Note: The original
document has been suitably edited to keep it short
and objectives set out for the nation by Pandit Nehru,
India’s first Prime Minister, on the eve of Independence.
- rapid agricultural
and industrial development of India;
- rapid expansion of
opportunities for gainful employment;
- progressive reduction of
social and economic disparities;
- removal of poverty and
- attainment of self-reliance.
as valid today as at the time Pandit Nehru first set them
out before the nation. Any industrial policy must contribute
to the realisation of these goals and objectives at an accelerated
pace. The present statement of industrial policy is inspired
by these very concerns, and represents a renewed initiative
towards consolidating the gains of national reconstruction
at this crucial stage.
In 1948, immediately
after Independence, Government introduced the Industrial
Policy Resolution. This outlined the approach to industrial
growth and development. It emphasised the importance to
the economy of securing a continuous increase in production
and ensuring its equitable distribution. After the adoption
of the Constitution and the socio-economic goals, the Industrial
Policy was comprehensively revised and adopted in 1956.
To meet new challenges from time to time, it was modified
through statements in 1973, 1977 and 1980.
Policy Resolution of 1948 was followed by the Industrial
Policy Resolution of 1956, which had as its objective the
acceleration of the rate of economic growth and the speeding
up of industrialisation as a means of achieving a socialist
pattern of society. In 1956, capital was scarce and the
base of entrepreneurship not strong enough. Hence the 1956
Industrial Policy Resolution gave primacy to the role of
the State to assume a predominant and direct responsibility
for industrial development.
Policy Statement of 1973, inter alia, identified
high priority industries where investment from large industrial
houses and foreign companies would be permitted. The Industrial
Policy Statement of 1977 laid emphasis on decentralisation
and on the role of small-scale, tiny and cottage industries.
Policy Statement of 1980 focused attention on the need for
promoting competition in the domestic market, technological
upgradation and modernisation. The policy laid the foundation
for an increasingly competitive export base and for encouraging
foreign investment in high-technology areas. This found
expression in the Sixth Five-Year Plan, which bore the distinct
stamp of Mrs Indira Gandhi. It was Mrs Gandhi who emphasised
the need for productivity to be the central concern in all
economic and production activities.
created a climate for rapid industrial growth in the country.
Thus, on the eve of the Seventh Five-Year Plan a broad-based
infrastructure had been built up. Basic industries had been
established. A high degree of self-reliance in a large number
of items--raw materials, intermediates, and finished goods
had been achieved. New growth centres of industrial activity
had emerged, as had a new generation of entrepreneurs. A
large number of engineers, technicians and skilled workers
had also been trained.
Plan recognised the need to consolidate on these strengths
and to take initiatives to prepare Indian industry to respond
effectively to the emerging challenges. A number of policy
and procedural changes were introduced in 1985 and 1986
under the leadership of Mr Rajiv Gandhi aimed at increasing
productivity, reducing costs and improving quality. The
accent was on opening the domestic market to increased competition
and readying our industry to stand on its own in the face
of international competition. The public sector was freed
from a number of constraints and given a larger measure
of autonomy. The technological and managerial modernisation
of industry was pursued as the key instrument for increasing
productivity and improving our competitiveness in the world.
The net result of all these changes was that Indian industry
grew by an impressive average annual growth rate of 8.5
per cent in the Seventh Plan period.
is pledged to launching reinvigorated struggle for social
and economic justice, to end poverty and unemployment and
to build a modem, democratic, socialist, prosperous and
forward-looking India. Such a society can be built if India
grows as part of the world economy and not in isolation.
will continue to follow the policy of self-reliance, there
would be greater emphasis placed on building up our ability
to pay for imports through our own foreign exchange earnings.
