Industrial Policy

What is Industrial Policy?

• Industrial Policy is the government’s strategic intervention to guide and promote industrial growth, particularly in manufacturing.
• It seeks to enhance competitiveness, develop infrastructure, and promote structural transformation.
• Common tools include: subsidies, trade tariffs, tax incentives, sectoral reservations, and licensing rules.
• Industrial policy differs from macroeconomic policy and often overlaps with trade and technology policies.

Industrial Policy Resolution (IPR), 1948

• India’s first industrial policy post-independence.
• Aimed to establish a mixed economy, balancing public and private sectors.

Industry Classifications:

Strategic Industries (Public Sector):

• Central Government monopoly.
• Included: Arms and ammunition, Atomic Energy, and Rail Transport.

Basic/Key Industries (Public-cum-Private Sector):

• Govt to set up new units; existing private firms allowed to continue.
• Included: Coal, Steel, Aircraft, Shipbuilding, Telecom equipment, Mineral oil.

Important Industries (Controlled Private Sector):

• Privately owned but state-regulated.
• Included: Chemicals, Sugar, Textiles, Cement, Salt, Fertilizers, Rubber, Air & Sea Transport, Electricity.

Other Industries (Private & Cooperative Sector):

• Open to private enterprise, but with potential for government control.

Significance:

• Laid foundation for state-led industrial development and democratic socialism.

Industrial Policy Resolution (IPR), 1956

• Known as “Economic Constitution of India.”
• Reinforced the public sector’s dominant role in industrialization.
• Aimed to prevent private monopolies and support cooperative enterprises.

Three-Category Structure:

1. Schedule A (17 industries) – Exclusive state responsibility (e.g., Atomic Energy, Railways).
2. Schedule B (12 industries) – Mixed sector; public sector preferred.
3. Schedule C – All other industries left to the private sector, under state supervision.

Focus Areas:

• Promoting small and cottage industries.
• Ensuring decentralized development.
• Promoting industrial peace and fair income distribution.

Criticism:

• License Raj created delays and corruption.
• Stifled private sector growth and innovation.

Industrial Policy Statement, 1973

• Introduced Core Industries concept (then 6, now 8).
  • Iron & Steel, Coal, Cement, Crude Oil, Oil Refining, Electricity.
• Private companies could apply for licenses in Core Industries if assets > ₹20 crore.
• Created a Reserved List for MSMEs.
• Encouraged Joint Sector ventures (Govt + Private).
• Introduced FERA (Foreign Exchange Regulation Act) to control forex.
• Allowed limited foreign investment, including MNC subsidiaries.

Industrial Policy Resolution, 1980

• Liberal tone; aimed at reviving industrial momentum.
• Technology transfers encouraged.
• MRTP limit raised to ₹50 crore.
• Supported expansion of private industries and industrial licensing.

New Industrial Policy (NIP), 1991 – LPG Reforms

Background:

• Triggered by Balance of Payments crisis.
• Gulf War, inflation (17%), fiscal deficit (8.4%), and low forex reserves.
• India turned to IMF, agreed to structural reforms.

Core Pillars:

Liberalization:

• Delicensing: Reduced from 18 industries to just 5 (alcohol, tobacco, defense, explosives, hazardous chemicals).
• De-reservation: Fewer industries reserved for public sector.
• Abolished phased manufacturing programs.

Privatization:

• Govt began disinvestment in PSUs (e.g., Hindustan Zinc).
• Opened banking, insurance, telecom, and aviation to private sector.
• Stopped nationalization trend.

Globalization:

• India joined WTO and reduced tariff/non-tariff barriers.
• Promoted both FDI and FPI.
• Replaced FERA with FEMA in 2000 for easier forex management.

Why We Need a New Industrial Policy Today

• Rise of Industry 4.0: AI, automation, IoT demand a tech-driven approach.
• Labour laws, logistics, and infrastructure remain bottlenecks.
• India now faces a demographic transition; youth bulge to eldercare.
• China’s slowdown opens opportunity for India in global manufacturing.
• Climate change & sustainability: India must align with its Paris commitments.
• Service sector dominance (49% of GDP) requires rebalancing towards industry.

What the New Policy Should Focus On

• Technology & Innovation: Incentives for AI, robotics, and smart manufacturing.
• Ease of Doing Business: Improve ranking by cutting red tape and reforming regulations.
• Infrastructure Push: Invest in logistics, power, water, and digital infra.
• Skilling & Employability: Align education with industry needs.
• Labour-Intensive Sectors: Promote textiles, food processing, footwear, and leather.
• Green Industrialization: Promote energy efficiency, waste management, and clean tech.
• MSME Credit Access: Improve digital finance and market linkages.
• Create Global Brands: ‘Make in India’ should focus on export-ready quality.

Way Forward

• Tap India’s youth dividend through job creation.
• Manage urban migration with planned industrial corridors.
• Link policy with agriculture & services for inclusive growth.
• Create a nodal department under PMO for coordinated implementation.
• Avoid protectionism; instead, enhance global competitiveness.
• Strengthen value chains and export capabilities.

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Subject: Economics

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