economic expansion





considerable since its of






progress and

encouragement. As a result, we have now a widely diversified base of industry and an increased domestic production of a wide range of goods and services. The index of industrial production has gone up from 7.9 in 1950-51 to 154.7 in 1999-2000. Electricity generation went up from 5.1 billion Kwh to 480.7 billion Kwh in the same period. 3.1 Particularly significant achieve-

Independence. Most noticeable are the diversification production both in industry and agriculture. New technologies were introduced in many industries. Industrial investment took place in a large variety of new industries. Modern management techniques were introduced. An entirely new class of entrepreneurs have come up with the support system from the Government, and a large number of new industrial centres have developed in almost all parts of the country. the Government Over the years, has built the

ment has taken place in the field of agriculture. Between 1950-2000, the index of agricultural production increased more than four-fold. Between 1960 and 2000, wheat production went up from 11 to 75 million tonnes, and the production of rice increased from 35 to 89.5 million tonnes. We are now having a problem of plenty, with Government godowns overflowing with wheat stocks. This is not a mean achievement for a country that relied on imported food aid until the early 1960s. The credit for this green revolution goes to Indian scientists as well as to millions of Indian farmers, who wholeheartedly

infrastructure required by the industry and made massive investments to provide the much-needed facilities of power, communications, roads etc. A good number of institutions were promoted to help entrepreneurship development, provide finance for industry and to facilitate development of a variety of skills required by the industry as well as agriculture. The Government also followed a policy of encouraging indigenous industries and

Barring the first few years after Independence.REPORT OF THE NATIONAL COMMISSION ON LABOUR cooperated with the Government. we will briefly trace the developments that took place in the field of industrial economic policy of India during these years.7 PROTECTION TO INDIAN INDUSTRIES: India is probably one of the few countries in the world which used its import policy for the healthy development of local industries. 139 some of the steps that were taken to achieve these objectives. by 3. disallowed.4%. In 1991.5 After India became independent plan of industrial in 1947. customs tariff was brought down and the doors of the Indian economy were opened for foreign competition. 3.2% per capita. the country embarked upon an ambitious development and encouraged the setting up of new industries and the expansion of existing industries. INDUSTRIAL POLICY AND contributed to a steady and impressive growth in India’s GNP. a more detailed review of the economic policies after 1991. The rate of growth before 1980 was 1. therefore.2% on average every year. 3. As a result. 3.3 A variety of promotional policies INCENTIVES SINCE 1947 3. imports had to be restricted. The policy was to encourage Indian industries and though foreign technical collaborations were encouraged. this policy was changed completely and foreign majority investment was encouraged in a variety of industries.4 In this chapter. import restrictions were removed. Indian industry thrived within protective tariff walls. Between 199394 and 1999-2000. and their effect on Indian economy has been attempted in the next chapter. India experienced a positive rate of growth. Thereafter.8% per year. and because of this shortage. In the early years.6 We may briefly recapitulate were followed by the Government to achieve this success. A . India’s per capita Net National Product (NNP) in 1999-2000 was 2. it registered an average rate of growth of 4. 3. direct foreign investment in any corporate body was restricted to 40%. Imports of consumer goods were. to make India self-sufficient in the matter of its food requirements. Therefore. The year 1991 will now be regarded as a landmark in the economic history of India. exception of 4 years.75 times higher than that of 1951. and between 1950-90. it grew at the rate of 2.2 This economic expansion With the 3. the country was facing a shortage of foreign exchange.

