Abstract In the post-World War II period India was probably the first non-communist developing country to have instituted

a full-fledged industrial policy. The purpose of the policy was to co-ordinate investment decisions both in the public and the private sectors and to seize the 'commanding heights' of the economy by bringing certain strategic industries and firms under public ownership. This classical state-directed industrialisation model held sway for three decades, from 1950-1980. The model began to erode in the 1980s. Following a serious external liquidity crisis in 1991 the model was fundamentally changed. Indian industrial policy in the period 1950 to 1980, as embodied in its five-year plans, has long been the subject of intense criticism from the powerful neo-liberal critics of the country's development. In their view it was the change away from India's traditional industrial policy in 1991 towards liberalisation, de-regulation, and market orientation that ushered in a new era of faster economic growth. This paper takes a wide view of industrial policy, emphasising the government's continuing co-ordinating role in various spheres. It regards the institution of the Planning Commission as a major benefit for the country particularly as its role in formulating industrial policy in the narrow sense and in guiding India's ongoing industrial revolution in the broader sense is still widely accepted by the mainstream political parties of the left and the right (for example, Bhartiya Janata Party, Indian People's Party). The paper suggests that industrial policy and planned economic development did not come to an end with the deregulation of India's traditional investment regime in the 1980s and 1990s. Industrial policy has continued in a different form during the period, facing an agenda of new issues and an updating of older ones. The analysis of this paper suggests that today a central challenge for the Planning Commission is to exploit India's lead in ICT and its `institutional surplus' (democracy, common law legal heritage) to raise the current 8 per cent trend rate of growth to double-digit numbers while maintaining equitable distribution of the fruits of economic progress. To do so, India requires a somewhat different industrial policy than that pursued in the Nehru-Mahalanobis era, or that has been followed since then.

The Industrial Policy plan of a country, sometimes shortened IP, is its official strategic effort to encourage the development and growth of the manufacturing sector of the economy. The

government takes measures "aimed at improving the competitiveness and capabilities of domestic firms and promoting structural transformation." A

country's infrastructure (transportation, telecommunications and energy industry) is a major part of the manufacturing sector that usually has a key role in IP. Essay on the Industrial Policy Reforms in India Introduction: There have been attempts since the 80s to liberalize the industrial policy framework. But it is the new industrial policy of July 24, 1991 that has really ushered in an era of reforms and liberalization. Development of Thought: The two principal instruments of industrial policy before the reform were a system of industrial licensing and a system of import licensing designed to foster import substituting industries. These polices however led to adverse consequences. There had been attempts during the 1980s to liberalize the industrial policy framework and the process of re-orientation Gaines further momentum during the Seventh Plan (1985' 1989). However, it was the new industrial policy of July 24, 1991, that really heralded the Industrial Policy reforms. The main objectives of the policy were to dismantle the regulatory systems, develop the capital market and increase the competitiveness of industry for the benefit of the common man. A major policy decision was regarding the public sector. The role of public sectors would be confined only to the strategic and basic infrastructure sectors. Another area where further changes were contemplated was the exit policy.

Industrial policies are sector specific, unlike broader macroeconomic policies. They are often considered to be interventionist as opposed to laissez-faire economics. Examples of horizontal,

economy wide policies are tightening credit or taxing capital gain, while examples of vertical, sector-specific policies comprise protecting textiles from imports or subsidizing export industries. Free market advocates consider industrial policies as interventionist measures typical of mixed economy countries. Many types of industrial policies contain common elements with other types of interventionist practices such as trade policy and fiscal policy. An example of a typical industrial policy is import-substitution-industrialization (ISI), where trade barriers are temporarily imposed on some key sectors, such as manufacturing. By selectively protecting certain industries, these industries are given time to learn (learning by doing) and upgrade. Once competitive enough, these restrictions are lifted to expose the selected industries to the international market.

History

The traditional arguments for industrial policies go back as far as the 18th century. Prominent early arguments in favor of selective protection of industries were contained in the 1791 Report on the Subject of Manufactures of US economist and politician Alexander Hamilton, as well as the work of German economist Friedrich List. List's views on free trade were in explicit contradiction to those of Adam Smith, who, in The Wealth of Nations, said that "the most advantageous method in which a landed nation can raise up artificers, manufacturers, and merchants of its own is to grant the most perfect freedom of trade to the artificers, manufacturers, and merchants of all other nations." The arguments of List and others were subsequently picked up by scholars of early development economics such as Albert Hirschman and Alexander Gerschenkron, who called for the selective promotion of key sectors in overcoming economic backwardness. The relationship between government and industry in the United States has never been a simple one, and the labels used in categorizing these relationships at different times are often misleading if not false. In the early nineteenth century, for example, "it is quite clear that the laissez faire label is an inappropriate one." In the US, an industrial policy was explicitly presented for the first time by the Jimmy Carter administration in August 1980, but it was subsequently dismantled with the election of Ronald Reagan the following year.

Historically, there is a growing consensus that most developed countries, including United Kingdom, United States, Germany and France, have intervened actively in their domestic economy through industrial policies. pursued These in early Latin examples American are followed by such

interventionist ISI strategies

countries

as Brazil, Mexico or Argentina. More recently, the rapid growth of East Asian economies, or the newly industrialized countries (NICs), has also been associated with active industrial policies that selectively promoted manufacturing and facilitated technology transfer and industrial upgrading. The success of these state-directed industrialization strategies are often attributed to developmental states and strong bureaucracies such as the

Japanese MITI. According to Princeton's Atul Kohli, the reason Japanese colonies such as South Korea developed so rapidly and successfully was down to Japan exporting to its colonies the same centralized state development that it had used to develop itself. Many of these domestic policy choices, however, are now seen as detrimental to free trade and are hence limited by various international agreements such as WTO, TRIM or TRIPS. Instead, the recent focus for industrial policy has shifted towards the promotion of local business clusters and the integration into global value chains. During the Reagan Administration, an economic development initiative called Project Socrates was initiated to address US decline in ability to compete in world markets. Project Socrates, directed by Michael Sekora, resulted in a computer-based competitive strategy system that was made available to private industry and all other public and private institutions that impact economic growth, competitiveness and trade policy. A key objective of Socrates was to utilize advanced technology to enable US private institutions and public agencies to cooperate in the development and execution of competitive strategies without violating existing laws or compromising the spirit of "free market". President Reagan was satisfied that this objective was fulfilled in the Socrates system. Through the advances of innovation age technology, Socrates would provide "voluntary" but "systematic" coordination of resources across multiple "economic system" institutions including industry clusters, financial service organizations, university research facilities and government economic planning agencies. While the view of one president and the Socrates team was that technology made it virtually possible for both to exist simultaneously, the industrial policy vs. free market debate continued as later under

the George H. W. Bush administration, Socrates was labeled as industrial policy and defunded.[18][19] In August 2010, The Economist highlighted a renewed trend of industrial policy in rich countries, with examples of active government intervention in the United States, Britain, France, Germany, Japan and South Korea. The revival has been driven by four main forces: pressure to reduce unemployment and stimulate growth; a desire to 'rebalance' certain economies away from financial services; popular demands for increased government action; and the perceived need to respond to apparently successful policies being pursued in China.[20] ECONOMIC HISTORY OF BRITISH INDIA the people more clearly if we briefly review in this preliminary chapter those great political events which led to the steady rise and expansion of the British power during the period of eighty years which forms the subject of this volume, from the battle of Plessey in I 757 to the accession of Queen Victoria in 1837. Three generations of British statesmen and administrators laboured to extend and consolidate the Indian Empire within these eighty years, and each generation had a distinct and characteristic policy of its own. The first was the age of Clive and Warren Hastings, an age of bold adventures and arduous struggles, which made a Company of traders a great territorial power in India. This age ended with Pitt's India Act of 1784 and the retirement of Warren Hastings from India in the following year. The second age was the age of Cornwallis, Wellesley, and Lord Hastings, the age of the final wars with Mysore and the Mahrattas, which made the Company the supreme power in India. This age ended with the annexation of the province of Bombay in 1817, and the capture of the last of the Push was in the following year. The third age was an age of peace, retrenchment, and administrative reforms, the age of Munro, Elphinstone, and Bentinck, whose names are more gratefully cherished in India to the present day than the names of warriors and conquerors. This age ended with the arrival of Lord Auckland in India in 1836 and the accession of Queen Victoria in the following year.

The economic liberalization in India refers to ongoing economic reforms in India that started on 24 July 1991. After Independence in 1947, India adhered to socialist policies. Attempts were made to liberalize the economy in 1966 and 1985. The first attempt was reversed in 1967.

