SHREE SARASWATI MAHAVIDHYALAYA

RASHMITA NAYAK
(ASST.PROF.)
INDIAN ECONOMY

SYLLABUS: UNIT 3 – INDUSTRY

Role of Industry in economic development - Industrial Policy of the Government of
India since Independence –Small scale and cottage industries: role and Government
policy

INTRODUCTION TO INDUSTRIES IN INDIA

The industrial sector is one of the main sectors that contribute to the Indian
GDP. Thecountry ranks fourteenth in the factory output in the world. The industrial
sector is made upof manufacturing, mining and quarrying, and electricity, water
supply, and gas sectors. Thisis also known as the secondary sector of the economy.
The industrial sector accounts for around 29.6% of the India GDP and it employs
over 17% of the total workforce in the country. (at current prices) in 2018-19.

GROWTH OF MODERN INDUSTRY

The processing and manufacturing of secondary products were earlier done with the
help of simple tools. It used manual and muscle or animal power. Such activities
were generally confined to individual’s home. Gradually simple tools were replaced
by more and more sophisticated powerful machines. They run with the help of
energy derived from water, coal or mineral oil. These machines required big space
and large workplace. Thus, mills or factories were established. Goods could be
produced faster and there is uniformity in quality. The use of machine called for
specialization and division of labour. The entire process was divided into a number
of small steps following a definite sequence. Each worker was responsible for only
a small part of the job which he could do more quickly and efficiently.
CLASSIFICATION OF INDUSTRIES

Industries are classified in different ways- on the basis of:

• The raw materials

• Size of the industrial unit

• Ownership
 1. Industries on the basis of raw materials

Industries are grouped under two broad categories on the basis of the raw materials
they use. Industries obtaining raw materials from agriculture are called agro-based
industries, for example, Food-processing, sugar and cotton industries. The other
groups of industries, using minerals as their raw materials, are called mineral-based
industries such as iron and steel, aluminium, cement and copper industry.

2. Industries on the basis of size of the industrial unit

Industries may also be classified on the basis of the size of industrial units both
in terms ofthe member of employees and the amount invested in setting up the plant
and the running cost. Accordingly there are large, medium and small-scale
industries. Iron and steel, cotton textiles and oil refining are examples of large scale
industries.

Most of the industrial units in India come under the category of medium and small-
scale industries. If the industrial unit is small, having very few people employed and
the amount of money invested is also not very high, it is called a small-scale industry.
A wide variety of goods such as carving on woods, making of cane furniture and
other items, weaving of cloth or handlooms, making pickles etc. are produced in
very small units mostly in homes with the help of family members only. These
industries are known as cottage industries.

3. Industries on the basis of Ownership

Depending upon the nature of ownership, the industries may be classified as private,
co- operative, public and joint-sector industries. An industry owned and managed
by an individual or a group of individuals is called a private sector industry.

If the ownership of an industry belongs to co-operatives, it is called a cooperative

Sector (formed by a group of people) industry. If the Government- Central or the
State- is the owner of an industry, it is called a public sector industry. Industries set
up, owned and managed in co-operation between the government and the private
initiatives are called joint sector industries. In recent years, a number of industries
have been set up in collaboration with foreign investors. They are called
multinational companies (MNCs).
MAJOR INDUSTRIES

a. Textiles Industry: Cotton, jute, silk, wool and synthetic are different
varieties of natural fibres providing raw material for the textile industry.
The first modern cotton textile industry was set up in India in Mumbai in
1854. It shares about 1/3rd of the total export earnings.Rayon, nylon and
terrene are examples of synthetic fibres. There are over 1, 500 cotton
man-made fibre mills. Most of them are in private sector. The cotton and
the man- made fiber industry are concentrated mainly in Gujarat,
Maharashtra and Tamil Nadu. A substantial production is also obtained
from the handloom sector.

b. The Jute Industry: This is traditionally export-oriented. This industry

is located mostly inWest Bengal on both sides of the river Hugli.

