Industrial Policy

Foreign companies intending to setup business in India, need to consider, broadly, two aspects:

1. Financial aspect, which is governed by Foreign Direct Investment (FDI) policy (click here); and

2. Industrial policy, which specifies whether any license required to setup manufacturing base in India; location of such base and clearance under pollution laws.

Here industrial policy is introduced.

Industrial Licensing

All industrial undertakings are exempt from obtaining an industrial licence to manufacture, except for the following. In other words, Industrial License is required for engaging into the following:

(i) Industries reserved for the Public Sector i.e.

1. Atomic Energy

2. Railway transport

(ii) industries retained under compulsory licensing  i.e.

1. Distillation and brewing of alcoholic drinks.

2. Cigars and cigarettes of tobacco and manufactured tobacco substitutes.

3. Electronic Aerospace and defence equipment: all types.

4. Industrial explosives including detonating fuses, safety fuses, gun powder, nitrocellulose and matches.

5. Hazardous chemicals.

a. Hydrocyanic acid and its derivatives

b. Phosgene and its derivatives

c. Isocyanates and di-isocyanates of hydrocarbon, not elsewhere specified (example: Methyl Isocyanate)

6. Drugs and Pharmaceuticals (according to modified Drug Policy issued in September, 1994 and subsequently amended in February, 1999)

(iii) items of manufacture reserved for the Micro and Small Enterprises  (earlier small scale sector) and

With the promulgation of the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006, Micro and Small Enterprises (MSE) (earlier small scale industries) were defined solely on the basis of investment in plant & machinery (for micro and small enterprise engaged in manufacturing) and equipment (for micro and small enterprise engaged in providing or rendering of services). Accordingly, this change was notified by Notification No. S.O. 563(E) dated 27th February 2009 of Department of Industrial Policy & Promotion, Ministry of Commerce & Industry. Press Note 18 (1997 series) stands modified. This is as per Press Note No.6 (2009).

Manufacture of items reserved for MSE units by other industrial undertakings (other than MSE) and location of industrial undertakings in relaxation of the notified locational policy will attract compulsory licensing.

Policy relating to MSE (earlier Small Scale undertakings)

• The Micro, Small and Medium Enterprises Development (MSMED) Act, 2006” is the first single comprehensive legislation in India, covering micro, small and medium enterprises. Under the Act, the terms "medium sector" and "micro enterprises" have been defined for the first time.Also, the concept of ‘Industries’ has been widened to that of ‘Enterprises’. Enterprises have been classified broadly into two categories, namely, enterprises engaged in the manufacture/production of goods pertaining to any industry; and enterprises engaged in providing/rendering of services. The term "enterprise" has been defined in terms of investment in plant and machinery/ equipment (excluding land & building). Accordingly, the definition of micro, small and medium enterprise is:-

Definition of Micro and Small Enterprise is relevant. Definition of Medium Enterprise is give for additional information.

• The MSE can get registered with the Directorate of Industries/District Industries Centre in the State Government
• MSE are free from locational restrictions.
• MSE is not permitted more than 24% equity in its paid up capital from any industrial undertaking either foreign or domestic.
• If the equity holding from another company (including foreign equity) exceeds 24 %, even if the investment in plant and machinery in the unit does not exceed Rs 10 million, the unit loses its MSE status.

(iv) Policy relating to Non - MSE / Small Scale undertakings

• By obtaining an industrial license, a non MSE/small scale units can also manufacture the items reserved for MSE/small scale sector. In such cases, it is mandatory for the non MSE/small scale unit to undertake minimum export obligation of 50 per cent, which will not apply to non MSE/small scale EOUs as they already have a minimum export obligation of 66 per cent of their production.
• Government have decided that an application needs to be made for grant of an industrial licence for reserved items such as chemical or a by-product recoverable through pollution control measures, which would be considered for approval without necessarily imposing the mandatory export obligation.

(v) if the proposal attracts locational restriction.

Industrial Entrepreneurs Memorandum (IEM)

Industrial undertaking exempt from obtaining an industrial license are required to file an Industrial Entrepreneur Memoranda (IEM) in Part ‘A’ (as per prescribed format) with the secretariat of Industrial Assistance (SIA), Department of Industrial Policy and Promotion, Government of India, and obtain an acknowledgement. No further approval is required.

Immediately after commencement of commercial production, Part B of the IEM has to be filled in the prescribed format.

The facility for amendment of existing IEMs has also been introduced.

Locational Policy

• Industrial undertakings to be located at least 25km away from the Standard Urban Area limit of cities with population of more than a million (as per 1991 census).
• Electronics, Computer software and Printing (and any other industry which may be notified in future as “non polluting industry”) are exempt from such locational restriction.
• Small scale units are also free from locational restrictions.

Environmental Clearances

• Some Industrial undertakings are required to obtain Statutory clearances relating to pollution control and environment for setting up an industrial project. These industries includes industries like petrochemical complexes, petroleum refineries, cement, thermal power plants, bulk drugs, fertilisers, dyes, paper etc.
• However, if investment is less than Rs. 1000 million, such clearance is not necessary, unless it is for pesticides, bulk drugs and pharmaceuticals, asbestos and asbestos products, integrated pa int complexes, mining projects, tourism projects of certain parameters, tarred roads in Himalayan areas, distilleries, dyes, foundries and electroplating industries.
• Any item reserved for the small scale sector with investment of less than Rs 10 million is also exempt from obtaining environmental clearance from the Central Government.