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India is the first non-communist country in the world to have an Industrial Policy. This is because India follows a mixed economy and Industrial Policy is a typical character of a mixed economy. It is an instrument through which government intervenes, gives preferential treatment to some sectors over others and allocates the resources between the private and the public players.
Yes, it is indeed true that the first Department of Commerce and Industry in India was set up in 1905 under the British but it is equivocally true that it favoured the British interests. Another effort was made in 1940 by the colonial masters through the establishment of Board of Scientific and Industrial Research in 1940 but again not much could come out of it. However, there were some serious efforts that started surfacing in the dying years of British rule in the form of Congress Working Committee, Bombay Plan, Visvesariya plan etc. In such instruments the industry was given a central stage with dominant role of state.
The first thrust to the development of Indian Industries came in the form of Industrial Policy Resolution of 1948. The resolution faced precarious situations in the form of almost ruined domestic artisans, handicrafts and other industrial setup, a gift of colonial masters to newly freed India. The provisions of the resolution at this point is left to the prerogative of the subject matter of economics general studies class. However, it can be stressed here that the resolution laid down the foundation of a mixed economy where both private and public enterprises were to be given importance and work together to develop economy to accelerate the pace of industrial development.
Next step was in the form of Industrial Policy Resolution, 1956 that gave mixed economy model a concrete shape as well as strengthened the ideology of socialist pattern of Indian Society. For the first time the small scale sector was given recognition as well as priority. The foreign investment was also sought to be a partner to write the saga of industrial development in the years coming ahead.
Industrial Policy Resolution of 1977, which reflected the change of government at the centre, was next big step in the process of development of Indian Industry. It was a deviation away from Nehru-Mahalanobis ideology to Gandhian ideology of development. Gandhian ideology of development was visible in the form of focus on cottage and household industries, tiny sector as well as small-scale industries. For promotion of small scale industry decentralisation took place in the form of establishment of District Industries Centres. A focus on development of indigenous technology was also undertaken. Limited encouragement to foreign investment continued.
Before the next big leap in 1991, the fourth industrial resolution was passed in 1980 as Industrial Policy Resolution 1980. It marked a slight release of economic tight grip by the government as some of the industries were de-reserved. Foreign investment was allowed with technology transfer and an inclination towards private sector was indicated.
The next big leap was New Industrial Policy 1991. This leap forward was also indicative of shift from ‘imperative’ to ‘indicative’ planning. This policy abolished all industrial licensing except for a short list of some 18 industries which was later shrunk to only 5 industries that were critical to the country. An increased attention was paid to the chronically sick industries and an increased role was given to the Board of Industrial and Financial Reconstruction was given for their revival and rehabilitation. Privatisation and disinvestment was manifested in increased shareholding in public sector enterprises in the form of mutual funds, financial institutions, the general public and the workers.
The contemporary economic scenario is hailed as Post Liberalisation Era where the government has taken up the role of facilitator and regulator. This can be seen in the way the government has rationalised the regressive legislations and barriers to the economic growth. A shift from FERA to FEMA is a testimony to such development. Another testimonial to the government acting as facilitator was written when the government replaced the MRTP Act by the progressive Competition Act. FDI now is allowed in wide array of sectors and in many of the sectors through an automatic route.
The present industrial policy marks the shrinking role of the government and limiting the same to be a facilitator and a liberal regulator.
Industrial policies and resolutions from time to time have been an agent of change and progress for the industrial sectors in the country. Each industrial resolution from time to time had different objectives but at the centre of each resolution was the overall development of the dilapidated industrial base that we inherited from our colonial masters.
The Industrial Policy Resolution, 1948 had prime objective of establishing a mixed pattern of ecnomy in the country. The IPR, 1956 further aimed to strengthen the socialist pattern of the society alongside concretising the mixed economy that India started on. This resolution in particular had one of the objective to reduce the regional inequalities and imbalances. The IPR, 1977 had at its heart development of small-scale industries, household industries and development of tiny sector. Decentralisation of industrial development for small scale industries’ development is a testimony to this submission.
However, the objective of developing Indian industries on lines of modern industries was for the first time enshrined in the New Industrial Policy 1991. The NIP, 1991 had at its heart following objectives, firstly, liberalising the industry from regulatory devices such as licenses and controls. Secondly, enhancing support to the small-scale sector. Thirdly, increasing competitiveness of industries for the benefit of the common man. Fourthly, ensuring running of public sector enterprises on business lines and thus cutting their losses. Further, it provided more incentives for industrialisation of the backward areas and lastly, it ensured rapid industrial development in a competitive environment.
The New Industrial Policy, 1991 made significant changes in four main areas viz., industrial licensing, role of public sector, foreign investment & technology and lastly, MRTP Act.
A planned approach to Industrial Development in the form of Industrial Resolutions with a systematic and timely re-evaluation of the same was crucial in the development of a profound base of Indian Industries during the period 1947 to 1991. The resolutions acknowledged the fact that the industrial base that was given to us in the form of inheritance was nothing but a saga of misery reflected in the form of industries which were nothing but a collection of ruins. Every industrial resolution was a development over the previous and attached to it various positive aspects. In this section we attempt at collective look at the various positives attached with the industrial policies and resolutions. The first resolution in the series provided a much needed thrust to the heavy industries which were often regarded as one of the temples of modern India. However, the neglected small-scale and tiny sector was given emphasis it the following Industrial Policy Resolutions of 1956, 1977 and 1980. The Industrial Policy Resolutions were also progressive in a sense that they equivocally laid emphasis on foreign investment as well as indigenisation of technology. The New Industrial Policy, 1991 was next big development in the series and requires an independent analysis of various positives aspects attached with it.
