Unit 11 Evolution of Industrial Policy PDF

UNIT 11 EVOLUTION OF INDUSTRIAL POLICY Objective The objective of this unit is to familiarise you with the evolution of Industrial Policy and highlight the major changes which have been brought about in India’s Industrial Policy from time to time. Structure 11.1 Introduction 11.2 I...

UNIT 11 EVOLUTION OF INDUSTRIAL POLICY Objective The objective of this unit is to familiarise you with the evolution of Industrial Policy and highlight the major changes which have been brought about in India’s Industrial Policy from time to time. Structure 11.1 Introduction 11.2 Industrial Policy of 1948 11.3 Industrial Policy of 1956 11.4 Industrial Policy Statement 1977 11.5 Industrial Policy of 1980 11.6 Summary 11.7 Key Words 11.8 Self-Assessment Questions 11.9 Further Readings 11.1 INTRODUCTION Industrial policy during the British period was motivated by the supreme consideration of using India as a colony of the British Empire. With the installation of the national government in 1946, it was imperative that the perspective should change in favour of industrial development in India. In the initial years, since the Government of India was bogged down with the immediate problems of partition of the country leading to rehabilitation of refugees, the integration of the states, the food problem, etc., the government did not want to push forth an industrial policy which may lead to strong opposition either from the industrial classes or from the laboring classes. The government, therefore, decided to go slow an adopted the industrial policy of 1948 so as to bring economic stability in the industrial sector. It was only in 1956 that the government thought of giving a big push to the development of basic and heavy industries. Later in 1977, when the Janata Party came to power, it tried to correct the distortions that occurred during the last two decades of implementation of the Industrial Policy (1956). The short period for which the Janata Party rules in the country was not enough to bring about a radical shift in favour of small and cottage industries. But the installation of the Congress(I) government in 1980 again shifted the industrial policy basically to the 1956 policy resolution. However, the large sector was permitted the regularization of unauthorized excess capacities. In this section, we have traced the evolution of industrial policy from 1948 to 1980. 11.2 INDUSTRIAL POLICY OF 1948 The industrial policy of the British Government in India was motivated by considerations of using India as a colony of the British empire. The British were, therefore, not interested in the industrialization of India. Rather, they wanted India to export raw materials and in return, facilitate the import of British manufactures. In response to the great pressure built up by the national movement, the British were forced to permit the establishment of some consumer goods industries. The British, however, through the managing agency system did exercise control over the ownership and management of industrial undertakings. To ensure that India remained as an appendage of the British colonial system, the British never permitted the establishment of capital goods industries in India. After the attainment of Independence, Government of India was faced with problems of refugee rehabilitation, interaction of the state in the Indian Union and shortages of food grains. On the industrial front, labour leades talked of a policy of nationalization of industries but the Indian capitalists were not in its favour. In this atmosphere of confusion and uncertainly, the government feared that investment in industry would become a casualty. To clear the foggy atmosphere, the government announced the industrial policy of 1948. The Industrial Policy Resolution of April 1948 envisaged a mixed economy for India in which the coexistence of the public sector and private sector was accepted as the hallmark of policy. The government classified industries into four broad categories : a) Exclusive monopoly of the state – The manufacture of arms and ammunition, production and control of atomic energy, ownership and management of railway transport were to be under state monopoly. b) New undertaking to be established by the State – The industries included in this category were : coal iron and steel, aircraft manufacture, shipbuilding, manufacture of telephones, telegraph and wireless apparatus and mineral oils. c) Industries of such basic importance that the Central Government would feel it necessary to plan and regulate them – The industries included in this category were : automobiles, tractors, prime movers, electric engineering, heavy machinery, machine tools, heavy chemicals, fertilisers, non-ferrous metals, croon and woollen textiles, cement, sugar and new spring, air and se-transport etc. d) Remainder of industrial field was left open to the private sector – individuals as well as co-operative. The government announced that there would be no nationalization for the next 10 yeas and inc ace of nationalization, if considered necessary later, compensation would be paid. Attitude towards foreign capital – The government recognised the need for foreign capital in the process of Industrialisation of the economy, but insisted that while inviting foreign capital it would be ensured that majority interest in ownership and management would remain in Indian hands. The basic purpose of the Industrial Policy of 1948 was to