INDIA’S INDUSTRIAL POLICIES FROM 1948 TO 1991

OFFICE OF THE DEVELOPMENT COMMISSIONER
(SMALL SCALE INDUSTRIES)

MINISTRY OF SMALL SCALE INDUSTRIES
GOVT. OF INDIA
NEW DELHI

Industrial Policy Resolution New Delhi, 6 April, 1948
Industrial Policy Resolution New Delhi, 30th April 1956
Industrial Policy Statement 23rdDecember, 1977

Industrial Policy Statement July, 1980
Industrial Policy 1990
Statement of Industrial Policy New Delhi, July 24, 1991


INDUSTRIAL POLICY RESOLUTION

New Delhi, 6 April, 1948

No. 1(3)-44(13)/48-The Government of India have given careful thought to the economic problems facing the country. The nation has now set itself to establish a social order where justice and equality of opportunity shall be secured to all the people. The immediate objective is to provide educational facilities and health services on a much wider scale, and to promote a rapid rise in the standard of living of the people by exploiting the latent resources of the country, increasing production and offering opportunities to all for employment in the service of the community. For this purpose. Careful planning and integrated effort over the whole field of national activity are necessary: and the Government of India propose to establish a National Planning Commission to formulate programmes of development and to secure their execution. The present statement, however, confines itself to Government’s policy in the industrial field. 

2. Any improvement in the economic conditions of the country postulates and increase in national wealth: a mere redistribution of existing wealth would make no essential difference to the people and would merely mean the distribution of poverty. A dynamic national policy must, therefore, be directed to a continuous increase in production by all possible means, side by side with measures to secure its equitable distribution. In the present state of the nation’s economy, when the mass of the people are below the subsistence level, the emphasis should be on the expansion of production. Both agricultural and industrial; and in particular on the production of capital equipment of goods satisfying the basic needs of the people and of commodities the export of which will increase earnings of foreign exchange. 

3. The problem of State participation in Industry and the conditions in which private enterprises should be allowed to operate must be judged in this context. There can be no doubt that the State must play a progressively active role in the development of industries, but ability achieve the main objectives should determine the immediate extent of State responsibility and the limits to private enterprise. Under present conditions, the mechanism and the resources of the State may not permit it to function forthwith in industry as widely as may be desirable. The Government of India are taking steps to remedy the situation; in particular, they are considering steps to create a body of men trained in business methods and management. They feel, however, that for some time to come, the State could contribute more quickly to the increase of national wealth by expanding its present activities wherever it is already operating and by concentrating on new units of production in other fields, rather than on acquiring and running existing units. Meanwhile, private enterprise, properly directed and regulated, has a valuable role to play,

4. On these considerations the Government have decided that the manufacture of arms and ammunition, the production and control of atomic energy, and ownership and management of railway transport should be the exclusive monopoly of the Central Government. Further in any emergency, the Government would always have the power to take over any industry vital for national defence. In the case of the following industries, the state which in this context, includes Central, Provincial and State Governments and other Public Authorities like Municipal Corporations will be exclusively responsible for the establishment of new undertakings, except where, the national interest, the State itself finds it necessary to secure the co-operation of private enterprise subject to such control and regulation as the Central Government may prescribe:

  1. Coal (the India Coalfields Committee’s proposals will be generally followed).
  2. Iron and Steel.
  3. Aircraft manufacture.
  4. Shipbuilding.
  5. Manufacture of telephone, telegraph and wireless apparatus, excluding radio receiving sets.
  6. Mineral oils.

While the inherent right of the State to acquire any existing industrial undertaking will always remain, and will be exercised whenever the public interest requires it, Government have decided to let existing undertakings in these fields develop for a period of ten years, during which they will be allowed all facilities for efficient working and reasonable expansion. At the end of this period, the whole matter will be reviewed and a decision taken in the light of circumstances obtaining at the time. If it is decided that the State should acquire any unit, the fundamental rights guarantee by the Constitution will be observed and compensation will be awarded on a fair and equitable basis.

Management of State enterprise will, as a rule, be through the medium of public corporations under the statutory control of the Central Government, who will assume such powers as may be necessary to ensure this.

5. The Government of India have recently promulgated a measure for the control by the State of generation and distribution of electric power. This industry will continue to be regulated in terms of measures.

6. The rest of the industrial field will normally be open to private enterprise, individual as well as co-operative. The State will also progressively participate in this field; nor will it hesitate to intervene whenever the progress of an industry under private enterprise is unsatisfactory. The Central Government have already embarked on enterprises like large rivervalley developments which are multipurpose projects of great magnitude, involving extensive generation of hydro-electric power and irrigation on a vast scale, and calculated in a comparatively short time to change the entire face of large areas in this country. Projects like the Damodar Valley Scheme, the Kosi Reservoir, the Hirakund Dam, etc. in a class by themselves and can stand comparison with any of the major schemes in America or elsewhere. The Central Government have also undertaken the production of fertilizer on a very large scale, and have in view other enterprises like the manufacture of essential drugs, and of synthetic oil from coal; many Provincial and State Governments are also proceeding on similar lines.

7. There are certain basic industries of importance, apart from those mentioned in paragraph 4, the planning and regulation of which by the Central Government is necessary in the national interest. The following industries whose location must be governed by economic factors of All-India import, or which require considerable investment of a high degree of technical skill, will be the subject of Central regulation and control:

  1. Salt
  2. Automobiles and tractors
  3. Prime movers
  4. Electric engineering 
  5. Other heavy machinery
  6. Machine tools
  7. Heavy chemicals, fertilizers and pharmaceuticals and drugs 
  8. Electro-chemical industries
  9. Non-ferrous metals
  10. Rubber manufactures
  11. Power and industrial alcohol
  12. Cotton and woolen textiles 
  13. Cement 
  14. Sugar
  15. Paper and Newsprint
  16. Air and Sea transport
  17. Minerals
  18. Industries related to defense

The above list cannot obviously be of an exhaustive nature. The Government of India, while retaining the ultimate direction over this field of industry, will consult the Governments of the Provinces and States at all stages and fully associate them in the formulations and execution of plant. Besides these Governments, representatives of Industry and Labour will also be associated with the Central bodies which they propose to establish, as recommended by the Industries Conference.

8. Cottage and small-scale industries have a very important role in the national economy. Offering as they do scope for individual, village or co-operative enterprise, and means for the rehabilitation of displaced persons. These industries are particularly suited for the better utilisation of local resources and for the achievement of the local self-sufficiency in respect of certain types of essential consumer goods like food, cloth and agricultural implements. The healthy expansion of cottage and small scale industries depends upon a number of factors like the provision of raw materials, cheap power, technical advice, organised marking of their produce, and where necessary, safeguards against intensive competition by large scale manufacture, as the education of the worker in the use of the best available technique. Most of these fall in the Provincial sphere and are receiving the attention of the Governments of the Provinces and the States. The Resolution of Industries Conference has requested the Central Government to investigate how far and in what manner these industries can be co-ordinate and integrated with large scale industries. The Government of India accept this recommendation. It will be examined, for example, how the textile mill industry can be made complementary to, rather than competitive with the handloom industry, which is the country’s largest and best organised cottage industry. In certain other lines of production, like agricultural implements, textile accessories, and parts of machine tools, it should be possible to produce components on a cottage industry scale and assemble these into their final product at a factory. It will also be investigated how far industries at present highly centralised could be decentralised with advantage.

The Resolution of the Industries Conference has recommended that Government should established a Cottage Industries Board for the fostering of small scale industries. The Government of India accept this recommendation and propose to create suitable machinery to implement it. A Cottage and Small Scale Industries Directorate will also be set up within the Directorate General of Industries and Supplies.

One of the main objectives will be to give a distinctly co-operative bias to this field of industry. During and before the last war, even a predominantly agricultural country like China showed what could be done in this respect and her mobile industrial co-operative untis were of outstanding assistance in her struggle against Japan. The present international situation is likely to lessen to a marked degree our chances of getting capital goods for large scale industry and the leeway must be made up by having recourse to small-size industrial co-operative throughout the country.

9. The Government, however, recognise that their objective, viz securing the maximum increase in production will not be realised merely by prescribing the respective spheres of the State and of Private enterprise in Industry. It is equally essential to ensure the fullest co-operation between labour and management and the maintenance of stable and friendly relations between them. A resolution on this subject was unanimously passed by the Industries Conference which was held in December last. Amongst other things, the resolution states:

"…. The system of remuneration to capital as well as labour must be so devised that, while in the interest of the consumers and the primary producers excessive profits should be prevented by suitable methods of taxation and otherwise, both will share the product of their common effort, after making provision for payment of fair wages to labour, a fair return on capital employed in the industry and reasonable reserves for the maintenance and expansion of the undertakings."

Government accept this Resolution. They also consider that labour’s share of the profits should be on sliding scale normally varying with production. They propose, in addition to the over – all regulation of industry by the State, to establish machinery for advising on fair wages, fair remuneration for capital, and conditions of labour. They will also take steps to associate labour in all matters concerning industrial production.

The machinery which Government propose to set up will function at different levels, central regional and unit. At the centre, three will be Central Advisory Council, which will cover the entire field of industry, and will have under it Committees for each major industry. These Committees may be split up into sub-committees dealing with specific questions relating to the industry eg. Production, industrial relations, wage fixation and distribution of profits. The regional machinery under the Provincial Governments will be Provincial Advisory Boards which like the Central Advisory council, will cover the entire field of industry within the Province; they will have under them Provincial Committees for each major industry. The Provincial Committees may also be split up into various sub-committees dealing with specific questions relating the production, wage fixation and industrial relations. Below the Provincial Committees will come the Works Committees and the Production Committees attached to each major industrial establishment. 

The Works Committees and the Production Committees will be bi-partite in character, consisting of representatives of employers and workers only, in equal numbers. All other Committees will be tri-partite, with representatives of Government, employers and workers.

Government hope that the machinery proposed will substantially reduce the volume of industrial disputes. In the case of unresolved conflicts. Government trust that management and labour will, in their own interests and in the larger interests of the country, agree to settle them through recognised channels of conciliation and arbitration, which will be provided by Government. The Industrial Relations Machinery, both at the Centre and in the Provinces, is being strengthened, and permanent industrial tribunals are being established for dealing with major disputes.

The Government of India are also taking special steps to improve industrial housing as quickly as possible. A scheme for the construction of one million workers’ houses in ten years is under contemplation, and a Housing Board is being constituted for this purpose. The cost will be shared in suitable proportions between Government, employers and labour, the share of labour being recovered in the form of a reasonable rent.

In order to ensure quick decisions on the various matters arising out of Industrial Truce Resolution, Government are appointing a special officer.

10. The Government of India agree with the view of the Industries Conference that, while it should be recognised that participation of foreign capital and enterprise, particularly as regards industrial technique and knowledge, will be of value to the rapid industrialisation of the country, it is necessary that the conditions under which they may participate in Indian industry should be carefully regulated in the national interest. Suitable legislation will be introduced for this purpose. Such Legislation will provide for the scrutiny and approval by the Central Government of every individual case of participation foreign capital and management in industry. It will provide that, as a rule, the major interest in ownership, and effective control, should always be in Indian hands; but power will be taken to deal with exceptional cases in a manner calculated to serve the national interest. In all cases, however, the training of suitable Indian personnel for the purpose of eventually replacing foreign experts will be insisted upon.

11. The Government of India are fully alive to their direct responsibility for the development of these industries which they have found necessary to reserve exclusively for State enterprise. They are equally ready to extend their assistance to private or cooperative enterprise in the rest of the industrial field, and in particular, by removing transport difficulties and byfacilitating the import of essential raw-materials to the maximum possible extent. The tariff policy of Government will be designed to prevent unfair foreign competition and to promote the utilisation India’s resources without imposing unjustifiable burden on the consumer. The system of taxation will be reviewed and readjusted where necessary to encourage saving and productive investment and to prevent undue concentration of wealth in a small section of the population.

12. The Government of India hope that this elucidation of their intentions on fundamental aspects of industrial policy will remove all misapprehensions, and they are confident that a joint and intensive effort will now be made by labour, capital and the general public, which will pave the way for the rapid industrialisation of the country.
 
 
 
 

INDUSTRIAL POLICY RESOLUTION

New Delhi, 30th April 1956

No.91/SF/48-The Government of India set out in their Resolution dated 6.4.48 the policy which they proposed to pursue in the industrial field. The Resolution emphasised the importance to the economy of securing a continuous increase in production and its equitable distribution, and pointed out that the State must play of progressively active role in the development of industries. It laid down that besides arms and ammunition, atomic energy and railway transport, which would be the monopoly of the Central Government, the State would be exclusively responsible for the establishment of new undertaking in six basic industries except where, in the national interest, the State itself found it necessary to secure the cooperation of private enterprise. The rest of the industrial field was left open to private enterprises though it was made clear that the State would also progressively participate in this field. 

