Changes In Industrial Policy and Their Effect on Industrial Growth

 

Background

1. The management of the country's economy is one of the government's most important responsibilities. It must choose the means and methods for achieving this. However, this position was not filled by nearly all nations until after the Great Depression.
2. Rules, regulations, principles, policies, and procedures established by the government to regulate, develop, and control industrial enterprises in the country are referred to as industrial policy.
3. It lays out the roles that the public, private, joint, and cooperative sectors should play in the growth of industries. Additionally, it demonstrates the significance of the large, medium, and small sectors.
4. It includes tariff and labor policies, fiscal and monetary policies, the government's attitude toward foreign capital, and the role that multinational corporations should play in the industrial sector's development.

Objectives of an Industrial policy

The pursuit of industrial development began shortly after 1947's independence. The following are the primary goals of the Indian government's Industrial Policy:

1. to keep up a steady increase in productivity;
2. to improve beneficial work;
3. to make the most of the human resources available;
4. to be competitive on the international stage; and to make India a significant global partner and participant.

 

Industrial policies in India since independence

India has implemented several industrial policies since independence to promote industrial development and boost economic growth. Here is a brief overview of some of the major industrial policies of India:

 

1. Industrial Policy Resolution, 1948: The Industrial Policy Resolution of 1948 aimed to promote industrial development in the country by encouraging the growth of small-scale industries, promoting private sector investment, and developing infrastructure. The policy focused on the development of the agriculture, consumer goods, and basic industries.
2. Industrial Policy Resolution, 1956: The Industrial Policy Resolution of 1956 focused on the development of the public sector, and laid the foundation for India's socialist economic model. The policy aimed to reduce the concentration of economic power in the hands of a few and promote equitable distribution of wealth.
3. Industrial Policy Statement, 1973: The Industrial Policy Statement of 1973 aimed to promote self-reliance in the economy by encouraging the growth of indigenous industries, promoting the development of small-scale industries, and providing incentives for export-oriented industries.
4. New Industrial Policy, 1991: The New Industrial Policy of 1991 was a major departure from India's socialist economic model, and aimed to liberalize the economy, reduce government controls, and encourage private sector participation. The policy opened up the economy to foreign investment, and encouraged the growth of export-oriented industries and high-technology industries.
5. National Manufacturing Policy, 2011: The National Manufacturing Policy of 2011 aimed to increase the share of manufacturing in GDP to 25% by 2022, and focused on improving infrastructure, promoting innovation and technology, and enhancing the skill base of the workforce.
6. Make in India, 2014: Make in India is a major initiative launched by the government in 2014 to promote manufacturing in India and attract foreign investment in the sector. The initiative aims to provide a conducive environment for investment, simplify regulations, and provide incentives and benefits to attract investment in the manufacturing sector.
    

 

Positive Effects Of Industrial Policies

1. Economic Growth: Industrial policies have contributed significantly to the economic growth of India. Between 1950 and 2020, the country's GDP grew at an average annual rate of 6.7%. During this period, the industrial sector's contribution to GDP increased from 15% to 24%. The manufacturing sector alone contributes around 17-18% of the country's GDP.
2. Employment Generation: The industrial sector is a significant source of employment in India. According to the National Sample Survey (NSS) 73rd round (2015-16), the manufacturing sector provides employment to around 73 million people. The sector employs around 12% of the country's workforce.
3. Regional Development: Industrial policies have helped in promoting regional development in India. The government has established industrial estates and special economic zones in various parts of the country. As of September 2021, there are 438 operational SEZs in India, spread across 21 states and union territories. These SEZs have attracted significant investments and generated employment opportunities.
4. Foreign Direct Investment: India's industrial policies have helped in attracting foreign direct investment (FDI) in the country. According to the Ministry of Commerce and Industry, FDI inflows into India increased from $36.04 billion in 2013-14 to $81.72 billion in 2020-21. The industrial sector accounted for around 18% of the total FDI inflows during this period.
5. Technology Transfer: Industrial policies have facilitated the transfer of technology from developed countries to India. The establishment of public sector enterprises and the growth of private sector industries have led to the adoption of modern technologies in various sectors of the economy. India has emerged as a hub for information technology (IT) and IT-enabled services (ITES). According to NASSCOM, the Indian IT-BPM industry is expected to grow at a CAGR of 7.7% to reach $350 billion by 2025.

 

 

Negative Impacts Of Industrial Policies

1. Monopolies and Lack of Competition: One of the major negative impacts of industrial policies in India has been the creation of monopolies and lack of competition in some sectors. The public sector enterprises (PSEs) established by the government enjoyed a monopoly in various industries. For example, until the 1990s, the state-owned Hindustan Aeronautics Limited (HAL) was the sole producer of fighter aircraft in India. This lack of competition resulted in inefficiencies, low productivity, and high costs.
2. Inefficient Use of Resources: Industrial policies in India have resulted in the inefficient use of resources, especially in the public sector. The government invested heavily in public sector enterprises, but many of them failed to deliver the expected results. As of March 2020, there were 343 central PSEs in India, of which 79 were loss-making. The government has had to provide financial support to these PSEs, resulting in a drain on public resources.
3. Environmental Degradation: Industrial policies in India have also had a negative impact on the environment. The country has witnessed significant environmental degradation due to industrial activities. According to the Central Pollution Control Board, around 30% of India's total land area is affected by land degradation, and around 70% of surface water resources are polluted.
4. Neglect of Agriculture: Industrial policies in India have focused primarily on promoting industrialization, often neglecting the agriculture sector, which employs around 50% of the country's workforce. The neglect of agriculture has led to a decline in productivity, low income, and poverty in rural areas.
5. Inequality: Industrial policies in India have contributed to increasing inequality in the country. The benefits of industrialization have been unevenly distributed, with urban areas benefiting more than rural areas. This has led to a growing income and wealth gap between urban and rural areas and among different social groups.

 

Way forward

1. Since 1991, industrial policies in India have shifted from a primarily socialistic to a capitalist orientation.
2. India now has a much more liberal industrial policy that emphasizes less regulation and more foreign investment.
3. Make in India and Start up India are two initiatives that have contributed to the improvement of the country's business environment.
4. However, firm growth in India's industrial sector is still hindered by high electricity costs, credit constraints, labor regulations' high unit labor costs, political interference, and other regulatory burdens.
5. There is a requirement for another Modern Strategy to support the assembling area in the country. In December 2018, the government also felt the need to introduce a new Industrial Policy, which would serve as a guide for all of the country's businesses.
6. India positioned 77th on World Bank's Carrying on with Work Report 2018. The Bankruptcy and Insolvency Act of 2017 introduced impressive insolvency resolution and Goods and Services Tax (GST) reforms that will benefit the industrial sector in the long run.

 

While industrial policies in India since independence have had positive impacts on the economy, they have also had negative impacts such as the creation of monopolies, inefficient use of resources, environmental degradation, neglect of agriculture, and inequality. It is important for the government to address these negative impacts and ensure that industrial policies promote inclusive and sustainable growth.

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