Industrialization and Industrial

Policy in India
Unit III
 Incentives and steps taken up by the
Indian Government
• The various incentives and steps taken up by the
Indian Government to achieve the ambitious plan
for industrial development in the country post-
independence are as follows:
– Protection to Indian Industries
– High customs tariffs
– Control of Indian business
– Encouragement to small scale industries
– Training and skill development
– Emphasis on public sector
 Definition of Industrial Policy
• Industrial policy is a comprehensive concept
which provides guidance and outlines of the
policy for establishment and working of
industries. The industrial policy refers to such
formal declaration by the government through
which general policies for industries adapted
by the government are made public.
Michal J. Jucius
 Industrial policy
• It defines the role of the Government in
industrial development, the place of the
public and private sectors in industrialization
of the country, the relative role of large and
small industries, the role of foreign capital etc.
• It also states the objectives to be achieved in
the area of industrial development and the
measures to be adopted towards achieving
these objectives.
 Main objectives of the Indian
industrial policy
1. Rapid Industrial Development
2. Prevention of Concentration of Economic
Power
3. Balanced Industrial Structure
4. Balanced Regional Growth
5. Protection and Promotion of Small
Industries.
Role of Govt. in small scale industries
Some of the special provisions made by the Government to promote
SSI
1. They provided basic capital for the startup small scale industries
by providing credits and bank loans at low interest rates.
2. The policy measures undertaken by the Central and State
Government addressed the basic requirements like marketing,
technology and entrepreneurship development.
3. The policies also focused on the fiscal, financial and infrastructural
support.
4. The government provided them training and skill development
programs.
5. The institutional support services and incentives were provided by
the central government
6. The state government offered other supports to attract
investments and promote the small industries
 The Factory Act, 1948
• The act was passed in 1948
• It contains provisions relating to the health,
safety, welfare, working hours and leave of
workers and employment of women and
young persons in factories.
 The objectives of Factory Act, 1948
1. To consolidate and amend the law regulating
labour in factories
2. To protect the labour employed in factories from
unduly long hours of manual labour or bodily
strain
3. To provide for healthy and sanitary conditions
4. To take precautions for the safety of workers
5. To maintain effective supervision by the state
government by appointing the inspecting staff
for factories.
 Industrial Policy Resolution 1948
• The Industrial Policy 1948 was the first industrial
policy of the independent India.
• The policy outlined the approach to industrial
growth and development.
• It emphasized the importance of increase in
production while ensuring its equitable
distribution to the economy of the nation.
• It focused on the foundation of a mixed economy
(presence of both public and private sector)
 Features of Industrial Policy
Resolution 1948
1. The industrial policy 1948 classified the industries into four categories:
i. Those exclusively owned by the government and in emergencies, any industry vital for
national defense eg. arms and ammunition, atomic energy, railways etc.
ii. Key or basic industries or the undertakings under this category were promised facilities
for efficient working and reasonable expansion for a period of 10 years, at the end of
which, the state could exercise the option to nationalize them. eg. Coal, iron and steel,
aircraft manufacture, ship building, mineral oil etc.
iii. 18 specified industries were to subject to government’s control and regulation in
consultation with the provincial governments.
iv. The rest of the industries were left open to private enterprise though it was made clear
that the state would also participate in the field.
2. Cottage industry got the limelight in this policy.
3. Government’s emphasis on the growth of the small scale industries
4. The government recognized that it was essential to ensure the fullest co-operation
between labour and management and the maintenance of stable and friendly
relations between them.
5. Government of India took special steps to improve industrial housing as quickly as
possible.
6. The tariff policy of Government was designed to prevent unfair foreign
competition and to promote the utilization of India’s resources without imposing
unjustifiable burden on the customer.
 Industrial Policy Resolution 1956
• India launched its planned economic development
programme, the first Five Year Plan (1951-1956) in
1951 which mainly focused on the primary sector.
• The second Five Year Plan gave high priority to
industrial development aimed at setting up of heavy
industries, steel plants, capital goods industries etc. for
which direct government participation was needed.
