2nd Five Year Plan
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Chapter 2:

Objectives and techniques significant as the achievements of the first plan have been, it is apparent that they have to be regarded as no more than a beginning. The task is not merely one of reaching any fixed or static point, such as doubling of living standards, but of generating a dynamism in the economy which will lift it to continually higher levels of material well-being and of intellectual and cultural achievements. The current levels of living in India are very low. Production is insufficient even for satisfying the minimum essential needs of the population, and a large leeway has to be made before the services arid amenities required for healthy living can be brought within the reach of any significant proportion of the population. There are large areas or regions of the country which are underdeveloped even in relation to the rest of the country and there are classes of the population which are almost untouched by modem progressive ideas and techniques. It is necessary to proceed faster with development, and this, it must be emphasised, is possible only to the extent that a larger measure of effort, both financial and organisational is forthcoming. For several plan periods to come, it is on the mobilisation of the effort rather than on the gains and returns arising therefrom that attention has to be concentrated. These gains and returns are important, but more important is perhaps the satisfaction that a community gets from attempting a worthwhile task which gives it a chance to bend its energies to productive and socially useful purposes. The 'costs' of development, viewed in this light, are a reward in themselves. There is no doubt that given a right approach to problems of development, including social policy and institutional change, a community can draw upon the latent energies within itself to an extent which ensures development at rates much larger than nice calculations of costs and returns or inputs and outputs may sometimes suggest.

The Socialist Pattern of Society

2. A rising standard of life, or material welfare as it is sometimes called, is of course not an end in itself. Essentially, it is a means to a better intellectual and cultural life. A society which has to devote the bulk of its working force or its working hours to the production of the bare where-withals of life is to that extent limited in its pursuit of higher ends. Economic development is intended to expand the community's productive power and to provide the environment in which there is scope for the expression and application of diverse faculties and urges. It follows that the pattern of development and the lines along which economic activity is to be directed must from the start be related to the basic objectives which society has in view. The task before an underdeveloped country is not merely to get better results within the existing framework of economic and social institutions but to mould and refashion these so that they contribute effectively to the realisation of wider and deeper social values.

3. These values or basic objectives have recently leen summed up in the phrase 'socialist pattern of society'. Essentially, this means that the basic criterion for determining the lines of advance must not be private^profit but social gain, and that the pattern of development and the structure of socio-economic relations should be so planned that they result not only in appreciable increases in national income and employment but also in greater equality in incomes and wealth. Major decisions regarding production, distribution, consumption and investment—and in fact all significant socio-economic relationships—must be made by agencies informed by social purpose. The benefits of economic development must accrue more and more to the relatively less privileged classes of society, and there should be a progressive reduction of the concentration of incomes, wealth and economic power. The problem is to create a milieu in which the small man who has so far had little opportunity of perceiving and participating in the immense possibilities of growth through organised effort is enabled to put in his best in the interests of a higher standard of life for himself and increased prosperity for the country. In the process, the rises in economic and social status. Vertical mobility of labour is thus no less important than horizontal mobility, for nothing is more destructive of hope and more inhibitive of effort than a feeling that the accident of birth or of a poor start in life is likely to come in the way of a capable person rising in life in terms of economic and social status. For creating the appropriate conditions, the State has to take on heavy responsibilities as the principal agency speaking for and acting on behalf of the community as a whole. The public sector has to expand rapidly. It has not only to initiate developments which the private sector is either unwilling or unable to undertake; it has to play the dominant role in shaping the entire pattern of investments in the economy, whether it makes the investments directly or whether these are made by the private sector. The private sector has to play its part within the framework of the comprehensive plan accepted by the community. The resources available for investment are thrown up in the last analysis by social processes. Private enterprise, free pricing, private management are all devices to further what are truly social ends; they can only be justified in terms of social results.

4. The use of modem technology requires large scale production and a unified control and allocation of resources in certain major lines of activity. These include exploitation, of minerals and basic and capital goods industries which are major determinants of the rate of growth of the economy. The responsibility for new developments in these fields must be undertaken in the main by the State, and the existing units have also to fall in line with the emerging pattern. Public ownership, partial or complete, and public control or participation in management are specially required in those fields in which technological considerations tend towards a concentration of economic power and of wealth. In several fields, private enterprise can, under present day conditions, make little headway without assistance and support from Government, and in these cases the public or semi-public character of the resources drawn upon has to be recognised. In the rest of the economy conditions have to be created in which there is full scope for private initiative and enterprise either on an individual or on a cooperative basis. In a growing economy which gets increasingly diversified there is scope for both the public and the private sectors to expand simultaneously, but it is inevitable, if development is to proceed at the pace envisaged and to contribute effectively to the attainment of the larger social ends in view, that the public sector must grow not only absolutely but also relatively to the private sector.

5. The socialist pattern of society is not to be regarded as some fixed or rigid pattern. It is not rooted in any doctrine or dogma. Each country has to develop according to it own genius and traditions. Economic and social policy has to be shaped from time to time in the light of historical circumstances. It is neither necessary nor desirable that the economy should become a monolithic type or organisation offering little play for experimentation either as to forms or as to modes of functioning. Nor should expansion of the public sector mean centralisation of decision-making and of exercise of authority. In fact, the aim should be to secure an appropriate devolution of functions and to ensure to public enterprises the fullest freedom to operate within a framework of broad directives or rules of the game. The organisation and management of public enterprises is a field in which considerable experimentation will be necessary, and this holds, in fact, for the entire socialist pattern. What is important is a clear sense of direction, a consistent regard for certain basic values and a readiness to adapt institutions and organisations and their rules of conduct in the light of experience. The accent of the socialist pattern is on the attainment of positive goals; the raising of living standards, the enlargement of opportunities for all, the promotion of enterprise among the disadvantaged classes and the creation of a sense of partnership among all sections of the community. These positive goals provide the criteria for basic decisions. The directive principles of State policy in the Constitution had indicated the approach in broad terms; the socialist pattern of society is a more concretised expression of this approach. Economic policy and institutional changes have to be planned in a manner that would secure economic advance along democratic and egalitarian lines. Democracy, it has been said, is a way of life rather than a particular set of institutional arrangements. The same could well be said of the socialist pattern. -A


6. WithinAis broad approach the second five year PUCn has been formulated wih reference to the following principal objectives:—

  1. a sizeable increase in national income so as to raise the level of living in the country;
  2. rapid industrialisation with particular emphasis on the development of basic and heavy industries;
  3. a large expansion of employment opportunities; and
  4. reduction of inequalities in income and wealth and a more even distribution of economic power.

