Industrial Growth and Policy Notes

9.0 Objectives

  • Understand the framework for India’s industrial development post-independence.
  • Describe the key features of industrial policies from 1956 to 1991.
  • Analyze industrial growth trends during major phases.
  • Discuss the role and challenges of the Competition Commission of India.

9.1 Introduction

  • Developed countries experienced a decline in agriculture's share of output, with an increase in the industrial and service sectors.
  • Pre-independence India was primarily agrarian, with a notable manufacturing sector including textiles and handicrafts.
  • Post-independence policies aimed to revitalize the manufacturing sector damaged by British colonial policies.

9.2 Policies Before the 1990s

9.2.1 Industrial Policy Resolution (IPR), 1948
  • Established a mixed economy prioritizing regulation of private sector activities.
  • Industries categorized into:
    • Category 1: Monopolized by the government (arms, atomic energy, transport).
    • Category 2: Owned and regulated by the government but open to private sector participation.
    • Category 3: Government-regulated private sector industries (automobiles, textiles, etc.).
    • Category 4: Free for private enterprise unless state intervention is needed.
  • Recognized the importance of foreign capital, small-scale industries, and a fair labor policy to foster harmony.
9.2.2 Industrial Policy Resolution, 1956
  • Classified industries into three schedules:
    • Schedule A: 17 industries for exclusive government responsibility.
    • Schedule B: Industries for both government and private sector.
    • Schedule C: Open for private sector with government participation possible.
  • Emphasized mutual dependence of public and private sectors.
  • Aimed to reduce regional disparities and enhance small-scale industries through support and subsidies.
  • Recognized the need for skill training and a continued foreign capital policy.
9.2.3 Industrial Policy Statement, 1977
  • Focused on promoting the small-scale sector, defining structures for cottage, tiny, and small-scale industries.
  • Proposed a District Industries Centre for small entrepreneurs.
  • Shift towards responsible growth in large-scale industries while ensuring no monopolistic behaviours.
  • Aimed at public sector expansion as a stabilizing force.
  • Emphasized self-reliance in technology and cautious support for sick industries.
9.2.4 Industrial Policy of 1980
  • Aimed at efficient public sector management and industrial growth:
    • Improved operational management of the public sector.
    • Promoted economic federalism to integrate small and large-scale industries.
    • Redefined investment limits for small units.
    • Addressed regional imbalances by promoting rural and urban industries.
    • Encouraged export-oriented units and regularization of unauthorized capacities.

9.3 New Industrial Policy, 1991

  • Marked a significant shift towards liberalization with key measures:
    1. Industrial Licensing: Abolished for most industries, retaining only 18, focusing on security/hazardous industries.
    2. Public Sector Policy: Reduced reserved industries for public sector from 17 to 8.
    3. MRTP Act Amendments: Removed asset thresholds for monopolistic firms, focusing on market share.
    4. Foreign Investment: Allowed automatic approval for up to 51% foreign equity in many sectors; 100% in Special Economic Zones.
    5. Convertible Clause Removal: Revised financial institutions' conditions on investment loans.

9.4 Trends in Industrial Production

9.4.1 Phase I: 1951-65
  • Key industries included textiles and engineering. Average growth rates were:
    • ext{1951-55: 5.7 ext{ ext{%}}; 1955-60: 7.2 ext{ ext{%}};}
  • Government investment focused on capital goods and strategic industries.
9.4.2 Phase II: 1966-80
  • Marked by slow growth (4.1% from 1965-76) due to wars, droughts, and poor agricultural performance.
  • Issues with public and private investment contributed to the slowdown.
9.4.3 Phase III: 1981-91
  • Recovery phase with growth rates accelerating to 8.5% from 1985-90 due to liberal policies and agricultural prosperity.
    • Capital goods showed exceptional growth (up to 17.4%).
9.4.4 Phase IV: Post-1991
  • Initial dip due to the balance of payments crisis, followed by substantial growth until 1995.
  • Structural issues led to uneven growth across sectors impacting employment generation.

9.5 Competition Commission of India (CCI)

  • Established as a market regulator to ensure fair competition:
    • Prevents anti-competitive practices.
    • Reviews mergers and acquisitions.
    • Educates on competition policies.
  • Faced challenges regarding legal decisions and potential overlaps with existing regulatory bodies.

9.6 Conclusion

  • India's industrial policies evolved to enhance competitiveness and adapt to global trends.
  • Despite advancements, challenges remain in generating employment and sustaining growth.
  • Policies increasingly focus on integrating technology, reducing state control, and fostering a competitive environment.