industrial policy

Industrial policy

Industrial policy

First IP came in the year 1948. IPR 1948 divides industry into 3 categories.

1.      Industry with state monopoly like arms & ammunitions’, atomic energy & railways.

2.      Mixed Sectors: Comprise of six industries the future development of which was to be exclusively in hands of govt. but existing units of private sector were allowed to continue for 10 years e.g. cool, iron & steel ship building etc.

3.      Field of govt. control: consisted of 18 industries here govt. was not supposed to set up units. But sector was allowed to set up units but govt. was allowed to control them.

IP 1956

Objectives

1.      Accelerate the process of industrialization

2.      To develop heavy industry & machine making industry

3.      To expand public sector

4.      To reduce disparities in income & wealth

5.      To built up a large & growing cooperative sectors

6.      To prevent monopolies & concentration of wealth

7.      To ensure balanced regional development

1.      Schedule A – 17 industries whose future development would be exclusively in hands of govt. but existing units of private sector were allowed to continue. Out of 17, 4 were to be outright monopoly of govt. where existing units were also not allowed i.e. 3 earlier monopolies & 4 air transport.

2.      Schedule B – 12 industries govt. would establish new units & increase its participation but private players would also be allowed to set up units so IP Resolution 1956 gave concrete shape to the philosophy of mixed economy in India by emphasizing the mutual dependence of private & public sectors.

Mixed Economy: This is a method of organizing the economy generally followed in socialistic countries wherein both govt. & private sector coexist with public sector. While public sector play a larger & dominant role. This was the pattern followed by govt. of India since 1950 till 1991. After 1991k, the mixed economy concept was diluted to some extent.

Acts

1.      Industrial Development Regulation Act 1951 :

Objectives

1.      Regulation of industrial investment & production according to planned priorities & targets.

2.      Protection of small entrepreneurs against completion from large.

3.       Prevention of monopoly & concentration of ownership of an industry.

4.      Balanced regional development.

This act had 2 types of provisions:-

1.      Restrictive Provisions: It provided for registration & licensing of certain categories of industry mentioned in the act. To begin with 37 industries were there & further inflated to 70. Govt. would undertake enquiry into the working of license industry, it found performing unsatisfactory their licensing may be revoked.

2.      Reformative Provisions: If it was found that a particular unit was running unsatisfactorily govt. could issue directions for carrying out reforms in that unit govt. was empowered under the act to regulate & control the supply, distribution & even the price of products manufactured by these industries.

Review of Pre-1991 Industrial Policy

1.      Govt. had no means of ensuring that sanctioned capacity was actually installed & realized.

2.      It infact led to the concentration of ownership of industry.

3.      Discretionary power with officials led to corruption & annexes between big business houses & officials.

4.      Industrial licensing was not even able to correct regional imbalances.

5.      It also led to delays in processing of witnessed liberalization trend in 1980s & even India at that time going through period of stagnation.

New Industrial Policy 1991

1.      Abolition of Industrial licensing. It was reduced to 18 industries in 1991 & today it stands out for only 5 industries (2011). Alcohol, cigarette hazardous chemicals defence (electronics aerospace, drugs & pharmaceuticals. This has been delicenced & industrial explosion.

2.      Role of public sector was diluted: List of 17 industries was brought down to 8 in 1991 & now just 3.

-          Railway, atomic energy & mining of atomic minerals

3. Sick Industry Act was introduced in 1985 earlier private sector industry were referred to board for industrial and financial reconstruction (BIFR) but post 1991 even public sector undertaking were referred to BIFR.

 4. MRTP – Monopoly and Restrictive Trade Practices Act 1969: Limit was scrapped (earlier a fixed capital expenditure of 20 was considered for this act. In 1980 it was hiked to rs 100 cr.). In renewed environment the monopolistic trade practices commission  were just supervising that monopoly trend does not grow in an economy. So MRTP companies were brought at power with other industries.

5. Govt. decided to open up a no. of sectors until (hitherto) reserved for public sector for the private sector.

6. External sectors liberalization was decided upon to free up the entry of foreign capital and technology in India. So FDI were allowed in varying degrees.

7. Removal of mandatory convertibility clauses through this clause banks were allowed to convert their loans into shares. Thus banks became the owner of a company  .  this  reduced industrial development as industrialist were not motivated to take loans.