Government is also committed to development and utilisation
of indigenous capabilities in technology and manufacturing
as well as its upgradation to world standards.
will continue to pursue a sound policy framework encompassing
encouragement of entrepreneurship, development of indigenous
technology through investment in research and development,
bringing in new technology, dismantling of the regulatory
system, development of the capital markets and increasing
competitiveness for the benefit of the common man. The spread
of industrialisation to backward areas of the country will
be actively promoted through appropriate incentives, institutions
and infrastructure investments.
will provide enhanced support to the small-scale sector
so that it flourishes in an environment of economic efficiency
and continuous technological upgradation. Foreign investment
and technology collaboration will be welcome to obtain higher
technology, to increase exports and to expand the production
will endeavour to abolish the monopoly of any sector or
any individual enterprise in any field of manufacture, except
on strategic or military considerations and open all manufacturing
activity to competition.
will ensure that the public sector plays its rightful role
in the evolving socio-economic scenario of the country.
Government will ensure that the public sector is run on
business lines as envisaged in the Industrial Policy Resolution
of 1956 and would continue to innovate and lead in strategic
areas of national importance. In the 1950s and 1960s, the
principal instrument for controlling the commanding heights
of the economy was investment in the capital of key industries.
Today, the State has other instruments of intervention,
particularly fiscal and monetary instruments. The State
also commands the bulk of the nation's savings. Banks and
financial institutions are under State control. Where State
intervention is necessary; these instruments will prove
more effective and decisive.
will fully protect the interests of labour, enhance their
welfare and equip them in all respects to deal with the
inevitability of technological change. Government believes
that no small section of society can corner the gains of
growth, leaving workers to bear its pains. Labour will be
made an equal partner in progress and prosperity. Workers'
participation in management will be promoted. Workers co-operatives
will be encouraged to participate in packages designed to
one word turn around sick companies. Intensive training,
skill development and upgradation programmes will be launched.
will continue to visualise new horizons. The Major objectives
of the new industrial policy package will be to build on
the gains already made, correct the distortions or weaknesses
that may have crept in, maintain a sustained growth in productivity
and gainful employment and attain international competitiveness.
The pursuit of these objectives will be tempered by the
need to preserve the environment and ensure the efficient
use of available resources. All sectors of industry whether
small, medium or large, belonging to the public, private
or cooperative sector will be encouraged to grow and improve
on their past performance.
policy will be continuity with change.
of the above objectives, the Government has decided to take
a series of initiatives in respect of the policies relating
to the following areas.
- Industrial Licensing
- Foreign Investment
- Foreign Technology Agreements
- Public Sector Policy
- MRTP Act.
A package for
the small and tiny sectors of Industry is being announced
Licensing is governed by the Industries development &
Regulation Act, 1951. The Industrial Policy Resolution of
1956 identified the following three categories of industries:
- those that would be reserved
for development in the public sector;
- those that would be permitted
for development through private enterprise with or without
State participation; and
- those in which investment
initiatives would ordinarily emanate from private entrepreneurs.
Over the years,
keeping in view the changing industrial scene in the country,
the policy has undergone modifications. Industrial Licensing
policy and procedures have also been liberalised from time
to time. A full realisation of the industrial potential
of the country calls for a continuation of this process
In order to
achieve the objectives of the strategy for the industrial
sector for the 1990s and beyond, it is necessary to make
a number of changes in the system of industrial approvals.
Major policy initiatives and procedural reforms are called
for in order to actively encourage and assist Indian entrepreneurs
to exploit and meet the emerging domestic and global opportunities
and challenges. The bedrock of any such package of measures
must be to let the entrepreneurs make investment decisions
on the basis of their own commercial judgment. The attainment
of technological dynamism and international competitiveness
requires that enterprises must be enabled to swiftly respond
to fast changing external conditions that have become characteristic
of today's industrial world. Government policy and procedures
must be geared to assisting entrepreneurs in their efforts.
This can be done only if the role played by the Government
were to be changed from that of only exercising control
to one of providing help and guidance by making essential
procedures fully transparent and by eliminating delays.
