INDUSTRIAL POLICIES IN INDIA

SUBMITTED TO:

Mrs. Eritriya Roy

Faculty, Economics, H.N.L.U., Raipur

SUBMITTED BY:

Anshu Sharma

Roll no. 22, Section A

Semester I, B.A. L.L.B. (Hons)

Hidayatullah National Law University, Atal Nagar, Chhattisgarh (492002)

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Acknowledgement
I feel very delighted to write a project on “Industrial Policies in India”.

I would like to sincerely thank Mrs. Eritriya Roy for having faith in me and guiding me
throughout the project. Through this research, I have learned a lot about the abovementioned
subject, which has further helped me widen my horizons.

My heartfelt gratitude also goes out to the staff and administration of HNLU for the
infrastructure and the help provided to the students in form of their accessible library and IT labs
for the accessibility of internet services. The plethora of information has been bedrock for my
research.

Anshu Sharma

Semester I, (B.A. L.L.B. Hons.)

Roll no. 22
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Table of Contents

 INTRODUCTION…………………………………………………………….1
 OBJECTIVES OF THE PROJECT……………………………………………2
 RESEARCH METHOD……………………………………………………….2
 PHASES OF INDUSTRIAL POLICIES ……………..……………………….5
 TYPES OF INDUSTRIAL POLICIES……...…………………………………7
 EFFECTS OF INDUSTRIAL POLICIES……...……………………………....8
 CRITICISM OF INDUSTRIAL POLICIES……………..…………………….9
 CONCLUSION………………………………………………………………..11
 REFERENCES………………………………………………………………...12
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Introduction
The Industrial Policies of India have been framed to meet the challenges as an end and give
directions to obtain economic development and growth through industrialization after
independence at the latter stage or can also be considered as the strategies adopted by the
government for the development in the country or industrial policy refers to such formal
declaration by the government through which general policies for industries adopted by the govt.
are made public. The evolution of India’s industrial policies can be seen by dividing the entire
study into three phases namely: - first, Industrial Policies of India prior to Independence; second,
Industrial Policies of India after Independence up to 1990 and; third, Industrial Policy of 1991
and thereafter policies. In the first phase an attempt is made to understand the industrial policy
pursued by the British rulers. In second phase it is discussed that how India pursued and
modified industrial policies which could put India on the road to progress. In the third phase how
developing India gave new direction to industrial activities through New Industrial Policy and its
following Industrial Policies1.
The main objective of any industrial policy is to augment the industrial production and thereby
enhance the industrial growth which leads to economic growth by optimum utilization of
sources.
The need, objectives and importance of an industrial policy can be explained through following
points:
Deployment of Natural Resources : Deployment of the natural resources is possible through
industrial policies as it helps in identifying, collecting and using resources properly.
To Augment Industrial Production : It provides an impetus to rapid development of industries
and industrial growth.
Area Determination : The industrial policy determines the area of operation under public and
private sector.2

1
Dr. Babita Thakur, Rozika Gupta, Rajesh Singh Changing Face of India’s Industrial Policies: A Look
http://www.ijsrp.org/research-paper-1212/ijsrp-p12104 (2012)

2
I.G. Burange Shruti Yamini A REVIEW OF INDIA’S INDUSTRIAL POLICY AND PERFORMANCE January
(2011) Pg:05
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Objectives of the project

1. To understand the different phases of emergence of Industrial policy.
2. To understand what were the various Industrial Policies in India.
3. To understand the causes of Industrial policies.
4. To understand the effects of industrial policies in Indian Economy.
5. To understand how it affected the different sectors of the Country as a whole.

Research Method
The project employs descriptive method for explanation and interpretation. The project uses
secondary data for its literature.
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Phases of Industrial Policy Development Prior

Independence

Industrial development of India can be divided in three periods prior to Independence.