bring about economic stability so that a climate favourable to investment is created. The government was successful in providing the mixed economy framework with a place for the public as well as the private sector. The resolution also helped to facilitate the process of inviting foreign capital so as to acquire technical know-how and thus pave the way for establishing such industries which had so far not been established. Activity 1 Enumerate the factors responsible for Industrial Policy of 1948 opting for economic stability rather than for economic growth. ……………………………………………………………………………………………… ……………………………………………………………………………………………… ……………………………………………………………………………………………… ……………………………………………………………………………………………… ……………………………………………………………………………………………… ……………………………………………………………………………………………… 11.3 INDUSTRIAL POLICY OF 1956 After the successful completion of the First Five Year Plan, the Parliament felt that a stage has been set for a take-off towards the rapid Industrialisation of the country. The government also accepted the establishment of a socialist pattern of society as the goal of economic and social policy. This necessitated the announcement of a new Industrial Policy of 1956 replacing the Industrial Policy of 1948. Under the new policy, industries were classified into three categories : a) Schedule A : Industries which are to be the exclusive monopolies of the State – 17 industries listed in this category were : Arms and ammunition, atomic energy, iron and steel, heavy castings, heavy machinery, heavy electrical industries, coal, mineral oils, iron ore, and other important minerals like copper, lead and zinc; aircrafts, air transport, railway transport, shipbuilding, telephone, telegraph and wireless equipments, generation and distribution of electric energy.  b) Schedule B : Those which re to be progressively State owned and in which the State would gradually setup new undertakings – Twelve industries were included in this category : Other mining industries, aluminum and other non-ferrous metals not included in Schedule A; machine tools Ferro-alloys and tolls steels, the chemical industry, anti- biotic another essential drugs, fertilisers, synthetic rubber, carbonization of coal, chemical pulp, road transport and sea-transport. c) Schedule C : All other remaining industries and their development was left to the private sector. From the new classification of industries, certain points need to be noted. Firstly, the new classification followed closely the pattern outlined in Industrial Policy of 1948 but it enlarged the areas of industries under state monopoly. The government also undertook the responsibility of establishing new undertakings in heavy and basic industries. This was done in view of the fact that the private sector was not willing to enter these areas which required lumpy investment and had a long gestation period, with low profitability. The state, therefore, declared that the public sector would be the engine of growth and Industrialisation of the economy. Secondly, the classification did not group industries into water-tight compartments and room for exceptions existed. For instance, in order to meet the requirements of an item in Schedule A or as by products, pirate sector units may be engaged. Similarly, heavy industries could obtain some of their requirements officer components from private sector. Thus, such interdependence of the private sector and public sector was not ruled out. Thirdly, in case of private sector operating in Schedule C, if the State at any stage was convinced that an industry was not conforming to guidelines issued by the State, it could shift the industry to Schedule B or even to Schedule A. In other words, the State reserved the right to nationalize an industry inc ace public interests so demanded. Fifthly, the state promised fair and non-discriminatory treatment to the private sector. Infact, the basic premise of he 1956 Industrial Policy was to foster the development of the mixed economy. It was, therefore, essential that the state should create an environment conductive to the development of the public sector. The state, in order to encourage and facilitate the development of the private sector, ensured the development of the transport, power and financial institutions necessary for the purpose. The State decided to continue to encourage such institutions which would provide financial assistance to private sector. It even decided to take special care of the needs of enterprises organised an co-operative liens for industrial and agricultural purposes. Sixthly, the state also provided for the management and rapid growth of village and small industries. This was essential because these industries promised to provide employment to the vast sections of the poor. Support to village and small industries was to be provided by restricting the share of the large sector in production, by differential taxation or by direct subsidies. The state would concentrate on measures designed to improve the competitive strength of the small producer by constantly improving and modernizing the technique of production. Seventh, the state pledged to remove regional disparities. The Industrial Policy of 1956 stressed the need for reducing regional disparities so that Industrialisation should not remain confined to a few states or regions, but should benefit the country as a whole. The balanced growth and development of the industrial and agriculture economy in each region had to be promoted