India’s industrial policy framework has transitioned from a highly regulated, state-controlled model to a liberalized, market-driven economy. This evolution is broadly categorized into the pre-1991 era, characterized by import substitution and licensing, and the post-1991 era, defined by deregulation and global integration.
Industrial Policy Resolution (IPR) 1948
The Industrial Policy Resolution of 1948 laid the foundation for a mixed economic model in India, establishing a distinct role for both public and private sectors.
- Categorization of Industries: Industries were divided into four categories:
- Strategic Industries (State Monopoly): Manufacture of arms and ammunition, production and control of atomic energy, and ownership and management of railway transport.
- Key Industries (Mixed Sector): Six basic industries, including iron and steel, aircraft manufacture, and shipbuilding, where existing private units could continue, but new undertakings were to be set up exclusively by the State.
- Controlled Regulation: Eighteen industries of national importance, including automobiles, heavy machinery, and machine tools, which remained in the private sector but under state regulation.
- Private Sector: All remaining industries were left open to private enterprise, subject to general state supervision.
- Key Objective: To initiate state-driven industrialization while regulating private capital to prevent economic concentration.
Industrial Policy Resolution (IPR) 1956
Often referred to as the “Economic Constitution of India,” the IPR 1956 formed the bedrock of the Mahalanobis Model of development, which prioritized heavy and capital goods industries to achieve self-reliance.
- Three-Fold Classification (Schedules):
- Schedule A: 17 industries reserved exclusively for the state, including arms, atomic energy, iron and steel, heavy plant and machinery, and mining.
- Schedule B: 12 industries that were progressively state-owned, where the state would generally take the initiative in establishing new undertakings, but private enterprise was expected to supplement the effort (e.g., aluminum, machine tools, fertilizers).
- Schedule C: All remaining industries, left entirely to the initiative and enterprise of the private sector, though functioning under the framework of the Industries (Development and Regulation) Act, 1951.
- Industrial Licensing: Introduced a strict licensing regime requiring private units to obtain government permission to establish new units, expand capacity, or diversify product lines.
- Regional Balance: Aimed at reducing regional disparities by offering incentives for setting up industries in economically backward areas.
Industrial Policy Statement 1973
The 1973 policy statement introduced structural modifications to manage large business houses and foreign capital, aligning with the Monopolies and Restrictive Trade Practices (MRTP) Act, 1969.
- Concept of Core Industries: Identified a list of 19 “Core Industries” (including iron and steel, heavy capital equipment, and petrochemicals) where large industrial houses and foreign companies were permitted to invest.
- Joint Sector: Formulated the concept of the joint sector, allowing partnerships between the central/state governments, private promoters, and the general public to combine public oversight with private managerial efficiency.
Industrial Policy Statement 1977
Promulgated during the Janata Party rule, this policy shifted the developmental focus from heavy industries to small-scale and cottage enterprises.
- Sectoral Classification: Classified the small sector into three categories:
- Cottage and household industries.
- Micro-enterprises (tiny sector).
- Small-scale industries (SSIs).
- Reservation Policy: Expanded the list of items reserved exclusively for production by the small-scale sector to over 800 items to generate rural employment.
- District Industries Centres (DICs): Established DICs at the district level to provide integrated services and support facilities to small entrepreneurs under a single roof.
Industrial Policy Statement 1980
This policy marked the return of the Congress government and initiated the early phase of economic deregulation and modernization.
- Focus on Efficiency: Emphasized the need for optimum utilization of installed capacity, technological upgradation, and modernization of existing industrial units.
- Relaxation of Licensing: Introduced schemes like “automatic expansion” of capacity for select industries to enhance economies of scale.
- Delicensing of Elements: Began the gradual process of exempting certain industries from the rigid provisions of the MRTP Act and licensing requirements.