c. The Wool and Silk Industries: These industries have comparatively

small percentage of share in the total output of fabrics. The wool textile
mills are located in Amritsar, Dhariwal Srinagar, Mumbai, Jamnagar,
Kanpur and Bangalore. The silk industry is located in Mysore,
Kanchipuram, Murshidabad, Varanasi and Srinagar.

d. Sugar Industry: The sugarcane is the raw material for this industry.
Maharashtra is an important producer of sugarcane. Here the cultivation
of sugarcane and the sugar industry are under co-operative sector. India
is one of the major sugar producers of the world.

e. Iron and Steel Industry: The modern iron and steel industry was set up
in Kulti, West Bengal in 1870. However the first large scale plant got
underway with the establishment of Tata Iron and Steel Company
(TISCO) in 1907 at Jamshedpur. Iron and steel industries are also
established at Burnpur, Bhadravati, Vijainagar, Durgapur, Bhilai,
Bokaro Rourkela, and Vishakhapatnam. Besides, there is an alloy steel
plant at Durgapur and stainless steel plant at Salem. Except for TISCO,
all other steel plants are owned and managed by the government.

f. Engineering Industries: The HMT(Hindustan Machine Tools Limited)

produces a large variety of big and small machines. Its plants are located
in Bangalore, Pinjore, Hyderabad, Kalamassery (Kerala) and Srinagar
 (Jammu and Kashmir).

g. Oil refining: India imports crude oil from a number of West Asian
countries. In order to refine crude oil, several oil refineries have been set
up in different parts of the country. The oldest refinery is Digboi in
Assam. Others are at Noonmati, Haldia, Bongaigaon, Barauni, Mathura,
Vishakhapatnam, Chennai, Cochin, Mumbai and Koyali (Vadodara).
 h. Chemical industry: India produces a wide variety of chemicals such as
sulphuric acid, soda ash, caustic soda, phenol and dyes. It contributes
about 12% of the total export from India.

ROLE OF INDUSTRIES IN ECONOMIC DEVELOPMENT

1. Modernisation of Industry: Industrial development is necessary for
modernisation of agriculture. In India, agriculture is traditional and
backward. The cost of production is high and productivity is low. We
need tractors, threshers, pump sets and harvesters to modernise
agriculture. To increase productivity, we need chemical fertilizers,
pesticides and weedicides etc. These are all industrial products. Without
industrial development, these goods cannot be produced. Agricultural
products like jute, cotton, sugarcane etc. are raw materials. To prepare
finished products like flex, textiles and sugar etc. we need
industrialisation. So industrial development is necessary for
modernisation of agriculture.

2. Development of Science and Technology: Industrial development

encourages the development of science and technology. The industrial
enterprises conduct research anddevelop new products. Ethanol in the
form of biofuel is an example of industrial development. Industry
conducts research on its wastes and develops byproducts like biodiesel
from Jatropha seeds. Due to industrialisation, we have made progress in
atomic science, satellite communication and missiles etc.

3. Capital Formation: Acute deficiency of capital is the main problem of

Indian economy. In agricultural sector, the surplus is small. Its
mobilisation is also very difficult. In large scale industries, the surplus
is very high. By using external and internal economies, industry can
get higher profit. These profits can be reinvested for expansion and
development. So industrialisation helps in capital formation.

4. Industrialisation and Urbanisation: Urbanisation succeeds

industrialisation. Industrialisation in a particular region brings growth of
transport and communication. Schools, colleges, technical institutions,
banking and health facilities are established near industrial base.
Rourkela was dense forest but now is ultra modern town in Orissa. Many
ancillary units have been established after setting up of big industry.
5. Self-reliance in Defence Production: To achieve self-reliance in
defence production, industrialisation is necessary. During war and
emergency dependence on foreign countries forwar weapons may prove
fatal. Self-reliance in capital goods and industrial infra-structure is also
necessary. Atomic explosion at Pokhran (Rajasthan) and Agni Missile
are examples of industrial growth.

6. Importance in International Trade: Industrialisation plays an

important role in the promotion of trade. The advanced nations gain in
trade than countries who are industrially backward. The underdeveloped
countries export primary products and import industrial products.
Agricultural products command lower prices and their demand is
generally elastic. While industrial products command higher values &
their demand is inelastic. This causes trade gap. To meet the deficit in
balance of payments we have to produce import substitute products or go
for export promotion through industrial development.

