The Department of Industrial Policy and Promotion (DIPP) is a key agent in India’s drive towards globalization. Because of the crucial linkage between industry and global trade, it was deemed fit to have the department under the Ministry of Commerce and Industry. As foreign capital and technology have become imperative for the development of the industrial sector, the mandate of the department is to promote an environment that is favorable to foreign direct investment (FDI) and technology inflows. The principal roles of DIPP are in the formulation and implementation of industrial strategies and policies aligned to the continued development and opening of India’s economy. For the purpose, the department monitors industrial growth, develop strategies to attract and approve Foreign Direct Investment (FDI) and encourage foreign technology collaborations, formulate policies regarding Intellectual Property Rights and innovation strategies and promote industrial development in backward areas.

DIPP was set up in 1995, following the liberalization of industrial policy in 1991 with the explicit aim to become a facilitator of industrial growth in the country and not remain a bottleneck as the former Department of Industrial Development had become. As India embarked on export orientated strategy, in contrast to the previous import substitution strategy of industrial development, the government redefined its role from being a licensing agency to a facilitator albeit following the broad guidelines of the Industries Development and Regulation Act of 1951.

Prior to 1991, India’s industrial policy was based on providing protection from foreign competition. As a result, the industrial sector was characterized by high tariff barriers, licensing regime, dominance of either the public sector or small-scale industries in many segments and little inflow of foreign capital and technology. The licensing mechanism was maintained under the Monopolies and Restrictive Trade Practices Act (MRTP). The Department for Industrial Development was empowered with the responsibility of awarding licenses to industrial projects. FDI was restricted by the Foreign Exchange Regulation Act of 1973 (FERA), which required that foreign enterprises divest their shareholding to 40% and transfer the remainder of ownership to an Indian company. The secondary share market was also not accessible to foreign investors and permission had to be taken by companies floating shares from the Comptroller of Capital Issues. As a result of the various restrictions that hindered companies from achieving scale economies and to have access to imported inputs, foreign capital and technology, manufacturing industries grew inefficient and uncompetitive in the foreign markets.

The approach towards imports and foreign direct investment began relax in the mid-1980s, with progressive reduction of import tariffs, withdrawal of items from the import licensing scheme and streamlining industrial procedures to promote competitiveness and private enterprise. In July 1991, major economic reforms in terms of industrial policy, trade policy and investment policy were initiated to transform a regime of regulated economic development to a competitive regime. Government controls on capacity and imported capital, intermediate and raw materials and technology were also eased. Licensing policy was abolished except for a few strategic segments. The MRTP Act was to be replaced by a new Competition Law. Many industries were de-reserved from the small sector. The Foreign Investment Promotion Board was set up under the Ministry of Finance to expedite approvals for foreign direct investment while DIPP would take measures to attract FDI. Thus, DIPP not only functions as a regulator of the industrial sector, but also as a facilitator for capital and technology inflows for the manufacturing sector.

The mandate of the Department of Industrial Policy and Promotion is to monitor industrial growth, formulate and implement India’s industrial policy, formulate and amend Foreign Direct Investment (FDI) policy, engage in activities that promote industrial development, particularly in remote areas, and formulate and implement policies regarding Intellectual Property Rights.

DIPP released the new National Manufacturing Policy in November 2011 to increase the share of the manufacturing sector from 16% to 25% in GDP within a decade, and create 100 million jobs. In line with the 11th Five Year Plan (2007-12), the policy aimed to be inclusive and sustainable, empowering rural youth and protecting the environment. The policy encompasses the central and state governments as well as the private sector. The central government would be the enabling policymaker, providing incentives for infrastructure through Private Public Partnership and through appropriate financing mechanisms while identifying the land and be equity holders for the projects.

A highlight of the policy was the proposal for National Investment and Manufacturing Zones (NIMZs) of at least 5,000 hectares each, which would be greenfield integrated self-governed industrial township projects with state-of-art energy-efficient technology and infrastructure. Although the policy was sector-neutral, it would be applicable to industries that could operate in clusters.

The first phase of the NIMZs was proposed along the 1,483km Delhi Mumbai Industrial Corridor (DMIC) that the government was developing with financial and technical assistance from Japan. The DMIC covered six states: Delhi, Haryana, Uttar Pradesh, Madhya Pradesh, Maharashtra and Gujarat, which accounted for 43% of the GDP, 50% of industrial production and 40% of the labor force of the country. DIPP identified nine investment regions along this corridor that could promote NIMZs. It would also have high-speed freight lines, three ports, six airports, a six-lane intersection highway between the political and financial capitals of the country and a 4,000-megawatt power plant. The master plan of the DMIC has been completed.

The national manufacturing policy has rationalized and simplified the Foreign Direct Investment (FDI) procedures, making them more investor-friendly. The approval mechanism has been streamlined, with only projects of over Rs. 6000 crore ($1,159.36 million USD) requiring authorization from the Cabinet Committee of Economic Affairs. Companies now have more freedom to determine financing of downstream projects while new projects in the same field by joint ventures and technical collaborations no longer require prior approval. FDI is now permissible for Limited Liability Partnership firms under specific conditions.

