Chapter 04

Industrial Licensing

INDUSTRIAL LICENSING IN INDIA

OBJECTIVES OF INDUSTRIAL LICENSING

The basic objectives of industrial licensing are as follows: 1. Planned industrial development through appropriate regulations and controls 2. Balanced industrial growth and development by regulating the, proper location of industrial units and check regional disparities 3. Directing industrial investment in accordance with plan priorities 4. Ensuring government control over industrial activities in India 5. Regulating the industrial capacity as per targets set for planned economy 6. Preventing concentration of industrial and economic power and monopoly 7. Checking unbalanced growth of industrial establishments and ensuring economic size of industrial units

Contd
8. Encouraging healthy entrepreneurship, while discouraging unhealthy competition, monopoly, and restrictive industrial practices 9. Broadening the industrial base in India through new entrepreneurship development and ensuring industrial dispersion 10. Protecting of small-scale industries against undue competition of large-scale industries 11. Utilising full capacity of large-scale industries 12. Utilising appropriate technology and 13. License was necessary to carry on an industrial activity. Licensing is mandatory in respect of starting a new unit, change in product, manufacturing a new product, effecting a substantial expansion by an established unit.

INDUSTRIAL LICENSING ACT OF 1951

The Industries (Development and Regulation [D&R]) Act of 1951 This Act came into effect on May 8, 1952. It had three important objectives: 1. To implement the industrial policy 2. To ensure regulation and development of important industries and 3. To ensure planning and future development of new undertakings

The Act applies to the whole of India, including the State of J&K, and to the industrial undertakings, manufacturing any of the products mentioned in the First Schedule, that is, where the manufacturing process is carried on
1.

2.

With the aid of power, and employing or employed on any day of the preceding 12 months 50 or more workers; or Without the aid of power, provided that 100 or more workers are working or worked on any day of the preceding 12 months.

The Act is applicable to industrial undertakings.

Provisions of Industries (D&R) Act of 1951

Curative Provisions
Curative provisions include 1. Taking over the management or control industrial enterprises, and 2. Control of supply, price, and distribution of certain commodities. Creative Provisions

Licensing was mandatory in respect of

a. Starting a new unit, b. Manufacturing a new product by an established unit, c. Effecting a substantial expansion by an established unit, and d. Changing a part or whole of an established undertaking, if the articles manufactured come under the First Schedule of the Industries (D&R) Act. Actually speaking, in order to carry on business (an industrial activity) license was necessary.

Exemptions from Licensing

INDUSTRIAL LICENSING POLICY

Industrial licensing in India can be studied in the following stages:
1. 2. 3. 4. 5. 6. Th e Industries (D&R) Act, 1951 Industrial Licensing Policy, 195160 Industrial Licensing Policy, 196070 Industrial licensing policy, 197077 Industrial Policy Statement, 198090 and Liberalisation in industrial licensing, 1991 and after

The Industries (Development & Regulation) Act of 1951

Main Provisions The important provisions of the Act are as follows: 1. All existing industrial undertakings in the scheduled industries, that is, industries which are listed in the First Schedule of this Act, should be registered with the government within the prescribed period and issued with a certificate of registration (Section 10). 2. Section 11 of the Act says that no new industrial undertakings of a major size can be started in the scheduled industry. 3. It is provided in the Act that an industrial undertaking cannot change the location of unit without the express permission of the Central government. 4. Section 12 states that the Central government can revoke the registration of license, in case of any misrepresentation and so on by the party concerned or failure on the part of the party to take effective steps. 5. Under Section 15 of the Act, the government can order an investigation into the working of an industrial undertaking.

Contd
6. The government can, under Section 16 of the Act, issue directions to the management in respect of prices, production, quality, and other areas of its performance for the progress of the industry and countrys economic development if investigation demands so. 7. Section 18 provides that in the event of the undertaking not carrying out these instructions, the government can take over its management for a specific period and appoint an authorized controller to manage the company. 8. Section 18G gives the Central government comprehensive powers to control and regulate the supply, distribution, and prices of any of the articles produced by an industry listed in Schedule A and no order made for this purpose can be called in question in a court of law. 9. For the purpose of advising the Central government on matters concerning the D&R of scheduled industries, Section 5 of the Act authorizes the establishment of a Central Advisory Council (CAC) with necessary sub-committees and standing committees. 10. Development councils are to be constituted in respect of each scheduled industry or group of industries (Section 6).

Industrial Licensing Policy of 195160

Industrial Licensing Policy of 196070

The industrial licensing policy came in for sharp criticism from various committees. The main criticisms levelled against it were promotion of large industrial houses and usage of some unethical practices followed by a section of large business houses.

