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Industrial Policy, Objectives and Industrial Climate

Industrial policy of a nation is the true determinant of foreign investment as well

as domestic investment. Objective of the Industrial policy should be for bringing
higher growth and prosperity for a country.

Objectives of the Industrial Policy

• Maintaining a sustained growth in productivity;

• Enhancing gainful employment;
• Achieving optimal utilisation of human resources;
• Attaining international competitiveness and
• Transforming the country into a major partner and player in the
globa arena.

Policy focus

• Deregulating Indian industry;

• Allowing the industry freedom and flexibility in responding to
market forces and
• Providing a policy regime that facilitates and fosters growth of
Indian industry.
Following are some important policy measures announced by the Ministry
of Finance, Department of Industrial policy to pursue the above objectives.

1. Liberalisation of Industrial Licensing Policy At present, only six industries

are under compulsory licensing mainly on account of environmental, safety and
strategic considerations. Similarly, there are only three industries reserved for the
public sector.

2. Introduction of Industrial Entrepreneurs' Memorandum(IEM) Industries not

requiring compulsory licensing are to file an Industrial Entrepreneurs'
Memorandum (IEM) to the Secretariat for Industrial Assistance (SIA). No
industrial approval is required for such exempted industries. Amendments are
also allowed to IEM proposals filed after 1.7.1998.

3. Liberalisation of the Location Policy A significantly amended locational

policy in tune with the liberlised licensing policy is in place. No industrial approval
is required from the Government for locations not falling within 25 kms of the
periphery of cities having a population of more than one million except for those
industries where industrial licensing is compulsory. Non-polluting industries such
as electronics, computer software and printing can be located within 25 kms of
the periphery of cities with more than one million population. Permission to other
industries is granted in such locations only if they are located in an industrial area
so designated prior to 25.7.91. Zoning and land use regulations as well as
environmental legislations have to be followed.

4. Policy for Small Scale A differential investment limit has been adopted since
9th October 2001 for 41 reserved items where the investment limit upto rupees
five crore is prescribed for qualifying as a small scale unit. The investment limit
for tiny units is Rs. 25 lakhs.
749 items are reserved for manufacture in the small scale sector. All
undertakings other than the small scale industrial undertakings engaged in the
manufacture of items reserved for manufacture in the small scale sector are
required to obtain an industrial licence and undertake an export obligation of 50%
of the annual production. This condition of licensing is, however, not applicable to
those undertakings operating under 100% Export Oriented Undertakings
Scheme, the Export Processing Zone (EPZ) or the Special Economic Zone
Schemes (SEZs).

5. Non-Resident Indians Scheme The general policy and facilities for

Foreign Direct Investment as available to foreign investors/company are fully
applicable to NRIs as well. In addition, Government has extended some
concessions specially for NRIs and overseas corporate bodies having more than
60% stake by the NRIs. These inter-alia includes (i) NRI/OCB investment in the
real estate and housing sectors upto 100% and (ii) NRI/OCB investment in
domestic airlines sector upto 100%.
NRI/OCBs are also allowed to invest upto 100% equity on non-repatriation basis
in all activities except for a small negative list. Apart from this, NRI/OCBs are also
allowed to invest on repatriation/non-repatriation under the portfolio investment

6. Electronic Hardware Technology Park (EHTP)/Software Technology Park

(STP) schemeFor building up strong electronics industry and with a view to
enhancing export, two schemes viz. Electronic Hardware Technology Park
(EHTP) and Software Technology Park (STP) are in operation. Under EHTP/STP
scheme, the inputs are allowed to be procured free of duties.
The Directors of STPs have powers to approved fresh STP/EHTP proposals and
also grand post-approval amendment in repsect of EHTP/STP projects as have
been given to the Development Commissioners of Export Processing Zones in
the case of Export Oriented Units. All other application for setting up projects
under these schemes, are considered by the Inter-Ministerial Standing
Committee (IMSC) Chaired by Secretary (Information Technology). The IMSC is
serviced by the SIA.