DIPP also released the Consolidated FDI Policy effective from April 1, 2011. Several amendments were made in the FDI policy under the Foreign Exchange Management Act (FEMA). For example, FDI in single-brand retail up to 51% is allowed only for foreign investors who own brands. The conditions in terms of minimum build-up area, minimum capital requirement, lock-in period, etc. for 100% FDI in construction activities for schools, colleges, universities and old-age homes have been removed. FDI limit for terrestrial broadcasting and FM radio has been raised from 20% to 26%.

DIPP is the nodal department and representative for the government for all matters of World Intellectual Property Organization, to which India belongs. It is concerned with the legislation relating to patents, trademarks, designs and geographical indications. It has set up an IPR Appellate Board in Chennai, IP Offices in Delhi, Mumbai, Kolkata and Chennai and an inter-ministerial committee to coordinate IP enforcement issues.

DIPP is also the coordinating agency for implementing projects of United Nations Industrial Development Organization in India to strengthen competitiveness in Indian industries by promoting investment and cleaner sustainable technologies.

DIPP publishes data on FDI inflows and industrial investment in all on India’s states.

Attached Bodies or Autonomous Bodies

Office of the Economic Advisor (OEA) – This attached body advises the department on the industrial and investment climate of the country. It releases the weekly Wholesale Price Index data and the monthly Index for Industrial Production data.

Tariff Commission (TC) – This commission attached to the DIPP was established in 1997 to fix tariffs for a number of products keeping in mind the goals of industrial development.

Controller General of Patents, Designs and Trademarks (CGPDT) – The controller attached to DIPP administers the Patents Act of 1970, the Trademarks Act of 1999, the Geographical Indications of Goods (Registration and Protection Act) of 1999 and the Designs Act of 2000 and also advises the DIPP on issues of intellectual property rights.

National Manufacturing Competitiveness Council (NMCC) – The attached council suggests ways to increase competitiveness of the manufacturing sector by identifying sub-sectors that have potential for global competitiveness and highlighting on the strengths and weaknesses of these sub-sectors and recommend policy initiatives.

Petroleum and Explosives Safety Organization (PESO) – This is the nodal agency headquartered in Nagpur to look after safety requirements of the petroleum and explosives sectors.

National Productivity Council (NPC) – This is an autonomous tripartite body with representatives from the government, employers and workers’ organizations besides technical and professional organizations. It provides training and consultancy and undertakes research to increase productivity in the manufacturing sector.

National Institute of Design (NID) – This autonomous institution based in Ahmedabad is the foremost institution in the country in the field of design education, applied research, training, design consultancy services and outreach programs.

Quality Council of India (QCI) – This is an autonomous body set up by the government in association with industry to develop a National Accreditation Structure.

The largest budget from DIPP is allocated to the Transport Subsidy Scheme that began from 1971 that aims to provide subsidy schemes for transport in order to industrialize remote, hilly and inaccessible areas in 14 states. The scheme has been extended from time to time, the last time in 2008. The subsidy ranges from 50% to 90% of the transport costs and is applicable for 5 years from the date of commercial production. The disbursements of the subsidies are made through four nodal agencies. Since its inception, Rs. 16, 300 crore ($31.44 billion USD) has been released through the scheme.

Indian Leather Development Program (ILDP) has two sub-components – 1) investment promotion and 2) research, program support and consultancy services, survey and evaluation. The promotion activities include road shows, business delegations abroad, participation in international leather exhibitions and holding international conferences. 

The North East Industrial and Investment Promotion Policy (NEIIPP) is effective for 10 years.  Benefits available under this scheme include the Central Capital Investment Subsidy Scheme, Central Interest Subsidy Scheme, Central Comprehensive Insurance Scheme, 100% excise duty exemption for goods produced in the region and 100% income tax exemption. Benefits are extended to services besides the manufacturing sector.

The Package for Special Category States promotes industrialization in Jammu & Kashmir, Himachal Pradesh and Uttarakhand. The economic incentives include subsidies similar to those of NEIIPP, 2007.

The Industrial Park Scheme is aimed to encourage private investment by developing industrial parks, industrial model towns and growth centers. High quality infrastructure is provided in these industrial parks. Income tax exemption is available for projects in these parks for 10 consecutive years out of 15 years of commercial production. 

Industrial Infrastructure Upgradation Scheme (IIUS) was launched in 2003 for the purpose of providing quality infrastructure to industrial clusters with high growth potential through public-private partnerships. The infrastructure includes physical infrastructure like transport, road, water supply, common captive power generation, transmission and distribution, effluent treatment plants, solid waste management plants, information and communication technology infrastructure, and other common facilities like tool room, testing center, display center, training center, quality certification and benchmarking center and R&D infrastructure.

A Plagiarized Intellectual Property Report?