so that the entire country can attain higher standards of living. Eight, the Industrial Policy Resolution of 1956 intended to improve the working and living conditions for labour. It recognised labour as a partner in production and thus it was expected to participate in the task of national development so that the country could build a socialist democracy. For this purpose, it was essential that labour should help to ensure industrial peace as the basic condition for rapid development. The Resolution, in return, emphasised that living and working conditions of labour should be improved and the standard of their efficiency be raised. There should be joint consultation between workers and management and wherever possible, workers should be associated with management. The Resolution stressed that the public sector enterprises should set an example in this respect. Lastly, the Industrial Policy of 1956 maintained the same attitude towards foreign capital as enunciated in the Industrial Policy of 1948. It also emphasised the need for foreign capital, but maintained that the major interest in ownership and effective control should always remain in Indian hands. Assessment of Industrial Policy of 1956 Industrial Policy of 1956 has been popularly referred to as the `economic Constitution’ of the country based on its political counterpart the Constitution of India. The basic objective of the Resolution was to develop a socialist democracy within the parameters of the mixed economy framework. Private sector was treated as a junior partners and public sector was considered as a senior partner. A leading role was assigned to the public sector to develop heavy and basic industries as well as infrastructure. The Private sector, therefore, felt that after prescribing the areas of the public sector, the remainder was let to be taken care of by the private sector. H. Venkatasubbaih, therefore mentions : “The so-called private sector was more explicitly equated with state enterprises.” Venkatasubbaih, H. (1961), Indian Economy since Independence, p. 94. The expanding and dominant role of the public sector generated a fear that the role of the private sector would be supplanted and at a later stage, the private sector be squeezed further. The feeling also grew because the state hung the Damocles’ sword over the head of the private sector by stating that it would takeover any undertaking/industry, if it considered to be in national interest. However, this fear was based on a totally incorrect understanding of the Industrial Policy Resolution. Firstly, the new policy signed a permanent place to the private sector in the mixed economy framework. Secondly, since at the stage of development, the private sector did not possess the necessary resources and expertise to undertake investment in heavy industry and infrastructure, this historic role of developing the industrial base of the economy was assigned to the public sector. The state could not afford to wait and the imperatives of rapid and sustained developed necessitated the public sector develop. As later events shows, the private sector took advantage of the loopholes and exceptions provided in the Industrial Policy Resolution (IPR) 1956. Several areas which were reserved for the public sector were opened to the private sector. The grant of licences to the private sector in coal, oil, fertilisers, chemical engineering etc. is ample proof of the flexibility of the Industrial Policy Resolution (IPR) 1956. There is no doubt that Nehru pushed through a programme of building steel plants, locomotives, shipbuilding yards, aircrafts and defence industries with the help of the public sector, but it is equally true, as the Industrial Licensing Policy Inquiry Committee (1969) revealed that under one pretext or another, areas reserved for the public sector were opened to the private sector. For instance, aluminum industry was in the public sector, but in practice, the entire development was permitted in the private sector. Similarly, in the case of machine tools industry, as against 9 licences given to Industrial Machine Tools (HMT) 226 licences were issued to the private sector. In fertilisers whereas 42 licences were granted to private sector, public sector obtained only 12 licences. In drugs and pharmaceuticals, as against 184 licences given to private sector, the public sector got only 12 licences. IT is really astonishing that in the case of synthetic rubber and chemical pulp, all the licences were allotted to the private sector. To conclude : There is no doubt that rapid expansion of the public sector took place in the core and heavy industry, but it is equally true that the private sector was able to penetrate even in the areas reserved fro the public sector, not to speak of the areas left free fro its operation. Consequently, private sector investment also zoomed forward. IT is therefore, incorrect to say that private sector was threatened in any way by the programmes of the public sector expansion. Activity 2 Give the classification of various industries into three Schedules in the Industrial Policy Resolution (IPR) 1956. Why was private sector denied a commanding role in IPR 1956 ? ……………………………………………………………………………………………… ……………………………………………………………………………………………… ……………………………………………………………………………………………… ……………………………………………………………………………………………… ……………………………………………………………………………………………… 11.4 INDUSTRIAL POLICY STATEMENT, 1977 The defeat of the Congress (I) after emergency in the