Industrial development during planning period

                On the eve of independence industrial deviation of India was largely confined to a few consumer goods eg. tea, textile Cotton etc.  the  1^st FYP year plan did not envisage a large scale, program of industrialization. It was from the 2^nd FYP plan that the famous Nehruvian Model of Industrial development became operational which was based on strategy advocated by PC Mehnalobis i.e. focussing on capital goods, larger place for public sector, private sector to be controlled, focus on heavy industry which would lead to trickledown effect. It presumes that in capital intensive heavy industry would inturn lead to the development of further industrial units based on the output generated by the heavy industry called 1^st generation industries (capital industry). The second generation industry would support the other small scale industries, trading houses, wholesellers, retailers etc. Setting into motion a process which would lead to absorption of labour surplus in the economy. In the west, trickledown theory is often used to justify tax cut for the rich. The 3^rd five year plan pressed forward with this programs with special emphasis on machine building. As a result industrial structure developed in three plans were heavily biased towards capital industries. Most of these industries were set up in public sector. As a result public sector expanded rapidly. This structure of industrial deviation was promoted in 4^th and 5^th five year plan as well.

                In 6^th five year plan noted that industrial production had increased by 5 times in 1^st 5 plans, not just the quantity of output, the Indian industry has diversified itself to cover almost every industry, but it also noted that public sector had failed to generate enough resources and problem of regional disparities were as serious as ever. The 6^th five year plan saw liberalization of trade and industrial policies, so industrial production started picking up. The liberalizing trend continued in 7^th five year plan only to take giant step forward in the 8^th five year plan (post 1991). In line with liberalization trend, 8^th plan and subsequent plans placed less emphasis on quantitative targets, they soughtt to achieve desired growth in different sectors. Mainly through modification in industrial trade and fiscal policies. post 1991 decade also saw a reduction in PSU investment in industry. Exp. In 10^th five year plan public sector outlay was pegged at 60,000 cr which was just 4% of total outlay. This is in line with govt. strategy to give more space to private sector. In the 11^th five year plan expenditure for industry was 1,85,653 cr which was just 5.1% of total plan outlay. The rate of growth of industrial sector was 6.9% per annum. The 12^th five year plan proposes an outlay of 3,77,302 cr for industrial sector which is 4.9% of total plan outlay. Plan outlay is 76,69807 cr. The target for growth has been kept at 10% per annum.

Impact of New Industrial Policy

-          In the immediate decade i.e. 1991-2000, the growth rate of industrial output declined from 7.8% in previous decade to 6.8% in this decade. There were also signs of structure retrogression, growth rate of capital goods declined in the following decade after liberalization.

-          Post inform period has exposed Indian economy to danger of business colonization (new colonialism) i.e. foreign MNC’s is like integrating a mouse with herd of elephants.

-          Post 1991, most anticipation of govt. of India was not gone out.

-          Capital was invested in acquiring already set assets, not investing in creating new assets.

-          Did not bring cutting edge technology.

-          Did not foster exports and serve only Indian markets, so less foreign reserves.

Trends in Industrial Production

                We can divide planning period into 4 phases for analyzing it.

1.       1951-1965 – Phase of Building up of strong industrial base: Industrial production grew from 5.7% in 1^st five year plan to 7.2% in 2^nd five year plan and to 9% in 3^rd five year plan.

2.       1965-1980 – Phase of Industrial deceleration and str. retrogression: The period of 1965-76 is particular was marked by a sharp slowdown in industrial growth which fell to just 4.1% from a high of 9% of 3^rd five year plan. The worst sufferers were capital goods industry which grew at just 2.6% as opposed to 20% growth in this sector achieved in 3^rd five year plan.

Causes for this phase

-          We went through two wars, both with Pakistan

-          India also experienced several years of draught

-          Low growth in agriculture sector and infrastructural constraints

-          Oil crisis of 1973

3.       1981-1991 – The period of industrial recovery reasons for it

-          Liberalization of industrial and trade policies

-          Growth in agriculture sector started picking up

-          Resurgence of infrastructural investment

4.       1991 – onwards : The year 1991 ushered in a new era of economic liberalization. Major liberalization measures designed to affect the performance of industrial sector were

-          Wide scale reduction in scope of industrial licensing

-          Simplification of procedural rules and regulations.

