Rapid industrial stride has been made in India during the last about six decades of planned development. Industrial production increased at an average growth rate of about 5% per annum during the period 1970-80. The average growth rate increased to 8% in the period 1979-89. The growth has been particularly marked in the newer and more complex industries, such as petroleum products, chemicals and chemical products, metal products, electronics and other electrical machinery, transport equipment and power generation.
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The different five year plan periods saw the expansion and diversification of the industrial structure with the establishment of new units in the existing fields as well as the setting up of new enterprises. As a result, the number of industrial units producing iron and steel increased. There are now six major steel plants with a capacity of about 250 lakh tonnes. They produced over 200 lakh tonnes of saleable steel during 2006-07. With the mergers and acquisitions, such as L.N. Mittal’s takeover of Arcelor have put into a leading steel maker in the world map.
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The steel produced by these plants provided the basis for achieving self-sufficiency in a number of engineering goods, from a pin to giant machinery. In the field of new industries, agricultural tractors, electronics and fertilizer industries which practically did not exist in 1951, progressed to such an extent that the import of these products was brought down to the minimum.
The drug industry also developed fast. The textiles industry was no longer confined to cotton or jute textiles, but quite a few units produced different types of synthetic fibres.
The machine-building industry too made rapid strides. The engineering industry developed enough to supply virtually the entire requirement of power generating equipment, equipment for railways, road transport and communications. Self-sufficiency was reached with regard to sugar and cement machinery, power boilers, material handling equipment and a large number of consumer durables.
The Indian economy has been growing at over 8% annually over the last few years. Industry and manufacturing have played a major role in contributing to this growth. Industry recorded 9.6% growth in 2005-06 while manufacturing grew by 9.1% during the period. The figures reached 10.9% and 12.3%, respectively during 2006-07. There is a global slowdown now and the economy is likely to cool off. But Indian industry is likely to make steady growth during 2008-09 and 2009-10.
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Evolution of Industrial Policy
Independent India’s industrial policy was first announced in 1948. This envisaged a mixed economy with an overall responsibility of the government for planned development of industries and their regulation in the national interest. While it reiterated the right of the state to acquire any industrial undertaking in public interest, it reserved an appropriate share for private enterprise.
The policy was revised in 1956 following Parliament’s acceptance in 1954 of a socialistic pattern of society as the national objective. Under the revised policy, industries specified in Schedule A were to be the exclusive responsibility of the state, while industries specified in Schedule B were to be progressively state-owned, but private enterprise was expected to supplement the efforts of the state in these fields.
Future development of industries falling outside the two schedules would, in general, be left to private enterprise. Notwithstanding this demarcation, the policymakers said, it would always be open to the state to take over any type of industrial production, subject to payment of compensation.
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Industrial Licensing
An important objective of the industrial policy was to prevent the emergence of private monopolies and concentration of economic power in the hands of a small number of individuals. This problem was studied by the Mahalanobis Committee on Distribution of Income and Levels of living (1960) the Monopolies Enquiry Commission (1964), and the Industrial Licensing Policy Enquiry Committee (ILPIC) (1967).
The Administrative Reforms Commission and the Planning Commission also made various recommendations. As a result, the Monopolies and Restrictive Trade Practices (MRTP) Act was passed in 1969 and under the Act the Monopoly and Restrictive Trade Practices Commission was appointed in 1970. The Industrial Licensing was modified in 1970 and again in 1973.
The latest modifications reaffirmed that the Industrial Policy Resolution of 1956 would continue to govern the government’s policies in the industrial sphere. All industries of basic and strategic importance or in the nature of public utility services would continue to be in the public sector.
Industries which are essential and would require investment on a scale, which only the state in the present circumstances could provide would also be in the public sector. Some other salient features of the new changes were: A large industrial house for licensing purposes would mean a house having assets, along with assets of inter-connected undertakings (as defined in the MRTP Act, 1969), of not less than Rs. 20 crore as against assets exceeding Rs. 55 crore provided by the ILPIC.
The list of industries which are open for large industrial houses and foreign concerns and subsidiaries and branches of foreign companies along with other applicants, has been consolidated. They cannot, however, participate in the production of any item reserved for the public sector as mentioned in Schedule A or the small scale sector. The Consolidated list covers 19 groups, viz. the following:
1. Metallurgical industries: (i) ferro-alloys, (ii) steel castings and forgings, (iii) special steels, and (iv) non-ferrous metals and their alloys.
2. Boilers and steam generating plants.
3. Prime movers (other than electrical generators) covering (i) industrial turbines, and (ii) internal combustion engines.
4. Electrical equipment: (i) equipment for transmission and distribution of electricity, (ii) electrical motors, (iii) electrical furnaces, (iv) X-ray equipment, (v) electronic components and equipment.
5. Transportation: (i) mechanised sailing vessels up to 1,000 dwt (ii) ship ancillaries, and (iii) commercial vehicles.
6. Industrial.
7. Machine tools.
8. Agricultural machines, tractors and power tillers.
9. Earthmoving machinery.
10. Industrial instruments, indicating, recording and regulation devices for pressure, temperature, rate of flow, weights levels, etc.
11. Scientific instruments.
12. Nitrogenous and phosphatic fertilizers falling under the inorganic type in the First Schedule to the ID&R Act, 1951.
13. Chemicals (other than fertilizers) : (i) inorganic heavy chemicals, (ii) organic heavy chemicals, (iii) fine chemicals, including photographic chemicals, (iv) synthetic resins and plastics, (v) synthetic rubbers, (vi) man-made fibres, (Vii) industrial explosives, (viii) insecticides, fungicides, weedicides and the like, (ix) synthetic detergents, and (x) miscellaneous chemicals (for industrial use only).
