Industrial Policy

 

Industrial Policy

1. New Industrial Policy 1991

The New Industrial Policy (NIP) of 1991 marked a watershed moment in India's economic history. It was introduced to address the challenges of a closed economy and bring structural reforms to enhance industrial competitiveness, productivity, and integration into the global economy.

Objectives of the New Industrial Policy 1991

1. Liberalization:

   • Dismantling the complex licensing system to allow easier entry for private and foreign players.
   • Reduced government interference in the production and pricing of goods.

2. Privatization:

   • Promoting the role of the private sector by reducing the number of public sector enterprises (PSEs).
   • Encouraging the privatization of loss-making government enterprises through disinvestment.

3. Globalization:

   • Opening up the Indian economy to foreign investment and international trade.
   • Adoption of measures to integrate Indian industries into the global market.

4. Modernization:

   • Adoption of advanced technologies.
   • Encouraging collaboration with foreign partners to improve productivity.

Features of the New Industrial Policy 1991

1. Abolition of Industrial Licensing:

   • Licensing requirements were eliminated for all industries except those related to security, strategic concerns, and the environment.
   • Industries such as atomic energy, defense, and hazardous chemicals were exempt.

2. Role of FDI:

   • Allowed up to 51% foreign direct investment (FDI) in priority industries under the automatic route.
   • Attracted global companies to invest in sectors like IT, pharmaceuticals, and automobiles.

3. MRTP Act Restrictions Reduced:

   • Amendments to the Monopolies and Restrictive Trade Practices (MRTP) Act to promote competition.
   • Reduced restrictions on large industrial houses and companies with assets over ₹100 crores.

4. Public Sector Reform:

   • Limited the number of reserved industries for public sector enterprises (PSEs) from 17 to 8.
   • Focused on the efficiency and accountability of PSEs through disinvestment.

5. Focus on Export Competitiveness:

   • Strengthened the role of export-oriented units and introduced policies to encourage export diversification.

6. Technology Policy:

   • Encouraged technology transfers and collaborations with foreign firms to bring in modern machinery and practices.

Impact of the 1991 Policy

• Positive Effects:

  • Boosted industrial growth and foreign investments.
  • Increased the private sector’s role in industrial development.
  • Enhanced the competitiveness of Indian industries globally.

• Challenges:

  • Widening income inequalities due to regional imbalances.
  • Overdependence on foreign capital.
  • Difficulties for small-scale industries (SSIs) to compete with large and multinational corporations.

Later Developments in Industrial Policy

1. National Manufacturing Policy (2011)

This aimed to enhance the manufacturing sector's contribution to GDP and create a sustainable industrial ecosystem.

2. Make in India Initiative (2014)

Focused on positioning India as a global manufacturing hub by attracting foreign investments and fostering domestic industries.

3. Start-Up India and Stand-Up India (2016)

Start-Up India:
This initiative was launched to promote entrepreneurship and innovation across various industries. It focuses on creating an ecosystem conducive to start-up growth in India by reducing bureaucratic barriers, providing financial support, and encouraging technology-driven businesses.

• Key Features:
  • Simplification of regulations for start-ups, including faster company incorporation processes.
  • Establishment of a Start-Up India Hub to provide guidance and mentorship.
  • Tax exemptions for start-ups for three consecutive years if eligible.
  • Government funds of ₹10,000 crores for venture capital funding.
  • Intellectual Property Rights (IPR) support, including rebates and expedited patent registration.

Impact:

• Created over 100,000 recognized start-ups by 2024.
• Boosted innovation and entrepreneurial activity in IT, healthcare, education, and agriculture.

Stand-Up India:
This initiative aims to empower women entrepreneurs and marginalized communities, such as Scheduled Castes (SC) and Scheduled Tribes (ST), by facilitating access to bank loans for setting up greenfield enterprises.

• Key Features:
  • Each bank branch is required to provide loans to at least one woman and one SC/ST entrepreneur.
  • Loans range between ₹10 lakhs and ₹1 crore.
  • Focuses on promoting non-farm sector entrepreneurship.

Impact:

• Empowered women and SC/ST entrepreneurs, particularly in rural areas.
• Encouraged inclusive growth and social equality through financial assistance.

4. Production-Linked Incentive (PLI) Schemes (2020):

The PLI schemes were introduced to boost domestic manufacturing, reduce import dependency, and make Indian products competitive globally.

• Key Features:
  • Incentives are offered to manufacturers based on incremental sales and investments in production facilities.
  • Covers strategic sectors like electronics, pharmaceuticals, telecom, automotive, textiles, and renewable energy.
  • Aims to attract global manufacturing giants and support small and medium-sized enterprises (SMEs).
  • Initial allocation of ₹1.97 lakh crores across 14 key sectors.

Impact:

• Significant increase in domestic production of mobile phones, APIs (Active Pharmaceutical Ingredients), and electric vehicles.
• Boosted exports of products like smartphones and medical devices.
• Generated employment opportunities in various industrial sectors.

Example: The electronics sector witnessed exponential growth due to PLI, making India a major exporter of mobile devices.

5. Labour Codes (2020): Simplification and Modernization of Labour Laws

The Labour Codes were introduced to consolidate and modernize India's archaic labor laws into four comprehensive codes. This reform aims to improve ease of doing business while protecting workers' rights.