The winds of
change have been with us for some time. The industrial licensing
system has been gradually moving away from the concept of
capacity licensing. The system of reservations for public
sector undertakings has been evolving towards an ethos of
greater flexibility and private sector enterprise has been
gradually allowed to enter into many of these areas on a
case by case basis. Further inputs must be provided to these
changes which alone can push this country towards the attainment
of its entrepreneurial and industrial potential. This calls
for bold and imaginative decisions designed to remove restraints
on capacity creation, while, at the same time ensuring that
overriding national interests are not jeoparadised.
In the above
context, industrial licensing will henceforth be abolished
for all industries, except those specified, irrespective
of levels of investment. These specified industries
will continue to be subject to compulsory licensing for
reasons related to security and strategic concerning social
reasons, problems related to safety and overriding environmental
issues, manufacture of products of hazardous nature and
articles of elitist consumption. The exemption from licensing
will be particularly helpful to the many dynamic small and
medium entrepreneurs who have been unnecessarily hampered
by the licensing system. As a whole the Indian economy will
benefit by becoming more competitive, more efficient and
modem and will take its rightful place in the world of industrial
Indian industry from official controls, opportunities for
promoting foreign investments in India should also be fully
exploited. In view of the significant development of India's
industrial economy in the last 40 years, the general resilience,
size and level of sophistication achieved, and the significant
changes that have also taken place in the world industrial
economy, the relationship between domestic and foreign industry
needs to be much more dynamic than it has been in the past
in terms of both technology and investment. Foreign investment
would bring attendant advantages of technology transfer,
marketing expertise, introduction of modern managerial techniques
and new possibilities for promotion of exports. This is
particularly necessary in the changing global scenario of
industrial and economic cooperation marked by mobility of
capital. The Government will therefore, welcome foreign
investment, which is in the interest of the country's industrial
In order to
invite foreign investment in high priority industries, requiring
large investments and advanced technology, it has been decided
to provide approval for direct foreign investment upto 51
per cent foreign equity in such industries. There shall
be no bottlenecks of any kind in this process. This group
of industries has generally been known as the "Appendix
I industries" and are areas in which FERA companies have
already been allowed to invest on a discretionary basis.
This change will go a long way in making Indian policy on
foreign investment transparent. Such a framework will make
it attractive for companies abroad to invest in India.
exports of Indian products calls for a systematic exploration
of world markets possible only through intensive and highly
professional marketing activities. To the extent that expertise
of this nature is not well developed in India, Government
will encourage foreign trading companies to assist us in
our export activities. Attraction of substantial investment
and access to high technology, often closely held, and to
world markets, involves interaction with some of the world's
largest international manufacturing and marketing firms.
The Government will appoint a special board to negotiate
with such a firm so that we can engage in purposive negotiation
with such large firms, and provide the avenues for large
investments in the development of industries and technology
in the national interest.
There is a
great need for promoting an industrial environment where
the acquisition of technological capability receives priority.
In the fast changing world of technology the relationship
between the suppliers and users of technology must be a
continuous one. Such a relationship becomes difficult to
achieve when the approval process includes unnecessary governmental
interference on a case to case basis involving endemic delays
and fostering uncertainty. The Indian entrepreneur has now
come of age so that he no longer needs such bureaucratic
clearances of his commercial technology relationships with
foreign technology suppliers. Indian industry can scarcely
be competitive with the rest of the world if it is to operate
within such a regularity environment.
With a view
to injecting the desired level of technological dynamism
in Indian industry, Government will provide automatic approval
for technology agreements related to high priority industries
within specified parameters. Similar facilities will be
available for other industries as well if such agreements
do not require the expenditure of free foreign exchange.
Indian companies will be free to negotiate the terms of
technology transfer with their foreign counterparts according
to their own commercial judgement. The predictability and
independence of action that this measure is providing to
Indian industry will induce them to develop indigenous competence
for the efficient absorption of foreign technology. Greater
competitive pressure will also induce our industry to invest
much more in research and development than they have been
doing in the past. In order to help this process, the hiring
of foreign technicians, and foreign testing of indigenously
developed technologies, will also not require prior clearance
as prescribed so far, individually or as a part of industrial
or investment approvals.
sector has been central to our philosophy of development.