Firstly, the various subsequent resolutions and policies earmarked an increase in competition amongst the industries. Liberal licensing, easy entry of multinational companies, privatisation, elimination of monopolistic, restrictive and unfair trade practices etc. had increased competition in the economy which resulted in benefit to the consumer.
Secondly, the economy saw increased production with introduction of New Industrial Policy, 1991. Foreign investment and foreign technology agreements were designed to attract capital, technology and managerial expertise from abroad that culminated into increased productivity.
Thirdly, the policy simplified the process of import of technology in India. High priority industries were granted automatic permission for import of technology.
Fourthly, export optimism prevailed over export pessimism for the first time. Export oriented units were given priority as well concessions in the form of liberal loans, setting up of special economic zones, liberal imports of capital goods, raw materials, technology etc.
Next big positive attached with NIP, 1991 was an emphasis to balance regional development. Industries located in backward regions were given various incentives to promote a balanced regional development. A separate strategy for the growth of small scale cottage industries was laid down for the first time.
Lastly, labour welfare was acknowledged in the form of governmental protection, institutionalised labour welfare and training.
Like any comprehensive policy, the Industrial Policy in India was not free from bugs. The structural bugs prevailed in the policy.
Firstly, there was an over emphasis on foreign investment. Large amount of incentives and concessions were provided to MNCs to encourage foreign investment in India. Instead these incentives and concessions should have been provided to indigenous industrial houses for better results without the risk involved with foreign capital.
Secondly, with relatively naïve domestic industries and introduction of foreign industries, the Indian domestic resources were put before the MNCs to produce products belonging to non-priority categories for serving the world market.
Thirdly, in a scenario of constraints on domestic industries in the form of constraints on size, finance, poor human capital, poor quality of production and obsolete technology, an impetus to foreign investment was neither desirable nor required. The domestic industries were not equipped to handle foreign competition.
Fourthly, liberal import of foreign technology and use of capital intensive technology has reduced the employment opportunities in the country.
Lastly, the initial years of liberalisation showed negative growth figures for the growth of industrial goods. It defeated the main purpose of New Industrial Policy.
The industrial policy landscape in the country always had certain issues involved which remained unaddressed during the entire course of more than six decades.
Firstly, despite all efforts India has not been able to attain self-sufficiency in respect of industrial material. India still remains dependent on foreign imports for transport equipment, machineries, iron and steel, paper, chemicals and fertilisers, plastic materials etc. In this scenario import substitution appears to be a distant dream.
Secondly, the Industrial structure despite the various industrial policy resolutions remained largely unbalanced in favour of consumer goods. The total industrial production of consumer goods contributes around 38%. The various efforts have till date failed to ignite the required impetus in core sector industries.
Thirdly, never in the history of industrial policies and resolutions there was a mitigation strategy adopted towards the issue of low demand. The low demand was a deterrent in development of sound industrial base which was due to low consumption level, weak purchasing power and poor standards of living. This all alludes to the fact that industrial policy in India was never holistic in character. The domestic markets remained chronically under developed through lack of enthusiasm.
Fourthly, the issue of lack of Institutional Organisation was never addressed at requisite level. Formulation of industrial policies and resolutions was devoid of a sound administrative machinery capable of undertaking this enormous task. This resulted in non-achievement of targets. The industrial planning at the state-level was absent to attract the foreign capital and promote industrialisation.
Fifthly, the issue of high cost of production and low quality of goods was never given requisite attention. Indian industries mostly survived on home demands and most of the work was done by hand on old and obsolete machines. Further protected by government such industries had a virtual monopoly which further resisted any change that could have improved the quality of product.
Lastly, the major issue of Industrial Sickness though found mention in some of the policy resolutions as well as policy documents was never mitigated with the adequate zeal. The deficient-management, under-utilisation of capacity due to shortage of raw materials, faulty choice of products and processes and similar ills prevailed and painted the canvas of Industrial production.
Apart from above mentioned major issues, there were some minor issues related to regional concentration, loss in public sector industries, improper location base, lack of adequate capital and shortage of industrial raw material that added to the issues involved in formulation of a far from adequate industrial policy.
The efforts of the government in the form of various industrial resolutions and policies had built strong industrial base on which other industries can thrive in future. However, the strong industrial base could have been further strengthened if the aforementioned limitations and issues could have been prevented in a timely manner. However, the present role of the government in the form of a facilitator and regulator is commendable. The industries with the stable government at the centre is picking up. The international climate is also benign for the growth of industries. The government too is promoting the cause of growth of industries through initiatives like Make In India, New Manufacturing Policy etc. to name a few. The time is ripe for the country to have another Industrial Policy, this time rather a strong one with achievable targets, ground realities and a dedicated administrative machinery in place.
By: Aakash ProfileResourcesReport error
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