Industrial Policies of India (1948–1991)
India's industrial policies for CGPSC: IPR 1948 and 1956, IDRA 1951, MRTP, the 1970s statements, the New Industrial Policy of 1991 and licensing today.
Prerequisites
- Basic Concepts of the Economy: sectors of the economy and what “industry’s share in GDP” means.
- Planning in India: the Five Year Plans, especially the Second Plan (Mahalanobis model), drove industrial policy until 1991.
The Hook: Why Is There a Steel Plant at Bhilai?
In the early 1950s Bhilai was a cluster of villages near Durg. A decade later it had one of Asia’s largest integrated steel plants, built by the State with Soviet help. Forty years after that, the hills around Raipur and Raigarh filled with private sponge-iron and steel plants.
Why did the first wave come from the government and the second from private firms? Because the rules of the game changed: the Industrial Policy Resolution of 1956 reserved iron and steel for the State, and the New Industrial Policy of 1991 opened it up. This page answers one question: how did India’s industrial policy move from State control to liberalisation, and what did each policy actually say?
Why it matters: Prelims asks exact features (how many industries in Schedule A, what 1991 abolished, which industries still need a licence). Mains GS-III asks you to evaluate the shift from the 1956 model to the 1991 model.
The Big Picture
An industrial policy (औद्योगिक नीति) is the government’s statement of which industries the State will run, which the private sector may enter, how they will be regulated, and how small industries will be protected or promoted.
timeline
title India's industrial policy milestones
1948 : Industrial Policy Resolution (IPR) - mixed economy, four categories
1951 : Industries (Development and Regulation) Act - licensing
1956 : IPR 1956 - Schedules A, B and C, the economic constitution
1969 : MRTP Act - curbs on monopolies
1973 : Industrial Policy Statement - joint sector, core industries
1977 : Janata policy - small sector, District Industries Centres
1980 : Industrial Policy Statement - efficiency, regional balance
1991 : New Industrial Policy - delicensing, LPG reformsIndustrial Policy Resolution, 1948
Announced on 6 April 1948, it set out India’s first post-independence framework and accepted a mixed economy (मिश्रित अर्थव्यवस्था): State and private sector side by side.
| Category | Industries | Rule |
|---|---|---|
| 1. Exclusive Central monopoly | Arms and ammunition, atomic energy, railway transport | Only the Union government |
| 2. Mixed sector | Coal, iron and steel, aircraft manufacture, shipbuilding, telephone/telegraph/wireless apparatus, mineral oils | New units by the State; existing private units allowed to continue (to be reviewed after 10 years) |
| 3. Regulated private sector | 18 important industries (e.g. heavy chemicals, cement, sugar, cotton and woollen textiles, automobiles) | Private, but under government regulation and control |
| 4. Open private sector | All remaining industries | Private and co-operative enterprise |
It also recognised the role of cottage and small-scale industries.
Industries (Development and Regulation) Act, 1951
The IDRA, 1951 gave the policy legal teeth. Its core tool is the industrial licence: setting up a new unit, substantially expanding one or making a new product in a scheduled industry needed government permission. The Act is still in force; it is the law under which the few remaining licences are issued today by DPIIT (Department for Promotion of Industry and Internal Trade, Ministry of Commerce and Industry).
Industrial Policy Resolution, 1956: the “Economic Constitution”
Adopted on 30 April 1956, it replaced the 1948 resolution. It reflected the goal of a “socialistic pattern of society” (समाजवादी ढांचा) and the heavy-industry strategy of the Second Five Year Plan (Mahalanobis model). Because it governed industry for 35 years, it is often called the “economic constitution of India”.
| Schedule | Number | Who runs it | Examples |
|---|---|---|---|
| Schedule A | 17 industries | Exclusive responsibility of the State (new units only by the State) | Arms and ammunition, atomic energy, iron and steel, heavy machinery, coal, mineral oils, mining of iron ore and other key minerals, aircraft, air transport, railways, shipbuilding, telephones, electricity generation and distribution |
| Schedule B | 12 industries | Progressively State-owned; State sets up new units, private sector supplements | Other minerals, aluminium and other non-ferrous metals, machine tools, ferro-alloys, basic chemicals and drugs, fertilisers, road and sea transport |
| Schedule C | All the rest | Private sector, under licensing (IDRA) | Consumer goods and others |
Other features:
- Public sector to occupy the “commanding heights” of the economy.
