Achievements of India’s Industrial Sector Between 1950-1990

India awoke to the fresh dawn of independence on August 15, 1947. After nearly two centuries of British control, we were finally in charge of our own existence; the task of nation-building was now in our own hands. The leaders of independent India had to consider, among other things, what sort of economic structure would be best for our country, one that would promote the benefit of all citizens rather than just a select few.

Following independence, Indian planners were drawn to the socialist system because it provided a chance for everyone to prosper. They were not, however, attracted to the severe type of socialism found in the Soviet Union, where no private property is allowed and the state controls all businesses. They desired a mixed economy in which the government would regulate industries that are unattractive to the private sector and the market would focus on profitable activities. The main goal of planning in India is to start a development process that would increase living standards and provide people with new possibilities for a richer and more diverse existence – The first five-year plan.  

The concept of five-year plans originated in the Soviet Union, but India added a twist by including the private sector. Each strategy emphasized self-sufficiency, equity, development, or modernization. The planning period began with the establishment of the planning commission in 1950, which was chaired by the Prime Minister. Under the direction of famous statistician P. C. Mahalanobis, the planning accelerated in the second five years. He was the architect of Indian planning and founded the Indian statistics institute. His viewpoint was also reflected in the 1948 “Industrial Policy Resolution” and the Indian Constitution’s Directive Principles.

Industrialization is a critical component of economic development. The government’s strategies for industrial development in the country are referred to as industrial policy. India’s government updated the country’s first industrial policy in 1948. The new industrial policy was implemented in response to changing environmental and market conditions. The main aim of industrial policy is to globalize the Indian economy and allow market forces to operate more freely in the local sector.

1. Industrial Policy of 1948

Dr. Shyama Prasad Mukherjee, the Minister of Industry of India (15 August 1947- 6 April 1950), On April 6, 1948, the first industrial policy 1948 was delivered it. The fundamental purpose of this policy was to accelerate industrial development by developing a mixed economy (an economics structure having both private and state enterprises). It considered the Indian economy as being based on socialist principles. The major industries were divided into four groups:

• State Monopoly Industries: It featured industries that worked with atomic energy, trains, armaments, and ammunition.
• Government-controlled industries: This category covered industries that were important to the country. Fertilizers, heavy machinery, defense equipment, heavy chemicals, and other categories were mentioned in this category.
• Mixed-sectors industries: Industries that were allowed to function autonomously in the private or governmental sector fell under this group. The government was given permission to assess the situation in order to acquire any extant private enterprise.
• Private-sectors industries: This category includes industries that were not addressed in the previous categories. Small firms and small industries were given a lot of attention, which resulted in the use of local resources and the creation of jobs.

2. Industrial policy resolution, 1956

After the 1948 Industrial Policy, it was India’s second comprehensive pronouncement on industrial growth. The program of 1956 remained to be the basic economic policy for a long time. This has been confirmed in all of India’s Five-Year Plans. The construction of a socialistic structure of society was the goal of India’s social and economic policy, according to this resolution. It gave the government’s machinery additional power.

The second industrial policy, which superseded the program of 1948, was proclaimed on April 20, 1956. The following were the characteristics of this policy:

• A new classification system for industries has been developed.
• Focus on the promotion of Village and small-scale industries.
• Eliminate regional disparities in order to achieve growth.
• Started taken Initiatives for the welfare of labor.
• The private sector is treated equally and without discrimination.

The IRDA classified industries into three groups:

• Schedule A industries were those that the state or government had a monopoly over.
• Schedule B industries are authorized by the state to establish new units in this category, but the private sector was not barred from establishing or expanding existing units, such as synthetic, rubber, aluminum, chemical industries, fertilizer, and so on.
• Schedule C industries are those industries that were not included in the above-mentioned industries were classified as Schedule C industries.

To recapitulate, the 1956 strategy gave the state a prominent role in industrial development because money was scarce and enterprise was weak.

3. Indian policy statement, 1973

In the Indian Policy Statement of 1973, 6 high-priority types of industries or “core industries” were chosen, the term “Core Industries” was included in this policy. 

• Crude Oil
• Oil Refining
• Electricity
• Iron and Steel Industry
• Cement,
• Coal

The main characteristic of this policy is the large industrial houses and international companies were allowed to invest. Large industries were allowed to set up a new initiative in rural and backward areas with the goal of developing those areas and allowing small businesses to thrive. As a result, the following are the major changes that occurred after the implication of the Indian Policy Statement 1973:

• The policy helps to bring the agricultural and industrial sectors closer together.
• The list of industries that are reserved for small businesses has been increased.
• Cottage and domestic businesses were given special protection by regulation.
• The generation and transmission of electricity were given top priority.