and there was also a total or partial physical ban on the imports of such products. 3. Initially. The Government also gave encouragement to industries to import parts and components that were required for indigenous production. 3. As a result of this policy. greater emphasis was given to the development of machine tools. products produced by Indian industries were not of good quality. There was a continuous effort to improve quality. 3. Actual users of imported raw materials or products were given preference over the category of established importers i. to achieve selfsufficiency. textile machinery. traders. industries acquired experience in manufacturing and turned out quality products comparable with imported products. Certain items that were scarce and not available were channelised through the State Trading Corporation. This gave further fillip to industrial development.REPORT OF THE NATIONAL COMMISSION ON LABOUR good number of restrictions were put on the import of industrial goods. They arranged for the import of such products and distributed them to indigenous industries according to requirements. power equipment and so on. We were importing these mother machines. and the effort of the Government was to encourage the production of these goods indigenously. This gave a muchneeded sheltered market for Indian goods.actual users and established importers.9 During the Second and Third of capital goods undertake the manufacture of a variety of products. Thus. But as years went by.8 Levying higher tariffs restricted produce them in India. Mines & Minerals Trading Corporation and such other Government bodies.10 Protection from imports to encouraged Indian industry imports. India wanted to make machines that helped to produce other machines. and many industries thrived within these protective walls. Therefore. and the new effort was to .e. The import policy was meant to serve two categories of importers . encouragement was given to import technical know-how and to enter into foreign collaborations to undertake manufacture of capital equipment locally. Local industries were encouraged to have foreign collaborations and to import the technical know-how needed to produce what was being imported into the country. 140 plans. the emphasis was on the development industries. There was a ready market for all these products. imports were strictly controlled by the import policy announced every year by the Government of India.

3. gradually transformed into a community of industrialists. 3. In addition to this.12 FINANCIAL INFRASTRUCTURE: BUSINESS: As a consequence of the restrictions on imports. parts and components compared industries to to those import on finished and products.11 HIGH CUSTOMS TARIFFS: Apart Corporation of India (LIC) (1956). (IDBI) Industrial Exchange and Regulation Act (FERA) restricted foreign investment in a company to 40%. With this objective. This encouraged Indian parts components.REPORT OF THE NATIONAL COMMISSION ON LABOUR 3.14 Regulations under the Foreign To provide the financial infrastructure necessary for industry. and to manufacture or assemble final products in India. the Government of India established the Industrial Finance Corporation of India (IFCI) (1948). the Government set up a number of development banks. Indian businessmen had to learn and apply modern management and production techniques. They have to also play a major role in promoting the growth of enterprise. Unit Trust of India (UTI) (1963). Finance Corporations were established in all states on the basis of an Act that was passed by Parliament in 1951.15 ENCOURAGEMENT TO SMALL Reconstruction Corporation of India (1971). 3. what was once a trading community. The price of local products was comparatively cheaper than those of imported goods. Thus. To succeed. This ensured that much of the control in companies with foreign collaboration remained in the hands of Indians. the National and a Small Small Industries Industries Corporation was also established at the Centre Development Bank of India was established in 1989. For financial assistance to small entrepreneurs. and the Life Insurance 141 INDUSTRIES: Though some of the policies of the Government resulted in inhibiting the growth of large-scale . The Government also followed a policy of low tariffs on the import of raw materials.13 CONTROL OF INDIAN from strict control over imports and the physical ban on the imports of many products. customs tariffs were raised in some cases to 200 to 300% on imported products. This gave protection to local industries. 3. Industrial Industrial India Credit and Investment Bank of Corporation of India (ICICI) (1955). Development (1964). The principal function of a development bank is to provide medium and longterm investments. those who were importing products entered into collaboration with their principals and entered the field of manufacturing.

n) Creation of a large number of institutions both by the State Governments and the Central Government enterprises.REPORT OF THE NATIONAL COMMISSION ON LABOUR industries. These j) promotional measures covered: Special incentives for setting up units in backward areas. to help small d) e) . and fiscal. entrepreneurship development. i) Assistance for domestic as well as export marketing. k) Differential central excise levies for the small-scale sector. Special financial assistance schemes at concessional rates of interest and low margins for technician entrepreneurs. financial f) g) Provision of training facilities. and technology. c) m) Reservation of products for exclusive manufacture in the small-scale sector. o) Special effort to promote new entrepreneurs by providing them training in entrepreneurship development. 142 a) Industrial extension services through small industries service institutes and other organisations. infrastructural support. Availability of indigenous scarce raw materials through special quotas and imported materials through import licenses. ready built shades and developed industrial plots made available through State Government agencies. l) Preference for products produced in small-scale industries and 15% price preference to them in State Government purchases. Subsidised power tariffs and exemption of electricity duties. marketing. Credit facilities at concessional rates of interest and credit guarantees through commercial banks and State Finance Corporations. b) Factory space in industrial estates through cooperative and other industrial estates. they gave encouragement to small-scale industries by providing a number of support measures for growth. h) Supply of local and imported machinery on hire purchase basis. Policy measures undertaken by the Central and State Governments addressed the basic requirements of the SSI like credit.

