2. 2
The industrial development of a country depends on
the industrial policy adopted by the Government as the
economic environment is largely influenced by the industrial
production. The term industrial policy refers to the
government policy towards the development of industries,
their working, and management. The industrial policy
indicates the respective areas of large, medium, and small
scale sectors. It will also spell out the government’s policy
towards foreign capital, labour, tariff and other related
aspects. Naturally, the industrial development of a country
will be shaped, guided, fostered, regulated and controlled by
its industrial policy.
During the British days, the government followed a policy of
Laissez Faire in industrial development and it was only a
spectator without actively participating as an entrepreneur.
The dawn of independence created new hopes and
aspirations in the field of industry.
3. POLICY:-
Declared objectives which a government seeks to achieve and
preserve in the interest of national community
3
INDUSTRY:-
The term industrial policy is the combination of two words:
+
8. On 6th
April’1948, Government of India announced the first Industrial
policy. At the time the Indian industry was in shamble. Raw materials
were scarce and capital was shy. The machinery and equipment
needed replacement and modernization. The industry faced serious
crisis.
Objective:
To bring about rapid industrial development of the country and
improve the living standards of people through increased production
and equitable distribution.
Industries were classified into four broad categories.
1. Exclusive State Monopoly:
2. State Monopoly for New Units:
3. Private industries to be regulated by the state and.
4. Fully private enterprises.
The Main thrust of the policy was to lay the foundation of a mixed
economy in which both private and public enterprises would work
together to accelerate Industrial development in the company
9. Exclusive State Monopoly:
This included
•the manufacture of arms and ammunition,
•production and control of atomic energy and
•The ownership and management of railway transport.
These industries were the exclusive
monopoly of the Central Government.
10. State Monopoly for New
Units:
This category included
•Coal, iron and steel,
•Aircraft manufacture,
•Ship building,
•Manufacture of telephone,
telegraphs and wireless
•Mineral oils etc.
Are allowed to continue in
the private sector for a
period of ten years. But the
development of new units in
this category would be
exclusive responsibility of
the state.
11. Private industries to be regulated by the state:
This category included
•Salt
•Automobiles
•tractors
•Prime movers
•Electric engineering
•Other heavy machinery
•Machine tools
•Heavy chemicals, fertilizers and pharmaceuticals and drugs
•Electro-chemical industries
•Non-ferrous metals
•Rubber manufactures
•Power and industrial alcohol
•Cotton and woolen textiles
•Cement
•Sugar
•Paper and Newsprint
•Air and Sea transport
•Minerals etc.
In such industries the Central Gov-ernment felt necessary to plan and regulate.
12. Fully private enterprises:
The industries in this category were left open to the private
sector, individual as well as cooperative.
Advantages:
•Different labour laws were passed for the welfare and
betterment of the workers. Such as Minimum wages Act, ESI
Act and Labour Welfare Act.
•Nationalization of limited but important industrial sector to
strengthen the economy.
•A mixed economy pattern was adopted under which private,
public and cooperative sectors.
Disadvantages:
Restriction on private sector increased due to introduction of
Industrial Development Regulation act’ 1951.
Red tapism in public sector restricted the growth of public
sector.
13. A number of developments had taken place in the
country after the adoption of the industrial policy
resolution’ 1948. These developments necessitated the
announcement of IPR’on 30th
Apr’1956.
Objectives:
•To accelerate the rate of economic growth and speedup
industrialization
•To develop heavy industries and machine making
industries
•To prevent private monopolies and economic power in a
few individuals.
•To expand public sector
•To reduce disparities in income and wealth
14.
15. This schedule included those industries which were exclusive responsibilities of the state.
Under this 17 industries were listed.
1. Arms and ammunition and allied items of defense 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.
16. This included those which were to be mainly owned and managed by
state. Under this 12 industries were listed.
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. Carbonization of coal.
10. Chemical pulp.
11. Road transport.
12. Sea transport.
17. Schedule ‘C’ included all the remaining
industries which are not included in schedule
‘A’ and schedule ‘B’. The government will
provide all facilities for the development of these
industries. Financial assistance will be given
through institutions to specially set up for this
purpose.
18. This is a reiteration of the industrial policy resolution of
`1956 and supplement to supplement to the industrial
licensing policy of 1970. It has elaborated the concept of
joint sector and made it will not to allow larger industrial
houses to produce items reserved for small scale sector.
Larger units are defined as those having assets of crores or
move. These units are permitting to participate in basic,
critical and strategic industries. Existing policy of
resolution to small scale sector is to be continued.
19. 1. Development of small-scale Sector. The list of items reserved for small scale
industries was expanded from 180 to 504 and then to 807 in May 1978.
