---
title: "Industry, MSMEs & Manufacturing Policy (UPSC)"
description: "Learn India's industrial policy from 1948 to Make in India and PLI, the MSME definition and ecosystem, and how manufacturing is tested in UPSC Prelims and GS-3."
url: "https://modeldiplomat.com/learn/lessons/upsc-indian-economy-industry-msmes-manufacturing-policy"
---

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Industry, MSMEs & manufacturing policy

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# Industry, MSMEs & manufacturing policy

India's industrial policy from 1948 to Make in India and PLI, the MSME definition and ecosystem, and how manufacturing is tested in UPSC Prelims and GS-3.

## 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 It dereserved most public-sector areas, junked the MRTP asset-size thresholds (the MRTP Act was repealed and replaced by the **Competition Act, 2002**, administered by the Competition Commission of India), and opened the door to foreign direct investment through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.

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