Why and how was private sector regulated under the Industrial Policy 1956?

The Industrial Policy Resolution (IPR) 1956 was adopted in order to achieve the aim of a socialist state with government controlling the major strategic industries of the economy. According to this resolution, industries were classified into following three categories

Category 1 Those industries that were established and owned exclusively by the public sector.

Category 2 Those industries in which public sector would perform the primary role while the private sector would play the secondary role i.e., the private sector supplements the public sector In these industries and new units could be set up only by public sector.

Category 3 Those industries that are not included in Category 1 and Category 2 were left to the private sector.

The government kept an indirect control on the industries in the private sector through the policy of industrial licensing. In order to initiate a new industry or expand existing capacity, private entrepreneurs were supposed to obtain license from the government.

Apart from licensing, imposition of tax, tax exemptions and subsidies were used by the government to regulate private industries and bring about a reduction in regional disparities in industrial development and to keep a check on the production of goods that are socially undesirable. Hence, the government fully controlled the private sector either directly or indirectly through the IPR 1956.