-          Reduction of areas exclusively reserved for public sector.

-          Disinvestment of equity of selected PSU.

-          Enhancing the limit of foreign equity participation in domestic industrial undertakings.

-          Liberalization of trade and exchange rate policy

-          Rationalization and reduction of customer and excise duty and personal, corporate income tax.

For purpose of analysis it is better to divide the past reform period in two sub-periods.

1^st the period of 1990-2001 i.e. upto end of 9^th five year plan.

2^nd period since 2002-03

1^st period: The average annual growth rate of industry production which was 7.8% in the pre-reform decade i.e. 1980-1992 fell to 5.7% during the period 1990-91 to 1999-2000.

-          The rate of growth of industrial production in 8^th plan was 4.4% per annum which was the same as a targeted growth rate.

-          The rate of growth of industrial production in the 9^th plan was (1991-2002) only 5% per annum which was considerably less than the targeted rate of 8.2% per annum. Thus the performance of industrial sector was highly unsatisfactory during the period of 2^nd half of 1990’s.

-          The post reform period and upto the end of 9^th plan period i.e. end of year 2001-02 was marked by considerable fluctuation and thus showed a total lack of consistency in industrial growth performance.

Exp. The rate of growth of industrial production which was only 2.3 % in 1992-93 – 2.3% shoot up to 6% in 1993-94 and further to as high as 13% in 1995-96. But fell again in the next year to 6.1%. the rate of growth was just 2.7% in 2001-02.

Causes of unsatisfactory industrial production in 1990’s up to  2002

-          Exposure to external competition

-          Industry was hardly prepared for it and the slowdown was only to be expected.

Slowdown in investment: The govt. of India was force to cut down public expenditure drastically under external pressure (IMF).

The infrastructural constraints

-          Difference in obtaining fund for expansion

                The period since 1991 has witnessed two stock market scams, one in 1992 and other in March-April, 2001. These scams seriously eroded investor confidence, subscription to initial public offering fell drastically leading to a set back to the primary market, trading in stock exchange also fell because of this, capitalist found it difficult to raise resources from the capital market for funding their expansion plans.

-          Sluggish growth in exports

-          Anomalies in tariff structure

-          Contraction in consumer demand

2. The period since 2003

                The period of 10^th plan 2002-07 witnessed revival of industrial growth. The rate of growth of industrial period was 5.7% in 2002-03 and picked up considerably to 7% in 2003-04, 2004-05 8.4% 2005.06 to 8.2%, 2006-07 to 11.5%, for the plan as whole the average rate of growth of industrial production comes out to be 8.2% per annum. Infact the rate of growth in industrial production at 11.5% the last year of 10^th five year plan i.e. 2006-07 was the highest growth achieved since 1995-56 13%.

11^th year plan 2007-2012 (IIP – 2004-05)

                Industrial growth in 2007-08 was 8.5% according to old series with base 1993-94, it was as high as 15.5% according to new series with base year 2004-05:

11 fyp	Old series	New series
2007-08	8.5%	15.9%
2008-09	2.8%	2.5%
2009-10	10.5%	5.3%
2010-11	-	8.2%
2011-12	-	2.9%

11 FYP marked slowdown due to global recession and fell to just 2.5% with new series.( base year shifted from 1993 -94 to 2003 -04 IIP)

However the year 2009-10 recorded revival of industrial growth with 5.3%, and with old series 10.5%, industrial recovery was sustained in 2010-11 to 8.2%. all sectors improved their performance in this year. Particularly impressive was the performance of capital goods sector with its growth rate increasing from just 1% in 2009-10 to as high 14.8% in 2010-11. The year 2011-12 marked severe slowdown with industrial production increasing by just 2.9% from 8.2%.

Causes:

-          Moderation in demand both domestic and external

-          Hardening of interest rate

-          Slowdown consumption

-          Subdued business confidence

-          Global economic slowdown

                The average rate of growth of industrial production during 11^th plan works out at just 6.9% per annum as against the target of 10% per annum.

March 31^st 2015: Based on IIP, analysis growth over period after it, April 2006 to Dec. 2011, all broad sectors have witnessed volatility in group.IIP growth during Apr. 06-dec. 11 varied from 7.2% to 20% while different sector had different volatility spectrum. Capital goods and intermediate work was most volatile. High volatility in industrial growth capability in capital goods and intermediate goods create industrial distortion & concentrations and increases inflation pressure in the economy. As per the IIP industrial production has slowed down to 2.5% in 2008-09 improved in the next two years to reach 8.2% in 2010-11.