These objectives are interrelated. A significant increase in national income and a marked improvement in living standards cannot be secured without a substantial increase in production and investment To this end, the building up of economic and social overheads, exploration and development of minerals and the promotion of basic industries like steel, machine building, coal and heavy chemicals are vital. For securing an advance simultaneously in all these directions, the available manpower and natural resources have to be used to the best advantage. In a country in which there is relative abundance of manpower, expansion of employment opportunities becomes an important objective in itself. Further, the process and pattern of development should reflect certain basic social values and purposes. Development should result in a diminution of economic and social inequalities and should be achieved through democratic means and processes. Economic objectives cannot be divorced from social objectives and means and objectives go together. It is only in the context of a plan which satisfies the legitimate urges of the people that a democratic society can put forward its best effort.

7. These objectives have to be pursued in a balanced way, for excessive emphasis on any one of them may damage the economy and delay the realisation of the very objective which is being stressed. Low or static standards of living, underemployment and unemployment, and to a certain extent even the gap between the average incomes and the highest incomes are all manifestations of the basic underdevelopment which characterises an economy depending mainly on agriculture. Rapid industrialisation and diversification of the economy is thus the core of development. But if industrialisation is to be rapid enough, the country must aim at developing basic industries and industries which make machines to make the machines needed for further development. This calls for substantial expansion in iron and steel, non-ferrous metals, coal, cement, heavy chemicals and other industries of basic importance. The limitation is, of course, the scarcity of resources and the many urgent claims on them. Nevertheless, the criterion is not merely immediate needs but the continuing and expanding needs in the coming ye'ars as development goes forward. India's known natural resources are relatively large, and in many of these fields, as in steel for instance, she is likely to have a comparative cost advantage. It is desirable to aim at proceeding farthest in the direction of developing heavy and capital goods industries which conform to this criterion.

8. Investment in basic industries creates demands for consumer goods, but it does not enlarge the supply of consumer goods in the short run; nor does it directly absorb any large quantities of labour. A balanced pattern of industrialisation, therefore, requires a well-organised effort to utilise labour for increasing the supplies of much needed consumer goods in a manner which economises the use of capital. A society in which labour is plentiful in relation to capital has to develop the art and technique of using labour-intensive modes of production effectively—and to much social advantage—in diverse fields. Indeed, in the context of prevailing unemployment, the absorption of labour becomes an important objective in itself. In using labour-intensive methods, it may well be that the cost of the product is somewhat higher. This entails a sacrifice which can be reduced through technical and organisational improvements. In any case, a measure of sacrifice in the matter of consumption is inevitable while the economy is being strengthened at base. The sacrifice diminishes as more power, more transport, and better tools, machinery and equipment become available for increasing the productivity of consumer goods industries, and in the long run the community gets increasingly large returns. Meanwhile, the stress on utilisation of unutilised or underutilised labour-power alleviates the immediate problem of unemployment Another point that may need stressing in this connection is that the use of labour-intensive methods often implies that a smaller proportion of the incomes generated is available for saving and reinvestment Steps must be taken to ensure that this does not happen on any significant scale. It has to be remembered that employment at rising levels of income can be created only to the extent that the saving potential of the economy is raised.


9. The question of increasing employment opportunities cannot be viewed separately from the programmes of investment envisaged in the plan. Employment is implicit in and follows investment, and it is, of course, a major consideration in determining the pattern of investment. The fact that the plan involves substantial stepping up of investment and development expenditures means that it will raise incomes and increase the demand for labour all round. An employment-orientated plan, however, implies much more than determining the optimum scale of investment. The creation of employment opportunities and reduction in under-employment cannot be approached merely in overall terms. The problem needs to be broken up in terms of sectors, regions and classes. Diversification of the industrial pattern, a suitable policy on location of industries, special measures to assist small scale and cottage industries, maintenance of economic activity continuously at high levels, provision of adequate training facilities, measures to promote geographical and occupational mobility of labour, all these must be considered as elements in the programme of creating new employment on the requisite scale. In this context continuous technical studies regarding the employment component of various types of investment and of the relationship between the direct employment resulting from an act of investment and the further increases this leads to over a period will be necessary.

10. Studies made in the Commission indicate that the second five year plan will provide employment opportunities for the new entrants to the labour force and relieve under-employment in agriculture and in village and small-scale industries. As a result of the plan, the working force in mining and factory establishments, in construction, in trade and transport and in services will increase relatively faster than in agriculture and allied pursuits. This in itself is a good beginning. Over a period, a larger shift in the occupational pattern away from the primary sector and into the secondary and tertiary sectors will be necessary and is to be expected. There are in the plan substantial programmes of irrigation, soil conservation, improvement of animal husbandry and agricultural improvement in general. These, together with the programmes relating to the village and small-scale industries, will diminish under-employment in the rural areas. It is likely, however, that the plan will not have a sufficient impact on the carryover of unemployment of the earlier period. Basically, it has to be remembered, unemployment in an under-developed economy is only another aspect of the problem of development The same factors which limit the scale of effort a community can make by way of increasing the rate of development limit also the advance in the direction of employment The plan contemplates a large expansion in construction activity both in the public and private sectors, and it should be possible to vary the volume of such activity within limits in res' ponse to the changing requirements of the employment situtation. Since employment in construction is by its nature temporary, care has to be taken to ensure that new construction programmes are taken in hand as those in progress near completion and that arrangements are made for proper deployment of labour from one project to another.

11. From the economic as well as from the larger social view point, expansion of employment opportunities is an objective which claims high priority, but, it is important to stress the fact that over period, the volume of employment grows only as the supply of tools and equipment on the one hand and of the wage goods on which the incomes of the newly employed come to be spent is expanded. If the essence of development is the undertaking of new tasks to build up the apparatus of production, the extent to which the available manpower in the country can be used safely for these tasks depends upon the degree to which the supply of wage goods like food, cloth, sugar, and house-room can be augmented quickly. Improvements in productivity in these lines are thus of vital importance from the point of view of employment itself. It is only a truism that the problem of unemployment of an endemic kind is not acutest in the countries in which productivity is high because of the use of machinery and new techniques but in those in which low productivity limits the overall size of incomes, inhibits the use of labour on works which do not add immediately to the supply of currently needed consumer goods and keeps down the size of the market While it is imperative that in a country with an abundant supply of manpower, labour-intensive modes of production should receive preference all along the line, it is nonetheless true that labour-saving devices in particular lines are often a necessary condition for increasing employment opportunities in the system as a whole. The objective, it need hardly be stated, is increasing employment at rising levels of incomes.

Industrial Policy

12 The second five year plan accords high priority to industrialisation, and especially to the development of basic and heavy industries. A large expansion of public enterprise in-the sphere of industrial and mineral development is envisaged. It is, in fact, intended to strengthen further the programmes of development in respect of heavy industries, oil exploration and coal and to make a beginning with the development of atomic energy. The main responsibility for these programmes rests upon the Central Government. The carrying through of these new programmes will entail, besides the financial investment required, a great deal of strengthening of the organisational and administrative personnel available to Government It will also necessitate the adoption of expeditious procedures in the matter of taking decisions and executing them. It cannot be emphasized too strongly that unless steps are taken to augment rapidly the output of the means of production and to build up the fuel and energy resources which are so vital to development, the scale and pace of advance in the coming years will be inhibited. The dynamism of the second plan lies to a considerable extent in these new programmes, on the fulfilment of which effort has to be concentrated. The results which the second plan promises are impressive, but correspondingly large is the effort that it calls forth by way of mobilisation and application of real and financial resources.

