Current Industrial Policy of Government of India

The Industrial Policy of 1991 was a watershed moment in the Indian Economy. It fulfilled log-left demands of the industry such as removal of compulsory licensing, MRTP limit and other numerous bureaucratic bottlenecks. The companies could establish new undertakings and implement expansion plans.  These reforms were introductory in nature and the series of reforms continued and are continuing even today. We study this in the form of below questions:
What are Government Monopoly sectors today?

Under 1991 policy, only eight industries were reserved for public sector. This number was further brought down and current position is that only Atomic Energy and Railways are Government monopoly industries in the country. There have been proposals for allowing private control in atomic energy sector also but so far no official decision has been taken in this direction.

For which Industries, entrepreneurs need license today?

Industrial Licensing was also abolished for all except short list of 18 industries in New Industrial Policy 1991. This number was further pruned to six industries. Currently (2015), only five industries are under compulsory licensing mainly on account of environmental, safety and strategic considerations. They are:

  1. Distillation and brewing of alcoholic drinks
  2. Cigars and cigarettes of tobacco and manufactured tobacco substitutes.
  3. Electronic Aerospace and defense equipment: all types.
  4. Industrial explosives including detonating fuses, safety fuses, gun powder, nitrocellulose and matches.
  5. 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)

Regarding Alcoholic products, we note that production of rectified spirit exclusively for industrial use falls under the Centre’s purview while in the case of potable alcohol, states have last word. {This is as per Supreme Court decision in “Bihar Distillery Case”}. So, DIPP is not the licensing authority in case of potable alcohol.

What is the current definition of micro, small and medium Industries today?

The small industries sector definition has changed from time to time. Earlier there used to be concepts of Small Scale Industries, Tiny enterprises and ancillary units. However, since enactment of MSME (Micro, Small and Medium Enterprises) Act 2006; the scope of small industries was enlarged and the concepts of SSI, Tiny and ancillary units was replaced with Micro, Small & Medium Enterprises. Thus, the current definition comes from the notification issued under MSME Act 2006. As per this, the definition for Micro, Small and Medium enterprises are different for manufacturing sector and Service sector.

Manufacturing Sector
 Enterprises Investment in plant & machinery
 Micro Enterprises Does not exceed twenty five lakh rupees
 Small Enterprises More than twenty five lakh rupees but does not exceed five crore rupees
 Medium Enterprises More than five crore rupees but does not exceed ten  crore rupees
Service Sector
 Enterprises Investment in equipments
 Micro Enterprises Does not exceed ten lakh rupees:
 Small Enterprises More than  ten lakh rupees but does not exceed two crore rupees
 Medium Enterprises More than two crore rupees but does not exceed five core rupees

Which sectors are reserved for MSME today?

Reservation and de-reservation of the products for particular sector is done under the Industries (Development & Regulation) Act, 1951. The original list was containing around 873 items that could be legally produced by only small / cottage sector in 1960s and 1970s. The idea of the governments of those days was to promote and facilitate the small sector because they were engines of employment generation. However, as of today, not a single item is reserved for small industries.

The last list was of 20 items in April 2015 and it contained items viz. pickles & chutneys, mustard oil (except solvent extracted), groundnut oil (except solvent extracted), wooden fixtures, exercise books and registers, wax candles, laundry soap, glass bangles, steel almirah, rolling shutters, steel chairs and tables, padlocks, stainless steel and aluminium utensils. On 13th April 2015, the NDA Government has de-reserved these products also.

Is the decision to not to reserve anything for small sector justified?

Yes. This is because the reserving manufacturing of products for small sectors implies that it blocks the production via latest technology and economy of scale. Due to this, such products face competition and threat from cheap imports. For example, today a huge part of market in padlocks is occupied by cheap Chinese locks. Not allowing big industries to take up their production was a counterproductive restriction.  This happened with garment products which was once in this reserved list. India could never realize its potential as garment exports because of this restriction as the average size of an Indian garment factory was not even 10th of such factories in Bangladesh. Today, Bangladesh has gone much ahead of India in Garment exports. This move though symbolic is a good step towards making India a genuine manufacturing hub.