Monday, March 28, 2011

Industrial licensing

Industrial Licensing is governed by the Industries development & Regulation Act, 1951. The Industrial Policy Resolution of 1956 identified the following three categories of industries:
• those that would be reserved for development in the public sector;
• those that would be permitted for development through private enterprise with or without State participation; and
• those in which investment initiatives would ordinarily emanate from private entrepreneurs.
Over the years, keeping in view the changing industrial scene in the country, the policy has undergone modifications. Industrial Licensing policy and procedures have also been liberalised from time to time. A full realisation of the industrial potential of the country calls for a continuation of this process of change.
In order to achieve the objectives of the strategy for the industrial sector for the 1990s and beyond, it is necessary to make a number of changes in the system of industrial approvals. Major policy initiatives and procedural reforms are called for in order to actively encourage and assist Indian entrepreneurs to exploit and meet the emerging domestic and global opportunities and challenges. The bedrock of any such package of measures must be to let the entrepreneurs make investment decisions on the basis of their own commercial judgment. The attainment of technological dynamism and international competitiveness requires that enterprises must be enabled to swiftly respond to fast changing external conditions that have become characteristic of today's industrial world. Government policy and procedures must be geared to assisting entrepreneurs in their efforts. This can be done only if the role played by the Government were to be changed from that of only exercising control to one of providing help and guidance by making essential procedures fully transparent and by eliminating delays.
The winds of change have been with us for some time. The industrial licensing system has been gradually moving away from the concept of capacity licensing. The system of reservations for public sector undertakings has been evolving towards an ethos of greater flexibility and private sector enterprise has been gradually allowed to enter into many of these areas on a case by case basis. Further inputs must be provided to these changes which alone can push this country towards the attainment of its entrepreneurial and industrial potential. This calls for bold and imaginative decisions designed to remove restraints on capacity creation, while, at the same time ensuring that overriding national interests are not jeoparadised.
In the above context, industrial licensing will henceforth be abolished for all industries, except those specified, irrespective of levels of investment. These specified industries will continue to be subject to compulsory licensing for reasons related to security and strategic concerning social reasons, problems related to safety and overriding environmental issues, manufacture of products of hazardous nature and articles of elitist consumption. The exemption from licensing will be particularly helpful to the many dynamic small and medium entrepreneurs who have been unnecessarily hampered by the licensing system. As a whole the Indian economy will benefit by becoming more competitive, more efficient and modem and will take its rightful place in the world of industrial progress.
Industrial licensing policy
i. Industrial Licensing will be abolished for all projects except for a short list of industries related to security and strategic concerns, social reasons, hazardous chemicals and overriding environmental reasons, and items of elitist consumption list attached as Annex II). Industries reserved for the small scales sector will continue to be so reserved.
ii. Areas where security and strategic concerns predominate will continue to be reserved for the public sector (list attached as Annex 1)
iii. In projects where imported capital goods are required, automatic clearance will be given -
a. in cases where foreign exchange availability is ensured through foreign equity, - or
b. if the c.i.f. value of imported capital goods required is less than 25 per cent of total value (net of taxes) of plant and - equipment, upto a maximum value of Rs 2 crore.
In view of the current difficult foreign exchange situation, this scheme [i.e., (iii)(b) will come into force from April 1992. In other cases, imports of capital goods will require clearance from the Secretariat of Industrial Assistance (SIA) in the Department of Industrial Development according to availability of foreign exchange resources.
i. In locations other than cities of more than 1 million population, there will be no requirement of obtaining industrial approvals from the Central Government except for industries subject to compulsory licensing. In respect of cities with population greater than 1 million, industries other than those of a non-polluting nature such as electronics, computer software and printing will be located outside 25 km. of the periphery, except in prior designated industrial areas. A flexible location policy would be adopted in respect of such cities (with population greater than 1 million) which require industrial regeneration. Zoning the land use regulation and environmental legislation will continue to regulate industrial locations. Appropriate incentives and the design of investments in infrastructure development will be used to promote the dispersal of industry particularly to rural and backward areas and to reduce congestion in cities.
ii. The system of phased manufacturing programmes run on an administrative case by case basis will not be applicable to new projects. Existing projects with such programmes will continue to be governed by them.
iii. Existing units will be provided a new broad banding facility to enable them to produce any article without additional investment
iv. The exemption from licensing will apply to all substantial expansions of existing units.
v. The mandatory convertibility clause will no longer be applicable for term loans from the financial institutions for new projects.
Procedural consequences
vi. All existing registration schemes (delicenced registration, exempted industries registration DGTD registration) will be abolished
vii. Entrepreneurs will henceforth only be required to file an information memorandum on new projects and substantial expansions.
viii. The lists at Annex n and Annex m will be notified in the India Trade Classification (Harmonized System).

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