elections, resulted in the installation of the Janata Party as the ruling party at the centre. In its critique of 20 years of the functioning of the Industrial Policy of 1956, the Janata Party Industrial Policy Statement (1977) mentioned : Despite some desirable elements, the Industrial Policy of Congress resulted inc retain distortions : “Unemployment has increased, rural-urban disparities have widened and the rate real investment has stagnated. The growth of the industrial output has been no more than three to four per cent per annual on the average. The incidence of industrial sickness has become widespread and some of the major industries are worst affected.” Since the Janata party was dominated by Gandhian, the Industrial Policy of 1977 a distinctive feature of emphasizing the growth of the small sector. This does not mean that the policy was not conscious about the other problems of large scale industry or sick units. The chief features of the policy were as under : 1. The Principal Thrust of the Policy was the Development of Small Industries – The Janata Party accused the Congress government of over-emphasizing large industries, neglecting the development of cottage and small industries. The policy statement, therefore, mentioned : “The main thrust of the new policy will 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.” Following this, the small sector was classified into three categories : a) Cottage and household intrudes which provide self-employment on a wide scale; b) Tiny sector incorporating investment in industrial units in machinery and equipment upto Rs. 1 lakh and situated in towns with a population of less than 50,000; c) Small0scale industries comprising industrial units with an investment upto Rs. 10 lakhs and in case of ancillaries with an investment in fixed capital upto Rs. 15 lakhs. The basic purpose of the classification was specially to design measures to improve the small and cottage industries in these sub-sectors, although the Janata Government intended to improve all the three sub-sectors simultaneously. The principal measures designed for the purpose were as under : i) As against 180 items in the reserved list of small industries, the government expanded the list to include 807 items by May, 1979. ii) To save the small units the unnecessary botheration of getting clearances from a number of official agencies, it was decided to set up District Industries centres (Dices) so that under a single roof, al the services and support required  by small and village industries could be provided. This was a very desirable rationalisation. In the same place, separate wing of the Industrial Development Bank of India (IDBI) was set up to provide financial assistance to small scale industries. iii) The Janata Government intended to strengthen Khaki and Village Industries Commission (KVIC) so as to enlarge its operations. It wanted specially to draw programme so that the share of small industries in the production of footwear and soaps improves significantly. Besides this, the government wanted to introduce Nai Khadi or Polyester Khadi so as to suit the changing tastes and fashions among the consumers. As a consequence, it hoped to increase the earnings and productivity of spinners of Khadi. iv) Special programmes were to be made to ensure our effective and co-ordained approach to develop appropriate technology for small and village industries so that the productivity and earnings of the workers and entrepreneurs in this sector improve. 2. Areas for Large Scale Sector – While emphasizing small industries, the Janata Government was conscious of the development of large scale industries, but it stated that the role of the large scale industries would be related to the programmes fro meeting minimum basic needs of the population through  wide-spread dispersal of small and village industries and to the strengthening the agricultural sector. With this end in view, Industrial Policy of 1977 prescribed the following arras for the large sector : a) Basic industries, essential for providing infrastructure as well as development of small scale and village industries, such as steel, non- ferrous metals, cement, oil refineries; b) Capital goods industries for meeting the machinery requirements of basic industries as well as small scale industries; c) High technology industries which required large scale production and which were related to agricultural and small-scale development of the economy such as machine tools, organic and inorganic chemicals d) Other industries which were outside the list of reserved items for the small scale sector and which were considered essential for the development of the economy such as machine tools, organic and inorganic chemicals. 3. Approach towards Large business Houses - The Janata’s Industrial Policy criticised the earlier pattern of growth of large business houses by largely depending on the use of borrowed funds room public financial institutions and banks. This process of growth has to be reserved. The Industrial Policy of 1977, therefore, categorically stated : “Large Houses would have to rely on their own internally generated resources for financing new projects or expansion of existing ones. The funds of the public sector financial  institutions would be largely available for the small sector. Further, even in the care of capital intensive fields where thee large industrial house were dominant, in the future preference would be given to the medium entrepreneurs and the public sector corporations so that further concentration of economic power might be restricted.” Thus, the basic thrust of the Industrial Policy was that large scale industries should depend on their internally generated resources for their growth and that the funds of the public sector financial institutions and banks should be devoted to the growth of the small-scale and medium-scale units. 