The licensing policy was introduced in the IPR of 1956 to promote regional equality. As per this policy, private entrepreneurs were allowed to establish a new industry or to expand the productive capacity of the existing units only after obtaining license from the government.
Strict rules and regulations were required to be followed before a license was provided. However, if the new unit was proposed to be established in a backward region, then the license was provided on simpler terms.
This promoted industrialists to establish new units in backward regions, thereby ensuring all-round development of the country.
Also, to further motivate the industrialists to establish new units in industrially backward areas, various sops (benefits) were also offered to them in terms of provision of cheap land, tax holiday, subsidised rates of electricity, etc.