- Support for village and small industries, and for reducing regional disparities.
- Fair treatment for the private sector, and encouragement of co-operatives.
The Licence Raj and the Policies of the 1970s
The licensing system soon produced the “licence-permit-quota raj” (लाइसेंस-परमिट राज): delays, rent-seeking and concentration of licences in a few big business houses.
| Year | Step | What it did |
|---|---|---|
| 1967 | Hazari Report | Found that the licensing system had favoured large business houses |
| 1969 | Industrial Licensing Policy Inquiry Committee (Dutt Committee) | Recommended curbs on large houses; led to the MRTP Act |
| 1969 | MRTP Act (Monopolies and Restrictive Trade Practices) | Controlled the expansion of large companies and restrictive trade practices. Replaced by the Competition Act, 2002 |
| 1973 | Industrial Policy Statement | Introduced the joint sector (State + private partnership) and listed “core industries” that large houses could enter |
| 1973 | FERA (Foreign Exchange Regulation Act) | Tight control of foreign exchange and foreign companies. Replaced by FEMA, 1999 |
| 1977 | Industrial Policy Statement (Janata government) | Shift to small and cottage industries; expanded list of products reserved for the small sector; District Industries Centres (DICs) set up from 1978 |
| 1980 | Industrial Policy Statement | Stressed efficiency, capacity use and removal of regional imbalance |
| 1985–86 | Partial liberalisation | Some delicensing and “broad-banding” of licences under Rajiv Gandhi |
The New Industrial Policy, 1991 (नई औद्योगिक नीति)
Announced on 24 July 1991 (the same day as the reform Budget), amid a balance-of-payments crisis, under Prime Minister P.V. Narasimha Rao (who held the Industry portfolio) and Finance Minister Manmohan Singh. It is the industrial arm of the LPG reforms (Liberalisation, Privatisation, Globalisation).
| Area | Before 1991 | What the 1991 policy did |
|---|---|---|
| Industrial licensing | Required for most industries | Abolished except for 18 industries (strategic, hazardous, environmental or social reasons) |
| Public sector reservation | 17 industries (Schedule A) | Cut to 8; later to just 2 |
| MRTP | Large firms needed approval to expand | Asset threshold removed; pre-entry scrutiny of big firms dropped; MRTP later replaced by the Competition Act, 2002 |
| Foreign investment | Case-by-case, FERA limits | Automatic approval up to 51% FDI in a list of high-priority industries; a Foreign Investment Promotion Board (FIPB) for other cases (FIPB abolished in 2017) |
| Foreign technology | Heavily screened | Automatic approval for technology agreements within set limits |
| Public sector | Protected, budget-supported | Disinvestment of part of government equity; sick PSUs referred to the BIFR; performance MoUs |
| Phased Manufacturing Programme | Forced local content | Abolished |
Where things stand today (as of 2026)
| Item | Current position |
|---|---|
| Industries reserved for the public sector | 2: atomic energy and railway operations |
| Industries under compulsory licensing (IDRA) | 5: distillation and brewing of alcoholic drinks; cigars and cigarettes of tobacco and substitutes; electronic aerospace and defence equipment; industrial explosives (including detonating fuses, gunpowder, matches); specified hazardous chemicals |
| Licensing authority | DPIIT |
| Small-sector reservation | Fully phased out (the last items were de-reserved in 2015) |
Analysis for Mains: 1956 Model vs 1991 Model
| Point | 1956 model | 1991 model |
|---|---|---|
| Driver of growth | Public sector, heavy industry | Private sector, markets, foreign investment |
| Regulation | Licensing, MRTP, FERA | Delicensing, competition law, FEMA |
| Trade stance | Import substitution | Export orientation, integration with world markets |
| Small industry | Protection by reservation | Competitiveness, credit and technology support |
| Weakness | Inefficiency, licence raj, low productivity | Jobless growth, regional concentration, manufacturing share stagnant |
Achievements of 1956: built a heavy-industry base (steel, machinery, power) and public institutions; spread industry to backward regions such as Bhilai, Korba and Bokaro.