In the pursuit of our development objectives, public ownership
and control in critical sector of the economy have played
an important role in preventing the concentration of economic
power, reducing regional disparities and ensuring that planned
development serves the common good.
Policy Resolution of 1956 gave the public sector a strategic
role in the economy. Massive investments have been made
over the past four decades to build a public sector, which
has a commanding role in the economy. Today key selectors
of the economy are dominated by the mature public enterprises
that have successfully expanded production, opened up new
areas of technology and built up a reserve of technical
competence in a number of areas.
After the initial
exuberance of the public sector entering new areas of industrial
and technical competence, a number of problems have begun
to manifest themselves in many of the public enterprises.
Serious problems are observed in the insufficient growth
in productivity, poor project management, over-manning,
lack of continuous technological upgradation and inadequate
attention to R&D and human resources development. In
addition, public enterprises have shown a very Low rate
of return on the capital invested. This has inhibited their
ability to regenerate themselves in terms of new investments
as well as in technology development. The result is that
many of the public enterprises have become a burden rather
than being an asset to the Government. The original concept
of the public sector has also undergone considerable dilution.
The most striking example is the takeover of sick units
from the private sector. This category of public sector
units accounts for almost one third of the total losses
of central public enterprises. Another category of public
enterprises, which does not fit into the original idea of
the public sector being at the commanding heights of the
economy, is the plethora of public enterprises which are
in the consumer goods and services sectors.
It is time,
therefore, that the Government adopt a new approach to public
enterprises. There must be a greater commitment to the support
of public enterprises, which are essential for the operation
of the industrial economy. Measures must be taken to make
these enterprises more growth oriented and technically dynamic.
Units, which may be faltering at present but are potentially
viable must be restructured and given a new lease of Life.
The priority areas for growth of public enterprises in the
future will be the following:
- Essential infrastructure
goods and services
- Exploration and exploitation
of oil and mineral resources
- Technology development and
building of manufacturing capabilities in areas which
are crucial in the long term development of the economy
and where private sector investment is inadequate
- Manufacture of products
where strategic considerations predominate such as defence
- At the same time the public
sector will not be barred from entering areas not specifically
reserved for it.
In view of
these considerations, Government will review the existing
portfolio of public investments with greater realism. This
review will be in respect of industries based on low technology,
small scale and non-strategic areas, inefficient and unproductive
areas, areas with low or nil social considerations or public
purpose, and areas where the private sector has developed
sufficient expertise and resources.
will strengthen those public enterprises, which fall in
the reserved areas of operation or are in high priority
areas or are generating good or reasonable profits. Such
enterprises will be provided a much greater degree of management
autonomy through the system of memoranda of understanding.
Competition will also be induced in these areas. Government
holdings in the equity share capital of these enterprises
will be disinvested in order to provide further market discipline
to the performance of public enterprises. There are a large
number of chronically sick public enterprises incurring
heavy losses, operating in a competitive market and serve
little or no public purpose. These need to be attended to.
The country must be proud of the public sector that it owns
and it must operate in the public interest.
and Restrictive Trade Practices Act (MRTP
objectives sought to be achieved through the MRTP Act are
- Prevention of concentration
of economic power to the common detriment, control of
- Prohibition of monopolistic
and restrictive and unfair trade practices.
The MRTP Act
became effective in June 1970. With the emphasis placed
on productivity in the Sixth Plan, major amendments to the
MRTP Act were carried out in 1982 and 1984 in order to remove
impediments to industrial growth and expansion. This process
of change was given a new momentum in 1985 by an increase
of threshold limit of assets.
