New Delhi, Sept. 16 -- Industrial policy had been relegated to the storeroom as free market thinking swept the world after 1980. It is now back in the reckoning. Industrial policy is essentially state intervention to shape the structure of an economy-rather than its growth rate-according to national priorities.

It is thus more about the steering wheel rather than the accelerator, delivering direction rather than speed. Also, industrial policy tries to correct market failures, while economic reforms in recent decades have been more focused on government failures.

The renewed spread of industrial policy was till recently more a belief than an empirically established fact. That is now changing. For example, economists Reka Juhasz, Nathan J...