2. Eight years have passed since this declation on industrial policy. These eight years have witnessed many important changes and developments in India. The constitution of India has been enacted, guaranteeing certain fundamental rights and enunciating Directive Principles of State Policy. Planning has proceeded on an organised basis, and the first Five Year Plan has recently been completed. Parliament has accepted the socialist pattern of society as the objective of soccial and economic policy. These important developments necessiate a fresh statement of industrial policy, more particularly as the Second Five Year Plan will soon be placed before the country. This policy must be governed by the principles laid down in the Constitution, the objective of socialism, and the experience gained during these years.

3. The Constitution of India, in its preamble, has declared that it aims at securing for all its citizens:

"JUSTICE, social, economic and political;

LIBERTY, of thoughts, expression, belief, faith and worship;

EQUALITY of status and of opportunity; and to promote among them all;

FRATERNITY, assuring the dignity of the individual and the unity of the Nation."

In its Directive Principles of State Policy, it is stated that –

"The State shall strive to promote the welfare of the people by securing and protecting as effectively as it may a social order in which justice, social, economic and political, shall inform all the institutions of the national life."

Further that-

"The State shall, in particular, direct its policy towards securing:

  1. that the citizens, men and women equally, have the right to an adequate means of livelihood;
  2. that the ownership and control of the material resources of the community are so distributed as best to subserve the common good:
  3. that the operation of the economic system dies not result in the concentration of wealth and means of production to the common detriment;
  4. that there is equal pay for equal work for both men women;
  5. that the health and strength of workers, men and women, and the tender age of children are not abused and that citizens are not forced by economic necessity to enter vocations unsuited to their age of strength:
  6. that childhood and youth are protected against exploitation and against moral and material abandonment." 

4. These basic and general principles were given a more precise direction when Parliament accepted in December 1954, the socialist pattern of society as the objective of social and economic policy. Industrial policy, as other policies, must therefore, be governed by these principles and directions.

5. In order to realise this objective, it is essential to accelerate the rate of economic growth and to speed up industrialisation and, in particular, to develop heavy industries and machine making industries, to expand the public sector, and to build up a large and growing co-operative sector. These provide the economic foundations for increasing opportunities for gainful employment and improving living standards and working conditions for the mass of the people. Equally, it is urgent, to reduce disparities in income and wealth which exist today, to prevent private monopolies and the concentration of economic power in different fields in the hands of small numbers of individuals, Accordingly, the state will progressively assume predominant and direct responsibility for setting up new industrial undertakings and for developing transport facilities. It will also undertake State trading on an increasing scale. At the same time, as an agency for planned national development, in the context of the country’s expanding economy, the private sector will have the opportunity to develop and expand. The principle of co-operation should be applied wherever possible and a steadily increasing portion of the activities of the private sector developed along co-operative lines.

6. The adoption of the socialist pattern of society as the national objective, as well as the need for planned and rapid development, require that all industries of basic and strategic importance, or in the nature of public utility services, should be in the public sector. Other industries, which are essential and require investment on a scale which only the state, has, therefore, to assume direct responsibility for the further development of industries over a wider area. Nevertheless, there are limiting factors, which make it necessary at this stage for the state to define the field in which it will undertake sole responsibility for further development, and to make a selection of industries in the development of which it will play dominant role. After considering all aspects of the problem in consultation with the Planning Commission, the Government of India have decided to classify industries into three categories, having regard to the part which the State would play in each of them. These categories will inevitably overlap to some extent and too great a rigidity might defeat the purpose in view. But the basic principles and objectives have always to be kept in view ad the general directions hereafter referred to be followed. It should also be remembered that it is always open to the State to undertake any type of industrial production.

7. In the first category will be industries the future development of which will be the exclusive responsibility of the State. The second category will consist of industries, which will be progressively State-owned and in which the State will, therefore, generally take the initiative in establishing new undertakings, but in which private enterprise will also be expected to supplement the effort of the State. The third category will include all the remaining industries, and their future development will, in general, be left to the initiative and enterprise of the private sector.

8. Industries in the first category have been listed in Schedule A of this Resolution. All new units in these industries, save where their establishment in the private sector has already been approved, will be set up only by the State. This does not preclude the expansion of the existing privately owned units, or the possibility of the State securing the co-operation of private enterprise in the establishment of new units when the national interests so require. Railways and air transport, arms and ammunition and atomic energy will, however, be developed as Central Government monopolies. Whenever co-operation with private enterprise is necessary, the State will ensure, either through majority participation in the capital or otherwise, that it has the requisite powers to guide the policy and control the operations of the undertakings.

9. Industries in the second category will be those listed in Schedule B. With a view to accelerating their future development, the State will increasingly establish new undertakings in these industries. At the same time, private enterprise will also have the opportunity to develop in this field, either on its own or with State participation.

10. All the remaining industries will fall in the third category, and it is expected that their development will be undertaken ordinarily through the initiative and enterprise of the private sector, though it will be open to the State to start any industry even in this category. It will be the policy of the State of facilitate and encourage the development of these industries in the private sector, in accordance with the programmes formulated in successive Five Year Plans, by ensuring the development of transport, power and other services, and by appropriate fiscal and other measures. The State will continue to foster institutions to provide financial aid to these industries, and special assistance will be given to enterprises organised on co-operative lines for industrial and agricultural purposes. In suitable cases, the State may also grant financial assistance to the private sector. Such assistance, especially when the amount involved in substantial, will preferably be in the form of participation n equity capital, though it may also be in part, in the form of debenture capital.

11. Industrial undertakings in the private sector have necessarily to fit into the framework of the social and economic policy of the State and will be subject to control and regulation in terms of the Industries (Development and Regulation) Act and other relevant legislation. The Government of India, however, recognise that it would, in general, be desirable to allow such undertakings to develop with as much freedom as possible, consistent with the targets and objectives of the national plan. When there exists in the same industry both privately and publicly owned units, it would continue to be the policy of the State to give fair and non-discriminatory treatment to both of them.

12. The division of industries into separate categories does not imply that they are being placed in watertight compartments. Inevitably, there will not only be an areas of overlapping but also a great deal of dovetailing between industries in the private and the public sectors. It will be open to the State to start any industry not included in Schedule A and Schedule B when the needs of planning so require or there are other important reasons for it. In appropriate cases, privately owned units may be permitted to produce an item falling within Schedule A for meeting their own requirements or as by-products. There will be ordinarily no bar to small privately owned units undertaking production, such as the making of launches and other lightcraft, generation for power for local needs and small scale mining. Further, heavy industries in the public sector may obtain some or their requirements of lighter components from the private sector, while the private sector in turn would rely for many of its needs on the public sector. The same principle would apply with even greater force to the relationship between large scale and small scale industries.

13. The Government of India would, in this context, stress the role of cottage and village and small scale industries in the development of the national economy. In relation to some of the problems that need urgent solutions, they offer some distinct advantages. They provide immediate large scale employment; they offer a method of ensuring amore equitable distribution of the national income and they facilitate an effective mob-illisation or resources of capital and skill which might otherwise remain unutilised. Some of the problems that unplanned urbanisation tends to create will be avoided by the establishment of small centres of industrial production all over the country.

14. The State has been following a policy of supporting cottage and village and small scale industries by restricting the volume of production in the large scale sector by differential taxation or by direct subsidies. While such measures will continue to be taken, whenever necessary, the aim of the State Policy will be to ensure that the decentralised sector acquires sufficient vitality to be self supporting and its development is integrated with that or large-scale industry. They State will, therefore, concentrate on measures designed to improve the competitive strength of the small scale producer. For this it is essential that the technique of production should be constantly improved so and modernised the pace of transformation being regulated so as to avoid as far as possible, technological unemployment. Lack of technical and financial assistance, of suitable working accommodation and inadequacy of facilities for repair and maintenance are among the serious handicaps of small scale producers. A start has been made with the establishment of industrial estates and rural community workshops to make good these deficiencies. The extension of rural electrification, and the availability of power at prices, which the workers can afford, will also be of considerable help. Many of the activities relating to small scale production will be greatly helped by the organisation of industrial cooperatives. Such cooperatives should be encouraged in every way and the State should give constant attention to the development of cottage and village and small scale industry.

15. In order that industrialisation may benefit the economy of the country as a whole, it is important that disparities in levels of development between different regions should be progressively reduced. The lack of industries in different parts of the country is very often determined by factors such as the availability of the necessary raw materials in certain areas has also been due to the ready availability of power, water supply and transport facilities which has been developed there. It is one of the aims of national planning to ensure that these facilities are steadily made available to areas which are at present lagging behind industrially or where there is greater need for providing opportunities for employment provided the location is otherwise suitable. Only by securing a balanced and coordinated development, of the industrial and the agricultural economy in each region, can the entire country attain higher standards or living.

16. This programme of industrial development will make large demands on the country’s resources of technical and managerial personnel. To meet these rapidly growing needs for the expansion of the public sector and for the development of the village and small scale industries, proper managerial and technical cadres in the public services are being established. Steps are also being taken to meet shortages at supervisory levels, to organise apprenticeship schemes of training on a large scale both in public and in private enterprises, and to extend training facilities in business management in universities and other institutions.

17. It is necessary that proper amenities and incentives should be provided for all these engaged in industry. The living and working conditions of workers should be improved and their standards of efficiency raised. The maintenance of industrial peace is one of the prime requisites of industrial progress. In a socialist democracy labour is a partner in the common task of development and should participate in it with enthusiasm. Some laws governing industrial relations have been enacted and a broad common approach has developed with growing recognition of the obligations of both management and labour. There should be joints consultation and workers and technicians should wherever possible, as associated progressively in management. Enterprises in the public sector have to set an example in this respect.

18. With the growing participation of the State industry and trade, the manner in which these activities should be conducted and managed assumes considerable importance. Speedy decisions and a willingness to assume responsibility are essential if these enterprises are to succeed. For this wherever possible, there should be decentralisation of authority and their management should be along business lines. It is to be expected that public enterprises will augment the revenues of the State and provide resources for further development in fresh fields. But such enterprises may sometimes incur losses. Public enterprises have to be judged by their total results and in their working they should have the largest possible measure of freedom.

19. The Industrial Policy Resolution of 1948 dealt with a number of other subjects which have since been covered by suitable legislation or by authoritative statement of policy. The division of responsibility between the Central Government and the State Government in regard to industries has been set out in the Industries (Development and Regulation) Act. The Prime Minister, in his statement in parliament on 6th April 1949, has enunciated the policy of the State in regard to foreign capital. It is, therefore, not necessary to deal with the subjects in this resolution.

20. The Government of India trust that this statement of their Industrial Policy will receive the support of all sections of the people and promote the rapid industrialisation of the country.

SCHEDULE A

  1. Arms and ammunition and allied items of defence equipments. 
  2. Atomic energy.
  3. Iron and Steel.
  4. Heavy castings and forgings of iron and steel.
  5. Heavy plant and machinery required for iron and steel production, for mining, for machinery tool manufacture and for such other basic industries as may be specified by the Central Government.
  6. Heavy electrical plant including large hydraulic and steam turbines. 
  7. Coal and lignite. 
  8. Mineral oils. 
  9. Mining of iron ore, manganese ore, crome-ore, gypsum, sulphur, gold and diamond.
  10. Mining and processing of copper, lead, zinc, tin, molybdenum and wolfram. 
  11. Minerals specified in the Schedule to the Atomic Energy (Control of production and Use) Order, 1953.
  12. Aircraft.
  13. Air transport. 
  14. Railway transport. 
  15. Shipbuilding.
  16. Telephones and telephones cables, telegraph and wireless apparatus (excluding radio receiving sets).
  17. Generation and distribution of electricity. 

SCHEDULE B

  1. All other minerals except ‘minor minerals’ as defined in Section 3 of the Minerals Concession Rules 1949.
  2. Aluminum and other non-ferrous metals not included in Schedule A.
  3. Machine tools.
  4. Ferro-alloys and tool steels.
  5. Basic and intermediate products required by chemical industries such as the manufacture of drugs, dye-stuffs and plastics.
  6. Antibiotics and other essential drugs.
  7. Fertilizers
  8. Synthetic rubber.
  9. Carbonisation of coal. 
  10. Chemical pulp.
  11. Road transport. 
  12. Sea transport. 

