Evolution of Industrial Policies

and their impact in India

(1948-1990)
 Situation Post Independence

Extremely undeveloped, distorted and unbalanced

industrial structure.
Industries contributed less than one sixth part of
national income.
Measures Taken:
Adopted mixed economic planning as a method to
achieve economic development.
Along with the Large Scale sector the thrust was on
Small Scale sector
 Meaning of Industrial Policy

Is a statement which defines the role of

government in industrial development and defines
the objectives to be achieved in the area of
industrial development and the measures to be
adopted towards achieving these objectives.
 Objectives of Industrial Policy

Rapid Industrial Development: Seeks to create a favorable

investment climate for private sector as well as mobilize resources for
the investment in public sector.
Prevention of Concentration of Economic Power: Seeks to
provide a framework of rules, regulations and reservation of spheres of
activity for the public and private sectors…Aimed at reducing the
monopolistic tendencies and preventing concentration of economic
power in the hands of a few big industrial houses.
Balanced Industrial Structure: seeks to correct the prevailing
lopsided industrial structure and to bring a balance in industrial
structure…E.g. Pre-Independence India was fairly developed in terms of
consumer goods but capital goods sector was not developed at all.
Balanced Regional Growth: e.g. Gujarat, Maharashtra Vs. Bihar,
Orissa.
 INDUSTRIAL POLICY RESOLUTION 1948
(6 April, 1948)

The main thrust of the (1948) industrial policy was

to lay the foundation of a mixed economy wherein
both private and public enterprises were to coexist
and work in their demarcated areas in order to
accelerate the process of industrial development.
 INDUSTRIAL POLICY RESOLUTION 1948 LAID
EMPHASIS ON

 Classification of Industries:
Defense and strategic industries to be the exclusive monopoly of
state.
For the basic and key industries all new industries were to be set up
by state while the old units to be run by the private entrepreneurs
Rest of the industries to remain with private ownership but subject
to overall regulation and control by government
 Role of cottage and small scale industries
 Policy towards foreign capital
 The importance to the economy of securing a continuous increase in
production
 Its equitable distribution
 First Five Year Plan(1951-55)
Total budget: 206.8 billion

One of the objectives was to bring about industrial development taking into

account industrial resolution of year 1948, with a targeted growth rate of 7% and
GDP target growth of 2.1% per year.
ACHIEVEMENTS
GDP 3.6% per year
Improvement in
roads
civil aviation
railways
Telegraphs
posts
manufacture of fertilizers
electrical equipment 
Industrial production growth rate 7.3% per year
Industrial (Development & Regulation) Act,
1951
 To give concrete shape to its industrial policy
 Made licensing compulsory for new industries and
for expansion of existing industrial units.
Drawbacks:
 Cornering of licensing
 Unbalanced regional growth
 Growth of large industrial houses
Disadvantages of First Five Year Plan
 Development of only a few industries
 Private industry had not much developed
Plan/Period Target Actual
First Plan(1951-1956) 7% 7.3%

Second Plan(1956-1961) 10.5% 6.6%

Third Plan(1961-1966) 11% 9%

Annual Plan(1967-1968) - 2%

Fourth Plan(1969-1974) 12% 4.7%

Fifth Plan(1974-1979) 8% 5.9%

Annual Plan(1979-1980) - 1.4%

Sixth plan(1980-1985) 8% 5.9%

Seventh Plan(1985-1989) 8.7% 8.5%

 INDUSTRIAL POLICY RESOLUTION (30th April, 1956)

The resolution laid down three categories, which bore a close

resemblance to the earlier classification, but were more sharply defined
and broader in coverage as to the role of the state. The Categories were:
Schedule-A
Those which were to be exclusive responsibility of the state.
Schedule-B
The industries which were to be progressively state-owned and in which
new enterprises were generally set up by the state while the private
enterprises were expected only to supplement the effort to the state.
Schedule-C
All the remaining industries and their future development would be left
to the initiative and enterprise of private sector.
 Other features of the resolution were:
Fair and non-discriminate treatment of private sector.
Encouragement to village and small-scale enterprises: to
achieve this 128 items were exclusively reserved for
production in SSIs, and 166 items were reserved for
exclusive purchase by government from this sector.
Removing regional disparities.
Role of foreign capital: Country recognized importance of
foreign capital in the country and therefore welcomed the
inflowbut was permitted subject to condition that major
share in management, ownership and control should be in
the hands of Indians.
 Second Five Year Plan (1956-1961)

