Question

Explain briefly the rationale behind the ‘License Raj’ under the Industrial Policy Resolution, 1956.

Hint:

IPR 1956 used licenses to control the private sector. Licenses were easier for backward areas (regional equality) and were needed for expansion, so output would not exceed the need of the economy.

Answer 1

Step 1: Understand the term:
The Industrial Policy Resolution (IPR), 1956 let the private sector work, but under control. The control came through a system of industrial licenses.
This system came to be called "License Raj". The question asks why the government chose it.

Step 2: Reason 1: regional equality:
The policy aimed at achieving regional equality.
The government made it relatively easier to get a license for units set up in economically backward areas.
So industry would reach areas that private firms would otherwise avoid.

Step 3: Reason 2: control over output:
A license was also needed to expand output or to diversify it in an existing unit.
This was meant to ensure that the quantity of goods produced was not more than what the economy required.
In this way the government planned to avoid waste of scarce resources and match supply with the needs of the plan.

Step 4: Putting it together:
License Raj was a tool to steer private investment in line with the plan. It was used to spread industry to backward regions and to keep output in line with demand.

Final Answer:
The rationale of License Raj under IPR 1956 was to regulate the private sector through licenses, so as to promote regional equality (easier licenses for backward areas) and to see that output did not exceed the requirement of the economy.