Industrial Policy

Industrial Policy
It covers rules, regulations, principles,
policies, & procedures laid down by
government for regulating & controlling
industrial undertakings in the country.
It prescribes the respective roles of the
public, private, joint, cooperative large,
medium & small scale sectors for the
development of industries.

Industrial Policy Contd...

It incorporates fiscal & monetary
policies, tariff policy, labor policy.
It shows the government attitude not
only towards external assistance but
also toward public & private sectors.

Main Objectives
1.

2.
3.

To maintain a sustained growth in

productivity.
To enhance gainful employment
To prevent undue concentration of
economic power.

Main Objectives
4. To achieve optimal utilization of human
resources
5. To attain international competitiveness
and
6. To transform India into a major partner
and player in the global arena

Introduction of DIPP

The Department of Industrial Policy &

Promotion was established in 1995 and
has been reconstituted in the year 2000
with the merger of the Department of
Industrial Development.

Role & Function of DIPP

1) Encouragement to foreign technology
collaborations at enterprise level and
formulating policy parameters for the
same;
2) Administration of Industries (Development
& Regulation) Act, 1951

Role & Function of DIPP

3) Formulation of policies relating to
Intellectual Property Rights in the fields
of Patents, Trademarks, Industrial
Designs and Geographical Indications
of Goods and administration of
regulations, rules made there under.

Role & Function of DIPP

4) Promoting industrial development
of industrially backward areas and
the North Eastern Region including
International Co-operation for industrial
partnerships and
5) Promotion of productivity, quality and
technical cooperation.

Industrial Policies
Industrial Policy Resolution of 1948
Industrial Policy Resolution of 1956
Industrial Policy Resolution of 1973
Industrial Policy Resolution of 1977
Industrial Policy Resolution of 1980
The New Industrial Policy of 1991

Industrial Policy 1991

Policy focus is on
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.

Industrial Policy 1991

In pursuit of the industrial objectives,
Government decided to take a series of
initiatives in respect of the policies relating
to the following areas:

Industrial Licensing
Foreign Investment
Foreign Technology Agreements
Public Sector Policy
MRTP Act

Industrial Licensing Policy

The Industrial Policy Resolution of 1956

identified the following three categories of
industries:

Those that would be reserved for development in

public sector.
Those that would be permitted for development
through private enterprise with or without State
participation.
Those in which investment initiatives would
ordinarily emanate from private entrepreneurs.

The industries requiring compulsory licensing are:

Distillation and brewing of alcoholic drinks
Cigarettes of tobacco and manufactured tobacco
substitutes
Electronics
Aerospace and defence equipment
Industrial explosives -including detonating fuses, safety
fuses, gun powder,
Nitrocellulose and matches Hazardous chemicals
including items hazardous to human safety and health
and thus fall for mandatory licensing

The government has reserved certain items

for exclusive manufacturing in the small-scale
sector.
Non-small-scale units can undertake the
manufacturing of items reserved for the small
scale sector only after obtaining an industrial
license.
In such cases, the non-small-scale unit is
required to undertake an obligation to export
50 percent of the production of small-scale
industry (SSI) reserved items.

Industrial Licensing Policy

Industrial Licensing is governed by the
Industries (Development & Regulation)
Act, 1951.
Industrial licensing was abolished for all
industries, except those specified (18
industries), irrespective of levels of
investment.

Foreign Investment

Foreign investment is when a company or

individual from one nation invests in assets or
ownership stakes of a company based in
another nation.
As increased globalization in business has
occurred, it has become very common for big
companies to branch out and invest money in
companies located in other countries.

These companies may be opening up new

manufacturing plants and attracted to
cheaper labor, production and fewer taxes in
another country.
They may make a foreign investment in
another firm outside their country because
the firm being purchased has specific
technology, products, or access to additional
customers that the purchasing firm wants.

Overall, foreign investment in a country is a

good sign that often leads to growth of jobs
and income. As more foreign investment
comes into a country it can lead to even
greater investments because others see the
country as economically stable.

Foreign investment can be

split into direct and indirect
Direct investments are when companies make
investments.

physical investments and purchases in

buildings, factories, machines and other
equipment outside their home country.
Indirect investments are when companies or
financial institutions purchase positions or
stakes in companies on a foreign stock
exchange. This type of investment isn't as
favorable as direct investment because the
home country can sell their investment very
easily or the next day if they choose.

Foreign Technology
Foreign Technology Agreements-Glimpses
Agreements

Foreign Technology Agreements in India caters to the

growth of the technology in the Indian industries. The
primary purpose of the agreement is to induce the
required amount the technological development and
promotion of technologically advanced industries. The
foreign technology is transferred from foreign
sources such as research and development agencies,
foreign parent companies, and other sources to the
Indian counterparts.

The transfer of foreign technology takes

places by the means of foreign direct
investments and foreign technology
collaboration agreements.
Foreign Technology Agreements in India
permits transfer of technology by the
means of Government approval or through
the automatic route delegated by RBI.