2. District industrial centers were to be set up in each district to meet the
requirements of small scale and cottage industries.
3. Handloom sector was given preference over power-loom and mill sectors, the latter
two were not to add to their weaving capacity.
4. For reduction in regional imbalances, shifting of industries to backward areas was
to be assisted and establishment of new industries in urban areas was to be avoided.
5. Special fiscal concessions were proposed for export oriented units.
6. Takeover of sick units would be on a selective basis.
7. Special attention was to be given to the promotion of "tiny sector", namely units
with investment of Rs. 1 lakh and situated in towns/villages with a population not
exceeding 50,000.
8. Large houses would have to rely on their own internally generated resources for
financing new projects or expansion of the existing ones.
9. The public sector would be charged with the 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 industry sectors.
10. In order to promote technological self- reliance, the policy recognized the
necessity for continued inflow of technology in sophisticated and high priority areas
where Indian skills and technology were not adequately developed.
When the Janata government came into power In 1977, a new policy
statement was made. The following are the salient features of the statement:
20. When Congress came back to power in 1980, a new policy was announced.
The Industrial Policy of 1980 marked a significant milestone in the policy of
development of small scale industries in India. The following are the salient
features of this policy:
22. In July’24, 1991, the Government of India announced a
new industrial policy with sweeping changes.
1. Except some specified industries (security and
strategic concerns, social reasons, environmental
issues, hazardous projects and articles of elitist
consumption) industrial licensing would be abolished.
2. Foreign investment would be encouraged in high
priority areas up to a limit of 51 per cent equity.
3. Government will encourage foreign trading
companies to assist Indian exporters in export activities.
4. With a view to injecting the desired level of
technological dynamism in Indian industry, the gov
ernment will provide automatic approval for technology
agreements related to high priority industries.
23. 5. Relaxation of MRTP Act (Monopolies and Restrictive
Practices Act) which has almost been rendered non-
functional.
6. Dilution of foreign exchange regulation act (FERA)
making rupee fully convertible on trade account.
7. Disinvestment of Public Sector Units' shares.
8. Closing of such public sector units which are
incurring heavy losses.
9. Abolition of C.C.I, and wealth tax on shares.
10. General reduction in customs duties.
11. Provide strength to those public sector enterprises
which fall in reserved areas of operation or in high
priority areas.
12. Constitution of special boards to negotiate with
foreign firms for large investments in the development of
industries and import of technology.
13. To achieve global competition
24. INDUSTRIAL POLICY 1991
OBJeCTIVeS
In pursuit of the above objectives,
Government decided to take a series of
initiatives in respect of the policies relating
to the following areas:
A. Industrial Licensing.
B. Foreign Investment.
C. Foreign Technology Agreements.
D. Public Sector Policy.
E. MRTP Act.
25. A.Industrial Licensing:
Industrial licensing abolished for all projects except a short list
of 18 industries related to security and strategic concerns, social
reasons, hazardous chemicals etc. (Annex II)
Areas where security & strategic concerns predominate,
reserved for public sector. (Annex I)
In projects where imported capital goods are required,
automatic clearance given.
In locations other than cities of more than 1 million population,
no requirement of obtaining industrial approvals from Central
Government.
Incentives & investments in infrastructural development, to
promote dispersal to rural and backward areas.
Existing units enabled to produce any article without additional
investment.
26. INDUSTRIAL POLICY
1991
B. Foreign Investment:
Approval upto 51 percent foreign equity in high
priority industries.(Annex-III)
Imports governed by general policy applicable to
other domestic units, payment of dividents
monitored by RBI to ensure that outflows on
account of dividents are balanced by export
earnings.
Other foreign equity proposals, not covered
above, need prior clearance.
A special Empowered Board- to negotiate with a
number of large international firms & get FDIs
approved.
27. INDUSTRIAL POLICY
1991C. Foreign Technology Agreements:
Automatic permissions for foreign technology
agreements in high priority industries
(Annex-III) upto a lumpsum payment of Rs.
1 crore.
For industries other than those in Annex
III, automatic permissions if no foreign
exchange is required for payment
All other proposals need specific approval
No permission for foreign technicians,
foreign testing of indigenously developed
technologies.
28. INDUSTRIAL POLICY
1991
D. Public Sector Policy:
Portfolio of public sector investments reviewed with a
view to focus public sector on strategic, high tech &
essential infrastructure.
Chronically sick public enterprises, referred to Board
of Industrial & Financial Reconstruction (BIFR).
A part of government’s shareholding in public sector
offered to mutual funds, financial institutions, public
& workers.
Boards of public sector companies- more professional
& powerful.
MOU system- managements would be granted greater
autonomy & held accountable.
