Industrial Policy Resolution 1956 Foundation of India's Industrial Development

Introduction

After gaining independence in 1947, India’s leaders realized that industrialization was crucial for the country’s economic self-sufficiency, growth, and modernization. The Industrial Policy Resolution of 1956 was introduced by the Indian Government to steer the nation towards planned industrial growth in a way that would help the country achieve economic independence and social equity.

The policy was a landmark in India's industrial planning, focusing on state-led industrialization and setting the direction for the country’s economic development for the decades that followed. Let’s explore its key features and the lasting impact of the policy.

Key Features of the Industrial Policy Resolution 1956

1. Public Sector Dominance

   • The policy emphasized state-led industrialization. It declared that the public sector would play a key role in the industrialization process, especially in sectors requiring substantial capital and technology.

   • Sectors Reserved for the Public Sector: The policy identified certain industries that would remain under state control, such as atomic energy, aircraft manufacture, shipbuilding, and heavy industries like steel and machinery.

2. Private Sector Encouragement

   • While the public sector was given primacy, the policy also recognized the importance of the private sector in the country’s development.

   • The private sector was encouraged to invest in areas not reserved for the state, such as consumer goods industries and small-scale industries.

3. Development of Heavy Industries

   • The Industrial Policy Resolution of 1956 strongly favored the development of heavy industries, such as steel, mining, and machinery, recognizing their importance for overall industrial growth and the country's economic self-reliance.

   • Public sector companies like Bharat Heavy Electricals Limited (BHEL) and Steel Authority of India Limited (SAIL) were set up to focus on the production of large-scale industrial goods.

4. Promotion of Small-Scale Industries

   • The policy placed emphasis on the development of small-scale industries (SSIs), especially in rural and semi-urban areas. These industries were expected to provide employment, foster entrepreneurship, and promote regional development.

   • The government encouraged the growth of these industries through financial assistance, tax incentives, and technical support.

5. Balanced Regional Development

   • The Industrial Policy aimed at regional balance by encouraging the establishment of industries in underdeveloped regions of the country.

   • This was crucial for creating job opportunities in less industrialized areas and reducing economic disparities between regions.

6. Industrial Licensing System

   • The policy introduced an industrial licensing system, which required businesses to obtain licenses for setting up industries. This was intended to regulate the growth of industries, ensure the judicious allocation of resources, and prevent the concentration of economic power in the hands of a few large players.

   • Over time, this licensing system became a tool for government control over industrial growth.

7. Technology and Innovation

   • The policy stressed the importance of adopting modern technologies and focusing on research and development (R&D) in key industries.

   • The government aimed to promote self-reliance in critical technologies, such as defense production, space research, and the development of indigenous products.

8. Social Goals and Economic Planning

   • The Industrial Policy of 1956 was closely aligned with India’s Five-Year Plans, particularly the Second Five-Year Plan, which aimed to focus on the development of heavy industries and infrastructure.

   • The policy sought to balance economic development with social justice, with a particular focus on reducing inequality and providing equal opportunities for all segments of society.

Impact of the Industrial Policy Resolution 1956

1. Industrial Growth

   • The policy played a major role in shaping India's industrial landscape, fostering the growth of large public sector enterprises in sectors like steel, power, telecommunications, and defense.

   • It contributed to the establishment of major industrial hubs in cities like Bhilai, Jamshedpur, Durgapur, and Rourkela, boosting the country’s capacity to produce industrial goods.

2. Self-Reliance and Import Substitution

   • One of the policy’s key objectives was to make India self-reliant by reducing its dependence on foreign imports. The emphasis on building heavy industries aimed at substituting foreign imports with domestically produced goods, particularly in sectors such as steel, machinery, and defense equipment.

   • Over the decades, India gradually increased its production capacity, reducing the reliance on foreign countries for vital industrial goods.

3. Expansion of Public Sector Enterprises

   • The public sector grew significantly under the Industrial Policy of 1956. PSUs (Public Sector Undertakings) like BHEL, SAIL, and Indian Oil Corporation became the backbone of the Indian economy, providing both employment and contributing to economic growth.

   • By the 1980s, the public sector accounted for a significant share of industrial production in India.

4. Economic Planning and Policy Framework

   • The Industrial Policy Resolution of 1956 aligned with India’s Five-Year Plans, especially the Second Plan (1956-1961), which aimed at industrialization and economic development.

   • The policy also laid the groundwork for future policy decisions in the areas of industrial development, trade policy, and industrial licensing.

5. Creation of a Mixed Economy

   • The Industrial Policy laid the foundation for India’s mixed economy, where both the public and private sectors coexist. While the government played a major role in industrial development, the private sector contributed significantly to the growth of industries like consumer goods and small-scale enterprises.

6. Challenges of Bureaucratic Control

   • Over time, the industrial licensing system and government regulations became a source of bureaucratic red tape, leading to inefficiencies and corruption. The policy’s emphasis on control and regulation slowed down the speed of industrial growth in certain sectors.

Long-Term Significance

1. Shift Towards Liberalization

   • The Industrial Policy Resolution of 1956 laid the foundation for state control over industries but was later revised during the 1991 economic reforms. The licensing system was liberalized, and private sector participation was encouraged, signaling a shift towards a more market-driven economy.

2. Sustainable Growth and Equity

   • The emphasis on small-scale industries and regional development aimed to achieve sustainable growth with equity, ensuring that the benefits of industrialization were distributed more evenly across different sections of society.

3. Focus on Public Sector Enterprises

   • Despite the challenges, the public sector continued to play a critical role in sectors like infrastructure, defense, and energy, even after the economic liberalization of the 1990s.

Conclusion

The Industrial Policy Resolution of 1956 was a turning point in India’s journey towards economic independence and industrial development. It played a vital role in shaping the country’s industrial strategy, promoting self-reliance, and laying the foundation for the future growth of both the public and private sectors.

While its legacy includes both successes and challenges, it set the stage for India’s economic transformation over the decades. The lessons learned from this policy have influenced India’s approach to industrial growth, particularly in the context of the post-liberalization era.