Industrial Licensing: Norms and Policy
The Industrial Development and Regulation Act (IDRA), 1951 provides a basic framework for the growth and development of industries in India.
The Act mandates every existing or new industrial undertaking to register itself with the federal government.
According to the law, an ‘industrial undertaking’ is a planned industry that is carried on in one or more factories owned by an individual or authority, including government.
Industrial licensing in India
Since the liberalization and deregulation of the Indian economy in 1991, most industries have been exempt from obtaining an industrial license to start manufacturing in India. Government attention is reserved only for those industries that may impact public health, safety, and national security.
In India, industrial licenses are regulated by the IDRA, 1951 Act, and are approved by the Secretarial of Industrial Assistance (SIA) on the recommendation of the licensing committee.
The provisions of the Act restrict a licensed industrial undertaking from manufacturing a new article unless the license has been renewed or a new license has been obtained to include the new article.
Industries that require industrial licensing for manufacturing in India include:
- Industries under compulsory licensing; and,
- Industrial undertakings attracting locational restrictions. The licensing provision also applies to the expansion of the existing industrial units.
Recent amendment to industrial licensing rule
Earlier, large industries that manufactured items that were exclusively reserved for Micro, Small, and Medium Enterprises (MSME) also needed to obtain an industrial license. MSMEs were previously known as Small Scale Industry (SSI). The provision was aimed at protecting indigenous manufacturers from unequal competition with large scale industries.
However, in April 2015, the government de-reserved these items to encourage greater investment, incorporate better technologies, and enhance competition in the Indian and global market for the products.
Large industries are now permitted to manufacture items such as – bread, wood, firework, pickles and chutneys, mustard oil, groundnut oil, steel chairs and tables, padlocks, stainless steel and aluminum utensils, without obtaining an industrial license.
Industries subject to compulsory licensing in India
Businesses planning to establish industries to produce any of the following items in India must obtain a compulsory license:
- Distillation and brewing of alcoholic drinks;
- Cigars and cigarettes of tobacco and manufactured tobacco substitutes;
- Electronics and aerospace and defense equipment;
- Industrial explosives including detonating fuses, safety fuses, gun powder, nitrocellulose and matches; and
- Hazardous chemicals including items hazardous to human safety and health and thus fall for mandatory licensing.
These industries are under compulsory licensing mainly because of environmental, safety and strategic considerations. Compulsory licensing is regulated by the Ministry of Industrial Development.
Locational restrictions for industries in India
Under this provision, industries located within 25 kilometers of the periphery of cities having a population of at least one million, must obtain an industrial license from the federal government.
This locational restriction does not apply in the following cases:
- Industries manufacturing electronics, computer software and printing, or any other industry that may be classified as a ‘non-polluting industry’; or
- Industries located in an area designated as an ‘industrial area’ before July 25, 1991.
The location of industrial units is subject to appropriate local zoning, land use regulations, as well as environmental regulations in order to maintain ecological discipline.
License registration for industries
The application for registration must be made to the SIA, Department of Industrial Policy & Promotion (DIPP) along with a fee. The government issues the certificate only after due consideration.
Once the license is obtained, an industrial undertaking is eligible for the allotment of controlled commodities and for the issuance of an import license for goods required for its construction and operation.
Businesses can opt to register for an industrial license and IEM online at the government’s eBiz website. They can also use the single window portal to obtain clearance from various governments and government agencies.
De-licensed industries in India
There is no exhaustive list of de-licensed industries specified by the DIPP.
However, industries exempted from the provisions of industrial license must file an Industrial Entrepreneur’s Memorandum (IEM) with the SIA, DIPP, and Ministry of Commerce & Industry.
Editor’s Note: The article was first published in June 2012 and has been updated on September 6, 2017 as per the latest developments.