Industrial Policy of India: Major Policies, Objectives & features-UPSC Notes

Industrial policy of Indiais the measures a government takes to promote and regulate the development of a country's industries. It includes trade, investment, taxation, infrastructure development, innovation, and technology transfer policies. The UPSC Civil Services exam often asks questions about India's economic policies. Industrial policy is an essential aspect of India's economic policies. It is thus relevant for the UPSC exam. Industrial policy has a significant impact on the Indian Economy. Aspiring civil servants must have a good understanding of it. This knowledge will help them make informed decisions about the country's economic development.

The Industrial Policy of India is one of the most important topics for the UPSC IAS exam. It covers a significant part of the economy in the General Studies Paper-3 syllabus and current events of national importance in UPSC prelims.

In this article, we shall study the facts related to the Industrial Policy of India, the Objectives of Industrial Policy of India, Features, and Limitations of the Industrial Policies of India. 

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What Is the Industrial Policy Of India?

Industrial policy of India is proactive government-led encouragement and development of specific strategic industries for the growth of all or part of the economy, especially in the absence of sufficient private sector investments and participation. Historically, it has often focused on the manufacturing sector, militarily important sectors, or on fostering an advantage in new technologies. In industrial policy, the government takes measures "aimed at improving the competitiveness and capabilities of domestic firms and promoting structural transformation." A country's infrastructure (including transportation, telecommunications, and energy industry) is a significant enabler of industrial policy.

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The objective of industrial policy of India is to promote industrial development in a country. Also, to create an environment that encourages and facilitates the growth of industries. Some of the key objectives of the industrial policy include:

• Balanced regional development: Industrial policy seeks to encourage industrial development nationwide. It tries to lessen regional differences in economic development and growth.
• Employment generation: Industrial policy tries to give employment opportunities to the expanding population. It does this by encouraging the development of industries that provide jobs.
• Economic growth: The primary goal of industrial policy is to promote economic development. This is done through industrialization. It can lead to increased employment opportunities and a higher standard of living for the people.
• Foreign investment: Industrial policy aims to attract foreign investment to the country. It can help to boost industrial growth and bring in new technology and expertise.
• Technology development: Industrial policy encourages the development and adoption of new technologies. It can help improve industries' efficiency and productivity.
• The industrial policy aims to foster economic growth and raise living standards. This is done by promoting an atmosphere that encourages the growth and development of 

industries in a nation.

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Industrial Policy of India

India has had several industrial policies, each with its focus and objectives. Here is a brief overview of the critical features of the industrial policy of India

• The Industrial Policy Resolution of 1948: The foundation for the country's industrial development and growth was laid by its first industrial policy statement.
  • The policy's main goal was to build a solid industrial base. It enabled the economy to become independent and entirely self-sufficient.
• The Industrial Policy Resolution of 1956: This policy aimed to promote socialist public ownership in the industrial sector. This was done with the government actively developing and controlling industries.
• The Industrial Policy Statement of 1977: This policy aimed to increase private sector involvement. Also, the investment reduces the influence or involvement of the government in the industrial sector. 
  • It also focused on the development of small-scale industries. And also the creation of employment opportunities in rural areas.
• The New Industrial Policy of 1991: The Industrial Policy of 1991 marked a shift towards liberalization and globalization. It focused on reducing government controls. Also, regulations in the industrial sector promote foreign investment and technology transfer. 
  • The policy seeks to encourage the growth of export-oriented industries and infrastructure development.
• The National Manufacturing Policy of 2011: The primary focus of this policy revolved around encouraging the expansion of India's manufacturing industry. It was done to generate employment and accelerate economic growth. 
  • It included measures to improve the investment climate. Also, to promote innovation and technology upgradation and develop industrial infrastructure in India.
• India's industrial policy has generally changed, with varying emphasis on state control due to private sector involvement and liberalization. 

Today, the emphasis is on supporting manufacturing and fostering an environment. It will attract domestic and foreign investors.

Industrial Policy Resolution of 1948

The Industrial Policy of 1948 was India's first comprehensive industrial policy statement. The Indian government adopted it on 6th April 1948 to develop a solid industrial foundation and a self-sufficient and independent economy. The plan was a foundation for India's industrial development and a framework for long-term economic planning.

