Industrial Policy in India

After reading this article you will learn about the industrial policy followed in India during the pre-independence and post-independence period.

Pre-Independence Period:

During the British rule, the alien Government took passive attitude towards industrialisation of the country. Following a lassie: faire policy, the then Government was bent upon turning India into an agricultural colony and economic satellite of the British Empire.

The rules were interested in keeping India as a source of food and raw materials and market for British industrial products. Except aiding the construction of railways and a few irrigation work and tea estates, the Government, more or less, was indifferent to the need of industrial growth in India.

There came about some shift in Government’s economic policy after the outbreak of First World War in 1914. The fear of competition of outside powers in Indian market, the non-availability of military supplies, the desire to involve co-operation of Indian capitalists for their war-efforts compelled the British Government to adopt a pioneering policy of supporting the establishment of certain basic and exportable goods industries. The appointment of Industrial Commission and setting up of Munitions Board signified the changed trend in the Government policy.

The deals of Munitions Board gave some stimulus to the establishment of enterprises engaged in producing war materials.

Recommendations of the Industrial Commission:

The Industrial Commission made some valuable suggestions to exploit the rich material resources of the country.

These were:

(i) The Government must play an active role in country’s industrial development with the aim of making India most self-contained in respect of men and material.

(ii) Separate departments should be set up to encourage growth of industries, to give training, impart technical education and offer financial aid to the growing enterprise. Transport and other facilities should also be created.

(iii) The Government should be ready to provide administrative talents and technical advice.

Different provinces set up Industries Departments and passed State aid to Industries Acts under which the governments were to grant long-term loan etc. to small-scale industries.

Under the Montague-Chelmsford reforms, industrial development become a provincial subject. The financial difficulties of the post-war period became a pretext for shelving the recommendations of the Industrial Commission. In the year 1922 the Government of India had set up Indian Stores Department to buy goods required by the Government departments from Indian manufacturers.

Fiscal Commission was also constituted to devise a suitable Tariff Policy conducive to industrial growth. It (Fiscal Commission) recommended a policy of discriminating protection to encourage domestic industrialisation by imposing tariffs on foreign made goods coming into Indian markets.

Between 1924-1939, many industries, such as iron and steel, cement, textiles etc. were given protection. But the approach was not developmental but was meant to serve the British interests. World War II added some momentum to industrial growth.

War-time industries were assured of continued protection from foreign competition and financial assistance. Guarantee of market, technical guidance etc. were offered by the Government to sustain industrial growth.

A Board of Industrial and Scientific Research was set up in 1940 to foster research in industrial methods and in 1944 Department of Planning and Development was constituted to coordinate measures for orderly development of industries.

Post-Independence Period:

The advent of independence brought in a new era in economic policy. The Government had to face the problem of refugees, dislocation caused by Partition, scarcity of supplies, inflation etc. The need of the hour was accelerated production in all spheres and adoption of modern technology to gradually lift the country out of morass of stagnation to the higher levels of growth with the planned harnessing of the resources.

The Government announced its first industrial policy in 1948. This policy envisaged mixed economy wherein public and private sector would coexist. It underlined the need for increased state participation in industrial progress. It called for assistance to small-scale industries and welcomed foreign capital.

It classified the industries into the following three categories:

(i) Industries to be entirely owned by the State—arms, ammunitions, Railways, atomic energy.

(ii) Industries where both public and private sectors could co-exist-coal, iron and steel, aircraft, ship-building, telephone, wireless apparatus, mineral oil. New units in these industries would be in public sector, while existing units in private sector would be permitted to continue at least for ten years.

(iii) Industries left to the private sector were subject to overall Government control. Maximum production, full employment, social justice were highlighted as the objectives of industrial policy.

Industrial Policy of 1956:

The 1948 industrial policy was the basis of India’s First Five-Year Plan 1951- 56. But in 1954 the Government adopted socialistic pattern of society as its arch ideal. It meant progressive extension of public sector to fulfil the aims of our plans, viz., higher production, greater employment, economic equality, dispersal of economic power etc.

The government thought to revise its industrial policy to give it a socialistic bent. In the Industrial Policy Resolution in 1956, it was stated “it is essential to accelerate the rate of economic growth and to speed up industrialisation, particularly development of heavy industries and to expand public sector and to build up a large and growing co-operative sector.”

This would increase the opportunities of gainful employment and help in raising the standards of living. It would also aim at reducing disparties in income and wealth, preventing private monopolies and curbing concentration of economic powers and vast industries in the hands of a small number of individuals.

Under this policy industries were categorised into following three groups:

Schedule A:

Industries completely under Government ownership. Future development of these industries will be exclusively under Government sector only. 17 industries were included in this schedule, i.e., arms and ammunition, atomic energy, iron and steel, coal, mineral oils, aircraft, air transport, railways, ship-building, electricity, telephone equipment etc.

