By Anuradha Parma
India’s industrial policies have periodically adapted themselves since Independence, according to the industrial goals and growing trends, blending it with the power of human resources and legacy businesses.
The country’s mission for the 21st century goes beyond survival, and we hope to establish the Indian industries on the global map. Over the last few. years, a new industrial policy is already in the making to realise that vision.
Industrial policies are the backbone of a country’s economic progress. They provide a direction to invaluable industries towards achieving the goals necessary to keep the country financially independent. While formulating and executing policies is important, pulling out the results of the previous policies and comparing them with the current position is what keeps a check on the growth hygiene of the industries.
It plays a major role in the diversification of the products and services offered by the country and in creating a robust industrial base capable of withstanding external shocks. Sectors like pharmaceuticals, automobiles, and software industries have been some of the success stories making the best of the industrial policies brought in by the Government. Currently, the major focus has been the manufacturing industry and bringing the unorganised sectors within this industry to the organised category.
For a developing country like India, policies for industries work as a roadmap towards accepting advanced technologies and production processes. Policies providing incentives and subsidies, grants for adopting modern technology, creating favourable conditions for the industry development clusters, training programs for labour force lead to innovation in products and services and continued economic development. They push the industries to mark themselves globally and increase foreign exchange earnings. This also creates a healthy environment for domestic and global investors looking for opportunities to invest in industries
History of India’s Industrial Policies
Post-freedom, one of the major responsibilities of the Government was to get the economy rolling. A look at the past industrial policies shows that The Industrial Policy Resolution passed in 1948 concentrated on increased production to meet the demands of the population and generate employment. The Industries (Development and Regulation) Act, of 1951 brought in stricter measures making it compulsory for industries to undergo registration and the Government controlling the market price, distribution and supply.
The year 1956 saw a step towards industrial expansion as the Industry Policy Resolution took steps to focus on heavy industries, providing transport facilities and preventing private monopolies. The Industrial Licensing Policy of 1970 laid down rules for industries falling into the categories requiring to obtain licenses. The famous year of 1991 saw the New Industrial Policy laying out the acronym LPG –
Liberalisation: Easing rules like increasing the limit of Foreign Direct Investment (FDI) in Indian industries.
Privatisation: Allowing private entities to take up space in the market.
Globalisation: Working towards putting the Indian products/services on the global map.
Why a new Industrial Policy is required?
It has been more than a decade since the country is yet to have a new industrial policy in place considering the recent global industrial changes and developments. The manufacturing sector seems to be the most badly hit. Operating at a stagnant GDP contribution rate of 15%, it has received stiff competition from China. Adding to this, the increase in jobs in the services sector has brought down the employment rate in this sector as well.
To efficiently harness the resources currently working in the unorganised sector and to bring other sectors like retail, healthcare, education, and housing back into the competition, a new industrial policy is in the works which is supposed to replace the one passed in 1991. The Department for Promotion of Industry and Internal Trade (DPIIT), Ministry of Commerce and Industry has passed the draft to the industries for their comments and suggestions.
What can be expected from the new industrial policy?
Although, MSMEs and the manufacturing sector have garnered special attention in the new policy which has been discussed later on in the article, here is what the other sectors can expect
- Policy intervention that can push production and exports in sectors such as textiles, leather, and footwear – These industries can be pushed in to contribute to the exports of the country
- Develop mega clusters to integrate with global supply chains – small businesses will have the access to corporate bond markets
iii. Development of labour-intensive manufacturing sectors like textile, apparel and shoe manufacturing – This will provide an option for those working in the agriculture and other related sectors to change or have another source of income
Where does India stand today?
In the recent Union Budget announced by Finance Minister Nirmala Sitharaman, the current deficit of the country stands at 4.9 per cent of the Gross Domestic Product – that means that the expenses of the country are 4.9 per cent higher than what it is earning. The Government aims to bring down this deficit to 4.5 per cent by next year by focusing on employment, skilling, MSMEs and the middle class.