7. Use of Natural Resources: It is a common saying that India is a rich

country inhabited by the poor. It implies that India is rich in natural
resources but due to lack of capital and technology, these resources have
not been tapped. Resources should be properly utilized to transform them
into finished industrial products. The British people took India’s cheap
raw- materials for producing industrial goods in their country. India was
used as a market for their industrial products. So India fought with
poverty and England gained during industrial revolution. Hence
industrialisation plays important role for proper utilisation of resources.

8. Alleviation of Poverty and Unemployment: Poverty and

unemployment can be eradicated quickly through rapid industrialisation.
It has occurred in industrially advanced countries like Japan. The slow
growth of industrial sector is responsible for widespread poverty and
mass unemployment. So with fast growth of industrial sector, surplus
labour from villages can be put into use in industry.

9. Main Sector of Economic Development: Industry is viewed as leading

sector to economic development. We can have economies of scale by
 applying advanced technology and division of labour and scientific
management. So production and employment willincrease rapidly. This
will bring economic growth and capital formation.

10. Fast Growth of National and Per Capita Income: Industrial

development helps in the rapid growth of national and per capita income.
The history of economic development of advanced countries shows that
there is a close relation between the level of industrial development and
the level of national and per capita income. For instance, the share
of
industrial sector to national income was 26% and the per capita income in year 2000
was 36,240 dollar in USA.

11. Sign of Higher Standard of Living and Social Change: A country

cannot produce goods and services of high quality in order to attain
decent living standard without the progress of industrial sector.

PROBLEM IN INDUSTRIAL DEVELOPMENT

1. Poor Capital Formation: Poor rate of capital formation is considered as

one of the major constraint which has been responsible for slow rate of
industrial growth in India.

2. Political Factors: During the pre-independence period, industrial policy

followed by the British rulers was not at all favourable for the interest of
the country. Thus, India remained a primary producing country during
200 years of British rule which ultimately retarded the industrial
development of the country in its early period.

3. Lack of Infrastructural Facilities: India is still backward in respect

of its infrastructural facilities and it is an important impediment towards
the industrialization of the country. Thus in the absence of proper
transportation (rail and road) and communication facilities in many parts
of the country, industrial development could not be attained in those
regions in-spite of having huge development potentialities in those areas.

4. Poor Performance of the Agricultural Sector: Industrial development

in India is very dependent on the performance of the agricultural sector.
Thus, the poor performance of the agricultural sector resulting from
natural factors is also another important factor responsible for industrial
stagnation in the country.

5. Gaps between Targets and Achievements: In the entire period of

planning excepting 1980s, industrial sector could not achieve its overall
targets. During the first Three Plans, against the target of 7, 10.5 and 10.7
per cent industrial growth rate, the actual achievements were 6, 7.2, 9
per cent respectively. Since the Third Plan onwards, the gap between
 thetargets and achievements widened.

6. Lack of Skilled and Efficient Personnel: The country has been facing
the problem of dearth of technical and efficient personnel required for
the industrial development of the country. In the absence of properly
trained and skilled personnel, it has become very difficult
to handle such highly sophisticated computerized machineries necessary for
industrial development of the country.

7. Concentration of Wealth: The pattern of industrialisation in the country

has been resulting in concentration of economic power in the hands of
few large industrial houses and thus flailed to achieve the objective of
planning in reducing concentration of wealth and economic power. As
for example, Tatas with 38 companies substantially increased their
assets from Rs. 375 crore in 1963- 64 to Rs. 14,676 crore in 1991-92.

8. Poor Performance of the Public Sector: In-spite of attaining a

substantial expansion during the planning period, the performance of
public sector enterprises remained all along very poor. A good number
of such enterprises are incurring huge losses regularly due to its faulty
pricing policy and lack of proper management necessitating huge
budgetary provision every year. Thus, the public sector investment failed
to generate required surpluses necessary for further investment in
industrial sector of the country.

