Industrial Policy Resolutions: 1948, 1956 and the New Industrial Policy of 1991

Since Independence, the Government of India has periodically issued industrial policy statements to define the respective roles of the public and private sectors, the extent of government regulation, and the direction industrial growth should take. Three statements mark the major turning points.

Industrial Policy Resolution, 1948. This was the first industrial policy of independent India. It classified industries into four broad categories: (i) industries that would be the exclusive monopoly of the Central Government (such as arms and ammunition, atomic energy, and railways); (ii) a mixed category in which the state would set up new undertakings while existing private units could continue and expand for ten years, after which the government could take them over (basic industries such as coal, iron and steel, aircraft manufacture, and telecommunications equipment); (iii) industries of importance where the state would generally regulate private enterprise rather than run it directly; and (iv) all remaining industries, left open to private enterprise, individual or cooperative. The 1948 Resolution thus laid the foundation of a 'mixed economy' in which both public and private sectors would coexist under state guidance.

Industrial Policy Resolution, 1956. Adopted after the Indian Parliament had accepted the goal of a 'socialistic pattern of society', the 1956 Resolution went further than 1948 in reserving the commanding heights of the economy for the state. It classified industries into three schedules: Schedule A — industries whose future development was the exclusive responsibility of the state (including heavy machine building, iron and steel, heavy electricals, and mining of major minerals); Schedule B — industries in which the state would increasingly set up new units but private enterprise would also be expected to supplement state effort; and Schedule C — all remaining industries left to the private sector, though still subject to the general regulatory and licensing framework of the state. The 1956 Resolution remained the guiding framework for Indian industrial policy for the next 35 years and gave rise to a large number of public sector undertakings in core and capital-goods industries.

New Industrial Policy (NIP), 1991. Facing a severe balance-of-payments crisis, India adopted a package of Liberalisation, Privatisation and Globalisation (LPG) reforms in 1991, of which the New Industrial Policy was the industrial component. Its major features were: (i) industrial licensing was abolished for all industries except a short list related to security, strategic, and environmental concerns; (ii) the list of industries reserved exclusively for the public sector was drastically reduced, eventually to a handful of strategic industries; (iii) disinvestment of government equity in selected public sector undertakings was initiated to raise resources and improve efficiency; (iv) the threshold that had required large firms to seek prior approval under the MRTP Act before expanding was removed, freeing them to grow without automatic anti-monopoly scrutiny; (v) foreign investment was actively encouraged, with automatic approval up to specified equity limits in many industries; and (vi) foreign technology agreements were liberalised to allow easier access to modern know-how. Together, these changes shifted Indian industrial policy from one of extensive state control and licensing (often called the 'License-Permit-Quota Raj') towards market-driven competition, private initiative, and openness to global capital and technology.