Industrial Licensing

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Chapter 04Industrial Licensing


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INDUSTRIAL LICENSING IN INDIA


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OBJECTIVES OF INDUSTRIAL LICENSING

The basic objectives of industrial licensing are as follows:1. Planned industrial development through appropriate

regulations and controls2. Balanced industrial growth and development by regulating

the, proper location of industrial units and check regionaldisparities

3. Directing industrial investment in accordance with planpriorities

4. Ensuring government control over industrial activities in India5. Regulating the industrial capacity as per targets set for

planned economy6. Preventing concentration of industrial and economic power

and monopoly7. Checking unbalanced growth of industrial establishments and

ensuring economic size of industrial units


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Contd

8. Encouraging healthy entrepreneurship, while discouragingunhealthy competition, monopoly, andrestrictive industrial practices

9. Broadening the industrial base in India through new

entrepreneurship development and ensuringindustrial dispersion10. Protecting of small-scale industries against undue

competition of large-scale industries11. Utilising full capacity of large-scale industries

12. Utilising appropriate technology and13. License was necessary to carry on an industrial activity.

Licensing is mandatory in respectof starting a new unit, change in product, manufacturing

a new product, effecting a substantial

expansion by an established unit.


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INDUSTRIAL LICENSING ACT OF1951

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 policy2. 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 theindustrial undertakings, manufacturing any of the products mentioned in theFirst Schedule, that is, where the manufacturing process is carried on

1. With the aid of power, and employing or employed on any day of thepreceding 12 months 50 or more workers; or

2. Without the aid of power, provided that 100 or more workers are working orworked on any day of the preceding 12 months.

The Act is applicable to industrial undertakings.


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Provisions of Industries (D&R)Act of 1951


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Curative Provisions

Curative provisions include1. Taking over the management or control industrial enterprises, and2. 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, andd. 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 industrialactivity) license was necessary.


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Exemptions from Licensing


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INDUSTRIAL LICENSING POLICY

Industrial licensing in India can be studied in

the following stages:

1. Th e Industries (D&R) Act, 19512. Industrial Licensing Policy, 195160

3. Industrial Licensing Policy, 196070

4. Industrial licensing policy, 197077

5. Industrial Policy Statement, 198090 and

6. Liberalisation in industrial licensing, 1991 and after


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The Industries(Development & Regulation) Act of 1951

Main ProvisionsThe 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 amajor size can be started in the scheduled industry.

3. It is provided in the Act that an industrial undertaking cannotchange the location of unit without the express permission of theCentral government.

4. Section 12 states that the Central government can revoke theregistration of license, in case of any misrepresentation and so onby the party concerned or failure on the part of the party to takeeffective steps.

5. Under Section 15 of the Act, the government can order an

investigation into the working of an industrial undertaking.


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6. The government can, under Section 16 of the Act, issue directions tothe management in respect of prices, production, quality, and otherareas of its performance for the progress of the industry and countryseconomic development if investigation demands so.

7. Section 18 provides that in the event of the undertaking not carryingout these instructions, the government can take over its managementfor a specific period and appoint an authorized controller to managethe company.

8. Section 18G gives the Central government comprehensive powers tocontrol and regulate the supply, distribution, and prices of any of thearticles produced by an industry listed in Schedule A and no ordermade for this purpose can be called in question in a court of law.

9. For the purpose of advising the Central government on mattersconcerning the D&R of scheduled industries, Section 5 of the Actauthorizes the establishment of a Central Advisory Council (CAC) withnecessary sub-committees and standing committees.

10. Development councils are to be constituted in respect of eachscheduled industry or group of industries (Section 6).


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Industrial Licensing Policy of 195160


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The industrial licensing policy came in for sharp criticismfrom various committees. The main criticisms levelledagainst it were promotion of large industrial houses andusage of some unethical practices followed by a section of

large business houses.


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Industrial Licensing Policies of 197080


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Industrial Policy Statement of198090

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

No industrial license was required for small-scale units to produce any ofthe 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 foreignindividuals.

4. The items produced should not belong to the Schedule A category.


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POLICY DECISIONS


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Foreign Investment

Approval will be given for foreign direct investment (FDI) up to 51 percent foreign equity in high-priority industries

the payment of dividends would be made through the Reserve Bank ofIndia to ensure that outflows on account of dividend payments arebalanced by export earnings over a period of time.

Other foreign equity proposals, including proposals involving 51 percent foreign equity,

which do not meet the criteria under first point given before, willcontinue to need prior clearance.

To provide access to international markets, majority foreign equityholding up to

51 per cent will be allowed for trading companies, primarily engaged inexport activities. A special Empowered Board would be constituted to negotiate with a

number of large international firms and approve FDI in select areas.


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Foreign Technology Agreements

Automatic permission will be given for foreigntechnology agreements in high-priority industries(Annexure III)

In respect of industries other than those inAnnexure III, automatic permission will be given,

All other proposals will need specific approvalunder the general procedure in force.

No permission will be necessary for hiring foreigntechnicians and foreign testing of indigenouslydeveloped technologies


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Public Sector

The portfolio of public sector investments will be reviewed with a view to focusthe public sector on strategic, high-tech, and essential infrastructure.

Public sector enterprises which are chronically sick and are unlikely to beturned around will, for the formulation of revival/rehabilitation schemes, bereferred 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


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MRTP Act

The MRTP Act will be amended to remove the threshold limitsof assets in respect of MRTP companies and dominantundertakings

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 Commissionto exercise punitive and compensatory powers.


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RECENT INDUSTRIAL LICENSING POLICY

Industrial licensing has been abolished for most

items. Presently, Industrial licensing is required inthe following cases:


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Foreign Direct Investment (FDI)

1. Policy Liberalisation/Rationalisation

a. FDI up to 100 per cent under the automatic route permitted in construction development projectsb. 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.

c. FDI has been allowed up to 100 per cent on the automatic route in power trading and processing andwarehousing of coffee and rubber.

d. 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.e. FDI up to 49 per cent allowed with prior government approval in air transport services.f. 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.g. Mandatory divestment condition for B2B (business-to-business) e-commerce has been dispensed with.h. 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).i. FDI is being allowed along with FII and portfolio investing within the ceiling of 20 per cent in the FM radio

broadcasting services.

j. FDI up to 49 per cent allowed with prior government approval for setting up uplinking hub/teleports.k. FDI up to 100 per cent allowed with prior government approval for uplinking non-news TV channels.l. FDI up to 26 per cent allowed in uplinking news and current affairs TV channels.


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Foreign Direct Investment (FDI)

2. Procedural Simplification

a. FDI is permissible under the automatic route wherever the sectoralpolicy so specifies,

b. Transfer of shares from resident to non-resident (including NRIs)placed on the automatic Route

c. Conversion of ECBs and preference shares on the automatic route.

d. FDI in manufacturing sector, including those where an industriallicence is required, has been allowed on the automatic route withoutany caps.


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Industrial Licensing

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