SAI VIDYA INSTITUTE OF TECHNOLOGY

Module-06
Indian Industrial Policy : New industrial policy 1991, Production Linked
Incentive (PLI) scheme for Promoting manufacturing of Telecom &
Networking Products in India, New economic initiatives proposed by Indian
government for economic growth Private Sector-Growth- like Atma Nirbhar
Bharath Abhiyan.

Industrial Policy
Industrial policy is a document that sets the tone in implementing, promoting the regulatory
roles of the government. It was an effort to expand the industrialization and uplift the
economy to its deserved heights. It signified the involvement of Indian government in the
development of industrial sector.
With the introduction of new economic policies, the main aim of the government was to free
the Indian industry from the chains of licensing. The regulatory roles of the Indian
government refer to the policies towards industries, their establishments, their functioning,
their expansion, their growth as well as their management.

Objectives of Industrial Policy

The main objectives of the Industrial Policy of Government in India are:
• The industrial policy helps keep the industry on track with growth, leading to improved
productivity.
• Better industrial growth leads to more job opportunities and higher economic growth.
• It makes the industries more regulated & productive and improves human resource use.
• It will help accelerate the economic growth of the country.
• Better functioning of the industries will lead to better international standards, enabling the
domestic market to compete with the global market.

Problems in industrial development during the plan period.

The following are some of the major problems and obstacles that are being faced in the
process of industrialization of the country:
1. Poor Capital Formation:
Poor rate of capital formation is considered as one of the major constraint which has been
responsible for slow rate of industrial growth in India.
2. Political Factors:

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During the pre-independence period, industrial policy followed by the British rulers was not
at all favorable for the interest of the country. Thus, India remained a primary producing
country during 200 years of British rule which ultimately retarded the industrial development
of the country in its early period.
3. Lack of Infrastructural Facilities:
India is still backward in respect of its infrastructural facilities and it is an important
impediment towards the industrialization of the country. Thus in the absence of proper
transportation (rail and road) and communication facilities in many parts of the country,
industrial development could not be attained in those regions in-spite of having huge
development potentialities in those areas.
4. Poor Performance of the Agricultural Sector:
Industrial development in India is very dependent on the performance of the agricultural
sector. Thus, the poor performance of the agricultural sector resulting from natural factors is
also another important factor responsible for industrial stagnation in the country.

Agriculture provides not only raw materials and foodstuffs hut also generates demand for the
goods produced by the industrial sector. Thus, this poor performance of the agriculture
retards the development of industries in India.
5. Gaps between Targets and Achievements:
In the entire period of planning excepting 1980s, industrial sector could not achieve its
overall targets. During the first Three Plans, against the target of 7, 10.5 and 10.7 per cent
industrial growth rate, the actual achievements were 6, 7.2, 9 per cent respectively. Since the
Third Plan onwards, the gap between the targets and achievements widened.
It is only during the Sixth and Seventh Plan, the industrial sector could achieve its targets.
Again in first part of 1990s the industrial sector again failed miserably to achieve its target.
This trend is all along against the smooth industrial development of the country.
6. Dearth of Skilled and Efficient Personnel:
The country has been facing the problem of dearth of technical and efficient personnel
required for the industrial development of the country. In the absence of properly trained and
skilled personnel, it has become very difficult to handle such highly sophisticated
computerized machineries necessary for industrial development of the country.
Moreover, inefficiency and insincerity of those personnel engaged in industrial sector has
been resulting in huge wastage of resources of the industrial sector. Moreover, social factors
like immobility of labour and capital and lack of proper initiative and enterprises on the part

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of people of India are also highly responsible for this slow pace of industrialization in the
country.
7. Elite Oriented Consumption:
In recent years, a strong tendency to produce rich men’s goods has been established among
the large industrial houses. Accordingly, the production of “white goods” like refrigerators,
washing machines, air conditioners etc. expanded substantially along with the other luxury
products.
But the production of commodities for mass consumption has recorded a slow growth rate.
This clearly reveals a ‘distortion of output structure’ of Indian industries, resulting in a
recessionary tendency in the market of these luxury products in recent years.
8. Concentration of Wealth:
The pattern of industrialization in the country has been resulting in concentration of
economic power in the hands of few large industrial houses and thus flailed to achieve the
objective of planning in reducing concentration of wealth and economic power. As for
example, Tatas with 38 companies substantially increased their assets from Rs. 375 crore in
1963- 64 to Rs. 14,676 crore in 1991-92.

