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Updated on September 8, 2012


Immediately after independence India adopted the soviet model of initiating planned growth. To achieve this THE NEHRU MAHALANOBIS model of economic growth was adopted. The emphasis was on developing heavy industries which needed large investments, long gestation period and were usually monopolies. These core areas were to be entrusted to the public sector with the private sector playing a supportive role. This primacy of the public sector was spelt out in the industrial resolution policy of 1956.As per this industries were classified into three categories, as schedule A, schedule B and schedule C. Schedule A and B contained all the key and basic industries. Of these 29 industries were exclusively reserved for the public sector. Schedule C contained the rest of the industries and private sector could operate only in this area.

The outcome was that public sector expanded very fast and import substitution achieved. There was impressive growth in industries like mining, metallurgical, chemical, petrochemical and fertilizers. The early emphasis was on reducing reliance on import and to improve foreign exchange earnings. But the problem was that the government lacked resources to mobilize funds for larger projects. The private sector which had an impressive pool of talent and funds was underutilized.


Globally great changes were taken place. Trade barriers were greatly reduced and a better environment was created for a flow of capital between countries. There was also not much obstruction to flow of technology or that of labor. This process called globalization had its impact on India too. The government was forced to re examine its industrial policy of 1956 and come out with a new one. Though the government had revised its industrial policy in 1977 and 1980, the new industrial policy of 1991 was drastically different and of far reaching impact.


The industrial policy of 1991 was aimed at unshackling the economy from bureaucratic control. It was the first major attempt to dismantle the “LICENSE QUOTA RAJ” The government introduced the policy of liberalization and restrictions on foreign direct investments in select areas were removed. The domestic industries too were given relief from the monopolies and restrictive trade practices act, thereby permitting them to expand and grow. The government also decided to disinvest loss making public sector units.

The initiatives in promoting privatization were in the form of three sets of measures. They were:

1. Ownership measures: There was to be total denationalization and liquidation of assets.

2. Organizational measures: By resorting to this the government intervention in industries was restricted to just policy making and leasing of assets. Financial restructuring was also incorporated in this.

3. Operational measures: This was intended to grant autonomy and inject the spirit of commercialization.


This was a situation of reversal of role. Private sector was to take the initiative and make investment for the growth of the economy and public sector was to play a supportive role. The result of this was that exclusive reservation for public sector was almost done away with. Many public sectors were privatized and industrial licensing was almost scrapped. This was accompanied by an open door policy to foreign capital followed by rationalization of tax structure. The reforms were however not total. There are still areas where FDI was not liberalized. The retail sector for example has not been opened up owing to objections from domestic retailers who fear the entry of big supermarkets in India would smother them.


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  • ram_m profile image

    ram_m 5 years ago from India

    Thank you sir for your excellent and apt comment. You have correctly highlighted were Indian economy faltered. Indeed as competition is here to stay there are certain reforms which we just cannot skip. But will our politicians be brave enough to sacrifice populist policies?

  • pramodgokhale profile image

    pramodgokhale 5 years ago from Pune( India)

    This hub is informative. There are different school of thoughts over mixed economy.At the time of independence there was no choice but to go for socialist and controlled economy , heavy industry was built and it's importance was proved during wars with neighbors , we were able to win the war.

    Later our public sector under political influence became lethargic and less performing, critique pointed out that our development frame was rigid and does not allow creativity and productivity and more relied on numerical calculations.

    Stimulus which was required that time to push India on global economic scene as an industrial power , was not exercised, otherwise India could have achieved two decades earlier which was done in 1991 by opening economy. Permit-Raj was curse on our industrial development and we suffered.

    Walmart can be restricted but not for long. Instead foreign retailer if we have an Indian chain then how can you stop? Growing middle class is a deciding factor and this class will choose what is required and customer service will be the critical factor.

    India will continue her reforms but at her will ,and not under pressures of foreign powers.

    At last we need to perform and govern under any kind of economy whether mixed or free market. We must perform.

    thank you sir

    pramod gokhale

  • ram_m profile image

    ram_m 5 years ago from India

    Thank you A.A.Zavala your observation is correct. There is strong opposition to this and one of the persistent demand is that India is not doing enough to speed up reforms. The Government therefore has put this on hold.Hope they do not buckle to pressures at a later date.But as there is a coalition government now, they would not take a hasty decision and upset the applecart. Glad to know your opinion

  • A.A. Zavala profile image

    Augustine A Zavala 5 years ago from Texas

    I think the domestic retailers fear are real. Walmart has come in and decimated many local grocery chains in their dominance of the market. However, they've lost ground back to other chains as consumers clammer for more choices. Walmart and other big chains limit the choices in products they offer, because it steamlines inventory and increases profits. However, other retailers have jumped on this weakness and have flourished. Another interesting hub. Thank you for sharing.