13. These developments in the public sector have to be viewed together with, those envisaged in the private sector. The increase in the output of goods and services to be secured over the plan period is the result of developments in both these sectors. The two sectors have to function in unison and are to be viewed as parts of a single mechanism. The plan as a whole can go through only on the basis of simultaneous and balanced development in the two sectors. The plan incorporates the investment decisions taken by the public authorities, and the corresponding outputs or benefits can easily be estimated. As to the private sector, Government policy can influence private decisions through fiscal measures, through licensing and, to the extent necessary, through direct physical allocations so as to promote and to facilitate the realisation of the targets proposed. A large part of the private sector consists of millions of small producers scattered all over the country. Investment estimates and targets in these fields can only be in the nature of broad indications. Even in the field of organised industry and business for which more data are available and which are more amenable to incentives or curbs offered or introduced by Government, there cannot obviously be the same degree of closeness or integration between resources and performance as in the case of activities directly undertaken by Government. Various investments in the public sector, such as for irrigation, power and transport, for instance, increase the production potential of the private sector and the producers or enterprises concerned can be expected to take advantage of these facilities. Given an appropriate structure of relative prices, which Government can and has to control and influence, the desired allocation of resources in the private sector can be induced. In fact, it is appropriate to think more and more in terms of an interpenetration of the public and private sectors rather than of two separate sectors.

14. These are general considerations beating on the formulation of industrial policy in the context of planning. The Government of India's industrial policy since Independence has been shaped broadly in terms of the Industrial Policy Resolution of 1948. That Resolution emphasised clearly the responsibility of Government in the matter of promo ting, assisting and regulating the development of industry in the national interest It envisaged for the public sector an increasingly active role. While it reiterated the inherent right of the State to acquire any industrial undertaking whenever the public interest requires it, it laid down, in view of the circumstances then existing, a certain demarcation of fields for the public and private sectors. Important developments have taken place since the Resolution was adopted in 1948. There is now a clear appreciation of the .goals and direction of development. Planning has proceeded on an organised basis, and it is essential to strengthen and accelerate this effort in the coming years. The 1948 Resolution has been reviewed in the light of these considerations and the experience gained so far, and the new Industrial Policy Resolution was placed before Parliament by the Prime Minister on the 30th April, 1956.

15. The full text of this Resolution is given in the annexure at the end of this chapter. As the Resolution puts it, "The adoption of the socialist pattern of society as the national objective, as well as the need for planned and rapid development, require that all industries of basic and strategic importance, or in the nature of public utility services, should be in the public sector. Other industries which are essential and require investment on a scale which only the State, in present circumstances, could provide, have also to be in the public sector. The state has, therefore, to assume direct responsibility for the future development of industries over a wider area". The Resolution classifies industries into three categories, having regard to the part which the state would play in each of them. The first category shown in Schedule A, consists of industries the future development of which will be the exclusive responsibility of the State. In the second category, shown in Schedule B, are industries which will be progressively state-owned and in which, therefore, the State will generally take the initiative in establishing new undertakings, but in which private enterprise will also be expected to supplement the effort of the State. The third category comprises all the remaining industries, the further development of which will, in general, be left to the initiative and enterprise of the private sector. These categories are not intended to be rigid or watertight In the industries listed in Schedule A, for instance, the expansion of existing privately owned units is not precluded, and the State is free to secure the cooperation of private enterprise in the establishment of new units when the national interest so requires, subject to the proviso that while securing such cooperation, it will ensure, through majority participation in the capital of the undertaking or otherwise, that it has the requisite powers to guide the policy and control the operations of the undertaking. Schedule B relates to what may be called the mixed sector, a sector in which the State will enter progressively and enlarge its operations, but private enterprise will, at the same time, have the opportunity to develop, either on its own or with state participation. In the rest of the field, development will ordinarily be undertaken through the initiative and enterprise of the private sector, but it will be open to the State to start any industry even in this field. The prime consideration determining State policy over the whole industrial field is promotion of rapid development in keeping with the overall objectives defined. The public sector has to grow—and rapidly—and the private sector has to conform to the requirements of the Plan. There has necessarily to be "a great deal of dovetailing" between the two sectors, and it is recognised that the private sector has to be given the opportunity and facilities to function effectively within the field allotted to it. It is within the framework of this new Industrial Policy Resolution that rapid industrialisation has to be carried through in the coming years.

16. The Industrial Policy Resolution of 1948 also indicated Government's approach to the problem of cottage and small-scale industries. The new Resolution reiterates this approach. These industries offer some distinct advantages in relation to some of the problems that need urgent solutions. They provide immediate large-scale employment; they offer a method of ensuring a more equitable distribution of the national income; and, they facilitate an effective mobilisation of resources of capital and skill which might otherwise remain unutilised. The need to promote, modernise and reorganise these industries is paramount The problem is one of devising effective policies as well as of making suitable organisational arrangements. Unregulated or haphazard applicadon of modem techniques in all spheres of production is apt to create or aggravate technological unemployment There is need for regulation here. This is not to suggest that a freezing of existing techniques is at all indicated by considerations of economic or social policy. It only means that conditions have to be created in which modern techniques can be adopted and introduced more and more in these lines of production and that the transition should be orderly. In addition, it is important to stress the fact that development along new lines has to be the keynote of policy in this field. As national income increases, demands get diversified, and as power, transport and communication facilities are developed, the scope for small enterprises of various kinds, which either cater for new consumer demands, or function in a way complementary to large-scale industry, increases steadily. From the point of view of enlarging employment opportunities as well as of increasing production these new lines of development have to be fostered energetically.

17. The workers in cottage and small-scale industries suffer from a variety of handicaps. Some of these handicaps such as lack of access to raw materials of the right quality and at the right price and the unsatisfactory state of equipment follow directly from lack of finance. There are other difficulties such as inadequate marketing arrangements and the lack of contact with new techniques of production and with the changing requirements of the market which also limit the capacity of the workers in these industries to utilise their labour power and their skill to the fullest advantage. Sustained effort to overcome these handicaps and difficulties will be necessary. In general, the expansion of rural electrification and the availability of power at prices which the workers can afford will give a substantial fillip to these industries, but further assistance in various ways will also be required. It will be necessary, for instance, to organise in rural areas community workshops where workers in different types of industries can come together and carry on their production activities in a suitable environment. There is similarly need for encouraging small and medium-scale enterprise through a number of industrial estates with facilities for transport, power and the like provided by public authorities. In spheres in which it is possible to increase employment and output through cottage, village and small scale industries and where these industries are capable of using improved techniques progressively, it is necessary to think in terms of integral programmes of production covering factories as well as small units of production. The second five year plan has laid special stress on increasing the supply of consumer goods by using existing skills and equipment and steadily introducing technical improvements in the village and small-scale industries sector. This sector has to be organised more and more on cooperative lines so as to enable the small producer to secure the advantages of buying raw materials and selling his products on a large scale, of getting access to institutional credit and of utilising improved methods and techniques. An integral programme of production may in. some cases work on the basis of differential taxation; in others, buying over of the product at stated prices and a state-sponsored or cooperative marketing arrangement may be needed.

