new industrial policy - meaning , objectives , significance and challenges .
New industrial policy
Meaning – govt. action to influence the ownership & structure of the industry and its performance. It includes procedures, principles, policies, rules and regulations, incentives and punishments, the tariff policy, the labour policy, government’s attitude towards foreign capital, etc.
Objectives
§ to maintain a
sustained growth in productivity;
§ to enhance gainful
employment;
§ to achieve optimal
utilisation of human resources;
§ to attain
international competitiveness; and
§ to transform India
into a major partner and player in the global arena.
Timeline
of industrial policy reform
Industrial Policy Resolution, 1948
- It declared the Indian economy
as Mixed Economy
- Strategic
Industries (Public Sector): It
included three industries in which Central Government had monopoly. These
included Arms and ammunition, Atomic energy and Rail transport.
- Basic/Key
Industries (Public-cum-Private Sector): 6
industries viz. coal, iron & steel, aircraft manufacturing,
ship-building, manufacture of telephone, telegraph & wireless
apparatus, and mineral oil were designated as “Key Industries” or “Basic
Industries”.
- These
industries were to be set-up by the Central Government.
- However,
the existing private sector enterprises were allowed to continue.
- Important
Industries (Controlled Private Sector): It
included 18 industries including heavy chemicals, sugar, cotton textile
& woollen industry, cement, paper, salt, machine tools, fertiliser,
rubber, air and sea transport, motor, tractor, electricity etc.
- These
industries continue to remain under private sector however, the central
government, in consultation with the state government, had general
control over them.
- Other
Industries (Private and Cooperative Sector): All other industries
which were not included in the above mentioned three categories were left
open for the private sector.
- Small scale
and cottage industries were given the importance
- The government restricted
foreign investments
Industrial Policy Resolution, 1956 (IPR 1956)
- This policy laid down the basic
framework of Industrial Policy
- This policy is also known as
the Economic Constitution of India
It
is classified into three sectors
- Schedule A – which covers
Public Sector (17 Industries)
- Schedule B – covering Mixed
Sector (i.e. Public & Private) (12 Industries)
- Schedule C – only Private
Industries
This
has provisions for Public Sector, Small Scale Industry, Foreign Investment. To
meet new challenges, from time to time, it was modified through statements in
1973, 1977, and 1980.
·
The sector was kept under state control through a system
of licenses.
Industrial Licenses § In order to open new
industry or to expand production, obtaining a license from the government was
a prerequisite. § Opening new
industries in economically backward areas was incentivised through easy
licensing and subsidization of critical inputs like electricity and water.
This was done to counter regional disparities that existed in the country. § Licenses to increase
production were issued only if the government was convinced that the economy
required more of the goods. |
Criticism: The IPR 1956 came in for sharp criticism from the private
sector since this Resolution reduced
the scope for the expansion of the private sector significantly.
Industrial Policy Statement, 1977
- This policy majorly focused on
Decentralisation
- It gave priority to small scale
Industries
- It created a new unit called
“Tiny Unit”
- This policy imposed
restrictions on Multinational Companies (MNC).
Criticism: The industrial
Policy 1977, was subjected to serious criticism as there was an absence of
effective measures to curb the dominant position of large scale units and the
policy did not envisage any socioeconomic transformation of the
economy for curbing the role of big business houses and
multinationals.
Industrial Policy Statement, 1980
- The Industrial Policy Statement
of 1980 addressed the need for promoting competition in the domestic
market, modernization, selective Liberalization, and technological
up-gradation.
- Due to this policy, the MRTP
Act (Monopolies Restrictive Trade Practices) and FERA Act (Foreign
Exchange Regulation Act, 1973) were introduced.
- The objective was to liberalize
the industrial sector to increase industrial productivity and
competitiveness of the industrial sector.
- The policy laid the foundation
for an increasingly competitive export-based and for encouraging foreign
investment in high-technology areas.
New Industrial Policy, 1991
The
New Industrial Policy, 1991 had the main objective of providing facilities to
market forces and to increase efficiency.
