In this article we will discuss about the policies in relation to industries during different periods in India:- 1. Policy in Relation to Industries before the 1st World War 2. Policy in Relation to Industries during the First World War 3. Policy in Relation to Industries during the Inter-War Period 4. Policy in Relation to Industries during the Second World War 5. Post-Independence Industrial Policy.


  1. Policy in Relation to Industries before the 1st World War
  2. Policy in Relation to Industries during the First World War
  3. Policy in Relation to Industries during the Inter-War Period
  4. Policy in Relation to Industries during the Second World War
  5. Post-Independence Industrial Policy

1. Policy in Relation to Industries before the 1st World War:

The East India Company’s commercial instincts made it, at first, favour the improvement of those industries on which its export trade depended. But this policy was soon abandoned owing to the pressure of vested interests in England and India came to be looked upon primarily as a valuable source of raw-materials as well as a market for the manufactures of England.


This attitude, a legacy of the old colonial policy, survived for some time after the company had ceased to be a trading body and even after its extinction and replacement by the direct rule of the crown in 1858. What was first dictated by self-interest now came to be additionally supported by the Laissez-Faire doctrine as well.

The British rulers held that “the govt. was ill-equipped to further industrial development by direct action, and that all matters should be left to private enterprise.” Of greater significance was the policy of Free Trade which India followed until 1892.

Even as late as 1903-4, English imports into India paid an average ad valorem duty of 3%. This was in sharp contrast to the trend in the rest of the world where all the countries, with any modern industry of any size ; had erected tariff walls against goods from other countries.

India alone, among bigger colonies of Britain, was-prevented from adopting the policies of state patronage including protection for industry which helped to industrialise Canada, Australia and South Africa.


One consequence of this policy was that these colonies attracted British capital from abroad, whereas most of the foreign investment in India consisted of reinvestment of part of the profits made or salaries earned by Europeans in India.

Not that the Govt. had any dogmatic faith in the Laissez-Faire or Free Trade doctrine. That the Govt. could brush it aside when necessary or convenient is evident from the fact that it, at first, gave state guarantee of profit to railway companies and later herself assumed the task of constructing state railways.

It had earlier pioneered at state expense and at great cost, the introduction of Cinchona, tea and coffee plantations in the country.

It also did not hesitate to give favourable concessions and also spent considerable state funds in the form of Geological surveys, experimental trials, and subsidies for the promotion of Iron Industry just because Belgium and German steel had begum to displace British steel in the Indian market.


It had even worked for a long time several coal mines on its own account. State help was extended whenever British interests needed it. Only when Indian industries, which had the remotest possibility of competing with British manufactures, demanded help that the doctrine of Lais­sez-Faire was invoked.

The result of this policy can be well imagined. According to the Famine Commission of 1880, the main cause of the disastrous famines in India was that the great mass of the people directly depended upon agriculture, and that there was no industry where they could seek profitable employment.

The commission, therefore, pleaded for a diversity of occupations through which the surplus popula­tion could be drawn to manufacture.

The Govt’s response to these recommen­dations was a “very imperfect provision of technical and industrial education and the collection and dissemination of commercial and industrial information.”

In practice, it amounted to the establishment of a commercial museum at Calcutta, an inquiry by the “Reporter on Economic Products” into the industrial resources of India the founding of the Indian Art journal and a series of provincial monographs on Indian industries.

It is interesting to note that none of these concerned the organised industries, their position, prospects and possibilities. To sum up.

Up to the end of the 19th century, the govt., as a whole, did not take any part in the industrial development of the country, and that if any progress was still made, it was in-spite of the indifference of the govt. Towards the close of the 19th century, a gradual change in the policy of the govt. became noticeable.

Its first sign was the creation of a Department of commerce and industry of the Govt. of India in 1905. Several Provincial govts. also began to evince interest in industrial development. In Madras, Mr. A. Chatterton successfully developed the Aluminium industry and introduced chrome-tanning of leather.

In the U.P., after the Nainital conference of 1907, a comprehensive scheme for technical education and encouragement of industries was adopted. Loans were given; an experimental sugar factory was set up and a pioneer oil mill was started but with little technical progress and considerable financial loss.


