2.4.2. Industrial Policy Resolution 1956 (IPR 1956)

In accordance with the goal of the state controlling the commanding heights of the economy, the Industrial Policy Resolution of 1956 was adopted. This resolution formed the basis of the Second Five Year Plan, the plan which tried to build the basis for a socialist pattern of society.

The Industrial Policy Resolution (IPR) of 1956 was significant for India's development as it aimed to establish a framework for economic activities that would reflect socialist principles. The term 'commanding heights of the economy' refers to sectors that are essential for national progress and would be controlled by the government. This resolution not only provided guidelines for industrial development but also highlighted the government's intention to orchestrate economic growth through state involvement, laying down the foundations for the Second Five Year Plan.

Imagine a community where local leaders decide that certain essential services, like water and electricity, are so vital that they must be managed by the town council rather than private companies. Just like in this community, the IPR aimed for the Indian government to take control of key industries to ensure the nation's growth and equitable distribution of resources.

This resolution classified industries into three categories: the first category comprised industries which would be exclusively owned by the government; the second category consisted of industries in which the private sector could supplement the efforts of the public sector, with the government taking the sole responsibility for starting new units; the third category consisted of the remaining industries which were to be in the private sector.

The classification of industries was a crucial component of the IPR. It divided industries into three distinct categories: (1) those that would be entirely government-owned; (2) industries where the government would lead but allow private contributions; and (3) industries reserved for total private ownership. This approach was designed to ensure that essential sectors remained under state control while still encouraging private investment in less critical areas, effectively balancing between state and market forces.

You can think of this classification like organizing a school project. In some groups, teachers assign students specific roles – some may lead the project entirely while others support different tasks. Similarly, IPR assigned roles to the government and private sector to work together in balancing India’s industrial growth.

Although there was a category of industries left to the private sector, the sector was kept under state control through a system of licenses. No new industry was allowed unless a license was obtained from the government. This policy was used for promoting industry in backward regions; it was easier to obtain a license if the industrial unit was established in an economically backward area.

The licensing system was a regulatory measure that required businesses to obtain government approval before they could start or expand operations. This ensured that industries were developed in a manner aligned with national interests and promoted economic growth in less developed regions. By making licenses easier to obtain in economically backward areas, the government aimed to stimulate industrial growth where it was needed most and address regional inequalities.

Imagine that a city is trying to reduce congestion in its downtown area. The city decides that new shops can only open if they get permits from local officials, especially in underdeveloped neighborhoods. This approach is similar to the licensing system, which aimed to control industrial growth for more balanced regional development.

In addition, such units were given certain concessions such as tax benefits and electricity at a lower tariff. The purpose of this policy was to promote regional equality.

The government introduced various concessions, including tax breaks and lower electricity rates, specifically targeting small-scale industries (SSIs). This was part of a broader strategy to encourage entrepreneurship and ensure that smaller businesses could compete against larger enterprises. The aim was to foster local businesses and improve economic status in less developed areas, thus promoting greater regional equality and self-reliance.

Think of this as a local government providing subsidies to farmers so they can sell crops. Just like these farmers receive support to thrive, small industrial units received governmental support to ensure they could grow and contribute to the economy without being overshadowed by larger competitors.

Even an existing industry had to obtain a license for expanding output or for diversifying production (producing a new variety of goods). This was meant to ensure that the quantity of goods produced was not more than what the economy required.

Under IPR 1956, existing industries faced regulatory hurdles as well; they needed licenses to expand or diversify their operations. This ensured that increases in production aligned with the actual demand in the economy, preventing overproduction and potential economic imbalances. By carefully controlling output, the government aimed to maintain economic stability and resource allocation efficiency.

Imagine a bakery that produces a certain type of bread. Before they can start making new flavors or increase the number of loaves, they must check with the local food authority to ensure there's enough demand. This regulation is similar to the controls imposed on industries by the IPR to ensure balanced production.

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