Government Approval-Foreign
Technology Agreements in India
Proposals
The

which requires licensing

manufacturing and products should be compliant with the

small scale industries

Proposals

which involves previous trademark agreement, joint

ventures, technology transfer, etc

In

case of an extension of the foreign technology collaboration

agreements which had been automatically approved earlier

Proposals

with no parity with the norms of the automatic approval

Automatic Approval-Foreign Technology

Agreements in India
The

RBI grants automatic approval by the means of the

regional offices to Indian industries for foreign technology

collaboration
The

payments pertaining to the technology transfer

should not exceed US$ 2 million

The

royalty to be paid is restricted to 5 % in case of

domestic sales, 8 % in case of exports and total payment

should be 8 % on sales for a period of 10 years

The

royalty period should not exceed 7 years from the

date of starting of the business or 10 years from the date

mentioned in the agreement
The

royalty paid is 1 % in case of domestic sales and 2

% in case of exports as granted under automatic route

for use of the trademark foreign collaborator
The

royalty paid is 5 % in case of domestic sales and 8

% in case of exports as granted under automatic route

for wholly owned subsidiaries

Public Sector Policy

1.
2.
3.

4.

Four major reforms were introduced by govt. of India

in public sector in New Industrial Policy in 1991.
Restructure and bring back potentially viable PSUs.
Shut down PSUs which cannot be invigorated.
Bring down Govts equity in all non strategic PSUs
to 26% or lesser if required.
Fully defend the interest of workers.

In 1991, New Economic Policy (NEP)

was announced to reform the defects of
the public
sector
These
are as follow:
(i)Reduction

of Reservations:

1991, NEP decreased the reservations of public sector

units from 17 to 8.
But from 1993 to 2001 the government further reduced
the list of reserved PSUs from 8 to 3. Hence, the new
reserved lists included :
Atomic energy.
Rail Transport and
Minerals for atomic energy.

(ii) Policy of
Disinvestment:

The government of India had adopted the

policy of privatisation in the year 1991.
The industries which are sick and weak and
have a very high operation cost must be sold
to the private sector.
Hence, the selling of shares of the PSEs
to the hand of private sector for the
fulfilment of privatisation policy is known
as Disinvestment.

(iii) Weak Public Sector

Units:
The government of India has given

responsibility to Board for Industrial and

Financial Reconstruction (BIFR) to decide
which PSUs have any future hope and which
are to be shut down immediately.
According to BIFR, up to August, 2004, 286
PSUs were in the list, out of which 203 (85
central and 118 state) were registered. To
tackle the financial problems, the
government also set-up National Renewal
Fund (NRF).

(iv) Memorandum of
Understanding
(MoU):

To raise the productivity and performances of

PSUs, MoU system had introduced in 1991. It
strengthens the relationship between PSUs
and administrative departments. This system
has started in 1987-88 with 4 PSUs and now
it has gone up to 112 for 2005-07. The main
work of MoU is to judge the PSUs and
levelled their perform

(v) Navaratnas

MRTP Act

Removed the threshold limits of assets in respect of MRTP

companies and dominant undertakings

Eliminated the requirement of prior approval of Central

Government for
Establishment of new undertakings
Expansion of undertakings
Merger, Amalgamation and Takeover
Appointment of Directors under certain circumstances.

The newly empowered MRTP Commission will be authorised

to initiative investigations on complaints received from
individual consumers or classes of consumers in regard to
monopolistic, restrictive and unfair trade practices.

MRTP ACT
The Monopolies and Restrictive Trade
Practices Act, 1969, aims to prevent
concentration of economic power to the
common detriment, provide for control of
monopolies and probation of monopolistic,
restrictive and unfair trade practice, and
protect consumer interest.

Unfair Trade Practice:

Misleading advertisement and False

Representation
Falsely representing that goods and services
are of a particular standard, quality, grade,
composition or style.
Falsely representing any second hand
renovated or old goods as new.

Representing that goods or services, seller or

supplier have a sponsorship, approval or
affiliation which they do not have.
Making a false or misleading representation
concerning need for, or usefulness of goods
or services.

Giving to public any warranty, guarantee of

performance that is not based on an
adequate test or making to public a
representation which propose to be such a
guarantee or warranty.
False and misleading claims with respect to
the price of goods or services.
Giving false or misleading facts about the
goods, services or trade of another person or
concern.

INDUSTRIAL POLICY
SINCE 1956

When India achieved Independence in 1947,

the national consensus was in favour of rapid
industrialization of the economy which was
seen not only as the key to economic
development
but
also
to
economic
sovereignty.

Building on the so-called "Bombay Plan" in

the pre-Independence era, the first Industrial
Policy Resolution announced in 1948 laid
down broad contours of the strategy of
industrial development.
At that time the constitution of India had not
taken final shape nor was the Planning
Commission constituted. Moreover, the
necessary legal framework was also not put
in place.