4. Indian policy statement, 1977

In December 1977, on behalf of the Janata Government, George Fernandes, the union industries minister announced the Indian Policy Statement. This policy was later, in 1980 replaced by the Congress Government. By the industrial policy Statement 1977, it reflected that the Janata Government had a different approach and planning philosophy to accelerate our Economy. The following are some of the policy’s highlights: 

• Self-employment opportunities in the household and cottage industries.
• Investment in the small industry is limited to Rs.1 lakh.
• Limit the power of large corporations.
• The growth of ancillary industries.
• To make technology and management knowledge available to small and cottage companies.
• Rehabilitating and reviving ill units.
• Small-scale industries with a capital investment of between 1 and 15 lakhs rupees.
• Infrastructure and growth of small-scale and village industries are basic industries.
• ‘Cottage industries‘ needs are met by capital goods businesses.
• Agriculture and small-scale industries such as petrochemicals, fertilizers, and pesticides are examples of high-tech industries.

5. Industrial policy, 1980

When Congress came back to power in 1980, It indicated to modify the Industrial Policy 1956. In July 1980 a new Industrial Policy was announced. The following are the main characteristics of this policy:

• For faster growth of the rural area, Handlooms, handicrafts, and Khadi industry get so much attention
• Decided to raise the efficiency of the public sector undertakings.
• Balanced growth is encouraged.
• Unauthorized extra production capabilities established for industrial homes are regulated and controlled.
• Improving the public sector’s performance.
• Promote industrially backward, small, and cottage industries for economic federalism.

6. New industrial policy, 1991

Under the leadership of P. V. Narasimha Rao, Manmohan Singh introduced the industrial policy on July 24, 1991. By this policy, the first time India opened the door of the country’s Economy for global exposure by introducing three major steps:

• Reduce the import duties,
• Opened reserved sector for the private companies,
• Devalued the Indian currency to increase the export.

The following are the main characteristics of NIP, 1991:

• Licensing for businesses for improving the quality of production.
• The abolition of FERA was introduced to provide a major relief to the industries engaged in export activities.
• process of import of technology in India was simplified.
• Foreign Investment Policy has been liberalized.
• To promote exports and bring global competitiveness in Indian Industry, policies were created for the shifting of quality standards from Indian Standard Industries and International Standard Organization.
• create competitive economic conditions to make the industry more accountable to our society

The overall modifications made to the industrial policy framework have given the country’s future industrialization a new direction. On a variety of fronts, there are promising tendencies. In 1991-92, industrial growth was 1.7 percent, but by 2007-08, it had risen to 9.2 percent. The Industrial structure now has a much more balanced composition. Multiple gains in local and foreign investment are anticipated as a result of industrial reforms.

New Industrial Policies’ Outcomes

• The 1991 policy abolished the “License, Permit, and Quota Raj.” It aimed to liberalize the economy by reducing bureaucratic roadblocks to economic development.
• The government’s burden was decreased due to the limited role of the public sector.
• The strategy allowed foreign corporations to enter the country more easily, as well as privatization, the lifting of the asset cap on MRTP enterprises, and more permissive licensing. All of this encouraged competition, which resulted in cheaper pricing for numerous things, such as electronics. This resulted in domestic and foreign investment in practically every industry that was made available to the private sector.
• Special efforts were made to increase exports as a result of the policy. Export Oriented Units, Export Processing Zones, Agri-Export Zones, Special Economic Zones, and, most recently, National Investment and Manufacturing Zones have all become popular concepts. All of this has benefited the country’s export sector.

India’s Industrial Policy Limitations

• With the new industrial policy, industries were restructured and modernized, resulting in labor displacement.
• There are no incentives to improve efficiency because there are none. Internal liberalization received more attention than trade policy reforms, resulting in ‘consumption-led growth‘ rather than ‘investment‘ or ‘export-led growth.’
• While the New Industrial Policy emphasized the negative impacts of environmental harm, it failed to design a viable industrial location policy that might ensure a pollution-free development of the industrial climate.
• India’s industrial policies have failed to propel the manufacturing sector, which has remained at around 16 percent of GDP since 1991.
• While substantial investments have been flowing into a few industries following liberalization, there is concern about the slow pace of investment in many basic and strategic industries such as engineering, power, machine tools, and so on.

Conclusion

India’s industrial policies have shifted from a largely socialist pattern in 1956 to a capitalist pattern after 1991. India’s industrial strategy is currently much more liberalized, with a focus on increasing international investment and few regulations. The Bankruptcy and Insolvency Act of 2017 and the Goods and Services Taxes (GST) are both significant reforms that will benefit the manufacturing sector in the long run. Make in India and Startup India campaigns have aided in the development of the country’s economic ecosystem. Electricity shortages and high prices, finance limits, high unit labor costs due to labor regulations, political meddling, and other regulatory burdens, however, continue to be obstacles to India’s industrial sector’s steady expansion.

A new Industrial Policy is required to enhance the country’s industrial sector. The government also felt the necessity to propose a new Industrial Policy in December 2018, which would serve as a road map for all economic companies in the country.