With the growing
complexity of industrial structure and the need for achieving
economies of scale for ensuring higher productivity and
competitive advantage in the international market, the interference
of the Government through the MRTP Act in investment decisions
of large companies has become deleterious in its effects
on Indian industrial growth. The pre-entry scrutiny of investment
decisions by so-called MRTF companies will no longer be
required. Instead, emphasis will be on controlling and regulating
monopolistic, restrictive and unfair trade practices rather
than making it necessary for the monopoly houses to obtain
prior approval of Central Government for expansion, establishment
of new undertakings, merger, amalgamation and takeover and
appointment of certain directors. The thrust of policy will
be more on controlling unfair or restrictive business practices.
The MRTP Act will be restructured by eliminating the legal
requirements for prior governmental approval for expansion
of present undertakings and establishment of new undertakings.
The provisions relating to merger, amalgamation, and takeover
will also be repealed. Similarly, the provisions regarding
restrictions on acquisition of and transfer of shares will
be appropriately incorporated in the Companies Act.
provisions of the MRTP Act will be strengthened in order
to enable the MRTP Commission to take appropriate action
in respect of the monopolistic, restrictive and unfair trade
practices. The newly empowered MRTP Commission will be encouraged
to require investigation suo mote or on complaints
received from individual consumers or classes of consumers.
In view of
the considerations outlined above, the Government has decided
to take a series of measures to unshackle the Indian industrial
economy from the cobwebs of unnecessary bureaucratic control.
These measures complement the other series of measures being
taken by the Government in the areas of trade policy, exchange
rate management, fiscal policy, financial sector reform
and overall macro economic management.
- Industrial Licensing will
be abolished for all projects except for a short list
of industries related to security and strategic concerns,
social reasons, hazardous chemicals and overriding environmental
reasons, and items of elitist consumption list attached
as Annex II). Industries reserved for the small scales
sector will continue to be so reserved.
- Areas where security and
strategic concerns predominate will continue to be reserved
for the public sector (list attached as Annex 1)
- In projects where imported
capital goods are required, automatic clearance will be
- in cases where foreign
exchange availability is ensured through foreign
equity, - or
- if the c.i.f. value
of imported capital goods required is less than
25 per cent of total value (net of taxes) of plant
and - equipment, upto a maximum value of Rs 2 crore.
In view of
the current difficult foreign exchange situation, this scheme
[i.e., (iii)(b) will come into force from April 1992. In
other cases, imports of capital goods will require clearance
from the Secretariat of Industrial Assistance (SIA) in the
Department of Industrial Development according to availability
of foreign exchange resources.
- 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 printing will be located outside 25 km. of the periphery,
except in prior designated industrial areas. A flexible
location policy would be adopted in respect of such cities
(with population greater than 1 million) which require
industrial regeneration. Zoning the land use regulation
and environmental legislation will continue to regulate
industrial locations. Appropriate incentives and the design
of investments in infrastructure development will be used
to promote the dispersal of industry particularly to rural
and backward areas and to reduce congestion in cities.
- The system of phased manufacturing
programmes run on an administrative case by case basis
will not be applicable to new projects. Existing projects
with such programmes will continue to be governed by them.
- Existing units will be provided
a new broad banding facility to enable them to produce
any article without additional investment
- The exemption from licensing
will apply to all substantial expansions of existing units.
- The mandatory convertibility
clause will no longer be applicable for term loans from
the financial institutions for new projects.
- All existing registration
schemes (delicenced registration, exempted industries
registration DGTD registration) will be abolished
- Entrepreneurs will henceforth
only be required to file an information memorandum on
new projects and substantial expansions.
- The lists at Annex n and
Annex m will be notified in the India Trade Classification
- Approvals will be given
for direct foreign investment upto 51 per cent foreign
equity in high priority industries (Annex III). There
shall be no bottlenecks of any kind in this process. Such
clearance will be available if foreign equity covers the
foreign exchange requirement for imported capital goods.
Consequential amendments to the Foreign Exchange Regulation
Act, 1973 shall be carried out.
