The Congress (I) Government announced its industrial policy resolution in July 1980.

The 1980 policy endorsed the 1956 industrial policy and followed a pragmatic approach.

The major aim of this policy was to regularize the excess capacity installed over and above the licensed capacity.

It therefore suggested the following measures:


a] Effective operational management of the public sector – According to this policy there had been an erosion of faith in the public sector, therefore the Government decided to launch a drive to revive the efficiency of the public sector undertakings.

b] Integrating industrial development in the private sector by promoting the concept of economic federalism – The Government proposed to promote the concept of economic federalism by setting up of a few nucleus plants in each district, identified as industrially backward, to generate as many ancillaries and small and cottage units as possible.

c] Redefining small scale units – In order to boost the development of small scale industries, Government decided,

i) To increase the limit of investment in the case of tiny units from Rs 1 lakhs to Rs 2 lakhs.

ii) To increase the limit of investment in the case of small scale units from Rs 10 lakhs to Rs 20 lakhs.

iii) To increase the limit of investment in the case of ancillaries from Rs 15 lakhs to Rs 25 lakhs.

d] Regularisation of unauthorized excess capacity installed in the private sector – This policy simplified the procedure for regularisation of unauthorized excess capacity. Eg while regularizing installed capacities in excess of the licensed capacities, FERA and MRTP Companies would be considered on a selective basis. This facility would not be given in respect of items reserved for the small scale sector.

e] Automatic expansion  – this concession was simplified and given to all industries specified in the First Schedule of the 1951 Industrial Development and Regulation Act.

f] Industrial sickness – Government would encourage the merger of the existing sick units which had adequate potential for revival, with healthy units which were capable of managing and restoring the sick units.

Management of sick units would be taken over only in exceptional cases on grounds of public interest where other means of revival were not possible.


This policy removed constraints to industrial production by redefining small scale industries, and regularised installed capacity beyond the licensed capacity.It also introduced a scheme of automatic expansion of capacity in the name full utilization of capacity and maximum production. Big business houses naturally welcomed the liberalization of capacity.

This policy was guided merely by considerations of growth and it chose a mare capital intensive path for development.


Liberalization of Industrial Licensing after 1980:

In 1985 the Rajiv Gandhi Government liberalized the licensing policy to the advantage of large business houses. The main changes were:

a] Liberalisation of licensed capacity thus enabling industries the freedom to increase capacity by 49%. This would help them to reap the benefits of economies of scale and update their technology.

In January 1986 the Government delicensed 23 industries for MRTP and FERA companies, provided the industrial undertakings were located in any of the centrally-declared backward areas.

b] Concept of broad-banding was introduced to provide flexibility to the manufacturers to adjust their product mix depending on the market demand.

This made it possible to issue licenses for broad categories so as to enable the manufacturer to produce any type of items covered as long as the licensed capacity was not exceeded.

c] Raising the asset limit of MRTP companies from Rs 20 cores to Rs 100 cores. As a consequence 112 companies came out of the purview of the MRTP Act leaving 379 units under the MRTP Act.

d] Relaxing of industrial licensing – The number of industries requiring compulsory licensing was reduced from 56 to 26.


Liberalisation of Industrial Licenses 1988:The industrial licensing system was liberalized in 1988 to provide an incentive to the industrialisation of backward areas, Thus,

a]Non-MRTP and Non-FERA companies did not require licenses under IDRA for projects involving investment of fixed assets upto Rs 50 crores if they were set up in centrally declared backward areas and upto Rs 15 crores in non-backward areas.

b] Infrastructural facilities like power, water, tele-communication and banking were to be provided through 10 growth centers throughout the country.

c] To promote industrialization in backward areas, income-tax itself was to be provided by deducting of 25 % of profits for a period of 8 years.


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