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Friday, February 21, 2014

Industrial Development and Regulation Act

The Industries (Development and Regulation) Act, 1951

The Industrial Development and Regulation Act, 1951 is an important piece of legislation affecting the industrial sector of the country.

The provisions of this Act not only influence the product decisions, but also the pricing and distribution decisions of companies in India.

In order to equip the new challenges posed by the changed national and global economic environment the government was compelled to issue the new industrial policy statement on 24th July 1991 which incorporates various liberalisation measures directed towards unshackling the Indian industry from Administrative and legal controls.


The Act, provides Central government means of implementing the industrial policy. The preamble to the Act states that I (D&R) Act is an act to provide for the development and regulation of certain industries which are specified in the first schedule of the Act known as "Scheduled Industries". The central government has no powers to add any new undertakings to the first schedule mentioned above.

The central government has framed the "Registration and licensing of Industrial undertaking Rules 1952" which prescribes the general procedures to be followed for the purpose of regulation and licensing of an industrial undertaking.

You may note that I(D&R) Act primarily deals with
a)   developmental aspects
b)   regulating aspects of scheduled industries as specified in the first schedule of the Act.

Regulation of scheduled industries is sought to be done by means of a system of
a)   registration of existing undertakings
b)   licensing of new undertakings for producing new articles
c)   substantial expansion or change of location of existing undertaking.  

According to Section 11 of the Act the manufacturer of a product listed in the first schedule of the Act who carries on production in a factory must register the new industrial undertaking in the prescribed manner within 3 months from the date it becomes such an undertaking.
A factory for this purpose means any premises in which a manufacturing process is being carried on
1)   with the aid of power employing 50 or more workers or
2)   without the aid of power employing 100 or more workers.  

Production of a New Article by an Existing Undertaking
The definition of the term in the Act that the existing undertaking which propose to manufacture new article covered within the ambit of the same item in the first schedule under which the concerned undertaking held a registration certificate or industrial licence, and that where no new trade mark or no new patent was involved, the article of proposed manufacturer would not be considered as a new article and there should be no objection to the owner of the industrial undertaking manufacturing it.

New Industrial Policy, 1991 and Essentials for Licensing
The New industrial policy was announced by the Government on July 24, 1991. The announcement was inevitable in view of the fast changing national and global economic environment and invasion of global multinationals into Indian markets, the policy also proposed a range of liberatlisation measures which include abolishing of compulsory licensing for all industries with few exceptions, promotion and tapping of foreign investment in Indian projects, rehabilitation of the public sector and discontinue of ceiling on assets limit under the MRTP Act.

The decisions of the Government with respect to industrial Licensing are as follows:

i) Industrial licensing will be abolished for all projects but for industries related to security and strategic concerns, social organisation promoting welfare and development hazardous chemicals etc. industries reserved for the small scale sector will continue to be so reserved.
ii) The security and strategic related industries will continue to be reserved for the public sector alone.
iii) In projects where imported capital goods are essential, automatic clearance will be given:
a)   In cases where foreign exchange availability is ensured through foreign equity or
b)  If the CIF value of imported capital goods required is less than 25% of total value (net of taxes) of plant and equipment, upto a maximum value of Rs. 2 crores.

In other cases, imports of capital goods will require clearance from the Secretariat of Industrial Approvals (SIA) in the Department of Industrial Development according to availability of foreign exchange resources.

iv) 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 non-polluting nature such as electronics, computer software and printing will be located outside 25 kms. 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.

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 of cities.

v) 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.
vi) Existing units will be provided a new broad banding facility to enable them to produce any article without additional investment.
vii) The exemption from licensing will apply to all substantial expansions of existing units.
viii) The mandatory convertibility clause will no longer be applicable for term loans from the financial institutions for new projects.

Procedural consequences

ix) All existing registration schemes (Delicenced Registration, Exempted Industries' Registration, DGTD registration) will be abolished.
 x) Entrepreneurs will henceforth only be required to file an information memorandum on new projects and substantial expansions.

