Introduction to Industrial Policy
Industrial policy encompasses the strategic efforts by the government to encourage the development and growth of the manufacturing and other industrial sectors of the economy. Since independence, India's industrial policy has undergone a significant evolution, moving from a state-dominated, protectionist regime to a liberalized, market-oriented framework. This transformation, especially since 1991, has aimed to enhance efficiency, competitiveness, and integration with the global economy. Key focus areas include the role of Public Sector Enterprises (PSEs), the promotion of Micro, Small & Medium Enterprises (MSMEs) as engines of growth and employment, large-scale manufacturing initiatives like 'Make in India' and PLI schemes, and the development of robust industrial infrastructure like corridors. Effective industrial policy is crucial for job creation, technological advancement, export promotion, and achieving sustained economic growth.
Evolution of Industrial Policy in India
Industrial Policy Resolution (IPR), 1948
Context: Immediately after independence, aimed at laying the foundation for industrial development.
- Outlined a mixed economy model.
- Industries divided into four categories: Strategic (public monopoly), Basic/Key (state new undertakings), Important (private but regulated), Other (private/cooperative).
- Emphasized the state's role.
Industrial Policy Resolution (IPR), 1956
Context: Aligned with Second Five Year Plan (Mahalanobis Model). Called "Economic Constitution of India" or "Bible of State Capitalism".
- Dominant Role for Public Sector: Objective of "socialistic pattern of society."
- Industries reclassified into three schedules: Schedule A (17 industries, exclusive state), Schedule B (12 industries, progressively state-owned), Schedule C (remaining, private but regulated).
- Licensing Regime ("License Raj"): Compulsory licensing to regulate activity, prevent concentration, promote regional balance.
- Emphasis on reducing regional disparities and promoting small-scale industries.
New Industrial Policy (NIP), 1991
Context: Triggered by severe Balance of Payments (BOP) crisis, part of LPG reforms.
- De-licensing: Abolished industrial licensing for most industries (now reduced to 5).
- De-reservation of Public Sector: Reduced industries reserved for PSUs from 17 to 8, then to 2 (atomic energy, railway operations).
- Foreign Direct Investment (FDI) Opening: Automatic approval for FDI up to 51% in high-priority industries, technology agreements liberalized.
- Abolition of MRTP Asset Limit: Focused on promoting competition (Competition Act, 2002, later replaced MRTP Act).
- Public Sector Reforms: Greater autonomy, MoU system, disinvestment.
Public Sector Enterprises (PSEs)
Role & Achievements
- Built industrial base (heavy industries, infrastructure).
- Promoted balanced regional development.
- Created employment opportunities.
- Generated resources for development.
- Prevented concentration of economic power.
- Promoted exports and import substitution.
Challenges
- Low profitability and efficiency.
- Overstaffing and labor issues.
- Political and bureaucratic interference.
- Lack of technological upgradation.
- Delayed decision-making.
Categorization (Autonomy & Financial Powers)
| Category | Current Count | Key Criteria | Examples |
|---|---|---|---|
| Maharatna | 13 (as of late 2023) | Navratna, listed, Avg annual turnover >₹25K cr, Net worth >₹15K cr, Net profit >₹5K cr (last 3 yrs), Significant global presence. | SAIL, ONGC, IOCL, NTPC, BHEL, GAIL, OIL, REC Ltd. |
| Navratna | 16 (as of late 2023) | Miniratna-I, Schedule ‘A’ CPSE, 'excellent'/'very good' MoU rating in 3 of 5 yrs, Composite score ≥60 in 6 params. | BEL, HAL, NALCO, IRCON, RITES Ltd. |
| Miniratna I | ~60+ | Profit last 3 yrs continuously, Pre-tax profit ≥₹30cr in 1 of 3 yrs, Positive net worth. | BEML, Cochin Shipyard, EPIL. |
| Miniratna II | ~10+ | Profit last 3 yrs continuously, Positive net worth. | HMT, Bharat Pumps. |
Disinvestment Policy
Rationale & Methods
Rationale:
- Fiscal Consolidation, Efficiency Improvement, Professional Management, Unlocking Value, Financing social/infra projects.
Methods:
- Strategic Sale (e.g., Air India), IPO, OFS, FPO, ETFs (CPSE, Bharat 22), Buyback.
Key Initiatives
- DIPAM: Nodal department (MoF) for managing government investments, including disinvestment.
