Industrial Licensing policy, Industrial Licensing Policy, Liberation Measures, Liberalization of Industrial Licensing, New Industrial Policy
The Government decided to implement the recommendation of the industrial licensing Policy Inquiry committee. It announced its revised policy on 19th February 1970. The important features of the new policy were as under:
Exemption Limit:
The licensing exemption limit was raised from Rs. 25 lakhs to Rs. 1 crore. Under the new Policy, an industrial License must be taken by a firm with and investment of more than Rs, 1 crore or for an industrial undertaking being set up by a firm whose assets exceeded Rs, 5 crore or which controls 1.3rd or more of the production in the industry concerned. License was also necessary, if the foreign exchange component in the new project exceeded Rs. 19 lakhs or 10 per cent of the total stipulated investment.
Classification of Industries:
Industries were classified into the following three categories:
Core Sector:
This sector included industries which were likely to show gaps on the Fourth Plan period. The industries included in the core sector are iron and steel, non-ferrous metals, synthetic rubber, nitrogenous fertilizers, tractors, petroleum product, coking coal, heavy industrial machinery, ship building etc., it was decided to formulated plans for their development and sanction them foreign exchange and other scarce resources on priority basis. Of these, the industries listed in schedule O of the industrial Policy resolution. 1956 will continue to be reserved for the public sector and business houses with assets exceeding.
Middle Sector:
This sector consisted of industrial
undertakings involving an investment of more than Rs. 1 crore bur less than Rs.
5 crores . Industrial houses with assets of less than Rs. 35 crores were to
receive preference in the matter of granting License in this sector. The large
industrial houses were to be allowed to enter this sector only when it was
essential to reduce costs for attaining economic size.
Heavy Investment Sector:
It was to cover units with an investment of
more than Rs. 5 crores and those receiving substantial assistance from the
public financial institutions. The government was to pursue a policy of active
participation in the management of such joint sector enterprises. It was also provided hat the financial
institution shall have the right to convert their loans or debentures into
equality shares within a specified period.
Small Scale Sector:
This sector embraced industrial units having
an investment of less than Rs. 75 lakhs in plant and equipment. The government
decided to follow the policy of growth of small-scale sector.
Expansion of Public Sector:
The government decided to establish new
enterprises in public sector industries or industries involving heavy
investment. Such enterprises were also eligible for assistance form the public
financial institutions.
Priority to Co-operative Sector:
The Government followed the policy of giving
preference to co-operative undertaking in agro-based industries such as khan
sari, jute, etc.
The Licensing Policy of 1970 was criticized by
the industrialists on the ground that restriction on large business houses will
restrict the growth of key and basic industries. The provision of conversion of
loans by financial institutions in to equity was also criticized. It was also
said that the policy did not ensure the availability of necessary inputs to an
entrepreneur having a Licensing.
Industrial Licensing Policy, 1973:
In view of the criticism of the existing
policy and launching of the fifth plan, the government announced a new
Licensing policy of 19th February 1973. The
revised policy did vote touch the existing classification of industries
but it exempted some more industries form licensing. Large industrial houses
were redefined as industrial houses having assets along with assets of
inter-connected undertaking of not less than Rs. 20 crores. The policy also encourages
the undertaking to carry on production predominantly for export. Joint sector
was expected t observes an instrument to guide new entrepreneur in priority
industry. The public sector was allowed to enter the consumer goods industries
to meet increasing demand. A list of 122 items entitled significant areas in
which technological gaps exist cr ate likely was prepared. Incentives for
setting up units in backward regions were also announced. Strict time-limits
were to be laid down for the use of letters of intent and Licenses remaining
caused for a specific period of time were to be cancelled. In October 1973. The
government announced a streamlined system of industrial approval procedure. The
new system was placed for implementation under a project approval board. The
function of the board is as follows:
I) To undertake detailed periodical review in
respect of pending cases; the review will specifically identify detailed with
respect to various agencies involve, fix targets for clearing arrears and
provide for information on disposals;
II) To review the programmed of implementation
of Licenses up to the stage of actual commissioning of capacity;
III) To provided a forum, at which policy
question that affect a large number of applications would be discussed and
resolved; and
iv) To directly deal with simultaneous or
composite applications.
The Licensing Committee, Foreign Investment
Board, Capital Goods Committee and Licensing cum M.R.T.P. Committee were
brought under the control of the project Approval Board so served by a Served
by a Secretariat for Industrial Approvals (SIA). S.I.A. was set up to ensure
centralized processing of application for Licensing, rt is responsible for the
following matters:
i) Receipt of application and processing them
through the concerned approval committee;
ii) issuing the final orders of the government
in each case to the applicant within the prescribed time-limit; and.
iii) Monitoring the implementations of
approval by entrepreneurs and assisting them in procedural matters.