18. The problem is not to be viewed as one of merely safeguarding the interests of workers in existing cottage or handicraft units or of maintaining the demand for existing types of cottage industry products. It is also—and increasingly—one of finding new types of products and trying out new modes or techniques of production which cater more effectively to the new demand created by rising incomes. It is the promo tional rather than the protective aspect of policy which has to become more and more important in the adaptation and reorganisation proposed in this sector. If cottage and small industries have not fared well so far, one reason is the stagnancy of the economy and the consequent lack of demand. The increase in investment activity which developmental planning involves will increase existing demands and create new ones. In a country like India with vast distances and a large potential market, the demands can and ought to be met through production in efficient, decentralised units. There are other reasons also which weigh in favour of a wide diffusion of industry. Up to a point the growth .of large towns and cities is a necessary accompaniment of industrialisation. The availability of power, transport, banking and other facilities in concentrated areas provides certain economies which make for an aggregation of industry in big towns and cities. Beyond a point, however, there are social costs like emergence of slums and increased incidence of ill-health. With the development of transport and communications and extension of power to smaller towns and rural areas, the economic advantage in favour of highly concentrated areas abo narrows. From this point of view as also for raising incomes in rural and semi-urban areas, the development of small industries deserves special attention. Only thus is it possible to draw upon the large reservoir of skills and talents available over the vast areas of the country.

Reduction In Inequalities

19. Economic development has in the past often been associated with growing inequalities of income and wealth. The gains of development accrue in the early stages to a small class of businessmen and manufacturers, whereas the immediate impact of the application of new techniques in agriculture and in traditional industry has often meant growing unemployment or under-employment among large numbers of people. In course of time this trend gets corrected partly through the development of countervailing power of trade unions and partly through state action undertaken in response to the growth of democratic ideas. The problem before under-developed countries embarking upon development at this late stage is so to plan the alignment of productive resources and of class relationships as to combine development with reduction in economic and social inequality;'the process and pattern of development has, in essence, to be socialised. There are existing inequalities of income and wealth which need to be corrected and care has to be taken to secure that development does not create further inequalities and widen the existing disparities. The process of reducing inequalities is a two-fold one. It must raise incomes at the lowest levels and it must simultaneously reduce incomes at the top. The former is, basically, the more important aspect, but early and purposeful action in regard to the second aspect is also called for. Development along these lines has not so far been attempted on any significant scale under democratic conditions. There are no historical parallels or plans of action which could be regarded as providing an answer to this special problem facing under-developed countries. The problem will have to be faced pragmatically, and it will call forth a great deal of flexibility and experimentation in the matter of techniques. It is important to ensure that in reducing inequalities no damage occurs to the productive system as would jeopardise the task of development itself, or imperil the very processes of democratic change which it is the objective of policy to strengthen. On the other hand, regard for democratic and orderly change cannot be allowed to become a sanction for existing or new inequities.

20. It must be stressed that reduction in inequalities in income and wealth can follow only from the totality of measures and institutional changes undertaken as part of the plan. The pattern of investment proposed in the plan, the direction to economic activity given by State action, the impact of fiscal devices used for mobilising the resources needed for the plan, the expansion of social services, and the institutional changes in the sphere of land ownership and management, the functioning of joint stock companies and the managing agency system and the growth of the cooperative sector under State sponsorship all these determine the points at which new incomes will be generated and the manner of their distribution. It is the essence of a planned approach that all these measures should be harmonised and brought to a focus in a manner that would ensure an enlargement of incomes and opportunities at the lower end and a reduction of wealth and privilege at the upper end.

21. Fiscal measures have an important part to play in reducing inequalities of income and wealth. It has to be recognised, however, that some of the measures which might reduce inequalities are apt to react adversely on incentives. The Indian income tax is highly progressive, and apparently, the scope for enlarging public revenues or reducing inequalities through a stepping up of these rates is not large. The Taxation Enquiry Commission stressed in this context the need for measures to check evasion. It also mentioned "a widening of the taxation of wealth and property" as "a possible means of reducing inequalities". The adaptation of the tax system to the requirements of development in the context of the objectives defined is necessarily a problem for continuous study, and official as well as non-official research organisations will have to apply themselves to an examination and elucidation of the implications of various possible changes that can be made in the tax structure.

22. It is possible that rather far-reaching changes in the tax system will be required, if the more well-to-do classes of society are to be called upon to make a larger contribution to the resources for development without losing in the process the incentive to work harder or to save more. It has recenlty been suggested that the substitution of expenditure for income as the basis for personal taxation, coupled with measures to tax wealth and capital gains, can bring about this result. The idea of an expenditure tax has been discussed by economists on several occasions in the past. There is a growing body of expert opinion in favour of an expenditure tax. There are, however, administrative problems which have to be resolved before a change of this character can be made. It may be that an experimental approach on a limited scale may have to be adopted initially. Experience in more advanced countries seems to. indicate that progressive income taxes on the scales that are now prevalent are in reality not so effective, firstly because the incomes by way of capital gains escape such taxation, and secondly because there is a great deal of evasion in various ways. A tax based on expenditure may encourage saving, and, in theory at any rate, it is a more effective instrument than an income tax for. moderating inflationary or deflationary tendencies.

23. The most important single factor responsible for inequalities of income and wealth is the ownership of property. Incomes from work are by no means equal, but in part at any rate, they have some justification in terms of productivity or relative scarcity. Some types of work are, however, remunerated more liberally than others for reasons which are not directly connected with productivity. Differential monetary rewards are often a matter of tradition an existing psychological or social rigidities. It has also to be borne in mind that capacity to work effectively at higher levels depends on a person's education and training, and these are a matter of the accident of birth or circumstances. A large expansion of general and technical education for all classes of people irrespective of their paying capacity is over a period a potent equaliser. The point is that while inequalities in incomes from work have to be corrected, the case for taxation based specifically on wealth or property needs to be carefully examined. The ownership of property signifies taxable capacity additional to that arising from the income accruing from the property in question. The fact that income from wealth is taxed when it accrues, does not rebut the case for a separate, moderate, tax on wealth. There are problems of valuation here, and there are large possibilities of avoidance or evasion through non-reporting transfers and the like. But, given the objective of reducing inequalities of income and wealth and of raising the resources needed for development from classes which have incomes or wealth far above the average, these administrative problems have to be faced.