 
 

INDUSTRIAL POLICY STATEMENT

23rd December, 1977

For the past 20 years, Government Policy in the spere of industry has been governed by the Industrial Policy Resolution of 1956. While some of the elements of that Resolution in regard to desirable pattern of industrial development still remain valid, the results of actual policies in the industrial field have not been upto the expectations or declared objectives. The growth of per capital national income during the last 10 years has been about 1.5 per cent per annum and is clearly inadequate to meet the needs of a developing economy. Unemployment hs increased, rural-urban disparities have widened and the rate of real investment has stagnated. The growth of industrial output in the last decade has been no more than 3 to 4 per cent per annum on an average. The incidence of industrial sickness has become widespread and some of the major industries are the worst affected. The pattern of industrial costs and prices has tended to be distorted; and dispersal of industrial activity away from the larger urban concentration has been very slow.

The new Industrial Policy must, therefore, be directed towards removing the distortions of the past so that genuine aspirations of the people can be met within a time-bound programme of economic development. 

The close interaction between the agricultural and industrial sectors of our economy cannot be over-emphasised. Much of our industrial production is based on agricultural raw materials. Similarly, in order to increase our agricultural productivity by adaptation of modern technology and agronomic practices to our own conditions, important inputs have to come from our industrial sector. The highest priority must be accorded to generation and transmission of power. Our recent experience demonstrates that lack of adequate power availability has become one of the most important constraints in the development of agriculture and industry. Similarly, cement and steel required to build our irrigation projects, the implements for plaughing and preparing the land, the equipment for processing high quality seeds, fertilizers and pesticides, oil and power, a wide range of industrial products are essential for increasing the level of our agricultural production. The prosperity and the distribution of income arising from a broad-based growth of agriculture and related activities in the countryside has to provide the basic demand for a wide range of industries producing articles of consumption. It is only by such a process of reinforcing interaction of the agricultural and industrial sectors that employment can be found for the large number of the rural population who cannot be absorbed in the agricultural sector. 

Today, our assets in terms of foodgrains and foreign exchange reserves are considerable. But much more importantly our most valued asset is the willing hands of our rural manpower and the technicians who today from the third largest group of skilled manpower in the world. Great opportunities and great challenges are open to us now; but they cannot be seized by timid and hald-hearted policies. A new approach is called for in several areas of our national life. This new approach should reflect not only our vast resources and special endowments but should show particular concern for the utilisation of these resources and endowments for the amelioration of the living conditions of the majority of our people, the new industrial policy should and will hereafter place man as the centre of planning and implementation of projects and schemes. 

Small Scale Industries

The emphasis of industrial policy so far has been mainly on large industries neglecting cottage industries completely relegating small industries to a minor role. It is the firm policy of this Government to change this approach.

The main thrust of the new Industrial Policy will be on effective promotion of cottage and small industries widely dispersed in rural areas and small towns. It is the policy of the Government that whatever can be produced by small and cottage industries must only be so produced. For this purpose an exhaustive analysis of industrial products, has been made to identify those items which are capable of being established or expanded in the small scale sector. This list of industries which would be exclusively reserved for the small scale sector has been significantly expanded and will now include more than 500 items as compared to about 180 items earlier. However, it must also be ensured that production in this sector is economic and of acceptable quality. The list of industries reserved for the Small Scale Sector has to be continually reviewed so that capacity creation does not lag behind the requirements of the economy. An annual review of reserved industries will be undertaken in order to ensure that reservation accorded to the small scale is efficient and is also continually expanded as new products and new processes capital of being manufactured in the small scale are identified.

Tiny Sector

While the existing definition of small scale industries will remain, within the small scale sector special attention will be given to units in the tiny sector namely those with investment in machinery and equipment upto Rs One lakh and situated in towns with a population of less than 50,000 according to 1971 census figures, and villages. Schemes will be drawn up for making available margin money assistance especially to tiny units in the small scale sector as well as to cottage and household industries.

Legislation for Cottage Industries 

While there has been reservation for the small scale sector, there has been no special protection for cottage and household industries sector, Government will consider introducing special legislation for protecting the interest of cottage and household industries with a view to ensuring that these activities which provide self-employment in large numbers get due recognition in our industrial Development.

District Industries Centres

In the past, there has been a tendency to proliferate schemes, agencies and organisations which have tended more to confuse the average small and rural entrepreneur than to encourage and help him. The focal point of development for small scale and cottage industries will be taken away from the big cities and State capitals to the district headquarters. In each district there will be one agency to deal with all requirements of small and village industries. This will be called the District Industries Centre. Under the single roof of the District Industries Centre, all the services and support required by small and village entrepreneurs will be provided. These will include economic investigation of the district’s raw materials and other resources, supply of machinery and equipment provision or raw material, arrangements, for credit facilities, and effective set-up for marketing and a cell for equality control, research and extension. The Centre will have a separate wing for looking after the special needs of cottage and household industries as distinct from small industries. The Centre will establish close linkages with the Development Blocks on the one hand with specialised institutions like Small Industries Service Institutes on the other. It is the intention of the Government to extent this important organisational pattern to all the district in the course of the next four years. Suitable financial and organisational support will be provided to the State Governments to achieve this objective. The financial assistance given to small and cottage industries under the Rural Industries Programme will also be extended to all the districts in the country with in the next four years.

Effective Financial Support 

In order to provide effective financial support for promotion of small village and cottage industries, the Industrial Development Bank of India has taken steps to set up a separate wing to deal exclusively with the credit requirements of this sector. It will coordinate, guide and monitor the entire range of credit facilities offered by other institutions for the small and cottage sector, for whom separate wings will be set up in these institutions particularly nationalized banks. Banks. Banks will also be expected to earmark a specified proportion of their total advances for promotion of small, village and cottage industries. It is the policy of Government to see that no worthwhile scheme of small or village industry is given up for want of credit.

The growth of the scale and cottage industries sectors has been tardy mainly for want of satisfactory marketing arrangements for their products. The marketing of goods of these sectors with its concomitant of product standardisation, quality control, maximum support for these activities on a priority basis. Measures such as purchase preference and reservation for exclusive purchase by Government Departments and Public Sector Undertakings will also be used to support the marketing of these products.

Khadi and Village Industries Commission 

At present 22 village industries are within the purview of the Khadi and Village Industries Commission. The promotional work in this area has, however, been haphazard and progress has been slow. The Khadi and Village Industries Commission will work out detailed plans for development of these village industries by adopting modern management techniques. Especially for the production of foot-wear and soaps, special programmes would be drawn up to increase progressively their share in the total production of these items in the country. The list of items currently under the purview of the Commission will be revamped so that it can more effectively fulfill the role assigned to it. In the programme for development of village industries, the promotion of Khadi has a special place. A breakthrough in the field of Khadi is in sight with prospects of spinning and weaving polyester fibre along with cotton fibre. The preliminary work dine so far holds out the hope of developing a large market of polyester khadi spinners and weavers. The Khadi and Village Industries Act is being amended to permit the implementation of a large scale programme in "Nai Khadi". The Government is committed to providing maximum financial and marketing support that is needed for promotion of the khadi programme.

Along with khadi, the clothing needs of the masses can be progressively met through development of the handloom sector, which provides employment to the bulk of people engaged in the production of textiles. Government will not permit any expansion in the weaving capacity in the organised mill and powerloom sector. In order to provide adequate supply of yarn for the handloom sector, the Government will ensure that the handloom sector has priority in the allocation of yarn spun in the organised sector. In case there is any shortage, Government will ensure that steps are taken to increase spinning capacity. Further, in order to provide a ready market for handloom products, it will be ensured that the organised mill sector does not provide unfair competition to the handloom sector. Certain items of textiles are already reserved for production in the handloom sector. However, such reservation has not been very effective. The Government will enforce the existing reservation and further extend it to other items.

Appropriate Technology 

The development and application of technology appropriate to our socio-economic conditions ha so far not received adequate attention. It will henceforth be an integral part of policy and Government will ensure that this important area gets adequate attention special arrangements will be made to ensure an effective and coordinated approach for the development and widespread application of suitable small and simple machines and devices for improving the productivity and earning capacity of workers in small and village industries. It will further be Government’s endeavor to fully integrate such appropriate techniques of production with the broader programme of all round rural development. 

Role of Large Scale Industries

In addition to small and village industries, there is also a clear role for large-scale industry in India. However, the Government will not favour large-scale industry merely for demonstration of sophisticated skills or as monuments of irrelevant foreign technology. The role of large scale industry will be related to the programme for meeting the basic minimum needs of the population through wider dispersal of small scale and village industries and strengthening of the agricultural sector. In general, areas for large scale industry will be : (a) basic industries which are essential for providing infrastructure as well as for development of small and village industries, such as steel, non-ferrous metals, cement, oil refineries; (b) capital goods industries for meeting the machinery requirement of basic industries as well as small scale industries; (c) high technology industries which require large scale production, and which are related to agricultural and small scale industrial development such as fertilizers, pesticides, and petro-chemicals etc; and (d) other industries which are outside the list of reserved items for the small sale sector, and which are considered essential for the development of the economy such as machine tools, organic and inorganic chemicals. 

Large House 

Past experience shows that Government policies have not succeeded in restraining the disproportionate growth of large Houses. While a certain measures of growth of existing enterprises is inevitable and also necessary for continued health of these enterprises, the growth of large House has been disproportionate to the size of their internally generate resources and has been largely based on funds borrowed from public financial institutions and banks. This process must be reversed. 

In future, expansion of Large House will be guided by the following principles:-

  1. The expansion of existing undertakings and establishments of new undertakings will continue to be subject to the provisions of the Monopolies and Restrictive Trade Practices Act. The provisions of this Act including those relating to dominant undertakings would be effectively implemented;
  2. Except in the case of industries eligible for automatic growth of capacity, the expansion of existing undertakings into new lines and establishments of new undertakings by large House will require specific approval of Government; and 
  3. Large Houses will have to rely on their own internally generated resources for financing new or expansion projects. While an appropriate debt equity ratio will be permitted in the case of industries like fertilizers, paper, cement, shipping, petrochemicals, etc. which are relatively more capital intensive in nature, the debt equity ratio in the case of other less capital-intensive or less sophisticated industries will be so fixed as to reflect the greater use of their own internally generated resources by the large houses. 

In its licensing policy, Government will regulate the activities of the large houses to bring them in line with the country’s socio-economic goals, where large scale units, whether belonging to large houses or not are already engaged in the manufacture of items since reserved for the small scale sector, there will be no expansion in their capacity. On the other hand, the share of these units in the total capacity for these items will be steadily reduced and that of small scale and cottage Sector increased. In licensing other activities of large scale industry, particularly of units belonging to large houses, Government would pay due regard to the existing share of these units in the total domestic production of these items. It will be the policy of government to ensure that no unit or business group acquires a dominant or monopolistic position in the market. The present industrial activities of the large houses will be scrutinised so that unfair practices arising out of manufacturing inter-linkages are avoided.

In order to ensure social accountability, the financial institutions whose support is vital for setting up and running of large scale enterprises will be expected to assure a more active rule in overseeing the activities of undertakings financed by them in order to ensure that management is increasingly professionalism and conforms to national priorities.

Public Sector 

The public sector in India has today come of age, Apart from socialising the means of production in strategic areas, public sector provides a countervailing power to the growth of large houses and large enterprises in the private sector. There will be an expanding role for the public in several fields. Not only will it be the producer of important and strategic goods of basic nature, but it will also be used effectively as stabilising force the responsibility essential supplies for the consumer. The public sector will be charged with the responsibility of encouraging the development of a wide range of ancillary industries, and contribute to the growth of decentralised production by making available its expertise in technology and management to small scale and cottage industry sectors. It will also be the endeavour of Government to operate public sector enterprises on profitable and efficient lines in order to ensure that investment in these industries pays an adequate return to society. The Government attaches high priority to the building up of a professional cadre of managers in the public sector who would be given the necessary autonomy and entrusted with the task of providing dynamic and efficient management to such enterprise.

Indigenous and Foreign Technology

The country has well-developed infrastructure of scientific establishments. Future development of industries in India must be based on indigenous technology as far as possible. Full scope will be given to the development of indigenous technology. It is also essential that development of indigenous technology is responsive to the objective of efficient production in increasing quantities of goods that society urgently needs. Science and technology must contribute to the improvement in the living standards and the quality of life of the large mass of our people.

