33. The Industries (Development and Regulation) Act – Business Environment

33

THE INDUSTRIES (DEVELOPMENT AND REGULATION) ACT

After reading this chapter, you will understand the Industries (Development and Regulation) Act, an important piece of economic legislation that laid its imprints on all kinds of economic activities—especially industrial development in the Indian economy prior to 1991. A clear understanding of IDRA is very important to know how it constricted the country's industrial growth and how its replacement with a new economic policy helped accelerate our over all economic growth.

Faster growth of the industrial sector on a sustained basis is a major determinant of a country's overall economic development. With the view to quicken the phase of industrial development, the Government of India has been putting a set of industrial policies in place, from time to time, to facilitate and foster the growth of Indian industry and improve its productivity and competitiveness in the global market.

In order to equip the Central Government with the powers to implement its industrial policies, several legislations have been enacted and also amended in due course in response to the changing environment. The most important of the pieces of these legislations was the Industries (Development and Regulation) Act, 1951 (IDRA) enacted in pursuance of the Industrial Policy Resolution, 1948. The Act was framed for the purpose of development and regulation of industries in India by the Central Government.

The Industries (Development and Regulation) Act (IDRA) came into force on 6 May, 1952. The Act was also enacted to empower the Central Government to implement the industrial policy and direct the industrial development of the country.

OBJECTIVES

“The main objective of the Act is to empower the Government: (i) to take necessary steps for the development of industries; (ii) to regulate the pattern and direction of industrial development; (iii) to control the activities, performance and results of industrial undertakings in the public interest”.1 The Act is applicable to the “Scheduled Industries” placed in the First Schedule of the Act. Small-scale industrial business units and ancillary units are exempted from the provisions of this Act.

The IDRA seeks to ensure planned industrial development of the country by regulating, controlling and developing industries that have been included in the Schedule to the Act. These industries are known as scheduled industries. The Act provides for licensing of new undertakings, registration of existing undertakings, and regulating the production and development of industries. Provision has also been made for the constitution of a Central Advisory Council and Development Councils.

IDRA'S IMPLEMENTING AUTHORITY

The Act is implemented by the Ministry of Industries and Commerce through its Department of Industrial Policy & Promotion (DIPP). The DIPP is the agency meant to formulate and implement promotional and growth measures for the development of the industrial sector. It guides the industrial growth and production, in general, and preferred industrial sectors, such as cement, paper and pulp, leather, tyre and rubber, light electrical industries, consumer goods, consumer durables, light machine tools, light industrial machinery, light engineering industries, etc., in particular. It also facilitates the enhancement of the foreign direct investment (FDI) inflow into the country as well as for promoting the acquisition of technological capability in various sectors of the industry.

The various provisions of the Industries (Development and Regulation) Act, 1951 are discussed in the following sections.

The Central Advisory Council

The Central Advisory Council was set up with the objective of advising the Central Government on matters pertaining to the growth of the industries, framing of any rules and any other matter related with the management of the Act. Its members comprise persons representing the owners of industrial units, employees, consumers, primary suppliers, etc.

The Development Council

The Development Council was set up with the objective of developing any scheduled industry or a group of scheduled industries. This council has the members representing diverse interests such as those of the owners, employees, consumers, etc. and persons having special knowledge on matters involving the technical or other aspects of the industries. The Development Council carries out the following functions assigned to it by the Central Government: (i) Suggesting targets for production, coordinating production programmes and reviewing progress made from time to time; (ii) Recommending norms of efficiency with a view to eradicate waste, realize maximum production, enhance the quality and reduce costs; (iii) Suggesting ways and means of securing the fuller utilization of the installed capacity and for improving the working of the industry, particularly of the less efficient units; (iv) Making arrangements for better marketing and helping in the planning of a system of distribution and sale of the produce of the industry which would satisfy the consumer and (v) Putting in place a system of training of persons engaged or waiting for engagement in the industry and their education in technical or artistic subjects relevant thereto, etc.

The Development Council prepares a yearly report detailing what has been done in fulfilling its functions during the last financial year and passes it on to the Central Government and the advisory council. The report includes a statement of the accounts of the Development Council for that particular year, along with a copy of any report made by the auditors on the accounts.

