Why did it take a firm years just to get permission to grow? For four decades, India ran industry like a strict school timetable. Nothing happened without the government’s stamp. This is the story of how that timetable got built, then tightened, then finally torn up.
1. Where industrial policy started
1.1 What was India’s very first industrial policy?
India got its first Industrial Policy Resolution in 1948. That was just a year after independence. It set a basic rule. Some industries would stay under government control. The rest went mostly to private business. But the government kept a close watch on them too.
1.2 Why did some industries belong to the government alone?
The 1956 Industrial Policy Resolution (IPR) sorted every industry into one of three groups. Think of it like a school timetable with three kinds of periods:
- Schedule A: Government-only. Railways, defence production, and atomic energy — private companies were not allowed in.
- Schedule B: Government-led, private allowed to help. This covered industries like machine tools. The state set up new units here. Private firms could also invest.
- Schedule C: Fully private. Everything else was left to private business, though still under licensing rules.
True or False: Under the 1956 IPR, defence production and atomic energy were reserved exclusively for the government.
Correct! Schedule A of the 1956 IPR kept industries like railways, defence, and atomic energy government-only.
Not quite. Schedule A of the 1956 IPR did reserve defence production and atomic energy for the government alone.
1.3 Who checked whether a handful of big companies controlled too much?
By the mid-1960s, the government had a worry. A few large business houses were grabbing most of the new licenses. It was like a few students hoarding every good project slot in class. Two committees looked into this:
- Mahalanobis Committee (MEC), 1964: Studied how much economic power had built up in a few hands across Indian industry.
- Dutt Committee, 1967: Checked how licenses were actually being given out. It found that large business houses got far more than their fair share.
1.4 What actually stopped a giant company from crushing its rivals?
Parliament acted on the Dutt Committee’s findings. It passed the Monopolies and Restrictive Trade Practices (MRTP) Act in 1969. This law targeted any “dominant” company — one big enough to control a market. Such a company needed special government approval. It needed this before it could expand, merge, or start a new venture.
True or False: The MRTP Act, 1969 was passed in direct response to the Dutt Committee’s findings on license concentration.
Correct! The Dutt Committee’s 1967 report on license concentration led directly to the 1969 MRTP Act.
Actually true. The Dutt Committee’s 1967 report on license concentration led directly to the 1969 MRTP Act.
2. Tightening, protecting, and adjusting
2.1 How far did India go to cap a big business house’s growth?
The 1970 Industrial Licensing Policy went further than the MRTP Act. It steered new licenses away from large business houses. It also steered them away from foreign-owned companies. This left more room for smaller and mid-sized firms.
2.2 How did India try to protect small, village-level industry?
The Karve Committee had an earlier, different idea. Instead of just watching big companies, why not protect small ones directly? It said certain products should be reserved for small-scale and village industries alone. That way, large firms couldn’t beat them on cost. This idea shaped decades of “small-scale reservation” lists.
2.3 Did industrial policy stay fixed as governments changed?
No, it kept changing. The Industrial Policy Statements of 1973 and 1980 both adjusted the rules. The 1973 statement added more industries to the small-scale reserved list. The 1980 statement went the other way. It loosened some controls. Large companies could expand more easily, as long as they upgraded their equipment.
2.4 How did the Centre try to pull industry into poorer regions?
Two schemes tried to spread industry beyond India’s already-developed belts:
- Growth Center Scheme, 1988: Set up special industrial zones in poorer areas. Roads and power were built first, to draw factories in.
- North Eastern Industrial Policy, 1997: Gave tax breaks and cash support to industries that set up in the northeastern states.
3. The regulation cycle and the 1991 turn
3.1 Did India’s industry rules only ever get stricter?
Not exactly. Rules moved in a cycle, not a straight line. They got stricter through the 1950s to the 1970s — think IPR 1956, MRTP 1969, and the 1970 policy. Then they started easing from 1980 onward. The 1991 reforms finally broke the cycle. They scrapped licensing for almost all industries at once.
3.2 How long could it really take to get a license to expand a factory?
Under the License Raj, one approval could take years to clear. It had to pass through several ministries. Each ministry had its own queue. This delay was one of the system’s biggest hidden costs. The license itself mattered less than the years lost waiting for it.
True or False: A major criticism of the License Raj was that licensing decisions often took years to clear.
Correct! Multi-year delays across ministries were one of the License Raj’s most-criticised costs.
Actually true. Multi-year delays across ministries were one of the License Raj’s most-criticised costs.
3.3 Did the 1991 reforms fix everything, or come with trade-offs?
The 1991 New Industrial Policy scrapped licensing for almost all industries. It opened the door to foreign investment. It removed most MRTP restrictions too. This unlocked decades of growth. But it came with a cost. Protected Indian firms faced real competition for the first time. Some smaller players struggled to keep up.
Exam Practice: PYQ Pattern
Common traps in this topic:
- Confusing the 1956 IPR (the three-schedule split) with the 1991 policy (which scrapped that structure).
- Mixing up the Dutt Committee (checked license fairness) with the MEC (studied economic power more broadly).
- Assuming the MRTP Act banned large companies. It didn’t. It just added extra approval steps for “dominant” ones.
CDS(II) 2019: True or False: The Industrial Policy Resolution of 1956 formed the basis of the Second Five Year Plan’s industrial strategy.
Correct! The 1956 IPR’s three-schedule structure directly shaped the Second Plan’s industrial strategy. See CDS(II) 2019, Q35.
Actually true. The 1956 IPR’s three-schedule structure directly shaped the Second Plan’s industrial strategy. See CDS(II) 2019, Q35.
UPSC CSP 2017: True or False: The MRTP Act was primarily aimed at preventing the concentration of economic power in the hands of a few large business houses.
Correct! That was exactly the MRTP Act’s purpose, following the Dutt Committee’s findings. See UPSC CSP 2017, Q77.
Actually true. That was exactly the MRTP Act’s purpose, following the Dutt Committee’s findings. See UPSC CSP 2017, Q77.
Two more papers have tested this topic without needing a fresh check here: UPSC CSP 2020, Q58 (on the 1991 reforms) and CAPF AC 2022, Q109 (on licensing history).
Current Affairs
PLI: today’s version of an industrial incentive
The Production Linked Incentive (PLI) scheme has drawn ₹1.97 lakh crore in commitments. That spans 806 applications across 14 sectors. It’s the government’s modern answer to an old question: how do you get industry to invest where the country needs it? The 1948 and 1956 policies asked the same question. The target now is to lift manufacturing to 25% of GDP.
Budget 2026-27: seven new sectors added
Budget 2026-27 extended incentive schemes to 7 more sectors. This includes a new Biopharma SHAKTI mission worth ₹10,000 crore over 5 years. It shows the same instinct as the old Growth Center Scheme. Only now, cash incentives replace permits.
Quick recall: What were the three schedules of the 1956 IPR?
Schedule A (government-only: railways, defence, atomic energy), Schedule B (government-led, private allowed), Schedule C (fully private, but licensed).
Quick recall: What did the MRTP Act, 1969 actually require?
Any “dominant” company had to get special approval before expanding, merging, or starting a new venture — it didn’t ban large companies, just added a check.
Quick recall: What changed in 1991 that hadn’t changed before?
Licensing was scrapped for almost all industries at once, foreign investment was opened up, and most MRTP restrictions were dismantled — a break from the cycle, not just another adjustment.
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