14. Drugs and pharmaceuticals.
15. Paper and pulp, including paper products.
16. Automobile tyres and tubes.
17. Plate glass.
18. Ceramic: (i) refractories, and (ii) furnace lining bricks acidic, basic and neutral.
19. Cement products: (i) Portland cement, and (ii) asbestos cement.
The Industrial Policy initiatives undertaken by the government since July 1991 have been designed to build on the past industrial achievements and to accelerate the process of Indian industry internationally competitive. It recognises the strength and maturity of the industry and attempts to provide the competitive stimulus for higher growth. The thrust of these initiatives has been to increase domestic and external competition through extensive application of market mechanism and facilitating forging of dynamic relationships with foreign investors and supplies of technology. The process of reform has been continuous,
New Industrial Licensing Policy
With the introduction of New Industrial Policy 1991, a substantial programme of deregulation was undertaken. Industrial licensing was abolished for all projects except for a short list of 15 industries relating to security, strategic and environmental concerns. They are: (i) coal and lignite, (ii) Petroleum (other than crude) and its distillation products, (iii) Distillation’ and. brewing of alcoholic drinks, (iv) sugar, (v) animal fats and oils; (vi) cigars and cigarettes of tobacco and manufactured tobacco substitutes, (vii) asbestos and asbestos-based products, (viii) plywood, veneers of all types and other wood-based products such as particle board; medium-density fibre board and blackboard, (ix) tanned or dressed fur skins, chamois leather, (x) paper and newsprint except bagasse-based units, (xi) electronic aerospace and defence equipment; all types, (xii) Industrial explosives, including detonating fuse, safety fuse, gun powder, nitrocellulose and matches, (xiii) hazardous chemicals, (xiv) drugs and pharmaceuticals (according to drug policy), (xv) entertainment electronics (VCDs, colour TVs, CD players, tape recorders).
The Monopolies and Restrictive Trade Practices Act has been amended to eliminate the need to seek prior governmental approval for expansion of present industrial units and establishment of new industries by large companies.
The system of phased manufacturing programme which was designed to enforce progressively greater degrees of local content has been abolished. Industrial location policies have been substantially changed so that industrial location is discouraged only in large cities because of environmental reasons.
A significant number of industries were previously reserved for the public sector. Now no manufacturing sector is reserved except for petroleum and defence equipment. The areas reserved for public sector are: (i) arms, ammunition and allied items of defence equipment; defence aircrafts and warships, (ii) atomic energy, (iii). coal and ignite, (iv) mineral oils, (v) minerals specified in the Schedule to the Atomic Energy (Control of Production and Use) Order 1953, and (vi) railway transport. Even in these “areas private sector participation can be invited on a discretionary basis.
Under the new policy, existing units will be permitted to manufacture any new article without additional investment if the article is not subjected to compulsory licensing. This facility will be available without reference to any locational condition. This is an additional facility to existing units.
Under the provisions of exemption from licensing for substantial expansion, existing units can in any case manufacture any new article not covered by compulsory licensing or their substantial expansion, the only requirement would be that the industrial undertaking shall file a memorandum in prescribed form to the Secretariat for industrial approval in the Ministry of Industry.
Common Minimum Programme in Industry
The Government of India decided to maintain 12 % annual growth in the industry, calling it a Common Minimum Programme, as it felt that there was a good scope for public investment as well as private investment. The nation needs and has the capacity to absorb $ 10 billion a year as foreign direct investment. Suitable credit and taxation policies are being devised to ensure that the bulk of new investments, both domestic and foreign, will be channelled into the core and infrastructural sectors. Entry of multinational companies into low priority areas will be discouraged through suitable fiscal and other measures.
New incentives and policies will be devised to encourage new industries to be located in the backward districts of the country. An independent Commission will hear and determine tariff disputes as well as recommend appropriate levels of tariffs for different products and different industries keeping in view the larger interests of the country.
A Disinvestment Commission has been appointed to direct PSU shares in an orderly and optimum manner. An Expenditure Commission is to be set up to ensure that government money is not wasted on unproductive projects.
The Government has introduced a wide range of policies and programmes to support the development of small scale sector. An extensive institutional support network has been created to encourage small scale industries.
These include assistance in marketing through Small Scale Industries Development Corporations at the Union and the State levels, provision of consultancy services, training, common facility services, entrepreneurship training, etc.
Apart from the infrastructural support to the small scale sector, Government has invariably pursued a policy of according protection and purchase preference to the small scale sector.
The Public Sector
Government policy towards public sector has been clarified in the Common Minimum Programme. While the focus of the Economic Policy is growth with social justice, the government has emphasised that the public sector will continue to be an important component of Indian industry.
The need for making the public sector strong and competitive has been brought into sharper focus. Sick or potentially sick public sector companies will be rehabilitated through a menu of options. One of the major policy initiatives taken by the government is the establishment of a Disinvestment Commission which will advise the government on steps to be taken in the matter of sick companies.
The revenues generated from disinvestment will be utilized in two vital areas, namely health and education, particularly in the poorer and backward districts of the country. A part of such revenue will also be earmarked to create an investment fund to be utilized for strengthening other public sector enterprises.
The Disinvestment Commission came into being on August 23, 1996. Sixty sick enterprises have been referred to the Board for Industrial and Financial Reconstruction (BIFR) for formulation of revival/rehabilitation scheme. A master plan has been under implementation for reforming the enterprises under administrative control of the Ministry of Industry.
Professionaiisation of Board of Directors of Public Enterprises is another thrust area in the Common Minimum Programme. In this context, the Boards of Directors of PSUs have been reconstituted to induct outside experts.
In order to reduce governmental interference in the activities of the PSUs, the administrative ministries/departments have been asked to reduce the number of official nominee directors to the barest minimum, limited to a maximum of two.