Period I (1850-1914):

Industrial development was to a great extent a by-product of certain interrelated developments

like improved transport and communications, growth of foreign trade and consequent
accumulation of commercial fortunes.
The decline traditional handicrafts paved the way for the transformation of the Indian economy.
Educated Indian was becoming more and more eager to take to technical education.
team was fast replacing manual power and serious attempts were made to start new industries.
The American Civil War, the Crimean War, the Swadeshi Movement, etc., all facili-tated the
industrial development of the country. Not only was there no planned effort at industrialisation,
but the British Government also adopted, by and large, a hostile attitude to industrial growth. The
industrial development of the country was greatly stimulated by the opening up of the Suez
Canal in 1869 and by the network of railways which opened up the interior to trade.
The development of towns contributed immensely to the growth of the leading industries of
India. Railway construction was a powerful factor determining the growth of towns in India 3

Period II (1915-139):

A number of events took place during this period which led to the process of industrialisation out
of which few important ones were:
First World War (1914-18), the post-war boom (1919-20), the worldwide depression (1929- 33),
the adoption of Congress ministries in many provinces.
First, when the war broke out impels from foreign countries had completely ceased and this

3
Mamta Agarwal, Industrial Policy of British in India, http://www.historydiscussion.net/british-india/useful-notes-
on-the-industrial-policy-of-british-in-india/646 (accessed at 4:08 AM, 21st October, 2018)
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brought home the need for developing India industrially.

Secondly, Britisher’s had to make some concessions or promise to make certain concessions to
get the cooperation of the Indian during the time of war, all of these concessions led to the
strolling of policies for the Industrial development. However, there can be no doubt that in spite
of the difficulties and obstacles which India had to face, there was a considerable progress in
industrial development during this period. India was placed as one of the eight leading
industrialised countries of the world. The production of cotton piece-goods in the country
increased two and a half times, that of steel ingots rose eight times, and of paper went up two and
a half times. In the case of sugar, India became self sufficient within a period of four years,
1932-36. The cement industry produced about 95 per cent of the total requirements by 1935-36.
Other industries also flourished and increased their productions.4

Period III (1940- till Independence achieved):

Major causes of policy development during this period was the Second World War, imports due
to war operations led to the pleasure of having quasi- monopoly situation in the Indian home
market. As a result, not only industrial output of large scale industries expanded significantly,
but also a more widening of the industrial diversification became possible during the war-time
years.

4
Mamta Agarwal, Industrial Policy of British in India, http://www.historydiscussion.net/british-india/useful-notes-
on-the-industrial-policy-of-british-in-india/646 (accessed at 4:44 PM 21st October, 2018)
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Various Industrial Policies

Industrial policy is a document that sets the tone in implementing, promoting the regulatory roles
of the government. It was an effort to expand the industrialization and uplift the economy to its
deserved heights. It signified the involvement of Indian government in the development of
industrial sector.
Industrial growth of a country is guided and regulated through its industrial policies. Let’s
understand the journey of various industrial policies
I. Industrial Policy of 1948: The first industrial policy after independence was announced on 6th
April 1948 by Shayama Prasad Mukherjee then minister. The main goal of this policy was to
accelerate the industrial development by introducing a mixed economy where the private and public
sector was accepted as important in the development of the economy. It saw Indian economy in
socialistic patterns.
II. Industrial Policy Resolution, 1956: This second industrial policy was announced on April 20,
1956, which replaced the policy of 1948. The features of this policy were:
1. A new classification of Industries.
2. Non-discriminatory and fair treatment for the private sector.
3. Promotion of village and small-scale industries.
4. To achieve development by removing regional disparity.
5. Labour welfare.
III. Indian Policy Statement, 1973: Indian Policy Statement of 1973 identified high priority
industries with investment from large industrial houses and foreign companies were permitted.
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.
IV. Indian Policy Statement 1977
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V. Industrial Policy, 1980: The Congress government announced this policy on July 23rd, 1980.
The features of this policy are: 1.Promotion of balanced growth.
2. Extension and simplification of automatic expansion.
3. Taking over industrial sick units.
4. Regulation and control of unauthorized excess production capabilities installed for industrial
houses.
5. Redefining the role of small-scale units.
6. Improving the performance of the public sector.
The Industrial Policies pursued till 1990 enabled India to develop a vast and diversified industrial
structure. India attained self-sufficiency in a wide range of consumer goods. But the industrial
growth was not rapid enough to generate sufficient employment, to reduce regional disparities and
to alleviate poverty. It was felt that government controls and regulations had put shackles on the
growth of different segments of Indian industry. Lack of adequate competition resulted in
inadequate emphasis on reduction of costs, upgradation of technology and improvement of quality
standards. It is to reorient and accelerate industrial development with emphasis on productivity,
growth and quality improvement to achieve international competitiveness that the Industrial
Policy of 1991 was announced5
VI. Industrial Policy, 1991: Lead to the liberalization of economy and globalization and it
encompasses encouragement of entrepreneurship, development of indigenous technology through
investment in research and development and the new policy seeks to strengthen the forces of
technological upgradation and modernization in Indian industries with a view to make it more
efficient and globally competitive.6

