Subject- Business Environment

Unit-3 Industrial Policy

By-K.R.Ansari

The Industrial Policy plan of a nation, sometimes shortened IP, "denotes a nation's declared, official, total strategic effort to influence sectoral development and, thus, national industry portfolio."[1] These interventionist measures comprise "policies that stimulate specific activities and promote structural change".[2] Industrial policies are sector specific, unlike broader macroeconomic policies. Examples of horizontal, economywide policies are tightening credit or taxing capital gain, while examples of vertical, sector-specific policies comprise protecting textiles from foreign imports or subsidizing export industries. Free market advocates consider industrial policies as interventionist measures typical of mixed economy countries. Many types of industrial policies contain common elements with other types of interventionist practices such as trade policy and fiscal policy. An example of a typical industrial policy is import-substitution-industrialization (ISI), where trade barriers are temporarily imposed on some key sectors, such as manufacturing.[3] By selectively protecting certain industries, these industries are given time to learn (learning by doing) and upgrade. Once competitive enough, these restrictions are lifted to expose the selected industries to the international market.[4] Main features Objectives of the Industrial Policy of the Government are 1. 2. 3. 4. 5. to maintain a sustained growth in productivity; to enhance gainful employment; to achieve optimal utilisation of human resources; to attain international competitiveness and to transform India into a major partner and player in the global arena.

Policy focus is on 1. Deregulating Indian industry; 2. Allowing the industry freedom and flexibility in responding to market forces and 3. Providing a policy regime that facilitates and fosters growth of Indian industry. Policy measures Some of the important policy measures announced and procedural simplifications undertaken to pursue the above objectives are as under: i) Liberalisation of Industrial Licensing Policy The list of items requiring compulsory licensing is reviewed on an ongoing basis. At present, only six industries are under compulsory licensing mainly on account of environmental, safety and strategic considerations. Similarly, there are only three industries reserved for the public
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Subject- Business Environment

Unit-3

By-K.R.Ansari

sector. The lists of industries reserved for the public sector and of items under compulsory licensing are at Appendix III and IV respectively. ii) Introduction of Industrial Entrepreneurs Memorandum(IEM) Industries not requiring compulsory licensing are to file an Industrial Entrepreneurs Memorandum (IEM) to the Secretariat for Industrial Assistance (SIA). No industrial approval is required for such exempted industries. Amendments are also allowed to IEM proposals filed after 1.7.1998. iii) Liberalisation of the Locational Policy A significantly amended locational policy in tune with the liberlised licensing policy is in place. No industrial approval is required from the Government for locations not falling within 25 kms of the periphery of cities having a population of more than one million except for those industries where industrial licensing is compulsory. Non-polluting industries such as electronics, computer software and printing can be located within 25 kms of the periphery of cities with more than one million population. Permission to other industries is granted in such locations only if they are located in an industrial area so designated prior to 25.7.91. Zoning and land use regulations as well as environmental legislations have to be followed. iv) Policy for Small Scale Industries Reservation of items of manufacture exclusively for the small scale sector forms an important focus of the industrial policy as a measure of protecting this sector. Since 24th December 1999, industrial undertakings with an investment upto rupees one crore are within the small scale and ancillary sector. A differential investment limit has been adopted since 9th October 2001 for 41 reserved items where the investment limit upto rupees five crore is prescribed for qualifying as a small scale unit. The investment limit for tiny units is Rs. 25 lakhs. 749 items are reserved for manufacture in the small scale sector. All undertakings other than the small scale industrial undertakings engaged in the manufacture of items reserved for manufacture in the small scale sector are required to obtain an industrial licence and undertake an export obligation of 50% of the annual production. This condition of licensing is, however, not applicable to those undertakings operating under 100% Export Oriented Undertakings Scheme, the Export Processing Zone (EPZ) or the Special Economic Zone Schemes (SEZs). V) Non-Resident Indians Scheme The general policy and facilities for Foreign Direct Investment as available to foreign investors/company are fully applicable to NRIs as well. In addition, Government has extended some concessions specially for NRIs and overseas corporate bodies having more than 60% stake by the NRIs. These inter-alia includes (i) NRI/OCB investment in the real estate and housing sectors upto 100% and (ii) NRI/OCB investment in domestic airlines sector upto 100%.

