Need for a New Industrial Policy in India (GS Paper 2, Government Policies)
Context
- India’s industrial sector is at a crossroads, requiring a new industrial policy to address both longstanding issues and emerging challenges.
- This policy needs to support sustainable economic growth and position India as a global manufacturing hub.
Historical Context of Industrial Policies
License-Permit Raj Era:
- Post-Independence Policies: India’s early industrial policies were marked by excessive bureaucratic controls. The Industries (Development and Regulation) Act of 1951 required government approval for every industrial decision, leading to inefficiency.
- Monopolies and Restrictive Trade Practices (MRTP) Act (1969) and Foreign Exchange Regulation Act (FERA) (1973): These further stifled growth by restricting market access and isolating Indian industries from global competition.
Shift Towards Liberalisation:
- 1980s and 1991 Reforms: The liberalisation of the economy began in the 1980s, culminating in the 1991 reforms that dismantled industrial licensing and reduced import tariffs. These reforms aimed to enhance efficiency and attract private investment, but challenges in infrastructure, labour laws, and regulatory complexity persisted.
Need for a New Industrial Policy
Conceptual Framework:
- Purpose of Industrial Policies: Designed to influence the structure of economic activities, industrial policies aim to enhance innovation, productivity, and growth. They also target climate transition, labour market outcomes, regional development, and export capacity.
- Selective Prioritisation: Effective industrial policy requires strategic prioritisation of sectors to induce structural transformation, with the understanding that some sectors may be deprioritised.
Role of Industrial Policy:
- Strategic Interventions: Governments should strategically intervene to correct market failures and guide resource allocation, balancing regulation to avoid stifling growth while addressing inefficiencies.
- Public Objectives: Policies can target specific sectors, such as automotive, energy, or semiconductors, to stimulate R&D and manufacturing investments.
Key Features of the New Industrial Policy
Make in India Initiative:
- Transform India into a global manufacturing hub by promoting domestic production and attracting foreign investment.
- Encourages setting up manufacturing units within the country.
Incorporation of Smart Technologies:
- Integration of IoT, AI, and robotics to enhance productivity and competitiveness in manufacturing.
Ease of Doing Business:
- Simplification of processes and reduction of bureaucratic hurdles to attract investment.
Sectoral Missions:
- Programs like the Semiconductor Mission and Gati Shakti focus on targeted sectors to foster growth and innovation.
Related Concerns
Global Trends and Shifts:
- Technological Disruption: The rise of automation, digitalisation, and Industry 4.0 necessitates government involvement to shape economic activities and enhance innovation.
- China’s Rise: China's rapid industrialisation has prompted other countries, including India, to reevaluate their industrial strategies.
Weak Manufacturing Base:
- Global Recognition: A robust manufacturing sector is essential for long-term economic growth. India’s manufacturing push, including initiatives like ‘Make in India’, aligns with global trends.
Declining Manufacturing Employment:
- Challenge: Advanced economies face challenges in maintaining competitiveness and creating jobs in the face of automation and technological changes.
Fourth Industrial Revolution:
- Aims: India’s new policy aims to address the challenges and leverage opportunities of the Fourth Industrial Revolution, focusing on emerging technologies like AI, blockchain, and drones.
Production Linked Incentives (PLI):
- Current Approach: While the PLI scheme offers financial incentives for specific sectors, it does not address the broader structural challenges necessary for comprehensive industrial transformation.
Conclusion and Way Forward
- India’s evolving industrial policy aims to strike a balance between necessary regulatory oversight and fostering a thriving business environment.
- A well-designed policy can propel India towards its goal of becoming a global manufacturing leader.
- It must be dynamic and forward-looking, addressing both current needs and future opportunities in the global economic landscape.