Thereafter, a stronger version of socialism was adopted. The second major attempt was in 1985 by prime minister Rajiv Gandhi. The process came to a halt in 1987, though 1967 style reversal did not take place. In 1991, after India faced a balance of payments crisis, it had to pledge 20 tons of gold to Union Bank of Switzerland and 47 tones to Bank of England as part of a bailout deal with the International Monetary Fund (IMF). In addition, the IMF required India to undertake a series of structural economic reforms. As a result of this requirement, the government of P. V. Narasimha Rao and his finance minister Manmohan Singh (currently the Prime Minister of India) started breakthrough reforms, although they did not implement many of the reforms the IMF wanted. The new neo-liberal policies included opening for international trade and investment, deregulation, initiation of privatization, tax reforms, and inflation-controlling measures. The overall direction of liberalizations has since remained the same, irrespective of the ruling party, although no party has yet tried to take on powerful lobbies such as the trade unions and farmers, or contentious issues such as reforming labour laws and reducing agricultural subsidies. Thus, unlike the reforms of 1966 and 1985 that was carried out by the majority Congress governments, the reforms of 1991 carried out by a minority government proved sustainable. There exists a lively debate in India as to what made the economic reforms sustainable. The fruits of liberalizations reached their peak in 2007, when India recorded its highest GDP growth rate of 9%. With this, India became the second fastest growing major economy in the world, next only to China. The growth rate has slowed significantly in the first half of 2012. An Organization for Economic Co-operation and Development (OECD) report states that the average growth rate 7.5% wills double the average income in a decade, and more reforms would speed up the pace.

Indian government coalitions have been advised to continue liberalizations. India grows at slower pace than China, which has been liberalizing its economy since 1978.[11] The McKinsey Quarterly states that removing main obstacles "would free India's economy to grow as fast as China's, at 10% a year".

There has been significant debate, however, around liberalizations as an inclusive economic growth strategy. Since 1992, income inequality has deepened in India with consumption among the poorest staying stable while the wealthiest generate consumption growth. As India's gross domestic product (GDP) growth rate became lowest in 2012-13 over a decade, growing merely at 5%, more criticism of India's economic reforms surfaced, as it apparently failed to address employment growth, nutritional values in terms of food intake in calories, and also exports growth - and thereby leading to a worsening level of current account deficit compared to the prior to the reform period. India had the distinction of being the world's largest economy in the beginning of the Christian era, as it accounted for about 32.9% share of world GDP and about 17% the goods produced in India had long been exported to far off destinations across the world. Therefore, the concept of globalization is hardly new to India. India currently accounts for 1.2% of World trade as of 2006 according to the World Trade Organization (WTO). Until the liberalisation of 1991, India was largely and intentionally isolated from the world markets, to protect its fledgling economy and to achieve self-reliance. Foreign trade was subject to import tariffs, export taxes and quantitative restrictions, while foreign direct investment was restricted by upper-limit equity participation, restrictions on technology transfer, export obligations and government approvals; these approvals were needed for nearly 60% of new FDI in the industrial sector. The restrictions ensured that FDI averaged only around $200M annually between 1985 and 1991; a large percentage of the capital flows consisted of foreign aid, commercial borrowing and deposits of non-resident Indians. India's exports were stagnant for the first 15 years after independence, due to the predominance of tea, jute and cotton manufactures, demand for which was generally inelastic. Imports in the same period consisted predominantly of machinery, equipment and raw materials, due to nascent industrialisation. Since liberalisation, the value of India's international trade has become more broad-based and has risen to 63,080,109 crores in 200304 from 1,250 crores in 195051.India's major trading partners are China, the US, the UAE, the UK, Japan and the EU. The exports during April 2007 were $12.31 billion up by 16% and import were $17.68 billion with an increase of 18.06% over the previous year.

India is a founding-member of General Agreement on Tariffs and Trade (GATT) since 1947 and its successor, the World Trade Organization. While participating actively in its general council meetings, India has been crucial in voicing the concerns of the developing world. For instance, India has continued its opposition to the inclusion of such matters as labour and environment issues and other non-tariff barriers into the WTO policies. Despite reducing import restrictions several times in the 2000s, India was evaluated by the World Trade Organization in 2008 as more restrictive than similar developing economies, such as Brazil, China, and Russia. The WTO also identified electricity shortages and inadequate transportation infrastructure as significant constraints on trade. Its restrictiveness has been cited as a factor which has isolated it from the global financial crisis of 20082009 more than other countries, even though it has reduced ongoing economic growth. Economic liberalization and poverty reduction Economic liberalization encompasses the processes, including government policies, that promote free trade, deregulation, elimination of subsidies, price controls and rationing systems, and, often, the downsizing or privatization of public services (Woodward, 1992). Economic liberalization has been central to adjustment policies introduced in developing countries since the late 1970s, mostly in the context of the conditions for lending set by international financial institutions. Thus, government policies were redirected to follow a non-interventionist, or laissez-faire, approach to economic activity, relying on market forces for the allocation of resources. It was argued that market-oriented policy reforms would spur growth and accelerate poverty reduction. From this perspective, government intervention in markets is seen as both inefficient and distortionary. It is argued that even if an interventionist State acts with good intentions, it does not have the competence to manage the economy well. By moving scarce resources into less productive economic activities, the State is thought to reduce overall economic growth, with adverse consequences for poverty reduction. Additionally, for public choice theory, rational, self-interested individual maximize their economic benefits and overall economic welfare. In civic life, politicians, bureaucrats and citizens are all considered to act solely out of self interest in the political arena. Politicians and State bureaucrats, acting from self-interest, use their power and the authority of the Government to engage in rent seeking behavior, which distorts the allocation of resources and results in disincentives for private

investment and entrepreneurship (Buchanan, 1980). Therefore, the power of the State and political actors, including the ability to intervene in the economy, should be limited. Within this framework, the State creates enabling conditions in the form of macroeconomic stability, guaranteeing property rights, and maintaining law and order for rapid economic growth driven by private sector (both domestic and foreign) investment. As economic growth rises, poverty will fall (Dollar and Kraay, 2002). Distribution and social justice benefit from the trickle-down principle, as economic growth will eventually benefit all members of society. The free market, based on comparative advantage, will thus bring about economic expansion through labourintensive export activities, which will create employment and hence improve the general wellbeing of the entire society. The present chapter critically evaluates the growth, employment and poverty impacts of three major elements of recent economic liberalization trade liberalization, financial liberalization and privatization. Trade liberalization Trade and economic growth: the theory Proponents of trade liberalization expect that removing trade barriers will lead to short-run or static welfare gains (or higher income levels) and in turn reduce poverty.1 The gains from trade result from the fact that different countries are endowed with different resources (natural and acquired); hence, the opportunity cost of producing products varies from country to country. Opportunity cost is measured by the sacrifice (for example, in the production of one good) to produce one extra unit of another good, given that resources are scarce. Under trade protection, resources are concentrated in inefficient production in economic sectors that have high trade barriers. When barriers are removed, resources shift away from those inefficient sectors in which that country has no comparative advantage to the efficient sectors in which it does have a comparative advantage. Gains from trade may not be distributed equitably and are determined by several factors, including the international rate of exchange between two goods, what happens to the terms of trade, and whether the full employment of resources is maintained as they are reallocated when countries specialize .The closer the international rate of exchange is to a countrys own internal rate of exchange, the less it will benefit from specialization and the more the other country will benefit. As Bhagwati (1958) has shown, in extreme circumstances, one country may become absolutely worse off if real resource gains from trade are offset by the decline in

the terms of trade, a phenomenon that he called immiserizing growth (Bhagwati, 1958). The problem for many developing countries is that the type of goods in which they will specialize under a free trade regime namely, primary commodities is likely to cause the terms of trade to deteriorate and may lead to an underutilization of their resources. First, primary commodities generally have low prices and the demand for them does not rise as fast as income (low income elasticity of demand). As a result, when their supply increases, prices can drop dramatically, since demand grows only slowly with income growth. Secondly, primary commodity production is land-based and subject to diminishing returns,2 and there is a limit to employment in activities subject to diminishing returns at a reasonable living wage. By contrast, in manufacturing, no fixed factors of production are involved, and production may be subject to increasing returns. Thus, what is often observed is a secular deterioration of the terms of trade for countries producing primary commodities vis-a-vis countries specializing in manufacturing (Ocampo and Parra, 2003). Therefore, in practice, for countries specializing in activities subject to diminishing returns, the real resource gains from specialization may be offset by the real income losses from unemployment. Empirical studies do not point to significant employment generation due to trade liberalization.3 Furthermore, according to a World Bank study, more than 70 per cent of gains from complete trade liberalization will accrue to rich countries, and more than two thirds of static gains to developing countries from complying with the outcomes of the Doha Round will go to big countries such as Argentina, Brazil and India in the case of agriculture and to China and Viet Nam in the case of textiles and garments (Anderson and Martin, 2005). According to proponents of trade liberalization, the major reason for the rapid growth arising from trade liberalization is the dynamic gains from trade. The dynamic gains accrue from augmenting the availability of resources for production by increasing the quantity and productivity of resources. One of the major dynamic benefits of trade is that it widens the market for a countrys producers. If production is subject to increasing returns, export growth becomes a source of continued productivity growth since there is also a close connection between increasing returns and capital accumulation. For a small country with no trade, there is very little scope for large-scale investment in advanced capital equipment, and specialization is limited by the extent of the market. Other important sources of dynamic benefits from trade include: stimulus to competition, acquisition of new knowledge and ideas and dissemination of technical knowledge, more FDI, and changes in