Achievements of 1991: faster GDP growth, rise of competitive private firms, foreign investment, end of shortages of consumer goods.
Limits of 1991 (critical evaluation):
- Manufacturing’s share of GDP has stayed in the mid-teens percent for decades; services led growth instead.
- Jobless growth: capital-intensive industry absorbed little labour.
- Regional concentration: investment flowed to states with ports, infrastructure and skills.
- Industrial growth in mineral states raised land, displacement and environmental issues.
These gaps led to Make in India (2014) and the PLI schemes (2020): see Make in India and Manufacturing Policy.
Memory Tricks
- Licensing: 18 in 1991, 5 today.
- Public sector reservation: 17 → 8 → 2 (atomic energy, railway operations: “Atom and Train”).
- FDI automatic approval: up to 51%.
Don’t Confuse
| This | vs | That |
|---|---|---|
| IPR 1948: four categories, mixed economy | vs | IPR 1956: three schedules (A, B, C), “economic constitution” |
| IDRA 1951: a law (licensing), still in force | vs | IPR 1956: a policy resolution, not a law |
| MRTP Act 1969 → Competition Act 2002 | vs | FERA 1973 → FEMA 1999 |
| Reserved for public sector (2): atomic energy, railway operations | vs | Compulsory licensing (5): alcohol, tobacco, defence/aerospace electronics, explosives, hazardous chemicals |
| Hazari Report (1967) | vs | Dutt Committee (1969): led to the MRTP Act |
| Joint sector: 1973 statement | vs | District Industries Centres: 1977 statement (set up 1978) |
Common Mistakes
- “The 1991 policy abolished industrial licensing completely.” False. It retained licensing for 18 industries; 5 still need a licence.
- “Defence production is reserved for the public sector.” False. Defence aerospace and electronic equipment needs a licence, but private firms can manufacture it.
- “IPR 1956 had 17 industries in Schedule B.” False. 17 in Schedule A, 12 in Schedule B.
- “The MRTP Act was replaced by FEMA.” False. MRTP → Competition Act, 2002; FERA → FEMA, 1999.
- “The IDRA 1951 was repealed in 1991.” False. It still operates; the 1991 policy used it to delicense.
Practice
All questions below are original practice questions written in CGPSC style. They are not previous-year questions.
Level 1: Foundation
- The Industrial Policy Resolution of 1956 placed ______ industries in Schedule A.
- The law under which industrial licences are still issued in India is the ______ Act, 1951.
- Today only two sectors are reserved exclusively for the public sector: ______ and ______.
Answers
- 17
- Industries (Development and Regulation) Act, 1951
- Atomic energy and railway operations
Level 2: Prelims MCQs
Q1. Consider the following statements about the New Industrial Policy, 1991:
- It abolished industrial licensing for all industries except a short list.
- It reduced the number of industries reserved for the public sector from 17 to 8.
- It replaced the MRTP Act with the Competition Act.
Which of the statements given above is/are correct?
- (a) 1 only
- (b) 1 and 2 only
- (c) 2 and 3 only
- (d) 1, 2 and 3
Answer and explanation
Q2. Match List I (Policy or law) with List II (Feature):
| List I | List II |
|---|---|
| A. Industrial Policy Resolution, 1948 | 1. Joint sector introduced |
| B. Industrial Policy Resolution, 1956 | 2. Four categories; mixed economy accepted |
| C. Industrial Policy Statement, 1973 | 3. District Industries Centres |
| D. Industrial Policy Statement, 1977 | 4. Schedules A, B and C |
- (a) A-2, B-4, C-1, D-3
- (b) A-4, B-2, C-1, D-3
- (c) A-2, B-4, C-3, D-1
- (d) A-1, B-4, C-2, D-3
Answer and explanation
Q3. Which one of the following industries requires a compulsory industrial licence in India (as of 2026) but is not reserved for the public sector?
