In 1975, two new industrial units got concessions from the government. Unit X got a bank loan at a lower interest rate. Unit Y got electricity at a lower tariff. Going by the industrial policy of 1950-1990, which of the following is most likely correct?
Answer & explanation
Correct answer: option 4
The correct answer is Option (4) → X was a small-scale unit, helped to shield it from large firms; Y was a unit in an economically backward area, helped to promote regional equality
Bank loans at lower interest rates were a concession to small-scale industries. These units cannot compete with big firms, so they had to be shielded from them.
Electricity at a lower tariff was a concession to units set up in economically backward areas. Its purpose was to promote regional equality.
Option (1) X was a unit in an economically backward area, helped to promote regional equality; Y was a small-scale unit, helped to shield it from large firms — Incorrect. This swaps the two units. Cheaper loans went with small-scale industry, and cheaper electricity went with units in backward areas.
Option (2) X was a small-scale unit, helped to protect it from foreign competition; Y was a unit in an economically backward area, helped to promote regional equality — Incorrect. Protection from foreign competition came through tariffs and quotas on imports, not through cheaper bank loans.
Option (3) X was a small-scale unit, helped to shield it from large firms; Y was a unit in an economically backward area, helped to keep its output within what the economy required — Incorrect. Keeping output within what the economy required was the aim of the licence needed to expand output, not of cheaper electricity.
Option (4) X was a small-scale unit, helped to shield it from large firms; Y was a unit in an economically backward area, helped to promote regional equality — Correct. Each concession matches its kind of unit and its purpose.
NCERT (2026-27): “Industrial Policy Resolution 1956 (IPR 1956): Although there was a category of industries left to the private sector, the sector was kept under state control through a system of licenses. No new industry was allowed unless a license was obtained from the government. This policy was used for promoting industry in backward regions; it was easier to obtain a license if the industrial unit was established in an economically backward area. In addition, such units were given certain concessions such as tax benefits and electricity at a lower tariff. The purpose of this policy was to promote regional equality. Even an existing industry had to obtain a license for expanding output or for diversifying production (producing a new variety of goods). This was meant to ensure that the quantity of goods produced was not more than what the economy required. …” “Small-Scale Industry: In 1955, the Village and Small-Scale Industries Committee, also called the Karve Committee, noted the possibility of using small-scale industries for promoting rural development. A ‘small-scale industry’ is defined with reference to the maximum invest-ment allowed on the assets of a unit. This limit has changed over a period of time. In 1950 a small-scale industrial unit was one which invested a maximum of rupees five lakh; at present the maximum investment allowed is rupees one crore. It is believed that small-scale industries are more ‘labour intensive’ i.e., they use more labour than the large-scale industries and, therefore, generate more employment. But these industries cannot compete with the big industrial firms; it is obvious that development of small-scale industry requires them to be shielded from the large firms. For this purpose, the production of a number of products was reserved for the small-scale industry; the criterion of reservation being the ability of these units to manufacture the goods. They were also given concessions such as lower excise duty and bank loans at lower interest rates.” “2.5 Trade Policy: Import Substitution … In this policy the government protected the domestic industries from foreign competition. Protection from imports took two forms: tariffs and quotas. …” |