This forward policy of some of the provincial govts created alarm in European business circles who viewed them as a serious menace to private enterprise and an unwanted intervention in matters beyond the sphere of the govt.

It was, there­fore, halted by Lord Morley who, true to the Laissez Faire creed, refused to sanction the creation of a separate department of industries, erection of demonstra­tion Plants, direct financial assistance and other forms of direct aid.

The maximum he was willing to sanction was “the establishment of a bureau of industrial infor­mation, or dissemination from such a centre, of intelligence and advice regarding new industries, processes or appliances, provided nothing was done which could interfere with private enterprise.”

Morley’s Despatch had a “deadening effect.” The separate department of industries was abolished; the chrome Foundry was sold and the experimental handloom factories abandoned. Under these conditions, industrial development up to 1914 was extremely slow and slight.


Whatever development took place, was mostly confined to the cotton industry where Indian capital was trying to push its way forward and the jute industry where British capital used cheap Indian labour to earn fabulous profits. Engineering was only represented by repair wok- shops, chiefly for the railways ; the barest beginnings with Iron and steel were just being made and there was no production of machinery.

2. Policy in Relation to Industries during the First World War:

The outbreak of the First world war drew forcible attention to the extent of India’s dependence upon foreign countries for the supply of many of the neces­saries of life. Certain former imports were entirely cut off while others were reduced in volume.

On the other hand, the Govt. of India had to make huge purchases on war account. Industrialisation, therefore, was set out as the aim in the economic field just as responsible govt. was declared to be the aim in the political field.


It was under the stress of the war that the Indian Industrial Commission was appointed in 1916 to examine the whole question of industrial development, and to indicate new openings for the profitable employment of Indian capital in commerce and industry and the manner in which the govt. could usefully give direct encouragement to industrial enterprise.

Significantly, tariff policy and certain aspects of technical and industrial education were deliberately excluded from the terms of reference.

The Report of the Commission stressed the importance of active State assistance, particularly in the sphere of research, industrial and technical education, commercial and industrial intelligence, direct financial assistance and purchase of stores with the aim of making India more self-sufficient.

Meanwhile, the Munitions Board had been established to control and develop Indian resources, with special reference to the needs created by with the war, to limit and coordinate demands for articles not manufactured or produced in India and to apply the manufacturing resources of India to war purposes with the special object of reducing demands on shipping.

The Board was able, within limits, to foster the development of indigenous industries by:

(a) Direct purchase of articles and materials in India;


(b) Diverting orders from the U.K. and elsewhere to manufacturers in India;

(c) Assisting firms and individuals to import plant or engage experts or skilled labour from abroad;

(d) Disseminating information and expert advice to persons prepared to establish new industries in India.

During the 18 months, from 1 April, 1917 to the end of September, 1918, the Board spent Rs. 34 crores and was thus able to give some stimulus to various industries, notably, cotton, jute, Iron and steel, leather as also a number of others such as engineering industries, manufacture of chemicals, mineral oils, paper, glass, cement cutlery, paints and varnishes and surgical instruments.

3. Policy in Relation to Industries during the Inter-War Period:

The end of the war saw a noticeable change in the attitude of the govt. Henceforward, a better utilisation of India’s natural resources became the proclaimed aim of the govt’s industrial policy. A Fiscal commission was also appointed in 1921 which reported in favour of “Discriminatory Protection.”


R.P. Dutt gives three reasons for this change in policy:

(1) The first was the strategic reason. The failure to develop the most elemen­tary modern industry in India and the consequent dependence for vital needs on long distance overseas supplies, which were often disrupted, laid bare the weakness of the whole strategic position in the East. A limited industrial develop­ment of India through a system of tariff could correct this weakness.

(2) The second reason was economic. The foreign competitors had begun to break down the British monopoly in the Indian market. In particular, Japan emerged as a major rival in the field of the most important British export to India-namely cotton textiles. The danger, as Lord Harding explained, was that India might become “the dumping ground for the manufactures of foreign countries.”

A system of protection to Indian industry could serve two purposes. Firstly, in so far as the development of Indian industry replaced the foreign industrialist, the British could still hope to extract the ultimate profit for British capital than if the market were lost to an independent foreign capitalist power. Secondly, through a clever manipulation of the tariff system, Britain could always win back the Indian market.