Registration of Existing Industrial Undertakings

Under Section 10 of IDRA, the owner of every existing industrial unit should register the unit in the prescribed manner and within the specified period. Once an industrial undertaking is so registered, a certificate of registration listing the productive capacity of the unit and such other details as may be prescribed shall be issued.

Specifying the productive capacity in the certificate of registration, the Central Government shall take into account the following:

  1. The productive or installed capacity for the unit as given in the application for registration
  2. Level of production attained by the unit just before the date on which the application for registration was made
  3. The highest level of annual production attained during the three years
  4. The quantum of production set aside for export during the said period
  5. Such other factors as the Central Government may consider significant like the extent or under-utilization or capacity, if any, during the relevant period due to any cause

Registration of an industrial unit is not necessary if it is (i) a small-scale industrial undertaking; or (ii) is otherwise exempt from the licensing registration provisions of this Act; or (iii) where the unit concerned is not satisfying the definition of the term “factory” under the Act.

The Central Government is empowered to revoke the registration of any industrial unit if it is satisfied that: (i) it was obtained by misrepresentation of essential facts; or (ii) the unit has ceased to be registrable by reason of any exemption granted under the Act; or (iii) for any other reason the registration has become useless or ineffective and, therefore, requires to be revoked.

The Government to Issue Licences

The IDRA provides the Central Government with powers to regulate the growth of industries by means of licensing with appropriate exemptions as determined by the government. In view of the Act, a licence is necessary for the entry of an enterprise into a business or the expansion of an existing business. A licence is a written document providing permission from the government to an industrial unit to produce specified products placed in the Schedule to the Act. It has particulars of the industrial unit, its location, the goods to be manufactured, its capacity on the basis of the maximum utilization of plant and machinery, and other appropriate conditions which are enforceable under the Act.

When an application for licence is approved and further clearance (such as that of foreign collaboration and capital goods import) are not required and no other prior conditions have to be fulfilled, an industrial licence is issued to the applicant. In other cases, a letter of intent is issued, which conveys the intention of the government to grant a licence subject to the fulfilment of certain conditions such as approval of foreign investment proposal, import of capital goods, etc.

The Government's Power to Investigate

The government may order investigation before the grant of licence to an industrial unit, if it is found necessary. The Central Government can undertake full and complete investigation if it is convinced that there has been or is likely to be: (i) a considerable fall in the volume of output in the respect of any schedule industry or undertaking; or (ii) a marked fall in the quality of output or an unwarranted rise in the price of the output. Also, if it is of the opinion that any industrial undertaking is being managed in a manner highly prejudicial to the scheduled industry concerned or to the public interest, it orders investigation.

The Government's Power to Issue Directions

Following such investigations, the government has powers to issue directions to the industrial undertaking for all or any of the following purposes:

  • Controlling the manufacture of output by the industrial unit and fixing the standards of production
  • Requiring the industrial undertaking to take such steps as the central government may consider necessary to encourage the development of the industry to which the undertaking relate
  • Preventing the industrial unit from following any act or practice which might bring down its production, capacity or economic value
  • Regulating the prices, or controlling the distribution, of an output for ensuring its equitable distribution and availability at fair prices

The Act also lays down that any such directions may be issued by the central government at any time when a case concerning to any industrial undertaking is under investigation. These directions shall be under force until they are varied or revoked by the central government.

The power of control given to the central government under the Act extends to that of the takeover of the management of the whole or any part of an industrial undertaking which fails to follow any of the directions mentioned above. The government can also take over the management of an undertaking which is being managed in a manner highly prejudicial to the scheduled industry concerned or inimical to the public interest. Further, the central government can take over the management of industrial undertaking owned by a company being wound up, with the approval of the High Court, if the government is of the considered opinion that the running or restarting the operations of such an undertaking is necessary in the public interest for the maintaining or increasing the production, supply or distribution.

