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Analyze the achievement and adverse effects of regulatory policy framework in the course of India’s industrialization.

Analyze the achievement and adverse effects of regulatory policy framework in the course of India’s industrialization.

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To industrialize the country by assigning a major role to the public sector, Government formulated regulatory industrial policies, keeping in view the basic goals of the nation: economic growth, self-reliance and social justice. Therefore, there are four main objectives of the regulatory policy framework.

  • With an emphasis on the public sector, the promotion of heavy industry.
  • Economic self-reliance, which translated into broad efforts at import substitution and restrictions on technology imports to promote indigenous innovation.
  • Protection to small industry sector.
  • Balanced regional development.

A variety of policy instruments formed the regulatory policy framework to achieve these objectives. Reservation of vast areas of industrial activities for the public sector, Legislation to control large and dominant firms, Industrial Licensing to regulate and control investments in industry and locations, Legislation to control foreign investment and technology inflow, Comprehensive policies and incentives to protect small scale industry, Restrictions on location of industrial units and incentives to move into backward regions, Price administration of infrastructural inputs and taxation, on the whole, due to the emergence of regulatory industrial policy framework, industrial activities were subjected to a wide variety of controls and regulations.

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The Regulatory policy framework emerged out of IPR 1956 and pursued for more than three deader had affected:

  • The structure of industry comprising structure of industrial production, size distribution of firms within industry, scale of production, market concentration of firms and product specialization.
  • The growth and efficiency of industry.

The basic and capital goods industries which accounted for less than 10 percent of Manufacturing Value Added (MVA) in 1950 and 40 percent in 1960, accounted for 57 percent in 1984. The share of consumer goods which accounted for more than one third of MVA in 1960 declined to about one-fourth in 1984. The regulatory policies created differential barriers to entry, exit and growth for different sizes of firms. Licensing constraints, protection to small industry units, and limited size of the domestic market together had led to the growth of plants with less than economic scales of production.

Though many Indian plants are small by international standards, production was concentrated only in a few firms in many industries. Absence of product specialization and horizontal diversification in many industries is another outcome a regulated policy framework. The regulatory industrial policies affected the overall growth and efficiency of industry as well. In the process of economic development, countries go through two stages of structural change. In the first stage, the share of agriculture in Gross Domestic Product (GDP) falls and that of manufacturing output increases. In the second stage, the share of agriculture continues to fall and that of manufacturing after reaching the level of 25 to 35 percent of GDP also starts declining combined with the increasing share of service sector.

The slow growth of productivity and rising trend of capital intensity adversely affected the competitiveness of Indian industry in the international market and thereby affected the growth of Indian exports as well.

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July 11, 2019
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