Schedule B:

It mentioned 12 industries where mixed undertakings were permitted. But State would increasingly enlarge its operations in these lines while allowing private sector also to set up its units subject to government consent and control. These industries include aluminum, machine tools, fertilizers, road and sea transport, synthetic rubber, power, antibiotic and other drugs etc.

Schedule C:

Remaining industries will normally be in private sector, but the State also, if it deems fit, may start new ventures.

The State may also undertake trading. This policy required that both the sectors should play complementary role and cooperation of the private sector may be sought for starting units in public sector under any category and the State by its fiscal and financial policies would foster the group of industries in the private sector also.

It also emphasised the need for starting on wider scale the small-scale industries and cottage industries to tap the talents and to generate employment and to decentralise economic power. This policy, thus, further enlarged the sphere of public sector and made it an instrument of achieving socialism, ensuring social and economic justice.

New Industrial Policy of 1973:

The Government again affirmed its avowed objective of giving place of pride to public sector through a declaration in February 1973 of a new Industrial Policy. The concept of joint sector as well as liberalisation of licensing regulations under 1970 policy are to be pursued in a manner consistent with the basic policy of predominating public sector.

In the name of liberalising rigid licensing restrictions private monopolies and big industrial houses will not be permitted to sway the industrial sector and override the social and economic objectives envisaged in our plans.

The highlights of the 1973 declaration of industrial policy are:

(i) New policy will be based on the classification of Industries specified in 1956 Policy Resolution.

(ii) The 17 basic and strategic industries comprising the first schedule mentioned in 1956 policy will continue to be reserved for the Public sector.

(iii) In the context of the Fifth Plan the state industrial sector will cover a wider field to promote growth with social justice, self-reliance and satisfaction of basic minimum needs. The Industrial Licensing Policy of 1970 will be revised from time to time to facilitate investment in priority industries and fulfilment in production objectives in the Fifth Plan.

(iv) The large industrial houses are excluded from participating in sectors other than the core and heavy investment sectors. As per the new policy larger unit is defined as one having assets of Rs. 20 crores or over.

The core industries, industries having direct linkages with such core industries and industries with a long-term export potential will be counted among critical, basic and strategic industries. Large houses are eligible to take part in basic critical and strategic industries along with other applicants provided that the item of manufacture is not reserved for public sector under 1956 Resolution.

(v) The reservation for the small scale sector involving investment in machinery and equipment upto Rs. 7.5 lakh and in the case of ancillary industries upto Rs. 10 lakh will continue and can be extended if performances and potentialities of the sector justify such step.

(vi) Joint sector, wherein private enterprise will have financial assistance of public sector, will be allowed only if State is given proper representation in the management of the enterprise. Joint sector can be accepted as a device to be adopted in specific cases for achieving the production targets under the Plan.

Large houses and foreign companies alone with others will be allowed to enter joint sector provided the state is assured of an effective role in shaping administrative policies and suitable participation in management and operations of the undertaking. Joint sector will be designed to tap new entrepreneurial talent and benefit small investors.

Thus the new policy is intended to stress the inevitable need for widening the role of public sector in the economy. Participation of private sector will however be enlisted by the public sector at its discretion in order to accelerate the industrial growth. Although large houses are not totally boycotted from joint sector, they will not be allowed to enter the reserved sector. Middle and small-case firms and investors will have preference in being associated with joint sector.

Industries (Development and Regulation) Act, 1951:

In order to implement the Government policy of exercising control over the establishment and expansion of industries in Private Sector, an Act called Industries Development and Regulation Act was passed in 1951.

Main Features of the Act:

(a) Factories with a capital of more than Rs. one lakh cannot be set up without taking a licence from the Government.

(b) Industrial or business establishments desiring to substantially extend their operations have also to apply for a licence.

(c) The Government, while granting licence, may prescribe specific conditions to be complied with regarding location, scale or size and the minimum standards of operations.

(d) The Act authorises the Government to examine the working of any industrial undertaking and issue such directions as deemed necessary.

(e) The Act empowers the Government to take regulatory measures against industrial concerns which are found to be indulging in certain offences.

If an enterprise is being mismanaged or its production has declined substantially (or is likely to decline substantially), the Government may investigate and issue directions to set right the defects. The Government may also intervene if any undertaking is being managed in a manner injurious to the interests of consumers and it may impose regulations to ensure proper production, equitable distribution of goods or services at fair prices.

(f) Any enterprise which fails to comply with the directions issued by the Government, may be taken over by the Government.

(g) A Central Advisory Council of Industries has been constituted to advise the government on orderly development and regulation of the scheduled industries. The Council includes representatives of industrialists, workers, consumers, etc.