The assets of Birlas also increased from Rs. 283 crore in 1963- 64 to Rs. 6,775 crore in 1990-
91. Similarly other large business houses are also multiplying their assets at a very faster rate
and are tightening their stronghold on the economy.
9. Poor Performance of the Public Sector:
In-spite of attaining a substantial expansion during the planning period, the performance of
public sector enterprises remained all along very poor. A good number of such enterprises are
incurring huge losses regularly due to its faulty pricing policy and lack of proper management
necessitating huge budgetary provision every year. Thus, the public sector investment failed
to generate required surpluses necessary for further investment in industrial sector of the
country.
10. Regional Imbalances:
Concentration of industrial development into some few states has raised another problem of
imbalances in industrial development of the country. Western region comprising Maharashtra
and Gujarat attained maximum industrial development whereas the plight, of the poor states
are continuously being neglected in the process of industrialization of the country in-spite of
having a huge development potential of their own.
Although a huge investment in the public sector has been made in the backward states like
Bihar, Orissa and Madhya Pradesh, but the ‘trickling down effects’ of such investment were

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not also visible. Various fiscal incentives, capital subsidies and other facilities introduced for
industrial development of backward area were mostly channelized to develop industries in
backward areas of developed states leading to a gross neglect of the demand of backward
states.
11. Industrial Sickness:
Another peculiar problem faced by the industrial sector of the country is its growing sickness
due to bad and inefficient management. As per the RBI estimate, a total number of sick
industrial units in India were 1,71,316 as on 31st March, 2003 and these sick industrial units
had involved an outstanding bank credit to the extent of Rs. 34,815 crore.
The RBI estimate further disclosed that every seventh small scale unit in India was sick at the
end of December 1983. Thus, this growing sickness of industrial units has resulted in a huge
problem in the path of industrial development of the country.
12. Regime of State Controls:
Lastly, industrial inefficiencies resulting in perpetuation of regional state controls and
regulatory mechanism are standing in the path of industrialization of the country. In recent
years, the Government has undertaken some serious measures to make necessary economic
reforms in the industrial structure of both the public as well as private sectors of the country.
Although these measures are quite challenging in nature but these are expected to do much
headway in removing various obstacles mentioned above and also in attaining industrial
development of the country further in the years to come.
INDUSTRIAL POLICY 1991
In order to accelerate Industrial Development in India, and in accordance with the changing
circumstances, various industrial policies were declared in the years 1948, 1956, 1977, 1980
and 1985, but in spite of all efforts, the pace and as well as the level of Industrial
Development in India, could not reached according to its need. Therefore, in order to lift
unnecessary restrictions on Industries, under the licensing policy, and to increase their
efficiency, development and technological level, in order to make Indian goods usable in the
competitive global market, on 24th July, 1991, in Lok-Sabha the Minister of States for
industries, Mr. P. J. Kurian declared the Industrial Policy, 1991.

OBJECTIVES OF NEW INDUSTRIAL POLICY, 1991

• To liberalise the economy
• To increase employment opportunities
• To encourage foreign assistance and co-partnership

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• To make the Public Sector more competitive
• To increase the production and productivity, give encouragement to industries
• To liberate the economy from various government restrictions
• Industrial development of backward areas
• To give liberty to private sector to work independently
• To make development for modem competitive economy
• To give encouragement for expansion of production capacity
• To increase exports and liberalize (facilitate) imports.

SALIENT FEATURES OF NEW INDUSTRIAL POLICY, 1991

• Liberalized Industrial Licensing Policy
Under this policy, with the exception of 18 industries, licensing system has been removed for
all other industries. Some of those 18 industries, where the licensing system is still mandatory
are; Army and Defence, Forest Conservation, Industries engaged in manufacturing goods
which are harmful to the Environment and industries, which are manufacturing luxury goods,
for the affluent (very rich) class, etc.

• Localisation Policy
Those industries which are situated in cities, where the population is less than 1 million,
industrial permission from the government, to start any industry is not required. In cities
having population of more than 1 million, with the exception of electronics and other
pollution free industries, all industrial units may be 25 kilo meters away from the city’s
boundary.
• Foreign Investment
Provision has been made to invest up to 51 percent by foreign investors in the equity shares
of Indian Companies. Earlier, this limit was limited up to 40% only. This will increase the
flow of foreign capital into India and make possible technical exchange from developed
countries.

