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` The Industrial Policy indicates the respective roles of the
public, private, joint and co-operative sectors; small, medium
and large scale industries.

` It underlines the national priorities and the economic

development strategy.

` It also spells the Government¶s policy towards industries- their

establishment, functioning, growth and management; foreign
capital and technology, labor policy, tariff policy etc. in
respect of the industrial sector.

` The Industrial Policy of India has determined the pattern of

economic and industrial development of the economy. The
Industrial Policy reflected the socio-economic and political
ideology of development.
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The objective of the policy were to :
` ëeduce disparities in income and wealth

` Prevent monopolies and concentration of economic power

` Build a large and heavy public sector and manage the same
effectively
` Develop heavy and machine making industries

` Accelerate the rate of industrialization and economic growth

` Higher employment generation

` Focus on development of small scale sector

` Optimum utilization of installed capacity

` ëural Industrialization

` Promotion of export oriented units (Industrial Policy 1980)

` Industrial Dispersal and decentralization (Industrial Policy

1990)
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The industrial policy of India prior to liberalization in 1991 was
characterized by the following features:
` Dominance of Public Sector

` Entry and Growth ëestrictions

` ëestrictions on Foreign Capital and Technology


  
 
:
` The policy of the Government was to ensure that the public
sector gained control over the economy. The Industrial Policy
ëesolution of 1956 brought the socialist pattern of society as
the national goal and the Second Five Year Plan which gave
emphasis to the basic and heavy industries, further expanded
the role of the public sector.
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` However, existing private undertakings in these industries
were allowed to continue. Also by way of giving licenses for
several other important industries only to the public sector, the
monopoly or dominance of the public sector was established.

` The third category include all the remaining industries which

were left to the initiative and enterprise of the private sector.
However, privately owned units were also permitted to
produce an item falling in Schedule A for meeting their own
requirements or as by-products.
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Entry and Growth ëestrictions:

` There were a number of entry and growth restrictions on the
private sector (especially on large firms and foreign
establishments) even in those industries that the private sector
was allowed. A  


  
    

 

  
 




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` Aarge firms of ës. 100 crore or above and dominant
undertakings (those with a market share of 25% or more) had
to obtain clearance under the Monopolies and ëestrictive
Trade Practices Act in addition to the industrial license. There
were also restrictions on capital goods etc.

ëestrictions on Foreign Capital and Technology:

` In industries where foreign capital was allowed, it was
subjected to a ceiling of 40% of the total equity although there
were certain exception. Operations of foreign companies in
India and issue of securities abroad by Indian Companies was
regulated by the Foreign Exchange ëegulation Act, FEëA
1973.


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The Industrial Policy announced on July 24, 1991 heralded the

economic reforms in India and sought to drastically alter the
industrial scenario in our country. The most visible sign of the
country¶s economic crisis in early 1991 was:
` Extremely low foreign exchange reserves of ës. 2400 crore
(just enough to buy from abroad only three weeks
requirements.)
` Inflation was as high as 13.5%

J
This policy expanded the scope of the private sector by
opening up most of the industries for the private sector and did
away with the entry and growth restrictions. The most
important initiatives are with respect to the virtual scrapping of
industrial licensing and registration policies, an end to the
monopoly law and a welcoming approach to foreign
investments, apart from redefining the role of the public sector.
Words like ³dramatic´, revolutionary´ and ³drastic have been
used to describe this policy.


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Main features :Objectives of the Industrial Policy of the
Government are ±

` To maintain a sustained growth in productivity;

` To enhance employment;
` To achieve optimal utilization of human resources;
` To attain international competitiveness
` Development of indigenous technology through greater
investment in ë D and bring in new technology to help
Indian manufacturing units Incentive for industrialization of
backward areas
` Ensure running of PSUs on business lines and cut their losses
` Protect the interests of workers
` Abolish the monopoly of any sector in any field of
manufacture except on strategic or security grounds.


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The number of industries reserved for the public sector was
reduced to eight and it was later pruned to two ie atomic
energy and railway transport.

The priority areas for growth of public enterprises will be the

essential infrastructure goods and services industry;
exploration of oil and mineral resources; technology
development and building of manufacturing capabilities in
areas which are crucial in the long term development of the
economy and where private sector investment is inadequate.
The policy also seeks selective privatization and withdrawal of
the public sector from industries.


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A  :

` Industrial Aicensing was governed by the Industries

Development ëegulation Act, 1951.

` Industrial Aicensing policy and procedures have been

liberalized and continuously changed. Industrial licensing has
been abolished for all projects except for a short list of
industries G $



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` The industries subject to compulsory industrial licensing
account for a very small share of the value added in the
manufacturing sector.

` Industries are free to select the location of the industry.

However, in cities with a population of over 1 million, the
industries are to be located in the areas designated as
³industrial areas´ or 25 kms away from the Standard Urban
area limits of the city. However, industries of a non polluting
nature were exempt. The locational policy was abolished in
2008.
Also, in respect of public sector enterprises, the following
measures were adopted:
` Portfolio of public sector investments to be reviewed
periodically with a view to focus the public sector on strategic,
high tech and essential infrastructure.
` Public enterprises which are chronically sick and unlikely to
be turned around to be referred to the Board for Industrial and
Financial ëeconstruction (BIFë) for formulation of revival /
rehabilitation schemes.
` In order to encourage wider public participation, a part of the
Government¶s shareholding in the public sector would be
offered to mutual funds, financial institutions and the general
public.