Development Councils have also been set up for different industries. These councils are meant to discuss the problems of the concerned industries and make suggestions for increasing efficiency and productivity and improving their services.

Such councils have been established for sugar, inorganic chemicals, oils and paints, heavy electrical, automobiles and their ancillaries, tractors, internal combustion engines, transport vehicles, textiles, drugs, food processing, leather goods, paper, pulp and allied industries etc.

Critical Appraisal:

The industrial policy and regulation measures of the Government have been criticised on the ground that initiative and spirit of enterprise required for a sustained industrial growth would be adversely affected by coercive regulations of the government. Licensing procedures may cause delay in starting or extending industries.

Since government administrative machinery is rigged by red-tape and bureaucracy. Corruption and favouritism would set in administration of industrial regulations. Provisions regarding take-over of concerns alleged to be mismanaged are frightening and the private sector will be haunted by the danger of nationalisa­tion.

But these fears are exaggerated because the Act provides for prior consultation and discussions in the Development Councils. Provisions regarding location, size, productivity are essential to avoid slipshod development of industries.

Some form of comprehensive Government control is inevitable in a planned economy professing socialism, in order to channelise the industrial activities along the right path consistent with regional balance.

Industrial Licensing Policy:

One of the fundamental objectives of industrial policy is to curb the concentration of economic power in a few hands. A system of licensing was accordingly introduced under the Industries Development and Regulation Act, 1951. But it was of big industrial houses. There was, therefore, a demand for a thorough inquiry into the licensing system.

In July 1967 the Government set up a committee to examine the working of the industrial licensing system. Earlier, Prof. R.K. Hazari had also made a preliminary scrutiny of the system. He had observed that large and medium-sized business groups enjoyed a higher ratio of approval in licensing applications. He had suggested that the exemption limit for licensing purposes should be raised to Rs. 1 crore of investment.

The Planning Commission in its draft of the Fourth Plan had stressed the need for appropriate adjustments in the industrial licensing policy. According to the draft all basic and strategic industries involving significant investments or foreign exchange should be subject to industrial licensing while those requiring only marginal assistance by way of foreign exchange to capital equipment (upto 10 percent of total value) and those which do not require foreign exchange for capital equipment imports should be exempted from industrial licensing.

Administrative Reforms Commission had also likewise suggested reformation of the system. Its suggestion was that the high priority sector industries requiring large capital investment should be licensed and other industries not requiring any foreign exchange assistance should be free from licensing regulations.

Dutt Committee on Licensing:

The Licensing Inquiry Committee headed by Shri Subimal Dutt submitted its report in 1969. It observed that licensing policy so far had not been administered with economic or social considerations but heavily weighed with technical considerations.

Obviously the larger industrial houses with higher technical competence got favoured treatment. Besides, licensing system had failed to bring about regional dispersal of industries.

Sometimes licences were granted in excess of capacity targets because of influence of big parties and large business concerns. Moreover, no step was taken in respect of non-utilisation of licence, while some­times production in excess of licensed capacity also had gone unnoticed or unchecked.

The committee therefore called for rational approach to licensing.

It classified industries into three categories:

(1) Core Sector:

Basic, strategic and critical industries. Detailed plans are to be prepared for these industries and these would be subject to licensing.

(2) Middle Sector:

Licences are to be freely given except to big industrial houses whose total assets exceed Rs. 35 crores.

(3) Reserve Sector:

Particular products are reserved for small and medium industries.

Further capacity in non-essential goods would not be permitted and in areas where there is already high concentration, creation of further capacity should not be allowed.

The Revised Industrial Licensing Policy:

The Government of India on the basis of findings of Dutt Committee etc. announced a revised Industrial Licensing Policy in 1970.

The salient features of this new policy are as follows:

(1) Core Sector industries will be subject to licence. Agricultural inputs, iron and steel, non-ferrous metals, petroleum, cooking coal, heavy industrial machines, ship-building, newsprint, electronics are considered as critical industries. Except those reserved for public sector in 1956 Resolution, all industries will be open to private sector including bigger concerns. Detailed plans will be compiled and input will be provided on priority basis.

(2) All new investments of over Rs. 5 crore will be included in heavy investment sector. Except the industries reserved for public sector, heavy investment and core sector will be open to private sector and foreign subsidiaries.

(3) Industries involving investment from Rs. 1 to 5 crores will be classed as middle sector. In this sector licences to parties other than large industrial houses will be given liberally.

(4) New undertaking or existing units intending to expand involving investment of Rs. 1 crore or less are exempt from licensing.

(5) The policy of reservation for the small-scale sector involving an investment up to Rs. 7,50,000 will be continued.

(6) Applicants from the co-operative sector will get preference in the licensing of new agro-industries, particularly the processing of sugar-cane, jute and other commodities.

