The Industrial Resolution Policy 1956 was developed due to the changes that occurred due to the economic and political developments in different spheres that called for changes in industrial policy in a short period of operation of the 1948 Industrial Policy. At the same time, a program of planned economic development with the first five-year plan was also launched. The 1956 policy divided the industries into 3 categories based on management. This article discusses the industrial resolution policy 1956 which is important for UPSC examination.

Industrial Resolution Policy 1956: Evolution

• It was based upon the Mahalanobis Model of growth which advocated that emphasis should be laid on the heavy industries, which can increase the economic output of the country. Mahalanobis model suggested the dominance of the heavy industries.
• It laid the foundation for India’s second five-year plan and Industrial policy Resolution 1956, which paved the way for the development of the Public Sector and license raj.

Features of Industrial Resolution Policy 1956

Industries were classified under three categories:

Schedule A Industries

• It consisted of 17 industrial areas which were under the Central Government.
• Such companies were known as CPSE (Central Public Sector Undertakings) that consisted of industries such as
  • defense equipment; atomic energy;
  • iron and steel and heavy plants/machinery required for iron and steel production, heavy power plants;
  • coal and lignite;
  • mining and processing of key minerals etc.

Schedule B Industries

• It consisted of 12 industries that were left to the state government to follow up with the private sector that including compulsory licensing provisions.
• The industries had to be state-owned but the private sector was also expected to supplement the efforts of the State.
• States were expected to facilitate the development of these industries in the private sector, with respect to the programs formulated under the Five Year Plans.
• The schedule B industries consisted of
  • machine tools;
  • ferroalloys, steel tools;
  • the raw material needed for the manufacturing of drugs, dyes, and plastics;
  • essential drugs and antibiotics;
  • fertilizers; synthetic rubber;
  • chemical pulp, road, and sea transport.

Schedule C Industries

• It consisted of those industries which were left out of Schedule A and B and were with the private sectors and subject to licensing and regulation under the IDR Act.

Various Focus Areas of Industrial Resolution Policy 1956

• It laid emphasis on integrated infrastructure development as a prerequisite to private investment and therefore gave priority to power, transport, and financial institutions.
• It gave recognition to small-scale industries such as cottage industries with respect to balanced regional growth and also gave tax concessions and subsidies.
• It gave impetus to industrial development in far-off of the country to increase economic growth.
• It considered FDI as complementary to domestic growth provided a major share in control and management was to be given to Indian hands.
• It laid emphasis on the promotion of technical and managerial skills for industrial growth, thereby proposing the establishment of ITIs and introducing business management courses in universities.
• It focused on increased decentralization of the management of PSUs.

Impact of Industrial Resolution Policy 1956

• It increased the participation of the public sector in the Indian economy.
• The government’s aim to push for a socialistic pattern of growth was pushed further.
• For the first time, a transparent and simplified classification of Industries was taken up in India.
• Industries under government control included those related to strategic and basic domains.
• The compulsory licensing provision was further strengthened.
• It led to the development of the public sector in India

Limitations of Industrial Resolution Policy 1956

• It led to the government favoring big businesses that were in a better position to raise a greater amount of capital and had better management skills to run the industry.
• Such corporate houses were easily able to secure financial assistance from development and finance institutions.
• There was the absence of a proper system for allocation of licenses in place; pre-empting of licensing by authorities to select people or groups happened due to an array of reasons.
• Restrictions regarding the freedom of entry into the industry were increased due to licensing and this resulted in the concentration of economic power in few individuals which led to inequality.

Conclusion

The industrial resolution policy 1956 increased the employment generation potential in small and cottage industries however, these industries were sidelined practically either in want of institutional finance or due to competition. Most of the institutional capital was grabbed by large-scale industries leaving little for the smaller ones to flourish and contribute to the economy.

FAQs

Question: What was the Industrial Policy Resolution of 1956?

Question: What were the key objectives of the 1956 Industrial Policy Resolution?

Question: How did the Industrial Policy Resolution of 1956 classify industries?

Question: What was the significance of the 1956 policy in Indian economic planning?

Question: Which sector was given priority in the 1956 Industrial Policy?

