Industrial Policy and Industrial Licensing Policy
Government has been formulating policy resolutions from time to time to delineate the role of the public, private and joint sector of the economy. The Industrial Policy Resolution of 1956 made 17 industries in Schedule A, as the exclusive responsibility of the State, 12 industries in Schedule B were to be progressively owned by the State and the rest were left for the functioning of the private sector. The role of the small scale sector was recognised by the government. The decade of eighties witnessed liberalisation. A scheme of broad banding was introduced and some industries were de licensed.
New Industrial policy (NIP) was announced in 1991 along with economic reforms. The NIP marks the end of old policy regime and the beginning of new era in government's approach towards the control and management of the industrial sector. The departure from the old industrial policy is of drastic nature. Some of them are as follows:
1. The earlier policy resolutions had put a greater emphasis on such policy goals as strengthening the public sector, building public sector enterprises, preventing economic concentration, reducing economic disparities, expanding gainful employment and self-reliance. In the NIP, the top priority has been accorded to industrial efficiency, growth and international competitiveness.
2. The earlier industrial policies had made public sector as the main instrument of industrial growth. In the new policy, the private sector has been made the main instrument for the future industrial growth of the country.
3. Another striking feature of the NIP is liberalisation of foreign investment. Foreign investment was earlier allowed on selective basis with only 41% equity. New policy invites direct foreign investment to 34 industries with 51% equity. This has been done in view of the need for globalisation of the Indian industries and the advantage of transfer of technology.
The NIP is expected to make Indian industries more efficient and internationally competitive. It creates a healthy environment for the industrial growth free from bureaucratic shackles. It is expected to encourage new private investments in the new areas opened to the private sector.
However, the NIP is being looked upon with suspicion. Many doubt the capabilities of the Indian industries to take the advantage of the new opportunities opened to them. Many apprehend the possibility of multinationals encroaching on the country's economic sovereignty. The expected foreign investment is evidently not forthcoming despite much talk about it. Apprehensions are also expressed about the misallocation and wastage of resources.
The Industrial Licensing Policy is the instrument for implementing the Industrial Policy Resolution. The policy came into force in 1952 and derived its legal sanction from the Industrial (Development and Regulation) Act, 1951. The important provisions of the Act were:
(1) A licence is necessary for:
(a) establishing a new industrial set-up;
(b) substantial expansion of existing plant;
(c) introducing the production of a new article in the existing plant; (d) shifting the location of an existing unit;
(e) carrying the location of an industrial unit to which the licensing provisions of the Act did not originally apply but became applicable thereafter.
(2) The Government has the powers to lay down conditions with respect to location, size, technology, etc. for new units.
(3) The State has the power to investigate the working of industries which are (i) using resources of national importance; (ii) managed in a way that harms interest of consumers or shareholders; and (iii) showing rise in prices or deterioration in the volume of production or the quality of the products.
(4) Industries which violate the provisions of the Industrial Policy or are unable to carry out instructions of the State can be taken over by the State.
(5) The Act empowers the State to set up Development Councils.
(6) The State has the power to lay down conditions regarding prices, technology level of production and channels of distribution.
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