attitudes and institutions. Trade can raise productivity, however, if increasing returns to scale are dominant in the export sectors. If, instead, scale economies are more widespread in importcompeting sectors which contract after liberalization, productivity gains will be limited. Another possibility is that protection increases inefficiency by drawing too many firms into sectors shielded from foreign competition. Liberalization brings about rationalization and increased productivity. This will occur, however, only if there is ease of entry and exit into markets. In reality, firms may remain in an industry for a long while after protection is lifted, thus limiting increases in productivity. Finally, if competition for export markets is intense, uncertainty may make firms reluctant to undertake new productivity-enhancing investments. Financial liberalization The arguments for financial liberalization also rest on the supposed link between financial development and economic growth, and hence poverty reduction.There are two dimensions of financial liberalization: (a) domestic financial sector deregulation and (b) opening of the capital account. The rationale for financial deregulation, including international financial liberalization, was provided back in the early 1970s by McKinnon (1973) and Shaw (1973). They claimed that one of the reasons for the poor growth performancenof many developing countries had been administratively determined very low (in some cases, negative) real interest rates which discouraged savings and encouraged inefficient use of capital. Thus, financial liberalization primarily involving deregulation of interest rates would lead to higher levels of savings. Liberalization would also channel funds to finance more productive projects. Therefore, an increase in real interest rates following liberalization should encourage saving and expand the supply of credit available to domestic investors, thereby enabling the economy to grow more quickly. This growth promoting effect of domestic financial sector deregulation should be enhanced by opening the capital account of the balance of payments, which would allow more foreign capital to flow into the country, attracted by higher domestic real interest rates.While increases in real interest rates have often been the outcome of liberalization episodes, their impact on domestic saving and investment has been mixed (Reinhart and Ioannis, 2008; Galbis, 1993). McKinnon himself has acknowledged that financial liberalization may lead to episodes of over-borrowing. This over-borrowing syndrome may be magnified when domestic liberalization is coupled with capital account liberalization (McKinnon and Pill, 1999). Additionally, if the rising levels of

debt are denominated in a foreign currency, this will increase a countrys vulnerability to exchange-rate fluctuations. Banking crises are often preceded by financial liberalization; indeed, liberalization often leads to crisis (Kaminsky and Reinhart, 1999). A World Bank study of 53 countries for the period 1980-1995 found that banking crises were more likely to occur in liberalized financial systems (Demirguc-Kunt and Detragiache, 1999; see also box VI.4). One reason why China, India and Viet Nam remained relatively unaffected by the contagion from the Asian financial crisis was their tight controls on short-term capital flows. How can privatization reduce poverty? The rationale for privatization is rooted in public choice theory which predicts that privatization will spur development of the private sector. Privatization is supposed to improve the efficiency of enterprises by focusing on financial performance. Through better resource allocation and improved efficiency (due to the absence of rent-seeking), privatization is expected to spur economic growth and hence reduce poverty. Proponents of privatization also project fiscal benefits, occurring from the one-time revenue gains for the government that sells presumably failing State-owned enterprises and is relieved of the burden of financing investment (Campbell-White and Bhatia, 1998). This phenomenon is expected to allow Governments to spend more on services for the poor. But how does privatization actually help develop the private sector? This remains unclear. It could increase private investment in a sector, but whether this leads to output and welfare benefits will depend on competition, among other factors. It could signal government support for the private sector. However, for many developing countries (for example, countries in sub-Saharan Africa), lack of investor interest has been a common feature of privatization, with Governments offering increasing concessions to entice investors to acquire their assetsoften to meet the requirements of donors and creditors (Bayliss, 2003). Privatization can also create an environment where the private sector attempts to stifle competition and flout regulations in order to enhance profits. In the absence of effective regulation, where Governments have recourse to valid sanctions against private firms, the State will be powerless to prevent market abuses. In such a situation, it is not privatization that will develop the private sector, but rather effective Government regulation. Private firms will invest only when and where they expect to make a profitable return. Therefore, they will want to invest only in profitable activities and will not buy losing enterprises. Thus, the Government will not only be left with losing enterprises, but also lose a regular source of

revenue from enterprises sold to the private sector. For example, in their study of privatization in Africa, Campbell-White and Bhatia (1998) found that the enterprises sold had not been financially draining government resources. In the case of profit-making units, the fiscal effect of privatization is almost invariably negative. If the Government sells an asset that provides an income flow (profits, etc.) equal to or greater than that based on the prevailing interest rate on Government securities, then the Government would lose a future income stream by selling it. Additionally, if revenue from privatized enterprises becomes uncertain, firms may back out of investment projects. In Zimbabwe in 1999, the United Kingdom firm Biwater withdrew from a proposed private water project because the projects intended beneficiaries (consumers) were too poor to pay a tariff to ensure the profit margin that Biwater was seeking (Bayliss, 2002). They may also seek guarantees from Governments to ensure revenue flows rather than take the risks. In infrastructure, private companies will ensure that their investments are recouped with profit. In power generation projects, private investors often will not invest without a power purchase agreement (PPA) in place under which the publicly owned utilities agree to purchase the output of the plant at a fixed price often cited in foreign exchange for a period of 20-30 years. Such agreements can be crippling for Governments. In the case of the Enron-owned Dabhol power project in India, the terms of the power purchase agreement became so onerous for the government of Maharashtra State owing to currency devaluation and the high cost of fuelthat it defaulted on payments (Bayliss and Hall, 2000). There is also no clear evidence that the private sector performs better than the public sector. While private ownership may bring better management skills and incentives, this is by no means inevitable.There are numerous examples of utility privatization failures. For example, in Puerto Rico, four years after a subsidiary of the French multinational Vivendi took over management of the water authority, its financial situation deteriorated to such a degree that the State had to provide subsidies (Bayliss, 2002). Private investment in infrastructure, for example, in a water supply programme in a developing country, is not normally a very attractive proposition because it involves a large upfront investment and a long-term pay-off. For this reason, privatization projects are often designed in such a way as to enable private firms acquiring interests in service delivery to make quick profits, leaving the longer-term, more expensive investments to the Government. For example, in Guinea and Cote dIvoire, private operators were given responsibility for billing

consumers for water, while the Governments committed to invest in infrastructure. The fact that the private firm made a profit while the State-owned enterprise continued to accumulate losses was due not so much to the difference in ownership as to the type of business each party engaged in. Further, given the private firms interest in increasing revenue, the focus was on installing water meters, increasing billing and bill collection, rather than on improving access to water (Brook Cowen, 1996). This can impact negatively on the poor, who have limited access to basic infrastructure. Private firms are also sometimes guaranteed rates of return which allow for price or user charge increases. In the Plurinational State of Bolivia, the privatized water company raised prices sharply in the late 1990s to enable it to earn such rates of return, provoking widespread popular protests (Lobina, 2000). Case studies of African countries have also shown that water prices rose substantially after privatizationto the point where water became inaccessible to the poor (Magdahl and others, 2006). In addition, developingcountry Governments often have weak regulatory capacity to monitor price increases by privatized firms. Whether privatization-related price hikes increase poverty will depend on the extent to which the poor are consumers in these sectors, the extent of the price increases and their ability to cope. Extensive privatization in Mongolia since the early 1990s has led to sharp.One common immediate effect of most privatizations is reduced employment. This occurs not only because there tends to be substantial overstaffing in public enterprises, but also because the new owners typically prefer to begin with fewer employees than they need in order to allow for greater flexibility. In addition, there are the linkage and multiplier effects of privatizationrelated changes. Employment conditions can be adversely affected in upstream and downstream activities, as well as in the local community through the indirectdemand effects of workers incomes. A study by Van der Hoeven and Sziraczki (1998) showed that utility privatization in developing countries has significant employment-reducing effects, sometimes impacting up to 50 per cent of the workforce.

