IGNOUMATIC

The Industrial Policy Resolution (IPR) of 1956 was a landmark document that laid the foundation for India’s industrial development in the post-independence period. Building on the first Industrial Policy of 1948, the 1956 resolution articulated a socialist vision for India’s economic growth and emphasized the central role of the public sector.

1. Objectives of the Policy

• Accelerated Economic Growth: The primary aim was to build a strong industrial base to accelerate economic development.
• Social Justice: The policy sought to reduce income and regional inequalities through state intervention.
• Self-Reliance: Reducing dependence on foreign capital and technology was a key goal.
• Public Sector Dominance: It aimed to promote a commanding role for the public sector in strategic and core industries.

2. Classification of Industries

The IPR 1956 classified industries into three categories:

• Category A: Industries exclusively owned and operated by the state. This included arms and ammunition, atomic energy, defense-related industries, and major minerals. These sectors were considered strategic and too important to be left to private enterprise.
• Category B: Industries in which the state would take the initiative to establish enterprises, but the private sector could also supplement. This included sectors like machine tools, fertilizers, and chemicals.
• Category C: All remaining industries were left to private enterprise, although the state retained the right to intervene or regulate when necessary.

3. Emphasis on Heavy Industries and Import Substitution

• The policy emphasized the development of heavy industries such as steel, machine tools, and capital goods. This was in line with the Nehru-Mahalanobis model of economic planning, which prioritized capital-intensive industries to build long-term self-reliance.
• Import substitution industrialization (ISI) was adopted to protect domestic industries from foreign competition through high tariffs, quotas, and licensing.

4. Role of Small-Scale and Cottage Industries

While the focus was on heavy industry, the policy also acknowledged the importance of small-scale and cottage industries for employment generation and rural development. These sectors received support through reservation policies, credit facilities, and technical assistance.

5. Industrial Licensing

The IPR 1956 institutionalized the system of industrial licensing, requiring businesses to obtain government approval to start, expand, or modernize enterprises. This created a “license raj” that persisted for decades and eventually became a target of criticism for stifling private initiative and fostering bureaucratic inefficiency.

6. Legacy and Criticisms

• The policy helped create a strong industrial base and led to the emergence of several large public sector enterprises (PSUs).
• However, it also led to inefficiencies, bureaucratic delays, lack of competition, and corruption.
• The over-reliance on public sector and import substitution limited innovation and international competitiveness.
• These shortcomings eventually prompted the liberalization reforms of 1991, which aimed to dismantle the license raj and reduce the dominance of the public sector.

Conclusion

The Industrial Policy Resolution of 1956 played a foundational role in shaping India’s industrial trajectory for several decades. It reflected the socio-economic goals of a newly independent nation committed to socialism, equity, and self-reliance. While it contributed to the creation of a strong industrial base, its rigid regulatory framework and inefficiencies also necessitated a paradigm shift in the 1990s. The resolution remains a significant milestone in India’s economic history, highlighting the state’s central role in early industrial development.