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A!

Œ
 |   : Policy towards foreign
capital and technology has been modified very significantly.
Foreign investment will bring advantages of technology
transfer, marketing expertise, introduction of modern
managerial techniques and new possibilities for promotion of
exports.

` FDI is allowed in all industries, except industries falling in a

small negative list.
` Approvals for FDI up to 51% in high priority industries
requiring large investments and advanced technology will be
provided.
` Since 1992-93, the Indian stock market is open for investment
by Foreign Institutional Investors (FII¶s) and Indian companies
satisfying certain conditions may access foreign capital market
by Euro issues.
` Some of the recent initiatives taken to further liberalize the
FDI regime, include opening up of sectors such as Insurance
(up to 26%); development of integrated townships (up to
100%)


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A!

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` ëecent initiative under the small scale policy, equity holding
by other units including foreign equity in a small scale
undertaking is permissible up to 24 per cent. However there is
no bar on higher equity holding for foreign investment if the
unit is willing to give up its small scale status.
` Integration of the Indian Economy with the Global Economy
is one of the objectives of the EXIM Policy. The import policy
has been made liberal by reducing tariff levels.
` Another change has been the reform of the foreign exchange
rate policy. The ëupee has been made fully convertible on the
current account. The effort is to move towards capital account
convertibility. The Capital Issues Control Act and the office of
the Controller of Capital has been scrapped and free pricing of
capital issues was introduced.
` The rupee is convertible in current account transactions like
meeting individual foreign exchange needs for overseas travel
or education abroad. However, overseas investments or
acquisition of assets, which are classified as capital account
transactions, need prior approval of ëeserve Bank of India
(ëBI)

` India officially fixed the exchange rate until 1991, when it

made the first move to allow the market to determine the
rupee's value in relation to other currencies for select
transactions.


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Foreign Technology Agreements:

` Government will provide automatic approval for technological

agreements related to high priority industries within specified
parameters.
` Indian companies will be free to negotiate the terms for
technology transfer with their foreign counterparts according
to their own commercial judgement.
` No permission is necessary for hiring of foreign technicians
and foreign testing of indigenously developed technologies.
Government will encourage foreign trading companies to
assist in our export activities
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'ë% ë
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` Most of the MëTP restrictions pertaining to concentration of

economic power (those requiring permission for establishment
of new undertaking, substantial expansion, manufacture of
new items and mergers and acquisitions) were scrapped.
` Existing units will be provided a new broad branding facility
to enable them to produce any article without additional
investment.
` The thrust of the policy is on controlling and regulating
monopolistic, restrictive and unfair trade practices.
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Positives of the new policy are:
` Delicensing of most industries will help entrepreneurs to
quickly seize business opportunities.
` ëemoval of controls under the MëTP Act will facilitate
expansion and growth.
` There will be greater inflow of foreign capital and technology
due to easing of restrictions.
` Burden on the public sector will be reduced and reforms
relating to the public sector like transferring sick units to BIFë
will help improve their performance.
Watch- outs :
However, de-bureaucratization is a challenging task. The
bureaucracy has a tendency to attempt to defeat measures
aimed at deregulations.
` The policy environment is much more conducive for both
domestic and foreign investment than in the past. However, a
host of countries are now trying to woo foreign investment
with a much more conducive economic environment than in
India. Also, cultural factor do also tend to tilt the balance in
favor of other nations.
` Further, foreign investors still regard the policy and procedural
system in India confusing. ëather many feel that policy and
development environment in China is superior to India.
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This Policy has been criticized on the following grounds:

` The policy is a total departure from Nehru¶s model of

socialism.
` It will lead to domination of MNC on the Indian Economy.
Threat from foreign competition due to cheaper imports and
inability to meet the challenge from MNCs due to their weak
economic strength vis-à-vis the MNCs. CII did raise the point
that we have moved away from too much protectionism to too
little protectionism.
` Trade Unions oppose the policy due to fear of unemployment
which may arise due to privatization.
` Monopolies and concentration of economic power in a few
hands is likely to increase.
` Distortion in industrial pattern would occur due to slow pace
of investment in few basic and strategic industries. Absence of
a mechanism would slow down the development of backward
areas.
` Government is silent about tackling the growing industrial
sickness. The Government has not announced a clear exit
policy for sick units.
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` The 1991 reforms have considerably helped in improving the
economic growth of the country. Yet much more needs to be
done to reap the full benefits. There is a need for Second
Generation ëeforms:
` A. Exploiting the Knowledge based Global Economy:
ëevolutionizing the telecom sector to help integrate India¶s
economy into the world economy.
Build institutes for higher education
A system of intellectual property rights to reward
innovations adequately.
Venture capital funds to finance risk projects of the
knowledge based economy.
B. Growing Indian Transnational Corporations:
Indian firms to enjoy flexibility in entry and exit. Freedom
to diversify and close down unsuccessful units.
Aiberalize and move towards capital account convertibility.
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C. High Growth of Agriculture:
State to ensure that adequate investments are made in
irrigation, agricultural research and infrastructure
` D. Empowering the Poor:
Integrate and consolidate anti poverty measures.
Set up a system for old age security.
E. Human Development
Primary education made compulsory.
Involve private sector to provide better primary education.
F. Clean Environment:
Arrest damage to environment
Promote clean and healthy environment.
H. Improvements to Governance:
ëationalize electricity prices
Bring in legal reforms that ensure inexpensive and speedy
justice and at the same time facilitate economic growth.