Page 52 - DMGT401Business Environment

Unit 2: Industrial Policy and Regulatory Structure

But in these private enterprises will also be expected to supplement the efforts of the State. Notes
Minerals (except minor minerals), road transport, sea transport, machine tools, ferro-alloys and
tool steels, basic and intermediate products required by chemical industries such as manufacture
of drugs, dyestuffs and plastics, antibiotics and other essential drugs, fertilizers, synthetic rubber,
chemical pulp, carbonization of coal, and aluminium and other non-ferrous metals are included
here. In these industries, the State would increasingly establish new units and increase its
participation but would not deny the private sector opportunities to set up units or expand
existing units.

Industries Left for the Private Sector

All remaining industries and their development were left to the private sector. The division of
industries was not very strict. That is, there can be overlapping, for instance, licenses were later
given to the private sector to invest in mining and oil. The government also invested in areas
that were left for the private sector. The 1956 policy increased the area of operation for the State.
Thereafter, the State began taking keen interest in the development of heavy industry and
invested a good amount of money and resources. Not only this, it also promoted the private
sector to work together as a manufacturer and supplier and also as a user of by-products.
The State accepted the role of the private sector and established and encouraged financial
institutions to provide assistance to the private sector.
The 1956 Policy provided for rapid growth of villages and small industries. To remove regional
disparities, this policy emphasised balanced regional growth. For this, it encouraged the
establishment of industries in backward areas. This policy intended to improve the working
conditions for labourers and expected industry to take care of the working conditions of labour
and to ensure industrial peace for its rapid development. Like the 1948, Policy this one also
accepted the importance of foreign capital in national development but maintained that the
major interest and effective control should always be with Indians.
The 1956 industrial policy has been severely criticised on the basis that it laid too much emphasis
on the public sector and restricted the development of the private sector. Also, the public sector
performance was below par as there was no individual accountability. In the name of alleviating
regional disparities, projects were established in locations that were not economically viable
and only increased the cost of production.

The private sector did not take interest in long-term and big projects as the apprehension was
that the public sector would play a dominant role in the economy and private sector would be
further be squeezed. This feeling gained momentum as the State declared it could undertake any
industry as and when it found suitable to do so. This restricted the growth of private sector.
It is also true that in 1956 the private sector was not in a position to invest in an industry with a
higher gestation period. With the state investing heavily in this sector, it not only benefited the
nation, but also the private sector, in the form of ancillary units, raw materials and machines,
and in the overall growth of industry in the country.
The private sector was permitted to invest in certain areas reserved for the public sector-coal,
oil, fertilisers, chemical engineering, etc. In the case of machine tools, nine licenses were given
to HMT, whereas 226 licenses were given to the private sector in fertilisers. The public sector
obtained 12 licenses and the private sector was given 42 licenses.
This shows that the Industrial Policy Resolution 1956 provided enough support and encouragement
to the private sector.

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