Globalization in India: Effects and factors of promoting 2.1 meaning of globalization In todays world many alternatives of goods and services are available in front of consumer. Today the foreign trade has linked all the countries of the world together by the process of globalization. When all the countries of the world adopt a policy of liberalization and all the market of the world are unified, it is called globalization. Due foreign trade the markets of the world have been unified. The globalization is meant the working of whole world together with co-operation and co-ordination in the form of a market. In India the liberalization started after 1991. 2.2 Factors inspiring globalization The factors which are responsible for the globalization are as follows:-

Expansion of Technical knowledge:- During last 50 years the technical knowledge has developed rapidly. Due to transport facilities you can sent the goods from one place to another place very easily in a very short time at a low cost. By internet whole world has become a small room. You can communicate very easily in a very short period of time.

Process of liberalization:- Till the last some decades the production was limited within the countries. Some countries imposed strict restrictions to protect the good produced by them. After liberalization these restrictions were removed and you can trade freely in different countries. This the most important reason of the globalization. In India liberalization started after1991. Expansion of competition and market:- Competition plays an important role in economy. The companies in order to seek the hold on market take support of competition. For this competition companies along with cutting down the prices, use advertisements. Expansion of Multinational Companies:- Multinational companies play an important role to brings different countries more closer. These companies set up their factories for production in different countries. These companies produce goods of world level.

Expansion of foreign trade:- After the world war II the foreign trade of all the countries has increased. The international institution like World Bank and international Monetary Fund

have also contributed in the expansion of trade. The expansion of foreign trade is also a major factor which promotes globalization.

2.3Effects of globalization India has adopted new economic policy since 1991.following is the main effects of globalisation in Indian economy: 1. Import-Export- After the liberalization the import and export become more convenient and hence it affects the Indian economy favourably.

2. Industrialization- The numbers of industries have increase after the liberalization. As as a result the growth rate in the country raised after 1991 rapidly. 3. Increase in foreign investment- After liberalization the multinational companies have increased their investment in India. These companies shown their interest in India in the different sectors. Likewise many Indian companies became multinational companies. 4. Advantage to consumer- After globalization the price of many goods and services have been reduced. The consumers are getting the goods of excellent quality. More alternatives are available for the consumer to select goods.

5. Expansion of service sector:- The expansion of service sector is the most important effect of globalization in India. The service sector have been increased due to globalization.

INDIAS INDUSTRIAL POLICIES FROM 1948 TO 1991 INDUSTRIAL POLICY RESOLUTION The Government of India have given careful thought to the economic problems facing the country. The nation has now set itself to establish a social order where justice and equality of opportunity shall be secured to all the people. The immediate objective is to provide educational facilities and health services on a much wider scale, and to promote a rapid rise in

the standard of living of the people by exploiting the latent resources of the country, increasing production and offering opportunities to all for employment in the service of the community. For this purpose. Careful planning and integrated effort over the whole field of national activity are necessary: and the Government of India propose to establish a National Planning Commission to formulate programmes of development and to secure their execution. The present statement, however, confines itself to Governments policy in the industrial field. 2. Any improvement in the economic conditions of the country postulates and increase in national wealth: a mere redistribution of existing wealth would make no essential difference to the people and would merely mean the distribution of poverty. A dynamic national policy must, therefore, be directed to a continuous increase in production by all possible means, side by side with measures to secure its equitable distribution. In the present state of the nations economy, when the mass of the people are below the subsistence level, the emphasis should be on the expansion of production. Both agricultural and industrial; and in particular on the production of capital equipment of goods satisfying the basic needs of the people and of commodities the export of which will increase earnings of foreign exchange. 3. The problem of State participation in Industry and the conditions in which private enterprises should be allowed to operate must be judged in this context. There can be no doubt that the State must play a progressively active role in the development of industries, but ability achieve the main objectives should determine the immediate extent of State responsibility and the limits to private enterprise. Under present conditions, the mechanism and the resources of the State may not permit it to function forthwith in industry as widely as may be desirable. The Government of India are taking steps to remedy the situation; in particular, they are considering steps to create a body of men trained in business methods and management. They feel, however, that for some time to come, the State could contribute more quickly to the increase of national wealth by expanding its present activities wherever it is already operating and by concentrating on new units of production in other fields, rather than on acquiring and running existing units. Meanwhile, private enterprise, properly directed and regulated, has a valuable role to play, 4. On these considerations the Government have decided that the manufacture of arms and ammunition, the production and control of atomic energy, and ownership and management of railway transport should be the exclusive monopoly of the Central Government. Further in any

emergency, the Government would always have the power to take over any industry vital for national defence. In the case of the following industries, the state which in this context, includes Central, Provincial and State Governments and other Public Authorities like Municipal Corporations will be exclusively responsible for the establishment of new undertakings, except where, the national interest, the State itself finds it necessary to secure the co-operation of private enterprise subject to such control and regulation as the Central Government may prescribe: 1. Coal (the India Coalfields Committees proposals will be generall y followed). 2. Iron and Steel. 3. Aircraft manufacture. 4. Shipbuilding. 5. Manufacture of telephone, telegraph and wireless apparatus, excluding radio receiving sets. 6. Mineral oils.

INDUSTRIAL POLICY RESOLUTION New Delhi, 30th April 1956 No.91/SF/48-The Government of India set out in their Resolution dated 6.4.48 the policy which they proposed to pursue in the industrial field. The Resolution emphasised the importance to the economy of securing a continuous increase in production and its equitable distribution, and pointed out that the State must play of progressively active role in the development of industries. It laid down that besides arms and ammunition, atomic energy and railway transport, which would be the monopoly of the Central Government, the State would be exclusively responsible for the establishment of new undertaking in six basic industries except where, in the national interest, the State itself found it necessary to secure the cooperation of private enterprise. The rest of the industrial field was left open to private enterprises though it was made clear that the State would also progressively participate in this field. 2. Eight years have passed since this declation on industrial policy. These eight years have witnessed many important changes and developments in India. The constitution of India has been enacted, guaranteeing certain fundamental rights and enunciating Directive Principles of State Policy. Planning has proceeded on an organised basis, and the first Five Year Plan has

recently been completed. Parliament has accepted the socialist pattern of society as the objective of soccial and economic policy. These important developments necessiate a fresh statement of industrial policy, more particularly as the Second Five Year Plan will soon be placed before the country. This policy must be governed by the principles laid down in the Constitution, the objective of socialism, and the experience gained during these years. 3. The Constitution of India, in its preamble, has declared that it aims at securing for all its citizens: "JUSTICE, social, economic and political; LIBERTY, of thoughts, expression, belief, faith and worship; EQUALITY of status and of opportunity; and to promote among them all; FRATERNITY, assuring the dignity of the individual and the unity of the Nation." In its Directive Principles of State Policy, it is stated that "The State shall strive to promote the welfare of the people by securing and protecting as effectively as it may a social order in which justice, social, economic and political, shall inform all the institutions of the national life." Further that"The State shall, in particular, direct its policy towards securing: a. that the citizens, men and women equally, have the right to an adequate means of livelihood; b. that the ownership and control of the material resources of the community are so distributed as best to subserve the common good: c. that the operation of the economic system dies not result in the concentration of wealth and means of production to the common detriment; d. that there is equal pay for equal work for both men women; e. that the health and strength of workers, men and women, and the tender age of children are not abused and that citizens are not forced by economic necessity to enter vocations unsuited to their age of strength: f. that childhood and youth are protected against exploitation and against moral and material abandonment." 4. These basic and general principles were given a more precise direction when Parliament accepted in December 1954, the socialist pattern of society as the objective of social and

economic policy. Industrial policy, as other policies, must therefore, be governed by these principles and directions. 5. In order to realise this objective, it is essential to accelerate the rate of economic growth and to speed up industrialisation and, in particular, to develop heavy industries and machine making industries, to expand the public sector, and to build up a large and growing co-operative sector. These provide the economic foundations for increasing opportunities for gainful employment and improving living standards and working conditions for the mass of the people. Equally, it is urgent, to reduce disparities in income and wealth which exist today, to prevent private monopolies and the concentration of economic power in different fields in the hands of small numbers of individuals, Accordingly, the state will progressively assume predominant and direct responsibility for setting up new industrial undertakings and for developing transport facilities. It will also undertake State trading on an increasing scale. At the same time, as an agency for planned national development, in the context of the countrys expanding economy, the private sector will have the opportunity to develop and expand. The principle of cooperation should be applied wherever possible and a steadily increasing portion of the activities of the private sector developed along co-operative lines. 6. The adoption of the socialist pattern of society as the national objective, as well as the need for planned and rapid development, require that all industries of basic and strategic importance, or in the nature of public utility services, should be in the public sector. Other industries, which are essential and require investment on a scale which only the state, has, therefore, to assume direct responsibility for the further development of industries over a wider area. Nevertheless, there are limiting factors, which make it necessary at this stage for the state to define the field in which it will undertake sole responsibility for further development, and to make a selection of industries in the development of which it will play dominant role. After considering all aspects of the problem in consultation with the Planning Commission, the Government of India have decided to classify industries into three categories, having regard to the part which the State would play in each of them. These categories will inevitably overlap to some extent and too great a rigidity might defeat the purpose in view. But the basic principles and objectives have always to be kept in view the general directions hereafter referred to be followed. It should also be remembered that it is always open to the State to undertake any type of industrial production.