In order to promote technological self-reliance, the Government recognises the necessity for continued inflow of technology in sophisticated and high priority areas where Indian skills and technology are not adequately developed. In such areas, the Government’s preference would be for outright purchase of the best available technology and then adapting such technology to the country’s needs. Indian firms which are permitted to import foreign technology would be required in appropriate cases to set up adequate Research and Development facilities so that imported technology is properly adapted and assimilated. The Government will also set up a national registry of foreign collaboration in the Secretariat of the Foreign Investment Board so that there is continuous monitoring of these efforts. 

Foreign Investment

The Government would also like to clarify its policy regarding participation of foreign investment and foreign companies in India’s Industrial development. So far as existing foreign companies are concerned, the provisions of the Foreign Exchange Regulation Act would be strictly enforced. After the process of dilution under this Act has been completed, companies with direct non-resident investment not exceeding 40 per cent will be treated on par with Indian companies, except in cases specifically notified, and their future expansion will be guided by the same principles as those applicable to Indian companies. 

Foreign investment ad acquision of technology necessary for Indian’s industrial development would be allowed only on such terms as are determined by the Government of India to be in the national interest. In areas where foreign technological know-how is not needed, existing collaborations will not be renewed and foreign technological know-how is not needed, existing collaborations will not be renewed and foreign companies operating in such fiends will have modify their character and activities in conformity with national priorities within the framework of the Foreign Exchanges Regulation Act. To guide entrepreneurs, Government will issue a revised illustrative list of industries where no foreign collaboration, financial or technical, is considered necessary since indigenous technology has fully developed in this field.

For all approved foreign investment, there will be complete freedom for remittance of profits, royalties, and dividends as well as repatriation of capital subject, of course, to rules and regulations common to all. As a rule, majority interest in ownership and effective control should be in Indian hands though Government may make exceptions in highly export-oriented and/or sophisticated technology areas. In hundred per cent export-oriented cases, Government may consider even a fully owned foreign company.

Indian Joint Ventures Aboard

A number of have been set up in joint ventures many developing countries by Indian Entrepreneurs in collaboration with local associates. At the present stage of the country’s industrial development, substantial export of capital from India will neither be feasible nor desirable. The contribution of the Indian entrepreneur to the joint ventures abroad shall, therefore, have to be mainly in the form of machinery and equipment, structurals and also technical know-how and management expertise. In cases where, in addition, some cash investment is found necessary, Government will be willing to consider such investment up to a maximum limit to be prescribed for this purpose. 

Import Liberalisation

Self-reliance must continue to be a paramount objective of country’s industrial and economic policy. Recent events in the international economy have demonstrated that the main burden of adjustment to external shocks and changing international environment has to be borne by the Country itself. Our industrial strategy, therefore, must respond to the objective of creating an industrial base, which is sufficiently diversified and sufficiently strong to withstand the vagaries of international trade and aid relationship. The creation of a strong and diversified industrial economy does not mean that the country should not or need not participate in international trade, both as exporter and importer of industrial goods. This we must continue to do. In fact, the favorable changes that have taken place in our foreign exchange situation and the progress that we have made in the industrial field should now enable us to selectively dispense with import quotas and quantitative restrictions, while retaining the protection given through tariffs. Relaxation of quantitative import controls, must, however, be consistent with our overall Plan priorities. Such relaxation will be in areas where existing quantitative restrictions are hurting rather than helping the future development of high priority industries, for example by unduly delaying the future development of high priority industries, for example by unduly delaying the implementation of critical projects or where indigenous industry is taking advantage of such restrictions for raising costs and prices beyond tolerable limits. Indian industry would, of course, be given all assistance to improve their competitive position and their technology. Many Indian firms are even today in a position to complete successfully International field and, therefore, no longer require the protection through quotas. 

Exports of Manufactures

Exports of manufactures are an important and growing segment of our export trade. Government will consider favourable proposals for export-oriented manufacturing capacity in fields where such investment is likely to be internationally competitive after making allowance for the structure of indirect taxation in the form of customs and excise duties and other similar levels. In the case of wholly export-based activities, Government will also be willing to consider exemption from customs/excise duties on inputs, provided there is a substantial net value added in the export product and also such production is likely to generate additional direct and indirect employment.

Compulsory Exports

In many cases, compulsory export obligations have been imposed while approving new industrial capacity because of the need to ensure that import of raw materials and capital goods required by the project are paid for through future exports. Compulsory export obligations, merely fore ensuring the foreign exchange balance of the project, would no longer be insisted upon. At the same time, in future, an export commitment for a limited period of five years will not be given the same weightage as before for relaxation of industrial policy. However, in case where a relaxation from industrial Policy has been accorded especially on consideration of export, compulsory export obligations would continue to be imposed and for sufficiently long period. In the past, while export obligations were imposed, equal attention was not paid to ensuring that compulsory export obligations are adhered to in actual practice. 

Location of Industries 

The Government attaches great importance to balanced regional development of the entire country so that disparties in levels of development between different regions are progressively reduced. Government have noted with concern that most of the industrial development that has taken place in our country since independence has been concentrated around the metropolitan areas and large cities. The result has been a rapid deterioration in the living conditions especially for the working classes in the larger cities and attendant problems of slums and environmental pollution. The Government have decided that no more licences should be issued to new industrial units with in certain limits of large metropolitan cities having a population more than 1 million and urban areas with a population of more than 5 lakhs as per the 1971 census. State Government and financial institutions will be requested to deny support to new industries in these areas such as these which do not require an industrial licence. The Government of India would also consider providing assistance to large existing industries which want to shift from congested metropolitan cities to approved locations in backward areas.

Pricing Policy 

A sound price policy has to aim at a reasonable degree of price stability and a fair party between pries of agricultural and industrial products. There has been a tendency to regulate prices of industrial products which are vital to the needs of development in a manner which made their production less attractive than production catering to the needs of the elite. It will be the policy of Government to ensure that in cases where there is price control, the controlled price will include an adequate return to the investor. Provide that the industry is operating at a fairly high utilisation of capacity and is conforming to the technologically attainable norms. It will be permitted to earn a sufficient return to provide for a reasonable dividend to the shareholder and also adequate funds to plough back into business for modernisation and growth. By the same time, Government cannot permit exorbitant profits being made by industries, which are operating well below their capacity, or by units, which operate, in a monopolistic environment.

Workers’ Participation 

The most important single resources of any country is the skill and hard work of its people. We, in India, have an abundant supply of labour which is capable of acquiring new skills very quickly and also an existing reservoir of technical and managerial personnel. These resources can be used effectively only in an environment in which the workers and managers develop as sense of personal involvement in the working of the enterprise. Family control of business particularly in the field of large scale industry is an anachronism, and it will be Government’s policy to insist on professionalism in management. At the same time, ways and means have to be found to create amongst workers, both an public and private sector industries, a stake in the efficient working of their units. The Government are examining the possibilities of encouraging workers’ participation in the equity of industrial units without, in any way, adversely affecting their interests. Such equity participation together with an active association of workers in decision making from the shop floor level to the Broad level will provide the necessary environment for a meaningful participation by workers in the management of industry. 

Sickness in Industry

One of the disturbing features of the industrial scene in recent years has been the growing incidence of sickness of both large and small units. In some cases, such as cotton and jute and textiles or sugar, a high proportion of the units in the industry has become sick with the result that in order to protect employment, Government has had to take over a number of such units. While Government cannot ignore the necessity of protecting existing employment, the cost of maintaining such employment has also to be taken into account. In a many case, very large amounts of public funds have been pumped into the sick units which has been taken over but they continue to make losses which have to be financed by the public exchequer. This process cannot continue indefinitely. 

In future, the take-over of management of units would be resorted to selectively and only after careful examination of the steps required to revive the units. It would also be the policy of the Government to take quick and effective steps for rehabilitation and reconstruction of the units and to ensure professional management of such units on a continuing basis. The cost of overcoming sickness in industry becomes much more manageable if such sickness can be diagnosed at an early date. For this purpose, Government in co-operation with the Reserve Bank of India have instituted arrangements for monitoring incipient sickness in industrial units so that corrective action can be initiated as soon there is evidence of mismanagement of financial and technological weakness. The Government is also considering measures whereby managers or owners who are responsible for mismanaging and turning their units sick are not permitted to play any further part in the management of other units. 

Streamlining of Procedures

Government will continue its effort to remove irritants in the industrial approval procedures which come in the way of accelerating industrial development. Since costs of delay are heavy and our country which is seeking to pull itself by its boost-straps can ill-afford them and swift progress should be our watward, every effort will made to improve administrative arrangements so as to result not only in further speedy and orderly approval procedures but also in enforcing an expeditious translation of letters of intent and industrial licences into productive capacity on ground. In order to streamline and simplify procedures and policies relating to industrial licensing as well as imports and exports, Government have set up high level committees which will submit their report shortly.

Conclusion

Industrial development is a complex process requiring the effective interaction and co-operation of all sections of society. If the objectives of the new Industrial Policy of accelerating the pace of industrial growth, rapid increase in levels of employment, productivity and income of industrial workers and a wide dispersal of small and village industries have to be achieve, the willing co-operation of industrial worker, trade unions, managers, entrepreneurs, financial institutions and various governmental authorities responsible for implementing schemes of assistance will be essential. The main burnt of the effort has, however, to be borned by our industrial workers and managers who are second to none in their skills and efficiency. The Government earnestly appeals to all these group to work together in a spirit of dedication to the national cause. It is only by our own skills and efforts that we can hope to solve the numerous problems facing the country. 

1977 has been a year of historical changes and people’s expectations in the political and economic fields are high. It is hoped that the new direction that is being to the industrial policy of the country will help in the creation of a just and equitable society in which, the benefits of industrial development will be shared by all the people. 
 

INDUSTRIAL POLICY STATEMENT

July, 1980

Industrial Policy Resolution 1956

The Industrial Policy Resolution 1956 has served as the cornerstone of the Congress Government Policy-Frame from the past quarter of a century. The Industrial Policy announcement of 1956 in fact reflects the value system of our country and has shown conclusively the merit of constructive flexibility. In terms of this Resolution the task of raising the pillars of economic infrastructure in the country was entrusted to the public sector for reasons of its great reliability, for very large investments required and the longer gestation periods of the projects crucial for economic development. The 1956 Resolution, therefore, forms the basis of this statement. 

Take Off Stage

2. Industrialisation in a developing country has two aspects viz. optimum utilisation of installed capacity and expansion of industries. The industrial progress of India during the past three decades can be attributed to the policies pursued by the Congress Government. While the country had reached a take of stage towards mid-1970s, both the growth channels-optimum utilisation of installed capacity as well as expansion of industries ere choked off by the 33 months rule of the Janata Party and its successor Government. The runaway of the economy has been damaged by the last two governments and the entire process of development was put in reverse gear.

Revival of the Economic Infrastructure 

3. The first task before is the revival of the economy, which is presently inhibited by infrastructural gaps and inadequacies in performance. This put the economy into a vicious cycle of shortages of majoe industrial inputs like energy, transport and coal. To normalise the situation, Government are working on war-footing to break this vicious circle and to put the economy again on its feet.

Industrialisation and Economic Progress 

4. Industrialisation is a sine quo non-of economic progress. Our Government is committed to rapid and balanced industrialisation of the country with a view to benefiting the common man in the shape of increasing availability of goods at fair prices, larger employment and higher per capita income. A higher standard of living implies that more of industrial goods go into the consumption basket of the people. Industrialisation is also essential to provide the much-needs support for agriculture and for the development of infrastructural facilities like energy and transport. The net economic impact of industrialisation much-needs support for agriculture and for the development of infrastructural facilities like energy and transport. The net economic impact of industrialisation must travel down ultimately to the maximum number of people.

Distribution of Benefits of Industrialisation 

5. The pattern of distribution of benefits of industrialisation should be such as to cover as large a segment of the country’s population, both rural and urban, while avoiding economic concentration in a few hands. New thrusts need to be made to establish a dynamic industrial economy as indicated in the election manifesto of the Congress Party. Now that the Congress Party has been entrusted with the responsibility of the Government, what is needed above all is a set of pragmatic policies which will remove the lingering constraints to industrial production and, at the same time act as catalysts for faster growth in the coming decades, within the following socio-economic objectives. 

Socio-Economic Objectives

  • Optimum utilisation of the installed capacity.
  • Maximising production and achieving higher productivity.
  • Higher employment generation. 
  • Correction of regional imbalances through a preferential development of industrially backward areas. 
  • Strengthening of the agricultural base by according a preferential treatment to agro-based industries, and promoting optimum intersectioral relationship.
  • Faster promotion of export- oriented and import substitution industries. 
  • Promoting economic federalism with an equitable spread of investment and the dispersal of returns amongst widely spread over small but growing units in rural as well as urban areas. 
  • Consumer protection against high prices and bad quality.