-          Govt. plan of flood of investment did not prove right slowdown of investment. Public sector investment declines because

-          Govt. want to liberalize economy, govt. has to meet fiscal deficit target.

-          Infrastructural constraints

Measures of industrial productivity

1.       Labour  productivity: per unit output/ per unit/ Per man            

2.       Capital productivity: measured in terms of incremental capital output ratio (ICOR). ICOR is to increase production by unit, how much additional capital is required. India operates at the lowest ICOR among BRICS + Indonesia. According to 2013-14 ICOR is 5.1 times.

3.       Total Factor Productivity (TFP): To know industrial productivity, all factors of production taken into account.

Changes in industrial pattern during planning period

1.       Increase in share of industrial production in GDP industrial production share of GDP was 13% in 1951. In 2014-15, according to GVA, 2011-12 prices is 31.7% and according to 2004-05 price it is 26.1%.

2.       Growth of infrastructure industries like power sector, transport, communication. Today infrastructure industry contribute 32.4% of total industrial output.

Index of Industrial Production

                IIP is a single representative figure to measure the general level of industrial activity in the economy. The office of economic adviser, ministry of commerce and industry, made a maiden attempt for compilation and release of IIP with base year 1937, with inception of central statistical organization in 1991, the responsibility for compilation and publication is vested with CSO. IIP has been revised from time to time in 1946, 1951, 1956, 1960, 1970, 1980-81, 1993-94, 2004-05 and 2011-12. The item under IIP were revised to reflect the changes in industrial structure. Weights are allocated to various items in proportion to value added by manufacture. The index has three sections:

1. Mining               2. Manufacturing   3. Electricity

According to 2004-05 prices mining has 14.1% weight manufacturing – 75.5% and electricity 10.3% with total item of 882 grouped in 399 groups.

Performance of 8 core industries

-          Coal, fertilizer, electricity, crude oil, national gas, refinery products, steel, cement. The weight age of these 8 core industries is 38% in IIP. The overall growth in 8 core industry during Apr-Dec. 2014-15 has improved marginally to 4.4% compared to 4.1% in the same period last year electricity – 9.7%, coal – 9.1% and cement 7.9% boosted the performance. While natural gas (-)5%, fertilizers (-)1.4%, crude oil (-)0.9%, refinery products (+)0.2%, and steel 1.6% accounted for moderation in growth. The improved performance in electricity is due to high growth in thermal generation, high level coal mining by CIL and cement industry added capacity. Natural gas and crude oil productive have declined because no major discovery and problems with old oil fields.

Problem of industrial development in India

1.       Gap between targets and achievements. Except 1980, growth rate achieved by industries were generally less than targets.

2.       Under – utilization of capacity. The estimate range of under utilization is 30-70%.

3.       Poor performance of public sector.

4.       Growth of regional imbalances. Maharashtra, Gujarat, Tamil Nadu account for 38.9% of total factories in the country and 43.8% of total investment is in these three states.

5.       Industrial sickness: At the end of March 2008, there were 89,641 sick industries.

Public Sector Aim’s of Public Sector were:

-          To accelerate economic deviation and growth

-          To prevent monopolies and conc. of wealth

-          To establish sound economic infrastructure for industrial development

-          Attain self reliance in strategic fields i.e. power, oil and reduce dependence on foreign technology

-          Achieve balanced regional development

-          Create and enhance employment opportunity

-          Reduce the burden on balance of payment through import substitution and export promotion

-          Provide assistance for development & expansion of small scale industries

-          Generate surplus resources for reinvestment

-          Promote retribution of income of wealth

Evaluation of Indian Public Sector

-          In 1951, there were just five central PSU with just Rs. 29 crore being invested in them. There are over 1,000 PSU in India and around 800 of these are owned by state govt. The share of PSU in GDP stands at 13%. The central PSU employees stand out at 14.04 lacs.

-          They have played pivotal role in all around industrial development for instance; they contribute entire output of lignite and copper, 85% of under petroleum, 85% of coal, 50% of steel and 1/3^rd of fertilizers.

