1975 Industrial Policy Changes
The government removed licensing requirements for 21 industries, including cotton threads, germicidal products, machine tools, industrial implements, and sewing machines. These industries were allowed to expand without prior permission but faced restrictions on importing raw materials and capital goods. Additionally, 30 other industries were mandated to export their products only after utilizing their full production capacity.
1977 Industrial Policy
Announced on January 23, 1977, this policy focused on the development of small cottage industries, allowing their establishment and expansion in small towns and villages. The industries were categorized into three groups:
- Cottage and Home Industries: Operated at the grassroots level.
- Micro Industries: Established in areas with populations not exceeding 50,000 as of 1971, with a capital ceiling of ₹1 lakh and the use of machinery.
- Small Industries: These industries had a capital of ₹10 lakhs, with certain commodities reserved for them.
Each district was encouraged to develop an industrial zone, and there was a renewed focus on reviving the Khadi and Village Industries Commission. The policy de-emphasized large industrial houses and mixed or joint ventures, shifting focus toward smaller enterprises. While it aimed to increase employment and reduce economic centralization, it did not alter provisions related to foreign or multinational companies.
1980 Industrial Policy
The Congress Party, upon returning to power, announced a new Industrial Policy on July 4, 1980, modifying aspects of the 1965 policy. Key focuses included:
- Revival of the public sector.
- Introduction of “economic federalism”.
- Identification of industrially undeveloped districts.
- Establishment of new organizations to enhance small, subsidiary, and cottage industries.
The policy aimed at increasing the growth rate and adopted a more liberal approach to production, which was well-received by industrialists. For the first time, environmental factors were considered while formulating industrial policy.
Investment limits for obtaining licenses under the Monopolistic and Restrictive Trade Practices Act (MRTP) and the Foreign Exchange Regulation Act (FERA) were raised. Additionally, restrictions were lifted on approximately 112 industries that were previously constrained by these and other industrial regulations.
1991 Industrial Policy
On July 24, 1991, during the tenure of Prime Minister P.V. Narasimha Rao, the government introduced a new Industrial Policy, crafted by then Finance Minister Manmohan Singh. This policy was developed in response to changes in both national and international economic scenarios.
Key Elements of the New Industrial Policy (1991):
- Simplifying the industrial licensing process.
- Integrating the Indian economy with international economic institutions.
- Enhancing production capacity and ensuring employment stability.
- Boosting international competitiveness.
- Creating new industrial institutions.
- Addressing inefficiencies in economic institutions.
- Minimizing financial losses incurred by government institutions.
Key Aspects of the Industrial Policy (1991)
The primary focus of the policy was to eliminate the industrial licensing procedure, with an emphasis on societal goals and environmental considerations. This led to the abolition of licensing requirements for all industries except those in the chemical sector.
For other industries, particularly small-scale industries producing reserved commodities, there was no need for licenses—only an industrial approval and memorandum submission were required. Certain industries remained under government control due to their strategic importance, including:
- Atomic energy
- Weaponry and explosive materials
- Defense aircraft, warships, and defense equipment
- Railway transport
- Iron production
The Licensing Policy of 1985 was further expanded in 1991. Restrictions on the location of industries were removed, importation of capital and capital goods was liberalized, and Foreign Direct Investment (FDI) up to 51% was permitted for foreign capital.
The policy encouraged agreements with foreign companies and involved major amendments to the Monopolistic and Restrictive Trade Practices (MRTP) Act, including the removal of the upper limit for industries. Restrictions on converting profits into equities were also eliminated.
Changes were made to existing laws to provide continued support to small industries, though in some cases, government assistance was limited to a one-time intervention. Additionally, the definition of ‘industry’ was broadened beyond manufacturing establishments to include service and business enterprises, aligning with international practices where small industry policies evolved into small business policies.