The key features of the policy included:

• It divided the industries into four categories: 
  • Strategic Industries (Public Sector)- Arms and ammunition, Atomic energy, and Rail transport.
  • Basic/Key Industries (Public-cum-Private Sector)- 6 industries viz. coal, iron & steel, aircraft manufacturing, ship-building, manufacture of telephone, telegraph & wireless apparatus, and mineral oil.
  • Important Industries (Controlled Private Sector)- 18 industries, including heavy chemicals, sugar, etc
  • Other Industries (Private and Cooperative Sector)- None of the different industries are included above.
• The policy listed several crucial industries to be controlled & run by the government. 
  • This includes railways, atomic energy, and weapons and ammunition manufacturing. 
  • The government reserved the right to control & regulate how commodities and services are produced. Also distributed in other sectors of the economy.
• The policy recognized the importance of small-scale industries in creating employment opportunities. Also, promoted rural development and encouraged their growth. This is done by providing credit and other support measures.
• The policy emphasized the importance of infrastructure development. 
  • It includes the construction of roads, railways, and ports. 
  • This is to increase the growth of industries.
• Government action to influence the ownership & structure of the industry and its performance. It takes the form of pay­ing subsidies providing finance in other ways or of regulation.
• It includes procedures, principles (i.e., the philosophy of a given economy), policies, rules and regulations, in­centives and punishments, the tariff policy, the labor policy, the government's attitude towards foreign capital, etc.

Check the article on the Industrial Disputes Act 1947 here! 

The Industrial Policy Statement of 1956 

Industrial Policy Resolution of 1956 (IPR 1956) is a resolution adopted by the Indian parliament in April 1956. It was the second comprehensive statement on the industrial development of India after the Industrial Policy of 1948. The 1956 policy continued to constitute the basic economic policy for a long time. This fact has been confirmed in all the Five-Year Plans of India. According to this resolution, the objective of the social and economic policy in India was to establish a socialistic pattern in society. It provided more powers to the governmental machinery. It laid down three categories of industries which were more sharply defined.

The key features of the policy included:

• A system of industrial licensing was introduced. It required companies to obtain a license from the government. It was done before setting up new industries or expanding their existing ones.
• The key was the development of socialism and public ownership in the industrial sphere, along with active government involvement in the development and management of industries.
• It restricted foreign investment in the industrial sector. Foreign companies had to enter joint ventures with Indian partners.
• Importance in promoting rural development and employment opportunities. The policy saw the importance of cottage and small-scale industries. It encouraged their growth through the provision of credit and other support measures.
• The Industrial Policy Statement of 1956 also faced criticism. It was for its restrictions on private enterprise and foreign investment. And also its impact on industrial growth in India.
• This Industrial Policy had a classification of industries into 3 categories. They were Schedule A, B & C. These categories were established based on the degree of public ownership. Also, in control of the respective industries. As well as the type of industrial licensing required for each category.

Schedule A 

• Schedule A industries were considered strategically important to the economy and were reserved for exclusive ownership and operation by the state. These included industries such as arms and ammunition, atomic energy, and railway transport.

Schedule B 

• Schedule B industries were those in which public ownership was to be encouraged, but private enterprise was also allowed. These industries required a license from the government for new enterprises and included industries such as iron and steel, heavy machinery, and aircraft manufacturing.

Schedule C 

• Schedule C industries encouraged private enterprise, but the government reserved the right to regulate and control production and distribution. These industries required a license from the government for new enterprises and included industries such as textiles, paper, and chemicals.

With Schedule A industries receiving the highest amount of state control and Schedule C sectors being more accessible to private enterprise, grouping industries into these categories was meant to serve as a roadmap for the government's approach to industrial growth. The classification also defined the license level needed for new businesses, with Schedule A and B industries needing stricter regulation. The classification system was still utilized in India's following industrial plans, but it changed throughout time to reflect shifting economic goals and industrial sector advances.

The Industrial Policy Statement of 1977 

The Industrial Policy Statement of 1977 was one of the landmark policy documents of the GOI. It was created to increase India's industrial growth and industrial output independence. The strategy was developed following the Emergency era. The era saw a large concentration of power in the hands of the government.

The Industrial Policy Statement of 1977 outlined the following key objectives:

• A conducive environment is to be created for the growth of industries. Created with a focus on small and medium enterprises.
• Its primary focus was effectively promoting small, widely distributed industries. It was in rural and small-town settings.
• It divided the small sector into three categories. They were Cottage and household, micro, and small-scale industries.
• Developing indigenous technology and reducing dependence on foreign technology are to be encouraged.
• The growth of labor-intensive industries, which can generate employment opportunities, must be encouraged.
• This substantially changed the earlier policies of the Indian government. 
• They were geared towards a more centralized and state-led approach to industrial growth. 
• This new strategy was intended to promote private enterprise and competition. 
• It marked a shift towards a more market-oriented approach.

The Industrial Policy Statement of 1980

The Indian government released yet another significant policy statement in 1980. It aimed to give the country's industrial growth a long-term direction. When the program was being developed, the second oil shock and the need to promote export-oriented growth were taken into account.