• Workers’ Participation in Management

Under this industrial policy, emphasis has been laid on safeguarding the workers’ interest.
Provision has been made for workers’ participation in management, in order to manage sick
units, provision has been made to form co-operative societies of workers, to run them.
• Role of Public Sector

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Those public sector undertakings which are not doing well at present, but in which there are
enough chances of improvement, shall be re-constituted. Public sector undertakings, which
are facing constant financial crisis, shall be kept under observation by ‘Board of Industrial
and Financial Reconstruction’ or by any other institution, which is fixed by the government.
• Change in the MRTP Act
In the industrial policy 1991, major changes have been made in the Monopolistic and
Restrictive Trade Practice Act. Companies having investment of Rs. 100 crores, will not be
required to take prior Government permission, for opening new subdivisions, or to expand
the present industry or for amalgamation of companies. This industrial policy has also
eliminated the investment limit, which was fixed by MRTP Act.
• Creation of Productive Capacity
In order to increase the productive capacity of new industries, all administrative controls have
been removed. Industrialists will only have to inform the government of opening of new units
or increasing their production capacity.
• Foreign Technology
No prior permission from government will be required in importing foreign technology, up to
the limit of One Crore rupees. Indian companies, will be free to negotiate their terms and
conditions, with their foreign collaborators, in matters of technology transfers (exchange of
‘technical know-how).
• Promotion of Industries in Rural Areas
In order to remove the regional imbalances, under this industrial policy, various provisions
have been made to encourage industries in rural areas. Reservation of Small Scale Industries
This policy has stated that the government shall keep giving assistance to small scale
industries. The limit for small scale industries has been reduced from Rs 3 Crores to Rs. 1
Crore, since 24 December, 1999.

Impact Of Industrial Policy, 1991

• The all-round changes introduced in the industrial policy framework have given a new
direction to the future industrialization of the country.
• Industrial growth was 1.7 per cent in 1991-92 that has increased to 9.2 percent in
2007-08. • The industrial structure is much more balanced.
• The impact of industrial reforms is reflected in multiple increases in investment
envisaged, both domestic and foreign. This is due to encouraging response from the
private sector.

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• There has been dramatic increase in FDI since 1991. The foreign investment as a
percentage of total GDP has increased from 0.5 percent in 1990-91 to 5.7 percent in
2006.
• Investments in infrastructure sector such as power generation have surged from
players of various sizes in different states. The capital goods have grown at an
accelerated pace, over a high base attained in the previous years, which augurs well
for the required industrial capacity addition.

The Production Linked Incentive (PLI) scheme

The Production Linked Incentive (PLI) scheme is a flagship initiative of the Government of
India aimed at boosting manufacturing in India across various sectors. The scheme was
introduced to make India a global manufacturing hub by providing financial incentives to
companies that produce goods in India. Below are detailed notes on the PLI scheme. The
scheme was announced by the Government of India as part of its 'Make in India' initiative to
encourage local manufacturing.
1. Introduction to the PLI Scheme:
Objective: The primary objective of the PLI scheme is to promote domestic manufacturing
and reduce import dependency in various sectors, thereby boosting the country's economic
growth and job creation.
2. Sectors Covered:
The PLI scheme covers a range of sectors, including but not limited to:

• Electronics and Technology Products

• Pharmaceuticals
• Automobiles and Auto Components
• Textiles and Apparel
• Food Products
• Solar Panels and Cells
• White Goods (Air Conditioners and LED Lights)
• Telecom and Networking Products