Industrial Licensing Policies of 1970 80

Industrial Licensing Policy of 1977

Industrial Policy Statement of 198090

The General Elections of 1980 and the return to power of the Congress Party brought about the Industrial Policy Statement of 1980 and 1982.

No industrial license was required for small-scale units to produce any of the items reserved for the sector under the following conditions: 1. The unit should not belong to any dominant undertaking as defi ned in the MRTP Act. 2. The unit and other interconnected unit together should not possess assets exceeding Rs 20 crore. 3. In respect of foreign ownership, there should not be over 40 per cent equity owned by foreign companies or subsidiaries or foreign individuals. 4. The items produced should not belong to the Schedule A category.

POLICY DECISIONS

Foreign Investment

Approval will be given for foreign direct investment (FDI) up to 51 per cent foreign equity in high-priority industries the payment of dividends would be made through the Reserve Bank of India to ensure that outflows on account of dividend payments are balanced by export earnings over a period of time. Other foreign equity proposals, including proposals involving 51 per cent foreign equity, which do not meet the criteria under first point given before, will continue to need prior clearance. To provide access to international markets, majority foreign equity holding up to 51 per cent will be allowed for trading companies, primarily engaged in export activities. A special Empowered Board would be constituted to negotiate with a number of large international firms and approve FDI in select areas.

Foreign Technology Agreements

Automatic

permission will be given for foreign technology agreements in high-priority industries (Annexure III) In respect of industries other than those in Annexure III, automatic permission will be given, All other proposals will need specific approval under the general procedure in force. No permission will be necessary for hiring foreign technicians and foreign testing of indigenously developed technologies

Public Sector

The portfolio of public sector investments will be reviewed with a view to focus the public sector on strategic, high-tech, and essential infrastructure. Public sector enterprises which are chronically sick and are unlikely to be turned around will, for the formulation of revival/rehabilitation schemes, be referred to the Board for Industrial and Financial Reconstruction (BIFR) In order to raise resources and encourage wider public participation, a part of the governments shareholding in the public sector would be offered to mutual funds, financial institutions, general public, and workers. The boards of public sector companies would be made more professional and given greater powers. There will be a greater thrust on performance improvement through the Memoranda of Understanding (MoU) systems through which management would be granted greater autonomy and will be held accountable. To facilitate a fuller discussion on performance, the MoU signed between government and the public enterprise would be placed in Parliament

MRTP Act

The MRTP Act will be amended to remove the threshold limits of assets in respect of MRTP companies and dominant undertakings Emphasis will be placed on controlling and regulating monopolistic, restrictive, and unfair trade practices Necessary comprehensive amendments will be made in the MRTP Act in this regard and for enabling the MRTP Commission to exercise punitive and compensatory powers.

RECENT INDUSTRIAL LICENSING POLICY

Industrial licensing has been abolished for most items. Presently, Industrial licensing is required in the following cases:

Foreign Direct Investment (FDI)

1.

Policy Liberalisation/Rationalisation a. b. c. d. e. f. g. h. i. j. k. l. FDI up to 100 per cent under the automatic route permitted in construction development projects FDI caps have been increased to 100 per cent and automatic route extended to coal and lignite mining for captive consumptions setting up of infrastructure relating to industry marketing in petroleum and natural gasas sector, and exploration and mining of diamonds and precious stones. FDI has been allowed up to 100 per cent on the automatic route in power trading and processing and warehousing of coffee and rubber. FDI has been allowed up to 51 per cent for single brand product retailing which requires prior government approval.Specific guidelines have been issued for governing FDI for single brand product retailing. FDI up to 49 per cent allowed with prior government approval in air transport services. FDI up to 100 per cent allowed on the automatic route in greenfield airport projects. FDI up to 100 per cent also allowed in existing airports but FDI beyond 74 per cent requiresprior government approval. Mandatory divestment condition for B2B (business-to-business) e-commerce has been dispensed with. FDI cap in basic and cellular telecom services has been enhanced from 49 per cent to 74 per cent. Detailed guidelines have been notified vide Press Note 5 (2005 series), substituted by Press Note 3 (2007). FDI is being allowed along with FII and portfolio investing within the ceiling of 20 per cent in the FM radio broadcasting services. FDI up to 49 per cent allowed with prior government approval for setting up uplinking hub/teleports. FDI up to 100 per cent allowed with prior government approval for uplinking non-news TV channels. FDI up to 26 per cent allowed in uplinking news and current affairs TV channels.

Foreign Direct Investment (FDI)

2. Procedural Simplification a. b. c. d. FDI is permissible under the automatic route wherever the sectoral policy so specifies, Transfer of shares from resident to non-resident (including NRIs) placed on the automatic Route Conversion of ECBs and preference shares on the automatic route. FDI in manufacturing sector, including those where an industrial licence is required, has been allowed on the automatic route without any caps.