7. In the first category will be industries the future development of which will be the exclusive responsibility of the State. The second category will consist of industries, which will be progressively State-owned and in which the State will, therefore, generally take the initiative in establishing new undertakings, but in which private enterprise will also be expected to supplement the effort of the State. The third category will include all the remaining industries, and their future development will, in general, be left to the initiative and enterprise of the private sector. INDUSTRIAL POLICY STATEMENT 23rd December, 1977 For the past 20 years, Government Policy in the spere of industry has been governed by the Industrial Policy Resolution of 1956. While some of the elements of that Resolution in regard to desirable pattern of industrial development still remain valid, the results of actual policies in the industrial field have not been upto the expectations or declared objectives. The growth of per capital national income during the last 10 years has been about 1.5 per cent per annum and is clearly inadequate to meet the needs of a developing economy. Unemployment hs increased, rural-urban disparities have widened and the rate of real investment has stagnated. The growth of industrial output in the last decade has been no more than 3 to 4 per cent per annum on an average. The incidence of industrial sickness has become widespread and some of the major industries are the worst affected. The pattern of industrial costs and prices has tended to be distorted; and dispersal of industrial activity away from the larger urban concentration has been very slow. The new Industrial Policy must, therefore, be directed towards removing the distortions of the past so that genuine aspirations of the people can be met within a time-bound programme of economic development. The close interaction between the agricultural and industrial sectors of our economy cannot be over emphasised. Much of our industrial production is based on agricultural raw materials. Similarly, in order to increase our agricultural productivity by adaptation of modern technology and agronomic practices to our own conditions, important inputs have to come from our industrial sector. The highest priority must be accorded to generation and transmission of power. Our recent experience demonstrates that lack of adequate power availability has become one of the most important constraints in the development of agriculture and industry. Similarly, cement and steel required to build our irrigation projects, the implements for plaughing and

preparing the land, the equipment for processing high quality seeds, fertilizers and pesticides, oil and power, a wide range of industrial products are essential for increasing the level of our agricultural production. The prosperity and the distribution of income arising from a broadbased growth of agriculture and related activities in the countryside has to provide the basic demand for a wide range of industries producing articles of consumption. It is only by such a process of reinforcing interaction of the agricultural and industrial sectors that employment can be found for the large number of the rural population who cannot be absorbed in the agricultural sector. Today, our assets in terms of foodgrains and foreign exchange reserves are considerable. But much more importantly our most valued asset is the willing hands of our rural manpower and the technicians who today from the third largest group of skilled manpower in the world. Great opportunities and great challenges are open to us now; but they cannot be seized by timid and hald-hearted policies. A new approach is called for in several areas of our national life. This new approach should reflect not only our vast resources and special endowments but should show particular concern for the utilisation of these resources and endowments for the amelioration of the living conditions of the majority of our people, the new industrial policy should and will hereafter place man as the centre of planning and implementation of projects and schemes. Conclusion Industrial development is a complex process requiring the effective interaction and cooperation of all sections of society. If the objectives of the new Industrial Policy of accelerating the pace of industrial growth, rapid increase in levels of employment, productivity and income of industrial workers and a wide dispersal of small and village industries have to be achieve, the willing co-operation of industrial worker, trade unions, managers, entrepreneurs, financial institutions and various governmental authorities responsible for implementing schemes of assistance will be essential. The main burnt of the effort has, however, to be borned by our industrial workers and managers who are second to none in their skills and efficiency. The Government earnestly appeals to all these group to work together in spirit of dedication to the national cause. It is only by our own skills and efforts that we can hope to solve the numerous problems facing the country. 1977 has been a year of historical changes and peoples expectations in the political and economic fields are high. It is hoped that the new direction that is being to the industrial policy of the country will help in the creation of a just

and equitable society in which, the benefits of industrial development will be shared by all the people. INDUSTRIAL POLICY STATEMENT July, 1980 Industrial Policy Resolution 1956 The Industrial Policy Resolution 1956 has served as the cornerstone of the Congress Government Policy-Frame from the past quarter of a century. The Industrial Policy announcement of 1956 in fact reflects the value system of our country and has shown conclusively the merit of constructive flexibility. In terms of this Resolution the task of raising the pillars of economic infrastructure in the country was entrusted to the public sector for reasons of its great reliability, for very large investments required and the longer gestation periods of the projects crucial for economic development. The 1956 Resolution, therefore, forms the basis of this statement. Take Off Stage 2. Industrialisation in a developing country has two aspects viz. optimum utilisation of installed capacity and expansion of industries. The industrial progress of India during the past three decades can be attributed to the policies pursued by the Congress Government. While the country had reached a take of stage towards mid-1970s, both the growth channels-optimum utilization of installed capacity as well as expansion of industries ere choked off by the 33 months rule of the Janata Party and its successor Government. The runaway of the economy has been damaged by the last two governments and the entire process of development was put in reverse gear. Revival of the Economic Infrastructure 3. The first task before is the revival of the economy, which is presently inhibited by infrastructural gaps and inadequacies in performance. This put the economy into a vicious cycle of shortages of major industrial inputs like energy, transport and coal. To normalise the situation, Government are working on war-footing to break this vicious circle and to put the economy again on its feet. Industrialisation and Economic Progress 4. Industrialisation is a sine quo non-of economic progress. Our Government is committed to rapid and balanced industrialisation of the country with a view to benefiting the common man

in the shape of increasing availability of goods at fair prices, larger employment and higher per capita income. A higher standard of living implies that more of industrial goods go into the consumption basket of the people. Industrialisation is also essential to provide the much-needs support for agriculture and for the development of infrastructural facilities like energy and transport. The net economic impact of industrialisation much-needs support for agriculture and for the development of infrastructural facilities like energy and transport. The net economic impact of industrialisation must travel down ultimately to the maximum number of people. Distribution of Benefits of Industrialisation 5. The pattern of distribution of benefits of industrialisation should be such as to cover as large a segment of the countrys population, both rural and urban, while avoiding economic concentration in a few hands. New thrusts need to be made to establish a dynamic industrial economy as indicated in the election manifesto of the Congress Party. Now that the Congress Party has been entrusted with the responsibility of the Government, what is needed above all is a set of pragmatic policies which will remove the lingering constraints to industrial production and, at the same time.

Socio-Economic Objectives Optimum utilisation of the installed capacity Maximising production and achieving higher productivity. Higher employment generation. Correction of regional imbalances through a preferential development of industrially backward areas. Strengthening of the agricultural base by according a preferential treatment to agrobased industries, and promoting optimum intersectioral relationship. Faster promotion of export- oriented and import substitution industries. Promoting economic federalism with an equitable spread of investment and the dispersal of returns amongst widely spread over small but growing units in rural as well as urban areas. Consumer protection against high prices and bad quality. Role of Public Sector

6. An unfortunate development during the recent political vaccum in the country has been erosion of faith in the public sector which has been reflected in its rather poor performance in recent years. Public sector, which was conceived to provide the pitt pillars of the countrys economic infrastructure, was rendered hollow. The gigantic task before us, therefore, is to rehabilitate faith in the public sector. We have not only to restorage peoples faith in the public sector. But have to evolve effective operational systems of management in the public sector undertakings. The public sector has to be identified as peoples and not as "No bodys Sector" as was rendered by the last Government. Public Sector constitutes as substantial segment of industrial activity in the country and its contibution in terms of generating surpluses and employment for further growth of the economy needs to be improved.

Unit-by-Unit Examination for Corrective Steps 7. Government has decided to launch a drive to revive the efficiency of public sector undertakings. Industrial undertakings in this sector will be closely examined on a unit-by-unit basis and corrective action will be take in terms of a time-bound programme wherever necessary. Some of the units were allowed to get into chronic problems and instead of contributing surpluses, tended to put a drain on the public exchequer. Priority will be accorded to convert losing concerns into viable ones through board restructuring of the system and by providing dynamic and competent management. Management Cadre 8. On the positive side, public sector will continue playing an increasingly important role. B part of the reason for unsatisfactory performance of some of the units in the public sector has been the absence ofproper management cadre. It is proposed to take effective steps to build the public sector undertakings and emphasis will be place on developing management cadres in functional fields such as operations, finance, marketing and information system. Role of Private Sector 9. The Government would pursue the goal of a vibrant, self-reliant and modern economy in which all sectors and all segments of the society have a positive role to play. The Industrial Policy Resolution of 1956 assigned a role to play. The Industrial Policy Resolution of 1956 assigned a role for industrial undertakings in the private sector within the framework of socioeconomic policy of the State and subject to certain regulations in terms of relevant legislations.

