Industrial Policy

Main features

Objectives of the Industrial Policy of the Government 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.

Policy focus is on –

• Deregulating Indian industry;

• Allowing the industry freedom and flexibility in responding to market forces and

• Providing a policy regime that facilitates and fosters growth of Indian industry.

Policy measures

Some of the important policy measures announced and procedural simplifications undertaken to pursue the above objectives are as under:

i) Liberalization of Industrial Licensing Policy

The list of items covered under compulsory licensing under the Industries (Development & Regulation) Act, 1951 is reviewed on an ongoing basis. Drugs and Pharmaceutical have been removed from the list of items requiring compulsory licensing vide Notification No. S.O.1386(E) dated 23.9.2005. At present, only five industries are under compulsory licensing mainly on account of environmental, safety and strategic considerations. They are:

Distillation and brewing of alcoholic drinks.

Cigars and cigarettes of tobacco and manufactured tobacco substitutes.

Electronic Aerospace and defense equipment: all types.

Industrial explosives including detonating fuses, safety fuses, gun powder, nitrocellulose and matches.

Specified Hazardous chemicals i.e. (i) Hydrocyanic acid and its derivatives, (ii)

Phosgene and its derivatives and (iii) Isocyanates & diisocyanates of hydrocarbon, not elsewhere specified(example Methyl isocyanate) .

Similarly, from 8 industries reserved for the public sector in 1991, there are only following 3 industries reserved for public sector at present:

1. Atomic energy.

2. The substances specified in the schedule to the notification of the Government of India in the Department of Atomic Energy number S.O. 212(E), dated the 15th March, 1995.

3. Railway transport.

ii) Industrial Entrepreneurs’ Memorandum (IEM)

Industries not covered under compulsory licensing are to file an Industrial Entrepreneurs’ Memorandum (IEM) with the Secretariat for Industrial Assistance (SIA). No industrial approval is required for such exempted industries. Amendments are also allowed to IEMs filed w.e.f. 1.7.98.

iii) Liberalization of the Locational Policy

A significant development, discarding regulatory measures, has been a recent decision of the Government to do away with the locational stipulation in setting up of industries in cities with population of one million and above as per 1991 census. Entrepreneurs are now free to select the location for setting up industry. Necessary amendment to this effect has been made in Notification No.477(E) dated 25.7.1991 with the issue of notification No.2054(E) dated 14.8.2008, issued under the provisions of the IDR Act, 1951. However, Zoning and land use regulations as well as environmental legislations continue to regulate industrial locations.

iv) Policy for Small Scale Industries

Though reservation of items exclusively for the Small Scale sector forms an important focus of the industrial policy, review for dereservation of such items is also undertaken by the Government at periodic intervals, in order to enhance competitiveness of such products in the domestic/ global markets. Review of reserved items is thus a continuous process. During the last 5 years itself more than 600 items have been dereserved. At present 21 items are reserved for manufacture in the small scale sector.

All undertakings other than the small scale industrial undertakings engaged in the manufacture of items reserved for manufacture in the small scale sector are required to obtain an industrial licence and undertake an export obligation of 50% of the annual production. This condition of licensing is, however, not applicable to those undertakings operating under 100% Export Oriented Undertakings Scheme, the Export Processing Zone (EPZ) or the Special Economic Zone Schemes (SEZs).

At present, the SSI is defined under the Micro, Small & Medium Enterprises (MSMED) Act, 2006, which has categorised SSEs (Small scale enterprises) as having the value of investment in plant machinery between Rs.2 crore and Rs.5 crore.

In tune with the provisions of the MSMED Act, 2006 and policy of liberalization, the provision of restricting equity participation by non-SSI undertakings in SSI undertakings upto 24% has been removed by way of rescinding notification No.S.O. 857(E) dated 10.12.1997 vide Notification No.S.O.563(E) dated 27.2.2009.

V) Non-Resident Indians Scheme

The general policy and facilities for Foreign Direct Investment as available to foreign investors/company are fully applicable to NRIs as well. In addition, Government has extended some concessions specially for NRIs and overseas corporate bodies having more than 60% stake by the NRIs. These inter-alia includes (i) NRI/OCB investment in the real estate and housing sectors upto 100% and (ii) NRI/OCB investment in domestic airlines sector upto 100%.

NRI/OCBs are also allowed to invest upto 100% equity on non-repatriation basis in all activities except for a small negative list. Apart from this, NRI/OCBs are also allowed to invest on repatriation/non-repatriation under the portfolio investment scheme.

vi) Electronic Hardware Technology Park (EHTP)/Software Technology Park (STP) scheme

For building up strong electronics industry and with a view to enhancing export, two schemes viz. Electronic Hardware Technology Park (EHTP) and Software Technology Park (STP) are in operation. Under EHTP/STP scheme, the inputs are allowed to be procured free of duties.

The Directors of STPs have powers to approved fresh STP/EHTP proposals and also grand post-approval amendment in repsect of EHTP/STP projects as have been given to the Development Commissioners of Export Processing Zones in the case of Export Oriented Units. All other application for setting up projects under these schemes, are considered by the Inter-Ministerial Standing Committee (IMSC) Chaired by Secretary (Information Technology). The IMSC is serviced by the SIA.

vii) Policy for Foreign Direct Investment (FDI)

Promotion of foreign direct investment forms an integral part of India’s economic policies. The role of foreign direct investment in accelerating economic growth is by way of infusion of capital, technology and modern management practices. The Department has put in place a liberal and transparent foreign investment regime where most activities are opened to foreign investment on automatic route without any limit on the extent of foreign ownership. Some of the recent initiatives taken to further liberalise the FDI regime, inter alia, include opening up of sectors such as Insurance (upto 26%); development of integrated townships (upto 100%); defence industry (upto 26%); tea plantation (upto 100% subject to divestment of 26% within five years to FDI); Encenhancement of FDI limits in private sector banking, allowing FDI up to 100% under the automatic route for most manufacturing activities in SEZs; opening up B2B ecommerce; Internet Service Providers (ISPs) without Gateways; electronic mail and voice mail to 100% foreign investment subject to 26% divestment condition; etc.

The Department has also strengthened investment facilitation measures through Foreign Investment Implementation Authority (FIIA).

Liberalization of industrial licensing enables market-responsive investment and expanded automatic foreign investment routes. The policy liberalises industrial licensing by narrowing compulsory licence items to those retained for environmental, safety or strategic reasons, requires non-licenced industries to file an Industrial Entrepreneurs' Memorandum with the Secretariat for Industrial Assistance without prior approval, and relaxes locational stipulations while preserving zoning and environmental controls. It maintains targeted reservation and periodic dereservation for Small Scale Industries, rescinds equity participation restrictions in SSI units, extends broad investment privileges to NRIs/OCBs, operates duty-free input schemes for EHTP/STP projects, and advances a liberal FDI regime supported by investment facilitation.