Industrial Policy and Industrial Licensing Notes Study Material
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Industrial Policy and Industrial Licensing Notes Study Material
During the British rule in India, Government policy towards industry and business was indifferent. The first century of British rule witnessed the decline of nearly all indigenous industries for many reasons-technological, economic and political. When India become independent in 1947, per capita income stagnated at a partly some of 40 per annum. More than three-fourth of population was living below the poverty line. Basic infrastructural facilities required for industrialization were highly inadequate. The industrial base was low except in certain consumer industries like, Jute, Cotton, Sugar, Steel etc.
After independence, the industrial climate was full of uncertainties regarding the likely policy of the Government of India. Therefore, investment was not forthcoming whether domestic or foreign. The workers and general public had great expectations from the government. Therefore, to clear these ideas Industrial Conference was convened in December 1947 in which great stress was laid on growth and development of industries.
MEANING AND OBJECTIVES OF INDUSTRIAL POLICY
The term “Industrial Policy” refers to the government’s policy towards industries-their establishment, functioning, growth and management. In other words, Industrial Policy means rules, regulations, principles, policies and procedures laid down by government for regulating, developing and controlling industrial undertakings in the country. It is an important document which lays a wide canvas and sets the tone for implementing promotional and regulatory roles of the government. It is equally helpful to industrialist and others for deciding area and priorities of their investment.(Industrial Policy & Licensing Notes Study Material)
After independence, the government of India has formulated policies for industrial growth and development. For regulating these industrial policies, adequate measures were also adopted by way of industrial licensing policies. The industrial policy has no legal sanction and as such its violation cannot be challenged in a court. But it has justification for existence.
A number of objectives have been projected by Government of India white making industrial policy declarations from 1948 onwards. Some of the importan objectives are mentioned as below:
(i) Achieving a socialistic pattern of society.
(ii) Preventing undue concentration of economic power.
(iii) Achieving industrial growth.
(iv) Reducing disparities in regional development.
(v) Developing heavy and capital goods industries.
(vi) Providing opportunity for gainful employment.
(vii) Alleviating poverty.
(viii) Achieving faster economic growth.
(ix) Protecting and developing a healthy small-scale sector.
(x) Building up a large and growing co-operative sector.
(xi) Upgrading technology and modernization of industry.
(xii) Achieving a self-sustained economy.
INDUSTRIAL POLICY RESOLUTION OF 1948
The first industrial policy was declared on April 6, 1948 by the Union Industry Minister Mr. Shyama Prasad Mukkerjee. This policy established a base for mixed and controlled economy in India and clearly divided the industrial sector into private and public sectors.
Following were the main features of the 1948 Industrial policy:
- Acceptance of the Importance of both Private and Public Sectors: The industrial policy resolution accepted the importance of both public and private sectors in Indian economy. It assigned a progressively active role to the state.
- Division of Industrial Sector: The resolution divided industries into four categories:(Industrial Policy and Industrial Licensing Notes Study Material)
(i) Industries where state had a monopoly like, Arms and ammunition, atomic energy and rail transport.(Industrial Policy & Licensing Notes Study Material)
(ii) Mixed sector: In this category 6 industries were specified-coal, iron and steel, aircraft manufacture, ship building, manufacture of telephone, telegraph and wireless apparatus and mineral oil.
(iii) The field of Government Control: For these industries government regulation and direction was necessary-automobiles, heavy chemicals, heavy machinery, machine tools, fertilizer, electrical engineering, paper, cement, sugar, cotton and woolen textiles.(Industrial Policy and Industrial Licensing Notes Study Material)
(iv) The field of Private Enterprises: All other industries (not included in the above three categories) were left upon to the private enterprises/sector.
