/ master degree programs / Economic and Social Environment /
What were the Objectives and Shortcomings of Industrial Licensing Policy in India?

What were the Objectives and Shortcomings of Industrial Licensing Policy in India?


1 Answer

The Industries (Development and Regulation) Act, 1951, empowers the Central Government to regulate the establishment and certain activities of the industrial undertakings by means of licensing. A license is a written permission from the Government to an industrial undertaking to manufacture specified articles included in the schedule to the Act. A license contains particulars of the industrial undertaking, its location, the articles to be manufactured, its capacity on the basis of the maximum utilization of plant and machinery, and other appropriate conditions which are enforceable under the Act.

Validity period within which the licensed capacity should be established is also considered. Originally this schedule listed 37 industries but the scope of the Act had been enlarged from time to time to include more industries. The Central Government is empowered under the IDR Act to exempt any industrial undertaking from the operation of all or any of the provision of the Act. Exemption. is granted on the basis of investment involved, the nature of industry, Foreign exchange requirements, etc.

The objective of industrial licensing policy are as follows:

  • To achieve the desired pattern of industrial dispersal.
  • Encouraging new entrepreneurs.
  • Wider dispersal of industrial ownership.
  • Prevention of concentration of economic power.
  • Protection and promotion of the small-scale sector.
  • Regulation of foreign capital and technology.
  • Use of proper technology and scale economies.
  • Employment generation.
  • Achieving demand supply balance promotion of export and import substitution.

But above all, the chief objective of the Act is the development and regulation of industries in a manner benefiting the policy of planning, socialistic pattern of society and other social and economic goals of the country. Before the policy liberalization of 1991, a license was required for the purposes mentioned as follows:

  • Establishment of new undertaking.
  • Manufacture of new item.
  • Substantial expansion of capacity.
  • Continuation of Business (COB license) in certain case.
  • Change of location.

Projects involving investment upto specified limits were exempted from licensing, subject to certain conditions. The exemption limit was revised upwards periodically. This limit was Rs. 15 crores in non-backward areas and Rs. 50 crores in backward areas before the announcement of the new policy in July 1991. But like the two faces of every coin there were certain shortcomings also regarding industrial licensing policy using the provisions of IDRA 1951, the industrial sector was very extensively controlled by the Central Government until 1991.


Industrialists, many economists and other regarded this act as a very draconian. The government has been allged to became obsessed with the scope for regulations, under this Development and Regulation Act, relegating development to the back-burner. The license Permit Raj gave rise to rampant corruption.

The liberalization has diminished the importance of this Act. Several people argue that the Act has lost its relevance and this central Act should be replaced. A lot of responsibility for the development of industries has shifted to the states, because of economic liberalization. The Central Government had .a dominant say on the location of industries, under the controlled regime. Most of the entry and growth restrictions and the reservation of industries for the public sector have been dismantled, it is up to the state governments to promote industries in the state. On the whole, the very objectives of matching supply with demand in accordance with the national priorities retained a distant reality.


Share this answer.
  • fb
  • tw
  • lkdin
  • whapp
July 10, 2019