02 17. Apart from this. roads.16 were While most of the institutional provided by the Central projects made were in undertaken road and support services and some incentives Government.998. 3. The Central Government.00 2.18 Changes in the production of Communications facilities are extremely essential for smooth and accelerated industrial growth. 3. Similarly.52 1990-91 211.1 Production of Commercial Energy Form of energy Coal Lignite Crude oil Natural gas Thermal power Hydro power Nuclear power Unit Million tonnes Million tonnes Million tonnes Million cubic mets Billion Kwh Billion Kwh Billion Kwh 1950-51 33. the State Governments offered others in varying degrees to attract investments and to promote small industries. and many new power primary commercial energy since 195051 are summarised in the following table: Table 3. creation of port facilities etc.26 3.07 33.45 71.00 0.54 6.REPORT OF THE NATIONAL COMMISSION ON LABOUR 3. This helped considerably in the growth of industries. The Government made huge investments in providing such infrastructure facilities to industries.24 143 . communications.17 INVESTMENT IN INFRA- completed. as well as the State Governments invested huge funds in power generation and distribution. available and to communications STRUCTURE: Energy-Transport- entrepreneurs who wanted to set up industries.73 14. various State Governments made developed plots of land or industrial estates with power.00 186. water. investments were building.

7 2.0 2. .0 3. all over the country to train skilled workers. Natural Gas Commission was set up for Additional refining capacity was created through the expansion of some of the existing 144 TRAINING AND SKILLS To of DEVELOPMENT: Trained manpower is necessary for industrial growth. Management Institutes and Engineering Colleges to train persons with higher management and technical skills.4 100.2 9.2 Shares Percentage in Final Energy Consumption Sector Industry Transport Domestic Agriculture Others Total 1953-54 39.5 13. It also set up Indian Institutes of Technology. 3.4 24.23 3. New sources of oil were The Oil and discovered.20 The pattern of sectoral significant sources of energy since the eighties. The indigenous oil exploration programme gained credibility in the seventies.22 OIL AND NATURAL GAS: The Oil and Petroleum industry must be considered a gift of the planning era. and considerable refining capacity was created. cater to the growing needs industries during the last fifty years.0 1990-91 50. oil exploration. substantial shortfalls in achieving power targets have been a recurring theme from plan to plan.19 Oil and natural gas emerged as 3.21 Power shortages caused by plants. consumption has also undergone noticeable changes over the years as can be seen from the following table: Table 3.8 9. and the commissioning of new refineries.3 100. the Government set up a large number of industrial training institutes.REPORT OF THE NATIONAL COMMISSION ON LABOUR 3.9 1.8 46.

After Independence. Government of India set up 48 national laboratories to undertake applied research in chemistry. sales tax. physics. defence industries and some areas were reserved for the public sector.. Pune.24 Our youth have been quick at and the State Governments followed a deliberate policy of encouraging industries in backward areas. 3. Hyderabad.’ 3. subsidies on power rates. whenever there was a . new centres of industries were developed as a result of the infrastructural facilities that were made available by the State Governments. Rajkot. and these research institutes developed a number of new processes which are commercially exploited by industries. Faridabad. banks were nationalised and were included in public sector. communications. electronics. Indian scientists and technologists also ushered in the Green Revolution. Power. cheap developed land. the Research in science and applied technology is very much needed in order to sustain in technological The development industries. 3.28 Right from the beginning. industries were mostly located in and around port cities like Mumbai. and the White Revolution. atomic energy. EMPHASIS ON PUBLIC SECTOR 3. The Central Government selected a few backward districts and offered 25% capital subsidy for industries set learning skills. This considerably helped the growth of under developed or backward areas in the different states.REPORT OF THE NATIONAL COMMISSION ON LABOUR 3. Certain industries like life insurance. loans and other facilities for the growth of industries in these areas. exemption from sales tax levy. Coimbatore.27 Both the Central Government 145 Resolutions of 1948 and 1950. Baroda.29 In the Industrial Policy Before Independence. telephones. botany.25 SCIENTIFIC RESEARCH : up in these areas. Bangalore. It was expected that the sector would control the ‘Commanding heights of the Indian economy. Kolkata or Chennai. etc. 3. grew up as new industrial cities. a very important role was assigned to the public sector. civil aviation.26 BACKWARD AREA DEVELOPMENT: planners attached great importance to the public sector. and developed space technologies on their own. We have therefore had no shortage of skilled manpower to cater to the growing requirements of industry. and many others. Various State Governments also offered similar capital incentives. Thereafter.

