Industrial Licensing: Norms and Policy

For the organized growth and development of industrial India, Parliament has enacted the Industrial (Development and Regulation) Act, 1951. The IDR Act provisions apply to “industrial undertakings,” which means an undertaking pertaining to a scheduled industry carried on in one or more factories by any person or authority.

Chapter III of the Act pertaining to the regulation of scheduled industries makes it mandatory for every existing industrial undertaking to seek registration with the Central Government. Also, every new industrial undertaking has been mandated to obtain a license by the Central Government.

Moreover, a registered or a licensed industrial undertaking is restricted from manufacturing a new article unless the license for new article has been obtained or prior license has been amended to include the article, as the case may be.

The rules regarding the granting of registration certificates and licenses are provided under “The Registration and Licensing of Industrial Undertaking Rules, 1952” and Notification 477(E) dated July 25, 1991, of the Department of Industrial Policy and Promotion.

Presently, an industrial license is required for industries retained under compulsory licensing, the manufacturing of items reserved for the small scale sector by larger units, and when the proposed location attracts restrictions.

The industries requiring compulsory licensing are:

• Distillation and brewing of alcoholic drinks
• Cigars and cigarettes of tobacco and manufactured tobacco substitutes
• Electronics
• Aerospace and defense equipment
• Industrial explosives -including detonating fuses, safety fuses, gun powder, nitrocellulose and matches
• Hazardous chemicals – including items hazardous to human safety and health and thus fall for mandatory licensing

The government has reserved certain items for exclusive manufacturing in the small-scale sector. Non-small-scale units can undertake the manufacturing of items reserved for the small scale sector only after obtaining an industrial license. In such cases, the non-small-scale unit is required to undertake an obligation to export 50 percent of the production of small-scale industry (SSI) reserved items. This has been done to protect indigenous manufacturers from competitive exotic substitutes so as to ensure a level playing field for domestic manufacturers.

With regards to locational limitations, industrial undertakings are free to select the location of their projects. Industrial licenses, however, are required if the proposed location is within 25 kilometers of the standard urban area limits of 23 Indian cities having a population of at least 1 million. The locational restrictions, however, do not apply in the case of electronics, computer software and printing and any other industry which may be classified in the future as a “non-polluting industry.” The location of industrial units is subject to the applicable local zoning and land use regulations and environmental regulations so as to maintain ecological discipline.

The application for registration has to be made to the Secretary of Industrial Assistance, Central Government. After due consideration, the government then issues the Certificate of Registration. Similarly, an application (Form IL-FC) for obtaining a license by a new undertaking has to be made to the Central Government along with the fee, after which the Ministry issues a license. Industrial licenses are granted by the Secretarial of Industrial Assistance (SIA) on the recommendation of the Licensing Committee.

After a an industrial undertaking has obtained a license or permission as above, it becomes eligible to the allotment of controlled commodities and for the issuance of an import license for goods required for the construction and operation of the industrial undertaking.

De-licensed industries
These are industries which do not require compulsory licensing, do not fall under locational restrictions, and are not reserved for small-scale industries. There is no exhaustive list specified by the Department of Industrial Policy and Promotion. As a process of liberalization of industrial policy, many items have been exempted from compulsory licensing and attention is reserved only for those which are vital for public health, safety and national security. Industries exempted from the provisions of industrial licensing are required to file an Industrial Entrepreneur’s Memorandum along with a fee.

The Government’s liberalization and economic reforms program aims at rapid and substantial economic growth, and integration with the global economy in a harmonized manner. The industrial policy reforms have reduced the industrial licensing requirements, removed restrictions on investment and expansion, and facilitated easy access to foreign technology and foreign direct investment.

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