Industrial Policy Resolutions

Industrialisation transformed countries by enabling large‐scale production, technological progress and the creation of modern infrastructure. At Independence, India inherited a narrow, import-dependent industrial base producing little exportable surplus. The leadership therefore saw industry as central to self-reliance, growth and employment.

• Industrial policy is the State’s strategic framework to steer structural change—deciding where the public and private sectors operate, how investment is directed, how technology and trade are managed, and how competition is governed. India’s industrial policy evolved from public-sector led import substitution to a more open, competitive regime post-1991.

Common objectives of industrial policy include:

• raising productivity and growth,
• generating employment,
• efficient use of resources and technology upgradation, and
• expanding industry’s contribution to GDP and exports.

Industrial Policy Resolution (IPR), 1948

Context:

Early post-Independence years; private capital and entrepreneurship were limited, and strategic sectors needed rapid build-out.

Core features

• Mixed economy: Coexistence of public and private sectors; the State to play an “increasingly active role”.
• State monopoly in select areas: Arms and ammunition, atomic energy, and railways reserved for the Central Government.
• Strategic/basic industries: New undertakings in six basic industries to be State-led; private participation could be enlisted if required.
• Regulated private sector: Remaining industries open to private enterprise but subject to government regulation.
• Support to small/cottage industries: Due to their labour-intensive, dispersed nature and low capital needs.
• Guarded foreign investment: To protect infant domestic industry from premature competition.

Significance:

Laid the foundation of a mixed economy model; indicated a socialist tilt with space for private enterprise.

Industrial Policy Resolution (IPR), 1956

Context:

Second Plan strategy (Mahalanobis model) emphasised heavy industry and capital goods for long-term growth and self-reliance.

Classification of industries

• Schedule A (17 industries): Exclusively in the public sector (e.g., railways, arms, atomic energy, iron & steel, heavy machinery, air transport).
• Schedule B (12 industries): To be progressively State-owned; private sector to supplement State efforts.
• Schedule C: The rest of the industries were open to private enterprise, though still subject to licensing and regulation.
• All others: Primarily for the private sector, though State could also enter.

Policy thrust

• Expansion of the public sector with a commanding role.
• Prevention of concentration of economic power; support to cooperatives.
• Import substitution via protection (quotas/licensing/tariffs) to nurture infant industries.

Significance:

Known as India’s “economic constitution” for industry; provided a long-lasting framework until 1991. Criticised for shrinking space for private sector expansion and entrenching controls.

Industrial Policy Statement, 1977

Context:

Rising concerns about centralisation of industrial power and unemployment.

Focus areas

• Decentralisation of industrial activity and reduction in wealth concentration.
• Priority to small-scale, tiny and cottage industries (creation of a “tiny unit” category).
• Expansion of small-scale reservation list (over 500 items).
• Balanced regional development: Licensing restrictions near large metros/large urban areas.
• Foreign firms: FERA-compliant firms (≤40% foreign equity) treated at par with Indian companies; fully foreign-owned allowed mainly in export-oriented/high-tech areas; profit repatriation allowed per approvals.

Significance:

Re-oriented emphasis towards employment-intensive distributed manufacturing.

Industrial Policy Statement, 1980

Context:

Need to revive growth, modernise technology and improve productivity.

Objectives

• Better capacity utilisation, productivity and employment.
• Reduction of regional imbalances; stronger agro-industry linkages.
• Promotion of exports and consumer protection (quality/price).
• Public sector efficiency: strengthening management, finance, marketing and MIS.
• Automatic capacity expansion up to 5% p.a. in core/export-oriented sectors.
• Energy efficiency and alternative energy incentives.
• Higher investment limits for small/ancillary/tiny units to facilitate technology upgrades.

Significance:

A transitional step—preparing the ground for wider reforms in the 1990s.

New Industrial Policy, 1991 (LPG Reforms)

Context:

Balance of Payments crisis, high inflation, slow growth, high fiscal/ external debt, and pervasive controls (licensing/ Monopolies and Restrictive Trade Practices Act (MRTP) 1969/ Foreign Exchange Regulation Act (FERA) 1973).

Core pillars

1. Liberalisation
   • Industrial licensing abolished for most industries (retained for a small negative list: security, safety, environmental hazards, etc.).
   • MRTP provisions eased (eventually replaced by the Competition Act, 2002).
   • De-reservation of many small-scale items; price controls diluted; market-determined pricing encouraged.
2. Privatisation / Public Sector Policy
   • Narrowing of exclusive public sector to atomic energy (part) and core railways.
   • Disinvestment of CPSEs to mobilise resources, improve efficiency, and reduce fiscal burden (strategic sale/market sale).
   • Later institutionalisation via DIPAM for policy execution.
3. Globalisation / External Sector Reforms
   • Lower tariff and non-tariff barriers; simplified import procedures.
   • FDI liberalisation (automatic routes in many sectors; higher caps in priority/high-tech/export sectors).
   • Technology agreements on an automatic route within set parameters.
   • FEMA (1999) replaced FERA—shift from control to management of foreign exchange.
   • Exchange rate adjustment and current account convertibility (phased).
4. Financial-sector reforms
   • Interest-rate deregulation, prudential norms, bank recapitalisation, broader market development to support industry.

Intended outcomes:

A more competitive, efficient, and export-oriented industrial economy with technology upgradation, deeper capital markets, and stronger private sector participation.

Debate/Concerns:

Exposure of small firms to global competition, regional disparities, potential undervaluation in disinvestment, and risks of market-driven inequalities.

Indicators of Industrial Growth

• Index of Industrial Production (IIP) (monthly): Growth in Mining, Manufacturing, and Electricity; also, by use-based categories (primary, capital, intermediate, infrastructure/construction, consumer durables/non-durables).
• Annual Survey of Industries (ASI): Establishment-level data on value added, employment, wages, capital formation, etc.
• Enterprise surveys/Economic Census: Dynamics of the unorganised sector.