Critical Analysis of Industrial Policy 1956

The Industrial Policy, 1956 was an elaborate document and was hailed as “Economic Constitution of India” It touched virtually all aspects of Industrial development. It established the public sector as epicentre of industrialization. Further, this policy must be analyzed in conjunction with IDA Act and License Raj and in light of the below statements.

• One of the pillars of this policy was to check concentration of economic power in few individuals, groups or business houses. To what extent this policy was able to achieve this?
• To what extent this policy was able to spur Industrial growth, check unemployment and bridge the rural urban divide?

One of the pillars of this policy was to check concentration of economic power in few individuals, groups or business houses. To what extent this policy was able to achieve this?

The 1956 policy in injunction with the  IDA act did just reverse of what it was supposed to do. The licensing policy of the government favoured big business houses who were in better position to raise huge amount of capital and had the better management skills to run the industry. They were also able to secure financial assistance from development and finance institutions. Further, since there was no proper system of allocation of licenses in place; pre-empting of licensing by authorities to select people or groups happened due to an array of reasons. Overall, the freedom of entry into industry was restricted due to licensing and this resulted in the concentration of economic power in few individuals.

To what extent this policy was able to spur Industrial growth, check unemployment and bridge the rural urban divide?

The pace of annual industrial growth could never go above 3 or 4%. The performance of the PSUs was also initially dismal and even today we see a lots of sick PSUs around.

Further, India could not combat unemployment, rural-urban divide, imbalance growth and other problems. The reasons were many fold. Firstly, the expansion of industry in backward regions was dismal. Secondly, the heavy industries were capital intensive rather than labour intensive. They lacked employment potential. The potential of employment generation was in small and cottage industries but they were sidelined practically either in want of institutional finance or due to competition. Most of the institutional finance was grabbed by large scale industries leaving little for them.