• Key Features:

  • Code on Wages: Regulates wages, bonuses, and minimum wage standards across all industries.
  • Industrial Relations Code: Simplifies rules for hiring, firing, and resolving industrial disputes.
  • Code on Social Security: Expands social security coverage to gig workers, platform workers, and unorganized sector employees.
  • Occupational Safety, Health, and Working Conditions Code: Focuses on workplace safety and well-being.

• Benefits for Businesses:

  • Simplification of compliance processes, replacing 29 central labor laws with 4 codes.
  • Greater flexibility in hiring and retrenchment for businesses.
  • Reduced bureaucratic hurdles for businesses while ensuring a robust grievance redressal mechanism.

• Impact on Workers:

  • Enhanced social security and welfare benefits, including provident fund and gratuity.
  • Focused attention on workplace safety, especially in hazardous industries.
  • Addressed wage inequalities and brought uniformity across sectors.

Criticism and Challenges:

• Concerns over worker exploitation due to increased employer flexibility.
• Protests from labor unions over provisions like fixed-term contracts and reduced job security.

Example: The introduction of gig workers under social security schemes is a milestone in addressing the needs of the modern workforce.

2. Growth and Productivity of Indian Industry

Indian industries have evolved significantly since the liberalization era, contributing to GDP growth, technological advancements, and employment generation.

Growth Trends

1. Manufacturing Sector:

   • Growth driven by sectors like textiles, automobiles, and consumer goods.
   • Focus on exports through Special Economic Zones (SEZs).

2. Service Sector Integration:

   • Sectors like IT and telecom witnessed exponential growth, contributing to India’s GDP.

Challenges in Productivity

1. Infrastructure Deficits:

   • Poor transport and energy infrastructure continue to hinder industrial productivity.

2. Skilled Labor Shortages:

   • Mismatch between educational output and industry requirements affects efficiency.

3. Technological Gaps:

• Many industries still rely on outdated machinery, reducing competitiveness.

3. Industrial Employment and Labour Laws in India

Labour policies play a vital role in balancing industrial growth with worker welfare.

Industrial Employment and Labour Laws

Overview

Industrial employment and labour laws in India govern the rights, responsibilities, and working conditions of employees and employers. These laws ensure fair treatment of workers, promote industrial peace, and foster a productive work environment.

Labour Laws

1. Industrial Disputes Act, 1947

   • Governs the resolution of industrial disputes and mechanisms for conciliation, arbitration, and adjudication.
   • Provisions include strikes, lockouts, layoffs, retrenchments, and worker compensation.

2. Factories Act, 1948

   • Regulates working conditions in factories to ensure the health, safety, and welfare of workers.
   • Covers provisions for working hours, cleanliness, ventilation, and hazard prevention.

3. Minimum Wages Act, 1948

   • Mandates the minimum wages that must be paid to skilled and unskilled workers in various sectors.

4. Contract Labour (Regulation and Abolition) Act, 1970

   • Regulates the employment of contract labor and ensures fair wages and working conditions.

5. Employees’ State Insurance (ESI) Act, 1948

   • Provides social security benefits like medical care, sickness, maternity, and disability benefits.

6. Labour Codes (2020)

   • Consolidates 29 labor laws into four codes:
     a. Code on Wages: Simplifies wage regulation.
     b. Industrial Relations Code: Streamlines industrial dispute resolution.
     c. Social Security Code: Extends social security to all workers, including gig workers.
     d. Occupational Safety, Health, and Working Conditions Code: Ensures workplace safety and welfare.

4. Exit Policy

Definition

Exit policy refers to guidelines and procedures for closing down industrial units that are financially unviable or non-productive while ensuring that workers’ rights are protected.

Objectives

1. Allow companies to close or restructure with minimal disruption.
2. Provide a legal framework to handle layoffs and retrenchments.
3. Balance employer flexibility and worker welfare.

Key Features

• Voluntary Retirement Schemes (VRS): Encourages workers to opt for early retirement with compensation.
• Compensation Packages: Statutory benefits like gratuity and severance pay.
• Worker Retraining Programs: Initiatives to help displaced workers find alternative employment.

Challenges

• Resistance from trade unions.
• Complex regulatory requirements.
• Social and political repercussions in cases of mass layoffs.

5. India's Competition Policy

Introduction

India’s competition policy aims to ensure fair competition in the market by curbing monopolistic practices and promoting consumer welfare. The framework is primarily governed by the Competition Act, 2002, which replaced the Monopolies and Restrictive Trade Practices (MRTP) Act, 1969.

Objectives

1. Prevent anti-competitive agreements, such as cartels.
2. Prohibit abuse of dominant position by enterprises.
3. Regulate mergers and acquisitions to prevent concentration of market power.
4. Promote a level playing field for all businesses.

Features of the Competition Act, 2002

1. Anti-Competitive Agreements: Agreements that adversely affect competition are prohibited.

   • Horizontal agreements (e.g., cartels).
   • Vertical agreements (e.g., tie-in arrangements).

2. Abuse of Dominant Position: Enterprises cannot misuse their market dominance to harm competitors or consumers.

   • Examples: Predatory pricing, exclusive supply agreements.

3. Regulation of Combinations: Mergers, acquisitions, and amalgamations are monitored to ensure they do not harm competition.

4. Competition Commission of India (CCI):

   • An independent body responsible for enforcing the Act and promoting fair competition.
   • Has the power to investigate, impose penalties, and suggest corrective actions.