Q: State the salient features of 1956 Industrial Policy Resolution.
How far the objectives of this policy could be achieved
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The 1956 Industrial Policy Resolution (IPR) was a significant step in shaping India’s industrial development strategy. It laid the foundation for the country’s industrialization and aimed at establishing a socialist pattern of society. The IPR of 1956 replaced the Industrial Policy of 1948 and provided a clear vision of the role of the public and private sectors in industrial development.
Salient Features of the 1956 Industrial Policy Resolution:
- Classification of Industries into Three Categories
- The IPR of 1956 classified industries into three distinct categories based on the degree of government control and ownership:
- Category A (Public Sector): Included industries where the state would have exclusive control. These were considered of strategic importance and were either already state-owned or would be progressively taken over. Examples included defense, atomic energy, heavy machinery, and transportation.
- Category B (Mixed Sector): Included industries where both public and private sectors could participate, but the state would play a dominant role. The public sector would expand its participation, especially in new or unestablished industries. Examples included chemicals, fertilizers, and road transport.
- Category C (Private Sector): Included industries where the private sector would operate freely, with government regulation to ensure national priorities were met. These were industries of consumer goods or other less critical sectors where private investment was encouraged.
- Emphasis on the Public Sector
- The resolution emphasized the expansion of the public sector, giving it a dominant role in key industries. The goal was to make the public sector a driver of economic growth and modernization, with an expectation that the private sector would complement this effort by focusing on areas outside the purview of the government.
- Industrial Licensing
- A licensing system was introduced to regulate and promote industrial development. The government would issue licenses for setting up new industries, expanding existing units, or producing new products. This system aimed to ensure balanced regional development and prevent monopolistic tendencies by controlling market entry.
- Reduction of Income Inequalities
- The resolution focused on reducing regional and income disparities through the balanced development of industries across different parts of the country. It aimed to ensure that industrialization benefitted all sections of society, especially in backward and rural areas, thereby reducing the concentration of wealth in a few hands.
- Promotion of Small-Scale Industries
- The resolution acknowledged the importance of small-scale and cottage industries in generating employment and promoting decentralized industrial growth. Special incentives were offered to these sectors to complement the large industrial units and to ensure broader participation in industrial activities.
- Balanced Regional Development
- The policy emphasized the need for industrial growth in underdeveloped regions. The goal was to reduce regional imbalances and promote equitable economic development across the country. Establishing industries in backward areas was seen as crucial for reducing poverty and unemployment in rural and remote regions.
- Encouragement of Foreign Investment
- While the policy favored self-reliance, it allowed foreign capital and technology in selected industries, especially where it was necessary for technological advancements or for industries that required large capital inputs. However, foreign investment was to be regulated and controlled to prevent dominance by foreign corporations.
- Socialist Pattern of Society
- The 1956 IPR aimed at establishing a socialist economy where the state would have a predominant role in economic and industrial activities. It emphasized that the state’s control over the commanding heights of the economy would help achieve social and economic equality.
Achievements and Shortcomings of the 1956 Industrial Policy:
Achievements:
- Expansion of the Public Sector
- The public sector grew rapidly following the adoption of the IPR, with major investments in industries such as steel, power, heavy machinery, and transportation. These industries played a key role in laying the foundation for India’s industrial growth and modernization.
- Creation of Basic and Heavy Industries
- The 1956 policy succeeded in promoting basic and heavy industries, which were crucial for long-term industrial growth. Steel plants, power projects, and machinery manufacturing units were established, forming the backbone of India’s industrial infrastructure.
- Balanced Regional Development
- The policy contributed to industrial development in backward regions, with many industries being set up in less developed parts of the country. This helped reduce regional imbalances to some extent and provided employment opportunities in these areas.
- Promotion of Small-Scale Industries
- The small-scale sector benefitted from government incentives, which led to the growth of cottage and small industries. These industries contributed significantly to employment generation and rural development.
Shortcomings:
- Overregulation and Bureaucracy
- The licensing system introduced under the policy became overly bureaucratic and cumbersome, leading to delays, inefficiencies, and corruption. Industrialists had to navigate through layers of red tape, which stifled private sector growth and discouraged entrepreneurship.
- Inefficiency in Public Sector Enterprises
- Although the public sector grew significantly, many public sector enterprises became inefficient and were plagued by poor management, low productivity, and financial losses. The lack of competition and accountability contributed to the underperformance of these enterprises.
- Limited Private Sector Growth
- The policy’s focus on the public sector overshadowed the growth of the private sector. The private sector faced restrictions and limitations in terms of investment opportunities, which slowed down industrial innovation and expansion.
- Continued Regional Disparities
- Despite efforts to promote balanced regional development, regional disparities persisted. Industrial development in certain states remained significantly higher than in others, leading to uneven economic growth across the country.
Conclusion:
While the 1956 Industrial Policy Resolution achieved some of its objectives, especially in expanding the public sector and building the industrial base, it also faced challenges like bureaucratic inefficiencies and underperformance in public enterprises. The policy played a crucial role in shaping India’s industrial landscape, but it fell short in promoting a more dynamic private sector and addressing regional imbalances comprehensively.