Larger
roles were provided by
- L – Liberalization (Reduction
of government control)
- P – Privatization (Increasing
the role & scope of the private sector)
- G – Globalisation (Integration
of the Indian economy with the world economy)
Because
of LPG, old domestic firms have to compete with New Domestic firms, MNC’s and
imported items
The
government allowed Domestic firms to import better technology to improve
efficiency and to have access to better technology. The Foreign Direct
Investment ceiling was increased from 40% to 51% in selected sectors.
The
maximum FDI limit is 100% in selected sectors like infrastructure sectors.
Foreign Investment promotion board was established. It is a single-window FDI
clearance agency. The technology transfer agreement was allowed under the
automatic route.
Phased
Manufacturing Programme was a condition on foreign firms to reduce imported
inputs and use domestic inputs, it was abolished in 1991.
Under
the Mandatory convertibility clause, while giving loans to firms, part of the
loan will/can be converted to equity of the company if the banks want the loan
in a specified time. This was also abolished.
Industrial
licensing was abolished except for 18 industries.
Monopolies
and Restrictive Trade Practices Act – Under his MRTP commission was
established. MRTP Act was introduced to check monopolies. The MRTP Act was relaxed
in 1991.
On
the recommendation of the SVS Raghavan committee, Competition Act 2000 was
passed. Its objectives were to promote competition by creating an enabling
environment.
Review
of the Public sector under this New Industrial Policy, 1991 are:
- Public sector investments
(Disinvestment of Public sector)
- De-reservations –Industries
reserved exclusively for the public sector were reduced
- Professionalization of
Management of PSUs
- Sick PSUs to be referred to the
Board for Industrial and financial restructuring (BIFR).
- The scope of MoUs was
strengthened (MoU is an agreement between a PSU and concerned ministry).
Features of New Industrial Policy
§ De-reservation of
Public sector: Sectors
that were earlier exclusively reserved for public sector were reduced. However,
pre-eminent place of public sector in 5 core areas like arms and ammunition,
atomic energy, mineral oils, rail transport and mining was continued.
o Presently, only two
sectors- Atomic Energy and Railway operations- are reserved
exclusively for the public sector.
§ De-licensing: Abolition of
Industrial Licensing for all projects except for a short list of industries.
o There are only 4
industries at present related to security, strategic and environmental
concerns, where an industrial license is currently required-
·
Electronic aerospace and defence equipment
·
Specified hazardous chemicals
·
Industrial explosives
·
Cigars and cigarettes of tobacco and manufactured tobacco
substitutes
§ Disinvestment of
Public Sector: Government
stakes in Public Sector Enterprises were reduced to enhance their efficiency
and competitiveness.
§ Liberalisation of Foreign
Investment: This was the
first Industrial policy in which foreign companies were allowed to have
majority stake in India. In 47 high priority industries, upto 51% FDI was
allowed. For export trading houses, FDI up to 74% was allowed.
o Today, there are
numerous sectors in the economy where government allows 100% FDI.
§ Foreign Technology
Agreement: Automatic
approvals for technology related agreements.
§ MRTP Act was amended to
remove the threshold limits of assets in respect of MRTP companies and dominant
undertakings. MRTP Act was replaced by the Competition Act 2002
Why were Economic reforms introduced in India?
Economic
reforms were introduced in India because of the following reasons:
Poor
performance of the public sector
- Public
sector was given a role important in development policies during
1951-1990.
- However
the performance of the majority of public enterprises was disappointing.
- They
were incurring huge losses because of inefficient management.
Adverse
BoP Or Imports exceeded exports
- Imports
grew at a very high rate without matching the growth of exports.
- Government
could not restrict imports even after imposing heavy tariffs and fixing
quotas.
- On
the other hand, Exports was very less due to the low quality and high
prices of our goods as compared to foreign goods.
Fall
in foreign exchange reserves
- Foreign
exchange (foreign currencies) reserves, which government generally
maintains to import petrol and other important items, dropped to levels
that were not sufficient for even a fortnight.
- The
government was not able to repay its borrowings from abroad.