(3) The third reason was political. Britain’s grip on the international balance of payment had loosened and U.S.A. had emerged as the leader of the capitalist world. Along with these changes, there gathered in India a movement for fun­damental political changes.

These circumstances, persuaded the British rulers to win the support and cooperation of Indian businessmen. For this purpose, it was necessary to make certain concessions.


What, however, comes as a surprise is that the Indian public opinion was so little ahead of British industrial policy. Discriminating Protection would have sufficed when major countries of the world were just beginning on the road to industrialisation; it was totally inadequate when several countries had already advanced far along that road.

The problem of development of the backward regions of India or the advancement of the less-privileged communities could be tackled only if measures of redistribution of incomes on more equitable lines and diffusion of opportunities of development among all sections of the population were carried out.

In short, the removal of the basic obstacles to industrial develop­ment in India in 1920’s required the adoption of a frame work of socialist planning. The government could certainly not encourage any such revolutionary development, nor could the Indian capitalists have risked stirring up the whole social order.

Therefore, Indian business-men and leaders contented themselves by demanding tariff protection which was profitable to them in the short run and which the government was willing to grant under pressure. The pattern thus initiated became set in the 1930’s.

Industrial development was limited almost exclusively by what was permitted in the framework of tariff protection, excluding all other kind of government help. This limited industrialisation only increased the disparity between the more backward regions and the relatively industrialised pockets, and between the commercially prosperous and the commercially backward com­munities.

The grant of protection to the Iron and steel industry in 1924 represented the high water mark of governments assistance’. This raised the hopes of the Indian capitalists very high. From 1924, the government began to retreat and the hopes raised earlier soon began to receive heavy blows.


The elaborate schemes of the Indian Industrial Commission for an Imperial Department of Industries governing a net work of provincial departments came to nothing.

The central organisation was never set up while the Provincial Departments were transferred to the provinces where “they were starved of funds.” Many industries such as cement which applied for protection were refused. More important was the treat­ment accorded to the Iron and steel Protective system when it came for renewal in 1927. The basic duties were lowered and subsidies were abolished.

Most important of all was the Ottawa Agreement reached in 1932 under which a general system of Imperial Preference was imposed on Indian Legislative Assembly. Thus, the tariff system of the early 1920’s, originally proclaimed as a means for assisting Indian Industry, was transformed into a system for assisting British industry. The antagonism was in the open, the benevolent attitude of 1916-18 was far behind.

During the Depression, more and more began to talk or write about economic Planning. The All India congress committee went to the length of setting up the National Planning Committee. But most of the discussion on planning assumed a basically capitalist order.

Sir Visvesvaraya bluntly said that “the Indian plan should avoid communistic tendencies —the development should be more on the lines followed in the U.S.A. and Turkey.”

Thus, for practical purposes, Indian economists and politicians remained imprisoned by some of the basic assumptions of the British Imperial system; a capitalist order of society, international col­laboration between capitalists of all countries, avoidance of drastic social changes and respect for the fundamental right of property. No major force emerged to challenge these assumptions.

4. Policy in Relation to Industries during the Second World War:

The outbreak of the Second World war found the government unchanged in its general attitude. However, the fall of France, the bombing of British ships and Japanese penetration into south pacific demonstrated the dangers to an empire with widely scattered lines of communication. India was chosen as one of the centres of supply.

In 1940, the government announced that industries started during the war would be adequately protected if organised on sound lines. A council of scientific and Industrial Research was also established. Nevertheless, any rapid growth of heavy industries, controlled and managed by Indians, was opposed.

5. Post-Independence Industrial Policy:

Long before independence, the big Indian capitalists had favoured some kind of state capitalism. It was realised that any major effort towards industrialisation by means of private investment alone was not possible and that some degree of government intervention was necessary.

To them, state capitalism was the only answer to speed up development and shake off foreign capital’s hold on the economy; No wonder that the big financial groups such as those of the Tatas and Birals had worked in collaboration with the National Planning com­mittee.

The same financial groups confirmed their attitude by helping to work out the Bombay plan. Now that India was free, they turned towards the idea of state capitalism in order to bring about the much needed economic expansion.