9. Regional Imbalances: Concentration of industrial development into

some few states has raised another problem of imbalances in industrial
development of the country. Western region comprising Maharashtra and
Gujarat attained maximum industrial development whereas the plight, of
the poor states are continuously being neglected in the process of
industrialisation of the country in-spite of having a huge development
potential of their own.

10. Industrial Sickness: Another peculiar problem faced by the

industrial sector of thecountry is its growing sickness due to bad and
inefficient management. As per the RBI estimate, a total number of sick
industrial units in India were 1,71,316 as on 31st March,2003 and
these sick industrial units had involved an outstanding bank credit to the
extent of Rs. 34,815 crore.

11. Regime of State Controls: Lastly, industrial inefficiencies resulting

in perpetuation of regional state controls and regulatory mechanism are
standing in the path of industrialisation of the country. In recent years,
the Government has undertaken some serious measures to make
necessary economic reforms in the industrial structure of both the public
as well as private sectors of the country.
SUGGESTIONS FOR RAPID INDUSTRIAL GROWTH IN INDIA

1. Development of Research and Technology: In developed countries,

continuous research is done on industrial problems and production
processes etc. New avenues of development are explored through
research on scientific and technical subjects. Now.work has been started
on this subject here also.

2. Increase in Power Resources: India has insufficient power resources.

Thus, expansion of power resources and establishment of new units
should be done. The government should pay attention to this side to
encourage industrial development. Power cuts have to be done from time
to time which adversely affects production. Thus, solution of this
problem is necessary.

3. Proper Use of Natural Resources: India has sufficient natural resources

but due to their improper use industrial development has not been done.
Thus, for industrial development proper use of natural resources is
necessary. Those areas should be explored where possibilities of
industrial development are more.

4. Establishment of Specialized Institutions: Much importance has been

paid to establishment of specialized organizations and institutions to
provide steadiness to industrial development. Various institutions are
established in several states for the development of special Industries, but
various other organisations are required in relation to this.

5. Efficient System of Industrial Management: Educated and skilled

managers are requiredto run the industrial organizations properly, who
are able to understand the complicated problems of industrialization and
solve them quickly.

6. Encourage Capital Formation: For industrial development funds are

very necessary, though India completely lacks it. Thus, savings should
be encouraged more for capitalformation.

7. Encouragement to Private Sector: The government should provide

more and morefacilities to the private sector so that the entrepreneurs
 come forward to invest more and new industries can be established and
old industries are modernized.

8. Earnings in Foreign Exchange: India lacks funds completely. Thus, to

establish Industries in India, foreign investors should be attracted. For
this, government should providethem better facilities. In this way, new
industries would be established, unemployment would be eliminated and
foreign exchange be earned.
 9. Rational Taxation Policy: A proper taxation policy also has an
important place inindustrial development. Inappropriate taxation, causes
problems for industrial organisations, in their development. It is
necessary that the needed areas have a liberal taxation policy to motivate
them.

INDIAN INDUSTRIAL POLICIES

At the time of Independence, the Indian economy was facing severe problems
of illiteracy, poverty, low per capita income, industrial backwardness, and
unemployment. After India attained its Independence in 1947, a sincere effort was
made to begin an era of industrialdevelopment. The government adopted rules and
regulations for the various industries. This industrial policy introduction proved to be
the turning point in Indian Industrial history.

INDUSTRIAL POLICY

Industrial policy is a document that sets the tone in implementing, promoting the
regulatory roles of the government. It was an effort to expand the industrialization
and uplift the economyto its deserved heights. It signified the involvement of the Indian
government in the developmentof the industrial sector.