- National Monetization Pipeline (NMP): FY2022-2025 pipeline for monetizing core brownfield assets (₹6 lakh crore potential). Sectors: Roads, railways, power, etc. (FY23 achievement: ~₹1.32 lakh crore).
- New PSE Policy (Strategic vs. Non-Strategic, 2020):
- Strategic Sectors (4): Atomic/Space/Defence, Transport/Telecom, Power/Petroleum/Coal/Minerals, Banking/Insurance/Financial services. Minimal state presence.
- Non-Strategic Sectors: All CPSEs to be privatized or closed.
Micro, Small & Medium Enterprises (MSMEs)
Definition (Revised July 1, 2020)
Composite criteria: Investment in Plant & Machinery/Equipment AND Annual Turnover.
- Micro: Investment ≤ ₹1 crore AND Turnover ≤ ₹5 crore.
- Small: Investment ≤ ₹10 crore AND Turnover ≤ ₹50 crore.
- Medium: Investment ≤ ₹50 crore AND Turnover ≤ ₹250 crore.
- Distinction between manufacturing and services removed. Export turnover excluded for classification.
Importance
- Contribution to GDP: ~30% (aim to increase to 50%).
- Employment: Second largest employer (>11 crore people).
- Exports: ~40-45% of overall exports.
- Inclusive Growth: Regional balance, opportunities for diverse entrepreneurs.
- Fosters entrepreneurship and innovation.
Challenges
- Access to Credit: High cost, collateral, limited formal access.
- Technology: Low adoption, lack of awareness.
- Marketing: Limited access, competition.
- Skill Gap & Formalization.
- Delayed payments.
- Infrastructure bottlenecks & Complex regulatory environment.
Government Initiatives
MUDRA Yojana: Loans up to ₹10 lakh to non-corporate, non-farm micro enterprises (Shishu, Kishore, Tarun).
CGTMSE: Credit guarantee for collateral-free MSME loans up to ₹5 crore (corpus infused ₹9,000 cr in Budget 2023-24).
Udyam Registration Portal: Simplified, paperless online registration (from July 2020).
MSME Samadhan Portal: For addressing delayed payments.
ZED Certification Scheme: Promotes Zero Defect, Zero Effect manufacturing.
ECLGS: Emergency Credit Line Guarantee Scheme for COVID-19 relief to MSMEs.
TReDS: Electronic platform for discounting trade receivables of MSMEs.
RAMP Programme: World Bank-assisted scheme to strengthen MSME governance & access.
Udyam Assist Platform (UAP): Formalization of Informal Micro Enterprises.
Manufacturing Sector Initiatives
Make in India (2014)
- Objectives: Transform India into global design/manufacturing hub, increase manufacturing GDP share to 25%, create 100M jobs, attract FDI.
- Four Pillars: New Processes, New Infrastructure, New Sectors, New Mindset.
- Progress: Significant FDI increase, improved EoDB rankings.
- Challenges: Land acquisition, labor laws, infrastructure gaps, skill deficit, global competition.
Production Linked Incentive (PLI) Scheme
- Objectives: Boost domestic manufacturing, attract investments, make India globally competitive, create jobs, reduce import dependence.
- Mechanism: Incentives on incremental sales (over base year) of domestically manufactured products.
- Sectors Covered: Initially 10, expanded to 14 (Mobile Manufacturing, APIs, Medical Devices, Auto, Pharma, Specialty Steel, Telecom, Electronics, White Goods, Food, Solar PV, ACC Battery, Textiles, Drones).
- Impact: Significant investment commitments, increased production (e.g., India 2nd largest mobile phone manufacturer).
Current Insight:
Budget 2023-24 highlighted PLI success. IT Hardware PLI revamped in 2023 with enhanced outlay (₹17,000 Cr) and flexibility. Total ~₹2,900 Cr disbursed by March 2023.
Ease of Doing Business (EoDB)
- World Bank's DBR: India's rank improved from 142 (2014) to 63 (2019). (DBR discontinued in 2021).
- Reforms: IBC (2016), GST, streamlining permits, digital initiatives (SPICe+).
- Current Focus: DPIIT continues Business Reforms Action Plan (BRAP) for states/UTs. Jan Vishwas Bill (2023) decriminalized minor offenses.
Industrial Corridors
- Concept: Integrated networks of infrastructure along high-capacity transportation routes.
