Industrial Policy pre-1991

📘 Industrial Policy Resolution of 1948

Let’s start from the beginning — 1948. India had just become independent, and the government had to answer a critical question:
“What should be the role of the State in industrial development?”

So, in 1948, India announced its first Industrial Policy Resolution, and this document laid down the broad guiding principles for industrial development.

Here are some of the key highlights of 1948 Industrial policy resolution:

1. State as Entrepreneur + Regulator

The government made it clear that it will play a dual role:

• As an entrepreneur (i.e., owner and operator of industries), and
• As an authority (i.e., regulator of private industries).

This policy marked the birth of a Mixed Economy Model in India — a blend of capitalism and socialism:

“Neither pure private control, nor full state ownership — a balance.”

2. Classification of Industries:

This is crucial. Industries were divided into four categories:

i. Strategic Industries (Public Sector Only):

🔒 These were sensitive and of national security importance.
Only the Central Government could operate them.

• Examples:
  1. Arms and Ammunition
  2. Atomic Energy
  3. Rail Transport

🧠 Why? Because allowing private hands in such sectors could risk national interests.

ii. Basic/Key Industries (Public-cum-Private Sector):

⚙️ These industries were fundamental to economic infrastructure.

• 6 key industries like:
  1. Coal
  2. Iron & Steel
  3. Aircraft manufacturing
  4. Shipbuilding
  5. Telecom equipment (telephone, telegraph)
  6. Mineral oil

✅ These were to be developed by the government, but existing private companies were allowed to operate.

iii. Important Industries (Controlled Private Sector):

🏭 These industries were kept in private hands, but under government regulation.

• Examples include:
  Sugar, Cement, Fertiliser, Rubber, Transport, Machine Tools, etc.

🧠 Control was important to avoid monopolies and ensure fair practices.

iv. Other Industries (Private & Cooperative):

🔓 All industries not in the above 3 categories were left open to private and cooperative sectors with minimal government interference.

✅ Legal Backbone:

To implement this framework, the government passed a key law in 1951: The Industries (Development and Regulation) Act, 1951

📘 Industrial Policy Resolution of 1956

After experimenting with the 1948 policy, and inspired by the Second Five-Year Plan, the government brought a revised policy in 1956.

This was more socialist in nature and laid the real foundation of India’s industrial structure till the liberalisation of 1991.

🔹 Importance:

It was famously called:

• “The Economic Constitution of India”, and
• “The Bible of State Capitalism”

🔹 Key Features:

1. Strengthening the Public Sector:

The policy promoted the expansion of public sector enterprises — not only in strategic areas but also in many other vital sectors.

2. Controlling Private Sector:

The idea was to discourage monopolies, and to promote cooperatives, and even separate ownership from management in private firms — to ensure democratic control.

3. Classification of Industries – 3 Schedules:

To operationalise its strategy, industries were divided into three schedules:

📘 Schedule A – Exclusively for the State (17 industries)

• Government would have full control.
• Of these, 4 were monopolised by the Central Government:
  • Arms & Ammunition,
  • Atomic Energy,
  • Railways,
  • Air Transport.
• The remaining 13 could be developed by State Governments.

📘 Schedule B – Mixed Sector (12 industries)

• Open to both public and private sector, but
• Government would aim for progressive state ownership.

📘 Schedule C – Private Sector

• All other industries not in A or B.
• These were open to private initiative,
• BUT the State still reserved the right to intervene or enter anytime.

🔹 Additional Emphases:

🧶 Cottage and Small-Scale Industries

• Seen as a way to promote employment and decentralisation of economic power.
• Encouraged across rural and semi-urban areas.

🤝 Industrial Peace

• Fair wages and better worker rights were promoted in line with democratic socialism.

❗Criticism:

This policy came under sharp criticism from the private sector, mainly because:

• The scope for private sector expansion was significantly curtailed.
• Government tightened control through a licensing system.

🎫 Industrial Licensing System

To understand the restrictive environment, we must understand Industrial Licensing, also called the License Raj.

✅ What was it?

To open or expand any industry, one had to get a license from the government.

🧠 Objectives:

1. Prevent overproduction and monopolies.
2. Direct investment to economically backward areas:
   • Easier licenses,
   • Subsidised electricity and water.
3. Ensure that production matched demand.

🧩 If the government didn’t see a national economic need, it could deny the license — even if the entrepreneur had the capital and plan.

Now, let’s summarise what we have read till now i.e. the Industrial policies of 1948 and 1956:

Feature	IPR 1948	IPR 1956
Economic Model	Mixed Economy	Strengthened State Capitalism
Public Sector Role	Entrepreneur + Regulator	Expanded significantly
Industry Classification	4 Categories	3 Schedules
Private Sector Scope	Reasonable	Severely Limited
Legal Support	IDRA, 1951	Licensing System
Ideological Focus	Balanced Approach	Democratic Socialism
Influence Period	1948–1956	1956–1991

Now, let’s continue with our discussion on Evolution of Industrial Policies and next in the line is:

📘 Industrial Policy Statement, 1977

(Announced by Janata Government)

🔹 Background:

After the Emergency, the new Janata Government (1977) came with a different ideological tilt — one that emphasized Gandhian values, rural upliftment, and self-reliance through small industries.

🔹 Key Features:

1. Focus on Small and Cottage Industries:

The heart of this policy was to promote employment-generating small industries — especially in rural areas and small towns.

• The sector was divided into three groups:
  1. Cottage and Household Industries – mostly hand-based and family-run,
  2. Tiny Sector – with low capital investment,
  3. Small Scale Industries (SSIs) – more organized but still small in scale.

🧠 Why? Because these sectors were labour-intensive, and ideal for a job-hungry economy like India’s.

2. Limited Role for Large Industries:

The policy confined large industrial houses to certain areas:

• Basic industries (like steel),
• Capital goods (like machinery),
• High-tech industries,
• Any other area not reserved for small-scale.

The idea was to prevent monopolies and ensure market diversity.

3. Labour-Friendly Approach:

This policy encouraged workers’ participation in management, from the ground level (shop floor) to top-level boards, to reduce labour unrest.

❗Criticism:

Despite good intentions, this policy was criticized because:

• It did not effectively check monopolies, and
• It failed to offer a clear roadmap for socio-economic transformation or for managing multinationals.

📘 Industrial Policy of 1980

(Under Indira Gandhi’s Government)

This policy was more pragmatic and a shift back toward centralized economic control and industrial revival.

🔹 Key Elements:

• Promoted the idea of “Economic Federation” — a balance between Centre and States in industrial growth.
• Tried to revive industrial production, which had been sluggish during the Janata rule.
• Reaffirmed faith in:
  • MRTP Act (Monopolies & Restrictive Trade Practices),
  • FERA (Foreign Exchange Regulation Act) – which controlled foreign investment and exchange.

🧠 Takeaway: This was a course correction — combining state control with the need to push growth.

Now, in the next section we will discuss about the turning point in the Indian Economic history i.e. the New Industrial Policy of 1991.