In pursuit of the “Viksit Bharat” programme, below points were stated as the nine priorities:
- Productivity and Resilience in Agriculture
- Employment & Skilling
- Inclusive Human Resource Development and Social Justice
- Manufacturing & Services
- Urban Development
- Energy Security
- Infrastructure
- Innovation, Research & Development and
- Next Generation Reforms
Considering the draft New Industrial Policy and the recent budget, the below-mentioned sectors are bound to play an essential role in the industrial development of the country:
Startups
With over 1,14,000 startups creating more than 12 lakh jobs, MSMEs (Micro, Small and Medium Enterprises) involved in manufacturing are all set to receive a financial boost. Some budget highlights for this sector remained as follows:
- Introducing a credit guarantee scheme to purchase machines and equipment without collateral or third-party guarantee
- Developing an assessment model for public sector banks to assess the MSMEs applying for credit
- Enhancing limits of Mudra loans to Rs. 20L for eligible MSMEs which have previously repaid loans
- Eligible startups can deduct up to 100% of their profits till March 31, 2024. Losses can now be carried forward to ten years.
There is a lot in store for the MSMEs in the proposed new policy like
- Providing performance-based loans,
- Allowing intellectual property rights to be accepted as collaterals
- Establishing a development finance institution to provide finance at competitive rates
Manufacturing
The Indian manufacturing industry generated 16-17% of India’s GDP in the pre-pandemic era and is projected to be one of the fastest-growing sectors. Giving it a boost, The Make in India 2.0 programme is focusing on 27 sectors to make India a Manufacturing Hub like air-conditioners, fisheries, electronics, close circuit cameras, steel, textiles etc. The PM Gati Shakti – a National Master Plan for Multi-modal Connectivity intends to include economic zones of textile clusters, pharmaceutical clusters, defence corridors, electronic parks, industrial corridors, fishing clusters, and agri zones to improve connectivity & make Indian businesses more competitive.
Budget highlights
- Customs duty exemption can now be availed to import capital goods and machinery required to manufacture lithium-ion cells for batteries used in electric vehicles.
- Boosting mobile manufacture, relief in import customs duty on certain parts and inputs like camera lenses announced
- The income tax rate for new co-operative societies engaged in manufacturing activities lowered from 22% to 15% (plus a 10% surcharge)
To enhance the quality of the “Made In India” products, the proposed new industrial policy will include a trade surveillance system and benchmark the country’s metrology system against international systems. Besides this, the following industry expectations are also lined up for inclusion in the policy:
- Identifying products to be included in the Production-Linked Incentive (PLI) scheme which was launched in 2022
- Extending the lower tax rate of approximately 17 per cent currently applied to new manufacturing companies to be applied to new manufacturing units as well
- Steps for fast transition to advanced technology, particularly in sectors such as electronics, semi-conductors, and renewable energy components
Steel
Under the Union Budget 2023-24, the government allocated Rs. 70.15 crore (US$ 8.6 million) to the Ministry of Steel. As per reports, steel production is estimated to grow 4-7% to 123-127 MT in FY24.
Budget highlights:
- 2.5% basic customs duty (BCD) on the import of ferronickel, a key raw material for stainless steel and other speciality alloys, removed. 25 critical minerals will also attract zero BCD
- increased spending on infrastructure and affordable housing – this will help the domestic steel enterprises whose maximum income generation is from infrastructure and housing spends
Although the main focus remains on the above specific sectors, the implementation of well-crafted industrial policies is the key element if the country were to witness higher economic growth and development. As the country’s economy kept growing over 7 per cent for a third consecutive year, nothing but progress can be expected by the country. And the implementation of a robust new industrial policy will be one of the key factors of ecnomic growth and development as the benefits of the policy are broadly shared among all the industries.
In summary, India’s industrial policies have been crucial in shaping the nation’s economic development over the years. From the foundational steps taken post-independence to the transformative liberalisation in 1991, these policies have laid the groundwork for industrial growth and stability. However, with the global landscape evolving and domestic challenges increasing, the need for a new industrial policy has become ever more pressing. This forthcoming policy is poised to revitalise the manufacturing sector, support MSMEs, and drive innovation, positioning India for greater global competitiveness. As the nation moves towards its goal of becoming a developed economy, the new industrial policy will be a key driver of sustained economic growth and equitable development, ensuring that all sectors benefit from the country’s progress.
