Industries and Trade

In the economy, both the Industry and Trade are parallel to each other. After independence, the leaders of our country had to specifically concentrate on the industrial growth for the country’s development. Many economists have explained that a ‘Poor nations can only progress if they have a good industrial sector’ because industrial sector is one of the most essential sectors that influence the Gross Domestic Product (GDP) in India. Industries provide employment which is more durable than agriculture, it encourages modernization and success. This is the reason why the five-year plans are important for industrial development.

Private and Public Sector

The main issue the policymakers faced was to decide the position of the government and the private sectors in the development of the industry. During that period, neither the Indian Industrialists (private sector) had enough cash to invest in the industry nor the market was promising enough to encourage the industrialist to invest in ventures. This made the government intervene to promote the growth of the industrial sector. This decision to develop the Industrial sector directed the government to take over the command of the economy. This indicated that the government would have the total authority of those industries that were important for the economy of the country. In this scenario, the private sector policies were like a complimentary to the public sector, as the public sector lead the way.

Quick link: Indian Industries During British Rule

Industrial Policy Resolution

Industrial Policy Resolution (IPR 1956) was chosen with the purpose of the government regulating the governing heights of the economy. This decision was made on the basis of the second year plan. This resolution differentiated industry into three categories namely.

  • First Category- Here, the industries are totally owned by the government
  • Second Category- Here, public sector industries can be subsidized by the private sector
  • Third Category- Industries that belong to the private sector

Though many industries were under the private sector, it was still controlled by the government through a licensing system. No new industries were authorized unless and until they obtained the license from the government. This policy was adopted especially to promote the industry in the backward region, giving them certain tax benefits and electricity at lesser tariff. This policy main objective was to promote regional equality.

Small Scale Industry

In 1955, the Karve Committee, also known as the village and small-scale industries committee witnessed the potential of utilizing small scale industry for promoting rural development. A small scale industry is described as the highest investment permitted on the asset of a unit. However, in 1950, a small scale industry was one who invests a maximum of 5 lakh, it has been raised to one crore at the present. This industry is more labor-oriented, therefore, they generate more employment.

The small scale industry could not compete with the large scale industry, so to protect them a lot of products are only manufactured and preserved for small scale industries.

They are provided with less excise duty and have a low rate of interest in bank loans.

Q.1-Why was public sector given a leading role in industrial development during the planning period? (ncert)


What role should the government and the private sector have in industrial development?

Shortage of Capital with private sector
  • Indian industrialists faced a shortage of capital investment for starting industrial ventures resulting in the development of Indian economy.
Lack of incentives for private sector 
  • Limited size of the Indian market did not encourage industrialists to handle big projects, in spite of having the capital to invest.
Five Year Plan
  • According to the Second Five Year Plan, the government would take complete control of that industry that was important for the economy.
  • The private sector policies should complementary public sector, but the public sector should be leading the way.
Meaning of Subsidy
  • Subsidy is an indirect or direct benefit given by the state to domestic manufacturers of goods and services.
  • It is often provided to encourage a competitive environment against the foreign industry.
Need of Subsidy
  • Any advanced technology is unsafe for farmers. Therefore, the subsidy is required to encourage them to use new technologies.
  • Most farmers in India are underdeveloped and cannot afford to test with new technologies without subsidies.
  • The burden of financing subsidies falls on the government.
  • However, eliminating subsidies will increase the inequality between poor and rich farmers and violate the goal of equity.



Q.1 ________is a direct or indirect benefit given by a government to domestic producers of goods and services.


a. Quotas

b. Tariffs

c. Octroi

d. Subsidy


Q.2 Burden of financial subsidy falls on __________
a. Consumer

b. Government

c. Firms

d. None of the above


1-a, 2-b

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