Time periods were also fixed for the disposal
of application and validity of letters of intent. Where the estimated value of
equipment happens to be above Rs. 10 Lakhs in non-rupee area and Rs. 20 lakhs
or above in a rupee area, the capital goods application might be submitted to
the S.I.A. Applications below these limits were to be submitted to the Chief
Controller of Imports and Exports.
Assessment of the policy:
The government has been reviewing its
industrial licensing policies from time to time but it appears that ever thing
is not will in the working of the system. There is general feeling that the
licenses are issued on patronage rather than on merit basis. Similarly, it is
also felt that while issuing new Licenses, no care is taking to be seen. Whether
the old Licensing have already been implementation of the new or not and no
penalty is imposed for non-implementation of the new Licenses. Similarly, it is
also felt that while issuing new Licenses on first come and first served basis
has not been favorably reacted by the industries. The present policy is also
being criticized because big industries houses get a lion share of the
licenses. Then it is also felt that the authority if issuing Licenses should be
given to a quasihelical body than to an
administrative machinery working under a political boss. Centralization of
authority of the issue of Licenses has not been favored and it is now demanded
that there should be decentralization of authority for the issue of Licenses.
But in a developing economic, with limited resources these problems are bound to
exist. Gradually, with the passage of time, all efforts are being made to
remove the difficulties and objections, but it is difficult to please all
section of the society by a policy, particularly when in many cases interests
clash with each other.
In October, 1975 some major changes in the
Industrial Licensing Policy were announced. 21 more industries were delicensed
Expansion of capacity was permitted to large industrial houses and foreign
companies for producing goods for export purposes or selling goods in
accordance with the direction of the government. In march, 1978, the government raised the ceiling
for exemption for licensing from Rs. 1 crore to Rs. 3 crores. But companies
covered by the M.R.T.P. Act. dominant under takings and those with foreign
equality exceeding 40% were not exempted from the requirements of licensing.
C) Liberalisation Measures, 1985:
After resuming the power in 1984. The then
Prime minister Rajiv Gandhi’s Government brought about a seal- change in terms
of liberalisation of licensing policy in favor of large business houses
particularly in terms of making them free from the provision of MRTP Ac; and
Fera. The major changes introduced were as under:
A) Liberalisation of licensed capacity in the
name of economies of scale and modernization:
The policy changes of 1985 envisaged the need
for the industry to grow at a rapid pace, archive economic of scale and
undertake modernization which signified the introduce of latest technology with
this end in view, the scheme for re-endorsement of capacity was liberalized,
automatic increase was granted to units waiting achieve economic of scale and a
49 per cent rise in capacity due to modernization was allowed.
On January 30, 1986, the Government decided to
delicense 23 industries for MRTP and FERA companies, providing the industrial
undertaking is located in any of the centrally- declared backward areas.
B) concept of broad-banding introduced: to
encourage production and to provide flexibility to the manufacture to adjust
their production-mix depending on the marketing demand, the concept of
broad-branding was introduced in a large number of items. Some of these are
machine tools, motorized-two-wheelers, motorized-four-wheelers, paper and paper
pulp, chemical, pharmaceutical, petrochemical and fertilizer machinery industry
and entertainment electronics.
The basic advantage of broad-banding easy that
Licenses issued in terms of broad categories would enable a given undertaking
to manufacture any type of item covered so long as total production did not
exceed the overall licensed capacity.
C) Raising the asset the limit of MRTP
companies: the threshold asset limit for companies under MRTP Act easy raised
from Rs. 20 crores to Rs. 100 crores. As a consequence, 1 1 3 companies came
out of the purview of the MRTP act leaving 379 units still under MRTP Act.
Beside, the Government announced in May 1985,
its decision to exempt 27 industries from the section 22A of the MRTP act and
in December 1984 again, 22 of these of industries were delicensed for MRTP and
FERA companies. These two measures together virtually abolished all control on
MRTP and FERA companies in respect of the 22 industries.
Beside this, industrial licensing proposals
above an investment of Rs. 50 crores only would have to be cleared by the
cabinet committee in Economic Affairs as against the limit of 20 crores laid
down earlier.
D) Attitude towards small-scale sector units:
Some sops were provided for the small-scale
sector. The limit on investment by small-scale units and ancillaries was
enhanced from Rs. 20 lakhs and Rs. 25 lakhs to Rs. 35 lakhs and Rs. 45 lakhs
respectively. However, nearly 200 items were on the reservation list were
de-reserved and made open for the medium and large-scale sector.