- While the import of components,
raw materials and intermediate goods, and payment of know-how
fees and royalties will be governed by the general policy
applicable to other domestic units, the payment of dividends
would be monitored through the Reserve Bank of India so
as to ensure that outflows on account of dividend payments
are balanced by export earnings over a period of time.
- Other foreign equity proposal
including proposals involving 51 per cent foreign equity
which do not meet the criteria under (i) above, will continue
to need-prior clearance. Foreign equity proposals need
not necessarily be accompanied by foreign technology agreements.
- To provide access to international
markets, majority foreign equity holding upto 51 per cent
equity will be allowed for trading companies primarily
engaged in export activities. While the thrust would be
on export activities, such trading houses shall be at
par with domestic trading and export houses in accordance
with the Export-Import Policy.
- A special empowered Board
would be constituted to negotiate with a number of large
international firms and approve direct foreign investment
in select areas. This would be a special programme to
attract substantial investment that would provide access
to high technology and world markets. The investment programmes
of such firms would be consideration totality, free from
pre-determined parameters or procedures
- Authentic permission will
be given or foreign technology agreements in high priority
industries (Annex III) upto a lumpsum payment of Rs 1
crore, 5 per cent loyalty for domestic sales and 8 per
cent for export, subject to total payments of 8 per cent
of sales over a 10 year period from date of agreement
or 7 years from commencement of production. The prescribed
royalty rates are net of taxes and will be calculated
according to standard procedures.
- In respect of industries
other than those in Annex III, automatic permission will
be given subject to the same guidelines as above if no
free foreign exchange is required for any payments.
- All other proposals will
need special approval under the general procedures in
- No permission will be necessary
for hiring of foreign technicians and foreign testing
of indigenously developed technologies. Payment may be
made from blanket permits or free foreign exchange according
to RBI guidelines.
- Portfolio of public sector
investments will be reviewed with a view to focus the
public sector on strategic, high-tech and essential infrastructure.
Where as some reservations for the public sector is being
retained, there would be no bar for areas of exclusivity
to be opened up to the private sector selectively. Similarly,
the public sector will also be allowed entry in areas
not reserved for it.
- Public enterprises which
are chronically sick and which are unlikely to be turned
around will, for the formulation of revival/rehabilitation
schemes, be referred to the Board for Industrial and financial
Reconstruction (BIFR) or other similar high level institutions
created for the purpose. A social security mechanism will
be created to protect the interests of workers likely
to be affected by such rehabilitation packages.
- In order to raise resources
and encourage wider public participation, a part of the
Government's share holding in the public sector would
be offered to mutual funds, financial institutions, general
public and workers.
- Boards of public sector
companies would be made more professional and given great
- There will be a greater
thrust on performance improvement through the memorandum
of understanding (MOU) system through which management
would be granted greater autonomy and will be held accountable.
Technical expertise on the part of the Government would
be upgraded to make the MOU negotiations and implementation
- To facilitate a fuller discussion
on performance, the MOU signed between Government and
the public enterprise would be placed in Parliament. While
focusing on major management issues, this would also place
matters on day to day operations of public enterprises
in their correct perspective.
- The MRTP Act will be amended
to remove the threshold limits of assets in respect of
MRTP companies and dominant undertakings. This eliminates
the requirement of prior approval of Central Government
for establishment of new undertakings, expansion of undertakings,
merger, amalgamation and takeover and appointment of Directors
under certain circumstances.
- Emphasis will be placed
on controlling and regulating monopolistic, restrictive
and unfair trade practices. Simultaneously, the newly
empowered MRTP Commission will be authorised to initiate
investigations suo mote or on complaints received
from individual consumers or classes of consumers in regard
to monopolistic, restrictive and unfair trade-practices.
- Necessary comprehensive
amendments will be made in the MRTP Act in this regard
and for enabling the MRTP Commission to exercise punitive
and compensatory powers.