Industrial Policy 1948, 1956, 1991 — Revision Notes

⚡ 30-Second Revision

IPR 1948: — Mixed economy, 4 industry categories, state in strategic sectors. Foundation.
IPR 1956: — Socialist pattern, Mahalanobis Model, public sector 'commanding heights', 3 schedules (17 reserved for state), License Raj begins. IDRA 1951. MRTP Act 1969.
NIP 1991: — LPG reforms. Delicensing (most industries), Dereservation (from 17 to 8, then 3 for state), FDI liberalization (FERA to FEMA 1999), MRTP Act amended (later Competition Act 2002). Crisis-driven.
Key Numbers: — 17 industries (IPR 1956 Schedule A), 8 (initially) then 3 (currently) reserved for public sector post-1991.
Constitutional Links: — Article 19(1)(g) (freedom of trade), Article 39(b), (c) (DPSP, state control).
Vyyuha Mnemonic: — PIL Framework: P (Private emphasis 1948), I (Industrial classification 1956), L (Liberalization 1991).

2-Minute Revision

India's industrial policy has undergone a transformative journey, marked by three pivotal resolutions. The Industrial Policy Resolution of 1948 established a 'mixed economy,' recognizing the need for both state and private sector participation post-independence. It cautiously reserved strategic industries for the state while encouraging private enterprise in others, laying a foundational framework for planned development.

The Industrial Policy Resolution of 1956 represented a decisive ideological shift towards a 'socialist pattern of society,' heavily influenced by the Mahalanobis model. It assigned the public sector the 'commanding heights' of the economy, reserving 17 key industries exclusively for state control.

This policy institutionalized the 'License Raj System,' where private industries required extensive government permits for operations, aiming to prevent monopolies and ensure equitable growth, but ultimately leading to inefficiencies and stifling competition.

Finally, the New Industrial Policy of 1991 was a radical departure, necessitated by a severe economic crisis. It ushered in an era of liberalization, privatization, and globalization (LPG). Key reforms included delicensing most industries, significantly dereserving sectors from public monopoly, liberalizing foreign investment, and amending the MRTP Act.

This policy aimed to integrate India with the global economy, enhance efficiency, and unleash the private sector's potential, fundamentally reshaping India's economic landscape towards a market-oriented system.

Understanding these shifts is crucial for grasping India's economic evolution.

5-Minute Revision

India's industrial policy has evolved through distinct phases, each reflecting the nation's economic philosophy and developmental imperatives. The Industrial Policy Resolution of 1948 was the inaugural statement, establishing a 'mixed economy' where the state would guide development in strategic sectors (like arms, atomic energy, railways) while the private sector operated in others.

This policy, a pragmatic response to post-independence challenges, aimed for rapid industrial growth and balanced regional development, setting the stage for a planned economy.

The Industrial Policy Resolution of 1956 marked a significant ideological shift, embracing a 'socialist pattern of society' under the influence of the Mahalanobis model and the Second Five Year Plan.

It vastly expanded the public sector, designating it the 'commanding heights' of the economy, with 17 core industries exclusively reserved for state ownership (Schedule A). The private sector, though allowed, was subjected to stringent controls through the 'License Raj System,' requiring licenses for almost every industrial activity.

This system, enforced by the IDRA 1951 and later complemented by the MRTP Act 1969, aimed to prevent monopolies and ensure equitable distribution but ultimately led to bureaucratic delays, inefficiency, and stifled innovation, creating a protected, uncompetitive domestic market.

The New Industrial Policy of 1991 represented a paradigm shift, driven by a severe balance of payments crisis and the recognition of the License Raj's failures. This policy initiated comprehensive economic reforms based on Liberalization, Privatization, and Globalization (LPG).

Key changes included the abolition of industrial licensing for most industries (delicensing), a drastic reduction in industries reserved for the public sector (dereservation from 17 to 8, then to 3), and a significant liberalization of foreign investment norms (replacing FERA with FEMA in 1999).

The MRTP Act was amended to focus on promoting competition rather than controlling asset size. The NIP 1991 aimed to integrate India with the global economy, enhance industrial efficiency, attract foreign capital and technology, and unleash the private sector as the primary engine of growth.

This policy fundamentally transformed India's economic trajectory, moving it from a state-controlled, inward-looking economy to a more market-oriented, globally integrated one. The constitutional underpinnings, particularly the DPSP (Article 39 b & c) for state control and Article 19(1)(g) for economic freedom, have been reinterpreted over time to justify these shifts.

Prelims Revision Notes

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IPR 1948 (April 6, 1948):

* Objective: Mixed economy, rapid growth, balanced development. * Classification: 4 categories: State monopoly (arms, atomic energy, railways), State-controlled/private-managed (coal, iron & steel, aircraft), Regulated private (18 industries like textiles, cement), Free private (rest). * Key Feature: First formal policy, cautious approach.