Subject- Business Environment

Unit-3

By-K.R.Ansari

NRI/OCBs are also allowed to invest upto 100% equity on non-repatriation basis in all activities except for a small negative list. Apart from this, NRI/OCBs are also allowed to invest on repatriation/non-repatriation under the portfolio investment scheme. vi) Electronic Hardware Technology Park (EHTP)/Software Technology Park (STP) scheme For building up strong electronics industry and with a view to enhancing export, two schemes viz. Electronic Hardware Technology Park (EHTP) and Software Technology Park (STP) are in operation. Under EHTP/STP scheme, the inputs are allowed to be procured free of duties. The Directors of STPs have powers to approved fresh STP/EHTP proposals and also grand postapproval amendment in repsect of EHTP/STP projects as have been given to the Development Commissioners of Export Processing Zones in the case of Export Oriented Units. All other application for setting up projects under these schemes, are considered by the Inter-Ministerial Standing Committee (IMSC) Chaired by Secretary (Information Technology). The IMSC is serviced by the SIA. vii) Policy for Foreign Direct Investment (FDI) Promotion of foreign direct investment forms an integral part of Indias economic policies. The role of foreign direct investment in accelerating economic growth is by way of infusion of capital, technology and modern management practices. The Department has put in place a liberal and transparent foreign investment regime where most activities are opened to foreign investment on automatic route without any limit on the extent of foreign ownership. Some of the recent initiatives taken to further liberalize the FDI regime, inter alia, include opening up of sectors such as Insurance (upto 26%); development of integrated townships (upto 100%); defense industry (upto 26%); tea plantation (utpo 100% subject to divestment of 26% within five years to FDI); Enhancement of FDI limits in private sector banking, allowing FDI up to 100% under the automatic route for most manufacturing activities in SEZs; opening up B2B ecommerce; Internet Service Providers (ISPs) without Gateways; electronic mail and voice mail to 100% foreign investment subject to 26% divestment condition; etc. The Department has also strengthened investment facilitation measures through Foreign Investment Implementation Authority (FIIA). Trends in Industrial Licensing Policy With progressive liberalization and deregulation of the economy, industrial license is required in very few cases. Industrial licenses are regulated under the Industries (Development and Regulation) Act 1951 made by the Central Government. At present, industrial license is required only for the following: 1. Industries retained under compulsory licensing 2. Manufacture of items reserved for small scale sector by larger units 3. When the proposed location attracts locational restriction
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Subject- Business Environment

Unit-3

By-K.R.Ansari

The following industries require compulsory license:

Alcoholics drinks Cigarettes and tobacco products Electronic aerospace and defense equipment Explosives Hazardous chemicals such as hydrocyanic acid, phosgene, isocynates and di-isocynates of hydro carbon and derivatives

Procedure for obtaining an industrial license Industrial license is granted by the Secretariat for Industrial Assistance in Department of Industrial Policy and Promotion, Government of India. Application for industrial license is required to be submitted in Form FC-IL to Department of Industrial Policy and Promotion. FORM FC-IL - Composite form for Foreign Collaboration and Industrial Licence Small Scale Sector Ministry of Agro and Rural Industries and Ministry of Small Scale industries have been merged into a single Ministry, namely, Ministry of Micro, Small and Medium Enterprises. The Central Government has also now passed a new law viz: The Micro Small and Medium Enterprise Development Act, 2006 Locational restrictions Industrial undertakings to be located within 25 kms of the standard urban area limit of 23 cities having a population of 1 million as per 1991 census require an industrial license. Industrial license even in these cases is not required if a unit is located in an area designated as an industrial area before 1991 or non-polluting industries such as electronics, computer software, printing and other specified industries.