 The second five year plan came up as complementary to industrial

resolution of 1956 and hence set its main objectives as:
To increase the national income by 25%
Increased focus on Industrialization
To increase employment opportunities for people
 Achievements:
During second five year plan the three steel plants viz., Bhilai, Durgapur and
Rourkela(61-62)
Financial institutions were set up to provide long term assistance to private sector.
A hydro-electric power project (KUNDAH  HYDRO - ELECTRIC  SCHEME)
Production of coal increased
More railway lines
Atomic Energy Commission came into being in year 1957
Tata Institute of Fundamental Research came into existence to search for talented
individuals who would eventually be absorbed into programs related to nuclear
power.
 Phase: 1966-80

 “The phase of high growth rate ended in 1960’s (around

1966) and was followed by low growth period spanning
next 15 yrs up to 1980. The annual growth rate during this
period was around 4%(growth rate of industrial
production). Due to this sharp decline in the growth rate
this period is called as “Phase of deceleration of industrial
growth”
 Reasons for “Phase of deceleration of industrial growth”

On Supply side:

The instability, shortages and shocks caused by two Indo-Pak wars of 1965 and 1971.
The massive increase in oil prices by the OPEC nations in 1973
Consequent transportation problem
Shortage of raw-materials caused by frequent failure of agriculture due to recurrent droughts
Energy shortages
On Demand Side:
Slow growth of agriculture and low incomes of the farmers resulting in low demand for
industrial goods
Decline in growth rate of public sector investment, though increased in money terms, yet due
to rapid increase in general price level, the rate of growth of investment in real terms was
extremely low
There was also a slackening of private sector investment due to restrictive industrial and
foreign trade policies, increasingly tight governmental regulation in the form of industrial
licensing, exchange controls, etc..
Poor management of infra structure sector.
 Industrial policy resolution -1977

 At centre Janata Government came into power and

advocated the growth of small scale and cottage
industries.
 On an average growth of industrial sector was not
more than 3% to 4%.

 “The thrust of the industrial policy statement of

December 1977 was on effective promotion of
cottage and small industries widely dispersed
in rural and area an small towns.”
The policy statement considerably expanded the list of reserved
items for exclusive manufacture in the small-scale sector. The list
of such reserved item was 504 till 1977. The 1977 policy expanded
this to 807 .
The concept of District Industrial Centers (DICs) was introduced
so that in each district a single agency could meet all the
requirement of SSIs under one roof. These included economic
investigation of the Districts, supply of machinery and equipment,
raw materials and other resources, arrangement of credit facilities,
call for quality control, research and extension and so on.
Government to introduce special legislation for protecting the
interests of cottage and SSIs and give them recognition in
programs of industrial development
 Development of Appropriate Technology: Technology which may
make use of our abundant labour resources without compromising
efficiency in production. Highly capital intensive technology could be
allowed to be used only in high priority areas where Indian skill and
indigenous technology was not well developed.
 Role of large- scale Industries defined (high technology industries to
act as support to agrarian activities or SSIs)
 Role of Public Sector: Public sector was made responsible of encouraging
the development of ancillary industries and contributing to the growth of
small scale sector by making available its managerial and technological
expertise. It was also required to participate in Consumer goods industries.
 Policy Towards Foreign Capital
 Monopolies and Restrictive Trade Practices (MRTP) : To curb
disproportionate growth of lage business houses and for dispersal of
industries away from the metropolitan areas.
 Industrial Policy Resolution-1980

“The Industrial Policy Statement of 1980 focussed

attention on the need for promoting competition in
the domestic market, technological up gradation
and modernisation. The policy laid the foundation
for an increasingly competitive export based and
for encouraging foreign investment in high-
technology areas.”
Objectives:
Optimum utilization of installed capacity
Maximizing production and productivity and
employment generation
Correcting regional imbalances
Emphasis on cottage and small scale industries
Promotion of export oriented industries
Development of agro based industry
 Sixth-seventh 5 year Plan:

Improving productivity level

Initiation of modernization for achieving economic and
self reliance
Development of indigenous energy sources and efficient
energy usage
Up-gradation of technology through R&D
Efficient Use Of Capital
Restructuring of Industries
Communication
 Computerizing telecom system
 Concentration on informatics
Promote Export oriented growth
Provisions in Central Plan (1980) in crores of Rupees

