintain a sustained growth in productivity and gainful employment.

7. To remove regulatory system and other weaknesses.

8. To achieve technological dynamism in the country.

9. To attain global competitiveness.

FEATURES OF NEW INDUSTRIAL POLICY, 1991

The broad features of New Industrial Policy were as follows:

1. The Government reduced the number of industries under compulsory licensing.

2. Many of the industries reserved for the public sector under the earlier policy were de-reserved.
The role of the public sector was limited to industries of strategic importance.

3. Disinvestment was carried out in case of many public sector industrial enterprises.

4. Policy towards foreign capital was liberalised. The share of foreign equity participation was
increased and in many activities 100 per cent Foreign Direct Investment (FDI) was permitted.

5. Automatic permission was now granted for technology agreements with foreign companies.

6. Foreign Investment Promotion Board (FIPB) was set up to promote and channelize foreign
investment in India.

7. Appropriate measures were taken to remove obstacles in the way of industrial growth.

LIBERALISATION

Liberalisation means to reduce unnecessary restrictions and controls on business units imposed by the
government. It means procedural simplification, relaxing trade and industry from unnecessary
bureaucratic hurdles.

The economic reforms that were introduced in Industrial Policy, 1991 were aimed at liberalising the
Indian business and industry from all unnecessary controls and restrictions.

Through this liberalisation, Indian economy has opened up and started interacting with the world. This
has resulted in easy entry of foreign business organizations. This has further resulted in stiff
competition and efficiency.

LIBERALISATION (CONTINUED)

Liberalisation of the Indian industry has taken place with respect to:

(i) Abolishing licensing requirement in most of the industries except a short list
(ii) Freedom in deciding the scale of business activities i.e. no restrictions on expansion or contraction
of business activities
(iii) Removal of restrictions on the movement of goods and services
(iv) Freedom in fixing the prices of goods/services
(v) Reduction in tax rates and lifting of unnecessary controls over the economy
(vi) Simplifying procedures for imports and exports
(vii) Making it easier to attract foreign capital and technology to India
ADVANTAGES / POSITIVE ECONOMIC & SOCIAL IMPLICATIONS OF LIBERALISATION

1. With liberalisation, inflow of foreign investment has increased. Foreign investors consider India
as a favourable destination.

2. After liberalisation, foreign exchange reserves of India has improved because of huge inflow of
foreign investment and increase in exports.

3. As a result of liberalisation, many domestic and foreign enterprises have started business
operations. It has resulted in increased competition.

4. Before liberalisation, inflation rate was very high. With liberalisation, competition and production
have increased. It has helped in checking the rising prices.

5. Before liberalisation, various licenses, quotas, permits, approvals were required to be taken
from government officials. These officials used to demand bribe for granting these licenses,
grants etc. With liberalisation these restrictions have been liberalised. It has helped to check
corruption.

DISADVANTAGES / NEGATIVE ECONOMIC & SOCIAL IMPLICATIONS OF LIBERALISATION

1. Liberalisation has promoted automation, computerisation and mechanisation of industrial

activities which in turn has resulted into unemployment.

2. Private sector units and foreign enterprises prefer to set up their units in areas which are
already developed and have good infrastructure. It has increased regional imbalances.

3. Liberalisation has adversely affected domestic business units which are not strong enough to
compete with MNCs. Many domestic units have become sick and have been closed.

4. Most of the MNCs have entered in the premium product segments and have targeted upper
income group persons. It has further increased income inequalities.

5. Liberalisation has increased dependence on foreign nations. With liberal import of foreign goods,
Indian consumers are increasingly using foreign goods. It has hampered the self-sufficiency of
our nation.

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PRIVATIZATION

Privatization refers to a process in which ownership and management of public sector transfers to the
private sector. It also means the withdrawal of the state from an industry or sector.

Privatization may have several meanings. Primarily, it is the process of transferring ownership of a
business, enterprise, agency, public service, or public property from the public sector (a government)
to the private sector, either to a business that operates for a profit or to a non-profit organization.

“Privatization is the general process of involving the private sector in the ownership or operation of a
state owned enterprise.”
— Barbaba Lee & John Nellis

Due to the policy reforms announced in 1991, the expansion of public sector has literally come to a
halt and the private sector registered fast growth in the post liberalised period.

The issues of privatisation include:

(i) Reduction in the number of industries reserved for the public sector from 17 to 8 (reduced further to
3 later on) and the introduction of selective competition in the reserved area.

(ii) Disinvestment of shares of selected public sector industrial enterprises in order to raise resources
and to encourage wider participation of general public and workers in the ownership in business.

(iii) Improvement in performance through an MOU system by which managements are to be granted
greater autonomy but held accountable for specified results.

ADVANTAGES / POSITIVE ECONOMIC & SOCIAL IMPLICATIONS OF PRIVATIZATION

1. Privatization of public sector industries increases their productivity, profitability and

effectiveness.