(7) High priority shall be given to export-oriented units.

Industrial Policy of 1977:

The Janata Government which came into power in 1977 announced its Industrial Policy on 23rd Dec., 1977. Political parties of the country which came together to form the Janata Party were critical of the Industrial Policy followed by the successive governments at the Centre since the achievement of independence.

The expected result was a new Industrial Policy which was claimed to be small- industry-oriented with the economic philosophy laying emphasis on agriculture.

In the opinion of the Janata Government, the Industrial Policy, 1956, was responsible for certain economic distortions which were disastrous to the economic growth and stability of the country. In particular following defects in the economy were considered to be the manifestation of the Industrial Policy Resolution of 1956, in the course of its implementation over the last 20 years, since its announcement.

(i) Very slow dispersals of industries from urban concentrations.

(ii) Increased incidence of industrial sickness affecting even larger undertakings of major industries.

(iii) Very slow rate of growth per year (just about 3 to 4 percent per year).

(iv) Increase in unemployment.

(v) Wider disparities between rural and urban growth rate,

(vi) Stagnation of real investment.

(vii) Distorted relation between industrial costs and prices.

The New Industrial Policy of 1977 was said to be meant to remove these distortions.

It was claimed to be an employment-oriented industrial policy.

Aims of the Industrial Policy, 1977:

The aims of the 1977 Industrial Policy may be summarised as under:

(1) Maximisation of output of consumer goods.

(2) Maximum use of human and natural resources.

(3) Prevention of monopoly and concentration economic power.

(4) The assiduous promotion and nurturing of cottage and small industries widely dispersed in rural and semi-rural areas and the creation of Tiny Sector which would develop labour-intensive industries and offer self – employment to numerous educated people.

(5) Inducing industry to become more and more responsive to social needs and aspirations so that the benefits of industrial development will be equitably shared by all the people.

Salient Features of Industrial Policy of 1977:

Small Scale Sector:

Increased and diversified growth of small-scale sector was the main plank of the 1977 policy. It called for effective promotion of small and cottage industries in rural areas and small towns. Whatever could be produced by small-scale industries were to be produced in those areas and activities which could be handled by small-sector.

Small Sector was divided into following three classes:

(i) Cottage and household industries providing self-employment on a wider scale.

(ii) Tiny Sector incorporating industrial units with the investment upto Rs. 1 lakh in towns with population of less than 50,000.

(iii) Small-scale industries with an investment upto Rs. 10 lakh (in case of ancillaries upto Rs. 15 lakh investment).

It was intended to encourage development of all these three categories simultaneously through specially designed policies.

The list of items reserved for small-sector was raised from 180 to 807.

Margin money assistance was to be provided for the newly designed tiny sector and cottage industries.

1. District Industries:

Centres were set up to serve as focal points of small- sector development. These were to provide under single roof all the required services and support especially to small industries. 1DBI was also to set up a wing to cater to the needs of small units and monitor the entire range of credit facilities.

It was also proposed to revamp the Khadi and Village Industries Commission. For this purpose production units for new polyster khadi. soap, foot-wear, hand loom were to be enlarged to provides mass employment and to supply bulk of consumers’ needs.

The Government would give market support to the products of small sector through priority purchases, standardization, quality control etc.

Special arrangements were to be made to develop small and simple machines and devices for improving the productivity of the small-sector.

2. Restricted Role of Large Industries:

The policy envisaged a restricted role for large industries and was against making it a demonstrative tool of sophistication or irrelevant foreign technology. The Industrial Policy wanted the large-scale industries to be related to the supply of basic needs of the people through dispersal of small sector and strengthening of agriculture.

It emphasised that these industries should include basic industries like steel, cement, oil refineries, etc. to provide infrastructure for small sector, capital goods industries needed to meet the machinery requirements of basic and small industries, high technology industries related to agriculture and small sector such as fertilisers, patricides, petrochemicals etc. and other industries falling outside the list of reserved items like machine tools, organic and other chemicals.

3. Regulation of New Licences for Large Industries:

The policy provided that large business houses should not be permitted to expand so that share of small units in total capacity would increase. They should be made to rely on their own internal resources for new schemes. Further licences for large-industries should be strictly regulated.

4. Public Sector:

It should play the role of a countervailing agency against monopoly and as a stabilising force for maintaining essential supplies to consumers. It should encourage ancillary industries and provide expertise to small-sector.

5. Professionalisation of Industrial Management:

The policy aimed at eliminating family control of business and industry and laid emphasis on the need of professionalisation of industrial management.

6. Self-Reliance in the Matter of Technology:

It welcomed the flow of foreign technology and foreign participation in areas where Indian skills were inadequate. However, self-reliance in the matter of technology was considered to be the main objective.