24. Mention may be made finally of the fact that the yield from estate duty has so far been negligible. Evidently, the estate duty will have to be supplemented by gift taxes, if the object in view is not to be fruttrated. There are various alternative systems possible here and there are ways of differentiating a tax in terms of the size of the gift, the degree of relationship of the beneficiary to the giver and the amount of property which the beneficiary already has. Gift taxes can yield considerable revenues without impairing incentives and they are an important part of the machinery of taxation based on wealth and on expenditure.

25. The foregoing observations are not meant to indicate that any or all of the measures mentioned can be adopted immediately. But, they do suggest that further work on the incidence of these taxes, their effect on incentives and their administrative implications should be undertaken. In the nature of things some of these measures are-apt to yield their full benefits only over a period of time, but there should be no hesitation in initiating changes in the desired direction if on an examination of the case the changes suggested promise to assist in the realisation of the objective in view.

26. A reduction in inequalities has to proceed from both ends. On the one hand, measures have to be taken to reduce excessive concentration of wealth and incomes at higher levels, and, on the other, incomes in general, and particularly at the lowest levels, have to be raised. The proposal for a ceiling on incomes that has often been put forward has to be judged in this light and it is important in this connection to stress the substance rather than the form of the proposal. Obviously, a ceiling cannot be imposed merely by legislation. There are, besides wage and salary incomes, incomes from property and from entrep-reaeurship the regulation of which raises quite complex issues. A ceiling on incomes has little significance unless it also involves a ceiling on property. Incomes from property or from business are difficult to regulate, except in so far as they come under the normal system of personal taxation. Any attempt to apply a ceiling—which means a 100 per cent. tax on incomes in all forms above a certain level—effective as from a specific date or to apply it in any rigid or mechanical way is likely to create difficulties. It is reasonable that those in receipt of large incomes should make a larger contribution to the public exchequer. This principle is well recognised and in recent years the marginal rates of taxation on incomes in the higher brackets have been stepped up. While in -equalities have to be corrected through fiscal and other devices, the emphasis should be no less on postitive measures which promote a more even distribution of incomes.

27. It is, in other words, through progressive adaptation of the tax system along lines mentioned earlier and through institutional changes which place an increasing proportion of the community's surpluses directly in the hands of public authorities that an effective reduction in the incomes and spending power accruing to the few can be brought about. Promotion of cooperative forms of production, elimination of functionless rent-receivers, substitution of private usurious credit by institutional credit, control of private monopoly and enlargement of the public sector in strategic lines of production and trade are of far-reaching significance in this context. A ceiling on incomes is, in other words, the end-product of a process; it cannot be a beginning. The quicker the advance towards the socialist pattern which, as stated above, is the totality of economic and social institutions, the more rapidly will economic disparities disappear. In any realistic analysis, the approach to this problem has to be through a change in the conditions that create and perpetuate inequalities. It need hardly be stated that in this approach a floor to incomes, or in other words, a guarantee of a certain minimum national standard of the essentials of civilised life is no less important than a ceiling at top levels.

28. This brings us to the question of regional disparities. In any comprehensive plan of development, it is axiomatic that the special needs of the less developed areas should receive due attention. The pattern of investment must be so devised as to lead to balanced regional development The problem is particularly difficult in the early stages when the total resources available are very inadequate in relation to needs. But, more and more, as development proceeds and large resources become available for investment, the stress of developmental programmes should be on extending the benefit of investments to underdeveloped regions. Only thus can a diversified economy be built up. These considerations have been kept in mind while formulating the second five year plan, but they are certain to claim even greater attention in the plans to come.

29. The question was discussed recently by the National Development Council and it has been agreed in principle that within the resources available, every effort must be made to provide for balanced development in different parts of the country. The problem has to be approached in a variety of ways. In the first place, the National Development Council has recommended programmes for setting up decentralised industrial production. Secondly, it has been suggested that in the location of new enterprises, whether public or private, consideration should be given to the need for developing a balanced economy for different parts of the country. Some industries have to be located in particular areas in view of the availability of the necessary raw materials or other natural resources. But, there are other industries in regard to the location of which, on economic considerations, there is a field of choice. Often, the disadvantages of comparative cost are only a reflection of the lack of basic development. Once this is taken in hand, the initial handicaps progressively disappear. A wide diffusion of development nucleii is essential from this point of view. Thirdly, steps have to be taken to promote greater mobility of labour between different parts of the country, and to organise schemes of migration and settlement from more to less densely populated areas. The National Development Council recommended that there should be continuous study of the problem of diminishing regional disparities and a suitable set of indicators of regional development evolved. These approaches, which have been stressed also in the new Industrial Policy Resolution, have to be kept in view while programming development in the public sector as also in the administration of licensing policy for new industrial units in the private sector.

Economic Policy And Techniques

30. The basic approach and the principal objectives outlined above will govern the direction and content of economic policy in the plan period. The function of economic policy in the context of the plan is not merely to mobilise the financial resources needed, but also to promote in all ways it can a pattern of consumption and of utilisation of real resources which conforms to the requirements of the plan. In crucial fields, the desired allocation of resources follows directly from action initiated by the State; investment by public authorities is thus a major instrument of policy. The criteria of public investment are broader than those which govern private investment. The public sector can and has to take a longer and more comprehensive view of the requirements of the economy. The public authorities have to carry out and assist a programme of complementary in vestments such that they make in the aggregate a larger contribution to the national product than isolated investments determined by considerations of costs and returns within a limited perspective would make possible. Simultaneously, over a large field of economic activity the rule of economic policy in a mixed economy is to influence the course of private investment through appropriate changes in relative prices and profitability. The techniques through which this is done are, therefore, of vital importance from the point of view of the fulfilment of the plan.

31. A plan is not merely a statement or list of things to be done; it involves an agreement as to how these things are to be done. A democratic system of planning eschews direct commandeering of resources and it operates mainly through the price mechanism. There are, broadly speaking, two types of techniques through which the objectives in view have to be attained. Firstly, there is the overall regulation of economic activity through fiscal and monetary policy, and, secondly, there are devices like export and import controls, licensing of industries or trades, price controls and allocations which influence and regulate economic activity in particular sectors or sub-sectors of the economy. There has been of late a good deal of discussion as to whether planning should confine itself to the former type of control or whether it should extend to the latter type also. Overall fiscal and monetary discipline, it would appear, can go a long way towards regulating the ebb and flow of economic activity, and differential taxation can assist in channeling resources at the margin in certain directions. There is little doubt, however, that a comprehensive plan which aims at raising the investment in the economy substantially and has a definite order of priorities in view cannot be seen through on the basis merely of overall fiscal and monetary control. The second type of controls mentioned above is thus inescapable.

