Technology, industry, commerce and finance are closely interrelated and hence the respective policies. The goals and objectives set out for the nation on the eve of independence and embodied subsequently in the Five Year Plans related to rapid agricultural and industrial development, rapid expansion of opportunities for gainful employment, progressive reduction of social and economic disparities, removal of poverty and attainment of self-reliance which even today remain as valid as they were at that time. In 1948, the Industrial Policy Resolution outlined the approach to industrial growth and development. It emphasised the importance to the economy of securing a continuous increase in production and ensuring its equitable distribution.
This Resolution was followed by another Resolution of 1956 which had as its objective the acceleration of the rate of economic growth and the speeding up of industrialisation. The Industrial Policy Statement of 1973, inter alia, identified high priority industries for investment from large industrial houses and foreign companies. In 1977, the emphasis was laid on decentralisation and on the role of small-scale, tiny and cottage industries. In 1980, the attention was focused on the need for promoting competition in the domestic market,’ technology upgradation and modernisation. This policy laid the foundation for an increasingly competitive export base and for encouraging foreign investment in high technology areas.
These policies created a climate for rapid industrial growth and a broad-based infrastructure had been build up incorporating a high degree of self-reliance in a large number of items and a new generation of entrepreneurs. A large number of engineers, technicians and skilled workers had also been trained. A number of policy and procedural changes were introduced in 1985 and 1986 aimed at increasing productivity, reducing costs and improving quality. The accent was an opening the domestic market to increased competition and readying our industry to stand on its own in the face of international competition. The technological and managerial modernisation of industry was pursued as the key instrument for increasing productivity and improving our competitiveness in the world. The net result of all these changes was that Indian industry grew at an impressive average annual growth rate of 8.5% in the seventh plan period.
The industrial policy till mid 1991 continued to be restrictive in respect of import of technology and other related matters. For example, foreign collaborations or import of technologies were permitted in select areas only and on set guidelines (relating to payments, period of collaborations, royalty payment, etc.) and licensing system was followed for the setting up new industrial capacities based mostly on estimates of domestic needs. The statement on Industrial Policy in 1991 has emphasised the policy of self-reliance with focus on building up the ability to pay for imports through foreign exchange earnings. Government is also committed to the development and utilisation of indigenous capabilities in technology and manufacturing as well as its upgradation to world standards. It has further emphasised to continue to pursue a sound policy framework encompassing encouragement to entrepreneurship, development of indigenous technology through investment in R&D, development of the capital market and increasing competitiveness for the benefit of the common man.
Statement on Industrial Policy 1991 lays down that the Government would provide enhanced support to the small-scale sector in an environment of economic efficiency and continuous technology upgradation. It states that foreign investment and technology collaborations would be welcome and that high technology to increase export and to expand the production base would be obtained. Intensive training, skill development and upgradation programmes are to be launched. In pursuit of the objectives of 1991 statement the government has decided to take a series of initiatives in respect of the policies relating to the following areas:
- Industrial Licensing
- Foreign Investment
- Foreign Technology Agreements
- Public Sector Policy
- MRTP Act
A package for the Small and Tiny sectors of industry has been announced separately.
Industrial Licensing Policy: According to the new Industrial Policy Statement, industrial licensing has been abolished for all industries, except those specified, irrespective of levels of investment. These specified. industries include a list of 18 sectors such as coal and lignite, petroleum distillation and brewing of alcoholic drinks, sugar, animal fats and oil, tobacco, asbestos, playwood etc., raw hides, skins and leather, tanned or dressed fur skins, motor cars, paper newsprint, electronic aerospace and defence equipment, industrial explosives, hazardous chemicals, drugs & pharmaceuticals, entertainment electronics, white goods (domestic refrigerators, washing machines, microwave ovens, airconditioners, etc.) Industries reserved for the small-scale sector will continue to be so reserved.
Policy for Small, Tiny and Village Industries: The small-scale industrial sector has emerged as dynamic and vibrant sector of the economy during the eighties. At the end of seventh plan period, it accounted for nearly 35% of the gross value of output in the manufacturing sector and over 40% of the total exports from the country. It also provided employment opportunities to around 12 million people. The Government has announced increase in investment limits in plant and machinery for small-scale units, ancillary units and export-oriented units to Rs. 60 lakhs, 75 lakhs, and 75 lakhs respectively, and for tiny enterprises, to Rs. 5 lakhs from Rs. 2 lakhs.
Non-SSI units have been allowed to participate up to 24% in the equity of small-scale units, and also foreign investment (up to a limit) can be made.
Need for technological back up services has been recognised for the small sector. A Technology Development Cell (TDC) would be set up in the Small Industries Development Organisation (SIDO), which would provide technology inputs to improve productivity and competitiveness of the products of the small-scale sector. The TDC would coordinate the activities of the Tool Rooms, Process-cum-Production-Development Centres (PPDCs) and would also interact with other industrial research and development organisations to achieve its objectives. Several measures have been suggested for modernisation, technological and quality upgradation efforts. A greater degree of awareness to produce goods and services conforming to national and international standards would be created among the small-scale sector. Technology information centres and programmes for improving productive and cost-effectiveness would be pursued. Indian Institutes of Technologies (IITs) and selected Regional/other engineering colleges will serve as technological information and design development centres in their respective command areas.
i) Approval will be given for direct foreign investment up to 51% foreign equity in high priority industries. Such clearance will be available if foreign equity covers the foreign exchange requirement of imported capital goods.
ii) While the import of components, raw materials and intermediate goods, and payment of know-how fees and royalties will be governed by the general policy applicable to other domestic units, the payment of dividends would be monitored through the Reserve Bank of India so as to ensure that outflows on account of dividend payments are balanced by export earnings over a period of time.
iii) Other foreign equity proposals, including proposals involving 51% foreign equity which do not meet the criterion under (i) above will continue to need prior clearance. Foreign equity proposals need not necessarily be accompanied by foreign technology agreements.
iv) To provide access to international markets, majority foreign equity holding up to 51% equity will be allowed for trading companies primarily engaged in export activities. While the thrust would be on export activities, such trading houses shall be at par with domestic trading and export houses in accordance with the Import Export Policy.
v) A Special Empowered Board would be constituted to negotiate with a number of large international firms and approve direct foreign investment in select areas. This would be a special programme to attract substantial investment that would provide access to high technology and world markets. The investment programmes of such firms would be considered in totality, free from predetermined parameters or procedures.
Foreign Technology Agreements
i) Automatic permission will be given for foreign technology agreements in high priority industries up to a lump sum payment of Rs. 1 crore, 5% royalty for domestic sales and 8% for exports, subject to total payments of 8% of sales over a 10-year period from date of agreement or 7 years from commencement of production. The prescribed royalty rates are net of taxes and will be calculated, ‘ according to standard procedures.
ii) In respect of industries other than those in the high priority category, automatic permission will be given subject to the same guidelines as above if no free foreign exchange is required for any payments.
iii) All other proposals will need specific approval under the general procedures in force.
iv) No permission will be necessary for hiring of foreign technicians, foreign testing of indigenously developed technologies. Payment may be made from blanket permits or free foreign exchange according to RBI guidelines.
v) The companies are expected to balance or meet their import requirements, through their exports or purchase of Exim scrips (foreign exchange entitlement of exporters) from the open market which are available at a premium.