Until the launch of the New Economic Policy, 1991, the industrial licence was needed for the setting up of a new industrial undertaking, production of a new item by an existing undertaking, change of location of an industry, considerable expansion of existing capacity and for all other purposes. But the new industrial policy has liberalized this and exempted many industries from obtaining industrial licence. Only six categories of industries need industrial licensing now under the Industries (Development and Regulation) Act, 1951 (IDRA). Such industries file an Industrial Entrepreneur Memoranda (IEM) with the Secretariat of Industrial Assistance (SIA), Department of Industrial Policy and Promotion to obtain an acknowledgement.2

LICENSING UNDER THE NEW POLICY

The Industrial Policy announced on 24 July, 1991 has abolished industrial licensing except for certain industries related to security and strategic considerations, hazardous chemicals and environmental concerns. Now all industrial undertakings are exempt from obtaining an industrial licence, except for (i) industries reserved for the public sector, (ii) industries retained under compulsory licensing, (iii) items of manufacture reserved for the small-scale sector and (iv) proposals involving location restrictions.

  1. Powers to investigate, control and takeover: The IDRA empowers the central government to make a full and complete investigation of an industrial undertaking, if it is of the opinion that the scheduled industry or undertaking has resulted in a substantial fall in the volume of output, or a marked deterioration in the quantity of output, or an unjustifiable rise in the price of the output, or any industrial undertaking is managed in a manner highly detrimental to the scheduled industry concerned or to the public interest.
  2. Takeover of management: The Act also empowers the central government to take over the management of the whole or any part of an industrial undertaking without investigation under the following circumstances:
    1. Reckless investment or creation of encumbrances on the assets of the industrial undertaking, or division of funds has brought about a situation which is likely to affect the production of the undertaking, and immediate action is necessary to prevent such a situation, or
    2. The undertaking has been closed for a period of not less than 3 months and such closure is prejudicial to the concerned industry and that the financial condition of the company is such that it is possible to restart the undertaking in public interest.
  3. Power to control, supply, distribution, price, etc.: The central government is empowered to control the supply, distribution and price of any article or class of articles related to any scheduled industry for securing its equitable distribution and availability at fair prices.

The provisions of the Industries (Development and Regulation) Act, 1951 were considered draconian by industrialists who were as harassed by it as FERA. Using this Act, the government extensively controlled the industrial sector. The Act was used to harass genuine entrepreneurs who wanted to put up industries. Its by-products were rampant corruption, over-regulation and control, the Licence and Permit Raj, cost-runs and time-runs in obtaining license and establishing enterprises. Mercifully, the Industrial Policy of 1991 has put an end to the Act. The new policy abolished all industrial licensing, irrespective of the level of investment, but for certain industries pertaining to security and strategic concerns, social reasons, concerns relating to safety, environmental issues, production of hazardous goods and articles of elitist consumption. The Act has thus been put to an end rather unceremoniously and with good reasons.

SUMMARY
  • Faster growth of the industrial sector on a sustained basis is a major determinant of a country's overall economic development.
  • To equip the central government with the powers to implement its industrial policies, several legislations have been enacted and also amended in due course in response to the changing environment. The Industries (Development and Regulation) Act (IDRA) came into force on 6 May, 1952.
  • The main objectives of the Act is to empower the government:- (i) to take necessary steps for the development of industries; (ii) to regulate the pattern and direction of industrial development and (iii) to control the activities, performance and results of industrial undertakings in the public interest.
  • The IDRA seeks to ensure the planned industrial development of the country by regulating, controlling and developing industries that have been included in the Schedule to the Act. The Act provides for licensing of new undertakings, registration of existing undertakings regulating the production and development of industries.
KEY WORDS
development council enforceable foreign collaboration
industrial development industrial policies industrial undertaking
Licence and Permit Raj scheduled industries specified products
technological capability    
DISCUSSION QUESTIONS
  1. Write a critique on Industries (Development and Regulation) Act.
  2. What are the objectives of IDRA? How were they implemented in actual practice?
  3. What kinds of powers the Government of India enjoyed under IDRA? To what extent these powers were used/misused to realize the objectives for which IDRA was made?
SUGGESTED READINGS

Datta, R. and K. P. M. Sundaram. Indian Economy. New Delhi: S. Chand and Company Pvt Ltd., 2009.

Government of India, Industries (Development and Regulation) Act 1951, Delhi.

Misra, S. K. and V. K. Puri. Indian Economy. Mumbai: Himalaya Publishing House, 1998.

“Legal Aspects, Industrial Acts and Legislations”, Industries (Development and Regulation) Act 1951, http://business.gov.in/legalaspects/industries_act.php.