INDUSTRIAL POLICY IN INDIA: ISSUES, OBJECTIVES & EXPERIENCE

1. INDUSTRIAL POLICY IN INDIA: ISSUES, OBJECTIVES & EXPERIENCE Dr. Raj Agrawal

2. Structure • Industrial Policy: Objectives & Evolution • Current Status • Evaluation

3. Background: • Planning and Industrial policy evolution highly inter-twined: • Objectives of industrial policy articulated in the Industrial Policy Resolutions of 1948 and 1956 • Specific priorities and strategies spelt out in successive five year plans to be implemented by: • A system of licensing provided for by the Industries (Development & Regulation) Act, 1951; and • A system of import licensing and foreign trade policies meant to promote import substituting industrialization • Licensing ensured realization of physical targets for capacity set by the plan, trade policy sought to promote domestic industrialization by physical allocation of imports by products.

4. Industrial Policy Resolution 1948 • Outlined the approach to industrial growth and development • Emphasized the importance of securing a continuous increase in production and ensuring its equitable distribution.

5. Industrial Policy Resolution 1948 Progressively active role for the State in the development of Industries. • State monopoly: Arms and ammunition, atomic energy and railway transport • State exclusively responsible for the establishment of new undertakings in six basic industries-except where, in the national interest, the State itself found it necessary to secure the cooperation of private enterprise.

6. Industrial Policy Resolution 1948 • Rest of the industrial field open to private enterprise though the State would alsoprogressively participate in this field.

7. Industrial Policy Resolution 1956 • After the adoption of the Constitution and the socio-economic goals, the Industrial Policy was comprehensively revised and adopted in 1956. • Sought to accelerate the rate of economic growth and speed up industrialization to achieve a socialist pattern of society. • Capital was scarce & the base of entrepreneurship not strong enough. Hence, the gave primacy to the role of the State to assume a predominant and direct responsibility for industrial development.

8. Industrial Policy Resolution 1956 • Objectives: • Improvement in living standards and working conditions for the mass of the people. • Reduction in income and wealth disparities • Prevention of private monopolies and concentration of economic power in different fields in the hands of small numbers of individuals.

9. Industrial Policy Resolution 1956 • Progressively predominant and direct responsibility for the State in setting up new industrial undertakings and for developing transport facilities • Undertake State trading on an increasing scale. • Equal opportunity for the private sector to develop and expand.

10. Industrial Policy Resolution 1956 • Private sector to develop on the principle of cooperation; increasing proportion of the private sector activities to develop on cooperative lines. • The adoption of the socialist pattern of society as the national objective. • The need for planned and rapid development.

11. Industrial Policy Resolution 1956 • Public sector: All industries of basic and strategic importance, or in the nature of public utility services. • The State can undertake any type of industrial production.

12. Industrial Policy Resolution 1956 • Categorization of industries: i) Set of industries the future development of which will be the exclusive responsibility of the State • ii) Category of industries which will be progressively state-owned and in which the State will, therefore, generally take the initiative in establishing new undertakings, but in which private enterprise will also be expected to supplement the efforts of the State.

13. Industrial Policy Resolution 1956 • iii) Rest of industries left to the initiative andenterprise of the private sector. • Stress the role of cottage and village and small scale industries in the development of the national economy. • Disparities in levels of development between different regions should be progressively reduced.

14. Industrial Policy 1973 • Certain structural distortions called for policy changes in IPR 1956 • Provide for a closer interaction between the agricultural and industrial sectors • Highest priority to the generation and transmission of power. • Identify products to be reserved for the small scale sector: list of industries exclusively reserved for the small scale sector expanded from 180 items to more than 500 items.

15. Industrial Policy 1973 • Within the small scale sector, a tiny sector was also defined with investment in machinery andequipment up to Rs.1 lakh & located in townswith a population < 50,000 according to1971 census figures, and in villages. • Proposal for special legislation to protect cottage and household industries

16. Industrial Policy 1973 • Compulsory export obligations, merely for ensuring the foreign exchange balance of the project, would no longer be insisted upon while approving new industrial capacity. • In the areas of price control of agricultural andindustrial products, the prices would be regulatedto ensure an adequate return to the investor.

17. Industrial Policy 1977 • Emphasis on • producing inputs needed by a large number of smaller units and making adequate marketing arrangements. • upgrading the technology of small units. • Promoting the development of a system of linkages between nucleus large plants and the satellite ancillaries

18. Industrial Policy 1977 • Emphasis on: • the development of small scale industries, the investment limit in the case of tiny units was enhanced to Rs.2 lakh, of a small scale units to Rs.20 lakh and of ancillaries to Rs.25 lakh. • building buffer stocks of essential raw materials for the Small Scale Industries for operation through the SmallIndustries Development Corporations in the Statesand the National Small Industries Corporation inthe Centre.