e.30 Upto the year 1999. there were Immediately after Independence. and equipment undertakings facilities for manufacture. 273700 crores in such undertakings. as it did with the cement and paper industries. Birla India. 3. any industry vital for national defence. That is how a large number of textile industries came into the public sector.31 Before Independence. There the were many of desired and undesired hurdles placed in the way of growth Indian industry. Key or basic industries. who laid the foundations of modern industry in . It also declared its policy on foreign capital in 1949. 1948: The first Industrial Policy Resolution.32 AFTER INDEPENDENCE : 146 emergencies.REPORT OF THE NATIONAL COMMISSION ON LABOUR shortage. The Government was keen to dispel the apprehension that foreign enterprises may be taken over.g. No incentives were offered to Indian industries for their growth. 3.D. 3. The except radio receivers. the Government of India announced its industrial policy in 1948 and laid down the plan for future industrial growth in the country. the Government stepped in to bail out. namely: a) Those exclusively owned by the Government.. Credit must be given to pioneers like Jamshedji Tata. Lala Sriram. iron and steel. the policy of the British Government was against encouraging industrial development in India. e. G.g. announced in 1948. ship aircraft building. EVOLUTION OF INDUSTRIAL POLICY IN INDIA 3. railways. they made RESOLUTION. In 1998-99. etc.33 INDUSTRIAL POLICY 235 public sector undertakings and the Government had invested an amount of Rs. a gross profit of Rs. coal. 397. and invited foreign capital for investment in the country. broadly laid down the objectives of the Government’s policy in the industrial field and clarified industries and enterprises into four categories. arms and and in atomic energy. ammunition. were etc. Walchand Hirachand. b) Whatever industrial development took place in India was in spite of the negative and hostile attitude of the British Government. The Government took over sick industries to provide employment.7 crores. telephone. telegraphs communications oils. mineral already existing in this group promised efficient working and ‘reasonable’ expansion for a period of ten and others.

provisions of the Act were: a) All existing undertakings at the commencement of the Act.” Such a licence or permission prescribed a variety of conditions. 1951: The Industrial Policy Resolution of 1948 was followed by a Government of India (GOI) Resolution on 2 nd September 1948. 1951 (IDR): The IDR Act gave very wide powers to the Government. This resulted in more or less complete control by the . constituting a Central Advisory Council of Industries under the chairmanship of the Minister for Industry. b) No one except the central Government would be permitted to set up any new industrial 147 industries specified in one part to INDUSTRIAL DEVELOPMENT REGULATION ACT. left open to the private sector. the Central Government could issue necessary directions in respect of quality of its products. location. more or less. except those owned by the Central Government were compulsorily required to register with the designated authority. which the Central Government may approve.34 INDUSTRIAL (DEVELOPMENT & e) d) c) undertaking “except under and in accordance with a licence issued in that behalf by the Central Government. 3. Such licenses and clearances were also required in cases of ‘substantial expansion’ of an existing industrial undertaking. 3.37 IMPLEMENTATION OF THE AND could transfer (Development and Regulation) Act was passed by the Parliament. minimum standards in respect of size and techniques to be used. the Industrial The main in Part I of the Schedule. falling production. the State could exercise the option to nationalise them. 3. at the end of which.35 In 1951.REPORT OF THE NATIONAL COMMISSION ON LABOUR years. c) The third category of 18 specified industries were to be subject to the Government’s control and regulation in consultation with the then d) provincial (now State) Governments. The industries to be brought under regulation were divided into two parts. rise in prices etc.36 In regard to the industries listed REGULATION) ACT. Part I and II in the Schedule to the Act. 3. The rest of the industrial field was. such as. a) Government another.