- Key Corridors: DMIC (Delhi-Mumbai, Japan-backed), AKIC (Amritsar-Kolkata), CBIC (Chennai-Bengaluru, JICA-backed), BMEC (Bengaluru-Mumbai), VCIC/ECEC (Vizag-Chennai, ADB-backed).
- Objectives: Develop greenfield industrial smart cities, provide high-quality infra, reduce logistics costs, promote clusters.
- Implementation: Through NICDC (formerly DMICDC) & state SPVs.
Current Insight:
Interim Budget 2024-25 mentioned 3 major economic railway corridor programmes under PM Gati Shakti, complementing industrial corridors.
Prelims-ready Notes
Industrial Policies Summary
| Policy | Year | Key Thrust |
|---|---|---|
| IPR | 1948 | Mixed Economy, State's role initiated |
| IPR | 1956 | Dominant Public Sector, Licensing, "Socialistic Pattern" |
| NIP | 1991 | Liberalization, Privatization, Globalization (LPG), De-licensing, FDI boost |
| Make in India | 2014 | Manufacturing Hub, FDI, Job Creation |
| PLI Scheme | 2020 | Boost Domestic Manufacturing, Scale, Exports |
PSE & MSME Snippets
- Maharatna (13): Navratna + Listed + Turnover >₹25K cr, Net Worth >₹15K cr, Net Profit >₹5K cr (avg 3 yrs). Global presence.
- Navratna (16): Miniratna-I + Sch A + MoU rating + Score of 60 in 6 params.
- DIPAM: Nodal agency for disinvestment & public asset management.
- NMP: ₹6 lakh cr monetization (FY22-25) of brownfield infra assets.
- New PSE Policy: 4 Strategic Sectors (minimal PSE presence).
- MSME (Medium): Inv ≤₹50cr & T/O ≤₹250cr. Export T/O excluded.
- MSME Schemes: MUDRA (up to ₹10L), CGTMSE (₹5cr), Udyam Reg., Samadhan, ZED, CHAMPIONS, ECLGS, TReDS.
Mains-ready Analytical Notes
Major Debates/Discussions
- State vs. Market: From state control (IPR 1956 - inefficiency, License Raj) to market-led growth (NIP 1991 - competition, FDI). Current is a pragmatic mix (state as facilitator, PLI).
- Disinvestment: Pros (revenue, efficiency, professional management) vs. Cons (loss of national assets, job losses, undervaluation). Strategic sale vs. minority stake.
- MSMEs – Backbone or Bottleneck?: Crucial for employment/growth but face systemic challenges (credit, tech, market). Shift from protection to enabling competitiveness (Udyam, CGTMSE, MUDRA, ECLGS).
- PLI Scheme – Success or Subsidies?: Pros (investment, production, jobs, import substitution) vs. Concerns (subsidy dependence, large player bias, value addition depth, WTO compliance).
Historical/Long-term Trends & Changes
- Continuity: State role in infrastructure, MSME promotion, regional balance.
- Changes: Shift from import substitution to export promotion/global integration; from licensing to deregulation; increasing private/FDI role; focus on competitiveness, tech upgradation; PSE policy from expansion to consolidation/privatization.
Contemporary Relevance & Impact
- Job Creation: Crucial for India's large workforce.
- Atmanirbhar Bharat: Industrial policy (PLI) central to self-reliance (defence, electronics, APIs).
- Global Value Chains (GVCs): Aim to integrate India better and move up the value chain.
- Reducing Import Dependence: Electronics, pharma, defence.
- Technological Advancement: PLI, R&D incentives (Budget 2024-25: ₹1 lakh crore corpus for R&D in sunrise sectors).
Real-world/Data-backed Recent Examples
- India's Mobile Manufacturing: Production increased from ~6 Cr units (FY15) to ~31 Cr units (FY22), 2nd largest global producer. Exports surged (PLI success).
- Disinvestment: FY24 RE ₹30,000 Cr, FY25 BE target ₹50,000 Cr. Often falls short of targets.
- ECLGS Impact: Economic Survey 2022-23 highlighted its role in preventing widespread MSME bankruptcies during COVID.
- National Monetization Pipeline: FY23 achievement ~₹1.32 lakh crore.
- Semiconductor Push: SPECS, DLI schemes (significant outlay) for attracting chip manufacturing.
Integration of Value-added Points
- Schemes: PM GatiShakti (integrated infra planning), Startup India, Skill India Mission.
