Industrial Policy of 1977 & 1980

The Industrial policy act of 1948, 1951, and 1956 has got demons on their share that has constantly established License Raj in the Country. The Industrial Policy of 1977, classified the small sector into three categories-

1. Cottage and household businesses that provide a large amount of self-employment.
2. Investment in industries units with machinery and equipment worth up to Rs 1 lakh and located in towns with a population of fewer than 50000 constitutes a small sector.
3. Small scale industries include industrial enterprises with a minimum investment of Rs 10 lakh and ancillary enterprises with a maximum investment of Rs 15 lakh in fixed capital.

The purpose of the classification was to design policy measures for each category. The measures suggested for the promotion of small scale cottage industries included the following:

1. The resolution increased the number of items from 180 to 807.
2. Special aid in the form of margin money is to be provided to the tine sector, as well as cottage and domestic industries.
3. Establishment of a District Industries Center (DIC) in each district as an agency to act as a focal point for small-scale and cottage industries development. This organization would consolidate all of the services and support required by small and rural entrepreneurs under one roof.
4. The Khadi and Village Industries Commission is being restructured. It was discovered that the promotion of 22 village industries that came under the control of the Khadi and Village Industries Commission was haphazard, and progress was also very slow. As a result, the government established specific plans for the development of these village enterprises through the application of contemporary management practices.

The Industrial Policy of 1977 attempted to define the role of large scale sectors

The Industrial Policy of 1977 attempted to define the role of large scale sectors by declaring them:

1. Basic industries for providing infrastructural items like cement, non-ferrous, steel, oil, etc. to small industries and others
2. Capital goods industries required by small scale industries
3. High technology industries are widely required by small scale and agriculture sector producing items such as fertilizers, pesticides, and petrochemicals, and
4. Other industries are not enlisted as reserved items for small scale but essential for the development of the economy.

Indigenous technology was included in the policy to promote technological self-sufficiency. It was intended that all efforts be directed toward indigenous technology development, which would assure efficient manufacturing and the ongoing influx of technology into sophisticated and high-priority areas where Indian skills and technology are insufficiently developed.

The 1977 Industrial Policy stipulated that the public sector would not only create critical and strategic items of a fundamental nature but would also function effectively as a stabilizing force, ensuring consumer access to needed supplies.

The Industrial Policy of 1977 relied on the Foreign Exchange Regulation Act’s enforcement (FERA). As a result, foreign investment would be promoted only in industries determined to be in the national interest by the government. This obviously stated that cases involving no requirement for international collaboration would be disregarded.

Criticism of Industrial Policy 1977

Yet, the Industrial Policy of 1977 came under the attack of critics. To promote small-scale industries, the 1977 policy proposed measures to limit large-scale businesses’ productive potential by reserving exclusive production of specific goods for the small-scale industrial sector.

To accomplish this, the 1977 Industrial Policy expanded from 180 to 807 the number of commodities that might be produced by the small-scale industrial sector. However, critics point out that, despite this growth, the majority of these articles were continued to be produced by large-scale industries in violation of the Industrial Policy of 1977.

Alak Ghosh cited examples of instances where the government failed to properly move output to the small-scale sector. He claimed that while large-scale businesses and multinational corporations continued to create goods like footwear, bread, biscuits, and brushes, the Industrial Policy of 1977’s designation of the small scale sector was deceptive, as these were more repetitious than new lines of small units. As Nirmal K Gupta pointed out, the Policy created confusion by including 807 items on the list of small-scale sectors. Several of these items were repeated. The Industrial Policy of 1977 was short-lived to pave way for another policy of 1980.

Industrial Policy of 1980

The main features of the Industrial Policy of 1980 were:

Revitalization of the Public sector: The government made the decision to improve the efficiency of public sector enterprises. It advocated strengthening their management and developing management cadres in the areas of finance, marketing, and so on. Additionally, it advocated studying the public sector’s industrial units and making specific recommendations for their improvement.

Economic Federalism: It recommended promoting economic federalism by establishing a few core plants in each district recognized as industrially backward in order to build as many ancillary small and cottage enterprises as possible to aid in their development. Unlike the 1977 Industrial Policy, the 1980 Industrial Policy was predicated on the notion that the interests of small and large enterprises are not fundamentally antagonistic. Redefining the small Units: To encourage the development of small units, the government revised the definition of small units.

• Tiny units- limit of investment raised from Rs 1 lakh to Rs 2 lakhs
• Small industries- limit of investment raised from Rs 10 lakhs to Rs 20 lakhs; and
• Ancillaries- limit of investment raised from Rs 15 lakhs to Rs 25 lakhs

Promotion of rural industries: To increase employment and per capita income. To this end, handlooms, handicrafts, and Khadi would receive increased attention, allowing rural communities to expand more rapidly.

Removal of regional imbalances: For this, the state encouraged industrial units in backward areas.

Industrial sickness: The policy statement outlined clearly its approach towards sick units. Management of ill units would be taken over only in rare circumstances involving public interest and the impossibility of reviving them through other means. Sick units that have a reasonable chance of resurrection would be encouraged to combine with healthy units. Existing tax advantages under section 72-A of the Income Tax Act will be made more liberally available for such merger plans.

Regulation of Unauthorised Excess Capacity: In the private sector, capacity growth of up to 25% of installed capacity is immediately accessible to the whole capacity, including regularised excess capacity. FERA and MRTP companies were to be examined on a case-by-case basis. Additionally, this facility was not to be extended to commodities designated for the small sector. The Industrial Policy of 1980 pretended to take a pragmatic approach, emphasizing steps to boost industrial production while ignoring measures to lessen economic power concentration in the private sector and other issues. 

The Industrial Policy of 1980 emphasized a more capital-intensive pattern of development, and hence attempted a variety of deregulation measures aimed at assisting the major sector. It downplayed the employment goal.