IDA Act and Industrial Licensing

Since India had embarked upon the centrally planned industrialization, the government came out with the Industries (Development & Regulation) Act of 1951. The act had a prelude that the Union Government should take a control over the industries in the schedule A.

The act introduced the system what was known as “License Raj”. License Raj refers to regulations and accompanying bureaucracy that were required to set up and run businesses in India between 1951 and 1991.

• Licensing was the key means to allocate the production targets set out in the five years plans to the firms.
• This system prevented the concentration of ownership of Industries in India and laid emphasis on Balanced Regional Developments.

But the Red Tape in the country imposed substantial administrative burden and there was no certainty that an application for a license would be approved within or in what timeframe.

• More than one third applications were rejected which meant a loss of investments. This was a big hurdle in rapid industrialization.

This mess brought the license regime under the constant review and appraisals. A number of committees and commissions were set up.

• The series of reforms finally culminated in abolishment of industrial Licensing in 1991.