An expert committee headed by Dr. R.A. Mashelkar was constituted to study the Intellectual Property Rights issues including patents. The committee submitted the report first in 2007 but was accused of plagiarizing some research reports by international industry bodies and submitted a revised report in 2009.  Mashelkar admitted later that “eight to ten” sentences were copied but maintained that it wasn’t intentional.

Why Was The Report Withdrawn? (Outlook India)

Some More on the Mashelkar Panel (Nanopolitan.blogspot.com)

Did the Mashelkar committee compromise Indian patents?

After the plagiarism debacle, the Mashelkar commission report that was finally submitted in 2009 was characterized as compromising India’s position on patents. It is argued that the Copyright Law had been amended to be TRIPS compliant so that foreign copyright holders are well protected in India. Some argued that the government was trying to go beyond the TRIPS agreement by making “Contributory Infringement” a punishable offence. Besides, the Mashelkar Committee said that India was obliged under WTO rules to extend patents protection to incremental changes in new medicines. But some has refuted this interpretation of WTO rules.

Mashelkar Report Runs into Fresh Controversy (by Joe C Mathew, Business Standard)

Industrial Growth

The index of industrial production has been stagnating for some time and hit two-year lows in 2011, mainly because of low manufacturing growth. The global recession has affected the export-oriented sectors of textiles, leather, gems and jewelry, etc. Besides, monetary tightening on the part of the Reserve Bank of India to reduce inflation pressures has added to the credit crunch faced by the sector. DIPP has initiated some measures to tackle the slowdown through the New Manufacturing Policy and attempts at liberalizing FDI in multi-brand retail and aviation. The Economic Survey of 2010-11 noted that India needs to have multi-pronged reforms to drive up industrial production. The survey suggested special attention to technology and foreign capital inflows over the medium term and more liquidity and investment intentions in the short run.

Economic Survey: “Need Multifaceted Reforms for double-digit industrial growth” (Economic Times)

Foreign Direct Investment in Retail

India does not allow FDI in multi-brand retail. Up to 51% FDI is now allowed in single-brand retail while retailing foreign products through Indian companies is allowed. The industry ministry had planned to allow FDI in multi-brand retail in 2011 but had to roll back the measure following severe protests by the opposition as well as coalition partners. DIPP had suggested that to allow majority ownership in multi-brand retail, it would have required minimum investment of $100 million USD with at least half in back-end infrastructure including cold storage chains, refrigeration, transportation, packing, sorting and processing. It also suggested that a minimum of 30% of sourcing from Indian micro and small industry would be mandatory. But both these clauses were dropped in the final version approved by the Cabinet Committee.

Pro

The government argues that allowing FDI in retail will draw huge investments in the sector, leading to gainful employment to the tune of 10 million jobs in agro-processing industries, marketing, logistics management and front-end retail. The measure would also eliminate the exploitative middlemen so that farmers get remunerative prices and reduce harvest losses. The government also argues that strong Competition Commission would be able to deal with any anti-competition practices.

Con

But the opposition, Bharatiya Janata Party as well as Trinamool Congress, the lead coalition partner of the ruling Congress Party, argue that FDI in multi-brand retail would lead to large-scale job losses and would also wipe out small retailers run by self-employed people, who comprise 95% of the retail market in India. The country has the highest shopping density in the world, with 11 shops per 1,000 people. According to this argument, full liberalization of FDI in retail would lead global retail giants to adopt predatory and oligopolistic practices resulting in the essentials market, including food, being controlled by multinational corporations.

Who is Afraid of FDI in Retail (Times of India)

Should Direct Investment from Foreign Airlines in Domestic Airlines be Allowed?

Currently, Indian Airlines can receive up to 49% of FDI from foreign companies but not foreign airlines. The Working Group on Civil Aviation, comprising secretaries from several ministries, is considering allowing FDI from foreign airlines up to 26%, PTI reported in January 2012. Shares of Indian airlines Jet and Kingfisher rose 3% and 4% respectively on news of the potential rule change.

Pro

Although Indian airlines are resisting entry of overseas giants, this move will ease debt pressure on Indian companies like Kingfisher Airlines. According to a report on Moneycontrol.com, Indian airlines “collectively reported losses of around Rs 12,000 crore ($2.32 billion) in the 2011 financial year.”

FDI in Airlines May Get a Nod, Kingfisher, Jet Air Fly High (Moneycontrol Bureau, Moneycontrol.com

Con

But the industry minister and the DIPP are of the view that FDI in aviation will bring about security concerns. Besides, DIPP notes that no other major country allows foreign players in domestic aviation operations.

Govt to Soon Decide on FDI in Airlines (Reuters)

Kamal Nath was the previous Minister of Commerce and Industry. He won the elections eight times and was known as a loyalist to the Gandhi family. He played an important role representing India and maintaining an anti-protectionist stand in the WTO. Nath was instrumental in proposing the Delhi Mumbai Industrial Corridor. He was moved from the ministry to signal towards softening India’s stand on protectionism at the WTO. Nath had a number of scandals to his name, including his role in provoking the anti-Sikh riots in 1984, bribery charges and charges of environmental damage by building a hotel on the banks of the Beas river in Himachal Pradesh.