- Role of Small and Cottage Industries: The policy recognize the importance of small-scale and cottage industries for employment generation and dispersal of industries.(Industrial Policy and Industrial Licensing Notes Study Material)
- Participation of Foreign Capital: The role and importance of foreign capital and enterprise was recognised particularly as regards to industrial Technical knowledge. However, foreign capital was expected to be a minor partner. It was also provided that Indian personnel should be trained. So that they may replace foreign technicians.
- Industrial Relations: The industrial policy emphasised that there should De congenial industrial relation and work environment. It was emphasised that fair remuneration should be paid and good working condition be created to avoid industrial disharmony.(Industrial Policy & Licensing Notes Study Material)
After the declaration of the industrial policy resolution of 1948, a number of changes took place in the country. In 1951, India has been entered in an organised planning era by objective of the establishment of socialistic pattern of the society. In national policy, public sector was assigned the task of rapid economic development. All these aspects facilitate the way for a new approach and the second industrial policy resolution was announced on 30th April, 1956.
The basic objectives of the policy included the followings:
(i) Speeding up the process of industrialisation in India.
(ii) To develop heavy and capital goods industries.
(iii) To build up a large and growing private and co-operative sector.
(iv) Expanding an effective public sector.
(v) Preventing private monopolies.
(vi) Developing small-scale, village and cottage industries.
(vii) Participation of worker in management to maintenance of industrial peace.
(vii) Achieving balanced economic growth.
The industrial policy resolution of 1956 provided the broad guidelines and policy framework for a well-planned industrial development. In spite of considerable changes which took place from time to time, this resolution remained the Magna Carta for industrial industry till its replacement by the July 1991 industrial policy.
In the 1956 policy, industries were classified into three categories, viz. Schedule A, Schedule B and Schedule C. Industries in first categories were listed in Schedule “A” included 17 industries as:
Schedule “A”
- Arms and Ammunitions and defense equipments.
- Atomic energy.
- Heavy casting and forging of iron and steel.
- Iron and steel.
- Heavy plant and machinery required for iron and steel production. Mining machinery tools and other basic industries.
- Heavy electrical plant.
- Coal and lignite.
- Mineral oils.
- Mining of iron ore, chrome ore, gypsum, diamond and sulphur.
- Mining and processing of copper, zinc, tin, led, wolfram and molybdenum.
- Minerals as per Atomic Energy Order, 1953.
- Aircraft.
- Air transport.
- Railway transport.
- Telephone and telephone cables, telegraph and wireless, Radio.
- Ship building
- Generation and distribution of electricity.
Schedule “B”
The second category 12 industries were listed in Schedule “B” as:
- Other mineral excepting minor minerals defined in Minerals Concession Rules, 1949 Section (B).
- Aluminum and other non-ferrous metal not included in Schedule “A”
- Ferro alloy and tools steels.
- Machine tools.
- Manufacture of drugs, plastics and other intermediate products required by chemical industries.
- Antibiotics and other essential drugs.
- Fertilizer.
- Synthetic rubber.
- Carbonisation of coal.
- Chemical pulp.
- Road transport.
- Sea transport.
Industries placed under Schedule “A” were treated as the exclusive responsibility of the State. Schedule “B” industries were progressively state owned.
Schedule “C”
Industries were left for private sector, included at the remaining where future development would generally be left to initiative and enterprise in the private sector.(BCom Industrial Policy and Industrial Licensing Notes Study Material)
Thus, Industrial Policy Resolution of 1956, was given a new direction and laid the foundation for industrial development in future.
NEW INDUSTRIAL POLICY, 1991
At the beginning of 90s, India’s economic position was very unsatisfactory on all fronts whether foreign exchange, exports, prices, balance of payments and fiscal deficit, led India to a critical economic and financial situation.
On 24th July, 1991, the government announced a new industrial policy. There are several fundamental departures in the new policy.
The most important initiatives are with respect to industrial licensing and registration policies, an end to the monopoly law and a more welcoming approach to foreign investment, apart from reevaluate the role of public sector.
The objectives of the Industrial Policy, 1991 included the followings:
(i) Reducing or minimising the bureaucratic control of industrial economy of India.
