Industrial Policy Before 1991

In one line

For forty three years India decided by permit who could build a factory, how large it could be and what it could make, and reserved the most important industries for the State.

In the wording a student can write in an exam: the industrial policy regime before 1991 rested on the Industrial Policy Resolutions of 1948 and 1956 and on the Industries (Development and Regulation) Act 1951, under which industries were classified into categories reserved for the State, developed progressively by the State, and left to private initiative, and under which no private undertaking could be established or substantially expanded without a licence; it was reinforced by the reservation of products for the small scale sector, by control of large houses under the Monopolies and Restrictive Trade Practices Act 1969, and by an import substituting trade policy.

The Industrial Policy Resolution 1948

The first statement of independent India's industrial policy. It divided industry between the State and private enterprise, reserving arms and ammunition, atomic energy and railway transport as a State monopoly, and identifying a group of basic industries in which new units would be established by the State. The rest was left to private enterprise under regulation.

The Industrial Policy Resolution, 30 April 1956

The central document of the whole era, and the one a question is really about.

Its reasoning. The Resolution records that the Government decided "to classify industries into three categories, having regard to the part which the State would play in each of them", adding that the categories would inevitably overlap and that "too great a rigidity might defeat the purpose in view", and that "it is always open to the State to undertake any type of industrial production".

The three schedules.

• Schedule A: industries the exclusive responsibility of the State. Seventeen industries, including arms and ammunition, atomic energy, iron and steel, heavy machinery, heavy electrical plant, coal, mineral oils, mining of specified ores, aircraft, air transport, railway transport, shipbuilding, telephones and telegraph equipment, and generation and distribution of electricity.
• Schedule B: industries in which the State would progressively take the lead, private enterprise being expected to supplement State effort. The Resolution's own words are that in the second category the State will establish new undertakings while "private enterprise will also have the opportunity to develop in this field, either on its own or with State participation".
• The third category: all remaining industries, whose development would "ordinarily" be undertaken through the initiative and enterprise of the private sector, "though it will be open to the State to start any industry even in this category".

Two further features to name. The Resolution stressed the role of cottage, village and small scale industries, on the ground that they provide immediate large scale employment. And it committed the State to reducing regional disparities by locating public undertakings in backward areas.