REPORT OF THE NATIONAL COMMISSION ON LABOUR bureaucracy on the industrial 3. 3. emphasised the role development of the national economy. The Parliament accepted the socialistic pattern of society as the objective of social and economic policy. the Government of India appointed Commission “to inquire into the existence and effect of concentration of economic power in private hands. therefore. c) approval for the terms of foreign collaboration. All remaining industries falling in category C. 1956 : After 1948. importance of the SSI Sector in providing employment. They had full control over: a) approval of any proposal on capacity. It also laid emphasis on the equitable distribution of national income and the effective mobilisation of resources. On this basis. guaranteed fundamental rights and also enunciated certain directives of state policy. The Commission looked at concentration of economic power in the area of industry. . 3. This sector was called the joint sector. In category B industries were private enterprises who could participate along with public enterprises. b) approval of foreign exchange expenditure on the import of plant and machinery. the factors responsible for these and the legal solutions for them. 3. recommended the development of ancillary industries in areas where large industries were to be set up. This Commission drafted a law to control monopolies and recommended the setting up of a permanent Monopolies and Restrictive Trade Practices Commission. manufacture of new products etc. an Act was 148 therefore announced in 1956.40 This Industrial Policy divided industries into three categories. expansion.41 of The The Industrial Policy of 1956. small-scale statement industries pointed in out the the development of the country.” The Commission was requested to look at the prevalence of monopolistic and restrictive practices in important sectors of economic activity. India adopted a democratic constitution.39 A new Industrial policy was for the first time. were left to be developed by the private sector.42 MONOPOLIES COMMISSION: In a Monopolies Inquiry April 1964. The industrial policy. 3.38 INDUSTRIAL POLICY RESOLUTION. and examined industrywise and productwise concentration. The Commission also examined the concentration ratio. location. and were called category A type of industries. All basic and strategic industries were to be set up in the public sector.

1973 : Statement of 1973 drew up a list of Appendix 1 industries to be started by large business houses so that the competitive effort of small industries was not affected. the Monopolies and Restrictive Trade Practices Act (MRTP) Act was passed by the Government and following the report of Industrial Licensing Policy Inquiry Committee (ILPIC). The Committee felt that the licensing policy had not succeeded in preventing the practice of pre-empting capacity by large houses. import licenses. Inquiry Industrial Licensing equity.REPORT OF THE NATIONAL COMMISSION ON LABOUR passed and a Monopolies Commission was appointed by the Government in 1969. This brought a great change in the foreign investment policy of the Government of India. A Secretariat for Industrial Approvals (SIA) was set up in November 1973. Foreign firms were not allowed more than 40% of 149 December 1977 was on effective promotion of Cottage and Small Industries widely dispersed in rural .45 INDUSTRIAL POLICY The Policy INQUIRY COMMITTEE: Committee was appointed to examine the shortcomings in licensing policy.44 FERA AMENDMENT. 3. 1973: The STATEMENT. Only certain industries in the area of sophisticated technology were allowed 51% foreign capital. Large industries were permitted to start operations in rural and backward areas with a view to developing those areas and enabling the growth of small industries around. a number of new restrictions were put on the large industrial houses in the industrial licensing policy announced in February 1970.43 an INDUSTRIAL LICENSING POLICY In July 1969. capital goods. and were not allowed to participate in certain industries. 3. 3. terms of foreign collaboration were brought under the SIA. In 1969. FERA companies were subject to many restrictions.46 INDUSTRIAL Policy POLICY The thrust of the Statement of STATEMENT. it did not prevent investment in non-priority industries etc. The entry of Competent industries Small including and medium 1 entrepreneurs was encouraged in all Appendix industries. and all industrial licenses. 1977: Industrial Foreign Exchange and Regulation Act (FERA) was amended in 1973. it had not ensured development of industries according to announced licensing policies. or in those that were engaged in exports. Foreign equity was to be permitted only in companies in Appendix 1 industries. 3. They were also not allowed to expand and take up production of new products.

