Question

Critically appraise the Industrial Licensing policy initiated by the government during the planning period of India.

Hint:

Give both sides. Licensing aimed at balanced regional growth and checking concentration of economic power. But it brought delays, corruption, less competition and wasteful use of resources.

Answer 1

Step 1: Meaning of industrial licensing:
Under the Industrial Policy Resolution of 1956 (IPR 1956), no industrial unit could be started, expanded or changed in output without prior permission from the government.
This permission was called a licence. The question asks us to appraise it, so we must give both merits and demerits.

Step 2: Aims and merits:
The first aim was balanced regional growth. Licences were given so that units could be set up in backward areas.
The second aim was to stop concentration of economic power in a few big business houses.
Licensing also guided the pattern of industrialisation and protected small industries from large rivals in the early years.

Step 3: Demerits:
Getting a licence meant long delays and many forms. This is called bureaucratic delay.
It encouraged corruption, since firms paid to get approvals.
Competition fell. Existing firms with licences earned easy profits and had no push to cut costs.
Resources went to the wrong uses, as the government, not the market, decided what to produce and how much.

Step 4: Overall appraisal:
Licensing helped at the start, but over time its costs became larger than its gains. It slowed growth and led to the reforms of 1991.

Final Answer:
Industrial licensing began with sound aims of balanced regional growth and checking concentration of economic power. In practice it caused delays, corruption, low competition and poor use of resources, so it hindered growth.