Indian Economy (1950-1990): Industrial Policy Revolution,

1956

A comprehensive package of different policy measures covering various issues that are connected with
different industrial enterprises of the country is known as Industrial Policy. The country needs to devise
various principles, procedures, rules, and regulations to control its industrial enterprise. 

After the Industrial Policy, of 1948, the economy of India faced various economic and political changes,
because of which it became essential for the country to start a fresh industrial policy. Hence, the
Industrial Policy Revolution of 1956 was taken into action by the Indian Parliament on 30th April 1956. It
is also known as ‘The Economic Constitution' of India. The Industrial Policy was shaped by the
Mahalanobis Model of growth, which suggested that emphasis on heavy industries would lead the
economy towards a long-term higher growth path. It provided a comprehensive framework for the
industrial development of the country. It aimed at improving the coordination between the public and
the private sector to achieve the goal of rapid industrial development by working together. This
revolution provided more powers to the governmental machinery and laid down the foundation for
India’s second five-year plan. The Industrial Policy also helped in laying down the three categories of the
industrial sector that helped in defining industries more sharply.

 Objectives of the Industrial Policy Revolution, 1956

The objective of the policies, according to the revolution, was the establishment of the society’s
socialistic pattern. Other than this some of the major objectives of this policy were:

1. Rapid Development of Industries

The main aim of the industrial policy was to increase the speed of the development of industries in
India. The government promoted industrial development in the country by creating a favourable
investment atmosphere for the private sector enterprises and mobilising the resources for investment in
the public sector enterprises.

2. Preventing the Concentration of Economic Powers

The industrial policy provided a framework of reservations, rules, and regulations for the public and the
private sectors that aimed at lowering monopolistic tendencies. It also aimed at preventing economic
powers from getting concentrated in the hands of a few big industrial houses. 

3. Balance of the Industrial Sector

The industrial policy was taken into action to correct the industrial structure imbalances so that the
currently prevailing conditions of the industrial sector get balanced out. This was done by laying the
emphasis on heavy industries and developing the sector of capital goods.

4. Balance of the Regional Sector

The aim behind the introduction of industrial policies was also to correct the regional imbalances in
industrial development between states. The states like Maharashtra, Gujarat, etc., were considered to
be advanced in terms of industrial development while other states like Bihar, Orissa, etc., were
considered to be industrially backward. Thus, the industrial policy took the initiative of launching
programs and policies which led to the development of industries in such states.

5. Incentives to Labours

The industrial policy recognised the role of labour in the development of the industrial sector. This
emphasized improving the working conditions of the workers and providing adequate incentives to
them. It was also stated that the workers should be associated with the management so that they can
be enthusiastically involved in the development process.

Categories of the Industrial Policy Revolution, 1956

According to the Industrial Policy Revolution, 1956, the industrial sector was divided into 3 categories
namely:

i) Schedule A Industries or Government Enterprises;

ii) Schedule B Industries or Mixed Enterprises;

iii) Schedule C Industries or Private Enterprises.

It can further be elaborated as-

1. Schedule 'A' Industries or Government Enterprises

In the scheduled category 'A' there are 17 industries. These industries are reserved for the public sector
and are of basic and strategic importance. These are: a) Defense equipment, arms, and ammunitions; b)
Atomic energy; c) Heavy plants and machinery; d) Heavy casting and forging of iron and steel; e) Iron
and Steel; f) required for basic industries; g) Heavy electrical plants; h) Coal and Lignite; i) Mineral Oils; j)
Mining of iron ore, manganese ore, gypsum, sulphur, gold, and diamond; k) Minerals for atomic energy;
l) Mining and processing of copper; m) Aircraft; n) Air transport; o) Railway transport; p) Ship-building; q)
Telephones and telephone cables.

2. Schedule 'B' Industries or Mixed Enterprises

The Schedule 'B' category includes 12 industries. These industries are owned by the states which will
generally take the initiative in establishing new undertakings. These industries also give private
enterprises a chance to flourish. Industries included under this schedule are: a) All minerals (except
minor minerals); b) Aluminum and other non-ferrous metals (not included in Schedule ‘A’); c) Machine
tools; d) Ferro alloys and tool steels; e) Basic and intermediate products required by chemical industries
(like drugs, dye, and plastics); f) Antibiotics and other essential drugs; g) Fertilizers; h) Synthetic rubber;
i) Carbonization of coal; j) Chemical pulp; k) Road transport; l) Sea transport.