• The policy emphasized on increasing the activity of the
State or Public sector in the industrial sector and thus
preventing the concentration of economic power in
private hands.
 Features of Industrial Policy
Resolution1956
1. To achieve the socialistic pattern of society (A society which is neither socialist,
communist nor capitalist)
2. The State was to assume a predominant and direct responsibility for industrial
development. The public sector was given a strategic role in national economy.
3. To accelerate the rate of economic growth and to speed up industrialization.
4. To undertake training facilities on an increasing scale.
5. Industries were divided into 3 categories according to the degree of state,
ownership and participation in development.
i. Schedule A comprised of 17 industries exclusively under the domain of the
Government. Eg. Railways, arms and ammunition, iron and steel, atomic energy.,
aircraft building and air transport, mineral oil etc.
ii. Schedule B comprised of 12 industries which were envisaged to be progressively
State owned but private sector was expected to supplement the efforts of the state.
Eg. Machine tools, aluminum, fertilizers, antibiotics and drugs, road and sea transport
etc.
iii.Schedule C contained all the remaining industries and it was expected that the private
sector would initiate development of these industries but they would remain open
for the State as well.
 Features of Industrial Policy 1956
Cont.
6. No water tight compartments in these allocation of industries
and Government was free to exercise relaxation as and when
required.
7. The policy stressed the role of cottage, village and small scale
industries in the development of national economy.
8. Workers participation in management was encouraged.
9. To improve the standard of efficiency of workers or personnel.
10. To remove regional disparities with the development of
infrastructure.
11. To maintain industrial peace in the workplace by recommending
good working conditions, joint consultation and association of
labour with management to achieve industrial harmony.
 Difference between Private and
Public sector
Basis for comparison Public sector
Meaning The section of a nation's economy,
which is under the control of
government, whether it is central,
state or local, is known as the Public
Sector.
Private sector
The section of a nation's economy,
which owned and controlled by
private individuals or companies is
known as Private Sector.

Basic objective To serve the citizens of the country. Earning Profit

Raises money from Public Revenue like tax, duty, penalty
etc.
Areas Police, Army, Mining, Health,
Manufacturing, Electricity, Education,
Transport, Telecommunication,
Agriculture, Banking, Insurance, etc.
Issuing shares and debentures or by
taking loan
Finance, Information Technology,
Mining, Transport, Education,
Telecommunication, Manufacturing,
Banking, Construction,
Pharmaceuticals etc.

Benefits of working Job security, Retirement benefits, Good salary package, Competitive
Allowances, Perquisites etc. environment, Incentives etc.
Basis of Promotion Seniority Merit
Job Stability Yes No
 Industrial Policy Resolution, 1973
• The 1956 policy was criticized by the
businessmen as the policy focused mainly on the
public sector and restricted the rate of economic
development in these vitally important fields.
• In 1978, Government modifies the industrial
policy of 1956 to simplify and rationalize it.
• The new policy (1978) sought to improve the
investment climate and to encourage growth of
priority industries other than the basic objective
of growth, justice and self-reliance.
 Features of Industrial Policy 1973
• Classification of industries: the classification remained the same as that of
1956 industrial policy.
• Redefinition of large business houses: Business houses having a fixed
investment of Rs. 20 crores or more were considered large (same criteria for
both licensing and MRTP (Monopolies and Restrictive Trade Practices) Act.
• Area of large business houses: large business houses were eligible to
participate in those industries which were not reserved for public sector and
small scale sector. They were excluded from this list unless the production was
mainly for export.
• Small scale sector: the existing reservations for small scale sector continued
and the list could now be expanded. Govt also decided to give encouragement
to the cooperative sector in the production of mass consumption goods.
• Joint sector: it emphasized on the public private partnership and jointly
owned industries as an instrument of promotion of economic development. It
was assumed that joint sector can reduce concentration of economic power.
 Industrial Policy Resolution, 1977
• The 1977 policy (Janata Government) was strongly biases
against large scale industries.
• It emphasized on the growth of small scale and cottage
industries as a solution to the widespread unemployment
and regional inequalities in industrial development.