Role of Public Sector

6. An unfortunate development during the recent political vaccum in the country has been erosion of faith in the public sector which has been reflected in its rather poor performance in recent years. Public sector, which was conceived to provide the pitt pillars of the country’s economic infrastructure, was rendered hollow. The gigantic task before us, therefore, is to rehabilitate faith in the public sector. We have not only to restorage people’s faith in the public sector. But have to evolve effective operational systems of management in the public sector undertakings. The public sector has to be identified as people’s and not as "No body’s Sector" as was rendered by the last Government. Public Sector constitutes as substantial segment of industrial activity in the country and its contibution in terms of generating surpluses and employment for further growth of the economy needs to be improved. 

Unit-by-Unit Examination for Corrective Steps 

7. Government has decided to launch a drive to revive the efficiency of public sector undertakings. Industrial undertakings in this sector will be closely examined on a unit-by-unit basis and corrective action will be take in terms of a time-bound programme wherever necessary. Some of the units were allowed to get into chronic problems and instead of contributing surpluses, tended to put a drain on the public exchequer. Priority will be accorded to convert losing concerns into viable ones through board restructuring of the system and by providing dynamic and competent management.

Management Cadre

8. On the positive side, public sector will continue playing an increasingly important role. B part of the reason for unsatisfactory performance of some of the units in the public sector has been the absence of proper management cadre. It is proposed to take effective steps to build the public sector undertakings and emphasis will be place on developing management cadres in functional fields such as operations, finance, marketing and information system.

Role of Private Sector 

9. The Government would pursue the goal of a vibrant, self-reliant and modern economy in which all sectors and all segments of the society have a positive role to play. The Industrial Policy Resolution of 1956 assigned a role to play. The Industrial Policy Resolution of 1956 assigned a role for industrial undertakings in the private sector within the framework of socio-economic policy of the State and subject to certain regulations in terms of relevant legislations. Government recognises that it would be, in general, desirable to allow private sector undertakings to develop in consonance with targets and objectives of national plans and policies but shall not permit the growth of mono-politic tendencies or concentration of economic power and wealth in a few hands.

Economic Federalism

10. It will be Government’s endeavour to reverse the trends of the last three years towards creating artificial divisions between small and large-scale industry under the misconception that these interests are essentially conflicting. While making all efforts towards integrated industrial development, it is proposed to promote the concept of economic federalism with the setting up of a few nucleus plants in each district identified as industrially backward, to generate as many ancillaries and small and cottage units as possible.

Nucleus Plants 

11. A nucleus pland would concentrate on assembling the products of the ancillary units falling within its orbit on producing the inputs needed by a large number of smaller units and making adequate marketing arrangements. The nucleus will also ensure a widely spread pattern of investment and employment and will distribute the benefits of industrialisation to the maximum possible. The nucleus plants would also work for upgrading the technology of small units. Small is beautiful only if it is growing just as the phased manufacturing programme with a view to reducing reliance on imported components and material structure, a carefully worked out time bound programme for greater ancillarisation in certain industries will contribute considerably towards dispersal of industry and growth of entrepreneurship.

Ancillarisation

11a. The proposed nucleus plans in industrially backward districts would generate a spreadout network of small scale units or existing network of small scale units or existing network of small scale units in an area would acquire a faster growth by the coming up of a nucleus plant in the area. Such twoway traffic would create an ancillarisation effect in terms of large employment, more equitable distribution of the benefits of such an industrialisation in the shape of higher per capita income for the larger number of people in the area.

In between the nucleus large plants and the satellite ancillaries, the Government would promote a system of linkages for an integrated industrial development. The Government would evolve scheme of phased development. The Government would evolve schemes of Phased development of industrially backward areas through ancillarisation.

Re-defining of Small Scale Units 

12. In order to boost the development of small scale industries and to ensure their rapid growth, Government have decided:

  1. to increase the limit of investment in the case of tiny units from Rs.1 lakh to Rs.2 lakhs;
  2. to increase the limit of investment in the case of small scale units from Rs. 10 lakhs to Rs. 20 lakhs; and
  3. to increase the limit of investment in case of ancillaries from Rs. 15 lakhs to Rs. 25 lakhs.

13. This would eliminate the tendency to circumvent the present limit by understating the value of machinery and equipment, falsification of accounts or resort to ‘benami’ units. The enhancement of the limit in terms of investment in plants and machinery will also help genuine small scale units particularly those being set up by young and technically qualified entrepreneurs, to come up. This measure will also facilitate long over due modernisation of many of the existing small scale units.

Financial Support to Small Units 

14. One of the major constraints to the growth of decentralised sector has been the difficulties of finance experienced particularly by industrial entrepreneurs in small, cottage and rural sector. although, there is adequate network of institutional finance, yet yere is need for co-ordinating the flow of capital, both short term and long term. Government would evolve a system of co-ordination to ensure the flow of credit to the growing units in the decentralised sector at the right time and on appropriate terms. Government proposes to strengthen the existing arrangements and make such changes as may be necessary to facilitate the availability of credit to the growing units in the small scale sector.

Buffer Stocks For Critical Inputs

15. In order to assist the growth of small scale industries it is proposed to introduce a scheme for building up of buffer stocks of essential materials which are often difficult to obtain for this the existing set-up such as Small Industries Development Corporations in the Centre will also be utilised. Special needs of states which rely heavily on a few essential raw materials will receive priority.

Marketing Support and Reservation of Items for Small Scale Industries 

16. Policies regarding marketing support to the decentralised sectors and reservation of items for small scale industries, shall continue to be in force in the interest of growth of the small scale industries.

Village Industries 

17. Government is determined to promote such a form of industrialisation in the country as to generate economic viability in the village. Promotion of suitable industries in rural areas will be accelerated to generate higher employment and higher pre capital income for the villagers in the country without disturbing the ecological balance. Handlooms, handicrafts, khadi and other village industries will receive greater attention to achieve a faster rate of growth in the village.

Correcting Regional Imbalances

18. Industrialisation will play an important role in correcting the regional imbalances and reviving the industrial growth to lead the economy once again to the take-off stage. For the achievement of this goal, Government have decided to encourage dispersal of industry and setting up of units in industrially backward areas. Special concessions and facilities will be offered for this purpose and these incentives will be growth and performance oriented.

Evaluation of incentives

19. In the past, numerous incentives had been provided to industries from time to time. It is Government’s considered view that all incentives given to industry must be performance oriented. It is therefore, proposed that a regular periodic assessment will be made of the impact of these incentives to see the extent to which they have fulfilled their initial purpose. Unless it is apparent that the purpose is purpose is being served, Government will review the system incentives.

Generation of Employment and Higher Production 

20. Industrial development has to be viewed in the broader context of generating higher production and employment. Overcoming the problems of poverty and backwardsness need a multi-pronged approach. An integral part of this approach would be to create new focal points of industrial growth which have the maximum effect on the quality of life. This will have to be based essentially on the utilisation of local materials and locally available man-power. The ripple effect of substantial investment in backward districts in the past has in many cases not been adequate, mainly because such investment did not have effective linkages with local resources. Government, therefore, propose to encourage investment by public and private sector which will meet these criteria and would also promote a network of spread out ancillaries.

Endorsement of Licences to Reflect Existing Productive Capacity

21. In 1975, Government had taken certain decisions in regard to the recognition of additional capacities as a result of replacement and modernisation of equipment. Liberalisation of investment procedure for stimulating production in a certain selected industries and for endorsement of excess production over licensed capacity on the basis of a simplified procedure. Government feels that in several industries which are important from the point of view of national economy or are engaged in the production of articles of mass consumption, the productive capacity endorsed on the original licences or as amended in terms of the 1975 notification may not reflect the full productive pptential of the unit. As a result of increased labour productivity or technological improvements, the productive capacities may have increased. 

Government propose to recognise such capacities on a selective basis. It would not be in public interest to permit licensing procedures or a rigid locational policy to stand in the way of maximising production. The necessary notifications listing the industries, and spelling out the simplified procedures for such endorsement will be issued separately.

Provision for Automatic Growth

22. In view of the constraints on resources in a developing country like ours, and also taking into account the considerable increase in the prices of capital goods, particularly those required to be imported it is necessary to ensure that no avoidable restrictions are placed on the fullest utilisation of the existing industrial capacities. This is particularly true of the core industries, of industries which have direct linkages with the core sector, and industries which have a long term export potential. All these industries are of basic, critical and strategic importance for the growth of the economy. In February, 1973, Government had announced a list of such industries, following the classification of industries, mentioned in the First Schedule to the Industries (Dev. And Reg.) Act, 1951. Later in 1975, Government had permitted the facility for automatic expansion in respect of 15 industries. The extent of increased capacity permitted in respected in respect of these industries was limited to 5% per annum or 25% in a five-ear plan period and could be undertaken in one or more stages. This expansion was to be addition to the normal permissible expansion in production by 25% of the approved capacity. Government have now decided that this facility will also be extended to other industries included in Appendix-I. In this behalf, the necessary notifications will be issued separately.

Export oriented Units 

23. Industry must contribute its share in creating a more favourable balance to trade by catering to the ever-increasing foreign markets. Government would sympathetically consider requests for setting up 100% export oriented units, requests for expansion of existing units exclusively for purposes for export and for allowing higher production for explicating fully the emerging export opportunities.

Advanced Technology for Economies of Scale

24. In a number of cases Indian Industry has not been able to complete in markets abroad because the scale of output which is related to the level of domestic demand is too small to give them the advantages of modern technology and economies of scale. In case where a larger production base would increase the competitiveness of Indian Industry abroad, Government will consider favourably the induction of advanced technology, and will permit creation of capacity large enough to make it competitive in would markets, provided substantial exports are likely. The purpose of introducing such world markets provided substantial exports are likely. The purpose of introducing such a policy would be not only to encourage exports but also to enable industry to produce better quality products at lower costs which will ultimately benefit the consumer in terms of price and quality.

Research and Development

25. The Indian Industry must earmark substantial resources for R&D to constantly up-date technologies with a view to optimal utilisation of scarce resources, better service to a consumer and achieving greater exports. We also have to lay greater emphasis on bringing the benefits of the latest R&D to the medium and small units. 

Transfer of Technology

26. Government will take active measures to facilitate the transfer of technology from efficiently operating units to new units. Companies which have well established R&D orgnisation, and have demonstrated their ability to absorb, adapt and disseminate modern technology will be permitted to import such technology as will increase their efficiency and cost-effectiveness. This will not only lead to saving of foreign exchange but would also ensure self-sufficiency and higher foreign exchange earnings. 

Modernisation Packages

27. "Modernisation Packages" will be evolved to suit the requirements of each industry, and will include all aspects i.e. appropriate location and optimum use of energy and the adoption of the right king of scale and technology in order to minimise costs and improve efficiency in the use of scarce materials, the supply of which come from non-renewable sources. Government’s endeavour to ensure that the process of modernisation percolates down to small units and the villages. As in the case of the large scale modern industry, where new processes and technologies must replace the old and the traditional ones in the decentralised sector also, improved tools and techniques which will contribute to higher productivity and reduce the drudgery are an essential ingredient of the modernisation. Government will review the present arrangements in terms of special facilities and incentives such as soft loans, establishing of proper linkages in the field of marketing and strengthening the credit facilities particularly for the decentralized sector. 

Energy Industry Dovetailing 

28. Until recently, little effort has been made in dovetailing the industry and energy policies; not has enough attention been paid to the effects of industrial growth on environment and pollution of air and water. Government have decided that such industrial processes and technologies as would aim at optimal utilisation of energy or the exploitation of alternative sources of energy, would be given special assistance, including finance on concessional terms.

Pollution Control

29. Similarly, activities which have a direct bearing on and will contribute to improved environment and reduce the deleterious effects on pollution of air and water would also be made eligible for special assistance on appropriate terms. Government will examine the present scheme for soft loans with a view to including in it activities related to energy conservation, exploitation of non-traditional sources of energy like solar energy and control of water and air pollution and also such other specific industrial activities as are in urgent need of modernisation and upgradation of technology. This will be continuing exercise and the list of industries eligible for soft loans scheme will be reviewed from time to time.

Preserving Ecological Balance

30. Government are committed to the preservation of ecological balance and for improving living conditions in the urban centres of the country. In pursuance of this policy and with a view to encouraging the dispersal of industry, steps have been taken to prevent the growth of industry in the metropolitan cities and the large towns. Setting up of new industrial undertakings within the limits of such urban centres is not permitted. 

