Why and how was private sector regulated under the IPR 1956?
IPR 1956 was adopted in order to accomplish the aim of state controlling the commanding heights of economy. This policy was aligned with the Indian economy’s inclination towards socialist pattern of system of Soviet Union. According to this resolution, industries were classified into following three categories:
Category 1: Those industries that are established and owned exclusively by the public sector.
Category 2: Those industries in which public sector will perform the primary role while the private sector will play the secondary role. That is, the private sector supplements the public sector in these industries.
Category 3: Those industries that are not included in Category 1 and Category 2 are left to the private sector.
These industries that were left to the private sector, the government owns an indirect control by the way of license. In order to initiate a new industry, private entrepreneurs should obtain license (or permit) from the government. By licensing system, tax holidays and subsidies government can promote industries in a backward region that will ,in turn, promote the welfare and development of that region. This was supposed to reduce regional disparities.
Further, in order to expand the scale of production, private sector needs to obtain license from government. This was supposed to keep a check on the production of goods that are socially undesirable and unwanted. Hence, the state fully controlled the private sector either directly or indirectly.