Objectives

The main objectives of the Industrial Policy of the Government in India are:

 to maintain a sustained growth in productivity;

 to enhance gainful employment;

 to achieve optimal utilisation of human resources;

 to attain international competitiveness; and

 to transform India into a major partner and player in the global arena.
LIST OF INDUSTRIAL POLICIES IN INDIA

I. Industrial Policy Resolution of 1948

II. Industrial Policy Statement of 1956

III. Indian Policy Statement, 1973

IV. Industrial Policy Statement, 1977

V. Industrial Policy of 1980

VI. New Industrial Policy, 1991

I. Industrial Policy of 1948

The first industrial policy after independence was announced on 6th April 1948. It was
presentedby Dr. Shyama Prasad Mukherjee then Industry Minister. The main goal
of this policy was to accelerate the industrial development by introducing a mixed
economy where the private and public sector was accepted as important in the
development of the economy. It saw the Indian economy in socialistic patterns. The
large industries were classified into four categories:

 Industries with exclusive State Monopoly/Strategic industries:

It included industries engaged in the activity of atomic energy,
railways and arms, and ammunition.

 Industries with Government control: This category included

industries of national importance. 18 such categories were
mentioned in this category such as fertilizers, heavy machinery,
defense equipment, heavy chemicals, etc.

 Industries with Mixed sector: This category included industries

that were allowed to operate independently in the private or public
sector. The government was allowed to review the situation to
acquire any existing private undertaking.

 Industry in the Private sector: Industries which were not

mentioned in the above categories fall into this category. High
importance was granted to small businesses and small industries,
leading to the utilization of local resources and creating employment.
 II. Industrial Policy Statement of 1956 :

Government revised its first Industrial Policy (i.e.the policy of 1948) through the
Industrial Policy of 1956.

⚫ It was regarded as the “Economic Constitution of India” or “The

Bible of State Capitalism”.

⚫ The 1956 Policy emphasised the need to expand the public sector,
to build up a largeand growing cooperative sector and to encourage
the separation of ownership andmanagement in private industries
and, above all, prevent the rise of private monopolies.

⚫ It provided the basic framework for the government’s policy in

regard to industries till June 1991.

IPR, 1956 classified industries into three categories

 Schedule A consisting of 17 industries was the exclusive

responsibility of the State. Out of these 17 industries, four
industries, namely arms and ammunition, atomic energy, railways
and air transport had Central Government monopolies; new units in
the remaining industries were developed by the State Governments.

 Schedule B, consisting of 12 industries, was open to both the

private and public sectors; however, such industries were
progressively State-owned.

 Schedule C- All the other industries not included in these two

Schedules constituted thethird category which was left open to the
private sector. However, the State reserved the right to undertake
any type of industrial production.

III. Indian Policy Statement, 1973

Indian Policy Statement of 1973 identified high priority industries with investment
from largeindustrial houses and foreign companies were permitted. Large industries
were permitted to start operations in rural and backward areas with a view to
developing those areas and enabling thegrowth of small industries around. And so the
basic features of Indian Policy Statement were:

 The policy was directed towards removing the distortions, it

provided for closer interaction between agriculture and industrial
sector.

 Priority was given towards generation and transmission of power.

  The list of industries reserved for the small-scale sector was expanded.

 Special legislation was made to protect cottage and household industries were
introduced.

IV. Industrial Policy Statement, 1977

In December 1977, the Janata Government announced its New Industrial Policy
through a statement in the Parliament. Indian Policy Statement was announced by
George Fernandes

⚫ The main thrust of this policy was the effective promotion of

cottage and smallindustries widely dispersed in rural areas and
small towns.
⚫ In this policy the small sector was classified into three groups—
cottage and household sector, tiny sector and small scale industries.
⚫ The 1977 Industrial Policy prescribed different areas for large
scale industrial sector-Basic industries,Capital goods industries,
High technology industries and Other industries outside the list of
reserved items for the small scale sector.
⚫ The 1977 Industrial Policy restricted the scope of large business
houses so that no unit of the same business group acquired a
dominant and monopolistic position in themarket.
⚫ It put emphasis on reducing the occurrence of labour
unrest. The
Government encouraged the worker’s participation in management from shop
floor level to board level.
⚫ Criticism: The industrial Policy 1977, was subjected to serious
criticism as there was an absence of effective measures to curb the
dominant position of large scale units and the policy did not
envisage any socioeconomic transformation of the economy for
curbing the role of big business houses and multinationals.