31. However, in the implementation of this policy, Government propose to remove genuine difficulties, without determent to the basic objectives. It is, therefore, proposed to provide for selective relaxation to enable utilisation of already installed capacities to provide for natural growth and the encourage production for export. The requisite simplification and procedural changes in the application of the present location policy are being announced separately. 

Streamlining Licensing Procedures

32. There has already been considerable simplification and streamlining of licensing procedures. Nevertheless, there is scope for further improvement in reducing the period of time taken for disposal of applications for the creation of new capacities, proposals for substantial expansion, and the production of new items. It is proposed to speed up the processes of examination and decision-making and also to examine the possibilities of further rationalisation and simplification of the system of industrial licensing. 

Monitoring system and Data Bank

33. It is also proposed that in future, the agencies connected with the issuance of letters of intent / industrial licences will not merely concern themselves with letters of intent / industrial license but would also evolve a comprehensive system of monitoring the implementation of the schemes. For this purpose, it is proposed to build up a Data Bank of the progress of various licensed / registered investment schemes.

34. The objective of the Data Bank will be have, in respect of all major investment proposals, information regarding the progress in regard to the import of capital goods, the status in regard to the application for term lending and also the physical implementation of the schemes. For this purpose, it is proposed to build up Data Bank of the progress of various licensed / registered investment schemes.

34. The objective of the Data Bank will be to have, in respect of all major investment proposals, information regarding the progress in regard to the import of capital goods, the status in regard to the application for term lending and also the physical implementation of the scheme. The establishment of such a Data Bank will also enable Government to ensure that where parties have willfully failed to implement the letter of intent or have tried to pre-empt capacity are dealt with suitably.

Industrial Sickness: Devising an Early Warning System 

35. Government are concerned at the growing problem of sickness in a large number of industrial undertakings. While it is recognised that it would be in the national interest to protect the investments in these undertakings by appropriate remedial action, it is also the view of the Government that deliberate mismanagement and financial improprieties leading to sickness should be death with firmly. Various all-India financial institutions have set up arrangements to detect sickness in undertakings at an early stage with a view to taking necessary corrective action. To ensure this the Government proposes to introduce a checklist to serve as "an early warning system" for identifying symptoms of sickness. 

Merger and Amalgamation 

36. In the case of existing sick undertakings which show adequate potential for revival, it would be policy of Government to encourage their merger with healthy units which are capable of managing the sick undertakings and restoring their viability. For this purpose, the existing tax concession under Section 72-A of the Income Tax Act will be made more liberally available to amalgamation proposal, which will serve the purpose of revival of sick units. The existing guidelines will be reviewed with a view to facilitating greater reliance on voluntary mergers of sick units with healthy units which are capable of implementing a viable revival scheme.

Takeover to be in Exceptional Cases

37. It is also Government’s policy to ensure that the State Governments, the financing institutions and the labour co-operate effectively for their revival of the sick units. Recourse to take-over of the management under the Industries (Development and Regulation) Act will be taken only in exceptional cases on grounds of public interest where other means for the revial of sick undertakings are not considered feasible. Where such take over becomes necessary the State Governments will in appropriate cases, be expected to assume responsibility for the financing and management of the undertaking.

Industrial Relations 

38. Deteriorating industrial relations in the last three years affected a number of important sectors of economy and let to fall in the industrial production. Government attach great importance to the interests and welfare of labour, but they also consider that the maintenance of constructive and cordial industrial relation in which both labour and management have to co-operate in a responsible manner is essential for the sustained growth of economy. Government have decided to revive the tripartite labour conderence and it is hoped that through an attitude of mutual undertakings and constructive co-operation, it will be possible to establish higher standards of productivity and industrial harmony. 

Industrial Pricing Policy

39. It is Government’s policy that while all reasonable facilities and incentives will be provided to industry, it must recognise and accept its social responsibility particularly in terms of maintaining the price line, avoiding hoarding and speculation, and maximising production on an efficient basis. It is proposed to start dialogue with the industry to ensure that within a stipulated period of time, the prices are rationalised to the benefit of the consumer. 

District Industries Centres

40. Government have reviewed the scheme of district industries centres which has not produced benefits commensurate with the expenditure incurred. Government therefore propose to initiate more effective alternatives. 

Industrial Investment: An Inter-disciplinary Concept

41. Industrial development is an inter-disciplinary concept. It pertains not only to the manufacturing activity but to all related infrastructural development; licensing and corporate policies; financial, fiscal, trade and pricing policies; industrial relations and management. Scientific and technological development; and broad socio-economic policies. Industrial policy requires close and effective co-ordination and monitoring at various levels at the Centre as well as between Centre and the States. Its ultimate success will also depend on the extent of co-operation that industry receives from the other sections of society. 

42. Government of India trust that the objectives set out in this paper and the measures outlines herein to achieve them will receive the support of all sections of the people to enable the country to attain its larger goals, namely faster economic growth, properity to its citizens, and the establishment of an egalitarian society. 
 
 

INDUSTRIAL POLICY 1990

POLICY MEASURES FOR THE PROMOTION OF
SMALL SCALE AND AGRO-BASED INDUSTRIES AND
CHANGES IN PROCEDURES FOR INDUSTRIAL APPROVALS

Government have been considering the need to take measures for promotion of small scale and agro-based industries and to change procedures for grant of industrial approvals.

2. In pursuance of our policy to re-orient industrial growth to serve the objective of employment generation, dispersal of industry in the rural areas, and to enhance the contribution of small scale industries to exports it has been decided to take the measures enumerated below.

3. The investment ceiling in plant & machinery for small scale industries (fixed in 1985) would be raised from the present Rs. 35 lakhs to Rs. 60 lakhs and correspondingly, for ancillary units from Rs. 45 lakhs to Rs. 75 lakhs. In order to enable small scale industries to plsy an important role in the total export effort, such of the small scale units which undertake to export at least 30 per cent of the annual production by the third year will be permitted to step up their investment in plant & machinery to Rs. 75 lakhs.

4. Investment ceiling in respect of tiny units would also be increased from the present Rs. 2 lakhs to Rs. 5 lakhs. However, with regard to their location, the population limit of 50,000 as per the 1981 census would continue to apply. Steps will be taken to ensure better inflow of credit and other vital inputs and to improve the infrastructure support to the constituents of the Tiny Sector.

5. Presently, 836 items have been reserved for exclusive manufacture in the small scale sector. Efforts would be made to identify more items amenable to similar reservation. Encroachment and violation by large scale units into areas reserved for small scale sector will be effectively dealth with.

(ii) A new scheme of Central Investment Subsidy exclusively for the small scale sector in rural and backward areas capable of generating higher level of employment at lower capital cost would be implemented.

(iii) With a view to improving the competitiveness of the products manufactured in the small scale sector, programmes for modernisation and upgradation of technology would be implemented. A number of technology ecntres, tool rooms, Process and Product Development Centres, testing centres, etc. will be set up under the umbrella of an apex Technology Development Centre in Small Industries Development Organiasation.

(iv) To ensure adequate and timely flow of credit of the small scale industries, a new apex bank known as SIDBI has already been established. One of the major tasks of SIDBI and other commercial banks / financial institutions would be to channelise need-based, higher flow of credit, both by way of tem loan and working capital, to the tiny and rural industries. A targeted approach will be adopted to ensure implementation and to facilitate monitoring this objective.

(v) The existing regime of fiscale concessions will be reviewed both to provide sustained support to the units in the small-scale sector and to remove the disincentives for their graduation and further growth.

(vi) An exercise will be undertaken to identify locations in rural areas endowed with adequate power supply and intensive campaigns will be launched to attract suitable entrepreneurs, provide all other inputs and foster small scale and tiny industries. Similarly industries which are not energy-intensive will be identified for proliferation in rural areas where power supply is presently a constraint.

(vii) In order to widen the entrepreneurial bases the Government would lay particular emphasis on training of women and youth under the Entrepreneurial Development Programme. A special cell would be established in MSME-DO and State Directorates of Industries to assist women entrepreneurs.

(viii) One of the persistent complaints of the small scale units is their being subjected to a large number of ACTs / Laws, being required to maintain a number of registers, submit plethora of returns and face an army of Inspectors, particularly in the field of labour legislations. These bureaucracy controls will be reduced so that unnecessary interference is eliminated. Further, procedure will be simplified and paper work cut down.

6. In order to assist the large number of artisans engaged in the rural and cottage industries, the activities of the KVIC and KVI Boards will be expanded, and these organisations will be strengthened to discharge the responsibility more effectively. Special marketing organisations at the Centre and State levels shall be created to assist rural artisans in marketing their products and also in supply of raw materials. Besides, providing concessional credit, training facilities and free consultancy to groups of artisans will also be provided.

7. In agro processing industries greater success has been achieved where growers and processors have been integrated, as in the case of sugar. For the success of other agro-based industries also, close links must be forged between the growers and processor units. Industrial Policy will, therefore, especially promote projects which are organised in close co-operation on the basis of joint ownership. Growers will be encouraged to set up processing units within the framework of co-operative societies or similar institutional framework. This will also ensure the transmission of better technology for enhanced agricultural production.

8. In sectors where units require licesing, the policy will also encourage location of processing units in rural areas where growers are concentrated. Apart from economic benefits of proximity to raw materials it will help in dispersal of industry and increasing employment in rural areas. 

9. Agro processing industry will receive high priority in credit allocation from the Financial Institutions. In appointment of working capital, bank will give higher priority to such industries as compared to the rest of the industrial sector. 

10. In order to bring best technology available to these industries, technology approvals will be given 30 days of presentation to the secretariat for Industrial Approvals in the Department of Industrial Development. Government will actively promote the generation, adaptation and adoption of new technologies in the field. 

Procedures for Industrial Approvals 

11. Indian industry must be made more competitive internationally. It also to be released from unnecessary bureaucratic shakles by reducing the number of clearances required from the Government. While the Government will continue to examine large projects in view of resource constants, decisions in respect of medium sized investments will be left to the entrepreneurs. To achieve these objectives, the following decisions have been taken. 

Delicensing

12. All new units upto an investment of Rs. 25 crores in fixed assets in non-backward areas and Rs. 75 crores in Centrally notified backward areas will be exempt from requirement of obtaining licence / registration. 

13. For the import of Capital Goods, the entrepreneur would have entitlement to import upto a landed value of 30% of the total value of plant and machinery required for the unit. 

Raw materials and components

14. For imports of raw materials and components, imports will be permissible upto a landed value of 30% of the ex-factory value of annual production. The ex-factory value of production will exclude the excise duty on the item of production. Raw materials and components on OGL will not be included within this 30 percent limit. For all licensable items of raw materials and components, import licensing procedures will continue to operate. 

Foreign collaboration

15. In respect of transfer of technology, if import of technology is considered necessary by the entrepreneur, he can conclude an agreement with the collaborator, without obtaining any clearance from the Government, provided that royalty payment does not exceed 5% on domestic sales and 8% on exports. If, however, lumpsum payment is involved in the import of technology, the proposal will require Government clearance, but a decision will be communicated to the entrepreneur within a period of 30 days.

Foreign Investment

16. Keeping in view the need to attract effective onflow of technology, investment upto 40% of equity will be allowed on an automatic basis. In such proposals also, the landed value of imported C.G. shall not exceed 30% of value of plant and machinery.

Minimum Economic Size

17. In order to ensure that investment leads to production of goods that attain international competitiveness and that maximum efficiency is ensured the unit would have to conform to the minimum economic size in cases where such a size has been prescribed. 

Expansion 

18. The de-regulation suggested above would cover all cases of expansion and would not be restricted only to new units. 

Broad-banding

19. The existing broad banding scheme would continue to be in force. In addition, of no extra investment is required, no clearance from the Government would be necessary for production and sale of any new item by existing unit. This would not include those items which are reserved for small scale industries. 

Location Policy and Environmental clearances 

20. The location policy would not be applied to such industries by the Centre except for location in and around metropolitan cities with population above 4 million. For these cities location will not be permissible within 20 km calculated from the periphery of the metropolitan area axcept in prior designed industrial areas and for non-polluting industries such as electronics, computer software and printing. It will be upto State Government to regulate industrial locations keeping in mind local conditions and requirements and their respective special development plans, and zoning and town planning laws. Similarly environmental clearance would have to be obtained from the prescribed authority at the State level. In further should central legislation introduce new provisions, that law would automatically apply to these units as well.

