Industry, MSMEs & manufacturing policy

From Licence Raj to liberalisation

India's industrial trajectory is governed by a sequence of Industrial Policy Resolutions and the statutes that operationalised them. The Industrial Policy Resolution of 1948 first divided the economy among the state and private sector. The IPR 1956, the bedrock of the Nehru-Mahalanobis model, classified industries into three schedules (Schedule A reserved for the state, Schedule B for joint state-private effort, Schedule C left to the private sector) and gave heavy industry primacy under the Second Five-Year Plan.

The regulatory architecture tightened through the Industries (Development and Regulation) Act, 1951 (IDRA), which introduced compulsory industrial licensing, and the Monopolies and Restrictive Trade Practices (MRTP) Act, 1969, which capped the expansion of large houses. The Foreign Exchange Regulation Act (FERA), 1973 restricted foreign equity to 40 percent, prompting IBM and Coca-Cola to exit in 1977. This cumulative apparatus became known as the 'Licence-Permit Raj'.

The 1991 rupture

The New Industrial Policy of 24 July 1991, announced alongside the balance-of-payments crisis reforms, abolished industrial licensing for all but a short negative list (now down to a handful: defence, tobacco, hazardous chemicals, industrial explosives, etc.). It dereserved most public-sector areas, junked the MRTP asset-size thresholds (the MRTP Act was repealed and replaced by the Competition Act, 2002, administered by the Competition Commission of India), and opened the door to foreign direct investment through the automatic route.

Make in India and the PLI turn

Make in India was launched on 25 September 2014 with the target of raising manufacturing's share of GDP to 25 percent and creating 100 million jobs. Because that target proved elusive, policy pivoted from broad exhortation to targeted, outlay-linked incentives. The Production Linked Incentive (PLI) scheme, announced in 2020-21 with a total outlay of about Rs 1.97 lakh crore across 14 sectors (mobile manufacturing, pharmaceuticals, telecom, white goods, automobiles and auto components, advanced chemistry cell batteries, textiles, food processing, specialty steel, solar PV modules and others), pays cash incentives on incremental sales of goods manufactured in India over a base year. The Semiconductor Mission (ISM, 2021) with a Rs 76,000 crore outlay extended the logic to chip fabrication and assembly.

Manufacturing's GDP share has nonetheless stayed near 15-17 percent, against the 25 percent target now folded into the wider 'Atmanirbhar Bharat' (May 2020) frame. Candidates should be able to distinguish deindustrialisation concerns, premature services-led growth, and the missing-middle problem in firm-size distribution.

What counts as an MSME

The Micro, Small and Medium Enterprises Development (MSMED) Act, 2006 created the legal definition. A landmark revision effective 1 July 2020 under Atmanirbhar Bharat introduced a composite criterion combining investment in plant and machinery and annual turnover, and crucially abolished the earlier manufacturing-versus-services distinction. The current thresholds (after the Union Budget 2024-25 / 2025-26 enhancements) define a Micro enterprise as investment up to Rs 2.5 crore and turnover up to Rs 10 crore; Small as up to Rs 25 crore investment and Rs 100 crore turnover; Medium as up to Rs 125 crore investment and Rs 500 crore turnover. Registration is through the Udyam portal (since 1 July 2020).

MSMEs contribute roughly 30 percent of GDP, about 45 percent of exports, and employ over 11 crore people, making them central to any employment-generation answer.

The support architecture

Credit is the binding constraint. Key instruments: the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE, 2000) providing collateral-free guarantees; Priority Sector Lending norms under RBI directions mandating bank credit to MSMEs; the MUDRA scheme (Pradhan Mantri MUDRA Yojana, 8 April 2015) with Shishu, Kishore and Tarun loan categories; and the Emergency Credit Line Guarantee Scheme (ECLGS, May 2020) that channelled pandemic relief. The Trade Receivables Discounting System (TReDS) addresses delayed payments, reinforced by the Section 43B(h) of the Income Tax Act provision (Finance Act 2023) disallowing deductions for payments to micro and small enterprises beyond 45 days.

Other pillars: the MSME SAMADHAAN portal for delayed-payment grievances; the Public Procurement Policy, 2012, mandating 25 percent procurement from MSEs by central PSUs and ministries (with sub-targets for SC/ST and women entrepreneurs); and clustering through schemes like MSE-CDP and SFURTI.

Why this matters for the exam

In Prelims, expect direct factual MCQs: the composite MSME definition and thresholds, which scheme covers what (MUDRA categories, CGTMSE, TReDS, ECLGS), the year of the MSMED Act and Make in India, and the PLI sector list. UPSC favours 'which of the following statements is/are correct' formats on definitions and percentages.

In Mains GS-3 ('inclusive growth', 'industrial policy', 'employment'), the recurring demand is analytical: why manufacturing has stalled at ~17 percent of GDP, whether PLI corrects market failures or merely subsidises capital, the 'missing middle' and informality of MSMEs, and the jobless-growth critique. PYQ angle: 2017 asked on 'Make in India' versus 'Skill India' complementarity; recent papers probe PLI efficacy and labour-code reform. Marry a scheme name + year + a data point + one critique in every answer.