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:

1. Strategic Industries (Public sector)
   ➔ Arms, Atomic Energy, Railways (Central Govt. monopoly)

2. Basic/Key Industries (Public + Private)
   ➔ Coal, steel, ship-building, mineral oil etc.
   ➔ Govt. set up new units; private allowed to continue

3. Controlled Private Sector
   ➔ Heavy chemicals, textiles, cement etc.
   ➔ Govt. control in consultation with states

4. 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:

1. Cottage & household

2. Tiny sector

3. 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)