Government recognises that it would be in general, desirable to allow private sector undertakings to develop in consonance with targets and objectives of national plans and policies but shall not permit the growth of mono-politic tendencies or concentration of economic power and wealth in a few hands. INDUSTRIAL POLICY 1990 POLICY Government have been considering the need to take measures for promotion of small scale and agro based industries and to change procedures for grant of industrial approvals. 2. In pursuance of our policy to re-orient industrial growth to serve the objective of employment generation, dispersal of industry in the rural areas, and to enhance the contribution of small scale industries to exports it has been decided to take the measures enumerated below. 3. The investment ceiling in plant & machinery for small scale industries (fixed in 1985) would be raised from the present Rs. 35 lakhs to Rs. 60 lakhs and correspondingly, for ancillary units from Rs. 45 lakhs to Rs. 75 lakhs. In order to enable small scale industries to plsy an important role in the total export effort, such of the small scale units which undertake to export at least 30 per cent of the annual production by the third year will be permitted to step up their investment in plant & machinery to Rs. 75 lakhs. 4. Investment ceiling in respect of tiny units would also be increased from the present Rs. 2 lakhs to Rs. 5 lakhs. However, with regard to their location, the population limit of 50,000 as per the 1981 census would continue to apply. Steps will be taken to ensure better inflow of credit and other vital inputs and to improve the infrastructure support to the constituents of the Tiny Sector. 5. Presently, 836 items have been reserved for exclusive manufacture in the small scale sector. Efforts would be made to identify more items amenable to similar reservation. Encroachment and violation by large scale units into areas reserved for small scale sector will be effectively dealth with. (ii) A new scheme of Central Investment Subsidy exclusively for the small scale sector in rural and backward areas capable of generating higher level of employment at lower capital cost would be implemented.

(iii) With a view to improving the competitiveness of the products manufactured in the small scale sector, programmes for modernisation and upgradation of technology would be implemented. A number of technology ecntres, tool rooms, Process and Product Development Centres, testing centres, etc. will be set up under the umbrella of an apex Technology Development Centre in Small Industries Development Organiasation. (iv) To ensure adequate and timely flow of credit of the small scale industries, a new apex bank known as SIDBI has already been established. One of the major tasks of SIDBI and other commercial banks / financial institutions would be to channelise need-based, higher flow of credit, both by way of tem loan and working capital, to the tiny and rural industries. A targeted approach will be adopted to ensure implementation and to facilitate monitoring this objective. (v) The existing regime of fiscale concessions will be reviewed both to provide sustained support to the units in the small-scale sector and to remove the disincentives for their graduation and further growth. (vi) An exercise will be undertaken to identify locations in rural areas endowed with adequate power supply and intensive campaigns will be launched to attract suitable entrepreneurs, provide all other inputs and foster small scale and tiny industries. Similarly industries which are not energy-intensive will be identified for proliferation in rural areas where power supply is presently a constraint. (vii) In order to widen the entrepreneurial bases the Government would lay particular emphasis on training of women and youth under the Entrepreneurial Development Programme. A special cell would be established in SIDO and State Directorates of Industries to assist women entrepreneurs. (viii) One of the persistent complaints of the small scale units is their being subjected to a large number of ACTs / Laws, being required to maintain a number of registers, submit plethora of returns and face an army of Inspectors, particularly in the field of labour legislations. These bureaucracy controls will be reduced so that unnecessary interference is eliminated. Further, procedure will be simplified and paper work cut down. 6. In order to assist the large number of artisans engaged in the rural and cottage industries, the activities of the KVIC and KVI Boards will be expanded, and these organisations will be strengthened to discharge the responsibility more effectively. Special marketing organisations at the Centre and State levels shall be created to assist rural artisans in marketing their

products and also in supply of raw materials. Besides, providing concessional credit, training facilities and free consultancy to groups of artisans will also be provided. Industrial Policy Statement -1980 The industrial Policy Statement of 1980 placed accent on promotion of competition in the domestic market, technological upgradatrion and modernization of industries. Some of the socio-economic objectives spelt out in the Statement were i) optimum utilisation of installed capacity, ii) higher productivity, iii) higher employment levels, iv) removal of regional disparities, v) strengthening of agricultural base, vi) promotion of export oriented industries and vi) consumer protection against high prices and poor quality. Policy measures were announced to revive the efficiency of public sector undertakings (PSUs) by developing the management cadres in functional fields viz., operations, finance, marketing and information system. An automatic expansion of capacity up to five per cent per annum was allowed, particularly in the core sector and in industries with long-term export potential.Special incentives were granted to industrial units which were engaged in industrial processes and technologies aiming at optimum utilization of energy and the exploitation of alternative sources of energy. In order to boost the development of small scale industries, the investment limit was raised to Rs.2 million in small scale units and Rs.2.5 million in ancillary units. In the case of tiny units, investment limit was raised to Rs.0.2 million. Industrial Policy Measures during the 1980s Policy measures initiated in the first three decades since Independence facilitated the establishment of basic industries and building up of a broadbased infrastructure in the country. The Seventh Five Year Plan (1985-1900), recognized the need for consolidation of these strengths and initiating policy measures to prepare the Indian industry to respond effectively to emergingchallenges. A number of measures were initiated towards technological and managerial modernization to improve productivity, quality and to reduce cost of production. The public sector was freed from a number of constraints and was provided with greater autonomy. There was some progress in the process of deregulation during the 1980s. In 1988, all industries, excepting 26 industries specified in the negative list, were exempted from licensing. The exemption was, however, subject to investment and locational limitations. The automotive industry, cement, cotton spinning, food processing and polyester filament yarn industries witnessed modernization and expanded scales of production during the 1980s.

With a view to promote industrialization of backward areas in the country, the Government of India announced in June, 1988 the Growth Centre Scheme under which 71 Growth Centers were proposed to be set up throughout the country. Growth centers were to be endowed with basic infrastructure facilities such as power, water, telecommunications and banking to enable them to attract industries. Industrial Policy Statement- 1991 The Industrial Policy Statement of 1991 stated that the Government will continue to pursue a sound policy framework encompassing encouragement of entrepreneurship, development of indigenous technology through investment in research and development, bringing in new technology, dismantling of the regulatory system, development of the capital markets and increased competitiveness for the benefit of common man". It further added that "the spread of industrialization to backward areas of the country will be actively promoted through appropriate incentives, institutions and infrastructure investments. The objective of the Industrial Policy Statement - 1991 was to maintain sustained growth in productivity, enhance gainful employment and achieve optimal utilization of human resources, to attain international competitiveness, and to transform India into a major partner and player in the global arena. Quite clearly, the focus of the policy was to unshackle the Indian industry from bureaucratic controls. This called for a number of far-reaching reforms : A substantial modification of Industry Licencing Policy was deemed necessary with a view to ease restraints on capacity creation, respond to emerging domestic and global opportunities by improving productivity. Accordingly, the Policy Statement included abolition of industrial licensing for most industries, barring a handful of industries for reasons of security and strategic concerns, social and environmental issues. Compulsory licencing was required only in respect of 18 industries. These included, inter alia, coal and lignite, distillation and brewing of alcoholic drinks, cigars and cigarettes, drugs and pharmaceuticals, white goods, hazardous chemicals. The small scale sector continued to be reserved. Norms for setting up industries (except for industries subject to compulsory licensing) in cities with more than one million population were further liberalised. Recognising the complementarily of domestic and foreign investment, foreign direct investment was accorded a significant role in policy announcements of 1991. Foreign direct investment (FDI) up to 51 per cent foreign equity in high priority industries requiring large investments and advanced

