Industrial

Development
Industrialisation has a major role to play in the
economic development of less developed
countries like India. Find a solution may be defined
as a process in which more and more industries
are being established in a country. Indian planners
strongly felt the need for rapid industrial
development of the country on the following
grounds:
(I) Increase in national income
(ii) Increase in per capita income
(iii) Development of agriculture
(iv) Increase in rate of capital formation
(v) Utilisation of natural resources
(vi) Increase in foreign trade
(vii) Promoting import substitution
Why there is direct participation of the state in
industrial development

(i) Lack of capital

(ii) Low inducement to invest
(iii) Growth with social justice
 Industrial policy
The industrial policy refers to such formal
declaration by the government through which
general policies for industries adopted by the
government are made public. It is a
comprehensive concept which provides
guidance and outlines of the policy for
establishment and working of industries.
First Industrial Policy in 1948 :
(I) It declared the Indian economy as mixed
economy
(ii) Small scale and cottage industries work
given the importance
(iii) The government restricted foreign
investments
(iv) Zamindari system was abolished.
(v) It divided the industries into three categories
The second industrial policy was announced
in 1956 which divided the industries into
three categories. This policy is also known
as the economic constitution of India.
(1) It is classified as:
Schedule A: which cover is public industries (17
industries)
Schedule B: covering mixed sector ( private
and public) (12 industries)
Schedule C : Only private industries

(2) Industrial Licensing : industrial licensing is

a written permission from the government, to an
industrial unit to produce goods.
(3) Legislative base of the industrial
licensing
1. Industrial (development and regulation) Act,
1951 was passed to regulate and control the
process of industrial development in the country.
2. MRTP Act, 1969 was passed to prevent
concentration of economic power in few hands
and to put a control on monopoly.
3. Foreign exchange regulation Act ,1973 was
passed to regulate the foreign exchange market
 Development of small scale industry
Small scale industry is presently defined as
one whose investment is does not exceed 5
crore rupees. At the beginning of planning
1951 it was defined as one whose investment
did not exceed rupees 5 lakh.

Characteristics of small scale industry

(i) It is labour intensive and therefore
employment friendly
(ii) It shows locational flexibility and is
therefore equality oriented
(iii) It needs small investment.
This has provisions for public sector, small
scale industry , foreign investment. To meet
new challenges, from time to time, it was
modified through the statements in 1973 ,1977
and 1980.
Salient features of the strategy of industrial
growth during the period 1950-90 .
(i) Public enterprises what to play a central
role in the process of industrialisation.

(ii) Private enterprises were to play only a

secondary role in the process of
industrialisation and that 2 under permit -
license raj. It was a system under which
private entrepreneur was what to obtain a
license for their industrial establishments, and
in most cases what to produce goods within
the legally prescribed limits of production
capacity.

(iii) Process of industrialisation focus on

import substitution.
(iv) Domestic industry was to be protected
from foreign competition.

(v) Large scale industry was to be developed

with a view to building an infrastructural ways
in the country.

(vi) Small scale industry was to be developed

with a view to achieving the objectives of
employment and equity.
Limitations of this strategy of industrial growth:
(i) The development of large number of public
sector enterprises, termed as loss-making
enterprises or sick enterprises, became a
huge economic burden due to corruption,
inefficiency, leakage and political interference.
(ii) The need to obtain a licence to start an
industry was misused by the industrial houses.
(iii) Industrial licensing policy also leads to the
misuse of power, corruption and allegations of
favourism.
(iv) The policy of import substitution proved to
be failure in saving foreign exchange.
(v) The policy of unwanted control over the
entry of foreign capital lead to slow transfer of
foreign improves the technology for the
domestic industries.
Considering the growing impact of these bad
effects, outweighing its good effects, the
government decided to revise its industrial
strategy by adopting a new industrial policy,
1991 under new economic policy.