4. Larger Role of the Public Sector - The Industrial Policy Statement (1977) clarified that the role of the public sector would not be limited to production of important and strategic goods, but would also be expanded to act as a stabilizing force for maintaining essential supplies of consumer goods. To meet this objective, the public sector would be charged with responsibility of encouraging the development of a wide range of ancillary industries and contributing to the growth of decentralized production by making available its expertise in technology and management to small scale and cottage industries. 5. Approach towards foreign collaboration - The Industrial Policy of 1977 clarifying its approach towards foreign collaborations stated : “In areas where technological know-how is not needed, existing collaborations will not be renewed.” Even in areas in which foreign collaborations will be permitted, the policy statement outlining the government approach clarified : “ As a rule, majority interest in ownership and effective control should be in the  Indian hands though the government may make exceptions in highly export- oriented and/or sophisticated technology areas. In hundred per cent export- oriented cases the government may consider even a fully-owned foreign company.” 6. Attitude towards Sick Units – The Industrial Policy of 1977 did express its desire to help such units in the interest of protecting employment but did not give blanket assurance to protect all sick units. The government wanted to adopt a selective approach. It, therefore, mentioned : “While the government cannot ignore the necessity of protecting existing employment, the cost of maintaining such employment has also to be taken into account. In many cases, very large amounts of public funds have been pumped into the sick units which have been taken over but they continue to make losses which have to be financed by the public exchequer. This process cannot continue indefinitely.” Assessment of the Industrial Policy (1977) The basic thrust of the Janata Party Industrial Policy of 1977 was to promote small scale industries. For this purpose : i) list of small industries under the reservation category was to be enlarged; ii) the large scale industry expansion was to be discouraged; and iii) access on large scale industries was to be imposed. But Janata Government failed to impose a bank either on large scale industries belonging to Indian big business or multinationals to produce ordinary items like bread, biscuits, footwear, toffees, leather products etc., which should have been reserved for the small- scale sector. The industrial policy was not welcomed by big business because it totally denied the use of funds of public financial institutions and banks for expansion of their business. Such a blanket ban was resented. Moreover, as the Industrial Policy Statement (1977) clarified, it was aimed at correcting the distortions of 1956 Industrial Policy so that the dominance of large industries be curtailed and small industries are encouraged in a big way. This was intended to enlarge employment on the one hand and reduce concentration of economic power on the other. On the issue of foreign collaborations, the Janata Party’s Industrial Policy more or less followed by the Industrial Policy of 1956. So long as foreign collaborations were prepared to accept the rules and regulations of the government, they were permitted. In case of foreign companies they were asked to reduce the share of equity under FERA (Foreign Exchange Regulation Act). In high technology areas, even hundred per cent foreign equity was permitted. To sum up , it may be stated that though the Janata Party intended to shift the balance of the industrial sector in favour of small scale and cottage industries, it failed to achieve this objective, but for enlarging the list of reserved items from 187 to 807. In other areas, with minor modifications, it followed more or less, the 1956 Industrial Policy. Since the Janata Party rule lasted for about two years, it failed to give concrete shape to the policy measures enunciated in the Industrial Policy Statement (1977). Despite loud talk against Indian big business and multinationals, the policy failed to restrict Indian big business or multinationals. Activity 3 List the major distortions noticed by Industrial Policy of 1977 in the implementation of IPR 1956. Also catalogue the measures undertaken by Industrial Policy of 1977 to remove thee distortions. ……………………………………………………………………………………………… ……………………………………………………………………………………………… ……………………………………………………………………………………………… ……………………………………………………………………………………………… ……………………………………………………………………………………………… ……………………………………………………………………………………………… 11.5 INDUSTRIAL POLICY OF 1980 The Congress (I) Government led by Mrs. Indira Gandhi came to power in 1980 and announced its Industrial Policy in July 1980. The statement categorically asserted that it intended basically to follow the Industrial Policy of 1956. The Industrial Policy (1980) clearly sated : “In terms of this resolution (1956), the task of