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Industrial policy means rules, regulations , principles , policies , and procedures laid down by government for regulating , developing and controlling industrial undertakings in the country. It prescribes the respective roles of the public, private joint and cooperative sectors for the development of industries. It also indicates the role of the large , medium , and small sector . It incorporates fiscal and monetary policies, tariff policy , labour policy and the government attitude towards foreign capital, and role to be played by multinational corporations in the development of the industrial sector.
Industrial policy resolution of 1948 • Important distinction was made- • Industries to be kept under : • -public sector, • -private sector and the • -joint sector. • Industrial Development and Regulation Act (IDR Act) was enacted in 1951.
Objective of IDR1951 Empowering the Government to take necessary steps to regulate the pattern of industrial development through licensing. • This paved the way for the Industrial Policy Resolution of 1956, which was the first comprehensive statement on the strategy for industrial development in India.
Industrial Policy Resolution - 1956 • Shaped by the MahalanobisModel of growth, which suggested that emphasis on heavy industries would lead the economy towards a long term higher growth path. • The Industrial Policy Resolution - 1956 classified industries into three categories :
Objectives • To accelerate economic growth and boost the process of industrialization as a means to achieving a socialistic pattern of society. • Removal of regional disparities through development of regions with low industrial base.
FEATURES OF NIP • De-reservation of Public Sector: The number of industries reserved for public sector was reduced to 8 industries. At present, there are only two industries reserved for public sector which include. (a) Atomic energy (b) Railways • De-licensing: -The most important features of NIP, 1991 was the abolition of industrial licensing of all industries except six industries. The six industries are of social and strategic concern. The six industries are 1. Hazardous Chemicals. 2. Alcohol 3. Cigarettes 4. Industrial Explosives 5. Defense Products, and 6. Drug and pharmaceuticals. • Disinvestment of public sector: -The NIP 1991 permitted disinvestment of public sector units. Disinvestment is a process of selling government equity in PSUs in favour of private parties. Disinvestments aim at certain objectives. (1) To provide better customer Service. (2) To make effective use of disinvestment funds. (3) To overcome the problem of political interference. (4) To enable the government to concentrate on social development.
Foreign Investment: Approval will be given for direct foreign investment up to 51 percent foreign equity in high priority industries . There shall be no bottlenecks of any kind in this process • Foreign Technology Agreements: Automatic permission will be given for foreign technology agreements in high priority industries up to a lump sum payment of Rs. 1 crore. • MRTP Act: Emphasis will be placed on controlling and regulating monopolistic, restrictive and unfair trade practices. Simultaneously, the newly empowered MRTP Commission will be authorized to initiative investigations on complaints received from individual consumers or classes of consumers in regard to monopolistic, restrictive and unfair trade practices
Public Sector Policy: The priority areas for growth of public enterprises in the future will be the following: • Essential infrastructure goods and services. • Exploration and exploitation of oil and mineral resources. • Technology development and building of manufacturing capabilities in areas which are crucial in the long term development of the economy and where private sector investment is inadequate. • Manufacture of products where strategic considerations predominate such as defense equipment.
The spread of industrialization to backward areas of the country will be actively promotedthrough appropriate incentives, institutions andinfrastructure investments. • Foreign investment and technology collaboration will be welcomed to obtain highertechnology, to increase exports and to expand the production base. • Workers’ participation in management will be promoted
INDUSTRIAL POLICY 1991 ISSUES (evaluation) • Government recognizes the need for • social and economic justice, to end poverty and unemployment and to build a modern, democratic, socialist, prosperous and forward-looking India • India to grow as part of the world economy and not in isolation • Enhanced support to the small-scale sector so that it flourishes in an environment of economic efficiency and continuous technological up gradation • Emphasis on building our ability to pay for imports through our own foreign exchange earnings
INDUSTRIAL POLICY 1991 OBJECTIVES Government decided to take a series of initiatives in respect of the policies relating to the following areas: • Industrial Licensing. • Foreign Investment. • Foreign Technology Agreements. • Public Sector Policy. • MRTP Act.
Industrial Licensing: • Industrial licensing abolished for all projects except a short list of 7 industries related to security and strategic concerns, social reasons, hazardous chemicals etc. • Areas where security & strategic concerns predominate, reserved for public sector. • In projects where imported capital goods are required, automatic clearance given. • In locations other than cities of more than 1 million population, no requirement of obtaining industrial approvals from Central Government. • Incentives & investments in infrastructural development, to promote dispersal to rural and backward areas. • Existing units enabled to produce any article without additional investment.
INDUSTRIAL POLICY 1991 B. Foreign Investment: • Approval upto 51 percent foreign equity in high priority industries • Imports governed by general policy applicable to other domestic units monitored by RBI. • Other foreign equity proposals, not covered above, need prior clearance. • A special Empowered Board- to negotiate with a number of large international firms & get FDIs approved.
INDUSTRIAL POLICY 1991 C. Foreign Technology Agreements: • Automatic permissions for foreign technology agreements in high priority industries upto a lump sum payment of Rs. 1 crore. • No permission will be necessary for hiring of for foreign technicians, foreign testing of indigenously developed technologies.
INDUSTRIAL POLICY 1991 D. Public Sector Policy: • Portfolio of public sector investments reviewed with a view to focus public sector on strategic, high tech & essential infrastructure. • Chronically sick public enterprises, referred to Board of Industrial & Financial Reconstruction (BIFR). • A part of government’s shareholding in public sector offered to mutual funds, financial institutions, public & workers. • Boards of public sector companies- more professional & powerful. • MOU system- managements would be granted greater autonomy & held accountable.
INDUSTRIAL POLICY 1991 E. MRTP Act: (Monopolistic Restrictive Trade Practices): • Removal of threshold limits of assets in respect of MRTP Companies & dominant undertakings. • Elimination of need of prior approval of Central Government for establishment, expanding, merger, amalgamation & takeover. • Emphasis on controlling & restrictive & unfair trade practices. • Enabling the MRTP Commission to exercise punitive & compensatory powers.
Industrial Policy changes • Pre 1991 Policy • Industrial licensing was a rule • Public sector monopoly in basic and heavy industries • MRTP act restrictions on entry and growth of large companies • Foreign sector allowed in select industries’ • Restrictive policy towards foreign technology • Reservation of large number of products for small scale sector • Current Policy • Licensing is an option • All but two industries are open to private sector • No such restrictions • Foreign investment allowed in large no. of industries • Very liberal policy towards foreign technology • Reservation list is being pruned
Positives & Watch- Outs • POSITIVES: • De-licensing of most industries will help entrepreneurs to quickly seize business opportunities. • Removal of controls under the MRTP Act will facilitate expansion and growth. • There will be greater inflow of foreign capital and technology due to easing of restrictions. • Burden on the public sector will be reduced. • WATCH-OUTS: • . The bureaucracy has a tendency to attempt to defeat measures aimed at deregulations. • Foreign investors still regard the policy and procedural system in India confusing. Rather many feel that policy and development environment in China is superior to India. • Distortion in Industrial pattern would occur due to slow pace of investment in few basic and strategic industries. Absence of a mechanism would slow down the development of backward areas
