INDUSTRIAL EVOLUTION OF INDIA (Pre-1991)

Leading to Govt. of India’s Policy towards SSIs

& Entrepreneurship Promotion

Dr. Sudhir K. Jain

Department of Management Studies
Indian Institute of Technology Delhi
New Delhi - 110016

© Dr Sudhir K Jain 1
Industrial Evolution: 7th Century
- Metallurgical Industry
- Handicrafts: artisans
- Textile Industry (muslin & pine cotton fabrics)

Early 18th Century

In 1701 & 1720 laws were passed in England against use of
printed Indiaon calic in an effort to support the British woollen and worsted industry. The ban failed,
and was strengthened in 1720 when it weakened the Indian textile industry, and India was forced to buy British textiles

in the interest of woolen & silk industry of U.K.

]]

Second Half of 18th & the 19th Century

18th Century: Industrial revolution in England/Europe
19th Century: Setback to Indian Industry
1833: Abolition of East India Company’s monopoly
of Indo-British Trade
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• In the eighteenth century, England was famous for its woollen and worsted
cloth. That industry, centred in the east and south in towns such as Norwich,
jealously protected their product. Cotton processing was tiny: in 1701 only
1,985,868 pounds (900,775 kg) of cotton-wool was imported into England,
and by 1730 this had fallen to 1,545,472 pounds (701,014 kg). This was due
to commercial legislation to protect the woollen industry. [2] Cheap calico
prints, imported by the East India Company from "Hindustan", had become
popular. In 1700 an Act of Parliament was passed to prevent the importation
of dyed or printed calicoes from India, China or Persia. This caused grey
cloth ( calico that hadn't be finished - dyed or printed) to be imported instead,
and these were printed in Southern England with the popular patterns. Also,
Lancashire businessmen produced grey cloth with linen warp and cotton
weft, known as fustian which they sent to London to be finished. [2] Cotton-
wool imports recovered and by 1720 were almost back to their 1701 levels.
Again the woollen manufacturers, in true protectionist style claimed that this
was taking away jobs from workers in Coventry.[3] Another law was passed, to
fine anyone caught wearing any printed or stained calico; muslins, neckcloths
and fustians were exempted. It was this exemption that the Lancashire
Manufactures exploited. The use of coloured cotton weft, with linen warp was
permitted in 1736 Manchester Act. There now was a artificial demand for
woven cloth. In 1764, 3,870,392 pounds (1,755,580 kg) of cotton-wool was
imported.[4 © Dr Sudhir K Jain 3
 Late 19th & early 20th Century
• 19th Century: Indian raw materials to England
• 20th Century: British Finished goods to India

• Plantation industry, Sugar, Cement, Cotton, Jute,

Matches, Glass, Iron & Steel, Electrical
Equipments

© Dr Sudhir K Jain 4
 1905 Swadesi Movement boost to
Indian Industry
Indian Production 1922 1939

Steel ingots 1.3 10.42 lakh tones

Cotton Textiles 1.714 4010 mn. yards

Paper & paper board 24000 tons 67000 tons

No. of factories 2936 11631

Employment 9.5 17.5 lakhs

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 Post-1947 Industrial Planning in India

Background :
• Absence of medium scale units
• Absence of ancillary( providing supports to some main organisation or act as some
subsidary unit ) units
• Production of consumption goods
• Development of selected industries
• Absence of industrial planning in the past
• Apprehension of private sector about Indian govt’s post-
independence industrial policy (viz. complete nationalization)
© Dr Sudhir K Jain 6
 Industrial Planning Framework
• Industrial Policy Resolution (1948)
• Industrial Act (1951)
• Industrial Policy Resolution (April 1956)
• Industrial Licensing Policy (1970)
• Industrial Policy Statement (1973)
• Industrial Licensing Policy (1975)
• Industrial Policy (1977)
• Industrial Policy (1980)
• New Industrial Policy (1990)
• Economic Policy Statement (1991): Economic Reforms
• Continuation of Economic Reforms (1991-1995-2007)
© Dr Sudhir K Jain 7
 Industrial Policy Resolution (1948)
• Progressively greater role of the state in the development of
industries.

