Planning of the nation’s resources was the basic strategy adopted to steer the economy on a desired path towards development. In addition to the presence of a large public sector in industry, the government had an elaborate system of regulation and control for the private sector through promulgation of various Acts.
Industries in the private sector were regulated by the provisions of the Industries (Regulation and Development) Act, 1951. Secondly, to prevent the growth of private monopolies and the concentration of economic power, the government enacted the Monopolies and Restrictive Trade Practices Act in 1969.
Thirdly, in order to regulate the import of inputs and final goods, the Foreign Exchange Regulation Act (FERA) was enacted in 1973. Government regulations were not only for industry, but also for agriculture, finance and foreign trade sectors.
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The government kept with itself key infrastructure, core and heavy industries. For private industry, an entrepreneur had to obtain a license to invest, or expand capacity, or change output mix, or relocate his industry.
In the external sector, there was the exchange control system under which exporters had to surrender export earnings to the Reserve Bank of India at the official exchange rate and take earnings in domestic currency. There was import licensing under which a firm had to obtain permission to import raw materials or capital inputs or consumer goods.
For the capital markets (markets for financial assets like equity shares and debentures), if a company wanted to float shares or borrow funds by offering debt instruments, there was capital issues control under which access to debt and equity markets was regulated. Other than this, there was price control on several consumption goods and key inputs such as coal, iron, petroleum, etc.
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There were several types of control that were put in place: industrial licensing system; exchange control system; import licensing; capital issues control; price controls; and other ad- hoc measures and controls for ‘priority sectors’. After nationalisation, banks were subjected to directed and selective credit controls, controls on deposit and lending rates, and various types of reserve requirements.
These controls were discretionary, rather than rule- based and regular. Allocation was mainly in the form of quantity restrictions rather than price or market- based. Moreover, these controls were anticipatory rather than being used for punishing for noncompliance. Many of these controls worked at cross- purposes and tended to compound delays and inefficiencies. Most of these controls, moreover, did not fulfil the objectives for which they were implemented.