The Industrial Policy Resolution made by government after independence paved the way for growth of public sector in India. The Industrial Policy Resolution of 1948 emphasized on the growth of industry and expanding production capacity of both the public and private sectors. It was made clear that the state must play a progressively active role in the development of industries. But state was not competent enough to enter all the areas, due to lack of resources, so it was decided to set up units of production in the newer fields rather than acquiring or running the existing ones. The resolution divided the industries into four categories:
- The first category included the manufacturing of arms and ammunition, production and control of atomic energy, ownership and management of railways and transport. These were kept under exclusive control of Central Government.
- The second category included setting up of new undertakings like coal, iron and steel, aircraft manufacturing, ship building, telephones etc. were to be the responsibility of central, state governments and municipal corporations.
- The third category of industries included automobiles, heavy machinery etc., was to be increasingly subject to central control and regulation in co-operation with state governments.
- Under fourth category, the industries left from the above three categories were left to the private enterprises subject to the provision that the state will also progressively participate in the field and will not hesitate to intervene where the progress of industry under private enterprise is unsatisfactory.