Steel – 3613
Petroleum – 4300
Coal – 2870
Fertilizers – 2367
Heavy Engineering – 704
Iron ore - 223 7
Non-ferrous metals – 1262
Petrochemicals – 962
Paper and newsprint – 340
Cement – 421
Drugs & pharmaceuticals - 145
Textiles - 102
Electronics - 165
 Achievements:

1980s- Industrial growth rate 6% during 1980-

1985(annual)
 Industrial growth rate 8.5% during 1985-1990(annual),
.5% above target growth rate of 8%
Contribution to GDP by 1980s, 25%
Growth rate in GDP 1980s- 5.5% (annual)
Growth rate in Per Capita Income 1980s- 3.4% (annual)
First 500 MW thermal power unit commissioned and
the manufacture of 500 MW generators arid boilers has
commenced
Growth(%) in Some Manufacturing Sectors
 Major Industrial Events of 1980s

1981, National Aluminium Company incorporated as

public sector enterprise of Government of India
July, 1981, Infosys founded in Pune
1985, Texas Instruments, a Multinational
corporation, starts its India operations in Bangalore
and helps create infrastructure to export software via
satellite communications from India for the first
time
1986, VSNL incorporated under the Indian
Companies Act, 1956
 Drawbacks:

Target of 6% industrial growth rate during 6th 5 year

plan not reached, power shortage, the key constraint
“Industry Sickness” due to obsolete technology,
overstaffing, poor management practices
Capacity underutilization in many industries
The 5th plan, put forward by the Janata Government,
emphasized on Small Scale Industry above that of
large scale, the Congress government on the other
hand put forward a more Large Scale Industry
oriented plan, which drew criticism
 Public Sector in India

Includes all Industrial and commercial enterprises that are owned

and funded by govt. or any authority appointed by the government.
Rationale for public sector:
 Inherited problems with independence
 Weak savings, per capita income low,
 Weak industrial development
 Infrastructure Inadequate
 Unemployment rampant
 Regional disparity
 Private sector disinterest in large scale projects due to risks involved
 Prevent concentration of power in few hands
Till IPR OF 1956, GOVT. role limited to civil
administration, defense, postal communications and
with IPR of 1956 state to take up direct responsibility
and a dominant role in industrial development

Year 1951 1961 2001

No. of 5 47 242
enterprises in
public sector

Investment 29 crores 948 crores 2,74, 114

crores
Role of Public sector as an agent of change and not just profit motive

Ensure rapid economic development

Reduce disparity of income
Develop basic industries requiring huge investments that is two
third in goods producing sectors and one third in producing
services
Balanced regional growth (most public sector steel plants located
at backward regions like Bhilai, Durgapur, Bokaro, Rourkela.
Prevent concentration of power
Faster economic development, employment opportunities
Promote import substitution and export promotion
Promote small scale industries
Major development through setting up new units rather than
nationalisation
 Profitability low in public sector

Location determined on political basis and not on rationale basis

Red tape
Bureaucratic managed and not by business proffessionals
Lack of incentive to work hard and security turning them
complacent
Less accountability
Over staffing
Absence of competition making them lethargic
Over staffing
Below capacity operation
Name synonymous with inefficiency, incompetence, red tapism and
political favoritism
 Public Sector Reforms

Gradual sale and disinvestment of consistently loss making units

Viable rehabilitation packages for weak units
Bring down govt. equity in all non strategic public sector undertaking to 26%
or lower
New Industrial policy of 1991:
- Exclusively reserved public sector industries reduced from 17 to 4.
 Board of PSU to be made proffessional
 Autonomy and Accountability
 Restructuring and Modernisation
 Navaratnas and Mini ratnas
 Limit its role to mainly development and infrastructure where private players
are not likely to provide adequate and timely investment response.
 Withdraw if its presence do not serve public purpose for poorer sections of the
society
 Disinvestment or Privatization

Govt. offloading more than 50% is

privatization(involving change in management and
control) and less than that is disinvestment.
Disinvestment has benefitted for two reasons:
- Support to the govt. through financial resources and
even help reduce burden of interest payments
 Improve efficiency by introducing an element of
accountability for private shareholders would compel
the management to run the enterprise more
efficiently.
No divestment in strategic industry like defense,
atomic energy, railways etc but can be thought for
non strategic and non core sectors.
Taking into account the efficiency, financial
constraints and need for the govt. presence in that
sector.
Either through sale of market shares or sale of block
equity through auctions to predetermined buyers.