Exemption from industrial licensing under the New Industrial Policy, 1991

The Government vide Notification No. 477 (E) dated 25-07-1991 has exempted certain industrial undertakings from the operation of the provisions of Sections 10, 11, 11A and 13 of the Act i.e. registration of existing industrial undertakings, licensing of new industrial undertakings, licensing for manufacture of new article and other provisions for licensing in special cases.
The exemption applies to:
i) Small scale/ancillary industrial undertakings subject to the condition that the article(s) manufactured is:
a) Covered under Schedule III, which contains the list of articles reserved for exclusive manufacture in the small scale sector.
b) Not covered under Schedule 1, which contains the list of industries reserved for the public sector.
c) Not covered under Schedule II which contains the list of industries in respect of which licensing is compulsory. i.e. small scale and ancillary undertakings would not require licensing for all articles of manufacture which are not subject to compulsory licensing or reserved for the public sector in addition to being exempted from licensing for all articles of manufacture exclusively reserved for the small scale/ancillary industry even if they happen to be included in the list in Schedule II.
ii) Other industrial undertakings (i.e. other than small scale or ancillary ones) subject to the condition that:
a) the article(s) of manufacture does not fall under Schedule I, II and III respectively.
b) the proposed project is not located within 25 kms from the periphery of the standard urban area limit of cities having a population of more than 10 lakhs as per the 1991 census.

However, this condition will not apply to:
1)   For non-polluting industries such as computer software, printing, electronics that may be notified from time to time.
2)   Industries located with industrial area designated by the State Government before 24.4.1991.
3)   Exemption under Section 11A will be available only if the new article does not fall under schedule, I, II or III and no additional investment in plant and machinery is needed.
4)   The exemption from licensing will be available to industrial undertakings set up by MRTP and FERA companies also, subject to clearance under the respective Acts.  

Industrial Undertakings (other than small scale/ancillary units) availing of licensing exemption under the said notification shall have to file a Memoranda with the Department of industrial Development (SIA), as prescribed by the Central Government.

First, the undertaking should not belong to one or other of the following categories:

1) Undertakings covered by Section 20(a) of the MRTP Act, 1969, i.e., undertakings whose own assets together with the assets of inter-connected undertakings, if any, are Rs. 100 crores or more,
2) Dominant undertakings covered by Section 20(b) of the MRTP Act, 1969. This term means and includes:
i)     An industrial undertaking to which the licensing regulations are applicable and which has a licensed capacity along with its inter-connected undertakings of at least 25% of the total installed capacity in India for the production of such goods and has assets of Rs. 1 crore or more.
ii)   An industrial undertaking to which the licensing regulations apply and whose actual production individually or along with inter-connected undertakings is at least 25% of the total goods produced or supplied or distributed in the whole or substantial part of India and which has assets of Rs. 1 crore or more.
iii)  Any other undertaking which individually or along with other inter-connected undertakings produces or controls production of at least 25% of the total goods of any description (listed in the first schedule of the Industries Act) produced in the whole or substantial part of India and which has assets of Rs. 1 crore or more.
3) Undertakings belonging to `foreign concerns'. These include foreign companies, their branches or subsidiaries and companies in which more than 40% of the paid-up equity capital is held directly by foreign companies, their branches or subsidaries or by foreign nationals or non-resident Indians.
4) That they are not subsidiaries of or owned or controlled by any other undertaking.
During the last couple of months, there has been some relaxation in the context of dominant companies.
Second, the product should not belong to:
1) Industries listed in Schedule A of the Industrial Policy Resolution, 1956.
2) Specified industries subject to special regulation like coal, textiles manufactured, produced or processed on power looms, milk foods, malted foods, oilseed crushing, vanaspati, leather, matches, distillation or brewing of alcoholic drinks.
To summarise, an industrial licence is not necessary in the following cases:
i)     Where the item of manufacture relates to an industry not included in the first schedule of the Industries Act, 1951.
ii)   The proposed manufacture is to be carried on in factory which is not covered by the definition of Factory provided in the Act.
iii)  The items of manufacture do not fall within the definition of new article.
iv)  The proposed expansion of an existing undertaking does not amount to substantial expansion.
v)   Small-scale units and ancillary units subject to certain conditions.
vi)  Other units in the delicensed sector with investment up to Rs. 5 crore (or higher in some cases) subject to certain conditions.  

Thus management of a company cannot manufacture a product listed under the first schedule to the Industries Act despite all the factors favouring its production until it can obtain a licence for it. The Act provides for both civil and criminal liability for the violation of its provisions.

But remember in this context that the Government has taken a number of steps during the last two years to liberalise its policies. And as students of marketing you have to keep abreast of these changing policies since they affect marketing decision-making.

Preferences to Small-Scale Sector

The Government also pursues the policy of protective reservation for exclusive development under the Small Scale Sector. The Government and its organisations show preference in making their purchases from small-scale industries. In order to ensure regular supply of raw materials to small-scale units, the Government has liberalised the import policy and streamlined the distribution of critical raw materials.  


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