The Government of India is gearing up to roll out a new industrial policy, destined to replace the existing 27-year-old policy. This new plan will pave the way for the promotion of new technologies and an overall reduction of regulations. The overarching aim of the new policy is to foster job creation over the two upcoming decades, facilitate foreign technology transfer, and attract a whopping $100 billion FDI annually.
Need for a New Industrial Policy
The need for an industrial policy overhaul arises from the necessity to shift from a policy of continuity to radical and accelerated reforms. This ensures greater strategic engagement with the world under the banner of reforming, performing, and transforming. A comprehensive, actionable, outcome-oriented industrial policy will equip the industry to play a more prominent role in the economy, acting as an engine of growth and adding more value and jobs.
Constraints Hindering Industrial Growth
Several factors have restricted the growth of the industry. Inadequate infrastructure due to rapidly growing economy has resulted in high logistics costs. Overly protective labour laws have discouraged employers from regular hiring. Complex business procedures and clearances have deterred businesses. Slow adoption of new technologies, low productivity, challenges for trade, and insufficient expenditure on R&D and innovation have further hampered growth.
Past Indian Industrial Policies
The first significant industrial policy, the Industrial Policy Resolution of 1956, initiated state-owned enterprises. It divided industries into three categories based on government involvement. In some sectors, the government assumed a monopoly, in others it allowed private sector participation, while in the rest, private entrepreneurs required licenses for standard business operations.
The Industrial policy of 1991, rolled out during a severe economic crisis, provided directions for industrialization in a liberalizing economy. It encouraged foreign investments and liberalized licensing. A policy for public sector enterprises and the Monopolies and Restrictive Trade Practices Act were also introduced.
Key Initiatives in the New Industrial Policy
The new policy aims to take significant initiatives in critical areas such as industrial licensing, foreign investment, foreign technology agreements, public sector policy, and MRTP Act. In the face of stagnating global demand and rising protectionist tendencies, the Indian MSME sector, in particular, is gearing up for formidable competition from cheap imports from China and FTA countries.
Addressing Low Productivity and Inefficiency
A significant concern that the new policy seeks to address is the predominance of workers in low productivity and low wage activities. The policy aims to enhance productivity, measured by value added per worker and average wages in manufacturing. Despite the challenges, the new policy is a step towards transforming India’s industrial landscape and fulfilling its role as an engine of growth.
Bridging the Gap with Technology Adoption
A glaring issue that remains to be resolved is the slow adoption of new and advanced technologies by the Indian industry. The new policy will focus on promoting faster integration of these technologies to boost productivity and reduce costs. This will, in turn, make Indian goods more competitive in global markets.
R&D and Innovation
Investments in Research and Development (R&D) and innovation are crucial to ensuring growth in the industry. The government aims to tackle the lack of public and private investment in these areas, due to long gestation periods and uncertain returns, through this new industrial policy.