raising the Pillars of economic infrastructure in the country was encrusted to the public sector for reasons of this greater reliability, for the 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.” The principal elements of Industrial Policy of 1980 were : i) Promoting the concept of Economic Federalism – The Policy statement intended to bring about the integrated development of the small and large sector, thus, promoting economic federalism in the country. It states : “It will be the 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 their 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.” ii) Redefining the small Units – To encourage the development of small units, the government decided : a) to increase the limit of investment in the case of tiny units from Rs. 1 lakh to Rs. 2 lakhs b) to increase the investment limit in case of small scale units from Rs. 10 to Rs. 20 lakhs; and c) to increase the limit of investment in the case of ancillaries from Rs. 15 lakhs to 25 lakhs. iii) Promotion of Industries in Rural Area – Industrial Policy of 1980 emphasised tat in order to generate higher employment and higher per capita income in the rural areas, it was necessary to promote rural industries in the country without disturbing the ecological balance. For this purpose, handlooms, handicrafts and Khadi would receive greater attention so that a faster growth of the rural areas is made possible. iv) Removal of Regional Imbalances – To correct regional imbalances, it is necessary that the state should encourage industrial units in industrially backward areas. Such a process will reduce disparity between different regions. v) Industrial Sickness – The policy statement outlined early its approach towards sick unit :  a) Management of sick units would be taken over only in exceptional cases on grounds of public interest where other means for the revival of sick undertakings are not considered feasible. b) Sick units which show adequate potential fro revival, would be encouraged to merge with healthy units capable of managing sick undertakings and restoring their viability. For such proposals of merger, the existing tax concessions under section 72-A of the Income Tax Act will be made available roe liberally. vi) Regularisation of Unauthorized Excess Capacity – The procedure for regularizing unauthorized excess capacity in the private sector was further simplified in Industrial Policy of 1980. For this purpose, it was stated : The Normal permissible capacity expansion of upto 25 per cent of the authorised capacity would become automatically available to the overall installed capacity including the regualisired excess capacity. While regularizing unauthorized excess capacities created, FERA and MRTP companies will be considered on a selective basis. This facility will not be given in respect of items reserved for the small sector. Assessment of Industrial Policy (1980) The Industrial Policy of 1980 claimed to follow a `pragmatic approach’. It also endorsed the fact that it would follow the 1956 Industrial Policy. Yet, according to critics, it made several statements which are inconsistent with teh1956 Industrial Policy. Firstly Industrial Policy Statement of 1980 accused the Janata Party to create artificial divisions between the small and large sector and, therefore, the new dispensation proclaimed that it does not recognise the fact that the interest of the small and large sector are “essentially conflicting”. One can understand the fact that Janata Party in its over- enthusiasm to boost the small sector, may have overemphasized in its Industrial Policy the conflict between the small and the large sector. But to say, that the existence of such conflict is based on a misconceptions is totally untenable. Even in the Industrial Policy of 1956, it was recognised that such conflict exits. The 1956 Resolution specifically tatted : “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.” The very fact that the Congress has been encouraging labour intensive small-scale and cottage and village industries by restricting the volume of production of large scale industries, is ample poor of the existence of the conflict between the small and the large sector. Obviously, the state intended to maximise employment along with maximizing production with the help of labour intensive industries in the cottage and small sector. It would have been more wise if the Industrial Policy of 1980 should have recommended the strengthening of this trend, but to speak of reversing this trend was totally unjustified. Secondly, the government intended to regularize excess capacities. It also proposed automatic expansion of capacity to all Industries listed in the First schedule of Indian Industries (Development and Regulation) Act. The plea for doing this was the keen desire to make full use of installed capacity to maximise production. This policy was welcomed by big business because liberalisation indicated in the policy was silent endorsement of regularization of unauthorized excess capacity. The critics feel that the government should not have given blanket liberalisation in case of al industries, but it should have acceded to the sanctioning capacitates in case of those industries which were high priorities Ares for the country such as cement, paper, sugar, fertilizer, caustic soda, etc. but should have denied it to low priority areas like chocolates, baby foods, cosmetics, synthetic detergents, etc. To provide an open