Export Oriented Units 

21. 100% export oriented units (UOUs) and units to be set up in export processing zones (EPZs) are also being delicensed under the scheme upto an investment limit of Rs. 75 crores.

Convertibility Clause 

22. Such investment shall be exempt from the "Convertibility Clause" applicable to financing the Indian Financial Institutions. 

23. It may be clarified that in the application of the proposals listed above, 836 items which are reserved for production the small scale sector will continue to be excluded.

24. The above proposals will be applicable to all manufacturing items in a specified list. The list shall follow the nomenclature of the Indian Trade Classification based on the Harmonised System. In such section of the classification, apart from positive mention of approved items, those not permissible shall be specifically excluded from the benefit of the proposals list above. Approval for excluded items will be as per the existing industrial policy regime and procedures.

25. Units set up by MRTP / FERA companies will be covered by the procedures set out above, but they will continue ot need clearances under the provisions and regulations of these two Acts.

26. The existing De-licensed Industries Scheme, Exempted Industries Scheme and DGTD Registration System will stand abolished. 
 
 

GOVERNMENT OF INDIA
MINISTRY OF INDUSTRY

STATEMENT OF INDUSTRIAL POLICY

New Delhi, July 24, 1991

Policy Objectives 

Pandit Jawaharlal Nehru laid the foundations of modern India. His vision and determination have left a lasting impression on every facet of national endeavour since Independence. It is due to his initiative that India now has a strong and diversified industrial base and is a major industrial nation of the world. The goals and objectives set up for the nation by Pandit Nehru on the eve of Independence, namely, the rapid agricultural and industrial development of our country, rapid expansion of opportunities for gainful employment, progressive reduction of social and economic disparities, removal of poverty and attainment of self-reliance remain as valid today as at the time Pandit Nehru first set them out before the nation. Any industrial policy must contribute to the realisation of these goals and objectives at an accelerated pace. The present statement of industrial policy is inspired by these very concerns, and represents a renewed initiative towards consolidating the gains of national reconstruction at this crucial stage. 

2. In 1984, immediately after Independence, Government introduced the Industrial Policy Resolution. This outlined the approach to industrial growth and development. It emphasised the importance to the economy of securing a continuous increase in production and ensuring its equitable distribution. After the adoption of the Constitution increase in production and ensuring its equitable distribution. After the adoption of the Constitution and the socio-economic goals, the Industrial Policy was comprehensively revised and adopted in 1956. To meet new challenges, from time, it was modified through statements in 1973, 1977 and 1980.

3. The Industrial Policy Resolution of 1948 was followed by the Industrial Policy Resolution of 1956 which had as its objective the acceleration of the rate of economic growth and the speeding up of industrialization as a means of achieving a socialist pattern of society. In 1956, capital was scarce and the base of entrepreneurship not strong enough. Hence, the 1956 Industrial policy Resolution gave primacy to the role of the State to assume a predominant and direct responsibility for industrial development. 

4. The Industrial Policy Statement of 1973, inter alia, identified high priority industries where investment from large industrial houses and foreign companies would be permitted.

5. The Industrial Policy Statement of 1977 laid emphasis on decentralisation and on the role of small scale, tiny and cottage industries.

6. The Industrial Policy Statement of 1980 focused attention on the need for promoting competition in the domestic market, technological upgradation and modernisation. The policy laid the foundation for an increasingly competitive export base and for encouraging foreign investment in high technology areas. This found expression in the Sixth Five-Year Plan which bore the distinct stamp of Smt. Indira Gandhi. It was Smt. Indira Gandhi who emphasised the need for productivity to be the central concern in all economic and production activities.

7. These policies created a climate for rapid industrial growth in the country. Thus on the eve of the Seventh Five Year Plan, a board-based infrastructure had been built up. Basic industries had been established. A high degree of self-reliance in a large number of items-raw materials, intermediates, finished goods had been achieved. New growth centres of industrial activity had emerged, as had a new generation of entrepreneurs. A large number of engineers, technicians and skilled workers had also been trained.

8. The Seventh Plan recognised the need to consolidate on these strenths and to take initiatives to prepare Indian industry to respond effectively to the emerging challenges. A number of policy and procedural changes were introduced in 1985 and 1986 under the leadership of Shri Rajiv Gandhi aimed at increasing productivity, reducing costs and improving quality. The accent was on opening the domestic market to increased competition and readying our industry to stand on its own in the face of international competition. The public sector was freed from a number of constraints and given a larger measure of autonomy. The technological and managerial modernisation of industry was pursued as the key instrument for increasing productivity and improving our competitiveness in the world. The net result of all these changes was that Indian industry grew by an impressive average annual growth rate of 8.5% in the Seventh Plan Period. 

9. Government is pledged to launching a reinvigorated struggle for social and economic justice, to end poverty and unemployment and to build a modern, democratic, socialist, prosperous and forward-looking India. Such a society can be built if India grows as part of the world economy and not in isolation. 

10. While Government will continue to follow the policy of self-reliance, there would be greater emphasis placed on building up our ability to pay for imports through our own foreign exchange earnings. Government is also committed to development and utilisation of indigenouscapabilities in technology and manufacturing as well as its upgradation to world standards. 

11. Government will continue to pursue a sound policy framework encompassing encouragement of entrepreneurship, development of indigenous technology through investment in research and development, bringing in new technology dismantling of the regulatory system, development of the capital markets and increasing competitiveness for the benefit of the common man. The spread of industrialisation to backward areas of the country will be actively promoted through appropriate incentives, institutions and infrastructure investments. 

12. Government will provide enhanced support to the small-scale sector so that it flourishes in an environment of economic efficiency and continuous technological upgradation. 

13. Foreign investment and technology collaboration will be welcomed to obtain higher technology, to increase exports and to expand the production base. 

14. Government will endeavour to abolish the monopoly of any sector or any individual enterprise in any field of manufacture, except on strategic or military considerations and open all manufacturing activity to competition. 

15. The Government will ensure that the public sector plays its rightful role in the evolving socio-economic scenario of the country. Government will ensure that the public sector is run on business lines as envisaged in the Industrial Policy Resolution of 1956 and would continue to innovate and lead in strategic areas of national importance. In the 1950s and 1960s the principal instrument for controlling the commanding heights of the economy was investment in the capital of key industries. Today, the State has other instruments of intervention, particularly fiscal and monetary instruments. The State also instruments of intervention, particularly fiscal and monetary instruments. The State also commands the bulk of the nation’s savings. Banks and financial institutions are under State Control. Where State intervention is necessary, these instruments will prove more effective and decisive. 

16. Government will fully protect the interests of labour, enhance their welfare and equip them in all respects to deal with the inevitability of technological change. Government believes that no small section of society can corner the gains of growth, leaving workers to bear its pains. Labour will be made an equal partner in progress and prosperity. Workers participation in management will be promoted. Workers co-operatives will be encouraged to participate in packages designed to turn around sick companies. Intensive training, skill development and upgradation programmes will be launched. 

17. Government will continue to visualise new horizons. The major objectives of the new industrial policy package will be to build in the gains already made, correct the distortions or weaknesses that may have crept in, maintain a sustained growth in productivity and gainful employment and attain international competitiveness. The pursuit of these objectives will be tempered by the need to preserve the environment and ensure the efficient use of available resources. All sectors of industry whether small, medium or large, belonging to the public, private or co-operative sector will be encouraged to grow and improve on their past performance. 

18. Government’s policy will be continuity with change. 

19. In pursuit of the above objectives, Government have decided to take a series of initiatives in respect of the policies relating to the following areas.

  1. Industrial Licensing.
  2. Foreign Investment.
  3. Foreign Technology Agreements.
  4. Public Sector Policy.
  5. MRTP Act.

A package for the Small and Tiny Sectors of industry is being announced separately.

A. Industrial Licensing Policy

20. Industrial Licensing is governed by the Industries (Development & Regulation) Act, 1951. The Industrial Policy Resolution of 1956 identified the following three categories of industries: those that would be reserved for development in the public sector, those that would be permitted for development through private enterprise with or without State participation, and those in which investment initiatives would ordinarily emanate from private entrepreneurs. Over the years, keeping in view the changing industrial scene in the country, the policy has undergone modifications. Industrial licensing policy and procedures have also been liberalised from time to time. A full relaisation of the industrial potential of the country calls for a continuation of this process of change.

21. In order to achieve the objectives of the strategy for the industrial sector for the 191s and beyond it is necessary to make a number of changes in the system of industrial approvals. Major policy initiates and procedural reforms are called for in order to actively encourage and assist Indian entrepreneurs to exploit and meet the emerging domestic and global opportunities and challenges. The bedrock of any such package of measures must be to let the entrepreneurs make investment decisions on the basis of their own commercial judgement. The attainment of technological dynamism and international competitiveness requires that enterprises must be enabled to swiftly respond to fast changing external conditions that have become characteristic of today’s industrial world. Government policy and procedures must be geared to assisting entrepreneurs in their efforts. This can be done only if the role played by the Government were to be changed from that of only exercising control to one of providing help and guidance by making essential procedures fully transparent and by eliminating delays.

22. The winds of change have been with us for some time. The industrial licensing system has been gradually moving away from the concept of capacity licensing. The system of reservations for public sector undertakings has been evolving towards an ethos of greater flexibility and private sector enterprise has been gradually allowed to enter into many of these areas on a case by case basis. Further impetus must be provided to these changes which alone can push this country towards the attainment of its entrepreneurial and industrial potential. This calls for bold and imaginative decisions designed to remove restraints on capacity creation, while at the same time, ensuring that over-riding national interests are not jeopardised.

23. In the above context, industrial licensing will henceforth be abolished for all industries, except those specified, irrespective of levels of investment. These specified industries (Annex-II), will continue to be subject to compulsory licensing for reasons related to security and strategic concerns, social reasons, problems related to safety and over-riding environmental issues, manufacture of products of hazardous nature and articles of elitist consumption. The exemption from licensing will be particularly helpful to the many dynamic small and medium entrepreneurs who have been unnecessarily hampered by the licensing system. As a whole the Indian economy will benefit by becoming more competitive, more efficient and modern and will take its rightful place in the world of industrial progress. 

B. Foreign Investment 

24. While freeing Indian industry from official controls, opportunities for promoting foreign investment in India should also be fully exploited. In view of the significant development of India’s industrial economy in the last 40 years, the general resilience, size and level of sophistication achieved, and the significant changes that have alos teken place in the world industrial economy, the relationship between domestic and foreign industry needs to be much more dynamic than it has been in terms of both technology and investment. Foreign investment would bring attendant advantages of technology transfer, marketing expertise, introduction of modern managerial techniques and new possibilities for promotion of exports. This is particularly necessary in the changing global scenario of industrial and economic co-operation marked by mobility of capital. The Government will, therefore, welcome foreign investment which is in the interest of the country’s industrial development. 

25. In order to invite foreign investment in high priority industries, requiring large investments and advanced technology, it has been decided to provide approval for direct foreign investment upto 51% foreign equity in such industries. There shall be no bottlenecks of any kind in this process. This group of industries has generally been known as the "Appendix-I Industries" and are areas in which FERA companies have already been allowed to invest on a discretionary basis. This change will go a longway in making Indian policy on foreign investment transparent. Such framework will make it attractive for companies abroad to invest in India.

26. Promotion of exports of Indian products calls for a systematic exploration of world markets possible only through intensive and highly professional marketing activities. To the extent that expertise of this nature is not well developed so far in India. Government will encourage foreign trading companies to assist us in our export activities. Attraction of substantial investment and access to high technology often closely held, and to world markets, involves interaction with some of the world’s largest international manufacturing and marketing firms. The Government will appoint a special board to negotiate with such firms so that we can engage in for purposive negotiation with such large firms, and provide the avenues for large investments in the development of industries and technology in the national interest. 

C. Foreign Technology Agreements 

27. There is a great need for promoting an industrial environment where the acquisition of technological capability receives priority. In the fast changing world of technology the relationship between the suppliers and users of technology must be a continuous one. Such a relationship becomes difficult to achieve when the approval process includes unnecessary governmental interference on a case to case basis involving endemic delays and fostering uncertainty. The Indian entrepreneur has now come of age so that he no longer needs such bureaucratic clearance of his commercial technology relationships with foreign technology suppliers. Indian industry can scarcely be competitive with the rest of the world if it is to operate within such a regulatory environment. 