5
Government of India, www.siadipp.nic.in/publicat/nipQ791.htm, last visited on 12/10/2018

6
http://shodhganga.inflibnet.ac.in/bitstream/10603/59577/10/10_chapter%204.pdf (accessed at 3:40 AM, 19th
October) Pg: 91
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Types of Industrial Policies

The term 'Industrial Policy' refers to the Government's policy towards the establishment of
industries, their working and management. It includes all those principals, regulations, rules etc;
which would influence the industrialization of the country and also nationalization of industries.
It also incorporates the tariff policy, labour policy and government's attitude not only to external

Industrial policies consists of various policies like trade policy, fiscal policy.
An example of a typical industrial policy is import-substitution-industrialization (ISI), where
trade barriers are temporarily imposed on some key sectors, such as manufacturing.

Trade Policy is Laws related to the exchange of goods or services involved in international trade
including taxes, subsidies, and import/ export regulations. 7

Fiscal Policy refers to Governments revenue and spending policy designed to

1. Counter economic cycles in order to achieve lower unemployment
2. Achieve low or no inflation
3. Achieve sustained but controllable economic growth.
Fiscal Policies are based on the concepts of the UK economist John Maybard Keynes (1883-
1946), and work independent of monetary policy which tries to achieve the same objectives by
controlling the money supply. 8

7
http://www.businessdictionary.com/definition/trade-policy.html (accessed at 12:16 PM, 13th October, 2018)
8
http://www.businessdictionary.com/definition/trade-policy.html (accessed at 12:30 PM, 13th October, 2018
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Effect of Industrial Policies on India

When India attained independence, on that time the congress government came into power.
Production in India had declined but population was increasing. In view of the need to step up
production and to measure inflationary, tendencies, it was necessary to announce an industrial
policy which could protect to some extent economic security. On the other hands inflation was
worsened by the economic upheaval of participation of the country and the refugee rehabilitation
problem. So, for the growth of industrial structure and thus produce a climate for stimulating
investment in Industry the implementation of the industrial policy was necessary
Thus promotion of foreign direct investment forms an integral part of India's overall
development.9
Government has come up with new Industrial Policies and Critical Evaluation of New Industrial
Policy of 1991:

1. Advantages
 :

Increase in production


Increase in competition

Increase in efficiency of public Sector

2. Shortcomings of new industrial policy of 1991:

It will increase unemployment

It will threat from foreign companies

It will lead to little research and development. 10

9
Evolution and Development Policy, www. dipp. nic. in/evoll.htm (accessed at 22nd October,2018 at 3:00 AM)
10
Sukanta Kundu, Impact of new industrial policy on Indian economy with special reference to industrial sector,
Volume 3; Issue 11; November 2017; Page No. 28-32
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Criticism of Industrial Policy

The keynote of the new industrial policy includes liberalization and globalization of the
economy. Liberalization means deregularization of the industrial sector by cutting down to the
minimum administrative interference in its operation so as to allow free competition between
market forces. Simi-larly globalization means making the Indian economy an integral part of the
world economy by breaking down to the maximum feasible the barriers to move-ment of goods,
services, capital and technology between India and the rest of the world.

The new Industrial Policy fulfils a long-felt demand of the industry to remove licensing for all
industries except 18 industries (coal, petroleum, sugar, motor cars, cigarettes, hazardous
chemicals, pharmaceuticals and luxury items).