• The main feature of the Industrial policy resolution 1977
were:
1. Emphasis on cottage and small scale industries
2. Development of appropriate technology so as to make
use of the abundant labour resources in India
3. Vigorous use of MRTP act to curb monopoly power of
big industrial houses and dispersal of industries away
from the metropolitan areas.
 Industrial Policy Resolution, 1980
• The industrial policy of 1956 was reiterated as the framework of
industrial development.
• It tried to bring a check on the decline in industrial development
that was caused by undue emphasis on small scale sector and
neglect of large industries under the previous policy (1977).
• The main objectives of the policy were:
1. Optimum utilization of installed capacity
2. Maximizing production, productivity and employment
generation
3. Correcting regional imbalances
4. Emphasis on cottage and small scale industries
5. Promotion of export oriented industries
6. Preferential treatment to development of agro-based industries
 Industrial Policy Resolution, 1991
• The Industrial Policy 1991 is also widely
known as the New Industrial Policy.
• The new industrial policy seeks to liberate
system (from the shackles of licensing
system), drastically reduce the role of public
sector and encourage foreign participation in
India’s industrial development.
 Objectives of the Industrial Policy
Resolution, 1991 (New Industrial
Policy)
1. To liberate the industry from the regulatory devices
such as licenses and controls
2. To increase competitiveness of industries for the
benefit of the common public
3. To ensure running of public enterprises on business
lines and thus cutting their losses
4. To enhance support to the small scale sector.
5. To provide more incentives for industrialization of the
backward areas
6. To ensure rapid industrial development in a competitive
environment
 Various provisions under the New
Industrial Policy
1. Abolition of Industrial Licensing
2. De-reservation of Industries for Public sector
3. Liberalized policy towards foreign capital and
technology
4. Changes in MTRP Act
5. Greater support to small scale industries
 1. Abolition of Industrial Licensing
• Under the 1991 policy it was announced that the industrial
licensing will be abolished for all industrial projects except for a
short list of industries wherein security and strategic concerns are
involved or where due to social reasons it was required to be
strictly regulated for their growth.
• Initially 18 industries were listed on this list for compulsory
licensing. However in 1999, the list got reduced and now only 6
industries are listed:
1. Distillation and brewing of alcoholic drinks
2. Cigars, cigarettes, tobacco and manufactured tobacco
substitutes
3. Electronic, aerospace and defense equipment
4. Industrial explosives including detonating fuse, safety fuse,
gun powder and matches
5. Hazardous chemicals
6. Drugs and pharmaceuticals
 2. De-reservation of Industries for
Public sector
• Reduced reservation of public sector: In 1956 policy 17 industries were
reserved for public sector out of which 9 industries were de-reserved under
the 1991 policy and thus only remaining 8 industries were limited to the public
sector.
• In the following years more industries were de-reserved and now only 4
industrial sectors remain exclusively under the public sector:
1. Defense production
2. Atomic energy
3. Railways
4. Minerals used in generation of atomic energy
• Efforts to revive loss making enterprises (those who were consistently making
losses)
• Disinvestment in selected public sector industrial units in order to raise larger
resources and introduce wider private participation in terms of selling its
shares to general public, mutual funds, financial intuitions etc.
• Greater autonomy to public enterprises in their day to day working through
greater autonomy and more accountability
 3. Liberalized policy towards foreign
capital and technology
• Relaxation in the upper limit of foreign investment. In
some industries the ratio of foreign equity was raised
upto 74%. Foreign direct investment were further
liberalized that in some cases 100 % foreign equity was
permitted in the case of mining, projects for electricity
generation, transition and distribution, ports and
harbours, oil refining, all manufacturing activities in
Special Economic Zones (SEZ)s, certain telecom sector
etc
• Automatic Permission for Foreign Technology
Agreements in high priority industries which enables
the industries to bring in new technology from outside
India without any delay.
 MRTP Act, 1969
• The Monopolistic and Restrictive Trade Practices Act, 1969, was enacted
 To ensure that the operation of the economic system does not result in the
concentration of economic power in hands of few
 To provide for the control of monopolies, and to prohibit monopolistic and
restrictive trade practices.
