The resolution emphasised on support for cottage, village and small-scale industries by restricting production for large players, differential taxation or direct subsidies.
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Nine years into Independence, the government modified its hurriedly drafted 1948 policy and replaced it with the Industrial Policy Resolution <1> on 30 April 1956. By this time, the socialist pattern of development was etched in the minds of not just India’s leaders but thinkers as well, who advised businesses to recognise that there would be no reversals in the policy direction and that they needed to map out a course of action consistent with the government’s. <2> What were these? The state will “assume a predominant and direct responsibility for setting up new industrial undertakings,” the resolution stated, reeking of an inherent suspicion of and contempt for the private sector. In its wisdom, the government classified industries into three types.
One, industries whose future development will be the exclusive responsibility of the state. <3>
Two, industries that will be progressively state-owned, and in which the state will generally take the initiative in establishing new undertakings but private enterprise will also be expected to supplement the effort of the state. <4>
And three, all the remaining industries, which will be left to the private sector. <5>
The resolution emphasised on support for cottage, village and small-scale industries by restricting production for large players, differential taxation or direct subsidies. <6> It also factored in the losses public sector enterprises would make to pursue the greater good of the people. Another objective of this resolution was to reduce regional inequalities. <7> However, as the Report of the Industrial Licensing Policy Inquiry Committee (also known as the Dutt Committee) noted, the actual operation of this policy resulted in increased regional inequalities: the four industrially advanced states of Maharashtra, Gujarat, West Bengal and Tamil Nadu benefited the most from the operation of this policy, receiving three-fifths of all licence approvals. <8> Given the socialist direction the country had taken, which required the government to plan every twist and turn — from state-granted licences to state-directed financing — the policy delivered larger political goals, but at a huge cost to wealth creation, economic growth and entrepreneurship. Effectively, it set the stage, over the next few decades, to the play of what is known as the Licence Raj.
<1> Industrial Policy Resolution, Para 5, Department of Industrial Policy and Promotion, Government of India, 30 April 1956, 1–5, accessed 3 January 2018.
<2> Eliot, “Social Control of Private Business,” Economic and Political Weekly 6, no. 30/32, Special Number (July 1971): 1697–1702, accessed 3 January 2018.
<3> Ibid., Industrial Policy Resolution, Para 7.
<4> Ibid., Para 9.
<5> Ibid., Para 10.
<6> Ibid., Paras 13 and 14.
<7> Ibid., Para 15.
<8> Report of the Industrial Licensing Policy Inquiry Committee: Main Report, Ministry of Corporate Affairs, July 1969, 109, accessed 3 January 2018.
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Gautam Chikermane is a Vice President at ORF. His areas of research are economics, politics and foreign policy. A Jefferson Fellow (Fall 2001) at the East-West ...
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