- Indexes: World Bank EoDB (historical), State-level BRAP, Logistics Performance Index (LPI) – India 38th in 2023 (improving competitiveness).
- International Reports: UNIDO reports, World Economic Forum on competitiveness.
Current Affairs & Recent Developments (Last 1 Year)
- Disinvestment: FY24 RE at ₹30,000 crore, FY25 BE target at ₹50,000 crore (Interim Budget 2024-25). Strategic sales ongoing (e.g., IDBI Bank stake sale).
- PLI Schemes: Performance review ongoing. IT Hardware PLI revamped (May 2023) with higher outlay (₹17,000 crore) and flexibility. Significant investments/jobs reported.
- MSMEs: Udyam Assist Platform (UAP) launched Jan 2023 for informal MSME formalization. RAMP programme (World Bank-assisted) for strengthening MSME ecosystem. CGTMSE corpus infused with ₹9,000 crore, loan limit raised to ₹5 crore (Budget 2023-24).
- Ease of Doing Business: DPIIT working on BRAP 2023. Jan Vishwas (Amendment of Provisions) Bill, 2023 passed, decriminalizing minor offenses across 42 Acts.
- National Monetization Pipeline: Asset monetization of over ₹1.32 lakh crore achieved in FY23 (NITI Aayog, Dec 2023).
- Industrial Corridors: Continued development. Interim Budget 2024-25 emphasized three major economic railway corridors under PM Gati Shakti to aid industrial logistics.
UPSC Previous Year Questions
Prelims MCQs
1. Q. (UPSC Prelims 2019) With reference to India’s Five-Year Plans, which of the following statements is/are correct?
1. From the Second Five-Year Plan, there was a determined thrust towards substitution of basic and capital good industries.
2. The Fourth Five-Year Plan adopted the objective of correcting the earlier trend of increased concentration of wealth and economic power.
3. In the Fifth Five-Year Plan, for the first time, the financial sector was included as an integral part of the Plan.
Select the correct answer using the code given below:
- (a) 1 and 2 only
- (b) 2 only
- (c) 3 only
- (d) 1, 2 and 3
Answer: (a)
Hint/Explanation: Statement 1 is correct (Mahalanobis strategy). Statement 2 is correct. Statement 3 is incorrect.
2. Q. (UPSC Prelims 2012) In the context of India, which of the following principles is/are implied institutionally in the ‘New Industrial Policy 1991’?
1. Market forces will determine resource allocation to a greater extent.
2. The state will play a more strategic role rather than a controlling role.
3. The policy will aim at increasing the international competitiveness of domestic industries.
Select the correct answer using the codes given below:
- (a) 1 and 2 only
- (b) 3 only
- (c) 1, 2 and 3
- (d) None
Answer: (c)
Hint/Explanation: All three statements correctly reflect the philosophy and objectives behind the New Industrial Policy of 1991.
Mains Questions
1. Q. (UPSC Mains 2022) "The Production-Linked Incentive (PLI) scheme is a game-changer for India's manufacturing sector." Critically examine the statement. Also, discuss the challenges in its implementation. (15 marks)
- Introduction: Briefly explain PLI scheme's objective.
- Arguments for Game-Changer: Attracting investments (cite data), boosting domestic production (e.g., electronics), job creation, enhancing exports, import substitution, integrating into GVCs, fostering scale.
- Critical Examination/Challenges: Benefits skewed towards large players? Actual value addition vs. assembly. Sustainability without incentives. WTO compliance. Administrative hurdles. Sector-specific issues. Need for complementary reforms.
- Conclusion: Acknowledge potential but emphasize need for continuous monitoring, adaptation, and addressing structural issues for long-term success.
2. Q. (UPSC Mains 2018) "Industrial growth rate has lagged behind in the overall growth of Gross-Domestic-Product(GDP) in the post-reform period" Give reasons. How far the recent changes in Industrial Policy are capable of increasing the industrial growth rate? (15 marks)
- Part 1 (Reasons for lag): Structural issues (infra, labor, land), inadequate R&D, import competition, global slowdowns, credit issues for MSMEs, lower manufacturing growth vs. services.
- Part 2 (Recent Policy changes): Make in India, PLI Schemes, EoDB reforms, FDI liberalization, National Infrastructure Pipeline / PM GatiShakti, MSME support (MUDRA, CGTMSE). Analyze sufficiency.
- Conclusion: Balanced view on potential and challenges.