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IPR 1956 (April 30, 1956):

* Objective: Socialist pattern of society, heavy industrialization (Mahalanobis Model), public sector 'commanding heights', reduce disparities. * Classification: 3 Schedules: * Schedule A (17 industries): Exclusive state monopoly (e.

g., arms, atomic energy, heavy machinery, coal, iron & steel, railway/air transport, electricity generation). * Schedule B (12 industries): State-led, private can supplement (e.g., aluminium, machine tools, fertilizers, road/sea transport).

* Schedule C: Open to private, but subject to licensing. * Key Features: License Raj system (IDRA 1951), MRTP Act 1969 to curb monopolies, extensive state control.

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New Industrial Policy 1991 (July 24, 1991):

* Context: Severe BoP crisis, fiscal deficit, high inflation, global shifts. * Objective: Liberalization, Privatization, Globalization (LPG), efficiency, global integration, FDI attraction.

* Key Reforms: * Delicensing: Abolished industrial licensing for most industries (retained for 18, later reduced to 3-4 like defense, atomic energy, railways). * Dereservation: Industries reserved for public sector reduced from 17 to 8, then to 3 (atomic energy, railway operations, specified minerals).

* FDI Liberalization: Automatic approval for higher equity (e.g., 51%), FERA 1973 replaced by FEMA 1999. * MRTP Act: Amended to focus on unfair trade practices, not asset size. Replaced by Competition Act 2002.

* Disinvestment: Began in PSUs. * Key Feature: Dismantling of License Raj, market-oriented approach.

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Constitutional Links: — Article 19(1)(g) (freedom of trade, subject to restrictions), Article 39(b) & (c) (DPSP, state's role in resource distribution, preventing wealth concentration). Concurrent List (Industries).

Mains Revision Notes

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Evolutionary Trajectory: — Understand the industrial policy as a journey from state-led development (IPR 1948, 1956) to market-oriented reforms (NIP 1991). Each policy was a response to specific economic, political, and ideological contexts.
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IPR 1956 - The Socialist Blueprint:

* Rationale: Nehruvian socialism, Mahalanobis Model, self-reliance, equitable growth, prevent monopolies. * Mechanisms: Public sector as 'commanding heights,' extensive industrial licensing (License Raj), MRTP Act. * Outcomes: Built heavy industrial base, self-reliance in key sectors. However, led to inefficiency, corruption, technological stagnation, lack of competition, slow growth rates ('Hindu Rate of Growth').

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NIP 1991 - The Paradigm Shift:

* Necessity: Severe Balance of Payments crisis, fiscal unsustainability, internal inefficiencies of License Raj, global ideological shifts (collapse of Soviet Union, Washington Consensus). * Reforms (LPG): Delicensing, dereservation, FDI liberalization, trade policy reforms, MRTP Act amendment.

These aimed to reduce state control, promote private sector, and integrate with global economy. * Outcomes: Accelerated economic growth, increased competition, technological upgradation, higher FDI.

Concerns: increased inequality, regional disparities, impact on small industries.

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Constitutional Underpinnings:

* DPSP (Art 39 b & c): Provided the ideological justification for state intervention and public sector expansion in IPR 1956, emphasizing common good and preventing wealth concentration. * Fundamental Rights (Art 19(1)(g)): Freedom of trade and business.

While subject to 'reasonable restrictions' in the pre-1991 era, NIP 1991 re-emphasized this right by reducing state control and promoting market freedom. * Judicial Scrutiny: Landmark cases like R.

C. Cooper and Minerva Mills highlighted the tension between DPSP and FRs, influencing the limits of state's economic power.

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Lessons for Contemporary Policy: — The experience teaches the importance of balancing state intervention with market efficiency, fostering competition, ensuring ease of doing business, and avoiding excessive bureaucratic control. Current policies like PLI schemes reflect a nuanced approach, combining targeted state support with private sector-led growth, building on the NIP 1991 framework while addressing new challenges.

Vyyuha Quick Recall

Remember the evolution of India's Industrial Policies with the 'PIL Framework':

P — Private sector emphasis (1948): IPR 1948 laid the foundation for a Pragmatic Partnership (mixed economy), giving the Private sector a significant, though regulated, role alongside the state in strategic areas. Think 'P' for Partnership.

I — Industrial classification & Intervention (1956): IPR 1956 brought Ideological shift towards socialism, Increased state Intervention, and detailed Industrial Intervention through Industrial Iicensing (License Raj). Think 'I' for Intervention.

L — Liberalization (1991): NIP 1991 was all about Liberalization, LPG reforms, Less state control, and Letting the market Lead. Think 'L' for Liberalization.

Timeline Memory Aids:

1948: — Just after Independence, a cautious start. '48 is close to '47. First step.
1956: — Second Five Year Plan, Mahalanobis Model. '56 is when the socialist vision solidified.
1991: — Economic Crisis. '91 is the year of radical reforms.

Key Number Recalls:

1956: — 17 industries reserved for the state (Schedule A).
1991: — Reserved industries reduced from 17 to 8 initially, then to 3 (Atomic Energy, Railway Operations, specified minerals).