The Core Of The Problem
The industry ministry's problem is that the existing core and non-core demarcations go back more than 40 years, to the Second Plan, and have become anachronistic. Consider the Industrial Policy Statement of 1945, which began with the premise that industrial development was a provincial subject under the Government of India Act, 1935. However, the development of certain industries needed to be centralised. The list of industries identified for such centralised development is more or less the same as that of those reserved for the central government under the Industries (Development and Regulation) Act of 1951. This was mirrored again in the list of industries (Schedule A) for which a state monopoly was contemplated in the Industrial Policy Resolution of 1956. In those days, these identified public sector monopolies were felt to be areas where market failures existed. The costs of state failure were commensurately underplayed.
What was true in the 1950s is no longer true today and, in many such areas, market failure no longer exists. But if the core/non-core differentiation of the Second Plan is scrapped, what criteria does one use instead? Is any meaningful classification at all possible without being either subjective or arbitrary? For example, employment potential, the need for modern technology, and the need to ensure threshold levels of investment, not to speak of protecting domestic industry, are completely arbitrary criteria which encourage administrative controls, lobbying and rent-seeking. One way to attempt a core/non-core classification is to differentiate between tradables and non-tradables, although this line too is getting blurred. In addition, if core is interpreted to mean areas where private investments (including foreign investments) are not welcome, this classification is suspect. The original Schedule A had 17 different industry groups. Barring the first two (arms and ammunition and atomic energy), there is a not a single one where private investments are unwelcome today.
Reforms cannot succeed without decentralisation and devolution of powers, and this fits in with the philosophy of the present government. The first step towards achieving this is decentralisation of some of the powers of the Foreign Investment Promotion Board to the state level.