Yet, an important distinction was made

among industries to be kept under the
exclusive ownership of Government, i.e., the
public sector, those reserved for private
sector and the joint sector.

Subsequently, the Indian Constitution was

adopted in January 1950, the Planning
Commission was constituted in March 1950
and the Industrial (Department and
Regulation) Act (IDR Act) was enacted in
1951 with the objective of empowering the
Government to take necessary steps to
regulate
the pattern
of industrial
development through licensing.

This paved the way for the Industrial Policy

Resolution of 1956, which was the first
comprehensive statement on the strategy
for industrial development in India.

The Industrial Policy Resolution - 1956

classified industries into three categories.

The first category comprised 17 industries

(included in Schedule A of the Resolution)
exclusively under the domain of the
Government.
These included railways, air transport,
arms and ammunition, iron and steel and
atomic energy.

The second category comprised 12 industries

(included in Schedule B of the Resolution),
which were envisaged to be progressively
State owned but private sector was
expected to supplement the efforts of the
State.

The third category (Schedule C) contained

all the remaining industries and it was
expected that private sector would initiate
development of these industries but they
would remain open for the State as well.

It was envisaged that the State would

facilitate and encourage development of
these industries in the private sector, in
accordance with the programmes formulated
under the Five Year Plans, by appropriate
fiscal measures and ensuring adequate
infrastructure.

Schedule A
Schedule B
Arms and
Fertilizers
Ammunition. Road
Atomic
transport
energy.
Sea
Iron and
steel.
Gold,
diamond &
mineral oil.
Generation &
distribution
of electricity.

transport
Drugs etc

Schedule C
All other
private
sector
companies

Objectives of IPR 1956

(a)

to speed up industrialisation and achieve a

faster rate of economic growth;

(b)

to

develop

machine-making

and

heavy

industries;
(c)

to build up a large and growing co-operative

sector;
(d)

to expand the public sector; and

(e)

to reduce disparities in income and wealth,

and private monopolies

Features of IPR 1956

1.

Three-fold classification of industries.

2.

Inter-dependence and co-operation between the

sectors.

3.

Role of Small-scale and cottage industries.

4.

Balanced regional industrial development.

5.

Sound industrial relations and labour welfare.

6.

Personnel.

7.

Management of State enterprises.

(i) Objectives. The Industrial Policy Statement of 1956 was issued to

achieve the following important objectives: (a) to speed up
industrialisation and achieve a faster rate of economic growth; (b) to
develop machine-making and heavy industries; (c) to build up a large
an growing co-operative sector; (d) to expand the public sector; and (e)
to reduce disparities in income and wealth, an curb private monopolies.
(ii) Three-fold classification of industries. For the purpose of
allocation as between the private and the public sectors the
industries have been divided into three broad categories;
(iii)
Inter-dependence
and
co-operation
between
the
sectors. The policy Resolution does not seek to place industries in
watertight compartments. The Government has been given the
freedom to undertake any type of industrial production. The
private enterprise may also produce some of the items included
in Schedule A which contains industries falling in the domain of
the State, e.g., generation of electricity, etc. Moreover, the State
may get some of the components manufactured by private
undertakings, and so may private enterprise depend upon the public
sector
for
some
of
its
requirement.

(iv) Role of Small-scale and cottage industries. On account of

their peculiar advantages, their large employment potential, and
potentialities for ensuring a more equitable distribution of income
as also for mobilizing labour and capital resources still lying
underutilized, a the cottage and small-scale industries are
to be provided all facilities for growth. The industrial estates
and rural community workshops are recognised as the
instruments of improving the state of such industries. The
development of these industries is to be integrated with that of
large-scale industries. Subsidies and tax concessions are
envisaged for these industries. The organisation of industrial Cooperatives
is
to
be
encouraged.
(v) Balanced regional industrial development. The Resolution
recognizes the need for spreading the benefits of industrial
development evenly over the various regions of the
country. Industrial facilities (power and transport) are to be
extended specially to those areas which lag behind in the matter
of
employment.

(vi) Sound industrial relations and labour welfare. The

Policy Joint consultation and association of labour with
management as steps in this direction. The resolution further
emphasises the improvement of working and living
conditions of the workers, and suggests that proper and
increased incentives must be provided to labour. The public
sector undertakings have been called upon to act as model
employers.
(vii) Personnel. The Resolution stresses the need for
managerial and technical personnel
for
the rapid
industrialisation of country. Such personnel for the rapid
industrialisation of the country. Such personnel are all the more
important for the fast expanding public sector undertakings.
Facilities for the training of personnel at university level and in the
factory
are
to
be
provided.
(viii) Management of State enterprises. In the context of a
fast expanding public sector, measures like decentralisation of
the authority are to be adopted for toning up the efficiency of
Stage industrial undertakings. These industrial undertakings will
be expected to function on sound business principles so that the
resources of the State may, to some extent, be augmented from
surpluses.