7. Policy for Foreign Direct Investment (FDI)The Department has put in place
a liberal and transparent foreign investment regime where most activities are
opened to foreign investment on automatic route without any limit on the extent
of foreign ownership. Some of the recent initiatives taken to further liberalise the
FDI regime, inter alia, include opening up of sectors such as Insurance (upto
26%); development of integrated townships (upto 100%); defence industry (upto
26%); tea plantation (utp 100% subject to divestment of 26% within five years to
FDI); Encenhancement of FDI limits in private sector banking, allowing FDI up to
100% under the automatic route for most manufacturing activities in SEZs;
opening up B2B e-commerce; Internet Service Providers (ISPs) without
Gateways; electronic mail and voice mail to 100% foreign investment subject to
26% divestment condition; etc.
The Department has also strengthened investment facilitation measures through
Foreign Investment Implementation Authority (FIIA).

CURRENT INDUSTRIAL PERFORMANCEThe industrial sector has shown a

sustained increase during the fiscal year 2003-04. the overall growth in industrial
production, as measured by the index of industrial production (IIP) has increased
from 2.7% in 2001-02 to 5.7% in 2002-03. further, it grew by 6/.9% during April-
March, 2003-04.


(79.36)(10.17)(100.00)1997-986. 1998-99- 2000- 2001-
Base Year-1993-94=100
SECTOR (in IIP)Weight1997-981998-991999-002000-012001-022002-032003-
04Electricity Generation10. Hydel 8.511.1-2.5-7.6-
0.7-13.715.6(b) Thermal Nuclear Steel5.136.31.415.06.43.610.16.9Crude
Petroleum4.173.0-3.4-2.41.5- Refinery

Due to many positive developments in the Indian Economy have further
improved the investment climate of the country. The overall growth in GDP
as per CSO in real terms is 8.2%. in 2003-04. During April-March 2003-
04,growth rate in industrial output was 6.9% against 5.7% in corresponding
period in previous year.
Further surge in foreign exchange reserves, which not only strengthens
India's external sector, is also a source of confidence to prospective
foreign investors. The soft interest rate is helping the industry to improve
its competitiveness.

Investments y Foreign Institutional Investors (FIIs) has shown a significant

increase on account of economic recovery. According to data published in
the RBI Bulletin of May 2004, there was an inflow of FII investment in Dollar
terms of US $9947 million during 2003-04 against US $562 million in the
corresponding period last year.

Industrial Policy

This site provides detail information onIndustrial Policy of India. The site also focuses on the
current scenario and objectives of Industrial Policy of India.

Post 1990s have seen a sea of change in the Industrial Policy of India. The
overprotective Indian Market were opened to foreign companies andinvestors. Thus Indian
Industryregistered an impressive growth during the last decade and half. The number
ofindustries in India have increased manifold in the last fifteen years. Though the main
occupation has been agriculture for the bulk of the Indian population, it was realized that India
would become a prosperous and a modern state with industrialization. Therefore different
programs were formulated and initiated to build up an adequate infrastructure for rapid
industrialization and improve theindustrial scenario in India.

Industrial Policy revolves around the core parameters like -

 Industrial Licensing.

 Industrial
Entrepreneurs Memorandum.

 Locational Policy.

 Policy Relating to Small Scale Undertakings.

 Environmental issues.

The Industrial Policy of India fueled rapid increase in the various sectors in all verticals. But
the striking factor was observed in the IT, Telecommunication and Pharmaceutical Industry. The
Indian software industry has grown at a massive rate from a mere US $ 150 million in 1991-92
to a staggering US $ 5.7 billion (including over $4 billion worth of software exports) in 1999-
2000. No other Indian industry has performed this well against the global competition. The
telecommunication industry also marked stupendous growth, so is the pharmaceutical industry.
The Industrial Policy of resurgent India has helped Indian industry to grow in leaps and

The Government of India's liberalized Industrial Policy aims at rapid and substantial economic
growth, and integration with the global economy in a harmonized manner. The Industrial
Policy reforms have reduced the industrial licensing requirements, removed restrictions on
investment and expansion, and facilitated easy access to foreign technology and foreign
direct investment.

For further information on Industrial Policy please visit the following link