Comparative Summary of Pre-1991 Industrial Policies
| Policy Year | Core Focus | Key Structural Feature | Economic Philosophy |
| 1948 | Foundation of Mixed Economy | Four-fold classification of industries | State-assisted private growth |
| 1956 | Heavy Industrialization (Mahalanobis) | Three-fold classification (Schedule A, B, C); License Raj | State capitalism and import substitution |
| 1973 | Regulation of Large Monopolies | Core Industries concept; MRTP alignment | Controlled entry of big business |
| 1977 | Decentralization and Rural Employment | Expansion of SSI reservations; creation of DICs | Gandhian Socialism |
| 1980 | Productivity and Modernization | Relaxation of capacity limits; automatic growth approvals | Early liberalization |
The New Industrial Policy (NIP) 1991
Triggered by the 1991 Balance of Payments (BoP) crisis, the New Industrial Policy dismantled the “License-Permit-Quota Raj,” shifting India toward a market-driven, globally integrated economy through Liberalization, Privatization, and Globalization (LPG).
Abolition of Industrial Licensing
Industrial licensing was abolished for all projects, irrespective of investment levels, except for a short list of industries related to security, strategic concerns, and environmental hazards.
Industries Retaining Compulsory Licensing
- Electronic aerospace and defense equipment
- Industrial explosives (including detonating fuses, safety fuses, gunpowder, and nitrocellulose)
- Specified hazardous chemicals
- Cigars and cigarettes of tobacco and manufactured tobacco substitutes
Reduction in Public Sector Reservation
The number of industries reserved exclusively for the public sector was drastically reduced to lower fiscal burdens and invite private efficiency.
Current Public Sector Monopolies
- Atomic Energy
- Railway Operations (excluding specified infrastructure and permitted private freight/passenger operations under current public-private partnership models)
Liberalization of Foreign Investment
The policy dismantled barriers to foreign capital, creating pathways for foreign direct investment (FDI) and foreign technology agreements.
- Automatic Approval Route: Introduced automatic approval for FDI up to specified limits in high-priority, capital-intensive industries, eliminating the need for prior government clearance.
- Foreign Investment Promotion Board (FIPB): Established as a single-window clearance body to negotiate and approve foreign investment proposals not covered under the automatic route (subsequently abolished in 2017 to further streamline FDI approvals).
Amendment of the MRTP Act
The asset limit for MRTP companies (previously set at ₹100 crore) was abolished. Large firms no longer required prior government approval for establishment, expansion, mergers, or takeovers. The focus shifted from preventing the size of enterprises to regulating unfair, restrictive, or monopolistic trade practices, eventually leading to the replacement of the MRTP Act by the Competition Act, 2002.
De-reservation of Small-Scale Industries
The policy initiated the phased de-reservation of items reserved for exclusive manufacture by SSIs. This allowed small industries to scale up, access modern technology, and compete with global imports.
Key Post-1991 Industrial Initiatives and Concepts
To complement the structural reforms of 1991, subsequent governments launched targeted initiatives to boost manufacturing, improve ease of doing business, and enhance infrastructure.
- National Manufacturing Policy (NMP), 2011: Aimed at increasing the manufacturing sector’s share in Gross Domestic Product (GDP) to 25% and creating 100 million jobs. It introduced the concept of National Investment and Manufacturing Zones (NIMZs), conceived as giant industrial townships with state-of-the-art infrastructure.
- Make in India (2014): Launched to transform India into a global design and manufacturing hub. It targets 27 focus sectors across manufacturing and services, focusing on job creation, skill enhancement, and fostering innovation.
- Production Linked Incentive (PLI) Scheme: Introduced to provide financial incentives to manufacturers based on the incremental sales of products manufactured in domestic units. It targets strategic sectors including electronics, pharmaceuticals, automobiles, advanced chemistry cell batteries, and textiles to build domestic supply chains and reduce import dependency.
- PM GatiShakti National Master Plan: A digital platform designed to bring 16 ministries together for integrated planning and coordinated implementation of infrastructure connectivity projects, reducing logistical costs for domestic industries.