Huge
debts on government
- Government
expenditure on various developmental works was more than its revenue from
taxation etc.
- As
a result, the government borrowed money from banks, public and
international financial institutions like IMF etc.
Inflationary
pressure
- There
was a consistent rise in the general price level of essential goods in the
economy.
- To
control inflation, a new set of policies were required.
Terms
and conditions of world bank and IMF
- India
received financial help of $7 billion from the World Bank and IMF on an
agreement to announce its New Economic Policy.
New industrial policy , 2018
The New Industrial
Policy ( National Industrial Policy ) aims to create jobs over the next two
decades, promote foreign technology transfer and attract $100 billion FDI
annually.
Aim
- It
subsumes the National Manufacturing Policy.
- It
primarily aims at making India a manufacturing hub.
- The
Department of Industrial Policy and Promotion, the nodal body for the new
Policy, has floated a discussion paper inviting feedback.
- Focus
groups, with members from government departments, industry associations,
academia, and think tanks have been set up to look into the challenges
faced by the industry.
- Six
thematic focus groups include
manufacturing and MSME, technology and innovation, ease of doing business,
infrastructure, investment, trade and fiscal policy, skills and
employability.
- Besides,
a Task Force on Artificial Intelligence for India’s
economic transformation has also been constituted to provide inputs for
the policy.
Objectives
·
It is time to shift from a policy of continuity to radical and
accelerated reforms for greater strategic engagement with the world, i.e., it
is time to Reform, Perform and Transform.
·
A comprehensive, actionable, outcome-oriented industrial policy
will enable Industry to deliver a larger role in the economy; to fulfil its
role as the engine of growth and to shoulder the responsibility of adding more
value and jobs.
Major concerns
- Inadequate
infrastructure: Rapid
growth of the economy has put further stress on infrastructure. Lack of
quality industrial infrastructure has resulted in high logistics cost and
has in turn affected cost competitiveness of Indian goods in global
markets.
- Restrictive
labour laws: The
labour laws have been overly protective of the labour force in the formal
sector. Though labour protection and security are required, the flipside
is that it discourages employers from hiring workers on a regular basis.
It has probably also led to entrepreneurs choosing to stay away from
labour-intensive sectors.
- Complicated
business environment: Complex
and time taking business processes and clearances have been a disincentive
for businesses.
- Slow
technology adoption: Indian
industry has been a slow adopter of new and advanced technologies.
Inefficient technologies led to low productivity and higher costs adding
to the disadvantage of Indian products in international markets.
- Low
productivity: Workers
in India are overwhelmingly employed in low productivity and low wage
activities. Productivity as measured by the value-added per worker and
average wages in manufacturing in India is only one-third of that in
China.
- Challenges
for trade: Manufacturing
sector especially exporters are facing challenges of stagnant/shrinking
global demand and rising protectionist tendencies around the world. Indian
MSME sector is particularly facing tough competition from cheap imports
from China and FTA countries.
- Inadequate
expenditure on R&D and Innovation: Investments in these areas is
essential to ensure growth in the industry. Public investments have been
constrained and private investment is not forthcoming as these involve
long gestation periods and uncertain returns.
Policy proposals
It proposes to incorporate a range of measures for the
following:
- Facilitating
the use of smart technologies such as the internet of things (IoT),
artificial intelligence (AI) and robotics for advanced manufacturing.
- Increasing
the number of global Indian firms helping attract inward FDI and
supporting outward FDI to assert Indian presence in world markets.
- Addressing
the problem of low job creation in the formal sector.
- Enhancing
industrial competitiveness
- Developing
alternatives to banks and improving access to capital for MSMEs through
options like the peer to peer lending and crowdfunding.
- Providing
a credit rating mechanism for MSMEs.
- Addressing
the problems with duty structure and also balancing it against obligations
under multilateral or bilateral trade agreements.
- Studying
the impact of automation on jobs and employment.
- Ensuring
minimal/zero waste from industrial activities and targeting certain
sectors to radically cut emissions.
- Reviewing
the FDI policy to ensure that it facilitates greater technology transfer,
leverages strategic linkages and innovation.
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