general licence for big business was not justified. To sum up, the Industrial Policy of 1980 favoured a more capital-intensive pattern of development and thus it attempted various measures of liberalisation or helping the large sector. It underplayed the employment objective. Activity 4 In what respects is Industrial Policy of 1980 different from that of IPR 1956. What is the nature of difference in the two polices initiated by the Congress Government in 1956 and 1980 respectively ? ……………………………………………………………………………………………… ……………………………………………………………………………………………… ……………………………………………………………………………………………… ……………………………………………………………………………………………… ……………………………………………………………………………………………… 11.6 SUMMARY The Industrial Policy of 1948 was aimed at clearing the foggy and uncertain environment so that investment in industry does not become a casualty. The 1948 Industrial Policy Resolution envisaged : i) Mixed economy for India in which the public and private sector can co-exist. ii) The resolution announced `no nationalization for next 10years’. Later, if nationalization is considered necessary, compensation would be paid. iii) The Resolution recognised the need for foreign capital but insisted that majority interest in ownership and management will remain in Indian hands. The basic aim of the Industrial Policy (1948) was to bring economic stability and establish the mixed economy framework in India. The Industrial Policy of 1956 was motivated by considerations of rapid Industrialisation within the framework of the socialist pattern of society accepted as the goal of economic and social policy. Industrial were classified into three categories : 1) Schedule A – Exclusive monopoly of the State 2) Schedule B – To be progressively owned by the State and in which new undertakings would generally be set up by the State 3) Schedule C – All the remaining industries left to the private sector. i) Government undertakes responsibility to set up new undertakings in heavy and basic industries, Private sector, not willing to invest in areas requiring lumpy investment, a congestion period and low profitability. ii) Classification not water-tight, room for exemptions existed. iii) State reserved the right to take over industries in Schedule C, if they failed to conform to guidelines issued by the State. iv) Encouragement to small and village industries to be provided so as tepid employment. This was to be done through differential taxation or by  direct subsidies. Besides this, technology of the SS & I sector to be improved and modernized. v) Regional disparities to be removed by encouraging balanced regional development. vi) Improvement in working and living conditions of labour vii) Foreign capital to be invited as enunciated is 1948 Industrial Policy with majority ownership and control to be in the Indian hands. The Industrial Policy of 1956 is referred to as the `Economic Constitution’ of the country. Private sector, a junior partner. Public sector to play a leading role as a senior partner to develop heavy and basic industries to play a leading role as a senior partner to develop heavy and basic industries as well as infrastructure. Private sector worked under the misconception that the Damocles’ swear was hung on its head. This was an incorrect perception of IPR 1956. Rather a permanent place was provided for the private sector. By developing heavy industry and infrastructure, the State created a congenial environment for the development of the private sector. Later development by the Industrial Licensing Policy Inquiry Committee (1969) indicated that under one pretext or another, several areas reserves for the public  sector were opened to the private sector. Private sector investment zoomed forward, along with public sector expansion. Industrial Policy Statement, 1977 - Policy drafted by the Ghanaians in the Janata Party. The main aim of the policy was to correct the distortions in the implementation of the Industrial Policy (1956). Major distortions : (a) Unemployment has incre4ased; (b) rural-urban disparities have widened; and (c) rate of real investment has stagnated. Chief features : (i) Major thrust on the development of small industries. Small sector classified into three categories : (a) cottage and household industries to provide self- employment; (b) tiny sector having investment in plant and machinery upto Rs. 1 lakh; and (c) small industries with an investment upto Rs. 10 lakhs and ancillaries with an investment upto Rs. 15 lakhs. Main purpose of the classification was to design measures to specifically helped the three sub-sectors. Measures undertaken : i) Reservation list increased from 180 to 807 items. ii) District Industries Centres to be set up so that the services and support required by SS & Is be availed under one roof. iii) Khadi and village Industries Commission to be strengthened. Nay Khadi or Polyester Khadi to be introduced. iv) Appropriate technology to be developed for small and village industries. Areas for Large Scale Sector – Large sector should be related to minimum basic needs programme via dispersal of small and village industries. Large industries should strengthen the agricultural sector. Approach towards Large Business Houses – Large houses to rely on internally generated resources fro financing new projects or expanding existing projects. They should not depend on public financial institutions and banks. Larger role for the Public Sector – Besides producing important and strategic goods, public sector