32. In a developing economy the basic trend of governmental operations in the fiscal an monetary field is inevitably expansionist. Expenditures could be stepped up and credit made available in ampler measure, should recessionary trends unexpectedly appear. However, the problem in the main is likely to be one of regulating inflationary pressures. Generation of new demands somewhat ahead of supplies is part of the strategy of development It follows that a curtailment of public expenditure and other curbing devices can and ought to be used only in the last resort. It could perhaps be argued that if a country had unlimited supplies of foreign exchange it could correct the emergence of any inflationary pressure at home by augmenting domestic supplies through larger imports. But, this is clearly not the case, and foreign exchange is a resource which in fact has to be used sparingly. The plan postulates the use not only of current earnings but also of a part of accumulated reserves and of external assistance for the execution of the tasks in hand. Foreign exchange policy as well as commercial policy in general has necessarily to be dovetailed into the implementation of developmental programmes. There are in an underdeveloped economy many contingent demands on resources. Agricultural production may fall short of the mark for reasons beyond human control. Other bottlenecks may emerge. There is always is certain lag between the creation of new incomes and the increase in available supplies on which they can be spent Yet a developmental programme cannot be abandoned or scaled down at the first appearance of difficulties or bottlenecks. A measure of risk has to be taken. This means that there must be corresponding preparedness to adopt physical controls and allocations as necessary; and these controls and allocations, as experience has shown, cannot work unless they form a fairly integrated system. Nor can they successfully function without a psychological preparedness on the part of the people, and for this, the necessary climate of opinion and understanding has to be created. If controls are administratively cumbrous and may act as disincentives, lack of them, it has to be remembered, may create inequalities and hardships, to the prejudice especially of classes that need protection most.

33. It would, of course, be desirable on psychological as well as administrative grounds to avoid as far as possible control and rationing of the necessities of life like, for instance, foodgrains. On the other hand, high or rising prices of primary necessities are apt to create serious difficulties. The basic remedy for a situation of scarcity or shortage is, of course, an increase in supplies, and, to an extent when domestic supplies are deficient, imports may be inescapable, it is not possible, however, to rely too far on imports; the necessary imports may either not be available or may involve diverting resources from other important uses. The same may hold for a diversion of domestic resources from investment into consumption. Physical controls may thus become necessary, if the entire plan is not to be disturbed. Thus, controls on essential consumption cannot be ruled out in particular situations. Perhaps, the point to emphasise is that these controls should not be regarded as sufficient by themselves, and their imposition should be accompanied by measures simultaneously to increase supplies.

34. It is of particular importance in this context that Government should build up buffer stocks of foodgrains and other strategic commodities, and operate on them so as to moderate price fluctuations. Under-developed economies are highly sensitive to small changes in supply relatively to demand: a slight deficiency pushes up prices excessively, and a small surplus manifests itself in sharp price declines. Domestic commodity reserves, judiciously operated on, are a no less important device for price stabilisation than the usual mechanism of building up and utilising foreign exchanges reserves. The maintenance by Government of an adequate foodgrains reserve at all times so as to be able to meet an adverse situation effectively and promptly is a necessary safeguard against the inflationary pressures implicit in a big developmental programme. In principle, this applies not only to foodgrains but also to important raw materials and a few other consumer goods. The extent to which such operations can be extended depends upon the soundness of administrative arrangements and the creation of the necessary facilities for storage and for quick transport and distribution. In the case of foodgrains, the case for maintaining adequate stocks and for open market operations with a view to correcting adverse price trends is especially strong and deserves high priority. The plan provides for an addition of 2 million tons of storage capacity through the Central and State Warehousing Corporations. It is important to ensure an early completion of this programme.

35. The maintenance of buffer stocks of foodgrains should enable Government to mitigate sharp fluctuations in prices. Simultaneously, measures will be necessary from time to time to correct price trends in respect of commercial crops; for, there must be a reasonable relationship between the prices obtained by the grower for alternative crops, and the price incentive should work in the direction of encouraging a pattern of crop production which accords with the requirements of the plan. To this end, the mechanism of import and export controls and of import and export duties has to be relied upon to a considerble extent. It is necessary in this context to ensure, as far as possible, that announcements of export or import quotas are timed so as to benefit the producer rather than the middleman. In the case of cotton, the range of price fluctuations is regulated through fixation of floor and ceiling prices, and for sugarcane, the cane prices payable by factories are announced by Government well in advance of the sowing season. Changes in exports or imports are, however, necessary from time to time for making the Government's price policy effective. Some of the agricultural commodities, like oilseeds, for instance, are subject to strong speculative influences, and it is to be hoped that the regulation of forward markets through the Forward Markets Commission will bring the unhealthy speculation in some of these makets under effective control. Incidentally, it must be stated here that excessive speculation does not accord with a planned economy, and it must be regulated and controlled not only through appropriate rules of trading within the commodity exchanges, but through all devices at the disposal of Government including general as well as selective credit control.

36. It remains to advert briefly to the role an adequate financial an credit mechanism in promoting development—overall and in particular directions. It will be noted that important steps towards an orientation of this mechanism to the needs of development have been taken in the first plan period. The Imperial Bank of India—the biggest commercial bank in the country—has been converted into a public-owned and public-managed State Bank with a view to the expansion and institutionalisation of rural credit. The Reserve Bank of India not .only discharges its regulatory functions in the sphere of currency, credit and foreign exchange; it assists actively in the development of cooperative credit agencies. The far-reaching recommendations of the Rural Credit Survey Committee in respect of the reorganisation of rural credit undei *he sponsorship of the Reserve Bank and the State are being implemented. The task involved in making credit at reasonable rates available all over the rural areas is formidable, but the new and integrated approach involving joint and coordinated action by cooperative agencies, the Reserve Bank and the State, envisaged in the new reorganisation proposals, will make a rapid advance possible.

37. In the industrial sphere, the Industrial Finance Corporation and the Industrial Credit and Investment Corporation are designed to meet the special needs of the private sector, and the National Industrial Development Corporation will enable Government to take up promotional and developmental work along new lines. Special institutions are needed for assistance to and promotion of small businesses, and a beginning has been made in this direction through the establishment of State Finance Corporations and the Central Small Industries Corporation. It may be necessary also to develop further institutions which could provide the nucleus for a properly organised new issue market especially as a diminishing role if being envisaged for the managing agency system. The recent decision to nationalise life insurance has added another potent instrument to the repertory of the public sector for raising savings and for regulating and directing the flowof funds in accordance with the requirements of the Plan.

