Industry or the secondary sector of the economy is another important area of economic activity. After independence, the government of India emphasized the role of industrialization in the country's economic development in the long run.
Accordingly, the blue print for industrial development was made through the Industrial Policy Resolution (IPR) in 1956. The 1956 policy emphasized on establishment of heavy industries with public sector taking the lead in this area.
Adoption of heavy or basic industries strategy was justified on the ground that it will reduce the burden on agriculture, enable growth in the production of consumer goods industries as well as small industries that are helpful for employment generation and achieving self reliance. After the adoption of the IPR, 1956 there was tremendous growth in industrialization during the second and third plan periods i.e. 1956-61 and 1961-66.
Public sector contributed maximum to this growth. But towards the end of 1960s, investment in industries was reduced which adversely affected its growth rate. In the 1980s, this trend was reversed and investment in industries was increased by making the infrastructure base such as power, coal, rail much stronger.
In early 1990s it was found that the public sector undertakings were not performing upto expectation. There has been reports of mismanagement in these under takings resulting in loss. So in 1991 the government of Indian decided to encourage the role of private sector in industrial development, remove the rigid license system which is known as liberalization and allow international players to compete in the domestic country as well as domestic players to explore foreign territories. The aim of taking all these steps was to strengthen the process of industrialization in the country. Such a model of industrial development is called Liberalization, Privatization and Globalization (LPG) model.
After the adoption of this new policy in 1991, there has been phases of growth followed by slowdown in the industrial development process. In the early years of 1990s there was significant growth in industrialization due to increase in investment in infrastructure, reduction in excise duty, availability of finance, etc. But towards the end of 1990s the growth rate slowed down due to stiff competition from international companies, inadequate infrastructure support, etc.
However, in the beginning of the new millennium, between 2002-08 there was again some recovery due to increase in saving rate from 23.5 percent in 2001-2 to 37.4 percent in 2007-08. Even the competition from the foreign companies helped during this phase as the domestic companies could create enough internal strength in term of quality control, finance and customer care, etc. to withstand the competition. However after 2008-09 there was some slow down in industrial growth due to rise in petroleum price, interest rate and borrowings from abroad which has created lot of liabilities for the domestic companies.