Industrial Policy Resolution, 1956
The Landmark Policy That Shaped India's Industrial Development
Resolution Definition: A comprehensive framework established by the Government of India to guide industrial development through strategic classification, licensing, and incentives.
Historical Context
Pre-1956 Situation
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Limited industrial infrastructure after colonial rule
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Lack of clear industrial direction and policy
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Regional disparities in industrial development
Resolution Objectives
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Accelerate economic growth and industrialization
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Reduce income and wealth disparities
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Prevent monopolies and concentration of economic power
Key Principle
"The State must play a progressively active role in the development of industries to achieve the socialist pattern of society."
- Industrial Policy Resolution, 1956
Core Policy Elements
Three-fold Classification
Strategic categorization of industries based on ownership and control
Industrial Licensing
Government-regulated permission system for industrial establishment
Industrial Concessions
Targeted incentives to promote industrial growth in underdeveloped regions
Three-fold Classification of Industries
Strategic Framework
The resolution classified industries into three schedules based on the desired level of government involvement and control:
Schedule A
Exclusively Public Sector
Industries reserved solely for government ownership and control
Examples:
- Arms and ammunition
- Atomic energy
- Rail transport
- Air transport
Schedule B
Mixed Sector
Industries progressively state-owned, with private sector supplementing efforts
Public Sector: Primary responsibility
Private Sector: Secondary role
Examples:
- Fertilizers
- Heavy machinery
- Minerals
- Road transport
Schedule C
Private Sector
Industries where private sector can invest with minimal regulation
Private sector can invest based on market conditions and profitability, with some government oversight
Policy Impact
Positive Outcomes:
- Established foundation for public sector enterprises
- Prevented concentration of economic power
- Accelerated industrial development
Criticisms:
- Excessive bureaucracy and red tape
- "License Raj" stifling entrepreneurship
- Inefficiencies in public sector enterprises
Industrial Licensing System
What is Industrial Licensing?
A regulatory framework requiring government approval for establishing new industries, expanding existing ones, or changing product lines.
Purpose of Licensing:
Resource Allocation
Ensure optimal use of scarce resources and prevent wasteful competition
Regional Balance
Promote industrial development in backward regions and reduce disparities
License Raj
Over time, the licensing system became notorious for bureaucratic delays, corruption, and stifling entrepreneurship - a period known as the "License Raj".
Industrial Concessions & Incentives
Purpose of Concessions
To promote balanced regional development by attracting industries to underdeveloped areas through financial incentives.
Key Concession Types:
Tax Holiday
New industries established in designated backward areas were exempt from income tax for an initial period of 5-10 years.
Standard Tax Rate
30-40%
With Concession
0%
Subsidized Utilities
Reduced rates for electricity, water, and other utilities to lower operational costs in backward regions.
Electricity Rate
₹6.50/unit
Subsidized Rate
₹4.00/unit
Water Rate
₹25/m³
Subsidized Rate
₹15/m³
Land Concessions
Government-provided land at subsidized rates or long-term leases with favorable terms in industrial estates.
Transport Subsidies
Rebates on freight charges for raw materials and finished goods to offset logistical disadvantages.
Impact of Concessions:
Increase in industrial units in backward regions (1956-1970)
Reduction in regional development disparities
New industrial towns established with concession support
Long-term Impact
Positive Outcomes
Public Sector Foundation
Established strong public sector enterprises in core industries
Industrial Diversification
Expanded industrial base beyond consumer goods to capital goods
Self-reliance
Reduced dependence on imports for essential goods
Challenges & Reforms
Bureaucratic Inefficiency
Excessive regulations slowed industrial growth
Public Sector Inefficiency
Many state-run enterprises became financially unsustainable
1991 Reforms
Liberalization policies significantly reduced licensing requirements
Historical Significance
The Industrial Policy Resolution of 1956 represented India's commitment to a planned economy and socialist principles. While it achieved significant industrial growth in the initial decades, its rigid framework eventually necessitated the economic liberalization of 1991. This policy remains a foundational document in India's economic history, illustrating the challenges of balancing state control with economic efficiency.
Test Your Knowledge
Take this quick quiz to reinforce your understanding
1. What was the primary objective of the Industrial Policy Resolution, 1956?
2. Which industry was exclusively reserved for the public sector?
3. What was the main purpose of industrial concessions?
