Critical Analysis of Industrial Policy 1948

The Industrial Policy 1948 was a sincere depart from the British Era policy of lessez faire [free economy] model followed by British rulers. The British policy was that Government was ill-qualified to advance the industrial development and all such matters should be left to private enterprise.

Our constitution was still being framed by the constituent assembly at that time. Was there anything in the constitution that inspired this policy?

The 1948 policy was put forward at a time when there was neither constitution nor any proper legal framework around industrial development. The constitution was under framing by the constituent assembly.

Under the Directive Principles of State Policy, Articles 39 (b) and (c) favoured the state planning and interference. The constitution which adopted later with these articles directing the state to secure that “the ownership and control of the material resources of the community are so distributed as best to subserve the common goods”; and that “operation of the economic system does not result in concentration of the wealth and means of production to the common detriment. This was the ground on which Planning constitution was later established for top down approach in economic development of the country.

Was it as per economic philosophy of Nehru, Gandhi or Patel? Or it was a compromise between political / economic elites?

Nehru was an avowed socialist; while Patel was bit conservative. Gandhi’s economic philosophy was centred around self sufficient villages with an economy based on cottage industries. This 1948 policy cannot be called socialistic in entirety, for it has given space to both private as well as public sector. At the same time, it also sought to provide protection to the cottage industry. Further, under the basic industries, it did not seek to nationalize / discontinue the already existing private units; rather it mandated that new industries in this category will henceforth only be set-up by the Central Government.

Thus, it can be rightly said that the Industrial Policy of 1948 was a compromise between political and economic elites; trying to achieve a balance between the “radicalism of state ownership” and “resistance against this policy” by conservative elements. However, it was denounced by leftists because of whatever space was given to the private sector. It was reiterated in the Avadi session of Indian National Congress in 1955 when the Congress stated that object of the planning has to be “Socialist Pattern” and not absolute “Socialism“.

Why this policy was called “socialization of vacuum“?

This was the time modern industry was at infant stage. The industry was confined to only some consumer goods such as sugar, tea and to some extent large industries at nascent stage such as Iron and Steel. The Capital Goods Industry was absent. This policy was called “socialization of  the vacuum” because it envisaged that state would invest resources only in those sectors which were unoccupied (partially or fully) by the private sector. This can be justified because at that time, private enterprise alone was neither having resources or vision to set up large river valley projects; capital goods sector or huge steel / cement / power plants. The idea was that Government alone should come forward to launch new nation building projects.

Was the space given to private sector suited to contemporary circumstances?

As mentioned above, the Indian private enterprise was infant at that time; and they might be the first casualty if allowed to be full players in key sectors. However, state control in almost every sector led to a crisis of confidence among private participants, which proved to be a major roadblock in Industrial expansion. Further, the public sector of the day was also unable to cope up with the increased burden because of lack of availability of finance, obsolete technology and lacunae in the management skills. Moreover, red-tapism would later prove to be a major impediment impairing the efficiency and productivity.