19. Industrial Policy 1977 • Emphasis on: • Industrial processes and technologies involving optimum utilization of energy or the exploitation of alternative sources of energy for giving special assistance, including finance on concessional terms.

20. The Industrial Policy Statement 1980 • Formulated wrt the Industrial Policy Resolution of 1956 to provide for (i) Optimum utilization of installed capacity;(ii) Maximum production and achieving higher productivity;(iii) Higher employment generation;(iv) Correction of regional imbalances;(v) Strengthening of the agricultural base through agro based industries and promotion of optimum inter-sectoral relationship; • (vi) Promotion of export-oriented industries;

21. The Industrial Policy Statement 1980 • (vii) Promotion of economic federalism through equitable spread of investment and dispersal of returns; • (viii) Consumer protection against high prices and bad quality.

22. INDUSTRIAL POLICY 1991 • Govt . recognizes the need for • social and economic justice, to end poverty and unemployment and to build a modern, democratic, socialist, prosperous and forward-looking India • India to grow as part of the world economy and not in isolation • Greater emphasis placed on building up ability to pay for imports through our own foreign exchangeearnings • development and utilization of indigenous capabilities in technology and manufacturing as well as itsup gradation to world standards.

23. INDUSTRIAL POLICY 1991 • Sound policy framework encompassing encouragement of entrepreneurship, development of indigenous technology through investment in research and development, bringing in new technology, dismantling of the regulatory system, development of the capital markets and increasingcompetitiveness for the benefit of the commonman.

24. INDUSTRIAL POLICY 1991 • The spread of industrialization to backward areas of the country will be actively promotedthrough appropriate incentives, institutions andinfrastructure investments. • Government will provide enhanced support to the small-scale sector so that it flourishes in an environment of economic efficiency and continuous technological up gradation

25. INDUSTRIAL POLICY 1991 • Foreign investment and technology collaboration will be welcomed to obtain highertechnology, to increase exports and to expand theproduction base. Government will endeavor to abolish the monopoly of any sector or any individualenterprise in any field of manufacture, except onstrategic or military considerations and open allmanufacturing activity to competition.

26. INDUSTRIAL POLICY 1991 • The Government will ensure that the public sector plays its rightful role in the evolvingsocioeconomic scenario of the country.Government will ensure that the public sector isrun on business lines as envisaged in the IndustrialPolicy Resolution of 1956 and would continue toinnovate and lead in strategic areas of nationalimportance.

27. INDUSTRIAL POLICY 1991 • Government will fully protect the interests of labour, enhance their welfare and equip them in all respects to deal with the inevitability of technological changeLabour will be made an equal partner in • progress and prosperity • Workers’ participation in management will be promoted

28. INDUSTRIAL POLICY 1991 • Workers cooperatives will be encouraged toparticipate in packages designed to turn aroundsick companies. • The major objectives of the new industrial policy package will be to build on the gains already made, correct the distortions or weaknesses that may have crept in, maintain a sustained growth in productivity and gainful employment and attain international competitiveness.

29. INDUSTRIAL POLICY 1991 • Need to preserve the environment and ensure the efficient use of available resources. • Government’s policy will be continuity with change

30. INDUSTRIAL POLICY 1991 • In pursuit of the above objectives, Governmenthave decided to take a series of initiatives in respect of the policies relating to the following areas.A. Industrial Licensing.B. Foreign Investment.C. Foreign Technology Agreements.D. Public Sector Policy.E. MRTP Act.

31. INDUSTRIAL POLICY 1991 • Industrial licensing: • Modified industrial licensing policy to ease restrictions on capacity creation, respond to emerging domestic & global opportunities by improving productivity • Abolished industrial licensing for most industries but for 18 categories • Small scale sector reserved • Foreign Investment: • FDI (up to 51% foreign equity) permitted in high priority industries (high investment and advanced technology) & export oriented companies

32. INDUSTRIAL POLICY 1991 • Foreign Technology Agreements: • Towards technological dynamism, automatic approval for technological agreements related to high priority industries; eased procedures for hiring foreign technical expertise • Public Sector Policy: Restructuring pubic sector units, raise resources through pubic participation PSUs, refer sick units to Board of Industrial & Financial Reconstruction • MRTP Act: • Abolished scrutiny of investment decision of MRTP companies etc.

33. Current Scenario: • Substantial changes: • Only six industries require compulsory licensing • Only three industries reserved for the public sector • Relation of restriction on FDI: FDI up to 100 % under automatic route for most manufacturing activities in Special Economic Zones; FDI ceiling in pvt banking sector up to 74%; oil exploration (100%); natural gas and LNG pipelines (100%); telecom (74%) • Small Scale industries sector: reduced # of items reserved from 821 (1991) to 506 (2005)

37. Lessons from India: • Industrial Policy should not be about: • Controlling Prices • Controlling Quantity • Specifying Geographical Location of Activity • Preemption by Public Sector • Policy Body, Regulatory Body and Service Provider being Government Agencies