28. With a view to injecting the desired level of technological dynamism in Indian industry, Government will provide automatic approval for technology agreements related to high priority industries within specified parameters. Similar facilities will be available for other industries as well if such agreements do not require the expenditure of free foreign exchange. Indian companies will be free to negotiate the terms of technology transfer with their foreign counterparts according to their own commercial judgement. The predictability and independence of action that this measure is providing to Indian industry will induce them to develop indigenous competence for the efficient absorption of foreign technology. Greater competitive pressure will also induce our industry to invest much more in research and development then they have been doing in the past. In order to help this process, the hiring of foreign technicians and foreign testing of indigenously developed technologies, will also not require prior clearance as prescribed so far, individually or as part of industrial or investment approvals.

D. Public Sector Policy 

29. The public sector has been central to philosophy of development. In the persuit of our development objectives, public ownership and control in critical sectors of the economy has played an important role in preventing the concentration of economic power, reducing regional disparities and ensuring that planned development serves the common goods. 

30. The Industrial Policy Resolution of 1956 gave the public sector a strategic role in the economy. Massive investments have been made over the past four decades to build a public sector which has a commanding role in the economy. Today key sectors of the economy are dominated by mature public enterprises that have successfully expanded production, opened up new areas of technology and built up a reserve of technical competence in a number of areas. 

31. After the initial exuberance of the public sector entering new areas of industrial and technical competence, a number of problems have begun to manifest themselves in many of the public enterprises. Serious problems are observed in the insufficient growth in productivity, poor project management, overmanning, lack of continuous technological upgradation, and inadequate attention to R&D and human resource development. In addition, public enterprises have shown a very low rate of return on the capital invested. This has inhabited their ability to regenerate themselves in terms of new investments as become a burden rather than being an asset to the Government. The original concept of the public sector has also undergone considerable dilution. The most striking example is the take over of sick units from the private sector. This category of public sector units accounts for almost one third of the total losses of central public enterprises. Another category of public enterprises, which does not fit in to the original idea of the public sector being at the commanding heights of the economy, is the plethora of public enterprises which are in the consumer goods services sector.

It is time therefore that the Government adopt a new approach to public enterprises. There must be a great commitment to the support of public enterprises which are essential for the operation of the industrial economy. Measures must be taken to make these enterprises more growth oriented and technically dynamic. Units which may be faltering at present but are potentially viable must be structured and given a new lease of life. The priority areas for growth of public enterprises in the future will be the followings: 

  • Essential infrastrure goods and services.
  • Exploration and exploitation of oil and mineral resources. 
  • Technology development and building of manufacturing capabilities in areas which are crucial in the long term development of the economy and where private sector investment is inadequate
  • Manufacture of products where strategic considerations predominate such as defence equipment 

At the same time the public sector will not be barred from entering areas not specifically reserved for it.

33. In view of these considerations, Government will review the existing portfolio of public investments with greater realism. This review will be in respect of industries based on low technology, small scale and non-strategic areas, inefficient and unproductive areas, areas with low or nil social considerations or public purpose, and areas where the private sector has development sufficient expertise and resources.

Government will strengthen those public enterprises which fall in the reserved areas of operation or are in high priority areas or are generating good or reasonable profits. Such enterprises will be provided a much greater degree of management autonomy through the system of memoranda of understanding. Competition will also be induced in these areas by inviting private sector participation. In the case of selected enterprises, part of Government holdings in the equity share capital of these enterprises will be disinvested in order to provide further market discipline to the performance of public enterprises. There are a large number of chronically sick public enterprises incurring heavy losses, operating in a competitive market and serve little or no public purpose. These needed to be attended to. The country must be proud of the public sector that it owns and its must operate in the public interest.

E. Monopolies and Restrictive Trade Practices Act (MRTP Act)

35. The principal objectives sought to be achieved through the MRTP Act are as follows:-

  1. Prevention of concentration of economic power to the common detriment, control of monopolies. 
  2. Prohibition of monopolies and restrictive and unfair trade practices.

36. The MRTP Act became effective in June 1970. With the emphasis placed on productivity in the Sixth Plan, major amendments to the MRTP Act were carried out in 1982 and 1984 in order to remove impediments to industrial growth and expansion. This process of change was given a new momentum in 1985 by an increase of the threshold limit of assets

37. With the growing complexity of industrial structure and the need for achieving economies of scale for ensuring higher productivity and competitive advantage in the international market, the interference of the Government through the MRTP Act in investment decision of large companies has become deleterious in its effects on Indian industrial growth. The pre-entry scrutiny of investment decisions by so called MRTP companies will no longer be required. Instead, emphasis will be on controlling and regulating monopolistic, restrictive and unfair trade practices rather than making it expansion, establishment of new undertakings, merger, amalgamation and takeover and appointment of certain directors. The thrust of policy will be more on controlling unfair or restrictive business practices. The MRTP Act will be restructured by eliminating the legal requirement for prior governmental approval for expansions relating to merger, amalgamation, and takeover will also be repealed, the provisions regarding restrictions on acquision of and transfer of share will be appropriately incorporated in the Companies Act. 

38. Simultaneously, provisions of the MRTP Act will be strengthened in order to enable the MRTP Commission to take appropriate action in respect of the monopolistic, restrictive and unfair trade practices. The newly empowered MRTP Commission will be encouraged to require investigation suo moto or on complaints received form individual consumers or classes of consumers. 

F. Decisions of Government

39. In view of the consideration outlined above Government have decided to take a series of measures to unshackle the Indian industrial economy from the cobwebs of unnecessary bureaucratic control. These measures complement the other series of measures being taken by Govt. in the areas of trade policy, exchange rate management, fiscal policy, financial sector reform and overall macro economic management. 

A. Industrial Licensing Policy 

  1. Industrial Licensing will be abolished for all projects except for a short list of industries related to security and strategic concerns, social reasons, hazardous chemicals and over-riding environmental reasons, and items of etilist consumption (list attached as Annexure II). Industries reserved for the small scale sector will continue to be so reserved. 
  2. Areas where security and strategic concerns predominate, will continue to be reserved for the public sector. (List attached as Annexure I).
  3. In projects where imported capital goods are required, automatic clearance will be given. 
  1. In case where foreign exchange availability is ensured through foreign equity.
  2. If the CIF value of imported capital goods required is less than 25% of total value (net of taxes) of plant and equipment, upto a maximum value of Rs.2 crore. In view of the current difficult foreign exchange situation, this scheme (e.r.(iii) b) will come into force from April, 1992.

  3. In other case, imports of capital goods will require clearance from the Secretariat of Industrial Approvals (SIA) in the Department of Industrial Development according to availability of foreign exchange resources. 
  1. In locations other than cities of more than 1 million populations, there will be no requirement of obtaining industrials from the Central Government except for industries subject to compulsory licensing. In respect of cities with population greater then 1 million, industries other than those of a non-polluting nature such as electronics, computer software and printing will be located outside 25 kms. of the periphery, except in prior designated industrial areas.
  2. A flexible location policy would be adopted in respect of such cities (with population greater than 1 million) which require industrial re-generation.

    Zoning and Land Use Regulation and Environmental legislation will continue to regulate industrial locations.

    Appropriate incentives and the design of investments in infrastructure development will be used to promote the dispersal of industry particularly to rural and backward areas and to reduce congestion in cities.

  3. The system of phased manufacturing programmes run on an administrative case by case basis will not be applicable to new project. Existing projects with such programmes will continue to be governed by them.
  4. Exiting units will be provided a new broad banding facility to enable them to produce any article without additional investment. 
  5. The exemption from licensing will apply to all substantial expansions of existing units. 
  6. The mandatory convertibility clause will no linger be applicable for term loans from the financial institutions for new projects and substantial expansions. 
Procedural Consequences
  1. All existing registration schemes (Delicensed Registration, Exempted Industries Registration, DGTD Rdgistration) will be abolished. 
  2. Entrepreneurs will henceforth only be required to file an information memorandum on new projects and substantial expansions. 
  3. The lists at Annexure II and Annexure III will be notified in the Indian Trade Classification (Harmonised System).
B. Foreign Investment
  1. Approval will be given for direct foreign investment upto 51 per cent foreign equity in high priority industries (Annexure III). There shall be no bottlenecks of any kind in the process. Such Clearance will be available if foreign equity covers the foreign exchange requirement for imported capital goods. Consequential amendments to the Foreign Exchange Regulation Act (1973) shall be carried out.
  2. While the import of components, raw materials and intermediate goods, and payment of knowhow fees and royalties will be governed by the general policy applicable to other domestic units, the payment of dividends would be monitored through the Reserve Bank of India so as to ensure that out flows on accounts of dividend payments ar balanced by export earnings over a period of time. 
  3. Other foreign equity proposals, including proposals involving 51% foreign equity which do not meet the criteria under (ii) above will continue to need prior clearance. Foreign equity proposals needs not necessarily be accompanied by foreign technology agreements.
  4. To provide access to international markets, majority foreign equity holding upto 51% equity will be allowed for trading companies primarily engaged in export activities. While the thrust would be on export activities, such trading houses shall be at par with domestic trading and export houses in accordance with the Import-Export Policy 
  5. A special Empowered Board would be constituted to negotiate with a number of large international fines and approved direct foreign investment in select areas. This would be a special programme to attract substantial investment that would provide access to high technology and world markets. The investment programmes of such firms would be considered in totality, free from pre-determined parameters or procedures. 
C. Foreign Technology Agreements
  1. Automatic permission will be given for foreign technology agreements in high priority industries (Annexure III) upto a lumpsum payment of Rs. 1 crore 5% royalty for modestic sales and 8% for exports subject to total payments of 8% of sales over a 10 year period from date of agreement or 7 years from commencement of production. The prescribed royalty rates are net of taxes and will be calculated according to standard procedures. 
  2. In respect of industries other than those in Annexure III, automatic permission will be given subject to the same guidelines as above if no free foreign exchange is required for any payments.
  3. All other proposals will need specific approval under the general procedures in force.
  4. No permission will be necessary for hiring of foreign technicians, foreign testing of Indigenously developed technologies, Payment may be made form blanket permits or free foreign exchanges according to RBI guidelines. 
D. Public Sector
  1. portfolio of public sector investments will be reviewed with a view to focus the public sector on strategic, hightech and essential infrastructure. Whereas some reservation for the public sector is being retained there would be no bar for areas of exclusivity to be opened up to the private sector selectively. Similarly the public sector will also be allowed entry in areas not reserved for it.
  2. Public enterprises which are chronically sick and which are unlikely to be turned around will, for the formulation of revival / rehabilitation schemes, be referred to the Board for Industrial and financial Reconstruction (BIFR), or other similar high level institutions created to protect the interests of workers likely to be affected by such rehabilitation packages. 
  3. In order to raise resources and encourage wider public participation, a part of the government’s shareholding in the public sector would be offered to mutual funds, financial institutions, general public and workers. 
  4. Boards of public sector companies would be made more professional and given greater powers.
  5. There will be a greater thrust on performance improvement through the Memoranda of Understanding (MOU) system through which management’s would be granded greater autonomy and will be held accountable. Technical expertise on the part of the Government would be upgraded to make the MOU negotiations and implementation more effective.
  6. To facilitate in a fuller discussion on performance, the MOU signed between Government and the public enterprise would be placed in Parliament. While focussing on major management issues, this would also help place matters on day to day operations of public enterprises in their correct perspective. 
E. MRTP Act
  1. The MRTP Act will be amended to remove the threshold limits of assets in respect of MRTP companies and dominant undertakings. This eliminates the requirement of prior approval of Central Government for establishment of new undertakings, expansion of undertakings, merger, amalgamation and takeover and appointment of Directors under certain circumstances.
  2. Emphasis will be placed on controlling and regulating monopolistic restrictive and unfair trade practices. Simultaneously, the newly empowered MRTP Commission will be authorised to initiate investigations suo moto or on complaints received from individual consumers or classes of consumers in regard to monopolistic, restrictive and unfair trade practices. 
  3. Necessary comprehensive amendments will be made in the MRTP Act in this regard and for enabling the MRTP Commission to exercise punitive and compensatory powers. 

  4.  

    Annexure I

    LIST OF INDUSTRIES RESERVED FOR
    THE PUBLIC SECTOR

     
    1. Arms and ammunition and allied items of defence equipment, Defence aircraft and warships. 
    2. Atomic energy.
    3. Coal and lignite.
    4. Mineral oils.
    5. Mining of iron ore, manganese ore, chrome ore, gypsum sulphur, gold and diamond. 
    6. Mining of copper, lead, zinc, tin, molybdenum and wolfram.
    7. Minerals specified in the Schedule to the Atomic Energy (Control of Production and Use) Order, 1953.
    8. Railway transport.