Hindu Editorial Analysis : 23-August-2024

In recent years, industrial policy has gained renewed attention. This topic balances between government involvement and market forces. India is searching for a new approach to its industrial policy that can support long-term economic growth and help the country become a global manufacturing leader.

India’s Historical Industrial Policies

The License-Permit Raj Era

After gaining independence, India’s industrial policies were dominated by the ‘License-Permit Raj’. Key features included:

  • Government Control: The Industries (Development and Regulation) Act of 1951 required government approval for all industrial decisions.
  • Bureaucratic Delays: This led to a complex and slow decision-making process.
  • Market Isolation: Acts like the Monopolies and Restrictive Trade Practices (MRTP) Act of 1969 restricted competition and hindered growth.

These policies stifled innovation and progress, leaving gaps that laissez-faire approaches couldn’t fill.

The Shift Towards Liberalisation

In the 1980s, India began to liberalise its economy. The significant reforms of 1991 included:

  • Dismantling Barriers: Industrial licensing was reduced, and import tariffs were lowered.
  • Encouraging Investment: These reforms aimed to increase efficiency and attract private investment.

Despite these efforts, India’s manufacturing sector still faced challenges, particularly regarding infrastructure and regulatory complexity.

Need for a New Industrial Policy

A new industrial policy aims to reshape economic activities to achieve public goals, such as:

  • Innovation Enhancement
  • Productivity Growth
  • Economic Development

This policy also seeks to address:

  • Climate Change
  • Labour Market Improvements
  • Regional Inequalities
  • Export Growth

Role of Industrial Policy

Strategic Interventions

Governments need to intervene strategically to:

  • Correct Market Failures
  • Promote Innovation
  • Guide Resource Allocation
Balancing Act

The challenge lies in regulating enough to fix inefficiencies without hindering growth.

Public Objectives

Policies can focus on specific sectors, such as:

  • Automobile Industry
  • Energy Sector
  • Semiconductors

These targeted initiatives can create costs or provide incentives for research and development.

Key Features of the New Industrial Policy

Make in India

This initiative seeks to:

  • Transform India into a Manufacturing Hub: By encouraging local production and attracting foreign investment.
Smart Technologies

The new policy incorporates:

  • Modern Innovations: Technologies like the Internet of Things (IoT), artificial intelligence (AI), and robotics to boost productivity.
Ease of Doing Business

To attract investment, the policy aims to:

  • Simplify Regulations: Reduce bureaucratic hurdles and streamline approval processes.
Sectoral Missions

Focused initiatives, such as:

  • Semiconductor Mission
  • Gati Shakti

These aim to drive growth in specific sectors.

Related Concerns

Global Trends and Shifts

Globally, many countries are rethinking market-driven approaches due to:

  • Technological Disruption
  • Economic Stagnation
  • Geopolitical Competition
China’s Rise

China’s rapid industrialisation serves as a model and a challenge for other nations, prompting a reassessment of their own strategies.

Technological Changes

The rise of automation and digitalisation highlights the need for government involvement in shaping economic activities.

Weak Manufacturing Base

A strong manufacturing sector is vital for economic growth. No major economy has successfully reduced poverty without one.

Declining Manufacturing Employment

Advanced economies face challenges in maintaining competitiveness and job creation in the manufacturing sector.

Why In News

In recent years, there has been a resurgence of interest in industrial policy—a topic that often walks a tightrope between government intervention and market forces. As economies worldwide face new challenges, India, like many other countries, is grappling with the need for a fresh approach to industrial policy—one that can facilitate sustained economic growth and transform the nation into a global manufacturing hub, while also addressing pressing issues such as technological advancement and environmental sustainability.

MCQs about India’s Industrial Policy

  1. What was a key feature of India’s industrial policies after independence known as the ‘License-Permit Raj’?
    A. Encouragement of private investment
    B. Requirement of government approval for industrial decisions
    C. Promotion of international trade
    D. Reduction of bureaucratic processes
    Correct Answer: B. Requirement of government approval for industrial decisions
    Explanation: The ‘License-Permit Raj’ era mandated that all industrial decisions required government approval, leading to excessive bureaucracy and stifling innovation.
  2. What major reform in the 1990s aimed to boost India’s manufacturing sector by reducing barriers?
    A. The Monopolies and Restrictive Trade Practices Act
    B. The Industries (Development and Regulation) Act
    C. The Liberalisation Reforms of 1991
    D. The Foreign Exchange Regulation Act
    Correct Answer: C. The Liberalisation Reforms of 1991
    Explanation: The reforms of 1991 dismantled barriers like industrial licensing and reduced import tariffs, aiming to increase efficiency and attract private investment.
  3. Which of the following is NOT a public objective of the new industrial policy?
    A. Enhancing innovation
    B. Improving labour market outcomes
    C. Reducing import tariffs
    D. Expanding export capacity
    Correct Answer: C. Reducing import tariffs
    Explanation: While reducing import tariffs was part of past liberalisation efforts, it is not explicitly listed as a public objective of the new industrial policy, which focuses more on innovation, labour market improvements, and export capacity.
  4. What does the ‘Make in India’ initiative aim to achieve?
    A. Increase foreign exports only
    B. Transform India into a global service hub
    C. Promote domestic production and attract foreign investment
    D. Eliminate all government regulations
    Correct Answer: C. Promote domestic production and attract foreign investment
    Explanation: The ‘Make in India’ initiative aims to transform India into a manufacturing hub by encouraging local production and attracting foreign investment to boost the economy.

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