-          They have fulfilled their role as model employer by providing their employees with facilities like school, housing etc.

-          They have been instrumental in redistribution of income and wealth through development of backward region and through provision of public utilities at reasonable prices. They have also helped in earning precious foreign exchange.

-          Today 1/4^th to 1/5^th of export earnings accounted by PSU. They have also contributed to public treasury, through taxes, custom duties, excise duties, corporate tax etc.

-          They have played important role in collecting, mobilizing, saving for public investment, through instrumentality of national banking, PF, insurance etc.

Flipside of PSU

                Out of total PSU, around 100 are incurring losses and 50 of them have gone sick or on verge of becoming sick. Causes for this:

Lack of profitability due to unsound pricing policy. There were two approaches:

1.       Public utility approach (pre 1991): PSU were not charging profit but this profit forgone by them fell in the lap of private sector.

2.       Rate of return: PSU were asked to generate enough resources to meet there needs and they get further fulfill then corporate – social responsibility.

-          Technological obsolesce (outdated)

-          Low capacity utilization

-          Over staffing

-          High overhead cost

-          Long gestation period of PSU leading to cost and overruns

-          Inefficient management & lack of autonomy

-          Faulty selection of cites due to political reasons/ considerations

-          Trade unionism, strikes and lockouts

Manufacturing Policy 2011

Initiative of govt. to boost industries growth

-          Ease of doing business

To improve India’s low ease of doing business index ranking reforms are being undertaken in areas such as

1.       starting a business.

2.       dealing with const. permits

3.       registration of property

4.       power supply

5.       paying taxes

6.       enforcing contracts

7.       and resolving insolvency

The importance measures that have been undertaken are :

-          liberalization of licensing and de-regulation of a large no. of defense products

-          extending the validity of licensing to provide enough time to license to procure land and obtain necessary clearances.

Make in India

                The make in India program is aimed to facilitate investment, foster innovation, enhance skill development, protect intellectual property an built best in class manufacturing infrastructure. Information has been provided on web-portal along with details of FDI policy, national manufacturing policy, intellectual property rights and so on. An investor facilitation cell has been created in India to guide, assist and hand hold investors.

E-Biz project

                Under the project, a govt. to business (G2B) portal is being set up to serve as a one stop shop for delivery of services to the investors and address the needs of the business and industry from inception through the entire life cycle of the business.

Skill development

                After the setting up of a new ministry of skill development and entrepreneurship to promote skill and entrepreneurial activities, work is being undertaken on setting of common norms for skill training across central ministries and department. To create a common standard for skills training and certification in the country efforts are on to align the national council for vocational training, school boards and UGC.

Streamlining environment and forest clearance

                A process for online submission of application for environment, postal regulation zone and forest clearances has been started .

 labour sector reforms.

                A shram Suvidha Portal has been launched for online registration of units, filing of self certified online returns by union , introduction of a transparent labour inspection scheme and uploading of inspection reports within 72 hours and timely redressal of grievances. A universal acc. no. has been launched facilitating portable, hassle-free and universally accessible provident fund accounts for employees.

                The Apprentices Act 1961 has been amended so as to make it flexible and attractive to youth and industry and an Apprentice Protsahn Yojna to support micro, small and medium enterprises in the manufacturing sector in engaging apprentices has been launched.

National Manufacturing Policy

                India’s recent economic growth has been due to a massive surge in the service sector with manufacturing sector continuing to be stagnant, contributing only 15-16% of GDP. As against this the manufacturing sector in China accounts for about 42% of GDP. In fact, India’s manufacturing sector is only about 13% of that of China. It is now being increasingly recognized that unless India’s manufacturing sector picks up strongly, it will be difficult to sustain rapid economic growth on the one hand and provide productive employment opportunities to the increasing labour force on the other hand. History of all developed countries, Asian tigers (Korea, Hong Kong, Singapore, Taiwan ) and China shows that all of them have attained economic growth by focusing more on manufacturing sector where output is more tangible and most of the innovations are 1^st generated. All these considerations have once again brought back industrial policy into focus in the form of national manufacturing policy released by GOI in Nov, 2011.

Objectives of an NMP

-          Increase manufacturing sector growth to 12-14% over the medium term.

-          Increase the share of manufacturing in GDP from the present level of about 16% to 25% by 2022.