7. Dispersal of Industrial Units:

To promote dispersal of industrial units, new licences were not to be issued to industrial units in cities with more than 10 lakh population and in urban areas of more than 5 lakh population.

Such large scale industrial undertakings which desired to shift to the backward regions were offered attractive assistance.

8. Workers’ Participation in Management:

Workers’ participation in management was sought to be made more meaningful by providing for holding of equity shares by the workers with sufficient safeguards for their interests.

9. Fair Deal to Consumers:

Consumers were assured of a fair deal through rigid enforcement of standardisation (ISI), quality control, and offer of wide range of articles through small sector.

10. Rational Price Policy:

It also aimed at rational price policy based on parity between agricultural and industrial price structure. It also sought to encourage large sector to take over sick units.

The Industrial Policy, 1977 defined that distinct role of small-sector, put limits on the prominence of large sector and called for revitalization of public sector in terms of national objectives and needs of wider industrial dispersal, consumer protection, monopoly control and more employment.

Critical Evaluation:

The Industrial Policy, 1977 rightly put emphasis on the development of small-scale units, employment orientation and curbing of economic concentration.

But it did not boldly project any radical measure for changing the socio­economic set-up to eliminate the factors which create fertile background for the growth of monopoly and oligarchic control of large business houses.

Its policy regarding small units was not effective to counter the invasion of large units and their attempts to exploit the weaker units, by their sub-contracting role. Its pleadings for small sector were not matched by follow-up measures and necessary financial allocations. Its proposed sixth Plan provided only 20 percent of the total outlay for the growth of small sector.

The policy was unmindful of loopholes like foreign elaboration, export promotion etc. which were exploited by big business to enter into the reserved sector through backdoor. The policy merely increased the list of reserved items.

As the experience shows, despite reservation hold of large houses and multinational concerns over mass consumption articles like soaps, toothpaste, foot wears, etc. has not decreased. No concrete measures for phased withdrawal or exclusion of large business houses from the field of reserved items were taken up.

In view of the short life of the Janata Government itself the Industrial Policy, 1977 has now been a matter of academic reference only.

Industrial Policy of 1980:

The fall of Janata Government at the Centre eventually brought a fresh parliamentary election. The Congress Party led by Mrs. Indira Gandhi swept the poll and a new Government under Mrs. Indira Gandhi as Prime Minister was installed in 1980. The new Government announced its revised Industrial Policy on 23 July 1980. This policy stressed the need of fostering industrialization as a tool for economic progress and ensuring economic justice.

It called for a set of pragmatic policies intended to remove lingering constraints to industrial production and to act as catalysts to faster growth in the coming decades. The Industrial Policy laid emphasis on rapid pace of industrialisation with a view to benefit the common man through ever increasing availability of goods at fair prices, more employment and higher per capita income.

Further, it was to provide great support to agriculture and strengthen energy, transport and other infrastructural facilities. The policy envisaged dominant role of public sector. Socio-economic objectives were to be pursued and regional imbalances removed. Suitable concessions to large, medium and small units were provided to evolve an economic federalism.

Objectives of the Industrial Policy of 1980:

The objectives of the Industrial Policy of 1980 were as under:

1. Optimum utilisation of installed capacity.

2. Maximisation of production and achieving higher productivity and higher employment generation.

3. Correction of regional imbalances by giving preferences to industrially backward areas in planning developmental activities.

4. Strengthening the agricultural base by according preferential treatment to agro-based industries.

5. Faster promotion of export-oriented and import-substitution industries.

6. Promoting economic federalism with an equitable spread of investment and dispersal of returns amongst widely spread over small but growing units in rural and urban areas.

7. Consumer protection against high prices and bad quality of goods and services.

Salient Features of the Industrial Policy of 1980:

1. Revitalisation of the Public Sector:

The policy stressed that public sector should become a people’s sector (instead of a nobody’s sector). It has to be recast in its role, management and strategy. Unit-by-unit evaluation and reorganization would be undertaken to secure effective operation management at all levels. Time-bound programmes would be chalked out for revitalisation of the public sector units.

Emphasis would be placed on evolution of managerial cadres in functional field of operations, marketing, finance, communication systems.

2. The Concept of Economic Federalism:

It is proposed to promote the concept of economic federalism. It involves the integrated development of industries in the private sector. The artificial divisions between small and large-scale industries are sought to be removed. Instead industrial units in both large and small sectors are to be so fostered that they are complementary to each other.

The important point of this concept is the concept of Nucleus Plant. It is proposed that in each district identified as backward a Nucleus Plant will be set up to generate ancillary and small units on increasing scale. Nucleus Plant would work as an assembling unit for products of ancillary and small units.