It proposes to remove the limit of assets fixed for MRTP Companies and dominant undertakings.
Hence business houses intending to float new com-panies or undertake expansion will not be
required to seek clearance from the MRTP Commission. This step will enable MRTP Companies
to establish new undertakings, and effect plans of expansions, merg-ers, amalgamations and
takeovers without prior gov-ernment approval. They shall have the right to ap-pointment of
directors.

The new Industrial Policy goes all out to woo foreign capital. It provides 51% foreign equity in
high priority industries and may raise the limit to 100% in case the entire output is exported.
By opening the gates of the Indian economy wide to the multinationals, the self reliance aspect
has been completely ignored. These multinationals with slightest of inconvenience may shift
their op-erations elsewhere leaving the economy in the lurch.

Since multinational and private entrepreneurs would prefer most favorable locations for their
industries it would further intensify spatial disparity in economic development. This fact has
been well collaborated by the letters of intent so far approved.
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While selling out public sector shares and companies to private investors the Government is not
only ignoring the interests of the employees but is transferring the assets at throw away prices.
These public sector companies could have been handed over to the working class or autonomous
organizations to manage their affairs independently.

In the absence of MRTP safeguard private companies may develop monopolistic outlook and
may indulge in unfair trade practices.

There is also a risk of growing consumerism rather than strengthening the sinews of the
economy. Foreign investors may prefer to invest in low priority consumer sector instead of going
for high priority sector.

With the state yielding to the private enter-prise the social objectives of equity with growth and
protecting the interests of the down trodden and semi-skilled laborers would be thrown to the
winds. This will be against the cherished goals of our Constitution and may create socio-
economic disparity and tension.
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Conclusion

This project has taken a wide view of industrial policy, emphasizing the co-ordinating role of the
government in various spheres. It has examined the country’s past and present industrial policy
and speculated about the role and content of future industrial policy.
It may be concluded that although the industrial sector of India has grown after independence,
the rate is below expectation, especially after globalization. Thus, the need for accelerated
growth can hardly be overemphasized. 1948 Industrial Policy was in force for eight years and
during this period private investment in industries increased considerably

The 1956 Industrial Policy has been hailed as the· "economic constitution" of India. This policy
was the moving spirit forward industrialization in the policy framework of the Second, Third and
Fourth Plans consequently, it was instrumental in expanding both the public and private sectors
side by side.
The 1977 Industrial Policy primarily directed towards removing the distortions of the past so that
the genuine aspirations of the people can be met within a time-bound programme of economic
development.

The new Industrial Policy Statement of 1980 is a very comprehensive document which tries to
cover almost every aspect of the Indian economy relating to industry. It spells out a number of
positive steps to encourage and improve the performance of the private sector such as automatic
growth of capacity, regularisation of excess capacity, liberalisation of licensing and simplifying
licensing procedures, import of advanced technology. The Industrial Policy of 1980 is
contradictory. On the one hand, it raises the limit on the utilisation of industrial capacity for the
private sector and on the other hand, it insists that monopoly houses would not be allowed to
grow.

The Government of India announced the New Industrial Policy on May 31, 1990 and made a
case for the growth of the small-scale industries just on the lines of the steps taken by the Janata
Government of 1977.
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In conclusion I can say that the Government of India will be capable of developing in industry if
it adopts a more liberalised industrial policy. It should develop our industry with the help of
foreign technologies. Similarly, the government should also make a serious effort to develop our
internal technologies through researches. Besides, regarding establishing different industries _in
our country, the government should try its best to attract foreign industrialists by giving then
various industrial facilities.

.
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References

* https://www.gktoday.in/gk/industrial-policy-meaning-need-and-importance/

* http://www.ijsrp.org/research-paper-1212/ijsrp-p12104.pdf

* https://www.cbr.cam.ac.uk/fileadmin/user_upload/centre-for-business-
research/downloads/working-papers/wp376.pdf

* https://www.iisd.org/topic/industrial-policy

* http://shodhganga.inflibnet.ac.in/bitstream/10603/137016/9/09_