A government license was necessary to launch new businesses or increase production. To encourage the establishment of new businesses in economically underdeveloped areas, incentives such as easy licensing and the subsidization of essential inputs such as electricity and water were used. This was done to address inequalities between regions of the country. Only after the government was convinced that more of the items were required for the economy were licenses to increase production granted.
Since the Indian economy was liberalized and deregulated in 1991, the majority of industries are not required to seek an industrial license in order to begin production there. Only those industries that may have an impact on public health, safety, and national security are given consideration by the government.
The IDRA, 1951 Act governs industrial licenses in India, and the Secretarial of Industrial Assistance (SIA), acting on the licensing committee’s advice, grants them. The Act’s provisions prohibit a licensed industrial venture from producing a new item unless the license has been renewed or a new license specifically for the new item has been secured.
Industries subject to compulsory licensing and industrial enterprises subject to site restrictions are among those that demand industrial licence for manufacturing in India. The license requirement also pertains to the growth of current industrial units.
Removing production restrictions on goods that were previously only available to MSMEs:
Previously, an industrial license was required for large businesses that produced goods that were only permitted for Micro, Small, and Medium Businesses (MSME). MSMEs were formerly referred to as small scale industries (SSI). The clause was designed to shield local businesses from unfair competition from multinational corporations. To promote more foreign investment, adopt better technologies, and increase competition on the Domestic and international markets for the products, the government deregulated these goods in April 2015.
The production of items like bread, pickles and chutneys, mustard oil, groundnut oil, wooden furniture, fireworks, steel chairs and tables, padlocks, stainless steel and aluminum utensils, glass bangles, exercise books and registers, wax candles, laundry soap, safety matches, agarbattis, etc. is now allowed by large industries without the need for an industrial license.
Industries subject to compulsory licensing in India
Businesses planning to establish industries in India to produce any of the following items must obtain a mandatory license:
- Tobacco items
- Defense aerospace and warships
- Hazardous chemicals
- Industrial explosives
Because of environmental, safety, and strategic concerns, these industries require mandatory licensing.
The Directorate for Promotion of Industry and Internal Trade (DPIIT) asserts that Press Notice 17 (1984 series) had lost its relevance and been withdrawn because the Indian government does not grant permits in any other circumstance. Press Note No. 3 (2019 Series), which revokes Press Note 17 (1984 Series), withdraws the prior notification that was relevant to environmental clearance, letter of intent conditions, and industrial licenses. However, unless they are specifically specified for obtaining licenses from the DPIIT, manufacturers of any parts or accessories used in the defense industry are not needed to hold an industrial or arms license.
The department is in charge of licensing the following items: body armor, warships, defense aircraft, and specialized training equipment. Prior to May 2017, the Ministry of Home Affairs could process applications and issue permits for defense goods manufacturing.
Location restrictions for industries in India
According to this clause, businesses must seek an industrial license from the federal government if they are located within 25 kilometers of the borders of cities with a population of at least one million people.
The following situations are exempt from this location restriction:
- Industries producing electronics, computer software, and printing, as well as any other ‘non-polluting industry’; or
- Industries that were located in a ‘industrial area’ prior to July 25, 1991.
To ensure ecological discipline, the site of industrial units is subject to suitable municipal zoning, land use restrictions, and environmental regulations.
License registration for industries
To get approval from multiple governments and government agencies, the DPIIT has built the Department for Promotion of Industry and Internal Trade G2B Portal, a single window portal. The portal is an integrated platform that provides access to government-to-business (G2B) services, such as the ability to submit industrial license and industrial entrepreneurs memorandum (IEM) applications online. The necessary authentication mechanisms for submitting IEM and IL applications are present on the website.
Traditionally, the application for registration was sent to the Department of Industrial Policy & Promotion (DIPP) Secretariat of Industrial Aid (SIA), along with a fee. Once the license has been obtained, the industrial undertaking is qualified to receive regulated commodities and to have import permits issued for goods needed for its development and maintenance.