Page 50 - DMGT401Business Environment

Unit 2: Industrial Policy and Regulatory Structure

2.1 Objectives of Industrial Policy Notes

1. It strives for a balanced regional development, i.e., it tries to ensure that industries are not
clustered in specific areas but develop in all parts of the country.
2. It tries to ensure that the scarce resources of the nation are utilised in the interest of the
nation and not in the interest of profit.
3. It tries to create employment opportunities.
4. It provides enough power to the government to regulate the industry.

5. It checks the concentration of economic power in a few hands. This happened in South
Korea where a major portion of GDP came only from five major companies.
6. It promotes entrepreneurship in the nation.

7. It clearly demarcates the areas where the government will invest and where the private
sector will invest, and specifies how the government will regulate the industry.
8. It ensures that there is no flight of capital.

9. It aims at providing the juvenile Indian industry enough protection from multinationals.
10. It provides direction to financial institutions as to which industry they have to lend to
liberally, and where they have to restrict the availability of finance.

2.2 Industrial Policies

2.2.1 Industrial Policy 1948

The first industrial policy itself paved the path for mixed economy in the nation. It accepted the
existence of both public and private sectors in the economy. It assigned a progressive role for the
State, for investment in industrialisation, and in regulating the private sector. It also accepted
the importance of small and cottage industries in the development of local resources such as
capital, labour, raw material, etc. It recognised the role of foreign capital in industrial
development but stated that there should be strict regulation of foreign capital. The 1948 policy
divided the industry into four categories:
1. Industries where the State had a Monopoly: Three industries were put under this category:
Arms and Ammunition, Atomic Energy, and Rail Transport.
2. New Investment by State: Six industries were specified under this: coal, iron and steel,
aircraft manufacturing, ship building, manufacture of telephone, telegraph, and wireless
apparatus (excluding radio sets) and mineral oil. However, existing private sectors were
allowed to continue for ten years after which the government could review the situation
and acquire any undertaking.
3. The Field of Government Control: These industries were to be regulated and directed by
the government. Some of these industries were automobiles, heavy chemicals, heavy
machinery, machine tools, fertilisers, electrical engineering, sugar, paper, cement, cotton,
and woolen textiles.

4. Industries open to Private Sector: The remainder of the industrial field was open to the
private sector.

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