A number of new developments had taken place since the formulation of the 1948 policy. These developments included the adoption of the constitution of India, successful implementation of First Five year Plan (1951-55), formulation of Second Five year plan with greater thrust on industrialisation, adoption of a socialist pattern of society (Avadi session) as the goal of economic and social policy.
These, necessitated the announcement of a new Industrial Policy of 1956 replacing the Industrial Policy of 1948. The IPR of 1956 is popularly referred to as the economic constitution of the country.
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Under the new policy, industries were classified into three categories.
(a) Schedule A:
Industries which were to be exclusive monopolies of the state- 17 industries were included in this category. They were arms and ammunition, atomic energy, iron and steel, heavy casting, heavy machinery, heavy electrical industries, coal, iron ore, mineral oils, minerals like copper, iron and zinc, aircrafts, air and railway transport, generation and distribution of electric energy, telephone, telegraph and wireless equipment, shipbuilding etc.
(b) Schedule B:
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These which were to be progressively state owned and in which the state would gradually setup new undertakings- 12 industries were included in this category. Other mining industries, aluminium and other non-ferrous metals not included in schedule A; machine tools, ferro-alloys and tool steels, chemical industry, antibiotics and other essential drugs, fertilizer, synthetic rubber, carbonisation of coal, chemical pulp, road transport and sea transport.
(c) Schedule C:
All other remaining industries and their development were left to the private sector- But it was specified that the state reserved the right to nationalise an industry in case public interests so demanded.
It was made clear that the above categories were not to be treated as water-tight compartments overlapping; flexibility and mutual cooperation between public and private sector were not ruled out. The mixed economy idea and philosophy was reiterated.
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The state would provide development incentives and facilities to the private sector and expect it to conform itself to national priorities and state policy of regulation.
Just like the 1948 Resolution, the 1956 Resolution recognised the critical role of small scale and cottage industries and the need for positively encouraging their healthy development in coordination with large scale industries.
Industrial Policy Resolution, (IPR) of 1956 stressed the need for reducing regional disparities. Special steps were proposed for development of industries in backward regions through better infrastructures and other measures through entire country.
IPR of 1956 intended to improve the working and living condition 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.
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.
IPR 1956 also contemplated to develop technical and management education and training facilities to meet the growing needs for technical and managerial personnel for industrial units.
IPR of 1956 emphasised the need for foreign capital, but maintained that the major interest in ownership and effective control should always remain in Indian hands.
A misconception of the IPR of 1956 was that the state hung the Damocles sword over the private sector by stating that it would take over any undertaking or industry, if it considered being in national interest. However, this fear was based on a totally incorrect understanding of the IPR.
No doubt, the IPR of 1956 gave the state a dominant role to play in the process of industrialisation but it also emphasised to the importance of coexistence and cooperation between public and private sector.
Although the Private sector was assigned a role of a junior partner, later development by the Industrial Policy Inquiry Committee (1969) indicated that under one pretext or another, several areas reserved for the public sector was opened to the private sector.
For instance, aluminium industry was in the public sector, but in practice, the entire development was permitted in the private sector under IPR, 1956, Private sector zoomed forward along with public sector expansion.