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Business Environment

Notes 2.2.3 Industrial Policy 1977

In March 1977 the first non-Congress government was at the centre. The Janata Party assumed
power and Morarji Desai, a die-hard Gandhian, became the Prime Minister. The new government
declared a new industrial policy.
The Janata govt. was of the views that during the past 20 years the excessive emphasis on heavy
industry had to be corrected; emphasis has been given to heavy industry, and to curb
unemployment and poverty small scale industry should be promoted. As a result, the number
of items reserved for the small scale were increased significantly. The main elements of the
Industrial Policy of 1977 were:

Development of the Small Scale Sector

The policy of Janata government was that anything which could be produced in small scale
industry should be produced by them alone. As a result, items reserved for small scale industry
went up from 180 to 807 in 1978. The small scale sector was classified into three categories:
1. Cottage and household industries that provide self-employment on a wide scale;

2. Tiny sector including investment in industrial units, in machinery and equipment upto
1 lakh, and situated in towns with a population of less than 50,000;

3. Small-scale industries comprising industrial units with an investment upto 10 lakh and
in case of ancillaries, with an investment in fixed capital upto 15 lakh.

The government established District Industries Centres (DIC) in each district for the development
of small scale and cottage industries. The objective was to provide clearance to small scale
industry projects under a single roof. A separate wing of IDBI was established to fulfil credit
requirements of small scale industry. Khadi and village industries were revamped.
Large Scale Industry

The industrial policy prescribed the following areas for the large scale sector:
1. Basic industries, essential for providing infrastructure as well as development of small
scale and village industries, such as steel, non-ferrous metals, cement, oil refineries;

2. Capital goods industries for meeting the machinery requirement of basic industries as
well as small scale industries;
3. High technology industries which required large scale production and which were related
to agriculture and small scale development such as fertilizers, pesticides, petrochemicals,
etc.; and
4. Other industries that were outside the list of reserved items for the small scale sector and
which were considered essential for the development of the economy such as machine
tools, organic and inorganic chemicals.
Large Business Houses

The industrial policy of 1977 stated that funds of the public sector financial institutions and
banks should be devoted to the growth of the small scale and medium scale units. Thus large
business houses have to rely on their internally generated resources for financing new projects
or expansion of existing ones.

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