• The MRTP Act extends to the whole of India except Jammu and Kashmir
• Unless the Central Government otherwise directs, this act shall not apply to:
1. Government Company and undertaking owned by Government.
2. Company established by a Central or State Act.
3. Trade Unions
4. Companies which have been taken over by the central Government.
5. Companies owned by registered Cooperative Societies.
6. Any financial institution.
 4. Changes in MTRP Act
• Under the MTRP Act 1969, all the big companies and large
business houses (which had assets of Rs.100 crores or more
according to the 1985 amendment to the Act) were
required to obtain clearance from the MRTP Commission
for setting up of any new industrial unit, as such
companies were allowed to invest only in some selected
industries. This means all such large business houses had to
obtain both license and MRTP clearance.
• However, the 1991 Industrial Policy put an end to this
process and big business houses do not need to get
clearance from MRTP commission for their new projects.
• The MRTP Commission will concern itself only with the
control of Monopolies and Restrictive Trade practices that
are unfair and restrict competition that would bring harm
to consumers’ interest.
 5. Greater support to small scale
industries
• Greater support extended to SSIs so that they
may grow rapidly under environment of
economic efficiency and technological
upgradation.
– Setting up of a dedicated agency to ensure that credit
needs of these industries are fully met
– Allows equity participation by large industries in the
small scale sector not exceeding 24% of their total
shareholding so as to expose the SSIs to encourage
them for upgradation and modernization.
– Government would also encourage the SSIs for
production of parts or components required by the
public sector industries
 6. Other Provisions under the 1991
Policy
• Provided for establishing Foreign Investment
Promotion Board to negotiate with the
number of international companies for direct
investment in industries in India.
• Setting up of National renewal Fund to
provide social security to retrenched workers
and provide relief and rehabilitate those
workers who have been rendered unemployed
due to technological changes
 Science, Technology and Innovation
Policy, 2013
• Science, Technology and Innovation (STI) have
emerged as the major drivers of national
development globally.
• India is aspiring for faster, sustainable and inclusive
growth with the advantages of a large demographic
dividend and the huge talent pool.
• The Indian STI system will need to play a defining
role in achieving these goals.
• The national STI enterprise must become central to
national development
 The key elements of STI Policy, 2013
1. Promoting the spread of scientific temper amongst all
sections of society
2. Enhancing skill for application of science among the
young from all social strata.
3. Making careers in science, research and innovation
attractive enough for talented and bright minds
4. Establishing world class infrastructure for R&D for gaining
global leadership in some select frontier areas of science
5. Positioning India among the top five global scientific
powers by 2020
6. Linking contributions of science, research and innovation
system with the inclusive economic growth agenda and
combining priorities of excellence and relevance.
 The key elements of STI Policy, 2013
(Cont.)
7. Creating an environment for enhanced Private Sector
Participation in R&D.
8. Enabling conversion of R&D outputs into societal and
commercial applications by replicating hitherto successful
models as well as establishing of new PPP structures.
9. Seeding science & technology based high risk innovations
through new mechanisms
10. Fostering resource-optimized, cost-effective innovations
across size and technology domains
11. Triggering changes in the mindset and value systems to
recognize, respect and reward performances which create
wealth from science & technology derived knowledge
12. Creating a robust (strong and healthy) national innovation
system.
 Overall preview of Science,
Technology and Innovation Policy,
2013
• STI 2013 indicates that innovation is the key if India
has to establish itself as a leading player in the S&T
sector globally.
• India believes that thoughtful and need-specific
investments in R&D are essential for the growth of the
country.
• The new policy is proposing the development of high
cost infrastructure (inclusive of scientific manpower)
for this purpose.
• It is also expected that this policy would help and
assist the corporate sector and would encourage them
to undertake greater R&D efforts.
 Central Public Sector Enterprises
• The endeavour of the Government is to make Central
Public Sector Enterprises (CPSEs) autonomous board
managed companies.
• Under Articles of Association, the Board of Directors of
CPSEs enjoy autonomy in respect of recruitment,
promotion and other service conditions of below board
level employees.
