Industrial Policy of 1956 in India
The Industrial Policy Resolution of 1956 is a landmark document in India’s economic history. Building on the foundations of the 1948 policy, the 1956 policy was more ambitious, detailed, and structured, as it aligned closely with the goals of the Second Five-Year Plan (1956–1961). This policy emphasized rapid industrialization, economic self-sufficiency, and the establishment of a socialist pattern of society. The 1956 policy established the public sector as the engine of growth and significantly increased the government’s role in shaping and controlling the economy.
Background and Context
After independence, India’s leaders were determined to uplift a largely agrarian society suffering from poverty, illiteracy, and underdeveloped industries. The 1948 Industrial Policy had laid down a mixed economic framework where the public and private sectors had designated roles. However, the experience of the First Five-Year Plan (1951–1956) revealed the need for more aggressive measures to boost industrialization and address economic disparities. Prime Minister Jawaharlal Nehru and his team of planners, particularly influenced by the Soviet model, viewed industrialization as essential to transforming India into a self-reliant and socially just nation.
The Industrial Policy Resolution of 1956 reflected this vision by expanding the government’s role in controlling major industries and emphasizing a socialist approach to economic growth. It was also influenced by Mahalanobis Model of economic planning, which prioritized heavy industries and capital goods.
Objectives of the 1956 Industrial Policy
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Achieving a Socialist Pattern of Society: The policy sought to create a socialist society where the means of production were controlled by the State for public benefit. This objective guided the emphasis on developing public sector industries and regulating private sector activities.
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Rapid Economic Development and Industrialization: The 1956 policy stressed the need for accelerated industrialization, focusing particularly on heavy industries and capital goods, which were essential for creating infrastructure and ensuring long-term economic growth.
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Reducing Income and Wealth Disparities: The policy aimed to reduce income inequalities and ensure a more equitable distribution of wealth. This was in line with the socialist vision, aiming to balance economic growth with social justice.
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Preventing Concentration of Economic Power: The policy sought to prevent economic monopolies by distributing industries across different sectors, reducing the risk of concentration of wealth and power in a few hands.
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Balanced Regional Development: The government recognized the importance of reducing regional disparities by promoting industrial development in underdeveloped and backward areas.
Categorization of Industries
The 1956 Industrial Policy introduced a threefold classification of industries based on the level of State ownership and control:
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Category A: Exclusive Responsibility of the State: This category included 17 industries deemed critical for national growth and security, where the State would have exclusive responsibility. These industries included defense production, iron and steel, atomic energy, heavy machinery, air and railway transport, and shipbuilding. The government’s exclusive control over these industries was aimed at ensuring sufficient investment, focused development, and reduced dependence on foreign technology.
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Category B: Mixed Sector (State-Private Collaboration): In this category, 12 industries were identified, including chemicals, fertilizers, machine tools, and synthetic rubber. While the State would play a leading role, the private sector was encouraged to invest and participate under government supervision. The government had the authority to step in and establish public enterprises if private investments were deemed insufficient.
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Category C: Private Sector (With State Regulation): All remaining industries not covered under Categories A and B were included in this category. Although these industries were open to private ownership, the government retained the right to regulate them. Industries in this category included consumer goods, textiles, light engineering, and other industries that supported daily needs and domestic demand. The objective was to encourage private initiative while maintaining government oversight.
Features of the 1956 Industrial Policy
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Focus on Heavy Industries and Capital Goods: The policy placed a heavy emphasis on industries that could produce capital goods, such as machinery and equipment, essential for other sectors’ development. This was expected to boost India’s self-sufficiency and reduce reliance on imports.
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Promotion of Public Sector: The 1956 policy expanded the role of the public sector, positioning it as the primary driver of industrial growth. Public sector enterprises (PSEs) became symbols of national pride, with the government aiming to build world-class enterprises in sectors like steel, mining, and energy.
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Discouragement of Monopoly and Concentration of Wealth: By creating a large public sector and regulating the private sector, the policy aimed to prevent the concentration of wealth among a few industrial houses, thereby promoting economic democracy.
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Regional Balance and Development: The policy encouraged industrial development in backward regions to reduce regional inequalities. Industrial projects were often located in areas with less industrial activity to provide employment opportunities and improve local infrastructure.
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Improved Labor Conditions and Industrial Relations: The policy emphasized protecting workers’ rights, fair wages, and improved working conditions. Industrial peace and cordial labor relations were viewed as essential for growth.
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Self-Sufficiency in Technology: The 1956 policy underscored the importance of indigenous technological development, aiming to reduce dependence on foreign technology. Investment in research and development was encouraged to achieve technological self-reliance.
Significance of the 1956 Industrial Policy
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Foundation for Economic Planning: The 1956 policy shaped the foundation for economic planning in India, especially through its focus on the public sector. It paved the way for developing numerous public sector enterprises, many of which played a key role in building India’s industrial base.
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Model for Future Industrial Policies: This policy introduced a framework that guided subsequent industrial policies and Five-Year Plans. It promoted a centralized, planned approach to economic development, with the State as the dominant force in key industries.
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Reduction in Foreign Dependence: By emphasizing capital goods and heavy industries, the policy aimed to reduce India’s dependence on imported machinery and technology, contributing to economic self-reliance.
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Balanced Growth and Regional Development: By directing investments to backward areas, the policy helped lay the groundwork for reducing regional economic disparities, a principle that would be revisited in future policies.
Limitations of the 1956 Industrial Policy
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Excessive Bureaucratic Control: The policy led to increased bureaucratic control over industries, causing delays and inefficiencies. The State’s heavy involvement in industry often translated to red tape and corruption, hampering industrial growth.
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Inefficient Public Sector: Despite its expansion, the public sector often struggled with inefficiency, mismanagement, and lack of accountability. Many public sector enterprises incurred losses and became financially unsustainable.
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Limited Private Sector Growth: The policy’s emphasis on the public sector restricted private sector growth in some key areas, which could have been more effectively developed with private investment and innovation.
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Slow Technological Advancement: While the policy aimed for self-sufficiency in technology, the focus on the public sector limited private investment in research and development, resulting in slower technological progress.
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Overemphasis on Heavy Industries: The focus on heavy industries sometimes came at the expense of small and medium enterprises (SMEs) and the consumer goods industry, which were crucial for generating employment and meeting domestic demand.
Legacy and Impact on Future Policies
The Industrial Policy of 1956 had a profound impact on India’s economic trajectory, shaping the country’s industrial framework for decades. It laid the groundwork for a mixed economy with a strong public sector presence, which remained the guiding philosophy until the economic reforms of 1991. While the policy helped build a solid industrial base, the inefficiencies and challenges in the public sector led to calls for economic liberalization in later years.
The legacy of the 1956 policy is evident in India’s infrastructure and industrial landscape, as many of the public sector enterprises established during this period continue to play vital roles in the economy.
Conclusion
The Industrial Policy Resolution of 1956 was a defining moment in India’s post-independence economic history. It aimed to build a socialist society with the State leading industrial growth. While it helped establish a strong public sector and laid the foundation for economic self-reliance, it also highlighted the limitations of excessive State control. For UPSC aspirants, understanding the 1956 policy is essential to grasp the evolution of India’s economic policies and the shift toward a liberalized economy in the 1990s.
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