be expanded to act as a stabilizing force for maintaining supplies of essential consumer goods. Foreign Collaborations – In areas where technological know-how is not needed, existing foreign collaborations will not be renewed. As a rule, majority interest in ownership and control to remain in Indian hands, though the governmental make exceptions in highly export-oriented and/or sophisticated technology areas. Sick Units – Sick units to be helped in the interest of protecting employment, but no blanket assurance was given to take-over every sick unit. Units which are non-viable and continue to make losses year after year, may not be helped. Janata Party Government failed to ban production in the large sector of items which were reserved for the small sector. On foreign collaborations, if followed IPR (1956). Janata Party, though it intended to shift the balance in favour of small sector, but due to short period of its rule (about 2 years), it failed to give a practical shape to its policies. The policy failed either to restrict big business or multinationals. Industrial Policy of 1980 - Congress (I) back to power in 1980 indicated its trust in Industrial Policy of 1956. The IP (1980) had the following elements: i) Promotion of the concept of economic federalism in which it proposed to set up a few nucleus plants in each district, identified as industrially backward, to generate as many ancillaries and small and cottage industries as possible. Based on the premise that interest of the small and large industry are not essentially conflicting. ii) Revised definition of small units a) Tiny units – limit of investment raised from Rs. 1 to Rs. 2 lakhs a) Small industries – limit of investment raised from Rs. 10 lakhs to Rs. 20 lakhs. b) Ancillaries – limit of investment raised from Rs. 15 lakhs to Rs. 25 lakhs. ii) Promotion of rural industries to generate higher employment and higher per capita income. iii) To remove regional imbalance, the State should encourage industrial units in backward areas. iv) Management of sick units would be taken over only in exceptional cases on grounds of public interest. Sick units with adequate potential for revival would be encouraged to merge with healthy units.  v) Regularisation of unauthorized excess capacity – Capacity expansion upto 25 per cent of installed capacity would be made automatically available to the overall capacity including regularized excess capacity. FERA and MRTP companies will, however, be considered on a selective basis. The Industrial Policy of 1980 has been criticised for its internal inconsistency. While swearing by Industrial Policy of 1956, the 1980 policy proclaims that the interest of the small and large sector are not essentially conflicting. This is a totally untenable proposition because the IPR 1956 intended to support small and village industries (a) by restricting the volume of production in the large scale sector, (b) by differential taxation or (c) by direct subsidies. The main aim of IPR 1956 was to maximise employment along with maximization of output. Reversing this policy by IPR 1980 was unjustified. Agreeing with critics, it may be stated that Regularisation of unauthorized excess capacities for all industries was not justified. The government should have regularized excess capacities in high priority areas, but should have denied Regularisation in low priority areas. A selective approach would have been more desirable. IPR 1980 attempted to help large sector by various measures of liberalisation. It underplayed the employment objective. 11.7 KEY WORDS Mixed Economy : An economic system in which both the public and private sector co- exist and complement each other in the task of economic development. Nationalization : Take-over of ownership and management of private sector company/industry by the state. Technical know-How : Practical knowledge of the technique of production. Gestation Period : The period between the initiation of an investment and its completion so as to start production or provide a service. Differential Taxation : Charging different relates of taxation from the producers of the same production. For instance, the government imposes higher rates of excise duty omni mode cloth and may charge a lower rate from handloom weavers. Subsidies : The grants of assistance by the State to encourage the production of a commodity or a service in a certain industry or sector of the economy. Regional Disparities : Differences in the level of development attained by different regions. Foreign Collaborations : Agreements made with foreign companies by the Indian companies/Government to undertake certain projects. The share of foreign equity is specified in such agreements. Multinationals : Companies which have their business extended beyond the country of the origin into several other countries. 11.8 SELF ASSESSMENT QUESTIONS 1. Compare the Industrial Policy of 1956 and the Industrial Policy of 1977 and brings out the differences of the objectives motivating the two policies. 2. Industrial Policy of 1980 indicated its tilt in favour of the large sector and was the first step towards liberalisation. Do you agree ? 11.9 FURTHER READINGS Kuchhal, S. C., Industrial Economy of India Datt, Ruddar and Sundhram, K P M : Indian Economy, 36th Edition (1977), S. Chand & CO., New Delhi Janata Party, November 1977 Statement on Economic Policy Datt, Ruddar, Janata’s Industrial Policy, A critique, Mainstream, Vol. XVI, No. 34, April, 1978.