(ii) Encouragement to Indian entrepreneurship, promotion of productivity and employment generation.(Industrial Policy & Licensing Notes Study Material)
(iii) Develop of indigenous technology through greater investment in R & D bringing in new technology to help Indian manufacturing units attain world standard.(Industrial Policy and Industrial Licensing Notes Study Material)
(iv) Removing the regulatory system and other weaknesses.
(v) Increasing the competitiveness of industries for the benefit of the common man.(Industrial Policy and Industrial Licensing Notes Study Material)
(vi) Incentives for the industrialisation of backward region.
(vii) Enhanced support to the small-scale sector.
(viii) Streamlining the role of public sector enterprises.
(ix) Protect the interest of worker.
(x) Abolish the monopoly of any sector in any field of manufacture except on strategic or security ground.
(xi) To link Indian economy with global market to make us independent.
In respect of above objectives, the Industrial Policy, 1991 has covered following aspects:
- Industrial Licensing: In tune with the emerging trends of globalisation of business, the Industrial Policy, 1991 initiated a number of measures to liberalise the licensing system in India.
Industrial licensing was abolished for all industries except a list of 18 areas (consisting of many items) presented in schedule “B”. Compulsory licensing is necessary in these areas for various reasons like security, strategic factors, safety aspects, environmental issues etc. The basic aim of the policy was to liberalise industrial sector so as to minimise the bureaucratic restrictions.
- Foreign Investment: New Industrial Policy, 1991 was much liberalised about foreign investment from corporate bodies, individuals and non-resident Indians. High priority has given for heavy investment and advance technology. Direct foreign investment was allowed upto 51 per cent foreign equity. According to a government notification of October 28, 1991, NRIs and OCBs (No-resident Indians and Overseas Corporate Bodies) were allowed to invest up to 100 percent foreign equity in high priority industries like, tourism related industries, oil exploration industry, and advance diagnostic centres with full repatriation benefits. The scheme for upto 100 per cent foreign investment on export-oriented industries and projects for the rival of sick unit also continued.
- Foreign Technology: Under this policy adequate incentive were provided for technology imports to ensure technological competence. Indian Companies were given the freedom to negotiate the term of technology transfer with their foreign collaborators in accordance with their commercial requirements.
Foreign technology agreements in high-priority industries up to 1 crore were given automatic permission. Royalty on domestic sales were allowed at the rate of 5 percent and on exports at the rate of 8 percent, subject to a total payment of upto 8 percent of sales over a period of ten years from the date of agreement or seven years from commencement of production. No permission was required for hiring foreign technicians and foreign testing of indigenously developed technology.
- Public Sector Policy: Industrial Policy, 1991, was offered the priority area for the growth of public sector in future. The identified areas were:
(i) Essential infrastructure goods and services.
(ii) Exploration and exploitation of oil and mineral resources.
(iii) Production of defense equipment.
(iv) Technology development.
(v) Private enterprises were welcomed in such area for providing competitive structure.(Industrial Policy and Industrial Licensing Notes Study Material)
In the connection of public sector enterprises which are loss making units, the government realised that the time had now come to evaluate the actual contribution of the public enterprises, particularly with reference to its viability.
- Policy Relating to MRTP Act: As per provision of MRTP Act, any firm with assets over a certain size (100 crore since 1985) was classified as MRTP firms and such firms were allowed to start only selected industries on a case by prior approval. But the government of India realised that this Act has bad impact on industrial growth. Thus a new policy came into consideration and more emphasis will be laid on checking unfair trade practices. Finally, the MRTP Act and the Companies Act for pre-entry restrictions on establishment of new undertakings and expansion of the existing ones were abolished in the year 2002 and its place framed much liberal Competition Act, 2002.