- (a) Atomic energy
- (b) Railway operations
- (c) Electronic aerospace and defence equipment
- (d) Iron and steel
Answer and explanation
Q4. The Industrial Policy Resolution of 1956 is often called the “economic constitution of India” mainly because it:
- (a) was passed as a constitutional amendment
- (b) governed the roles of the public and private sectors for over three decades
- (c) created the Planning Commission
- (d) nationalised all banks
Answer and explanation
Q5. The Bhilai Steel Plant was set up in the public sector chiefly because:
- (a) iron and steel was placed in Schedule A of the 1956 resolution
- (b) the 1991 policy reserved steel for the State
- (c) the MRTP Act barred private steel plants
- (d) steel needed a compulsory licence under the 1948 resolution
Answer and explanation
Level 3: Mains Answer Writing
Q1. (60 words) What were the main features of the Industrial Policy Resolution, 1956?
Model answer outline
- Intro: Adopted 30 April 1956; aimed at a socialistic pattern of society; called India’s “economic constitution”.
- Body: Schedule A (17 industries, exclusive State responsibility); Schedule B (12, progressively State-owned); Schedule C (private, under licensing); public sector at the “commanding heights”; support for small and village industries; reducing regional disparities.
- Conclusion: It shaped the Mahalanobis-era heavy-industry base, including Bhilai Steel Plant.
Q2. (150–200 words) “The New Industrial Policy of 1991 ended the licence raj but did not make India a manufacturing powerhouse.” Critically examine.
Model answer outline
- Intro: The 1991 policy, framed amid the balance-of-payments crisis, shifted India from State-led import substitution to market-led growth.
- What it changed: licensing abolished except 18 industries (5 today); public sector reservation cut from 17 to 8 (2 today); MRTP threshold removed; automatic approval for FDI up to 51% in priority industries; disinvestment and PSU reform.
- Gains: higher growth, competition, foreign investment, end of shortages, globally competitive firms in autos, pharma and steel.
- Shortfalls: manufacturing’s share stuck in the mid-teens percent of GDP; services-led and jobless growth; infrastructure, land and labour bottlenecks were left to later reforms; regional concentration.
- Chhattisgarh angle: delicensing brought private steel and power to the Raipur–Raigarh–Korba belt, but with displacement and pollution concerns in mineral districts.
- Way forward: Make in India, PLI, logistics (PM GatiShakti), MSME credit and skilling.
- Conclusion: 1991 removed the barriers; building manufacturing capability needed the second-generation reforms that followed.
Quick Revision Table
| Fact | Detail |
|---|---|
| IPR 1948 | 6 April 1948; four categories; mixed economy |
| 1948 Central monopolies | Arms and ammunition, atomic energy, railways |
| IDRA | 1951; licensing law; still in force (DPIIT) |
| IPR 1956 | 30 April 1956; Schedule A 17, Schedule B 12, Schedule C rest; “economic constitution” |
| Hazari Report | 1967, licensing favoured big houses |
| Dutt Committee | 1969 → MRTP Act 1969 |
| MRTP → ? | Competition Act, 2002 |
| FERA 1973 → ? | FEMA, 1999 |
| 1973 statement | Joint sector, core industries |
| 1977 statement | Small sector, DICs (from 1978) |
| NIP 1991 | 24 July 1991; P.V. Narasimha Rao (Industry portfolio) |
| Licensing | 18 in 1991 → 5 today |
| Public sector reservation | 17 → 8 → 2 (atomic energy, railway operations) |
| FDI in 1991 | Automatic up to 51% in priority industries; FIPB (abolished 2017) |
Key Takeaways
- 1948 set up a mixed economy; 1951 IDRA gave the licensing tool; 1956 made the public sector the commanding force (17 + 12 industries).
- The 1960s–80s licence raj led to the Hazari Report, the Dutt Committee and the MRTP Act, and then to small-sector protection in 1977.
- The 1991 policy delicensed, de-reserved, diluted MRTP and opened the door to FDI.
- Today: 2 reserved sectors, 5 licensed industries, licensing by DPIIT.
- Chhattisgarh mirrors both eras: State-built Bhilai under 1956, private steel and power belts after 1991.
What’s Next
- Public Sector and Disinvestment: what happened to the public sector after 1991
- MSMEs: Definition, Institutions and Schemes: from small-sector reservation to Udyam
- Make in India and Manufacturing Policy: the post-2014 push
- Planning in India: the 1991 reforms in the wider economy
- Industrial Policy and SEZs in Chhattisgarh: the state’s own policies