Topic 24: Industry Policy, Liberalization, MSMEs,

Study Material

Paper Paper I

Unit 2

1. Industrial Policy of 1991 — LPG Reforms - Abolished industrial licensing for most sectors - Reduced reserved public-sector industries from 17 to 2 (defence and atomic energy) - Opened FDI and dismantled trade barriers - Architect: Finance Minister Dr. Manmohan Singh under PM Narasimha Rao
2. Liberalisation — Removing Controls - Licence Raj ended: industrial licensing abolished - MRTP Act restrictions eased; import licensing dismantled - Quantitative restrictions replaced by tariffs - GDP growth rose from ~3.5% (Hindu rate) to 6–8% post-1991
3. Make in India — Launched September 25, 2014 - Target: raise manufacturing to 25% of GDP by 2025 (from ~16%) - Aims to create 100 million additional manufacturing jobs - Covers 27 sectors with online investment facilitation and task forces - Nodal ministry: DPIIT
4. PLI Schemes — Production Linked Incentive - Launched 2021 for 14 sectors; total outlay: ₹1.97 lakh crore over 5–7 years - Mechanism: 4–6% incentive on incremental sales above a base year - Key sectors: mobile phones, pharma APIs, medical devices, automobiles, telecom, solar PV - Goal: build manufacturing capacity, attract FDI, boost exports
5. MSME Definition — Revised 2020 - Micro: investment ≤ ₹1 crore + turnover ≤ ₹5 crore - Small: investment ≤ ₹10 crore + turnover ≤ ₹50 crore - Medium: investment ≤ ₹50 crore + turnover ≤ ₹250 crore - MSMEs employ ~11.1 crore persons; contribute ~30% of GDP and ~45% of exports
6. Privatisation — Disinvestment and NMP - Air India privatised and transferred to Tata Sons in January 2022 — first major airline privatisation - BPCL, Shipping Corporation, Pawan Hans in disinvestment pipeline - National Monetisation Pipeline (NMP): target ₹6 lakh crore by monetising infrastructure (2021–25) - Mechanism: leasing/concessioning roads, pipelines, power lines to private operators
7. Atmanirbhar Bharat Abhiyan — Announced May 2020 - COVID-response package of ₹20 lakh crore (~10% of GDP) - Key components: PLI schemes, defence import substitution (509 items banned), ECLGS for MSMEs - Five pillars: Economy, Infrastructure, System, Vibrant Demographics, Demand - Target: shift from supply-chain dependence (especially on China) to self-sufficient manufacturing
8. India's Industrial Structure (2024–25) - Manufacturing: ~16% of GDP; services: ~54%; agriculture: ~17–18% - India lags manufacturing targets — China's manufacturing is ~28% of GDP - Largest employer: textiles (4.5 crore workers) - Other key sectors: steel, automobiles, chemicals, pharmaceuticals, IT hardware
9. Globalisation — India's Integration - FDI flows exceeded $70 billion in 2023–24; India is the 5th largest FDI destination globally - Import tariffs reduced from ~300% (pre-1991) to average ~13% (2024) - Exports grew from $18 billion (1991) to $776 billion (goods + services, 2023–24) - India is 5th largest FDI recipient (UNCTAD 2023)
10. India's Industrial Policy History - IPR 1956: Classified industries into Schedule A (public monopoly), B (mixed), C (private) - Licence Raj prevailed until 1991; required industrial, import, and forex licences - MRTP Act 1969: Curbed monopoly capital; barred large firms from expanding without approval - Replaced by Competition Act 2002 (enforced by CCI from 2009)
11. Industrial Corridors and PM Gati Shakti - PM Gati Shakti National Master Plan (2021): Digital platform integrating 16 ministries for infrastructure - Coordinates multi-modal planning for 5 industrial corridors - DMIC (Delhi-Mumbai Industrial Corridor): 1,483 km, spans 6 states, planned investment ₹1 lakh crore+ - Logistics cost target: reduce from ~13% of GDP to 8% by 2030
12. Ease of Doing Business - India improved from rank 142 (2014) to 63 (2019–20) in World Bank's EoDB index - EoDB index discontinued 2021; replaced by B-READY Index (launched 2024) - DPIIT's State Reform Action Plan drives state-level EoDB improvements - Key reforms: single-window clearance, e-filing, reduced inspection burden

Key facts

Industrial Policy of 1991 — LPG Reforms — Abolished industrial licensing for most sectors
Liberalisation — Removing Controls — Licence Raj ended: industrial licensing abolished — MRTP Act restrictions eased; import licensing dismantled
Make in India — Launched September 25, 2014 — Target: raise manufacturing to 25% of GDP by 2025 (from ~16%)
PLI Schemes — Production Linked Incentive — Launched 2021 for 14 sectors; total outlay: ₹1.97 lakh crore over 5–7 years
MSME Definition — Revised 2020 — Micro: investment ≤ ₹1 crore + turnover ≤ ₹5 crore — Small: investment ≤ ₹10 crore + turnover ≤ ₹50 crore