2. In private sector, persons with professional qualification are appointed. So, benefit of
professional management can be availed through privatization.

3. By increasing the area of private sector, competition has increased and consumers are benefited
as a result of increase in competition.

4. Privatization encourages foreign investors to invest in domestic economy.

DISADVANTAGES / NEGATIVE ECONOMIC & SOCIAL IMPLICATIONS OF PRIVATIZATION

1. Under privatization, private sector gives more importance to profit motive than social welfare.

2. Privatization implies class struggle. Capitalists and labourers have conflicting interests that
adversely affect smooth functioning of the economy.

3. Privatization is not a guarantee of the success of an industrial unit. Number of sick industrial
units in private sector is still very high.

4. Trade unions in India oppose privatization. According to them, it will spread unemployment.

ADVANTAGES / POSITIVE ECONOMIC & SOCIAL IMPLICATIONS OF PRIVATISATION

1. Through privatisation, the private sector will share the burden of economic development and
will provide funds for capital investment.

2. Privatisation puts an end to problems like red-tapism, nepotism etc. The rule of ‘Earn according
to Work’ is followed. This increases the feeling of responsibility among staff.

3. Privatisation encourages new inventions, research and development activities.

4. Privatisation promotes industrialisation. It creates employment and boosts industrial growth.

5. Privatisation increases direct foreign investment in the country.

DISADVANTAGES / NEGATIVE ECONOMIC & SOCIAL IMPLICATIONS OF PRIVATISATION

1. Profit motive is the guiding principle of privatisation. Entrepreneurs are more inclined to
produce goods that cater to luxuries and comforts.

2. Because of inadequate infrastructure, private sector hesitates to set up units in backward areas.
It leads to regional imbalance.

3. Because of profit motive, the private sector units ignore key and basic industries.
GLOBALISATION

Globalisation means linking the economy of a country with the economies of other countries by means
of free trade, free mobility of capital and labour etc. It also means inviting multinational companies to
invest in India.

“Globalisation refers to the rapid and world wide expansion of market.”

— N. Vaghul

Globalisation has four parameters:

1. Reduction of trade barriers so as to permit free flow of goods across national frontiers.

2. Creation of an environment in which free flow of capital can take place among nation states.

3. Creation of an environment permitting free flow of technology.

4. Creation of an environment in which free movement of labour can take place in different
countries of the world.

WHY GLOBALISATION?

There are several reasons why companies go global. Money is the primary motive for going global.
Some other reasons are:

1. The rapid shrinking of time and distance across globe because of faster communication,
speedier transportation, growing financial flows, growing population and rapid technological
changes encouraged companies to go global.

2. Cheap labour in other countries attracts foreign investors.

3. Companies often set up overseas plants to reduce high transportation costs.

4. Some companies set up plants overseas so as to be close to their raw material supply and to
market their finished products.

ADVANTAGES / POSITIVE ECONOMIC & SOCIAL IMPLICATIONS OF GLOBALISATION

1. As a result of globalisation, India’s share in the world trade has substantially gone up.

2. As a consequence of globalisation, there has been a considerable increase in Foreign Direct

Investment and Foreign Portfolio Investment.

3. Globalisation has promoted collaboration of foreign companies with many Indian companies.

4. As a result of globalisation, foreign exchange reserves have also increased.

5. Globalisation has permitted Indian business units to expand their business in the whole world
(e.g., Infosys, TCS, Wipro, Reliance etc.).

6. Globalisation has enabled the inflow of foreign technology which is superior and advanced.

7. Globalisation has promoted employment opportunities. Foreign companies are establishing their
production and trading units in India.

DISADVANTAGES / NEGATIVE ECONOMIC & SOCIAL IMPLICATIONS OF GLOBALISATION

1. Globalisation has increased income inequalities and benefitted mainly MNCs and big industrial
units.
 2. Indian business units have to compete with foreign industrial units. Many Indian industrial units
have been closed since they failed to compete.

3. Globalisation is exploiting unskilled workers by giving lower wages, less job security and long
working hours.

4. With globalisation, dominance of foreign institutions has increased (e.g., Pepsi, Coca-Cola).

5. With the increasing use of computers and automatic machines, employment avenues are
reduced.

6. Globalisation tends to transfer talented manpower to industrial countries for better career
prospects and facilities.

ESSENTIALS OF GLOBALISATION

1. Business freedom

2. Facilities

3. Government support

4. Resources

5. Competitiveness

6. Orientation

LICENSING POLICY

A license is a written permission granted to an enterprise by the government according to which the
product mentioned therein can be manufactured by the enterprise.

The license also includes many other particulars such as:

• The place where the factory is to be produced

• The name of the product to be produced

• The limit of the production capacity

• Expansion of the enterprise etc.

Indian government resorted to licensing system in order to maintain control over industries according
to Industries Development and Regulation Act, 1951.