Broad banding and selective delicensing (1985-86) extended to 25 industries. and situated in towns with a population of less than 50. This policy included: l concept of tiny sector was introduced. considerably expanded the list of reserved l manufacture in the small-scale sector. call for quality control.5 crores in fixed assets. a new 1980.2. It was defined as an industrial unit with investment in machinery and equipment upto Rupees one lakh. b) c) Automatic re-endorsement of licensed capacities (1988).000 according to the 1971 census. provided it was 25% more than the licensed capacity (1984). and an entitlement to import upto 30% of the total value of plant and machinery.47 Within the SSI sector. Each district would have such a district centre which would provide all the support and services required by small entrepreneurs. 150 . 3. The steps that were taken in accordance with the policy included: a) Re-endorsement of licenses: The capacity indicated in the licenses could be re-endorsed. research and extension etc. and the trend was gradually to dilute the strict licensing system and allow more freedom to the entrepreneurs.” The focal point of development of small-scale industries was taken away from the big cities to districts. The concept of District This concept was recommended by the Karve Committee and was introduced in 1967 with 47 products. It emphasised that “whatever can be produced by small and cottage industries must only be so produced. arrangement for credit facilities. This tiny sector was to be given special attention and extended help.49 ERA OF LIBERALISATION: After Industries Centres was introduced for the first time.REPORT OF THE NATIONAL COMMISSION ON LABOUR areas and small towns. 3. These included economic investigation of the districts. The list of such reserved items was 504 till 1977. by way of provision for margin money assistance.48 The policy items for statement exclusive Exemption from licensing for all new units and those having an investment of Rs. The new policy expanded this list to 807. raw material and other resources. 3. an era of liberalisation started. d) Liberalisation of 31 May 1990. Investment of foreign equity up to 40% was freely allowed. supply of machinery and equipment.

procedures laid down for obtaining industrial licensing and various rules made under the Act acted as a great deterrent to the growth of industries in the country. an entrepreneur had to obtain clearance from many Agencies. restrictions were (vii) Registrar of Companies (viii) Exchange Control Department of RBI (ix) (x) (xi) Chief Controller of Explosives Chief Inspector of Boilers Commissioner. there were a number of other Acts which were enacted and which acted as obstacles and retarded the industrial development of the country.REPORT OF THE NATIONAL COMMISSION ON LABOUR l Location removed. It is no wonder that many of these industries allowed their foreign collaborators to take over. either produced in the country or imported from abroad. it is becoming increasingly difficult not only to face competition in the world. when the Government of l Investment ceiling for small industries were removed.52 Our industries were suddenly to face international required competition. We propose to deal with the consequences in the next Chapter. but also competition at home with the products of multinationals. Food & Drug Administration (xii) Director of Mines (xiii) Controller of Capital Issues (xiv) Chief Controller of Imports and Exports etc. Those who remained in the field are trying to downsize and reduce their operations. The bureaucracy acquired unprecedented powers and authority over all kinds of industrial activities and industrial entrepreneurs felt that they were placed at the mercy of these bureaucrats. the enactment of the IDR Act. Apart from the IDR Act. 3. For the existing ones. sold their interests or preferred to close down. . Despite industrial licensing. like: (i) (ii) (iii) (iv) (v) (vi) Secretariat for Industrial Approvals (SIA) Department of Industrial Development Chief Inspector of Factories Pollution Control Board Director of Town Planning Department of Company Affairs 151 India announced the new economic policy in July 1991. 3.51 Thus. Indian industries were not competitive in the world market.50 Though the Government policies and procedures were aimed at industrial development of the country. 3.


Master your semester with Scribd & The New York Times

Special offer for students: Only $4.99/month.

Master your semester with Scribd & The New York Times

Cancel anytime.