Hazari Committee

The Hazari Committee, officially known as the Industrial Planning Committee (Hazari Committee), was constituted by the Government of India in 1965 under the chairmanship of Dr. R. K. Hazari, a prominent economist and planner. The committee was appointed to evaluate the industrial licensing system and its implementation since independence, and to examine how effectively it had achieved the objectives of India’s planned industrial development.
The committee’s report provided a detailed analysis of India’s industrial structure under the Second and Third Five-Year Plans and highlighted critical distortions that had emerged due to excessive state control, bureaucratic delays, and the growing concentration of economic power among a few large business houses.

Background and Context

Post-independence, India adopted a mixed economy model, wherein both public and private sectors were to play complementary roles in economic development. The Industrial Policy Resolution of 1956 (IPR 1956) and the Industries (Development and Regulation) Act, 1951 introduced the industrial licensing system, requiring entrepreneurs to obtain government approval before establishing, expanding, or diversifying industrial undertakings.
The system aimed to:

• Prevent the concentration of wealth and monopolies,
• Ensure equitable regional development, and
• Channel investment into priority sectors aligned with national planning.

However, by the early 1960s, it became clear that the licensing policy was generating economic inefficiencies, regional imbalances, and monopolistic trends. To address these concerns and assess the functioning of the licensing system, the government appointed the Hazari Committee in 1965.

Objectives of the Committee

The main objectives of the Hazari Committee were to:

1. Examine the working of the industrial licensing system under the IPR 1956.
2. Evaluate whether the system had met its objectives of promoting balanced industrial growth and preventing economic concentration.
3. Analyse the role of the public and private sectors in industrial development.
4. Identify the shortcomings and distortions in the allocation of industrial licences.
5. Recommend policy measures to make industrial planning more effective and equitable.

Major Findings of the Committee

The Hazari Committee Report (1967) presented a comprehensive critique of India’s industrial licensing regime and planning process. Its key findings were:

1. Concentration of Economic Power:
   • The industrial licensing system, intended to prevent monopolies, had ironically facilitated them.
   • A few large business houses (such as Tata, Birla, and Dalmia) controlled a disproportionate share of industrial licences and capacity.
2. Misallocation of Licences:
   • Industrial licences were often issued without proper feasibility studies or alignment with regional priorities.
   • The process was influenced by lobbying and administrative discretion rather than economic efficiency.
3. Inefficiency and Bureaucratic Delays:
   • The licensing process was cumbersome, leading to long delays and project cost overruns.
   • Entrepreneurs had to navigate multiple ministries and agencies, which fostered corruption and rent-seeking.
4. Underutilisation of Installed Capacity:
   • Many industries operated below their licensed capacity due to lack of coordination, outdated technology, and supply bottlenecks.
   • The focus on setting up new units rather than improving efficiency of existing ones reduced productivity.
5. Regional Imbalances:
   • Industrial growth was heavily concentrated in a few states such as Maharashtra, Gujarat, and West Bengal.
   • Backward regions and smaller states lagged behind, defeating the objective of balanced regional development.
6. Dominance of Large Business Houses and Foreign Collaboration:
   • The committee noted that industrial growth had been captured by a few large business houses with access to finance, political connections, and foreign technology.
   • Smaller firms and new entrepreneurs were crowded out of the market.
7. Weak Coordination between Planning and Licensing:
   • The Planning Commission and the licensing authorities worked independently, leading to inconsistency between plan targets and actual industrial development.

Key Recommendations

The Hazari Committee made several recommendations to reform India’s industrial licensing and planning system:

1. Decentralisation of Industrial Licensing:
   • Suggested decentralising licensing powers to regional and state-level authorities to ensure faster approvals and better local participation.
2. Rationalisation of Licensing Procedures:
   • Recommended simplification of the licensing process to reduce bureaucratic hurdles and corruption.
3. Limiting the Role of Large Business Houses:
   • Proposed restricting further expansion of large industrial houses into non-priority sectors.
   • Encouraged small and medium enterprises (SMEs) to promote industrial diversification.
4. Linkage between Planning and Licensing:
   • Suggested that industrial licences should align with the targets and priorities set in the Five-Year Plans.
5. Encouragement of Small-Scale Industries:
   • Advocated support for small-scale and cottage industries through credit facilities, technical support, and marketing assistance.
6. Monitoring of Industrial Performance:
   • Recommended setting up mechanisms for continuous monitoring of industrial output and capacity utilisation.
7. Balanced Regional Development:
   • Emphasised the establishment of industries in backward regions through incentives such as tax concessions, infrastructure support, and concessional finance.
8. Transparency in Allocation:
   • Urged the government to adopt transparent criteria for licence allocation to prevent favouritism and monopolistic practices.

Significance and Impact

The Hazari Committee Report had far-reaching implications for India’s industrial policy:

1. Foundation for MRTP Act (1969):
   • The findings of the Hazari Committee, alongside the Dutt Committee (1967), directly influenced the enactment of the Monopolies and Restrictive Trade Practices (MRTP) Act, 1969, which sought to curb the concentration of economic power and regulate monopolistic practices.
2. Recognition of Structural Weaknesses:
   • The committee exposed the inefficiencies of the licensing system, initiating a shift in policy thinking toward economic liberalisation.
3. Policy Shift in the 1970s and 1980s:
   • The recommendations paved the way for later reforms, including selective delicensing, promotion of small-scale industries, and regional industrial development programmes.
4. Awareness of Bureaucratic Overreach:
   • The report highlighted how excessive administrative control hindered entrepreneurship and innovation.
5. Integration of Planning and Market Mechanisms:
   • The committee’s analysis prompted efforts to align state planning with industrial realities and market demands.

Criticisms

Despite its influence, the Hazari Committee’s recommendations were met with some criticism:

• The report did not provide clear operational mechanisms for reducing monopolies without discouraging large-scale investment.
• Some argued that it placed excessive blame on industrial houses rather than systemic inefficiencies.
• The continued dependence on licensing and control mechanisms delayed deeper economic reforms.

Nevertheless, it laid the intellectual groundwork for the future liberalisation of the Indian economy.

Relation with the Dutt Committee

The Hazari Committee (1965) and Dutt Committee (1967) are often studied together, as both examined industrial licensing and economic concentration.

• The Hazari Committee provided a diagnostic analysis of distortions in industrial licensing.
• The Dutt Committee built upon these findings and recommended regulatory mechanisms to monitor large business houses, which later informed the MRTP Act of 1969.