V. Industrial Policy, 1980

The Congress government announced this policy on July 23rd, 1980. The features of
this policyare:

 Promotion of balanced growth.

 Extension and simplification of automatic expansion.

 Taking over industrial sick units.

  Regulation and control of unauthorized excess production
capabilities installed forindustrial houses.

 Redefining the role of small-scale units.

 Improving the performance of the public sector.

VI. New Industrial Policy, 1991

The long-awaited liberalised industrial policy was announced by the Government

of India in1991 in the midst of severe economic instability in the country.

the main objective of providing facilities to market forces and to increase

efficiency.Larger roles were provided by

 L – Liberalization (Reduction of government control)

 P – Privatization (Increasing the role & scope of the private sector)

 G – Globalisation (Integration of the Indian economy with the world

economy)

FEATURES OF NEW INDUSTRIAL POLICY

⚫ De-reservation of Public sector: Sectors that were earlier

exclusively reserved for public sector were reduced. However,
pre-eminent place of public sector in 5 core areas like arms and
ammunition, atomic energy, mineral oils, rail transport and
miningwas continued.
Presently, only two sectors- Atomic Energy and Railway operations- are
reserved exclusively for the public sector.
⚫ De-licensing: Abolition of Industrial Licensing for all projects
except for a short listof industries. There are only 4 industries at
present related to security, strategic and environmental concerns,
where an industrial license is currently required-

 Electronic aerospace and defence equipment

 Specified hazardous chemicals

 Industrial explosives

 Cigars and cigarettes of tobacco and manufactured tobacco substitutes

 ⚫ Disinvestment of Public Sector: Government stakes in Public
Sector Enterprises were reduced to enhance their efficiency and
competitiveness.

⚫ Liberalisation of Foreign Investment: This was the first

Industrial policy in which foreign companies were allowed to have
majority stake in India. In 47 high priority industries, upto 51% FDI
was allowed. For export trading houses, FDI up to 74% was
allowed.

o Today, there are numerous sectors in the economy where government allows
100% FDI.

⚫ Foreign Technology Agreement: Automatic approvals for

technology related agreements.

⚫ MRTP Act was amended to remove the threshold limits of assets

in respect of MRTP companies and dominant undertakings.
MRTP Act was replaced by the CompetitionAct 2002

SMALL SCALE AND COTTAGE INDUSTRIES IN INDIA

Small Scale Industries are industries in which the investment limit is up to a certain
limit which was 1 crore initially and now has been increased to 5 crores. Cottage
Industries are usually very small and are established in cottages or dwelling places.

In Small scale industry outside labour is used whereas in cottage industries family
labour is used. SSI uses both modern and traditional techniques. Cottage industries
depend on traditional techniques of production.

ROLE OF COTTAGE AND SMALL SCALE INDUSTRIES

1. Employment opportunities: Cottage and small industries provide

employment to every sort to skilled people (skilled, semi-skilled and
unskilled). It provides alternative job opportunities.

2. Utilization of local resources: Cottage and small scale industries are

established in rural area by some local people. So, this type of industry
uses the local resource available in that area.
 3. Source of foreign currency: Cottage and small scale industry produce
handicrafts, painting etc which attracts tourist. About 37% of total export
is enveloped by the product of these industries. So, it is the source of
foreign currency.

4. Government revenue: Since, 37% of total export is enveloped by

cottage and small scale industries, government can even revenue through
scales tax, income tax, export tax, vat etc. So, there is the ultimate
increase in Government revenue.

5. Living standard: Cottage and small scale industries are simple and are
operated with limited capital but also increases/upgrades living standard
people can earn sufficient amount to sustain their life and fulfillment of
their needs.

6. Cheaper Production : The small scale industry is labor-intensive while

labor is cheap in subcontinental, so the production of small scale industry
is cheaper. Due to low prices people purchase more goods and market
expands.

7. Proper Distribution of Wealth: The small scale industry increases the

income of the people and reduces the gap between rich and poor. We can
reduce the poverty by expanding the small scale industry.

8. Establishment with Small Capital: We can establish these industries

with small capital. In sub continental most of the people are poor, so they
can start the production with small capital.