38. Briefly, a planner approach to development necessitates an integration of economic and social policies inter se in terms of the objectives and priorities on which the plan is based. The techniques to be employed may and have to vary in the light of requirements. In some cases fiscal or price incentives may have to be relied on; in others, a licensing system may be essential; in still others, fixation of profit margins, allocations of scarce raw materials or other regulatory devices may be necessary. Sanctions of capital issues, foreign exchange allocations differential tax incentives, financial assistance in suitable cases and the general direction and control of com-merical, financial and industrial institutions are a recognised part of the apparatus of planning. A plan is an attempt to improve upon the results that can be achieved under an unregulated and uncoordinated play of private decision. It must, therefore, involve certain restraints and incentives. If the targets of planned investment are to be achieved, means have to be found to secure that the necessary resources do in fact become available and are not devoted to consumption, and it is necessary to ensure that the sacrifices involved are shared equitably. For directing resources for the plan as well as for promoting and facilitating a balanced attainment of the economic and social objectives in view, the plan has to have sanctions or regulatory devices which operate within the existing structure. But, more and more, the structure itself has to change so that the desired balance of incentives and restraints gets built into it instead of having to be brought about through ad hoc controls and correctives.


No. 91/CF/48.—The Government of India set out in their Resolution dated the 6th April, 1948, the policy which they proposed to pursue in the industrial field. The Resolution emphasised the importance to the economy of securing a continuous increase in production and its equitable distribution, and pointed out that the State must play a progressively active role in the development of industries. It laid down that besides arms and ammunition, atomic energy and railway transport, which would be the monopoly of the Central Government, the State would be exclusively responsible for the establishment of new undertakings in six basic industries—except whers, in the national interest, the State itself found it necessary to secure the co-operation of private enterprise. The rest of the industrial field was left open to private enterprise though it was made clear that the State would also progressively participate in this field.

2. Eight years have passed since this declaration on industrial policy. These eight years have witnessed many important changes and developments in India. The Constitution of India has been enacted, guaranteeing certain Fundamental Rights and enunciating Directive Principles of State Policy. Planning has proceeded on an organised basis, and the first Five Year Plan has recently been completed. Parliament has accepted the socialist pattern of society as the objective of social and economic policy. These important developments necessitate a fresh statement of industrial policy, more particularly as the second Five Year Plan will soon by placed before the country. This policy must be governed by the principles laid down in the Constitution, the objective of socialism, and the experience gained during these years.

3. The Constitution of India, in its preamble, has declared that it aims at securing for all its citizens—

  • "JUSTICE, Social, economic and political;
  • LIBERTY of thought, expression, belief, faith and worship;
  • EQUALITY of status and of opportunity; and to -promote among them all;
  • FRATERNITY assuring the dignity of the individual and the unity of the Nation."

In its Directive Principles of State policy, it is stated that—

"The State shall strive to promote the welfare of the people by securing and protecting as effectively as it may a social order in which justice, social, economic and political, shall inform all the institutions of the national life."

Further that—

"The State shall, in particular, direct its policy towards securing—

  1. that the citizens, men and women equally, have the right to an adequate means of livelihood;
  2. that the ownerhsip and control of the material resources of the community are so distributed as best to subserve the common good;
  3. that the operation of the economic system does not result in the concentration of wealth and means of production to the common detriment
  4. that there is equal pay for equal work for both men and women;
  5. that the health and strength of workers, men and women, and the tender age of children are not abused and that citizens are not forced by economic necessity to enter avocations unsuited to their age or strength;
  6. that childhood and youth are protected against exploitation and against moral and material abandonment."

4. These basic and general principles were given a more precise direction when Parliament accepted in December, 1954, the socialist pattern of society as the objective of social and economic policy. Industrial policy, as other policies, must therefore be governed by these principles and directions.

5. In order to realise this objective, it is essential to accelerate the rate of economic growth and to speed up industrialisation and, in particular, to develop heavy industries and machine making industries, to expand the public sector, and to build up a large and growing co-operative sector. These provide the economic fcundations for increasing opportunities for gainful employment and improving living standards and working conditions for the mass of the people. Equally, it is urgent, to reduce disparities in income and wealth which exist today, to prevent private monopolies and the concentration of economic power in different fields in the hands of small numbers of individuals. Accordingly, the State will progressively assume a predominant and direct responsibility for setting up new industrial undertakings and for developing transport facilities. It will also undertake State trading on an increasing scale. At the same time, as an agency for planned national development, in the context of the country's expanding economy, the private sector will have the opportunity to develop and expand. The principle of co-operation should be applied wherever possible and a steadily increasing proportion of the activities of the private sector developed along co-operative lines.

6. The adoption of the socialist pattern of society as the national objective, as well as the need for planned and rapid development, require that all industries of basic and strategic importance, or in the nature of public utility services, should be in the public sector. Other industries which are essential and require investment on a scale which only the State, in present circumstances, could provide, have also to be in the public sector. The State has therefore to assume direct responsibility for the future development of industries over a wider area. Nevertheless, there are limiting factors which make it necessary at this stage for the State to define the field in which it will undertake sole responsibility for further development, and to make a selection of industries in the development of which it will play a dominant role. After considering all aspects of the problem, in consultation with the Planning Commission, the Government of India have decided to classify industries into three categories, having regard to the part which the State would play in each of them. These categories will inevitably overlap to some extent and too great a rigidity might defeat the purpose in view. But the basic principles and objectives have always to be kept in view and the general directions hereafter referred to followed. It should also be remembered that it is always open to the State to undertake any type of industrial production.

7. In the first category will be industries the future development of which will be the exclusive responsibility of the State. The second category will consist of industries, which will be progressively State-owned and in which the State will therefore generally take the initiative in establishing new undertakings, but in which private enterprise will also be expected to supplement the effort of the State. The third category will include all the remaining industries, and their future development will, in general, be left to the initiative and enterprise of the private sector.

8. Industries in the first category have been listed in Schedule A of this Resolution. All new units in these industries, save where their establishment in the private sector has already been approved, will be setup only by the State. This does not preclude the expansion of the existing privately owned units, or the possibility of the State securing the co-operation of private enterprise in the establishment of new units when the national interests so require. Railways and air transport, arms and ammunition and atomic energy will, however, be developed as Central Government monopolies. Whenever co-operation with private enterprise is necessary, the State will ensure, either through majority participation in the capital or otherwise, that it has the requisite powers to guide the policy and control the operations of the undertaking.

9. Industries in the second category will be those listed in Schedule B. With a view to accelerating their future development, the State will increasingly establish new undertakings in these industries. At the same time private enterprise will also have the opportunity to develop in this field, either on its own or with State participation.

10. All the remaining industries will fall in the third category, and it is expected that their development will be undertaken ordinarily through the initiative and enterprise of the private sector; though it will be open to the State to start any industry even in this category. It will be the policy of the State to facilitate and encourage the development of these industries in the private sector, in accordance with the programmes formulated in successive Five Year Plans, by ensuring the development of transport, power and other services, and by appropriate fiscal and other measures. The State will continue to foster institutions to provide financial aid to these industries, and special assistance will be given to enterprises organised on co-operative lines for industrial and agricultural purposes. In suitable cases, the State may also grant financial assistance to the private sector. Such assistance, especially when the amount involved is substantial, will preferably be in the form of participation in equity capital, though it may also be in part in the form of debenture capital.

