What was the status of industry and Trade at the time of Independence?

There were very few industries at the time of Independence

They were mainly:

Cotton and Jute Textiles

Iron and Steel Firms - In Jamshedpur and Kolkata


There were not much contribution of other industries

There was a need for widening industrial base

What was needed to Improve Industrial Sector - Teachoo.JPG


What was Industrial Policy followed by Govt after Independence?

As per Industrial Policy Resolution of 1956,

Industries were classified into 3 Categories:

Schedule A Industries Exclusively Owned by Govt

Schedule B Industries Started by Govt Sector but Supplemented by Private Sector

Schedule C Industries Exclusively Owned by Private Sector

(These were controlled by state under Industries (Development and Regulation Act 1951)

Industrial policy Followed After Independence - Teachoo.JPG

What was License Raj System

Note-License Raj was applicable in Private Sector Industries (Category 3 industries)

In Category 3 Industries, which were allowed to operate in Private Sector

Strict control was maintained by system of license


As per this System,

License was required to be obtained from Govt to open new industries

License was required even to increase production or diversify into new products

It was easier to obtain license in backward area

Also govt provided tax concessions and cheaper electricity in these areas


This was done to remove regional inequality

What is License Raj - Teachoo.JPG

License Requirement in Different Regions - Teachoo.JPG


What was the role of Public Sector in Industrial Development?

Public Sector was given a leading role in Industrial Development

because of the following reasons:

1 Shortage of Capital with Private Sector

Private enterpreneurs do not have the required capital to make the investments

So, government had to make these investments through Public Sector Undertakings (PSU)


2 Lack of Incentive for Private Sector

Indian Market was not big enough to encourage private industrialists to take up major projects


3 Objective of Social Welfare

The objective of social welfare could be achieved only through the direct participation of the government



What is Small Scale Industry?


Small Scale Industry is defined as a unit which has investment upto 5 lakhs in assets of industrial unit

This limit is currently 1 Crore


Why are Small Scale Industries beneficial for economy?

They are labour intensive industries (They employ more labour than machines)

Hence,they provide more employment opportunities

Also they help in promoting rural development by supplementing the income of farmers

What Are Small Scale Industries And Their Benefits - Teachoo.JPG


What measures were taken by Govt to promote Small Scale Industries

Reservation of products

A number of Products were reserved for Small Scale Industries

It means only Small scale industries can manufacture these products and not big industrial firms


Lower Excise Duty (Less taxes)

There were special scheme in Excise for Small Scale industries and less rate of excise duty tax was charged


Bank Loan at Lower Rate of INTEREST

This was done to ensure Small Scale Industries had enough funds to operate and increase production

How Govt Promoted Small Scale Industry - Teachoo.JPG


What were drawbacks of India's Industrial Policy?

Indias Trade and Industry Policy - Teachoo.JPG

Establishment of PSU - Teachoo.jpg

License Raj over Private Sector(Drawback) - Teachoo.JPG

Import Substitution (Drawback) - Teachoo.JPG

India developed Industrial Policy focused on Developing Large Public Sector Enterprises (Example SBI, ONGC,

GAIL, Modern Bread)

Monopoly of PSU

Many sector had monopoly of PSU

Example- Telecommunication Service were under BSNL (There was no Airtel, Reliance etc)

Customers had to suffer a lot because these PSU were inefficient because of lack of competition from private sector


Public Sector Producing Goods which private Sector could make

Example-Govt was manufacturing bread (Modern Bread) which private sector could easily make

No Distinction between what goods Public Sector can make and what Private Sector can make


PSU Suffered losses

PSU were inefficient in their working and suffered losses

They were burden to govt in budget, still they continued to exist


Problem of License Raj

Private Sector had to take licenses to start business

Those businessman who had good connections and lobbied with different ministries got license

They focused more on making connections rather than improving quality of their products


No Incentive to Improve Goods

Since, there was no foreign competition, Indian industry did not improve the quality of products

It is because they had a captive market

Indian Customer suffered as they had to purchase whatever Indian customer produced


NCERT Questions

Question 12

Why was public sector given a leading role in industrial development during the planning period?

View Answer


Question 16

Though public sector is very essential for industries, many public sector undertakings incur huge losses and are drain on the economy’s resources.

Discuss the usefulness of public sector undertakings in the light of this fact.

View Answer


Question 18

Why and how was private sector regulated under the IPR 1956?

View Answer


MCQ Other Books

Question 1

In the following questions, select the correct answers:

Schedule ______ Comprise of industries which would be exclusively owned by the state :

  1. A
  2. B
  3. C

D. None of these

View Answer


Question 2

The first industrial Policy Resolution in Independent India was introduced in the year….................

  1. 1948
  2. 1950
  3. 1954
  4. 1956
View Answer


Question 3

In how many categories industries were divided in Industrial Policy, 1956?