9. Development of Backward Areas: We can develop backward areas by

establishing the small scale industry in these areas. It will remove poverty
from backward areas.

PROBLEM OF COTTAGE AND SMALL SCALE INDUSTRY

1. Lack of rural infrastructure: Rural area is sympathies and have no

infrastructure life is extremely difficult and hard to earn livelihood. To
run an industry, infrastructure is essential but our country still lacks
infrastructure.
2. Lack of skilled manpower: Our country does not have sufficient
manpower basically skilled one Brain drain is the main problem. All
skilled manpower moves abroad which is themajor problem.
 3. Lack of modern technology: Farmers in our country use traditional
method of farming. They do not know about modern technology. They
totally depend upon tradition. They depend upon monsoon rain and use
low quality seed.

4. Lack of credit facilities: Farmers are poor and there is no proper

banking facility in Nepal which lends money in low interest. So, farmers
depend upon money- lender, traders etcand charge very high rate interest.

5. Limited market: Due to lack of infrastructure (communication and

transportation) farmers do not get opportunity to sell their product in
reasonable price.

6. Intermediary Exploitation: Intermediary or middlemen are the price

maker of Nepalese economy. They exploit the entire economy. They
charge very amount to farmersand sell/supply to market in very huge
amount. They are the profit maker and exploiter.

GOVERNMENT POLICIES FOR SMALL AND COTTAGE INDUSTRIES INDIA

(a) Industrial Policy Resolution of 1948:

The IPR of 1948 stated that “Cottage and small scale industries have a very
important role in the national economy. Offering as they do scope for individual,
village or cooperative enterprise, and means for the rehabilitation of displaced
persons. These industries are particularly suited for the better utilization of local
resources and for the achievement of the local self-sufficiency in respect of certain
types of essential consumer goods like food, cloth and agricultural implements”. The
IPR of 1948 reflected the emergence of a dualistic approach in government policy
i.e. emphasis on both traditional and modern small scale sector. This approach has
continued to form the basis of industrial policy towards the small scale sector ever
since. The industrial Development and Regulation Act, 1951 which was
promulgated in order to provide the organizational support to IPR of 1948 provide
scope for acoordinated development of cottage and small scale industries within the
general framework of large scale development programmes.
 (b) Industrial Policy Resolution of 1956:

In 1955, Planning Commission setup a Committee on village and small scale

industries popularly known as Karve Committee. The Committee recommended
some important measures like:

(i) Reservation of certain items only for village and small scale industries;

(ii) Restriction of capacity expansion of large industry;

(iii) Management of supply of raw materials; and

(iv) A scheme of concessions and benefits to small producers.

(c) Industrial Policy Resolution of 1977:

The important features of the IPR were:

(i) 504 items were reserved for exclusive production in the small-scale industries.

(ii) The concept of District Industries Centres (DICs) was introduced so

that in each district a single agency could meet all the requirements of
SSIs under one roof.

(iii) Technological upgradation was emphasized in traditional sector.

(iv) Special marketing arrangements through the provision of services,

such as, product standardization, quality control, market survey, were
laid down.

(d) Industrial Policy Resolution of 1980”

Following measures were specified in the policy:

(i) Investment limit was raised for tiny, small, and ancillary units to Rs. 2
lakh, Rs. 20 lakh, and Rs. 25 lakh respectively.

(ii) “Nucleus plants” in each industrially backward district replaced the

“district industries centers.” These were to concentrate on assembling the
products of SSIs and to produce inputsneeded by large number of small
units.

(iii) Reservation of items and marketing support for small industries was to
continue.

(iv) Availability of credit to growing SSI units was continued.

 (v) Buffer stocks of critical inputs were to continue.

(vi) Agricultural base was to strengthen by providing preferential

treatment to agro based industries.
 (vii) An early warning system was to establish to avoid sickness and
take appropriate remedial measures.

(e) Industrial Policy Resolution of 1991:

Its incredible features are:

(i) SSIs were exempted from licensing for all articles of manufacture.

(ii) The investment limit for tiny enterprises was raised to Rs. 5 lakh irrespective of
location.