• The Board of Directors of a CPSE exercises delegated
powers subject to board policy guidelines issued by the
Government.
• The Government has granted enhanced powers to the
Boards of the profit making enterprises under various
schemes like ‘Maharatna’, ‘Navratna’ and ‘Miniratna’.
 ‘Miniratna’ CPSEs
• The Government granted enhanced autonomy and delegation of financial powers to
some profit making companies to make them efficient and competitive. These
companies were called ‘Miniratnas’ and are categories into two.
The eligibility conditions and criteria are:
1. Category –I CPSEs should have
I. Made profit in the last three years continuously
II. Pre-tax profit of Rs. 30 crore or more in at least one of the three years
III. A positive net worth.
2. Category-II CPSEs should have
I. Made profit for the last three years continuously
II. A positive net worth.
• Both these categories of public sector enterprises are granted certain autonomy like
incurring capital expenditure without government approval
 upto Rs.500 crore or equal to their networth whichever is lower for category I
miniratna companies
 upto Rs.250 crore or upto 50% of their networth whichever is lower for category II
Miniratna companies.
• These enterprises can also enter into joint ventures subjected to certain conditions, set
up subsidiary companies and oversees offices etc.
 Navratna CPSEs
• Under this scheme, the Government has enhanced powers delegated to CPSEs
having comparative advantage and the potential to become global players.

Criteria for grant of Navratna status:

• The CPSEs fulfilling the following criteria are eligible to be considered for grant of
Navratna status.
1. The Miniratna Category – I and Schedule ‘A’ CPSEs, which have obtained
‘excellent’ or ‘very good’ rating under the Memorandum of Understanding
system in three of the last five years, and have composite score of 60 or above
in the six selected performance parameters, namely,
I. net profit to net worth
II. manpower cost to total cost of production/services,
III. profit before depreciation, interest and taxes to capital employed,
IV. profit before interest and taxes to turnover,
V. earning per share and
VI. inter-sectoral performance.
 Initial Navratna Companies
• Navratna meaning ‘nine jewels’, was the title given originally to 9 public
sector enterprises (PSEs) in India in 1997 since they had comparative
advantage and potential to emerge as global giants.
• Navratna industries are the most prestigious industries in India which
allows them autonomy to compete in the global market.
• The initial Navratnas were:
1. Bharat Heavy Electricals Limited (BHEL)
2. Bharat Petroleum Corporation Limited (BPCL)
3. GAIL (India) Limited
4. Hindustan Petroleum Corporation Limited (HPCL)
5. Indian Oil Corporation Limited (IOC)
6. Mahanagar Telephone Nigam Limited (MTNL)
7. National Thermal Power Corporation Limited (NTPC)
8. Oil & Natural Gas Corporation Limited (ONGC)
9. Steel Authority of India Limited (SAIL)
 Maharatna CPSEs
• The ‘Maharatna’ Scheme will empower mega sized CPSEs to expand their
operations and emerge as global giants.

Criteria for grant of Maharatna status:

• The CPSEs fulfilling the following criteria are eligible to be considered for
grant of Maharatna status.
1. Having Navratna status.
2. Listed on Indian stock exchange with minimum prescribed public
shareholding under SEBI regulations.
3. Average annual turnover of more than Rs. 25,000 crore, during the last
3 years.
4. Average annual net worth of more than Rs. 15,000 crore, during the
last 3 years.
5. Average annual net profit after tax of more than Rs. 5,000 crore, during
the last 3 years.
6. Should have significant global presence/international operations.
 Difference between Navratna and
Maharatna Companies
• Navratna was the title given originally to 9 public sector
enterprises (PSEs) in India in 1997 while some of the
Navratna industries were conferred the Maharatna status
in 2009.
• The Navratna status is offered to PSEs which give the
company enhances financial and operational autonomy and
empowers it to invest up to Rs 1000 crore or 15% of their
net worth on a single project without seeking Government
approval.