Investment and employment would be widely spread over and benefits would percolate to more and more people. Technology of small units would be up-graded and a time- bound ancilliarisation programme in certain industries would be introduced to promote dispersal of industry and growth of entrepreneurship.

3. Redefinition of Small Units:

The policy has redefined the small units to ensure their faster growth. In tiny sector units limit of investment is raised to Rs. 2 lakhs. In small-scale units, it is raised from Rs. 10 lakhs to Rs. 20 lakhs and for ancillary units from Rs. 15 lakhs to Rs. 25 lakhs. This measure is expected to facilitate modernisation of equipment, eliminate undervaluation of assets and provide encouragement to ambitious young entrepreneurs.

4. Economically Viable Activities in the Rural Areas:

This policy has pledged itself to the creation of such an industrial climate which would generate economic viability in the rural areas. Handloom, hadicrafts, khadi and other rural industries would receive greater attention for faster growth, more employment and higher per capita income in villages.

5. Removal of Regional Imbalances:

Industrialisation would be geared to correct the regional imbalances. The policy calls upon emergencies of network of ancillaries spread out in backward areas linked with local resources and talent. Public and private sectors should both join in the endeavour of regional dispersal of industrialisation.

6. Regularisation of Unauthorised Excess Capacity:

The policy recognises that it is essential to regularise the unauthorised excess capacity installed in the private sector. In several industries essential for national economy, production capacity has been set up in excess of the licensed limit with a view to provide for modernisation, replacement, technological improvement etc.

Such capacities would be recognised and regularised on selective basis including the items on the reserved list of small sector. Oil drilling, power accessories, pumps, cycles, fans, batteries etc. would among many industries that would be benefit from this regularisation.

The policy has allowed automatic expansion of large-sector units necessitated by needs of fuller utilisation of capacity.

7. Provision for Sick Units:

Sick units would be taken over if absolutely necessary in public interest. Units guilty of mismanagement would be severely dealt with.

Government would think of liberalising tax-concessions to bring about amalgamation of sick units with healthy units on the basis of potential viability.

8. Research Development:

Concession in respect of imports etc. would be extended to industries which intend to strengthen ‘Research Development’ method and have the capacity to absorb new technology. The concept of District Industries Centres has been abandoned and an idea of ‘nucleus plant’ is sought to be introduced for ancillarisation of industries in rural sector.

Critical Evaluation:

The new policy seeks to further the causes of quick growth, greater employment, regional balance, strengthening agro-based sector, encouraging export-oriented and import-substitution industries. It talks of pragmatic time bound programmes to achieve the targets of growth.

Its time-honoured objectives are well-stated and well-stressed again. But the policy has failed to give any effective direction to remove industrial stagnation, to curb the hold of big business and to protect the consumers against exploitation.

Production in industries is at present largely focused on luxuries, semi-luxuries or articles demanded by the affluent section of the society. The policy in no way has attempted to reverse the supply-demand pattern in favour of mass consumption goods.

The policy labours under misconception of automatic or arranged integration of large, medium and small sectors. Conflict between the sectors has to be resolved by shift in capital-output ratios. Special efforts to encourage tiny sector have to be planned by fiscal incentives. But to give concessions to large sector on the one hand and to talk of stimulating small sector on the other would be illogical.

It is argued that concept of nucleus plant is capital-intensive and not labour- intensive. Hence small sector may not get due weightage and its impact on employment may be meagre. Reservation policy should have been activised to bring about meaningful dispersal of industrial power.

The redefinition of small-scale industries would give an easy handle to large undertakings to enter the small sector through backdoor by artificial sub-divisions of industrial structure. Really genuine labour-intensive units may not be able to come up and stay in the face of beaming make-believe small units, capitalist in nature, but claiming benefits available for small sector.

Regularisation of excess illegal capacity and permission for automatic expansion in many industries would spell the danger of further concentration of economic power. The policy no doubt is guided by consideration of growth but liberal licensing, concessions to large-scale would lead to weakening of the decentralised sector.

It remains to be seen whether the big business which has welcomed the new policy would play fair and prime to pump for diversified, dispersed vigorous growth of small sector also. If the intended spur to growth results in support to and supplement the small sector and achievement of employment objective, then new policy would achieve its aims.

Industrial Policy of 1990:

The Salient Features of Industrial Policy of 1990 are given as under:

1. Procedure for Industrial Approvals:

All new units with an investment of upto Rs. 25 crore in non-backward areas and Rs. 75 crore in notified backward areas will be exempt from licensing or registration : for import of capital goods. Entrepreneurs would have entitlement to import upto a landed value of 30 per cent of the total value of plant and machinery needed for the units.

Imports of raw materials and components will be permissible upto a landed value of 30 percent of the ex-factory value of annual production, raw materials and components on OGL would not be included within this 30 per cent limit; for all licensable raw materials and components, import licensing procedures will continue to operate.

