Liberalisation and Industrial Policy

What the official syllabus says

General Studies III (Main Written Examination, Paper V):

• Effects of liberalization on the economy, changes in industrial policy and their effects on industrial growth.

Topics in detail

Industrial policy before 1991

• Industrial Policy Resolutions of 1948 and 1956: mixed economy, reserved role of the public sector
• Industries (Development and Regulation) Act, 1951 and industrial licensing
• Monopolies and Restrictive Trade Practices Act, 1969; Foreign Exchange Regulation Act, 1973
• Industrial policy statements of 1977 and 1980; reservation of items for small-scale industries
• Licence-permit raj: its aims and its costs

The 1991 crisis and reforms

• Balance of payments crisis of 1991
• New Industrial Policy, 1991: abolition of licensing for most industries, fewer industries reserved for the public sector, automatic route for foreign investment
• Liberalisation, privatisation and globalisation; trade reforms and tariff cuts
• Financial sector and tax reforms; current account convertibility
• Disinvestment of public sector enterprises; strategic sales

Effects of liberalisation on the economy

• Higher growth; rise of services and information technology
• Foreign investment and integration with world markets
• Consumer choice and competition: the Competition Act, 2002 replaced the MRTP Act
• Concerns: slow growth of manufacturing employment, regional and income inequality, agrarian distress
• Premature deindustrialisation debate

Changes in industrial policy since 1991

• National Manufacturing Policy (2011) and national investment and manufacturing zones
• Special Economic Zones Act, 2005
• Make in India (2014) and Atmanirbhar Bharat
• Production Linked Incentive schemes (from 2020)
• Revised MSME definition (2020) based on investment and turnover
• Startup India (2016); ease of doing business reforms; single-window clearances
• Corporate tax reduction (2019); Insolvency and Bankruptcy Code, 2016
• Industrial corridors (for example the Delhi-Mumbai Industrial Corridor) and national logistics policy
• New public sector enterprise policy (2021): strategic and non-strategic sectors
• FDI policy: automatic and government routes, sectoral caps; the Foreign Exchange Management Act, 1999 replaced FERA
• Public sector enterprises: Maharatna, Navratna and Miniratna status

Effects on industrial growth

• Index of Industrial Production and the eight core industries
• Share of manufacturing in GDP and employment
• Capital-intensive versus labour-intensive industrialisation
• Constraints: land, labour laws, power, logistics costs, credit to MSMEs
• Global value chains and India's place in them

Milestones in industrial policy

Overlaps

• Haryana: Economy, Industry and Infrastructure: the State's industrial towns, model townships and policies.