3. Schedule 'C' Industries or Private Enterprises

All the industries that have not been included in Schedule 'A' and Schedule 'B' are included in the
Schedule 'C' category. The development and establishment of the industries in this category had been
left to the initiatives taken by the private sector.

Industrial Licensing System

An Industrial License is a written permission given to the industrial units to manufacture goods. This
written permission is issued to industries by the government. The introduction of the Industrial Licensing
System in India was done in 1948 as a part of the Industrial Policy Revolution. In India, Industrial
Licensing is regulated by the Industrial Development and Regulation Act (IDRA), 1951, and is approved
by the Secretarial of Industrial Assistance (SIA). 

Industrial licensing for manufacturing in India is required by:

a) Industries under compulsory licensing, and

b) Industrial undertakings attracting location restrictions. 

Advantages of Industrial Licensing

1. The costs of producing, promoting, packaging, or selling your product will not be incurred by the
licensee. 

2. There will be little or no risk to you as the licensee will already have the knowledge and know-
how on how to break into an already established market.

3. The royalty payments can last a very long time depending on the terms of your agreement. 

4. Licensing creates self-employment opportunities as it allows people to start their own

businesses. They get to experience the advantages of self-employment like setting their working
hours, getting the benefits of having someone invested in your business, etc.

5. It helps a domestic company to enter foreign markets as it helps in avoiding tariff barriers which
makes it easier for a local business to operate globally.

Small-Scale Industry
The industries in which the process of production, manufacturing, and servicing are done on a lower
scale or small-scale basis are referred to as Small-Scale Industries. These industries make a one-time
investment which is mostly done on plants and machinery and the investments made; however, do not
exceed a total of ₹1 Crore. Small-scale industries are often referred to as the lifeline of an economy, and
India being a labor-intensive industry, is very benefited from the establishment of these small-scale
industries as it has helped in creating employment opportunities for the population of the country.
These industries are also considered to be a crucial part of the economy in the terms of finance, as they
help in stabilising the per capita income of a country. 

Importance of Small-Scale Industry

1. Employment Generation: The small-scale industries are considered to be the finest source of
employment generation in India and since employment is the defining feature of a country's growth, the
promotion of such industries should be done. These industries increase the rate of employment as a
definite population of people would be required for the working of the industry.

2. Maintains Regional Balance: Since the large-scale industries are mostly concentrated in the big cities,
people start migrating from their hometowns to these cities in search of employment. This results in
overcrowding of the city and severe damage to the environment. With the establishment of small-scale
industries, a large population of people won't have to shift from one city to another as there will be
employment opportunities in their areas too.

3. Short Production Time: Since the production is not done on a larger scale, the production time taken
by small-scale industries is less compared to large-scale industries. This further results in the flow of
money in the economy.

4. New Opportunities: The establishment of small-scale industries opens the population with new
opportunities for investments and start-ups. Since these industries require less capital investment, they
can easily receive financial support and funding. Besides, procuring manpower and raw materials is also
relatively easier for small-scale industries as the government’s export policies favour them heavily.

5. Reduced Dependence on Agriculture: More than half of the rural population is dependent on
agriculture which results in a burden on the agricultural sector. Establishment of the small-scale
industries helps in overcoming this problem by providing employment opportunities to the rural
population. This results in more paths for growth and a more organised distribution of occupation in the
country.

Reservations and other Concessions

The government had to take various steps to protect small-scale industries from big firms or large-scale
industries. To achieve this and ensure the growth of these industries, the government of India took
some steps. These were:

1. Reservation of Products: To ensure that small-scale industries are not being exploited, the
government reserved the production of certain goods only for small-scale industries. This helped these
industries from shutting down and staying on track. The reservation made was on the criteria of the
ability of these units to manufacture the goods.

2. Various Concessions: To ensure and enhance the growth of the small-scale industries, the
government also gave various concessions to these industries. The concessions given to these industries
were lower excise duty, bank loans at interest rates, electricity tariffs, numerous fiscal incentives like
excise duty exemption, etc.