2. Foreign Collaboration:

This government has given the freedom to the entrepreneurs to conclude technology transfer agreements without approval from the concerned authorities. This would, however, be subject to the condition that the royalty payment should not exceed five per cent on domestic sales and eight per cent on exports.

If, however, lump sum payment is involved in the import of technology, the proposal would require government clearance. The decision in this respect, however, would be conveyed to the entrepreneur within 30 days.

3. Foreign Investment:

For effective inflow of techno logy, the policy provides automatic approval for investment upto 40 per cent in terms of equity. In such proposals too, the landed value of imported capital goods should not exceed 30 per cent of the value of plant and machinery.

4. Minimum Economic Size:

To ensure that investment leads to production of goods of international standards, the units would have to conform to the MES. In cases where such a size has been prescribed the policy notes that the regulation suggested would cover all cases of expansion and would not be restricted only to new units.

5. Broad Banding:

The new policy has not made any changes in existing broad banding scheme which will continue. However, no government clearance would be necessary for production and sale of any new item by the existing units. This would not include those items which are reserved for the small-scale industries.

6. Location Policy:

This policy would not be applied to small-scale industries by the Centre. The location policy would be applicable when the unit is to be located in and around metropolitan cities with population above four million.

For these cities, location will not be permissible within 20 km. calculated from the periphery of the metropolitan area except in prior designated industrial areas or for non-polluting industries like electronics, computer software and printing.

It would be up to the state government to regulate industrial locations keeping in mind local conditions and requirements and their respective spatial development plans, and zoning and town planning laws. Similarly, environmental clearance would have to be obtained from the prescribed authority at the state level.

7. EOUs:

100 per cent export oriented units and units to be set up in export processing zones would be delicensed under the scheme up to an investment limit of Rs. 75 crore. The policy says that such investment will be exempt from the convertibility clause applicable to financing by Indian financial institutions.

Small Scale Industries:

Industrial Policy provides an increase in the investment limit for the small-scale sector from the existing Rs. 35 lakh to Rs. 60 lakh, for the ancillary sector from Rs. 45 lakh to Rs. 75 lakh and the tiny sector from Rs. 2 lakh at present to Rs. 5 lakh. In addition, SSI units which undertake to export at least 30 per cent of the annual production by the third year, will be permitted to raise their investment limit in plant and machinery to Rs. 75 lakh.

MRTP Act:

The Monopolies and Restrictive Trade Practices Act of 1969 aims at strict control over monopolistic trades and unfair practices to avoid concentration of economic power, exploitation of consumers and to ensure strict adherence to public welfare. A non-Government undertaking having assets of not less than Rs. 20 crores (now Rs. 100 crores), as well as dominating undertakings are brought under the purview at the Act.

Monopoly and Restrictive Trade Practices Commission is set up to monitor potential trends of monopoly, investigate such instances and to take remedial steps to curb them. The companies covered under the Act have to procure prior permission for expansion, installation of new plants or amalgamations, mergers or to take over other undertakings.

Recently, however, the Government has given a new look to the industrial policy. Delicensing, liberalisation of procedures, relaxing controls in respect of certain categories of industries have been the highlights of new trends, their aim is to achieve economies of scale, to give scope for modernisation, to ensure balanced regional growth and to increase the production of essential consumer goods.

The asset unit of MRTP companies is raised from Rs. 20 crores to Rs. 100 crores. Twenty-two industries were almost taken out of the ambit of MRTP and FERA Acts. The attitude today towards public sector is one of consolidation, renovation and modernisation.

Stress is being laid on making public sector viable and making industrial policy flexible enough for participation of private sector in the interests of fast growth and adoption of latest innovations and technology for big leap towards modernisation Computers, super computers and hi-tech devices are indicators of the changed trends of public policy towards industries in public and private sectors.

Highlights of Public Sector:

The evolution of public sector in India has evolved basically from the Government policy of socialism and comprehensive economic planning.

The factors involved in this evolution are:

(i) Giving Government the position of commanding height in the economy.

(ii) Making the country self-sufficient in basic industries and machine- building industries.

(iii) Preventing private monopolies and curbing concentration of wealth within few hands.

(iv) Bringing backward area in the mainstream of industrialisation.

(v) Providing employment opportunities.

(vi) Ensuring justice to all sections of the community, viz., consumers, workers, farmers, small entrepreneurs, etc.

(vii) Providing public utility services to serve as infra structure.

Wider Spectrum of Public Sector:

Thus it is found that public sector is occupying commanding heights in basic industries like steel, transport, banking, insurance, machine tools, communication equipment, aircraft, warehousing, oil and gas, locomotive, ship-building, aviation, etc.

