Industrial Policy is a concept and a set of government measures that guide the development and growth of industries in a country, aiming to promote economic growth, employment, and self-reliance. The first official policy of independent India was the Industrial Policy Resolution of 1948, which established a mixed economy where both the state and private sector would operate. This was followed by the more comprehensive Industrial Policy Resolution of 1956, which was adopted to accelerate industrialisation and achieve a socialistic pattern of society, often called the "Economic Constitution of India".
The 1956 Resolution worked by classifying industries into three schedules, with Schedule A reserving 17 industries exclusively for the state, such as arms and atomic energy. This policy was implemented through the Industries (Development and Regulation) Act, 1951 (IDRA), which empowered the Central Government to regulate industrial development through a system of licensing. The IDRA, 1951, brought industries specified in its First Schedule under Central control and secured the planning of future development by licensing all new undertakings. This system, known as the 'License Raj,' connected Industrial Policy to the Planning Commission and the Five-Year Plans.
The policy underwent a major shift with the New Industrial Policy of 1991, introduced on July 24, 1991, to liberalise the economy from bureaucratic controls. This policy abolished industrial licensing for most industries, reducing the number of sectors requiring a license to a short list of 18. It also reduced the number of industries reserved for the public sector from 17 to 8, and later to just two (atomic energy and railways). The 1991 policy liberalised foreign investment, allowing up to 51% Foreign Direct Investment (FDI) in 47 high-priority industries, and amended the Monopolies and Restrictive Trade Practices (MRTP) Act to remove asset limits for large companies. While the core concept of a government-guided industrial strategy remains, the shift has been from a state-controlled, socialistic pattern to a more liberalised, market-oriented approach. More recently, the government has introduced schemes like the Production Linked Incentive (PLI) Scheme across fourteen sectors since 2020 to boost domestic manufacturing and self-reliance.