  1. 3
  2. 2
  3. 5
  4. 4
View Answer


Question 4

Identify the correctly matched pair from Column A to that of Column B:

Column A  Column B  
1. Industrial Licensing  Policy   (a) 1954  
2. Industries Development  and Regulation Act   (b) 1948  
3. New Industrial Policy  (c) 1989  
4. Industrial Policy Resolution   (d) 1956  


  1. 1 – (a)
  2. 2 – (b)
  3. 3 – (C)
  4. 4 – (d)
View Answer


Question 5

Industries (Development and Regulation) Act was implemented in:

  1. 1951
  2. 1952
  3. 1953
  4. None of the above
View Answer


Question 6

Identify the correctly matched pair from Column A to that of Column B:

Column A  Column B  
1. Public Sector  (a) Problem of Energy  
2. Cottage  Industries   (b) Bureaucratic Delays  
3. Small Scale  Industries   (c) Need less technology  
4. Industrial Development   (d) Do not use machineries  



  1. 1 – (a)
  2. 2 – (b)
  3. 3 – (c)
  4. 4 – (d)
View Answer


Question 7

Process of industrialization was started in India in:

  1. First Plan
  2. Second Plan
  3. Third Plan
  4. Fourth Plan
View Answer


Question 8

Problem of Small-Scale Industries is:

  1. Shortage of raw material
  2. Inadequate use of capacity
  3. Shortage of capital and credit
  4. All of the above
View Answer


Question 9

In the following questions, a statement of Assertion (A) is followed by a statement of Reason (R).

Mark the correct choice:

Assertion (A): Small Scale Industries face a shortage of capital.

Reason (R): The government is reluctant in providing them any assistance and loans.

A. Both Assertion (A) and Reason (R) are true, and Reason (R) is the correct explanation of the Assertion (A).

B. Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct explanation of the Assertion (A).

C. Assertion (A) is true, but Reason (R) is false.

D. Assertion (A) is false, but Reason (R) is true.

View Answer


Status of Indian Industry At the time of Independence Very few Industries (Only Cotton and Jute) Majority Small Industries No Industries to make Capital Goods Private Sector Not Interested to set up large Industries (because of (shortage of funds, lack of market) What was Needed To Improve Industrial Sector Need for Diversification Need for Widening of Industrial Base Need to Set up Large Industries Which could Produce Capital Goods Government Investment Required in Setting up large industries Called PSU Industrial policy Followed After Independence Schedule A Industries They are owned exclusively by Government (Total 17 Industries) Example Defence Schedule B Industries They are started by Government but supplemented by Private Sector (Total 12 Industries) Example Fertilizers Schedule C Industries They are owned exclusively by Private Sector (All Other Industries) Example Plastic Strict Control of Govt by System of License (License Raj) LICENSE RAJ (System of License for Private Sector) If Private Sector wanted to Set up new industry Increase Production Diversify (Start manufacturing New Product) License Requirement in Different Regions Factory Set up in Backward Area Getting License was Easy Tax Benefits Cheaper Electricity More Industries Set up In Backward Areas, (led to their development) This was done to Promote Regional Equality Why was the Reason of License Requirement? It was done to Remove Regional Disparity (ensure backward region of India are developed) Factory Set up in Developed Area Getting License was Difficult No Tax Benefits Normal Rate of Electricity So Less Industries Set up In Developed Areas What Are Small Scale Industries And Their Benefits? Industries Requiring Less Investment (Upto 5 lacs (1951)or Upto 1 Crore (currently) Features Industries Requiring Less Investment They are labour intensive industries (Require more labour) Can be Set up Anywhere (less Area Required) Benefits Can be Set up by Ordinary Person Provides Employment If Set up in Villages Promotes Rural Development How Govt Promoted Small Scale Industry LARGE INDUSTRY Higher Interest Rates on Loan from Banks Higher Excise Duty (More taxes) No Reservation of Products SMALL SCALE INDUSTRY Lower Interest Rates on Loan from Banks Lower Excise Duty (Less Taxes) Reservation of Products (Certain products manufactured by only Small Scale Industries) (Example-Agriculture Implements, Umbrellas, Safety Pins) All these are Benefits provided to Small Scale Industries India's Trade and Industry Policy Establishment of PSU (Govt Owned Industries) Drawback Monopoly of PSU over Certain Sectors (Example-Telecommunication) PSU manufacturing Goods which Private Sector could easily make (Example-Modern Bread) License Raj over Private Sector (Small Industries Operated under Strict Control of Govt) Drawback Only those Businessman got the license who had good connections with govt Focus was on making good connections instead of improving production capacity Import Substitution (Imports were Discouraged to Promote Indian Industry Drawback Imported Goods were cheaper and better quality But No Competition faced From Imported goods as Imports were discouraged So no effort made to Improve Quality of goods (Indian Customer Suffered)

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Maninder Singh

CA Maninder Singh is a Chartered Accountant for the past 14 years and a teacher from the past 18 years. He teaches Science, Economics, Accounting and English at Teachoo