India’s Industrial, trade and investment policy for indigenization and import substitution

Abstract

At the time of independence, a lot of India’s industrial policy had the shadows of its British colonial experience. Swadeshi movement was an important theme of the nation’s freedom struggle and subsequent nationalist ideology. By 1947, India was not only firmly enmeshed in a subordinate position in the international capitalist division of labour, but also foreign private capital . The first government’s attitude can be characterized as emphasizing on self-reliance and a discriminatory attitude towards foreign capital. Under the chairmanship of Nehru, AICC submitted a report of the Economic Programme Committee (EPC) which had reserved major area of the economic activity for the state including a) new undertakings in defence, key and public utility industries; b) monopolies, defined as units serving more than one province; c) banking and insurance; d) large-scale units producing/manufacturing food articles, clothing and consumer goods and competing against the cottage and small-scale sectors. Undertakings privately owned in areas reserved for the state were to be taken over within five years (later extended to 10 years). It was proposed that source of foreign capital should be examined to ensure that the economic controls remain with Indians . These proposals were opposed by the business community and under the 1948 Industrial Policy, only three industries were exclusively reserved for the State with new undertakings in six more reserved for the public sector . While Nehru discarded the earlier proposed strict control on foreign capital in 1949, government still kept an effective veto to protect national interest. Ironically, FICCI had reservations with liberalization of the earlier stance on inflow of foreign capital and during the 1952-53 recession and deflationary crisis, FICCI adopted a Swadeshi Resolution claiming foreign capital had created difficulty for indigenous industries. It is interesting that the attitude of Nehru government was favorable to foreign capital despite the strident opposition of the upper strata of Indian bourgeoisie.