11. Industrial undertakings in the private sector have necessarily to fit into1 the framework of the social and economic policy of the State and will be subject to control and regulation in terms of the Industries (Development and Regulation) Act and other relevant legislation. The Government of India, however, recognise that it would, in general, be desirable to allow such undertakings to develop with as much freedom as possible, consistent with the targets and objectives of the national plan. When there exist in the same industry both privately and publicly owned units, it would continue to be the policy of the State to give fair and non-discriminatory treatment to both of them.

12 The division of industries into separate categories does not imply that they are being placed in water-tight compartments. Inevitably, there will not only be an area of overlapping but also a great deal of dovetailing between industries in the private and the public sectors. It will be open to the State to start any industry not included in Scheduled A and Schedule B when the needs of planning so require or there are other important reasons for it. In appropriate cases, privately owned units may be permitted to produce an item falling within Schedule A for meeting their own requirements or as by-products. There will be ordinarily no bar to small privately owned units undertaking production, such as the making of launches and other light-craft, generation of power for local needs and small scale mining. Further, heavy industries in the public sector may obtain some of their requirements of lighter components from the private sector, while the private sector in turn would rely for many of its needs on the public sector. The same principle would apply with even greater force to the relationship between large scale and small scale industries.

13. The Government of India would, in this context, stress the role of cottage and village and small scale industries in the development of the national economy. In relation to some of the problems that need urgent solutions, they offer some distinct advantages. They provide immediate large scale employment; they offer a method of ensuring a more equitable distribution of the national income and they facilitate an effective mobilisation of resources of capital and skill which might otherwise remain unutilised. Some of the problems that unplanned urbanisation tends to create will be avoided by the establishment of small centres of industrial production all over the country.

14. The State has been following a policy of supporting cottage and village and small scale industries by restricting the volume of production in the large scale sector, by differential taxation, or by direct subsidies . While such measures will continue to be taken, whenever necessary, the aim of the State policy will be to ensure that the decentralised sector acquires sufficient vitality to be self-supporting and its development is integrated with that of large scale industry. The State will, therefore, concentrate on measures designed to improve the competitive strength of the small scale producer. For this it is essential that the technique of production should be constantly improved and modernised, the pace of transformation being regulated so as to avoid, as far as possible, technological unemployment Lack of technical and financial assistance, of suitable working accommodation and inadequacy of facilities for repair and maintenance are among the serious handicaps of small scale producers. A start has been made with the establishment of industrial estates and rural community workshops to make good these deficiencies. The extension of rural electrification and the availability of power at prices which the workers can afford will also be of considerable help. Many of the activities relating to small scale production will be greatly helped by the organisation of industrial co-operatives. Such cooperatives should be encouraged in every way and the State should give constant attention to the development of cottage and village and small scale industry.

15. In order that industrialisation may benefit the economy of the country as a whole, it is important that disparities in levels of development between different regions should be progressively reduced. The lack of industries in different parts of the country is very often determined by factors such as the availability of the necessary raw materials or other natural resources. A concentration of industries in certain areas has also been due to the ready availability of power, water supply and transport facilities which have been developed there. It is one of the aims of national planning to ensure that these facilities are steadily made available to areas which are at present lagging behind industrially or where there is greater need for providing opportunities for employment, provided the location is otherwise suitable. Only by securing a balanced and co-ordinated development of the industrial and the agricultural economy in each region, can the entire country attain higher standards of living.

16. This programme of industrial development wili make large demands on the country's resources of technical and managerial personnel. To meet these rapidly growing needs for the expansion of the public sector and for the development of village and small scale industries, proper managerial and technical cadres in the public services are being established. Steps are also being taken to meet shortages at supervisory levels, to organise apprenticeship schemes of training on a large scale both in public and in private enterprises, and to extend training facilities in business management in universities and other institutions.

17. It is necessary that proper amenities and incentives should be provided for all those engaged in industry. The living and working conditions of workers should be improved and their standard of efficiency raised. The maintenance of industrial peace is one of the prime requisites of industrial progress. In a socialist democracy labour is a partner in the common task of development and should participate in it with enthusiasm. Some laws governing industrial relations have been enacted and a broad common approach has developed with the growing recognition of the obligations of both management and labour. There should be joint consultation and workers and technicians should, wherever possible, be associated progressively in management Enterprises in the public sector have to set an example in this respect

18. With the growing participation of the State in industry and trade, the manner in which these activities should be conducted and managed assumes considerable importance. Speedy decisions and a willingness to assume responsibility are essential if these enterprises are to succeed. For this, wherever possible, there should be decentralisation of authority and their management should be along business lines. It is to be expected that public enterprises will augment the revenues of the State and provide resources for farther development in fresh fields. But such enterprises may sometimes incur losses. Public enterprises have to be judged by their total results and in their working they should have- the largest possible measure of freedom.

19. The Industrial Policy Resolution of 1948 dealt with a number of other subjects which have since been covered by suitable legislation or by authoritative statements of policy. The division of responsibility between the Central Government and the State Governments in regard to industries has been set out in the Industries (Development and Regulation) Act The Prime Minister, in his statement in Parliament on the 6th April, 1949, has enunciated the policy of the State in regard to foreign capital. It is, therefore, not necessary to deal with these subjects in this resolution.

20. The Government of India trusts that this restatement of their Industrial Policy will receive the support of all sections of the people and promote the rapid industrialisation of the country.


  1. Arms and ammunition and allied items of defence equipment
  2. Atomic energy.
  3. Iron and steel.
  4. Heavy castings and forgings of iron and steel.
  5. Heavy plant and machinery required for iron and steel production, for mining, for machine tool manufacture and for such other basic industries as may be specified by the Central Government.
  6. Heavy electrical plant including large hydraulic and steam turbines.
  7. Coal and lignite.
  8. Mineral oils.
  9. Mining of iron ore, manganese ore, chrome ore, gypsum, sulphur, gold and diamond.
  10. Mining and processing of copper, lead, zinc, tin, molybdenum and wolfram.
  11. Minerals specified in the Schedule to the Atomic Energy (Control of Production and Use) Order, 1953.
  12. Aircraft.
  13. Air transport
  14. Railway transport.
  15. Shipbuilding.
  16. Telephones and telephone cables, telegraph and wireless apparatus (excluding radio receiving sets).
  17. Generation and distribution of electricity.


  1. All other minerals except "minor minerals" as defined in Section 3 of the Minerals Concession Rules, 1949.
  2. Aluminium and other non-ferrous metals not included in Schedule 'A'.
  3. Machine tools.
  4. Ferro-alloys and tool steels.
  5. Basic and intermediate products required by chemical industries such as the manufacture of drugs, dyestuffs and plastics.
  6. Antibiotics and other essential drugs.
  7. Fertilizers.
  8. Synthetic rubber.
  9. Carbonisation of coal.
  10. Chemical pulp.
  11. Road transport.
  12. Sea transport
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