- Exclusive Small Sector Policy: Industrial Policy, 1991 introduced an exclusive small sector policy (Govt. of India vide notification of April 2, 1991 and the press note of Aug. 6, 1991) to make small-industry as a vibrant sector to maximise its contribution in terms of growth of output, exports and employment. For this purpose, a considerable magnitude of deregulation was visualised to minimise bureaucratic controls.
It is also allows for equity participation by large industries in the small sector exceeding 24 per cent of their total shareholding. Investment limit of the small industries has been raised to 1 crore so as to enable them to introduce modernization.(Industrial Policy and Industrial Licensing Notes Study Material)
MERITS OF THE 1991 INDUSTRIAL POLICY STATEMENT
The 1991 policy statement is truly historic and liberal. followings are the main merits of 1991 industrial policy statement:
- Abolition of unnecessary Industrial Licensing.
- Acceleration of Industrial Production.
- The liberalisation of the rules relating to Foreign Direct Investment (FDI).
- Increasing performance of PSUs.
- Conducive environment for foreign technology agreements.
- Sound growth of small-sector through easy availability of resources.
- Increase in export through establishment of export-oriented units.
- Reduction in Industrial unrest and enhancement of workers welfare through participative management system.
- Balanced Regional Development through establishment of industries in Backward Regions.(Industrial Policy & Licensing Notes Study Material)
LIMITATIONS OF 1991 POLICY
Some limitations of 1991 policy are:
- There are absence of a mechanism to determine priorities and to develop backward areas.(Industrial Policy & Licensing Notes Study Material)
- The policy is silent about tackling the growing industrial sickness. The government has not announced a clear exit policy for sick units.
- Even with the scrapping of all regulations, the expected foreign investment may not come because of infrastructural deficiencies.
- The policy is drafted at the behest of IMF which means virtual surrender of economic power of the country to a foreign agency.
- Off-loading of 20 per cent equity in profit making public sector units to mutual funds is a profit motive exercise like private sector.
INDUSTRIAL LICENSING
Introduction
In India entry for starting any industry was not subject to industrial licensing till the passing of Industrial Development and Regulation Act in 1951 (IDR Act). The IDR Act made is compulsory to get an industrial license for carrying on business, substantial expansion of existing business, diversification and establishment of new industrial undertakings in all scheduled industries, However, small investment as specified in the Act was given exemption from license and small-scale sector was free from industrial licensing. In year 1969 a new Act Monopoly and Restrictive Trade Practices Act (MRTP Act) has passed and a new dimension was added to industrial licensing by essential requirement of clearance under MRTP Act before licensing under IDR Act.
There was compulsory licensing of all industries except small-scale units till July, 24, 1991 when industrial licensing was abolished except in case of industries reserved exclusively for the public sector and industries requiring industrial license compulsorily.(Industrial Policy & Licensing Notes Study Material)
Meaning
A License is a written permission issued by the Central Government to industrial undertakings to manufacture specified articles included in the schedule. The license further contains the details relating to the location, production capacity, the articles to be manufactured and other relevant particulars. In India, since 1951 industrial licensing has been a important instrument of direct control designed to implement a major part of Industrial policy, through the Industries Development and Regulation Act (IDR Act), 1951.
Objectives of Industrial Licensing
Followings are the basic objectives of Industrial Licensing:
(i) Planned industrial development through appropriate regulations and control.
(ii) Balanced industrial growth and development through establishment of units in backward regions to check regional disparities.
(iii) Directing industrial investment in accordance with plan priorities.
(iv) Ensuring Government control over industrial activities in India.
(v) Preventing concentration of industrial and economic power and monopoly.
(vi) Checking unbalanced growth of industrial establishments and ensuring economic size of industrial units.
(vii) Encouraging healthy entrepreneurship, while discouraging unhealthy competition and restrictive industrial practices.
(viii) Promoting small-scale industries against undue competition of large scale industries.(Industrial Policy and Industrial Licensing Notes Study Material)
(ix) Utilising full capacity of large-scale industries.
(x) Utilising appropriate technology.
