Industrial Licensing: Step-by-Step Liberalization

In the backdrop of the Dutt Committee report and establishment of MRTPC, the Government of India announced new Industrial Policy in 1970. As per this new policy, Industries were divided into 4 parts, which were called as sectors. These sectors were Core Sector, Middle Sector, Non Core Heavy Industries sector and Delicensed sector. Under the MRTP Act , the firms with assets of Rs. 25 Crore or more were put under the obligation of taking permission from the government of India and they were called MRTP companies. This upper limit of Rs. 25 Crore was known as MRTP limit. It was later relaxed to Rs. 50 crore in 1980, Rs. 100 Crore in 1985 and in 1991 this limit was removed. Now only companies having more than 25% market share were called Monopolies.

In 1975, another Industrial Licensing Policy was issued. This and further licensing policies actually were a series of step-by-step liberalization of the licensing in India.

  • The Industrial Licensing Policy 1975 delicensed 21 Industries and permitted unlimited expansion beyond the licensed capacities. So this way, the increased capacities by the industry houses, which were unauthorized, now got ratified by the government in the Industrial Licensing Policy 1975.

Later, Industrial Licensing Policy 1980 came up. There was further liberalization in this policy. This mainly ratified the enhanced capacity of the Industrial houses in support of more and more production.

With some changes Industrial Licensing Policy 1982 was introduced. In this policy some key industries were exempted from the provisions of MRTP Act. In this Policy, one important announcement was that “Foreign Investors now could raise the equity investment above the 40% as prescribed by FERA. (But this provision was only for those, where technology was used to manufacture goods for export).

The important outcome of this provision was that there was a positive confidence build up for the Foreign Investors. In the Industrial Licensing Policy 1982, the MRTP act was also modified a little so that the delays caused by “Red Tape” are removed.

Some more positive measures were introduced in the ILP 85, which was introduced Rajiv Gandhi government. Overall, by the end of 1980s some very important measures had been taken which are summarized below:

  1. The changes were in favor of the big houses as some of them were made free of provisions of MRTP Act and FERA.
  2. In some Industries “Broad-banding” was introduced in order to encourage production. These industries were machine tools, paper, vehicles (two wheelers) etc.
  3. The Broad-banding enabled the companies to produce any type of items covered as long as total production is not exceeding the licensed capacity.
  4. In these Industrial Licensing Polices the Threshold asset limit for companies under the MRTP act was raised from Rs. 20 Crores to Rs. 100 Croes.
  5. In the ILP 85, 27 more industries were exempted from the provisions of MRTP Act. In 1986 23 more industries were exempted.
  6. Earlier, the Industrial Licensing Proposals above the limit of Rs. 20 Crore were to be cleared by the Cabinet Committee on Economic Affairs. This limit was increased to Rs. 50 Crore now.
  7. The small scale industry in which the limit of investment was `20 Lakh was increased to Rs. 35 lakh now.
  8. In 1986, the government decided that the Industrial Houses can now produce 10% more than the licensed capacity, provided this additional 10% is exported.
  9. In 1988, the Non-MRTP and Non FERA companies were exempted from obtaining license for projects which involved investment in fixed assets up to Rs. 50 Crores, provided they are located in backward areas.