29. INDUSTRIAL POLICY
1991
E. MRTP Act: (Monopolistic Restrictive Trade Practices):
Removal of threshold limits of assets in respect of
MRTP Companies & dominant undertakings.
Elimination of need of prior approval of Central
Government for establishment, expanding, merger,
amalgamation & takeover.
Emphasis on controlling & regulating monopolistic,
restrictive & unfair trade practices.
Enabling the MRTP Commission to exercise punitive &
compensatory powers.
30. 6. INDUSTRIAL POLICY,
JULY 24, 1991
1. 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.
2. Such a society can be built if India grows as part of the world
economy and not in isolation . .
3. The spread of industrialisation to backward areas of the
country will be actively promoted through appropriate
incentives, institutions and infrastructure investments
4. Government will provide enhanced support to the small-scale
sector so that it flourishes in an environment of economic
efficiency and continuous technological upgradation.
30
31. Contd…
5. Foreign investment and technology collaboration will be welcomed
to obtain higher technology, to increase exports and to expand the
production base.
6. 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.
7. The Government will ensure that the public sector plays its
rightful role in the evolving socioeconomic 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.
8. Labour will be made an equal partner in progress and prosperity.
31
32. 9.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
10. The major objectives of the new industrial policy package will
be to build on 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
11. Need to preserve the environment and ensure the efficient use
of available resources
12. 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:
A. Industrial Licensing
B. Foreign Investment
C. Foreign Technology Agreements
D. Public Sector Policy
E. MRTP Act(Monopolies and restrictive trade practices act)
32
33. Evaluation of the New Industrial
Policy
Positives of the new policy are:
• Delicensing of most industries will help entrepreneurs to quickly seize business
opportunities.
• Removal of controls under the MRTP Act will facilitate expansion and growth.
• There will be greater inflow of foreign capital and technology due to easing of
restrictions.
• Burden on the public sector will be reduced and reforms relating to the public sector like
transferring sick units to BIFR will help improve their performance.
• In case of women enterprenuers, not only ten percent of the plots in an industrial but also
offering 5 percent additional subsidy subject to a maximum of Rs.5 lakh.
Watch- outs :
• The policy environment is much more conducive for both domestic and foreign
investment than in the past. However, a host of countries are now trying to woo foreign
investment with a much more conducive economic environment than in India. Also,
cultural factor do also tend to tilt the balance in favor of other nations.
• Further, foreign investors still regard the policy and procedural system in India confusing.
Rather many feel that policy and development environment in China is superior to India.
33
34. Evaluation of the New Industrial Policy
This Policy has been criticized on the following grounds:
• It will lead to domination of MNC on the Indian Economy.
Threat from foreign competition due to cheaper imports and
inability to meet the challenge from MNCs due to their weak
economic strength vis-à-vis the MNCs. CII did raise the point
that we have moved away from too much protectionism to
too little protectionism.
• Trade Unions oppose the policy due to fear of unemployment
which may arise due to privatization.
• Distortion in industrial pattern would occur due to slow pace
of investment in few basic and strategic industries. Absence
of a mechanism would slow down the development of
backward
areas.
• Government is silent about tackling the growing industrial
sickness. The Government has not announced a clear exit
34
35. Second Generation Reforms
The 1991 reforms have considerably helped in improving the
economic growth of the country. Yet much more needs to
be done to reap the full benefits. There is a need for Second
Generation Reforms:
A. Exploiting the Knowledge based Global Economy:
• Revolutionizing the telecom sector to help to integrate India’s
economy into the world economy.
• Build institutes for higher education .
• A system of intellectual property rights to reward innovations
adequately.
• Venture capital funds to finance risk projects of the
knowledge based economy.
B. Growing Indian Transnational Corporations:
• Indian firms to enjoy flexibility in entry and exit. Freedom to
diversify and close down unsuccessful units.
• Liberalize and move towards capital account convertibility.
35
36. Second Generation Reforms
C. High Growth of Agriculture:
• State to ensure that adequate investments are made in irrigation,
agricultural research,infrastructure and agricultural input.
D. Empowering the Poor:
• Integrate and consolidate anti poverty measures.
• Set up a system for old age security.
E. Human Development
• Primary education made compulsory.
• Involve private sector to provide better primary education.
F. Clean Environment:
• Arrest damage to environment
• Promote clean and healthy environment.
G. Improvements to Governance:
• Rationalize electricity prices
• Bring in legal reforms that ensure inexpensive and speedy justice and
at the same time facilitate economic growth.
36
38. 38
INDUSTRY Enterprises engaged
in the
manufacture of
productions of goods:
investment in plant
and machinery
Enterprises engaged
in providing or
rendering of services:
investment in
equipment.