Public sector is also dominant in other sections of public importance— trading, tourism, export finance, industrial finance, posts and telegraphs, telephone, power, irrigation, defence production and a host of other fields.

Growth, Size, Investment, Turnover and Profits:

There has been, therefore, spectacular increase in number, size and direction of public enterprises with vast amount of capital invested and providing numerous opportunities for employment. Public sector outlay has increased from Rs. 1,960 crores in the First Plan period to Rs. 1,80,000 crores in the Seventh Plan. The investments in public enterprises grew from 29 crores in the First Plan to Rs. 42,811 crores as on 31 March, 1985 and Rs. 50,341 crores in 1985-86.

Beginning from a paltry figure of five central public enterprises on 31 March, 1951 its number has grown fantastically in size and diversity to 228 on 31 March, 1986. Following figures highlight the growth and performance of public enterprises during important years.

According to estimates for 1986-87 presented to the Lok Sabha in the budget session 1988, the public enterprises earned a record net profit of Rs. 1,769.08 crore. Pre tax profit increased to Rs. 4,803.72 crores.

It is expected that post-tax profit also would touch a record figure of Rs. 2000 in 1986-87 indicating a quantum jump of Rs. 800 crores in 1987.

Their turnover has risen from Rs. 6,855 crores in 1973-74 to Rs. 62,221 crores in 1985-86. The value increased to Rs. 15,160 crores in 1987.

Their export earnings also grew up from Rs. 784 crores in 1973-74 to Rs. 5,831 crores in 1984-85 but declined to Rs. 3,942 crores in 1986-87.

The top ten profit-making enterprises are the ONGC, Oil India, Indian Oil Corporation, Bharat Heavy Electricals, Nevyli Lignites Central Coal Fields, State Trading Corporation, Air India, Rastriya Chemicals and Fertilizers and Indian Airlines. The other important profit-making enterprises are Food Corporation of India, National Thermal Power Corporation, Maha nagar Telephone Nigam, etc.

Institutions running in losses include Steel Authority of India, Bharat Cooking Coals, Eastern Coal Fields, Heavy Engineering Corporation, Shipping Corporation etc.

There are about 110 profit-making enterprises and 81 loss-making units.

Over all profitability has substantially increased by about 899 per cent during 1973-74 and 1983-84.

The internal resources generated by the public sector have increased from Rs. 13,790 crores in 1981-85 while in 1986-87 internal resources generation rose to Rs. 5,213 crores as against Rs. 4,259 crores in 1985-86.

Thus from the point of turnover, investment, profits, employment, overall profitability, internal resource generation, public enterprises have grown into fantastic heights.

Achievements of Public Sector:

The achievements of public sector can be evaluated in terms of the planned objectives and programmes:

(1) The public sector has established a good number of basic key industries which would not have been possible through the private sector in such a short stretch of time.

(2) It has generated considerably large employment opportunities in skilled, unskilled, supervisory and managerial cadres.

(3) They have been helpful to a sizeable extent in creating internal resources and contributed towards national exchequer funds for development and welfare.

(4) They have made significant contribution to bring about development activities in backward regions, through locations in different areas of the country.

(5) They have also assisted in the field of export promotion and conserving foreign exchange.

(6) They have created viable infrastructure and have been instrumental in aiding and assisting rapid industrialisation. Ancillary industries have grown around the nucleus of public sector.

(7) They have been able to checkmate the growth of private monopolies while at the same time stimulated diversified growth in private sector also.

(8) They have taken over sick industrial units and tried to put them in order.

(9) Nationalised banks, insurance corporations, unit trust and financial corporations have resulted in social control and social orientation of investment, credit and capital management system.

Rural areas, priority sectors, small businesses have been benefited due to entry of public sector into different fields of industry, finance, credit, services, trade, transport, consultancy and the like.

Critical Evaluation:

Public sector performance quantitatively has been notable. But it is critically opined that compared to the capital employed therein, their returns have been meagre; quality of goods not upto the mark and the prices have not been fair and competitive.

They have become just colossal enterprises under state ownership with the drawbacks of officialdom, political undertones and non-responsible management. They have become drag on public exchequer.

They are being fed out of borrowed funds, their debts are being serviced by huge interest payments and their contributions are not more than 3 to 5 per cent on capital employed. State corporations are incurring huge losses.

All these have led to resources crunch and eventually land the country in debt-trap. The objective of state enterprises may thus prove to be self-defeating because of their counter-productive management. It is argued on the other hand that public sector performance should not be judged on the criterion of profitability only.

Their contribution to developmental infrastructure, job creation and catalystic role in investments and supporting or stimulative role for private sector and ancillary industries should be considered as their prime justification in our economy; of course defects in public sector operations should be spotted out and rectified in order to make them viable.