Industries (Development and Regulation) Act of 1961

Aim:  The aim of this resolution was to give a complete control to the government over the management and development of industries. The main provisions of the act were as follows

1. No new industrial enterprise could be established without a prior license from the central government
2. No substantial addition to the capacity of an existing industrial unit can be made without prior license of the central government.
3. The government would conduct enquiries in to the working of any licensed industrial unit and may point out the malfunctioning in the working if any.
4. The government is authorized to prescribe the prices of the products, the quantity to be produced, the method of production etc.
5. The government would appoint development councils representing the management and labour for every industrial unit. The council would prepare and implement programs of development.
6. Industries employing less than 100 workers and having fixed capital of less than Rs. Ten lakhs would be exempted from licensing.

The Industrial Policy Resolution of July 1991

The journey of India’s industrial policy from 1948 till 1990 was guided by 3 basic principles.

1. A strict control of the government over industries.
2. Front seat to the public sector in industrial development.
3. Protection to Indian industries against foreign competition.

The environment created by these three principles gave results for some time but it also developed several evils in course of time. Therefore the industrial policy resolution of 1991 reversed these principles and adopted new principles such as

1. Liberating the industrial sector from government control
2. Giving front seat to the private sector in industrial development.
3. Exposing the Indian industries to global competition.

The clauses of the new industrial policy are to be studied in the light of these principles

a)    Abolition of the licensing system

The licensing policy was expected to direct India’s industrial development in the desirable sectors but it developed evils like delays and corruption. Hence the licensing system was removed except in case of 18 industries. The list was subsequently reduced to 11 industries which are mainly related to safety, security, public health and morality.

Thus 85 % of the Indian industrial sector was liberated from licensing. Even the licensed industries were given freedom to expand to satisfy market needs without taking prior approval / capacity clearance from the government.

b)    Curtailing the size of the public sector

The no of industries in the public sector was reduced to only 8 mainly production of defence equipment, atomic energy, coal and lignite, mineral oils etc.

Subsequently this list was reduced to only 3 industries mainly generation of atomic energy, chemicals required for atomic energy and railway transport. The other industries were thrown open to the private sector.

The industries in the public sector were given greater autonomy. They were permitted to sell a part of their capital to private parties so as to widen the capital base. The government is planning to reduce its equity holdings in public sector banks to 50%.

c)    Foreign Investments

A list of 34 high priority, high technology industries was prepared. Foreign equity was allowed upto 51 % in these industries. In some industries even 100 % foreign equity is allowed. A Foreign Investment Promotion Council had been setup to prepare project reports in certain thrust areas. They can be used by foreign capital.

Foreign Investment Implementation Authority has been setup for providing a single point interface between foreign investors and government machinery. Foreign equity holdings in Insurance sector and telecom sector were increased.

d)    Removing controls on Monopoly

The Monopolies and Restrictive Trade Practices Act 1956, declared certain companies as MRTP companies and dominant enterprises. In 1986 companies having fixed assets of more than Rs. 100 crores were put into this category. They were not allowed expansion and development without prior permission of the government of India. They were required to obtain permission from the government of India for any type of investment, expansion, amalgamation or appointment of directors.

The 1991 resolution removed these restrictions. No Firm is now declared as a MRTP firm or a dominant enterprise. The MRTP commission continues

e)    Removal of locational Restrictions

Earlier permission from the government of India was required for locating a particular industrial unit at a particular place. The new policy removed that provision and incorporated the following simple procedures:

a)    An Industrial unit can be setup in a place with a population of less than 1 million without any restrictions.

b)    If the population is more than 1 million and the industry is a polluting one the unit can be setup outside a periphery of 25 kms.