CRITICAL ANALYSIS OF INDUSTRIAL POLICY

OVERVIEW

• INTRODUCTION

• MEANING OF INDUSTRIAL POLICY

• INDUSTRIAL POLICIES 1948-1991

• POSITIVES AND NEGATIVES OF INDUSTRIAL POLICIES.

INTRODUCTION

• At the time of independence Indian economy was faced with the problems of illiteracy, poverty, low per capita income, industrial backwardness and unemployment. The country depended mainly on imports from the developed countries of the world.

• To promote the industrial growth and over all economic development of the country, the economic planners adopted a planned industrial development , guided by a properly drafted policy document known as “The Industrial Policy”.

MEANING OF INDUSTRIAL POLICY

• Industrial policy means those principles and activities which are pursued and performed to help industrialize a country . Industrial policy includes rules, regulations, principles and procedures to regulate the industrial undertakings of a country in the desired direction, in order to achieve broader objectives like industrial development, economic development, balanced regional development ,Increase in employment ,etc Therefore :

• “Industrial policy is an instrument with help of which the state participates in the growth process”

• Through industrial policy the government decides that which industry should be allowed to grow or should be shrunk through subsidies,incentives,concessions and taxes respectively.

INDUSTRIAL POLICY 1948• The Government of India announced its Industrial Policy Resolution (IPR)

on April 6,1948 whereby both public and private sectors were involved towards industrial development. Accordingly, the industries were divided into four broad categories:

• Exclusive State Monopoly

• State Monopoly for New Units

• State Regulation

• Unregulated Private Enterprise

INDUSTRIAL POLICY 1956

• This policy widened the scope of the public sector.

• It classified industries into three categories:

• The first category comprised 17 industries . These included railways, arms and ammunition , iron and steel and atomic energy.

• The second category comprised 12 industries which were envisaged to be progressively state owned but private sector was expected to supplement the efforts of the state.

• The Third category contained all the remaining industries and it was expected that private sector would initiate development of these industries but they would open for state as well.

Contd..

• Despite the demarcation of industries into separate categories, the Resolution was flexible enough to allow the required adjustments and modifications in the national interest.

• Another objective spelt out in the Industrial Policy Resolution -1956 was the removal of regional disparities through development of regions with low industrial base.

• Accordingly, adequate infrastructure for industrial development of such regions was duly emphasized.

Contd..

• Given the potential to provide large-scale employment, the Resolution reiterated the Government’s determination to provide all sorts of assistance to small and cottage industries for wider dispersal of the industrial base and more equitable distribution of income.

• The Resolution, in fact, reflected the prevalent value system of India in the early 1950s, which was centered around self sufficiency in industrial production.

• The Industrial Policy Resolution – 1956 was a landmark policy statement and it formed the basis of subsequent policy announcements.

Industrial policy measures in 1960s & 1970s

• Establishment of MIC in 1964

• Also called Dasgupta commission

• To enquire into the effects of concentration of power in pvt. Hands & prevalence of monopolistic activities & also to suggest necessary legislations.

• There were dangers from concentrated economic powers & monopolistic practices in large measures.

Contd..• Commission recommended the govt. to minimize these dangers.

• Leading to preemption and foreclosure of capacity.

• Industrial licensing policy inquiry committee (Dutt committee) in 1967.

• Dutt committee : large business houses were those with assets of more than Rs. 350 million.

• In 1969, Monopolies and restrictive trade (MRTP) act was introduced to enable the govt to effectively control concentration of economic power.

Contd.• In MRTP act large industries were those with assets of Rs. 200 million &

above.

• MRTP companies: large companies that were not reserved for govt or the small scale industries.

• In 1970, new Industrial licensing policy classified industries into four categories:

i) core sector: consisted of basic, critical & strategic industries. ii) heavy investment sector : where investment of more than Rs. 50 million.

Contd.

iii) middle sector: where investment in the range between Rs. 10 million & Rs. 50 million.

iv) Delicensed sector : in which investment was less than Rs. 10 million and was exempted from licensing requirements.

The industrial licensing policy of 1970 confined the role of large business houses & foreign companies to the core, heavy & export oriented sectors.

The industrial policy statement- 1973

• Preference to small and medium entrepreneurs over the large houses and foreign companies in setting up of new capacity particularly in production of mass consumption goods.

• New undertakings of upto Rs. 10 million and hence companies were exempted from licensing requirements.

• This exemption was not allowed to MRTP companies, foreign companies and existing licensed having fixed assets of Rs. 50 million and above.

INDUSTRIAL POLICY OF 1977

Janata party govt. announced a new industrial policy in 1977.

Main features of the Industrial Policy of 1977

• Small Scale industries:- In this policy emphasis will be placed on the successful development of small scale and tiny industries.