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Objectives of PLI schemes

• Boost Domestic Manufacturing: The primary goal of the PLI scheme is to promote
and boost domestic manufacturing across various sectors. By providing financial
incentives to companies, the government aims to encourage the production of goods
within the country.
• Reduce Import Dependency: Another key objective is to reduce India's dependency
on imports for critical goods and products. By incentivizing domestic production, the
government aims to decrease the reliance on foreign imports, which can help
strengthen India's economic and strategic resilience.
• Create Employment Opportunities: The PLI scheme aims to generate employment
opportunities by encouraging manufacturing activities. As companies expand their
production capacities or set up new manufacturing units, they are likely to hire more
workers, thereby contributing to job creation.
• Promote Investment: The scheme seeks to attract both domestic and foreign
investments in various sectors. It does so by offering financial incentives, which can
serve as a strong motivator for companies to invest in building manufacturing
infrastructure and capacities in India.
• Encourage Technological Upgradation: The PLI scheme encourages companies to
invest in advanced technologies and modern manufacturing processes. This focus on
technological upgradation can lead to increased efficiency, improved product quality,
and innovation within the manufacturing sector.
• Export Promotion: Many PLI schemes include provisions to promote exports. By
manufacturing products for export markets, Indian companies can increase their
international competitiveness and contribute to India's export growth.
• Support the 'Make in India' Initiative: The PLI scheme aligns with the broader
government initiative known as 'Make in India,' which aims to transform India into a
global manufacturing hub. It seeks to enhance the country's image as a destination for
quality manufacturing.
• Atmanirbhar Bharat (Self-Reliant India): The PLI scheme is in line with the
government's vision of making India self-reliant (Atmanirbhar) in various sectors. By
promoting domestic production, the government aims to reduce dependency on
foreign goods and strengthen India's economic sovereignty.
• Economic Growth: Ultimately, the PLI scheme aims to contribute to India's
economic growth by increasing the contribution of the manufacturing sector to the
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Atmanirbhar Bharat Abhiyaan
Overview:
Self-reliant India campaign is the vision of new India envisaged by the Hon'ble Prime
Minister Shri Narendra Modi. On 12 May 2020, our PM raised a clarion call to the nation
giving a kick start to the Atmanirbhar Bharat Abhiyaan (Self- reliant India campaign) and
announced the Special economic and comprehensive package of INR 20 lakh crores -
equivalent to 10% of India’s GDP – to fight COVID-19 pandemic in India.
The aim is to make the country and its citizens independent and self- reliant in all senses. He
further outlined five pillars of Aatma Nirbhar Bharat – Economy, Infrastructure, System,
Vibrant Demography and Demand. Finance Minister further announces Government Reforms
and Enablers across Seven Sectors under Aatmanirbhar Bharat Abhiyaan.
The government took several bold reforms such as Supply Chain Reforms for Agriculture,
Rational Tax Systems, Simple & Clear Laws, Capable Human Resource and Strong Financial
System.
The announcements made by the Finance Minister Nirmala Sitharaman concluded the relief
measures undertaken in five tranches by the government as part of the economic package
announced by PM Modi for ‘Atmanirbhar Bharat’. The minister, also provided a tranche-wise
complete break-up of the stimulus. Importantly, the overall package which stood at Rs
20,97,053 crore, included the Rs 1.92 lakh crore stimulus from measures announced by Modi
recently such as the Pradhan Matri Garib Kalyan Package worth Rs 1.7 lakh crore. A big
chunk, in fact the largest, worth Rs 8.01 lakh crore of the economic package belonged to the
various measures by the Reserve Bank of India in February, March and April this year to
inject liquidity.
As part of this initiative, the government has outlined five pillars to guide the strategy and
implementation:

 Economy:
The first pillar focuses on building a robust and self-reliant economy. It includes
measures to promote economic growth, investment, and job creation.
Initiatives under this pillar include economic reforms, infrastructure development,
financial sector reforms, and support for various industries and sectors.
 Infrastructure:
The second pillar emphasizes the development of modern and resilient infrastructure.
Adequate infrastructure is essential for economic growth and competitiveness. This

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pillar includes investments in transportation (roads, railways, ports, airports), energy
(power generation and distribution), digital infrastructure, and affordable housing.
 Systematic Structural Reforms:
The third pillar involves systematic structural reforms across various sectors to make
the Indian economy more efficient, competitive, and self-reliant. Reforms may
include changes in labor laws, agricultural reforms, simplification of regulations, and
measures to improve ease of doing business.
 Vibrant Demography:
The fourth pillar recognizes India's demographic advantage, with a large and young
population. It aims to empower and provide opportunities for this youth population.
Initiatives in this pillar include skill development programs, education reforms, and
measures to enhance employment opportunities, particularly in emerging industries.
 Demand:
The fifth pillar focuses on boosting domestic demand. A strong domestic demand
base is crucial for reducing dependence on imports. This pillar includes measures to
enhance the purchasing power of consumers, promote local products and services, and
support small and medium-sized enterprises (SMEs).

Impact of this Stimulus Package

 Primary Sector: The measures (reforms to amend ECA, APMC, Contract framing, etc)
announced for the agricultural and allied sectors are particularly transformative. These
reforms are steps towards the One Nation One Market objective and help India become the
food factory of the world.  These would finally help in achieving the goal of a self-
sustainable rural economy.  Also, the MGNREGA infusion of Rs 40,000 crore may help in
alleviating the distress of migrants when they return to their villages.

 Secondary Sector: Given the importance of MSMEs for Indian economy, the Rs 3 lakh
crore collateral-free loan facility for MSMEs under the package will help this finance-starved
sector and thereby provide a kickstart to the dismal state of the economy. Also, as the MSME
sector is the second largest employment generating sector in India, this step will help to
sustain the labour intensive industries and thereby help in leveraging India’s comparative
advantage.  Additionally, limiting imports of weapons and increasing the limit of foreign
direct investment in defence from 49% to 74% will give a much- needed boost to the
production in the Ordnance Factory Board, while reducing India’s huge defence import bill.

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 Tertiary Sector: The government has adopted a balanced approach in addressing concerns
across sectors. For example: The newly launched PM e-Vidya programme for multi- mode
access to digital online education provides a uniform learning platform for the whole nation,
which shall enable schools and universities to stream courses online without further loss of
teaching hours.  Public expenditure on health will be increased by investing in grass root
health institutions and ramping up health and wellness centres in rural and urban areas.

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