(iii) Equity participation by other industrial undertakings was permitted

up to a limit of 24 percent of shareholding in SSIs.

(iv) Factoring services were to launch to solve the problem of delayed payments to
SSIs.

(v) Priority was accorded to small and tiny units in allocation of indigenous
and raw materials.

(vi) Market promotion of products was emphasized through co-

operatives, public institutions and other marketing agencies and
corporations.

RECENT POLICY MEASURES FOR SMALL SCALE AND

COTTAGE INDUSTRIES

(a) Comprehensive Policy Package for small scale and tiny sector, 2000

The Government of India announced a comprehensive policy package for the

development and promotion of small scale and tiny sector which aims to improve
the competitiveness of the sector.

The main focus of the policy package was:

(i) The exemption for excise duty limit raised from Rs.50 lakh to Rs. 1 crore.

(ii) The limit of investment was increased in industry related service and
business enterprises from Rs. 5 lakh to Rs. 10 lakh.

(iii) The coverage of ongoing Integrated Infrastructure Development

(IID) was enhanced to cover all areas in the country with 50 percent
reservation for rural areas and 50 percent earmarking of plots for tiny
sector.
 (iv) The family income eligibility limit of Rs. 24000 was enhanced to
Rs. 40000 per annumunder the Prime Minister Rozgar Yojana (PMRY)

v) The scheme of granting Rs. 75000 to each small scale enterprise for obtaining ISO 9000
certification was continued till the end of 10th plan.

(b) Industrial Policy Packages for small scale industries, 2001-02

This policy emphasizes the following:

(i) The investment limit was enhanced from Rs. 1 crore to Rs. 5 crore for
units in hosiery andhand tool sub sectors.

(ii)The corpus fund set up under the Credit Guarantee Fund Scheme was
increased fromRs.125 crore to Rs.200 crore.

(iii) Credit Guarantee cover was provided against an aggregate credit

of Rs. 23 crore tillDecember 2001.

(iv) Fourteen items were de-reserved in June 2001 related to leather goods, shoes
and toys.

(v) Market Development Assistant Scheme was launched exclusively for SSI
sector.

(vi) Four UNIDO assisted projects were commissioned during the

year under the ClusterDevelopment Programme.

(c) Policy Package for small and medium enterprises, 2005-06

During the year 2005-06 the Government announced a policy package for small and medium
enterprises.

The main features of this policy package were:

(i) The Ministry of Small Scale Industries has identified 180 items for
dereservation.

(ii) Small and Medium Enterprises were recognized in the services

sector, and were treated atpar with SSIs in the manufacturing sector.

(iii) Insurance cover was extended to approximately 30,000 borrowers,

identified as chief promoters in the small scale sector.

(iv) Emphasis was laid on Cluster Development model not only to

promote manufacturingbut also to renew industrial towns and build new
industrial townships. The model is now being implemented, in nine
sectors including khadi and village industries, handlooms, handicrafts,
textiles, agricultural products and medicinal plants.
 (d) Enactment of Micro, Small and Medium Enterprises Development Act, 2006

In May’ 2006, the President has amended the Government of India (Allocation of
Business) Rules, 1961; Ministry of Agro and Rural Industries and Ministry of Small
Scale Industries have been merged into a single Ministry, namely, “Ministry of Micro,
Small and Medium Enterprises.Consequently the Micro, Small and Medium enterprises
Development (MSMED) Act was enacted, which provides the first ever legal
framework for recognition of the concept ‘enterprises’ against ‘industries’ and
integrating the three tiers of these enterprises viz. micro, small and medium and clearly
fixed the investment limits for both manufacturing and service enterprises. It also
provides for a statutory consultative mechanism at the national level with wide
representation of all sections of stakeholders, particularly the three classes of
enterprises. The Act also makes provisions for establishment of specific funds for the
promotion, development and enhancement of competitiveness of these enterprises,
progressive credit policies and practices, preference in Government procurements to
productsand services of the micro and small enterprises, more effective mechanism for
mitigating the problems of delayed payments and simplification of the process of
closure of business by all three categories of enterprises.