* Active role of state in helping economy & private sector

- to provide infrastructure
- to protect domestic industries from unfair foreign
competition
- to ensure supply of essential raw materials through
imports

• Demarcation of entire industrial field between public and

private sectors

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 IPR1948: Exclusive State Monopoly

• Arms & Ammunition,

• Atomic Energy

• Rail Transport

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• i) The role of State enterprise vis-a-vis private enterprise. The basic principle
embodied in the policy was that State must play a progressively active role in the
development of industries. It was, however, duly recognised that in the circumstances
then prevailing in the country, it was not advisable for the State to take over existing
units and it was, therefore, decided to concentrate on new units and existing units
already under its control. The private sector was to be properly regulated and directed
and was assigned an important role in the situation then obtaining in the country.
(ii) Allocation of industries to private and public sectors. Keeping in view the
broad principles enunciated above, the Policy Resolution divided the industries into
the following four categories for the purposes of their allocation as between private
enterprise an State enterprise:

• (a) Strategic an basic industries. The manufacture of arms and

ammunition, production and control of atomic energy, and the
ownership an management of railway transport were made the
“exclusive monopoly of the State”. These industries were even
earlier, wholly in the public sector.

© Dr Sudhir K Jain 10
 IPR1948: State Monopoly for New Units
(6 groups of Industries)

• Mineral Oil
• Coal
• Iron & Steel
• Mfg. of Aircraft
• Ship Building
• Telecommunication Equipment

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• b) Basic and key industries. These included
coal, iron and steel aircraft manufacture, ship-
building, manufacture of telephone, telegraph
and wireless apparatus, etc. The existing units in
these industries were to be allowed to continue
in the private sector for a period of ten years at
the end of which the position was to be reviewed
and the question of nationalization was to be
decided, if necessary. As for the new units it was
laid down that the State would be exclusively
responsible for their establishment

© Dr Sudhir K Jain 12
 IPR1948: State Regulation
(18 Industries)

• Automobiles, Tractors, Prime-movers, Electrical

Engg., Heavy Machinery, Machine Tools, Heavy
Chemicals & Fertilizers, Rubber, Power, Industrial
Alcohol, Cotton & Woolen Textiles, Cement,
Paper, Salt, Sugar, Air & Sea Transport, Minerals,
Defense Industries

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• (c) Private sector industries subject to
control and regulation by the Government. In
this category were placed twenty important
industries of the country which were to continue
in the private sector though they were to function
subject to control and regulation by the
Government. These industries included heavy
chemicals, sugar, cotton and woollen textiles,
cement, paper, salt, machine tools, etc., all of
which were considered important in the national
interest

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 IPR1948: Unregulated Private Enterprises

• All industries not listed in above 3 categories

• State could nationalise any industry/industrial unit

• Role of cottage & small industries

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• d) The private and co-operative sector
industries. The rest of the industries not
covered by any of the categories
mentioned above were to be private
enterprise-individual as well as co-
operative-though they were to be under
the general control of State

© Dr Sudhir K Jain 16
• (iii) The rule of small-scale and cottage industries.
The Policy Resolution afforded due recognition to the
importance of small-scale and cottage industries in the
economy of the country. It was visualized that they would
be organised on co-operative lines and would be
integrated and coordinated with large industries.

• (iv) Steps toward better Industrial relations. In

keeping with the recommendations of the Industries
Conference of 1948, the Industrial Policy Resolution of
1948 accepted profit-sharing and other schemes meant
to associate labour with the management of industry as
steps in the direction of more cordial Industrial relations
in the country.
© Dr Sudhir K Jain 17
 The Industries Act (1951)
• The entire industrial sector was put under administrative
guidance, promotion & control of the govt; negligible role
for market mechanism

• Existing units to be registered with the govt.