(xi) License was necessary to carry on an industrial activity. It is mandatory in respect of starting new units, change in product, manufacturing a new product and expansion of existing unit.
INDUSTIRAL LICENSING ACT, 1951
Industrial licensing became a part of the industrial policy with the passing of Industries Development and Regulation Act (IDR, Act), 1951. The Act seeks to secure a planned and systematic industrial development of the country by regulating, controlling and developing industries that are included in the first schedule to the Act. In this tune Government has taken control over these industries through the Central Advisory Council and Development Council.
This act came into effect on May 8, 1952 and it had three important objectives:
- To implement the industrial policy.
- To ensure regulation and development of important industries.
- To ensure planning and future development of new undertakings.
The Act contains 31 sections which can be broadly classified as:
- Preventive Provisions: Preventive provisions are included three types of provisions, viz. registration and licensing provisions, investigation provisions and revocation of license provisions. Owners of all existing undertakings other than Central Government were expected to get their industrial establishments registered within a stipulated period, according the 10th section of this Act.
Section 11 of the Act stipulated that, no person or authority including a state government (other than the Central Government) shall establish a new industrial establishment without a license issued by the Central Government. while section 11A stipulates that no industrial establishment (other than those owned by the Central Government) registered under section 10 or licensed under section 11 shall produce or manufacture a new product without any license of the central Government. According to the Section 13, no industrial undertakings can make substantial expansion (any expansion exceeding 25% of existing capacity) without a license issued by the Central Government.
- Curative Provisions: Curative provisions include: (1) taking over the management and control of industrial enterprises and (2) control of supply, price and distribution of certain commodities. Section 18 of this Act empowers the Central Government to authorise any person or body of person to take over or control any industrial undertaking if it is confirmed, after investigation, that the concerned undertaking has failed to comply with directions issued under section 16 of this Act.
- Creative Provisions: Creative provisions represent the Central Government concern for co-operation with industry, labour and consumers. Under creative provisions Government formed development councils, collection of cases and central advisory council for any scheduled industry representing the second schedule of the Act also laid down the functions of such councils. Thus, creative measures are:
(i) Formation of Development council
(ii) Leavy and collection cases
(iii) Central Advisory Council
INDUSTRIAL LICENCING POLICY, 1991
Industrial licensing policy is a part of the industrial policy statement 1991. Some important features of the policy are as follows:
(i) Industrial licensing will be abolished for all projects except for a short list of industries related to security and strategic concern, social reasons, hazardous chemicals and overriding environmental reasons, and items of elitist consumption.
(ii) Area where security and strategic concerns predominate will continue to be reserved for the public sector.
(iii) In projects where imported capital goods are required automatic clearance will be given.(Industrial Policy and Industrial Licensing Notes Study Material)
(iv) In locations other than cities of more than 1 million population, there will be no requirement of obtaining industrial approvals from the Central Government except for industries subject to compulsory licensing. In respect of cities with population greater than 1 million, industries other than those of a non-polluting nature such as electronics, computer software and painting will be located outside 25 km of the periphery, except in prior designated industrial area. A flexible location policy would be adopted in respect of such cities (with population greater than 1 million) which require industrial regeneration.
(v) The system of phased manufacturing programmes run on an administrative case by case basis will be applicable to new projects. Existing units will be provided a new broad banding facility to enable them to produce any article without additional investment.
(vii) The exemption from licensing will apply to all substantial expansion of existing units.(Industrial Policy and Industrial Licensing Notes Study Material)
(viii) The mandatory convertibility clause will no longer be applicable for term loans from the financial institutions for new projects. Finally we can say that, after announcement of New Industrial Licensing Policy 1991, the industrial scenario has changed by liberal industrial licensing and ending monopoly and concentration of wealth.(Industrial Policy & Licensing Notes Study Material)
BCom Industrial Policy & Licensing Notes Study Material
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Industrial Policy Notes Study Material