Amendments in India’s Industrial Policy

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Nov. 15 – The main purposes of India’s Industrial Policy of the Government are to maintain a sustained growth in productivity, to enhance gainful employment, to achieve optimal utilization of human resources, to attain international competitiveness, and to transform India into a major partner and player in the global arena.

The Policy focus is on deregulating Indian industry, giving the industry freedom and flexibility in responding to market forces and providing a policy regime that facilitates and fosters growth within the country’s industry.

Some of the important policy measures announced and procedural simplifications undertaken to pursue the above objectives are as follows:

Liberalization of industrial licensing policy
The directory of articles covered under required licensing under the Industries (Development and Regulation) Act (1951) is appraised on a regular basis. Drugs and pharmaceuticals have been detached from the list of items requiring compulsory licensing vide Notification No. S.O.1386 (E) dated September 23, 2005. Currently, only five industries are under compulsory licensing mainly on account of environmental, safety and strategic considerations. They are:

  1. Distillation and brewing of alcoholic drinks
  2. Cigars and cigarettes made from tobacco and manufactured tobacco substitutes
  3. Electronic aerospace and defense equipment: all types
  4. Industrial explosives including detonating fuses, safety fuses, gun powder, nitrocellulose and matches
  5. Hazardous chemicals such as hydrocyanic acid and its derivatives, phosgene and its derivatives, and isocyanates and diisocyanates of hydrocarbon, not specified elsewhere (example Methyl isocyanate)

Likewise, from eight industries reserved for the public sector in 1991, there are only three industries reserved for the public sector at present, they are:

  1. Atomic energy
  2. The substances specified in the schedule to the notification of the Government of India in the Department of Atomic Energy number S.O. 212(E), dated March 15, 1995
  3. Railway transport

Industrial Entrepreneurs Memorandum
Industries not regulated under required licensing are to file an Industrial Entrepreneurs Memorandum (IEM) with the Secretariat for Industrial Assistance (SIA). No industrial approval is required for such exempted industries. Amendments are also allowed to IEMs filed w.e.f. 1.7.98.

Liberalization of the locational policy
Major growth, discarding regulatory measures, has led to the decision of the government to do away with the locational condition in setting up of industries in cities with populations of 1 million and above as per the 1991 census. Entrepreneurs are now allowed to independently choose the position for establishing an industry. Essential adjustment to this effect has been made in Notification No.477(E) dated July 25, 1991 with the issue of notification No.2054(E) dated August 14, 2008, issued under the provisions of the IDR Act (1951). Though, zoning and land-use guidelines as well as ecological legislation persist which regulate industrial locations.

Policy for small scale industries
Although stipulation of items entirely for the small-scale sector forms a vital focus of the industrial policy, review for dereservation of such items is also undertaken by the government at regular intervals, in order to improve competitiveness of such products in the domestic/international markets. Review of reserved items is a nonstop process. Throughout the last five years, more than 600 items have been dereserved. At present, 21 items are reserved for manufacturing in the small scale sector.

All activities other than the small scale industrial undertakings occupied in the manufacturing of items reserved for manufacturing in the small scale sector are requisite to obtain an industrial licence and undertake an export obligation of 50 percent of the yearly production. This condition of licensing is, on the other hand, not appropriate to those undertakings operating under the 100 percent Export Oriented Undertakings Scheme, the Export Processing Zone, or the Special Economic Zone Schemes.

Presently, the small scale industry is under the Micro, Small and Medium Enterprises (MSMED) Act (2006), which has categorized small scale enterprises as having the value of investment in plant machinery between Rs. 2 crore and Rs. 5 crore.

Accordingly, with the provisions of the MSMED Act (2006) and rule of liberalization, the stipulation of restricting equity participation by non-SSI undertakings in SSI undertakings upto 24 percent has been detached by way of withdrawn notification No.S.O. 857(E) dated October 12, 1997 vide Notification No.S.O.563(E) dated February 27, 2009.

Non-Resident Indians Scheme
The common guiding principles and facilities for FDI as accessible to foreign investors/companies are fully applicable to NRIs as well. Also, the government has extended some concessions especially for NRIs and overseas corporate bodies that maintain more than a 60 percent stake by the NRIs. This inter-alia includes:

  1. NRI/OCB investments in the real estate and housing sectors up to 100 percent; and
  2. NRI/OCB investment in domestic airlines sector up to 100 percent.

NRI/OCBs are also permissible to invest upto 100 percent equity on a non-repatriation basis in all activities except for a small negative list. Apart from this, NRI/OCBs are also allowed to invest in repatriation/non-repatriation under the portfolio investment scheme.

Electronic Hardware Technology Park/Software Technology Park Scheme
For the growth and development of the electronic and hardware industry, two schemes viz. Electronic Hardware Technology Park (EHTP) and Software Technology Park (STP) are currently in the process. Under the EHTP/STP system, the inputs are allowed to be procured free of duties.

Directors of STPs have the power to approved fresh STP/EHTP proposals and also grant post-approval amendments in respect to EHTP/STP projects that have been given to the Development Commissioners of Export Processing Zones in the case of Export Oriented Units. Other submissions for setting up projects under these schemes are being considered by the Inter-Ministerial Standing Committee chaired by the Secretary of Information Technology.

Policy for foreign direct investment
Endorsement of FDI forms an essential part of India’s economic policy. The role of FDI in accelerating financial growth is through mixing capital, technology and modern management practices. The Department has put in place a liberal and clear foreign investment rule where most actions are opened to foreign investment on the automatic route without any limit on the extent of foreign ownership. Some of the recent initiatives taken to further liberalize the FDI regime include opening up of sectors such as:

  • Insurance (up to 26 percent);
  • Development of integrated townships (up to 100 percent);
  • Defence industry (up to 26 percent);
  • Tea plantation (up to 100 percent subject to divestment of 26 percent within five years to FDI);
  • Augmentation of FDI limits in private sector banking, allowing FDI up to 100 percent under the automatic route for most manufacturing activities in SEZs;
  • Opening up B2B E-commerce;
  • Internet service providers without Gateways;
  • Electronic mail and voice mail to 100 percent foreign investment subject to a 26 percent divestment condition.

The Department has also reinforced investment measures through the Foreign Investment Implementation Authority.

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