Key Points at a Glance

1
Industrial Policy of 1991 — LPG Reforms
- Abolished industrial licensing for most sectors
- Reduced reserved public-sector industries from 17 to 2 (defence and atomic energy)
- Opened FDI and dismantled trade barriers
- Architect: Finance Minister Dr. Manmohan Singh under PM Narasimha Rao
2
Liberalisation — Removing Controls
- Licence Raj ended: industrial licensing abolished
- MRTP Act restrictions eased; import licensing dismantled
- Quantitative restrictions replaced by tariffs
- GDP growth rose from ~3.5% (Hindu rate) to 6–8% post-1991
3
Make in India — Launched September 25, 2014
- Target: raise manufacturing to 25% of GDP by 2025 (from ~16%)
- Aims to create 100 million additional manufacturing jobs
- Covers 27 sectors with online investment facilitation and task forces
- Nodal ministry: DPIIT
4
PLI Schemes — Production Linked Incentive
- Launched 2021 for 14 sectors; total outlay: ₹1.97 lakh crore over 5–7 years
- Mechanism: 4–6% incentive on incremental sales above a base year
- Key sectors: mobile phones, pharma APIs, medical devices, automobiles, telecom, solar PV
- Goal: build manufacturing capacity, attract FDI, boost exports
5
MSME Definition — Revised 2020
- Micro: investment ≤ ₹1 crore + turnover ≤ ₹5 crore
- Small: investment ≤ ₹10 crore + turnover ≤ ₹50 crore
- Medium: investment ≤ ₹50 crore + turnover ≤ ₹250 crore
- MSMEs employ ~11.1 crore persons; contribute ~30% of GDP and ~45% of exports
6
Privatisation — Disinvestment and NMP
- Air India privatised and transferred to Tata Sons in January 2022 — first major airline privatisation
- BPCL, Shipping Corporation, Pawan Hans in disinvestment pipeline
- National Monetisation Pipeline (NMP): target ₹6 lakh crore by monetising infrastructure (2021–25)
- Mechanism: leasing/concessioning roads, pipelines, power lines to private operators
7
Atmanirbhar Bharat Abhiyan — Announced May 2020
- COVID-response package of ₹20 lakh crore (~10% of GDP)
- Key components: PLI schemes, defence import substitution (509 items banned), ECLGS for MSMEs
- Five pillars: Economy, Infrastructure, System, Vibrant Demographics, Demand
- Target: shift from supply-chain dependence (especially on China) to self-sufficient manufacturing
8
India's Industrial Structure (2024–25)
- Manufacturing: ~16% of GDP; services: ~54%; agriculture: ~17–18%
- India lags manufacturing targets — China's manufacturing is ~28% of GDP
- Largest employer: textiles (4.5 crore workers)
- Other key sectors: steel, automobiles, chemicals, pharmaceuticals, IT hardware
9
Globalisation — India's Integration
- FDI flows exceeded $70 billion in 2023–24; India is the 5th largest FDI destination globally
- Import tariffs reduced from ~300% (pre-1991) to average ~13% (2024)
- Exports grew from $18 billion (1991) to $776 billion (goods + services, 2023–24)
- India is 5th largest FDI recipient (UNCTAD 2023)
10
India's Industrial Policy History
- IPR 1956: Classified industries into Schedule A (public monopoly), B (mixed), C (private)
- Licence Raj prevailed until 1991; required industrial, import, and forex licences
- MRTP Act 1969: Curbed monopoly capital; barred large firms from expanding without approval
- Replaced by Competition Act 2002 (enforced by CCI from 2009)
11
Industrial Corridors and PM Gati Shakti
- PM Gati Shakti National Master Plan (2021): Digital platform integrating 16 ministries for infrastructure
- Coordinates multi-modal planning for 5 industrial corridors
- DMIC (Delhi-Mumbai Industrial Corridor): 1,483 km, spans 6 states, planned investment ₹1 lakh crore+
- Logistics cost target: reduce from ~13% of GDP to 8% by 2030
12
Ease of Doing Business
- India improved from rank 142 (2014) to 63 (2019–20) in World Bank's EoDB index
- EoDB index discontinued 2021; replaced by B-READY Index (launched 2024)
- DPIIT's State Reform Action Plan drives state-level EoDB improvements
- Key reforms: single-window clearance, e-filing, reduced inspection burden

Introduction and Context

India's industrial policy matters because it explains how the economy moved from state-led controls and public-sector dominance to private investment, global integration, and targeted manufacturing incentives. Topic 24 spans five decades of industrial policymaking, from the 1956 resolution through the 1991 watershed reforms to the post-2014 Make in India era.

According to PIB's Ministry of Commerce and Industry release, India's FDI inflow reached US$81.04 billion in 2024–25, showing how far the post-1991 global-integration track has travelled.

Overview

India's industrial policy story is one of dramatic transformation — from a heavily planned, licence-raj economy to an increasingly market-oriented, globally integrated one. The useful exam frame is not simply “state versus market”; it is how India has kept shifting the boundary between planning, regulation, private enterprise, foreign capital, and strategic self-reliance.

The 2021 exam asked for a 10-mark answer on Atmanirbhar Bharat's industrial and infrastructure dimensions, and a 5-mark answer defining MSMEs. The 2026 exam is likely to test: PLI schemes, MSME policy, Air India privatisation, and PM Gati Shakti — all recent developments.

India's Industrial Challenge

India's industrial challenge is threefold:

Growing manufacturing's share of GDP from 16% to 25%
Generating enough jobs for 8–10 million new labour force entrants annually
Competing with China in global supply chains

PLI schemes and Atmanirbhar Bharat are India's strategic response to these challenges. A strong answer should connect them to employment, exports, import dependence, technology depth, and infrastructure bottlenecks rather than treating them as isolated schemes.

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PREDICTED Predicted RAS Questions

Based on PYQ trends and 2026 syllabus analysis

1 5M Define MSMEs. State the revised definition (2020) with investment and turnover criteria. 5 marks · 50 words

Model Answer

MSMEs (Micro, Small and Medium Enterprises) are defined by the 2020 Atmanirbhar Bharat revision using dual criteria — investment and annual turnover. Micro: investment ≤ ₹1 crore, turnover ≤ ₹5 crore. Small: ≤ ₹10 crore investment, ≤ ₹50 crore turnover. Medium: ≤ ₹50 crore investment, ≤ ₹250 crore turnover. MSMEs contribute ~30% of GDP and 45% of India's exports.

~50 words • 5 marks