technology was permitted. Foreign equity up to 51 per cent was also allowed in trading companies primarily engaged in export activities. These important initiatives were expected to provide a boost to investment besides enabling access to high technology and marketing expertise of foreign companies. With a view to inject technological dynamism in the Indian industry, the Government provided automatic approval for technological agreements related to high priority industries and eased procedures for hiring of foreign technical expertise. Major initiatives towards restructuring of public sector units (PSUs) were initiated, in view of their low productivity, over staffing, lack of technological upgradation and low rate of return. In order to raise resources and ensure wider public participation PSUs, it was decided to offer its shareholding stake to mutual funds, financial institutions, general public and workers. Similarly, in order to revive and rehabilitate chronically sick PSUs, it was decided to refer them to the Board for Industrial and Financial Reconstruction (BIFR). The Policy also provided for greater managerial autonomy to the Boards of PSUs. Industrial Policy Measures Since 1991 Since 1991, industrial policy measures and procedural simplifications have been reviewed on an ongoing basis. Presently, there are only six industries which require compulsory licensing. Similarly, there are only three industries reserved for the public sector. Some of important policy measures initiated since 1991 are set out below: Since 1991, promotion of foreign direct investment has been an integral part of Indias economic policy. The Government has ensured a liberal and transparent foreign investment regime where most activities are opened to foreign investment on automatic route without any limit on the extent of foreign ownership. FDI up to 100 per cent has also been allowed under automatic route for most manufacturing activities in Special Economic Zones (SEZs). More recently, in 2004, the FDI limits were raised in the private banking sector (up to 74 per cent), oil exploration (up to 100 per cent), petroleum product marketing (up to 100 per cent), petroleum product pipelines (up to 100 per cent), natural gas and LNG pipelines (up to 100 per cent) and printing of scientific and technical magazines, periodicals and journals (up to 100 per cent). In February 2005, the FDI ceiling in telecom sector in certain services was increased from 49 per cent to 74 per cent. Reservation of items of manufacture exclusively in the small scale sector has been an important tenet of industrial policy. Realizing the increased import competition with the removal of quantitative

restrictions since April 2001, the Government has adopted a policy of dereservation and has pruned the list of items reserved for SSI sector gradually from 821 items as at end March 1999 to 506 items as on April 6, 2005. Further, the Union Budget 2005-06 has proposed to dereserve 108 items which were identified by Ministry of Small Scale Industries. The investment limit in plant and machinery of small scale units has been raised by the Government from time to time. To enable some of the small scale units to achieve required economies of scale, a differential investment limit has been adopted for them since October 2001. Presently, there are 41 reserved items which are allowed investment limit up to Rs.50 million instead of present limit of Rs.10 million applicable for other small scale units. Equity participation up to 24 per cent of the total shareholding in small scale units by other industrial undertakings has been allowed. The objective therein has been to enable the small sector to access the capital market and encourage modernization, technological upgradation, ancillarisation, sub-contracting, etc. Under the framework provided by the Competition Act 2002, the Competition Commission of India was set up in 2003 so as to prevent practices having adverse impact on competition in markets. In an effort to mitigate regional imbalances, the Government announced a new NorthEast Industrial Policy in December 1997 for promoting industrialization in the North-Eastern region. This policy is applicable for the States of Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland and Tripura. The Policy has provided various concessions to industrial units in the North Eastern Region, e.g development of industrial infrastructure, subsidies under various schemes, excise and income-tax exemption for a period of 10 years, etc. North Eastern Development Finance Corporation Ltd. has been designated as the nodal disbursing agency under the Scheme. The focus of disinvestment process of PSUs has shifted from sale of minority stakes to strategic sales. Up to December 2004, PSUs have been divested to an extent of Rs.478 billion. Apart from general policy measures, some industry specific measures have also been initiated. For instance, Electricity Act 2003 has been enacted which envisaged to delicense power generation and permit captive power plants. It is also intended to facilitate private sector participation in transmission sector and provide open access to grid sector. Various policy measures have facilitated increased private sector participation in key infrastructure sectors such as, telecommunication, roads and ports. Foreign equity participation up to 100 per cent has been allowed in construction and maintenance of roads and bridges.

MRTP provisions have been relaxed to encourage private sector financing by large firms in the highway sector. Evidently, in the process of evolution of industrial policy in India, the Governments intervention has been extensive. Unlike many East Asian countries which used the State intervention to build strong private sector industries, India opted for the State control over key industries in the initial phase of development. In order to promote these industries the Government not only levied high tariffs and imposed import restrictions, but also subsidized the nationalized firms, directed investment funds to them, and controlled both land use and many prices. In India, there has been a consensus for long on the role of government in providing infrastructure and maintaining stable macroeconomic policies. However, the path to be pursued toward industrial development has evolved over time. The form of government intervention in the development strategy needs to be chosen from the two alternatives: Outward-looking developmentpolicies encourage not only free trade but also the free movement of capital, workers and enterprises. By contrast, inward-looking development policies stress the need for ones own style of development. India initially adopted the latter strategy. The advocates of import substitution in India believed that we should substitute imports with domestic production of both consumer goods and sophisticated manufactured items while ensuring imposition of high tariffs and quotas on imports. In the long run, these advocates cite the benefits of greater domestic industrial diversification and the ultimate ability to export previously protected manufactured goods, as economies of scale, low labour costs, and the positive externalities of learning by doing cause domestic prices to become more competitive than world prices. However, pursuit of such a policy forced the Indian industry to have low and inferior technology. It did not expose the industry to the rigours of competition and therefore it resulted in low efficiency. The inferior technology and inefficient production practices coupled with focus on traditional sectors choked further expansion of the India industry and thereby limited its ability to expand employment opportunities. Considering these inadequacies, the reforms currently underway aim at infusing the state of the art technology, increasing domestic and external competition and diversification of the industrial base so that it can expand and create additional employment opportunities. In retrospect, the Industrial Policy Resolutions of 1948 and 1956 reflected the desire of the Indian State to achieve self sufficiency in industrial production. Huge investments by the State in heavy industries were designed to put the Indian industry on a higher long-term growth trajectory. With limited availability of

foreign exchange, the effort of the Government was to encourage domestic production. This basic strategy guided industrialization until the mid-1980s. Till the onset of reform process in 1991, industrial licensing played a crucial role in channeling investments, controlling entry and expansion of capacity in the Indian industrial sector. As such industrialization occurred in a protected environment, which led to various distortions. Tariffs and quantitative controls largely kept foreign competition out of the domestic market, and most Indian manufacturers looked on exports only as a residual possibility. Little attention was paid to ensure product quality, undertaking R&D for technological development and achieving economies of scale. The industrial policy announced in 1991, however, substantially dispensed with industrial licensing and facilitated foreign investment and technology transfers, and threw open the areas hitherto reserved for the public sector. The policy focus in the recent years has been on deregulating the Indian industry, enabling industrial restructuring, allowing the industry freedom and flexibility in responding to market forces and providing a business environment that facilitates and fosters overall industrial growth. The future growth of the Indian industry as widely believed, is crucially dependent upon improving the overall productivity of the manufacturing sector, rationalisation of the duty structure, technological up gradation, the search for export markets through promotional efforts and trade agreements and creating an enabling legal environment.

Conclusion: While much liberalization has taken place in the spheres of trade and industrial sectors, there is scope for farther improvement and privatization. The overall objectives of industrial policy in India have been periodically articulate in the Industrial Policy Resolutions of 1948, 1956 and 1973, the Industrial Policy Statements of 1980 and 1990 and the New Industrial Policy of July, 1991 and August, 1991. The basic objectives of industrial policy are increasing production and efficiency in priority sectors, bringing about regional dispersal of growth, promoting smallscale sector and preventing concentration of power. Initially the objectives were to be achieved

within the framework of government regulation and protection from foreign competition. The public sector was to provide basic infrastructure and a leadership role for industrial growth while the private sector was expected to play a complementary role in the mixed economy. Two principal instruments for industrial policy were: (i) a system of industrial licensing and (ii) a system of import licensing designed to foster import-substituting industries. These policies led to certain adverse consequences. Barriers to entry limited domestic competition. The proliferation of small scale. Industries and regional dispersal had adverse effects on economies of scale. Barriers to entry restricted transfer of resources from sick to growing industries There were few incentives for technological up gradation and administrative hurdles and bureaucratization was inherent in physical controls and the plethora I of rules and regulations. There had been attempts during the 1980s to liberalize the industrial policy I framework, and the process of reorientation gained further momentum during the Seventh Plan (1985-1989). These were supplemented by the Long Term Fiscal Policy (1985), Long-Term Trade Policy (1985 and 1988) and Administered Price Policy (1986). On the whole, the emphasis had been on reducing the reliance on physical controls and increasing the role of financial and fiscal incentives for channel sing investment in the desired line. In March, 1985, 25 industries were deli censed subject to the condition that these are not reserved for the small sector and these are located outside standard urban limits. In June, 1985, 82 bulk drugs along with their formulations were deli censed. In March, 1986, 29 industries out of list of 27 which were exempted in May, 1985, from obtaining approvals under sections 21 and 22 of the MRTP Act, were deli censed provided the undertaking was set up in a centrally declared backward area. The list was expanded to 28 industries in October, 1987. In June, 1988, MRTP companies were exempted from licensing where investment did not exceed Rs. 50 million and the unit did not fall within standard urban limits. The limit of exemption was Rs. 500 million in case the investment was in backward areas; these limits compare well mil the earlier limits of only Rs. 50 million (in force since 1980) for all regions will some exceptions. The 1990 industrial policy further raised these limits to Rs.2S0I million for investment in nonbackward areas and Rs. 750 million for invested in backward areas.