Original MCQs for Prelims
1. Q. Consider the following statements regarding the New Industrial Policy (NIP), 1991:
1. It abolished industrial licensing for all industries without exception.
2. It significantly reduced the number of industries reserved exclusively for the public sector.
3. It introduced automatic approval for Foreign Direct Investment (FDI) up to 100% in all sectors.
Which of the statements given above is/are correct?
- (a) 2 only
- (b) 1 and 2 only
- (c) 2 and 3 only
- (d) 1, 2 and 3
Answer: (a) 2 only
Explanation: Statement 1 is incorrect (licensing remains for a few industries). Statement 3 is incorrect (automatic approval was initially up to 51% in high-priority industries, and 100% is not for all sectors even now).
2. Q. Which of the following criteria is/are used for classifying an enterprise as a "Maharatna" Central Public Sector Enterprise (CPSE) in India?
1. It must already be a Navratna CPSE.
2. It must have an average annual turnover of over ₹10,000 crore during the last 3 years.
3. It must have a significant global presence or international operations.
Select the correct answer using the code given below:
- (a) 1 only
- (b) 1 and 3 only
- (c) 2 and 3 only
- (d) 1, 2 and 3
Answer: (b) 1 and 3 only
Explanation: Statement 2 is incorrect; the average annual turnover criterion for Maharatna status is over ₹25,000 crore, not ₹10,000 crore.
3. Q. The Production Linked Incentive (PLI) Scheme in India primarily aims to:
- (a) Provide direct subsidies to farmers for increasing agricultural output.
- (b) Offer fiscal incentives to states for improving their Ease of Doing Business rankings.
- (c) Boost domestic manufacturing by providing incentives on incremental sales of products manufactured in domestic units.
- (d) Fund research and development projects undertaken by Micro, Small, and Medium Enterprises (MSMEs).
Answer: (c)
Explanation: The core objective of the PLI scheme is to encourage domestic manufacturing and attract investments by offering incentives linked to incremental sales from domestic production units across various identified sectors.
Original Descriptive Questions for Mains
1. Q. The evolution of India's industrial policy from IPR 1956 to the New Industrial Policy 1991 and subsequent initiatives reflects a paradigm shift in the state's role. Discuss this shift and critically evaluate the effectiveness of recent manufacturing initiatives like 'Make in India' and PLI schemes in achieving their stated objectives. (15 marks, 250 words)
- Introduction: Briefly state the change in philosophy from state-led control to market-facilitation.
- Shift in State's Role: IPR 1956 (Controller, primary investor - License Raj, PSU dominance) -> NIP 1991 (Liberalizer, deregulator, facilitator) -> Post-2014 (Strategic enabler, promoter of competitiveness - Make in India, PLI, EoDB).
- Effectiveness of 'Make in India': Positives (FDI inflow, EoDB improvement), Limitations (Manufacturing GDP share stagnant, job creation below target, structural issues).
- Effectiveness of PLI Schemes: Positives (Investment commitments, production boost in some sectors, import substitution). Critical evaluation (Long-term sustainability, value addition depth, inclusivity, subsidy dependence).
- Common Challenges: Infra gaps, skill deficit, global competition, need for deeper structural reforms.
- Conclusion: Acknowledge positive intent and some successes, but stress continuous reform and addressing bottlenecks for sustained transformation.
2. Q. Micro, Small, and Medium Enterprises (MSMEs) are vital for India's economic and social development, yet they grapple with persistent challenges. Analyze the key challenges faced by MSMEs and assess the adequacy of recent government interventions, including the revised MSME definition and credit support schemes. (10 marks, 150 words)
- Introduction: Highlight MSME importance (employment, GDP, exports, inclusivity).
- Key Challenges: Access to finance (credit gap, cost), technology adoption, marketing/market linkages, delayed payments, skill gaps, infra deficits, regulatory burden, formalization.
- Assessment of Interventions: Revised Definition (positive: broader coverage, simpler). Credit Support (MUDRA, CGTMSE, ECLGS - effective relief). Other initiatives (Udyam, Samadhan, TReDS - formalization, delayed payments).
- Adequacy & Way Forward: Interventions are helpful, but deeper issues like credit culture, tech dissemination, market access need sustained focus. Emphasize holistic ecosystem approach.
- Conclusion: Efforts are right, but continuous monitoring, scaling successful interventions, and addressing root causes are crucial.