This was done in the Industrial Policy Resolution of 1948 which divided the industries into four categories:

(a) Industries which were to be the exclusive monopoly of the government such as Arms and Ammunition, Railways and Atomic Energy ;

(b) Industries where the state was to undertake the establishment of new units such as Iron and steel, Aircraft, ship- building and Petroleum etc.

(c) Industries such as machine tools, chemicals, fertilisers which were to be regulated by the government in the national interest.

(d) Industries where private enterprises was to undertake expansion. Most consumer industries were included in this category.

On the eve of the Second Five Year Plan, with its emphasis on “basic and heavy industries”, it was found necessary to revise the industrial policy Resolution. The adoption of a “Socialistic Pattern of Society” also meant a bigger role for the state.

The revised policy statement of 1956 divided the industries into three:

(a) Schedule A listed 17 industries where the state decided to undertake the establishment of new units although it could secure the cooperation of private enterprise wherever necessary in national interest. Industries included in this category were Railways, Arms and Ammunition, Atomic Energy, Air Craft, Ship-building, Coal, Petroleum, Iron and Steel.

(b) Schedule B included 12 industries which were to be progressively state- owned but private sector was also expected to supplement the efforts of the government, important in this group were Aluminium, Machine tools, Ferro Alloys, Chemicals and Sea transport.

(c) All the remaining industries were earmarked for the private sector. This policy was implemented through the instrument of the Industrial Develop­ment and Regulation Act (1952). Under this Act, all the industrial enterprises in the country could operate only with the permission of the government.

Permission was likewise needed to build new industrial es­tablishment. In the event of a fall in production, or deterioration in the quality of the product or an unwarranted rise in prices, the government could order an enquiry, insist on the production of goods of a definite quality, regulate prices and even prohibit the manufacture of certain goods.

If any enterprise failed to comply with these orders or if its poor manage­ment adversely affected public interest, the government could take over its management or place it under the management of an other organisation for a period of five years. The Act also provided for the establishment, in each industry, of a development council consisting of representatives of the government and private business.

The Primary object of new industrial policy was, as Gadgil explains, to guarantee the sphere of private enterprise and thus to provide the much needed security without which it can not develop.

—The slogan of a socialist Pattern of society was meant only to satisfy the public “Clamour over economic ideology”, otherwise, as Gunnar Myrdal observers, there was no ideological commitment to the expansion of the public sector.

Therefore, the new industrial policy, far from limiting the role of private enterprise, assured it “a large and increasing Field.” Only those industries were reserved for the public sector in which private enterprise was incapable or unwilling to unite the necessary resources or to risk itself.

None expected a Tata or a Birla to undertake the development of atomic energy. Nor did it make sense to allow private management of arms and ammunition or private ownership and management of railways when the basis of State monopoly had already been laid by British Government.

The new industrial policy accepted the principle of ‘Mixed Economy’ as the basis of economic development in India. Mixed economy, however, is not to be confused with the multiple economic structure of the initial transitional period in the building of socialism, such as the New Economic Policy in Russia, when the dying capitalist form and the developing socialist form of production co-exist and struggle with each.

What emerged in India was only a mixture of the two types of capitalism, private capitalist enterprise and the state capitalism. The master of both was the big capitalist.

In the former case, he was the owner of the means of production; in the latter, he possessed power to control and shape it. Therefore, the public and the private sectors in India were not isolated forms of economic activity which coexisted side by side.

Rather, the state sector in India was an integral part of the capitalist system and, in the words of G.D. Birla, it directly acted “as a generator of private enterprise” by expanding the market for their products, by supplying their requirements of machines and tools and by providing the missing links such as electricity, railways and other overheads.

Another noteworthy point is that the representation of big business on the central Advisory Council and Development councils gave them important and often a decisive share in preparing government decisions and in carrying out economic measures relating to industries. B.M. Birla, K. Mahindra, Singhania and Tata were, at one or the other time, at the head of the National Industrial Development Corporation.

It is not surprising, therefore, that the industrial policy, the intention of the government notwithstanding, was so distorted at the im­plementation stage as to benefit mainly the big industrialist.

It is pertinent to note in this connection that the share of the four top houses, Tata, Birla, J.K. and Shri Ram, in the total approved investments in 1965-66 was 25.6% . Thus the industrial policy, as practiced during the first three plans, benefitted the Indian capitalist class, its richer members in particular.