UPSC Notes / Indian Economy / Chapter 4
Chapter 4 of 15

Industrial Sector

Industrial policy evolution, MSMEs, and flagship manufacturing initiatives like Make in India and Production Linked Incentive schemes.

📖 ~13 min read 📊 Indian Economy

Introduction

India's industrial sector has evolved from a heavily licensed, public-sector-dominant model in the early decades after independence to a progressively liberalised, private-investment-driven manufacturing base — though structural challenges around scale and global competitiveness persist.

Evolution of Industrial Policy

PolicyYearKey Feature
Industrial Policy Resolution1948Mixed economy framework; defined roles for public and private sectors
Industrial Policy Resolution1956Expanded public sector role significantly ("commanding heights of the economy"); classified industries into three schedules based on state/private involvement
New Industrial Policy1991Landmark liberalisation — abolished industrial licensing (except for a small negative list), removed most restrictions on private investment, opened up to foreign investment
💡 "Licence Raj": The pre-1991 system requiring government licences/permits for setting up or expanding industrial capacity is commonly termed the "Licence Raj" — its dismantling in 1991 is considered the single biggest structural reform in India's industrial history.

MSME Sector

Micro, Small and Medium Enterprises (MSMEs) are a vital part of India's industrial and services base, contributing significantly to GDP, manufacturing output, and — crucially — employment, given their labour-intensive nature.

CategoryInvestment (Plant & Machinery/Equipment)Annual Turnover
MicroUp to ₹2.5 croreUp to ₹10 crore
SmallUp to ₹25 croreUp to ₹100 crore
MediumUp to ₹125 croreUp to ₹500 crore

(MSME investment/turnover thresholds are periodically revised by the government — candidates should verify the latest official figures closer to the exam.)

Flagship Manufacturing Initiatives

Flowchart — Key "Make in India" Era Initiatives
Make in India (launched 2014) — umbrella initiative to boost domestic manufacturing and attract FDI
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Production Linked Incentive (PLI) Schemes — sector-specific cash incentives tied to incremental production/sales (electronics, pharma, textiles, semiconductors, and more)
Atmanirbhar Bharat (2020) — self-reliance push, especially post-COVID supply chain disruption
InitiativeFocus
PLI SchemeDirect financial incentives to boost domestic manufacturing and reduce import dependence across ~14 key sectors
India Semiconductor MissionBuilding domestic chip design and fabrication capacity — a strategic priority given global supply chain vulnerabilities
National Manufacturing PolicyAims to raise manufacturing's share of GDP and create large-scale employment through National Investment and Manufacturing Zones

Public Sector Undertakings (PSUs)

  • Classified as Maharatna, Navratna, and Miniratna based on financial performance and operational autonomy granted.
  • Disinvestment policy — gradual reduction of government equity in PSUs (and strategic sale in some cases) has been an ongoing reform theme since the 1990s, discussed further in the Economic Reforms chapter.
✅ UPSC Focus: 1956 vs 1991 Industrial Policy — key differences · "Licence Raj" concept · MSME classification criteria · PLI scheme's incentive-linked design · Maharatna/Navratna/Miniratna PSU categories.

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