MCQs

1. Which of the following was a key feature of the 1956 Industrial Policy Resolution?

a) Complete privatization

b) Expansion of the public sector

c) Focus on agriculture

d) Foreign investments in all sectors

2. In the Industrial Policy Resolution of 1956, Schedule A industries were reserved for:

a) Private sector

b) Joint sector

c) Public sector

d) Cooperative sector

3. Which of the following was a primary objective of the Industrial Policy Resolution of 1956?

a) Promote agricultural self-sufficiency

b) Establish a capitalistic society

c) Promote heavy industrialization

d) Encourage small-scale industries exclusively

4. Schedule C industries under the 1956 Industrial Policy were:

a) Reserved exclusively for the private sector

b) Reserved for small-scale industries

c) Meant for joint ventures

d) Exclusively for cooperative ownership

5. The Industrial Policy Resolution of 1956 aimed to achieve:

a) Full privatization of the economy

b) A capitalist economy

c) A socialist pattern of society

d) Minimal government intervention

GS Mains Questions and Model Answers

Q1: Discuss the relevance of the Industrial Policy Resolution of 1956 in modern India's industrial landscape.

Answer: The Industrial Policy Resolution of 1956 was a landmark in India's economic history, marking a shift towards state-led industrialization. Its emphasis on the public sector in key industries like steel, defense, and infrastructure helped establish India’s industrial base. However, its legacy is mixed; while it enabled self-reliance in certain sectors, the policy’s focus on the public sector led to inefficiencies and stifled the growth of the private sector. In the current era of economic liberalization, the relevance of the 1956 policy has diminished, but its role in laying the foundation for India's industrial development remains significant.

Q2: Analyze the impact of the Industrial Policy Resolution of 1956 on the growth of the public sector in India.

Answer: The Industrial Policy Resolution of 1956 played a pivotal role in expanding the public sector in India. By reserving critical industries such as defense, atomic energy, and heavy machinery for the public sector, the policy aimed to ensure government control over strategic industries. This led to the establishment of several public sector undertakings (PSUs), which contributed to self-reliance in key areas. However, over time, the dominance of the public sector resulted in bureaucratic inefficiencies and a lack of competition, leading to underperformance in several industries. Despite this, the policy laid the foundation for India's industrial base.

Q3: Evaluate the impact of the Industrial Policy Resolution of 1956 on private sector growth in India.

Answer: The 1956 Industrial Policy limited the scope of the private sector by reserving key industries for the public sector. While Schedule C allowed the private sector to operate in non-strategic areas, the policy discouraged private investment in heavy industries. This led to a slow growth of the private sector, particularly in sectors like steel, mining, and power, which were crucial for economic development. However, this approach also prevented monopolistic practices and ensured that critical industries remained under government control. The policy laid the groundwork for later reforms, which opened up the economy to greater private participation.

Previous Year Questions on Industrial Resolution Policy 1956

1. UPSC CSE Prelims 2018:

Question: Which of the following schedules under the Industrial Policy Resolution of 1956 was reserved exclusively for the public sector?

A. Schedule A

B. Schedule B

C. Schedule C

D. Schedule D

Answer: A

Explanation: Schedule A under the Industrial Policy of 1956 reserved key industries such as defense, atomic energy, and steel for the public sector.

2. UPSC CSE Mains 2017 (GS Paper 3):

Question: Critically evaluate the role of the 1956 Industrial Policy in shaping the industrial growth of India.

Answer: The Industrial Policy Resolution of 1956 played a critical role in shaping India’s post-independence industrial landscape. By giving priority to the public sector in heavy industries and infrastructure, the policy laid the foundation for rapid industrialization. However, it also led to inefficiencies due to excessive government control and lack of competition in key sectors. While the public sector grew, the private sector faced limitations, affecting overall industrial productivity. Despite these challenges, the policy contributed significantly to self-reliance in key areas like defense and steel.

2. UPSC CSE Prelims 2019:

Question: The Industrial Policy of 1956 classified industries into how many categories?

A. Two

B. Three

C. Four

D. Five

Answer: B

Explanation: The Industrial Policy of 1956 classified industries into three categories: Schedule A (Public sector), Schedule B (Joint sector), and Schedule C (Private sector).