Contd.

• Role of large scale industries:- it emphasis on following areas for large scale industrial sector:

1. basis industries 2. capital goods industries 3. high technology industries

• Expanded role of public sector;

Contd.

• Indigenous and foreign technology:- It prohibited to grant a permission for import of technology, but will be allowed in cases that are important for the growth and development of country.

• Licensing policy :- Its main objective to regulate the activities of big industrial houses.

Contd.

• Foreign trade:- To encourage export industries will given concession in custom and excise duties.

• Participation of worker’s in public & private sector;

Industrial policy 1980

As a industrial policy 1977 ignored the large scale & public sector industries so there is a need for more balanced industrial policy which was then announced in 1980. Its main objective is :

a. Strengthening of agro-based industries.

b. Maximizing production to achieve high productivity.

c. Development of industrially backward areas.

d. Faster promotion of export & import industries.

Main features

• Investment limit of small scale units increased;

• Khadi and village industries, handicraft and handloom industries encourged;

• Balanced growth: This policy put emphasis on the setting up the industries in backward areas .

Contd..

• Effective management of public sector;

• Industrial sickness: The govt. encourage the merger of sick units with healthy units. Sick units are provided with text concession.

• Encourage the development of export oriented industries;

• Development of backward regions: This policy put emphasis to promote suitable industries in rural areas in order to generate higher employment.

Industrial Policy Statement- 1991

• The Industrial Policy Statement of 1991 stated that “the Government will continue to pursue a sound policy framework encompassing encouragement of entrepreneurship, development of indigenous technology through investment in research and development, bringing in new technology, and increased competitiveness for the benefit of common man".

• It further added that "the spread of industrialization to backward areas of the country will be actively promoted through appropriate incentives, institutions and infrastructure investments”.

• The objective of the Industrial Policy Statement -1991 was to maintain sustained growth in productivity, enhance gainful employment and achieve optimal utilization of human resources.

• Quite clearly, the focus of the policy was to unshackle the Indian industry from bureaucratic controls.

POSITIVE ASPECTS OF NEW INDUSTRIAL POLICY:

• Increased competition: Liberal licensing, easy entry of multi-national companies, privatization, elimination of monopolistic, restrictive and unfair trade practices etc. has increased competition in the economy. Increase in competition will result in lower prices which will result in benefit to the consumer.

• Increasing production:

1. Foreign Investments and foreign technology agreements are designed to attract capital ,technology and managerial expertise from abroad.

2. Industrial production will increase both through higher productivity of these resources as well as through additional inflow.

Contd..

• Simplified process for import of technology in India: High priority industries have been granted automatic permission for import of technology.

• Increase in exports: In the new policy export oriented units are given various concessions like liberal loans, setting up of special economic zones ,liberal imports of capital goods, raw materials, technology, etc.It has resulted in more exports.

• Balanced regional development: Industries located in backward regions are given various incentives to promote balanced regional development.

Contd..

• Significance to small scale industrial: 1. For the first time the New Industrial provided a separate

strategy for the growth of small scale cottage industries. 2. In 2006, the investment limit in plant and machinery of

small industries has been increased to Rs 5 crore and that of micro enterprises to Rs 25 lakh.

• Labour welfare: Government will protect the investment of labour,enhance there welfare and train them to learn the method of using new technology.

NEGATIVE ASPECTS OF NEW INDUSTRIAL POLICY

• Over emphasis on foreign investment:

1. Large amount of incentives and concessions are provided to multi-national companies to encourage foreign investments in India.

2. If the same are provided to indigenous industrial houses, better results can be expected without taking the risk of foreign capital even.

3. If not controlled multi-national companies will dominate certain growing areas of our country and restrict the growth of Indian concerns.

Contd..

• Exploitation of domestic resources:

1. Multinational companies will utilize the natural resources of our country to produce the products belonging to non-priority categories for serving the world market.

2. It will lead to the early depletion of available natural resources of the country.

• Reduced role of public sector:

1. Reduction in the number of industries reserved for the public sector and closure of some public sector enterprises has reduced the area of public sector.

Contd..

• Unhealthy foreign competition:

1. Opening up of economy to the foreign capital has created unhealthy competition in the economy.

2. Domestic industries are suffering from the constraints of size, finance, poor human capital, poor quality of production and obsolete technology.They are not equipped to handle foreign competition.

• Increase in unemployment:Liberal import of foreign technology and use of capital intensive technology has reduced the employment opportunities in our country.

Contd..

• Fall in the production of industrial goods: In the initial years of liberalization the growth of industrial goods has shown even negative figures. It has defeated the main purpose of New Industrial Policy.