MICRO Not exceeding Rs.25
Lakh
Not exceeding Rs.10
lakh
SMALL Between Rs. 25 lakh
and Rs.5 core
Between Rs.10 lakh
and Rs.2 crore.
MEDIUM Between Rs.5 crore
and Rs.10 crore
Between Rs. 2 crore
and Rs.5 crore.
DEFINITIONS
39. The State-wise distribution of MSMEs show that more than 55% of
these enterprises are in 6 States, namely, Uttar Pradesh,
Maharashtra, Tamil Nadu, West Bengal, Andhra Pradesh and
Karnataka.
• MSMEs in the country manufacture over 6,000 products.
• The MSME sector in India is highly heterogeneous in terms of the size
of the enterprises, variety of products and services produced the levels
of technology employed, etc.
39
41. • Lack of availability of adequate and timely credit;
• High cost of credit;
• Limited access to equity capital;
• Lack of access to global markets;
• Low technology levels and lack of access to modern
technology;
• Lack of skilled manpower for manufacturing, services,
marketing, etc.;
• Issues relating to taxation, both direct and indirect, and
procedures thereof.
41
MAJOR ISSUES RELATED TO MSME’S
42. 42
A three tier definition including: (i) Tiny unit: upto Rs 10 lakh investment;
(ii)SSI unit: above Rs. 10 lakhs to Rs. 100 lakhs in plant and machinery;
(iii)Medium unit: Rs. 1 crore to Rs. 10 crores in plant and machinery.
• Need for a single comprehensive law for SSI sector like Small Business
Administration (SBA) Act of United States.
• For infrastructure development, a corpus of Rs.2000 crore be set up so that
adequate infrastructure facilities are available to the SSI sector.
• FDI to be encouraged in SSIs for better technology transfer (within the
permitted ceiling of equity participation by large scale units in the equity of
SSI units).
• A Technology Up-gradation & Modernisation Fund of Rs.5000 crore with an
interest subsidy of five per cent.
RECOMMENDATIONS
43. • To enhance the data base for the SSI sector,
(i) conduct of fresh census for SSI sector,
(ii) collection of detailed data on clusters,
(ii) sample survey to be conducted annually,and
(iv) involvement of SSI associations in the census and other data collection
activities.
• Need for reduction of cost of credit for SSI sector.
• Measures for strengthening resource support to SIDBI and to make
available cheaper resources for on-lending at low interest rates to SSI
sector.
• Setting up of special venture capital type fund of Rs.500 crore to be
named as Laghu Udyog Nirman Nidihi for equity support.
• Standardisation of procedure and simplification of forms by banks.
• Setting up of a Technology Bank for collection and dissemination of
information about technology resources.
43
44. Policies and programmes for
promoting SSI
• Reservation policy;
• Government’s price preference policy for
marketing SSI products;
• Technical assistance;
• Financial assistance.
44
45. • Industrial finance corporation of India(IFCI)
• Industrial credit and investment corporation of
India(ICICI)
• Industrial development bank of India(IDBI)
• Small industries development bank of
India(SIDBI)
• Industrial investment bank of India.
• National Bank of Agricultural and Rural
Development of India(NABARD)
• State industrial development corporations.
45
Financial institutes in India
46. INDUSTRIAL POLICY
2010-2015
• The Government has announced a new industrial policy for 2010-15,
enhancing the investment limit of mega projects from Rs.100 to
Rs.250crore for the purpose of offering benefits to them.
• The policy provides a 25 percent VAT reimbursement for five years
for large and medium enterprises, 50 percent for small enterprises and
cent percent for micro units.
• For micro and small industries the investment subsidy has been
increased from Rs.15lakhs to Rs.20lakhs.
• In case of women entrepreneurs, not only ten percent of the plots in
an
industrial area but also offering 5 percent additional subsidy subject to
a maximum of Rs.5lakhs.
• Attract investments in the industry and service sector by developing
33
47. Contd………
• Maximize employment opportunities, Implement self-employment
schemes effectively, and provides jobs to local people in the upcoming
industrial units in the states.(Pradhan mantri employment generation
programme launched by the government of India.)
• Promote agro-based and food processing industry to make agriculture a
most profitable proposition.
• In order to ensure productive uses of land, multi-stored complexes for
micro and small enterprises/industries will be constructed either
through department’s corporations or through or private sector
participation at potential sites.
• Trade Related Intellectual Property Rights (TRIPR) under WORLD
TRADE ORGANISATION will be widely publicized so that these
could be used to generate more employment and trade opportunities.
47
48. References
• www.msme.gov.in
• www.dipp.nic.in
• www.commin.nic.in
• Business environment by T.R.Jain,Mukesh
Trehan and Ranju Trehan.
• Business environment by Francis
Cherunilam.
• And other sites.. 48