D) Liberalisation of Industria Licensing,
1988.
The union Government announced on June 3, 1988
further Liberalisation of the industrial licensing system and also provide
incentives to give a stimulus to industrialization of backward areas.
Non-MRTP and Non-FERA companies will not be
required to obtain industrial Licensing under IDRA for projects involving investment
in fixed assets up to Rs. 50 crores of they are located in centrally declared
backward areas. Ares and Up to Rs. 15 crores of they are located in
non-backward areas. The number of Industries requiring compulsory licensing has
been reduced from 56 to 26. The de-licensing sector under the new dispensation
has been extended to units importing up to 30 per cent of their input needs
against 15 per cent in the past. This is a case where import liberalisation has
been combined with industrial Liberalisation to good effect.
For the development of backward areas, the
Government intends to establish 100 growth centers throughout the country over
the next five years. Each growth center will be provided with funds of the
order of Rs. 25 crores to Rs. 30 crores for creating infra-structure
facilities, particularly in respect of power, water, telecommunication and
banking.
To promote industrialization in backward
areas, new industrial understanding established in declared backward areas, are
entitled to the income tax relief under Section 80 HH of the income tax act by
way of deduction of 20% of the profits available for a period of 10 years. Furthermore,
under section 80-I of the I.T Act, all new undertaking are entitled to an
income tax relief by way of deduction of 25% of the profits nor the period of a
year. The benefits of both these sections are available cumulatively to
industrial undertakings established in notified backward districts.
There is no doubt that there was a
justification for revision of asset, limits of large business houses in view of
the sharp escalation of prices that had taken place earlier, but it was not
expected that the Government would take a quantum jump and raise it 5 times.
Considerations of liberalizing investment with the objective of raising
production have been paramount with the Government. Moreover, the Government is
dead set to promote computerization and electronics along with expansion of
communications. Any obstacles in this regard in the form of MRTP and FERA
regulations are sought to be removed. But in this process the Government is
making the small-scale industry a victim of its programmed of modernization.
The de-reservation of about 200 items will hit small-scale sector. The abnormal
bonfires provided to the large corporate sector to compete with the small-scale
sector will hit it further. As a consequence, the objective of promoting full
employment via encouragement to small sector will be jeopardized.
e) New Industrial Policy 1991:
The Congress (1) Government led by Mr. Narasimha Rao has announced the hew industrial policy on July 24, 1991. The main aim of the new industrial policy is to unshackle the Indian industrial economy from the cobwebs of unnecessary bureaucratic control, to introduce liberalization with a view to integrate the Indian economy with the world economy, to remove restrictions on direct foreign investment as also to free the domestic entrepreneur from the restrictions of MRTP Act.
Industrial Licensing:
In the sphere of industrial licensing, the role of the government was to be changed from that of only exercising control to one of providing help and guidance by making essential procedures fully transparent and by eliminating delays. This calls for bold and imaginative decisions designed to remove restraints on capacity creation, which at the same time, ensure that over-riding national interests are not jeopardized.
In the above context, industrial licensing will henceforth be abolished for all industries, except those specified, irrespective of levels of investment.
These specified industries will continue to be subject to compulsory licensing for reasons related to security and strategic concerns, social reasons, problems related to safety and overriding environmental issues, manufacture of products of hazardous nature and articles of elitist consumption.
Industrial Licensing Policy:
1. Coals and Lignite.
2. Petroleum (other than crude) and its distillation products.
3. Distillation and brewing of alcoholic drinks.
4. Sugar.
5. Animal fats and oils
6. Cigars and cigarettes of tobacco and manufactured tobacco substitutes
7. Asbestos and asbestos-based products.
8. Plywood, decorative veneers, and other wood-based products such as particle board, medium density fiber board, block board.
9. Raw hides and skins, leather, chamois leather and patent leather.
10. Tanned or dressed foreskins.
11. Motor cars.
12. Paper and Newsprint except bagasse-based units.
13. Electronic aerospace and defence equipment; all types.
14. Industrial explosives, including detonating fuse, safety fuse, gun powder, nitrocellulose and matches.
15. Hazardous chemicals.
16. Drugs and Pharmaceuticals (according to Drug Policy).
17. Entertainment Electronics (VCRs, Color TVs, C.D. Players, Tape Recorders).
18. White goods (Domestic Refrigerators, Domestic Dish Washing Machines, Programmable Domestic Washing Machines, Programmable Domestic Washing Machines, Microwave ovens, Air-conditioners).