• Licensing for setting up of new units or expansion of

existing units mandatory; Act applicable to 17 Scheduled
industries (later extended to 70)

• Provision for constitution of Development Council for one

or more group of industries to decide production targets,
efficiency norms, promotion of standardization, trading,
research, productivity etc.
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 The Industries Act (1951): Objectives

• Industrial production to conform to plan priorities

• Balanced regional (industrial) development

• Protection of small industries against competition

from large scale industries

• Prevention of monopolies & concentration of

ownership of the means of production

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Industrial Policy Resolution (April, 1956)

Dec. 1954 Parliament Resolution:

• The objective of social & economic policy in
India was establishment of a Socialistic Pattern
of Society

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“The main responsibility of industrial growth
should lie with the govt. & that public enterprises
are most suited to achieve the twin objective or
rapid growth with social justice”

Schedule A : Included 17 industries (4+13)

* Exclusive responsibility of the state

Schedule B : 12 Industries
* State was to acquire progressively
increasing share in these

Schedule C : All remaining industries to be left in the

private sector extensive controls & regulation
by the govt.
© Dr Sudhir K Jain 21
 Review of IPR 1956
● Overemphasis on licensing policy

● No penalty on license for not installing

licensed capacity → shortage

● No consideration of economies of scale

Development of Heavy Industries in the

Second Five Year Plan (1956-61)

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 Industrial Licensing Policy (1970)

• Sector defined as consisting of basic, critical &

strategic industries

• Investment Sector (large scale units): I : Rs. 5cr.

• Sector (Medium Scale Units): I : 1 to 5cr.

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 License requirement waived if:

• For expansion of unit (upto Rs. 1cr. Investment)

• Applicant’s existing assets < Rs. 5cr.

• Applicant is not a large industrial house or a dominant

undertaking under MRTP Act or a foreign firm

• Foreign exchange requirement not to exceed Rs. 10 lakhs

• Reservation for small scale industrial units

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 Industrial Policy (1973)
In view of approach to V Plan
• 19 Industries added to the Core Sector

• Basic industries defined:

– Industries of “critical” importance (with linkage to future
– Industries of “strategies” importance: (with X potential)

• Core Sector divided:

– items reserved for a small entrepreneurs & public sector

– others

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 Industrial Licensing Policy (1975)

• 21 Industries delicensed

• License requirement waived for non-MRTP units

• If

– Inv. Rs. 1 crore for new unit)

– Inv. Rs. 5 crore for expansion in heavy industry)

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 Industrial Policy (1977)
(subsequent to change in govt.)
• Items reserved for small scale industries: 180 to 504, to 807
(in May 1978)
• District Industrial Centres: for promotion of SSI & Cottage
industries
• Promotion of Handloom sector; power loom/Mill sector
capacity frozen
• Shifting of industries to backward areas
• Fiscal concessions for expert-oriented units
• Only selective take over of sick units
• Promotion of “tiny” sector: Inv Rs. 1 lakh & in villages/towns
with pop. 50,000
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 Industrial Policy (1980):
Production-oriented
• In many cases clearance under MRTP Act done away with

• In view of inflation, Investment limits for various size sectors

revised

• Integrated development of backward districts: one nuclear

plant per district & ancillaries.

• 100% expert-oriented units allowed K-intensive techniques

© Dr Sudhir K Jain 28
 New Industrial Policy (1990) – 1/2
• All new units upto Inv. of Rs. 25 crores (in fixed assets) in
backward areas & Rs. 75 crores in notified backward areas
exempted from licensing
• Delicensing of 100% Expert oriented units & units in Export
Processing Zones
• No licensing if existing unit producer new product(s) without
any additional investment
• Selective relaxation in location policy

• No prior clearance for foreign collaboration if royalty payment

does not exceed a particular limit
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 New Industrial Policy (1990) – 2/2
• Foreign investment upto 40% of the equity allowed on an
automatic basis
• Investment ceiling in plant & machinery for SSIs increased to
Rs. 60
• lakhs & to Rs. 75 lakhs for ancillary units
• Inv. ceiling for “tiny” units raised to Rs. 5 lakhs
• High priority to Agro-based industries
• Special marketing agencies for products of rural & cottage
industries
• Special emphasis on training of women entrepreneurs
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Economic Policy Statement (1991):
Economic Reforms

© Dr Sudhir K Jain 31
Continuation of Economic Reforms
(1991-1995-2007-2009)

© Dr Sudhir K Jain 32
Thank you

© Dr Sudhir K Jain 33
Continuation of Economic Reforms
(1991-1995-2007-2009)

© Dr Sudhir K Jain 34