NEW INDUSTRIAL POLICY

Summary

Minoo R. Shroff’s public lecture, delivered under the auspices of the Forum of Free Enterprise on 27 February 1978 and issued as a Forum booklet, reads the Janata government’s December 1977 industrial policy statement against the November 1977 economic policy of the ruling party. Shroff finds the document a ‘mixture of politics and economics’ that breaks no radical ground from the 1948 and 1956 industrial resolutions but does abandon built-in ideological bias, rejecting both capitalism and communism in favour of a Gandhian framework that decentralises the economic apparatus and lifts agriculture, rural development and cottage and village industry to the centre of planning.

Shroff walks through the policy’s four-part architecture — a sharply expanded small-scale reservation (504 items, up from about 180), a residual large-scale sector hemmed in by the MRTP Act and forced to rely on internally generated resources, an expanding public sector charged with stabilising essential supplies, and a technology policy that allows imports only where domestic capability is inadequate. He grants the political logic of a labour-intensive thrust (citing Finance Minister H. M. Patel’s caveat that ‘wasteful techniques’ must not be used merely because they employ more people) but rejects the proposition that 7-8 million new jobs can come from the small-scale sector alone, calling the assumption ‘fallacious’ and arguing employment growth must be tackled outside industry.

The sharper polemic concerns the model itself. Shroff defends the modern-technology choice India made in the 1950s and early 1960s — which placed her among the ten most industrialised nations and built a diversified export base and capital-goods capability — and warns against the China analogy, noting that fifteen years of small-scale rural concentration there ‘put the clock back in terms of industrial progress’. He marshals Annual Survey of Industries data, Economic Times tables on corporate capital formation for 101 large and medium companies, and the 22 January 1978 white paper on national income (private corporate net capital formation halved in 1976-77; savings fell from Rs. 314 crores to Rs. 116 crores) to argue that unrealistic pricing, heavy corporate taxation and historical-cost depreciation have eroded the very large houses now expected to finance new capacity.

Shroff closes with a procedural verdict rather than an ideological one: policy pronouncements and good intentions count for little without the political will, administrative vigour and orchestration of governmental machinery to convert them into reality — an outcome, he says, ‘yet to be demonstrated’.

Key points

• Frames the December 1977 industrial policy as a ‘mixture of politics and economics’ that must be read alongside the Janata Party’s November 1977 economic policy statement.

• Identifies the only real departure from the 1948 and 1956 resolutions as the absence of built-in ideological bias — the new statement rejects capitalism and communism and stands ‘squarely for Gandhian economic thought and philosophy’.

• Documents the expanded small-scale reservation (504 items vs. ~180 earlier), the special focus on tiny units (investment up to Rs. 1 lac in towns under 50,000), and the licensing/MRTP constraints placed on larger houses, including the expectation that expansion be financed from internally generated resources.

• Quotes Finance Minister H. M. Patel acknowledging that labour-intensive techniques must not become a euphemism for ‘wasteful’ ones, and that strategy must weigh social cost against private-cost calculations.

• Marshals 1975-76 Annual Survey of Industries figures showing organised-sector industrial employment of 4.56 million with virtually no growth over four years; capital per employee of Rs. 4,500 (small), Rs. 17,250 (medium) and Rs. 33,395 (large); and employee-productivity growth of 3.5% in large-scale versus 1.7% in small-scale.

• Rejects as ‘fallacious’ the assumption that 7-8 million new industrial jobs can be created in a decade by extrapolating recent small-scale growth, arguing the bulk of employment generation must occur outside industry.

• Defends India’s 1950s-60s choice of modern-technology industrialisation and invokes the Chinese experience — fifteen years of small-scale rural concentration that ‘put the clock back in terms of industrial progress’ — as a cautionary example.

• Uses Economic Times capital-formation data for 101 large/medium private corporates and the 22 January 1978 white paper (net private corporate capital formation halved 1975-76 to 1976-77; savings fell from Rs. 314 crores to Rs. 116 crores) to argue pricing, taxation and depreciation policy must change if large houses are to fulfil the role assigned to them.

• Closes with an administrative verdict: policy pronouncements are inert without political will and a governmental machinery that ‘orchestrates as a team’ — something ‘yet to be demonstrated’.