The key objectives of the Industrial Policy Statement of 1980 were as follows:

• Encouraging balanced regional industrial development with a focus on underdeveloped areas and industries.
• Modernization supports the technological advancement of small and medium-sized businesses. To strengthen their position in the industrial sector.
• Encouraging the growth of enterprises focused on exports. Also, it boosts the competitiveness of Indian products in the international market.
• Promoting the growth of new industries and technologies, especially in high-technology areas.
• Encouraging the expansion of industries that require a lot of labor and creating job opportunities for all.
• Increasing the production and efficiency of the industrial sector through cutting-edge management techniques.
• The Industrial Policy Statement of 1980 was an addition to the shift in policy towards a more market-oriented strategy.
• The strategy started with the Industrial Policy Statement of 1977. 
• It emphasized the significance of private sector involvement in industrial growth. Also, it encourages exports and improves productivity and efficiency in the industrial sector.
• This practice led to the introduction of the MRTP Act and the FERA Act. 

Also, check the questions on the Central Statistical Organisation(CSO) here.

The New Industrial Policy 1991 

The New Industrial Policy of 1991 was a landmark reform in response to a severe balance of payments crisis. With a focus on boosting the competitiveness of Indian industry in the international market, the program seeks to further economic liberalization and establish a more market-oriented economy.

The New Industrial Policy of 1991 had the following key objectives:

• Private sector involvement in industrial development is to be encouraged, and the influence of government on the economy should be limited.
• To scale back government participation in industrial decision-making and liberalize and rationalize the industrial licensing regime.
• The role of technology transfer is to strengthen and encourage foreign investment in the industrial sector.
• Growth of industries is promoted, focussing on exports and integrating the Indian Economy with the Global Economy.
• Efficiency and production will be increased while fostering a more competitive industrial environment.

Features of Industrial Policy 1991 

• The policy aimed to encourage deregulation and lessen governmental influence over the industry. It streamlined the licensing procedure and permitted up to 51% FDI in some sectors.
• The policy promoted privatization, and the government started selling its shares in public sector units (PSUs).
• The policy encouraged industry competition and aimed to remove the PSU monopoly in specific sectors.
• The policy emphasized the need for technological modernization of industries and promoted the import of technology.
• The policy aimed to encourage exports and allowed duty-free imports of raw materials for export-oriented units.
• The policy aimed to simplify labor laws and increase hiring and firing flexibility.
• The policy emphasized the need for developing infrastructure, such as transportation, communication, and power, to support the growth of industries.

Limitations of Industrial Policies in India

• Stagnation of Manufacturing Sector: Industrial policies in India have failed to push the manufacturing sector, whose contribution to GDP has stagnated at about 16% since 1991.
• Distortions in industrial pattern owing to selective inflow of investments: In the current phase of investment following liberalization, while substantial investments have been flowing into a few industries, there is concern over the slow pace of investments in many basic and strategic industries, such as engineering, power, machine tools, etc.
• Displacement of labor: Restructuring and modernization of industries as a sequel to the new industrial policy led to the displacement of labor.
• Absence of incentives for raising efficiency: Focussing attention on internal liberalization without adequate emphasis on trade policy reforms resulted in 'consumption-led growth' rather than 'investment' or 'export-led growth.'
• Vaguely defined industrial location policy: The New Industrial Policy, while emphasizing the detrimental effects of damage to the environment, failed to determine a proper industrial location policy that could ensure a pollution-free development of industrial climate.

Way Forward

The industrial policy of India has played a critical role in shaping the growth and development of the industrial sector. However, there is always room for improvement, and the following are some ways to improve industrial policies in India:

• To expand the industrial sector, the government should create infrastructural facilities. This should be for power, transportation, and communication.
• The government should lower administrative barriers and boost the ease of doing business. This should be done to encourage private-sector investments. The creation of industrial parks and a sound policy environment can also help in attracting investors.
• The primary objective of industrial regulations should be to encourage environmentally friendly practices. Also, low-impact industrial practices help to reduce carbon emissions.
• To achieve long-term sustainable development, India must look beyond traditional manufacturing. India must concentrate on innovation-led growth. The government should provide incentives for research. Also, for promoting technology transfer. This should be done to support the development of the creative industries.
• Industrial policies should focus on promoting sustainable industrial practices. It helps to reduce the carbon footprint and has a minimal environmental impact.
• The growth of SMEs can play a critical role in industrial development and job creation. The government should provide incentives to promote the growth of SMEs. Also, cluster-based development should be encouraged to support these industries.
• The government should engage with industry stakeholders. Also, take their input while developing industrial policies. This is to ensure that the policies are industry-friendly. And provide adequate support to businesses.
• A successful industrial policy in India should be comprehensive and centered on sustainable growth. It should offer a favorable business climate to draw investments and promote entrepreneurship.

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