• Maharatna industries on the other hand are those
companies whose investment ceiling were fixed at Rs 5000
crores and are free to decide on investments up to 15% of
their net worth in a single project.
 Latest list of Maharatna CPSEs
• Bharat Heavy Electricals Limited
• Coal India Limited
• GAIL (India) Limited
• Indian Oil Corporation Limited
• NTPC Limited
• Oil & Natural Gas Corporation Limited
• Steel Authority of India Limited
• Bharat Petroleum Corporation Limited
 Latest list of Navratna CPSEs
• Bharat Electronics Limited
• Container Corporation of India Limited
• Engineers India Limited
• Hindustan Aeronautics Limited
• Hindustan Petroleum Corporation Limited
• Mahanagar Telephone Nigam Limited
• National Aluminium Company Limited
• National Buildings Construction Corporation Limited
• NMDC Limited
• Neyveli Lignite Corporation Limited
• Oil India Limited
• Power Finance Corporation Limited
• Power Grid Corporation of India Limited
• Rashtriya Ispat Nigam Limited
• Rural Electrification Corporation Limited
• Shipping Corporation of India Limited
 Latest list of Miniratna Category - I CPSEs
• Airports Authority of India
• Antrix Corporation Limited
• Balmer Lawrie & Co. Limited
• Bharat Coking Coal Limited
• Bharat Dynamics Limited
• BEML Limited
• Bharat Sanchar Nigam Limited
• Bridge & Roof Company (India)
Limited
• Central Warehousing Corporation
• Central Coalfields Limited
• Chennai Petroleum Corporation
Limited
• Cochin Shipyard Limited
• Dredging Corporation of India
Limited
• Kamarajar Port Limited
• Garden Reach Shipbuilders &
Engineers Limited
• Goa Shipyard Limited
• Hindustan Copper Limited
• HLL Lifecare Limited
• Hindustan Newsprint Limited
• Hindustan Paper Corporation
Limited
• Housing & Urban Development
Corporation Limited
• India Tourism Development
Corporation Limited
• Indian Rare Earths Limited
• Indian Railway Catering & Tourism
Corporation Limited
• Indian Renewable Energy
Development Agency Limited
• India Trade Promotion
Organisation
• IRCON International Limited
• KIOCL Limited
• Mazagaon Dock Limited
• Mahanadi Coalfields Limited
• Manganese Ore (India) Limited
• Mangalore Refinery &
Petrochemical Limited
• Mishra Dhatu Nigam Limited
• MMTC Limited
• MSTC Limited
• National Fertilizers Limited
• National Seeds Corporation
Limited
• NHPC Limited
• Northern Coalfields Limited
• North Eastern Electric Power
Corporation Limited
• Numaligarh Refinery Limited
• ONGC Videsh Limited
• Pawan Hans Helicopters Limited
• Projects & Development India
Limited
• Railtel Corporation of India
Limited
• Rail Vikas Nigam Limited
• Rashtriya Chemicals & Fertilizers
Limited
• RITES Limited
• SJVN Limited
• Security Printing and Minting
Corporation of India Limited
• South Eastern Coalfields Limited
• State Trading Corporation of India
Limited
• Telecommunications Consultants
India Limited
• THDC India Limited
• Western Coalfields Limited
• WAPCOS Limited
• Ed.CIL (India) Limited
• HSCC (India) Limited
• National Small Industries
Corporation Limited
• Indian Railway Finance
Corporation Limited
 Latest list of Miniratna Category - II CPSEs
• Bharat Pumps & Compressors Limited
• Broadcast Engineering Consultants (I)
Limited
• Central Mine Planning & Design Institute
Limited
• Central Railside Warehouse Company
Limited
• Engineering Projects (India) Limited
• FCI Aravali Gypsum & Minerals India
Limited
• Ferro Scrap Nigam Limited
• HMT (International) Limited
• Indian Medicines & Pharmaceuticals
Corporation Limited
• M E C O N Limited
• Mineral Exploration Corporation Limited
• National Film Development Corporation
Limited
• P E C Limited
• Rajasthan Electronics & Instruments
Limited
• Artificial Limbs Manufacturing
Corporation of India