Industrial Policy – 1948

After having attained independence, the Government of India declared its first Industrial Policy on 6th April, 1948.  The Industrial Policy 1948 was presented in the parliament by then Industry Minister Dr. Shyama Prasad Mukherjee. The main historical importance of this policy is that it ushered India in the system of Mixed Economy.

After the independence, several industrial policies were released suiting the contemporary requirements. The main Industrial Policy documents before liberalization, privatization and globalization in 1991 included Industrial Policy-1948; Industrial Policy -1956; Janata Government’s Industrial Policy -1977 and the Industrial Policy -1980. The New Industrial Policy -1991 marked advent of a new era in Indian Economy, which we have studied in this document in other articles.

Salient Features of Industrial Policy, 1948

Four Fold Classification of Industries

Under this policy, the large industries were classified in four categories viz. Strategic Industries, Basic / Key industries, Important Industries and other industries which respectively referred to Public Sector; Public-cum-Private Sector; Controlled Private Sector and Private & Cooperative sector. They have been discussed below:

Strategic Industries (Public Sector)

This category included three industries in which Central Government had monopoly. These included Arms and ammunitions; Atomic energy and Rail transport

Basic / Key Industries (Public-cum-Private Sector)

Six industries viz. coal, Iron and Steel,  Aircraft manufacturing,  Ship-building,  Manufacture of telephone, telegraph and wireless apparatus, and Mineral oil were designated as “Key Industries” or “Basic Industries”. It was decided that the new industries in this category will henceforth only be set-up by the Central Government. However, the existing private sector enterprises were allowed to continue.

Important Industries (Controlled Private Sector)

Eighteen industries were kept in the “Important Industries” category.  Such important industries included heavy chemicals, sugar, cotton textile and woollen industry, cement, paper, salt, machine tools, fertiliser, rubber, air and sea transport, motor, tractor, electricity etc. These industries will continue to remain under private sector however, the central government, in consultation with the state government, will have general control over them.

Other Industries (Private and Co-operative Sector)

All other industries which were not included in the above mentioned three categories were left open for the private sector. However, government could impose controls on these industries also if any of them was not working satisfactorily.

Other features of Industrial Policy 1948

Apart from the four fold classification of the industries; the Industrial Policy 1948 endeavoured to protect cottage & small scale industries by according them priority status. It also emphasised on establishing harmonious industrial relations; gave high priority to fair wage rates; social security to workers and their participation in management. The industrial policy 1948 had acknowledged the significance of foreign capital for industrialisation of the country, but it was decided that the control should remain with Indian hands.

With this policy, India ushered into a mixed economy taking the society on socialistic pattern.The core idea was to keep the strategic and basic industries under the exclusive ownership / control of Government. The central and state governments had a virtual monopoly in railroads and exclusive rights to develop minerals, iron ore etc. The 18 important industries were to be developed under direct control and regulation of the government.

Evaluation of the Industrial Policy 1948

The Industrial policy of 1948 was first major policy of independent India which was launched to lay the foundation of a mixed economy in which both private and public enterprises would march hand in hand to accelerate the pace of industrial development. However, there were numerous conflicting statements regarding the private participation. In this context, we need to analyze this policy in the light of below questions:

• To what the blueprint outlined in this policy was different from British Era policy?
• Our constitution was still being framed by the constituent assembly at that time. Was there anything in the constitution that inspired this policy?
• Was it as per economic philosophy of Nehru, Gandhi or Patel? Or it was a compromise between political / economic elites?
• Why this policy was called “socialization of vacuum“?
• Was the space given to private sector suited to contemporary circumstances?

To what extent, the blueprint outlined in this policy was different from British Era policy?

The Industrial Policy 1948 was a sincere depart from the British Era policy of lessez faire [free economy] model followed by British rulers. The British policy was that Government was ill-qualified to advance the industrial development and all such matters should be left to private enterprise.

Our constitution was still being framed by the constituent assembly at that time. Was there anything in the constitution that inspired this policy?

The 1948 policy was put forward at a time when there was neither constitution nor any proper legal framework around industrial development. The constitution was under framing by the constituent assembly.

Under the Directive Principles of State Policy, Articles 39 (b) and (c) favoured the state planning and interference. The constitution which adopted later with these articles directing the state to secure that “the ownership and control of the material resources of the community are so distributed as best to subserve the common goods”; and that “operation of the economic system does not result in concentration of the wealth and means of production to the common detriment. This was the ground on which Planning constitution was later established for top down approach in economic development of the country.

Was it as per economic philosophy of Nehru, Gandhi or Patel? Or it was a compromise between political / economic elites?

Nehru was an avowed socialist; while Patel was bit conservative. Gandhi’s economic philosophy was centred around self sufficient villages with an economy based on cottage industries. This 1948 policy cannot be called socialistic in entirety, for it has given space to both private as well as public sector. At the same time, it also sought to provide protection to the cottage industry. Further, under the basic industries, it did not seek to nationalize / discontinue the already existing private units; rather it mandated that new industries in this category will henceforth only be set-up by the Central Government.

Thus, it can be rightly said that the Industrial Policy of 1948 was a compromise between political and economic elites; trying to achieve a balance between the “radicalism of state ownership” and “resistance against this policy” by conservative elements. However, it was denounced by leftists because of whatever space was given to the private sector. It was reiterated in the Avadi sessionof Indian National Congress in 1955 when the Congress stated that object of the planning has to be “Socialist Pattern” and not absolute “Socialism“.

Why this policy was called “socialization of vacuum“?

This was the time modern industry was at infant stage. The industry was confined to only some consumer goods such as sugar, tea and to some extent large industries at nascent stage such as Iron and Steel. The Capital Goods Industry was absent. This policy was called “socialization of  the vacuum” because it envisaged that state would invest resources only in those sectors which were unoccupied (partially or fully) by the private sector. This can be justified because at that time, private enterprise alone was neither having resources or vision to set up large river valley projects; capital goods sector or huge steel / cement / power plants. The idea was that Government alone should come forward to launch new nation building projects.

Was the space given to private sector suited to contemporary circumstances?

As mentioned above, the Indian private enterprise was infant at that time; and they might be the first casualty if allowed to be full players in key sectors. However, state control in almost every sector led to a crisis of confidence among private participants, which proved to be a major roadblock in Industrial expansion. Further, the public sector of the day was also unable to cope up with the increased burden because of lack of availability of finance, obsolete technology and lacunae in the management skills. Moreover, red-tapism would later prove to be a major impediment impairing the efficiency and productivity.