There was also an increase in the economic space available to large oil MRTP companies. There was also an increase in threshold limits of assets from Rs. 200 million to Rs. 1000 million under the MRTP Act. Export obligation was reduced from 50 per cent to 25 per cent for Category B and Category C industries. The re-endorsement of capacity was made more attractive. In 1986, the scheme was made available to units that unused 80 per cent of their capacity from the earlier 94 per cent requirement, and the scheme was available to a number of industries. Minimum economic size was specified for 106 industries over the period. The broad banding scheme was extended to 46 industries. On July 24, 1991 the Government announced a new industrial policy in Parliament. The major objectives of this policy were: (a) development and utilization of indigenous capabilities in technology and manufacturing as well as its up gradation to world standards, (b) dismantling of the regulatory system, development of the capital market and increasing competitiveness for the benefit of the common man, (c) running of the public sector on business lines, and promoting workers' participation in management, enhancing their welfare and equipping them to deal with the in verifiability of technological change. Salient features of the new industrial policy are summarized below: Industrial licensing will be abolished for all industries except for those related to security and strategic concerns, social reasons, hazardous chemicals and over-riding environmental concerns, and items of elite consumption. Industries reserved for the small-scale sector will continue to be so reserved existing units will be provided a new broad banding facility to produce any article without additional investment. The exemption from licensing will also apply to all substantial expansions of existing units the mandatory convertibility clause will no longer be applicable for term loans from the financial

institutions; foreign investment approval will be given for direct foreign investment up to 51 per cent foreign equity in high priority areas. Such clearance will be available if foreign equity covers the foreign exchange requirement for imported capital goods; while the import of components, raw materials and intermediate goods, and payment of know-how fees and royalties will be governed by the general policy as applicable to other domestic units. The provisions relating to merger and takeover will be repealed; simultaneously, provisions of the MRTP Act will be strengthened to enable it to take appropriate action in 'respect of the monopolistic, restrictive and unfair trade practices. In recognition of the fact that certain sections of the population may have to face some hardship, the Central Government Budget for 1991 had proposed to establish a National Renewal Fund with the objective of ensuring that the cost of technical change and modernisation of the productive apparatus does not devolve on the workers. Apart of the Fund would be financed by a loan from the World Bank under the structural adjustment programme. The small-scale sector has been assigned an important role in the industrial development of the country on account of its inherent advantages, like lower capital intensity and higher employment generation potential compared to large- scale industries. It has been estimated that at the end of the Seventh Plan it accounted for nearly 35 per cent of the gross value of output in the manufacturing sector and over 40 per cent of the total exports from the country. Besides, the sector promotes decentralization and helps regional dispersal of industrial activity and widening of entrepreneurial base. Recognizing the need to promote this sector, some important policy measures were initiated' during 1990. Further major policy changes in this regard were announced by the Government in August, 1991.

With effect from April 2, 1991, ceiling on investment in plant and machinery of small scale industries was raised from Rs. 35 lakhs to Rs.60 lakhs. The investment limit for ancillary units and export oriented units was fixed at Rs. 75 lakhs and scheme modification was also affected in the definition of ancillary units. Subsequent policy measures announced on August 1, 1991, allow such limits in respect of 'tiny' enterprises to be raised from the present Rs. 2 lakhs to Rs. 6 lakhs. To provide access to the capital market and to encourage modernisation and technological up gradation, it has been decided to allow equity participation by; other industrial undertakings in the SSI not exceeding 24 per cent of the total shareholding. An apex bank known as Small Industries Development Bank of India (SIDBI) became operative from April 2, 1990 for financing small-scale industries. In order to facilitate access of finance to a larger number of entrepreneurs in like 'tiny' sector, it has been decided to widen the scope of the National Equity Fund Scheme, and enlarge the Single Window Loan Scheme. It is proposed to set up factoring services and a Technology Development Cell with SIDBI. As a part of the industrial policy, government announced the following major policies for the public sector. The priority areas for growth of public enterprises in the future will be limited to Appendix- I industries, which include essential infrastructure goods and services. Exploration and exploitation of oil and mineral resources, and manufacture of products where strategic considerations predominate, such as defense equipment. However, there would be no bar for areas to be opened up to the private sector selectively. Public enterprises which are chronically sick will be referred to the Board for Industrial and Financial Reconstruction (BIFR) A social security mechanism will be created to protect the interests of work likely to be affected by such rehabilitation packages.

In order to raise resources and encourage wider public participation, a part of the government's shareholding in the public sector would be offered to mutual funds, financial institution general public and workers. Boards of public sector companies would be made more professional and given greater powers. There will be greater thrust on performance improvement through MOU System. As mentioned above, with the liberalization in the spheres of trade and industrial sectors, role of public sectors would be confined only to the strategic and basic infrastructural sectors. Memorandum of Understanding (MOU) signed between public undertakings and the Government, would be made much more specific, clearly indicating the corporate objectives and targets for both physical and financial performance. Specifically, the Government intends to establish schedule of quantitative targets for the elimination of all budgetary transfers and loans to Central Public Enterprises beginning from 1992-93, and complete elimination of government loans and equity to non-infrastructural PEs over period of three years. The Government has also decided to disinvest 20 percent of the shares held by it in selected public undertakings. The 1991-92 budgets confirmed the government's decisions to sell equities to the extent of Rs. 2! Billion through mutual funds. The objective is for the mutual funds to seek a listing for the shares on the stock market and to dispose of these gradually so as to finally ensure wider holding of shares. Over the course of the next three years, the Government intends to raise a total of up to Rs. 75 billion from partial disinvestments. The Government is also encouraging privatization of some of the notions or segments of the public sector units. The public sector units have keen directed to increase their efficiency and to generate more internal resources.

Public sector enterprises have absorbed large amounts of budgetary support for their expansion or for operations, but in many cases they have not been able to generate adequate returns on public investments and thereby contribute to an 'increase, in fiscal deficit. Many basic industrial inputs have also become high priced leading to the high cost structure of the economy. Therefore Government poses to increase the efficiency and financial viability of the public enterprises. It does not propose to create new central public enterprises except for industries reserved for the public sector and essential infrastructure, exploitation of oil and rural resources and strategic activities. It also reaffirms its policy against nationalization or take-over of sick private firms, which has already been in effect for the past five years. The existing units which fall under the special provision of the Sick Industrial Companies Act (1985) will be referred to the Board for Industrial and Financial Reconstruction (BIFR) for restructuring or winding up. The labour market remains predominantly unorganized. Labour mobility over time, space and industries is also low due to lack of proper skill, lower growth of employment opportunities compared with the growth of labour force, and a very high cost and risk involved in mobility. Due to labour laws and very strong labour unions for the organised sectors, exit in virtually non-existent. Restrictions against retrenchment of labour force have been tightened, backed up by a requirement for local government approval for closure of any major plant. While there is more flexibility defector than is implied by a literal interpretation of the applicable regulations, smooth exit is greatly impeded. As per the RBI estimate, there are presently about 1, 60,000 units which are classified as sick involving over Rs. 57 billion in blocked funds. The main initiative to deal more effectively with the problem of industrial sickness in the 1980s was the establishment of the Board for Industrial and Financial Reconstruction (BIFR) in 1988, which is charged with determining which sick firms can be rehabilitated and which should be allowed to go out of business.

For the former, BIFR recommends viable financial packages to support the approved rehabilitation programme. In addition, the Government has pledged not to take over sick firms. A greater flexibility is required to allow entrepreneurs to divert their resources from sick to more productive investment. Employment in the organised sector in India has considerable economic rent attached to it due to limited entry and limited exit. An important feature of the labour market is its dual structure in terms of wages and contracts. There is need to remove these distortions in the labour market. Another area where further policy changes are contemplated is with regard to the formulation of an exit policy which may be properly called a redeployment policy. A National Renewal Fund, with an allocation already made in the 1992. Budget for which substantial amount has been promised by the IDA of the World Bank, is proposed to provide a social safety net to the workers affected by technological up gradation or by the adjustment process. It is estimated that about Rs. 1,000 crores would be available from the IDA to be used for social safety net schemes under the NRF including special schemes for unorganized sector workers during 1992-93. The Government will also disinvest shares from public enterprises to the extent of Rs. 1,000 crores for the NRF during 1992-91 in addition to a disinvestments of Rs. 2,500 crores for general purpose. Financial sector and capital markets are also not competitive as most of the lending institutions are in the public sector and there is scarcity of resources although capital and financial markets have progressed significantly during the 1980s, there is scope for further improvement and privatization.