-          Create 100 million additional jobs in the manufacturing sector by 2022.

-          Establish national investment and manufacturing zones.

-          Create appropriate skill sets among rural migrant and urban poor for their easy absorption in manufacturing.

-          Enhanced global competitiveness of Indian manufacturing sector.

-          Incentives for small and medium – scale industries

National investment and manufacturing zones

                NIMZ have been conceived as large integrated industrial townships with state of the art infrastructure, land use on the basis zoning, clean and energy efficient technology, necessary social infrastructure, skill development facilities etc. to promote and provide and a conducive  environment for manufacturing industry.

                To enable the NIMZ to function as a self-govt. and autonomous body it will be declared by the state govt. as a industrial township under article 243 Q (1) (c) of the constitution. These NIMZ’s would be managed by a special purpose vehicle (SPV) which would ensure master planning of the zone, pre-clearances for setting up the industrial units, to be located within the zone and undertake such other functions as specified in the various section of the policy. The policy mandates that the SPV in a zone will be headed by a senior govt. official and include an official expert in pollution control and environment protection.

                The NIMZ are perceived to be different from special economic zones (SEZ’s) in terms of size, level of infrastructure, planning, governance structure related to regulatory procedure, exit policy, fiscal incentives etc. The proposals in the policy are generally spectral neutral, location neutral, technology neutral except in centralization of green technology. Moreover, while the NIMZ’s are an important instrumentality, the proposal contained in the policy apply to manufacturing industry throughout the country including wherever industry is able to organize itself into clusters and adopt a model of self-regulation as enunciated in the policy.

Salient features of the policy

-          State govt. would be responsible for the selection of suitable land having area of 5,000 hectare in size.

-          At least 30% of total area proposed under NIMZ will be utilized for location of manufacturing unit.

-          A SPV will be constituted to discharge the affairs of the NIMZ.

-          State govt. would facilitate the provisioning of water, power connectivity and other infrastructure and utility linkages.

-          The central govt. will bear the cost of master planning and will improve external physical infrastructure and provide linkages to these infrastructure including road, rail, airport etc.

-          Central govt. will provide financial support in the form of viability gap funding not exceeding 20% of project cost.

-          NIMZ will be allowed to raise external commercial warnings for developing internal infrastructure for NIMZ.

-          I NIMZ outside Delhi-Mumbai industrial corridor region given in principle approval are:

·         Nagpur in Maharashtra, Tumkur in Karnataka

·         Bedar in Karnataka, Kolar in Karnataka

·         Gulbarg in Karnataka, Chittor in Andhra Pradesh

·         Medak in Telengana, Paraksham in Andhra Pradesh

·         Kalin ganggar in Tajpur district in Orissa

8 investment regions along Delhi-Mumbai industrial corridor projects are:

-          Ahmedabad Bholera Ind. region in Gujarat

-          Chendra Bidkim Ind. Park Aurangabad, Maharashtra

-          Manesar, Bawal investment region Haryana

-          Kushekra – Bhiwadi Nimrana investment region Rajasthan

-          Pithampur Thar Mhou inv. region, Madhya Pradesh

-          Dadri – Noida Gaziabad invest. region Uttar Pradesh

-          Dighi Port. Ind. Area Maharashtra

-          Jodhpur Pali Marwar region in Rajasthan

Maharashtra	Gujrat	Rajasthan	Haryana	Uttar Pradesh	Madhya Pradesh
Shendra Bidkim Industrial park, Aurangabad -    Dighi industrial area	Ahmedabad Bholera Investment Region	Kushekhra Bhiwadi, Nimrana, investment region Jodhpur, Pali Marwar Region	Manesar Bawal Investment Region	Dadri, Noida, Gaziabad investment region	Pitampur, Thar, Mhou investment region

Steps taken to implement this policy:

-          De-reservation only 2 now

-          Sick industries to be referred to BIFR

-          Golden handshake (voluntary retirement) introduced in 1988 but pursued with greater vigour after 1991. Till March 2013, around 6.16 lack employees have been released under VR’s. since  2001-02 govt. introduced counseling, retraining, redeployment of retrenched employees.

-          National renewal fund was set up in 1992 for training and reemployment of retrenched employees.

-          Disinvestment program started in 1991-92. A committee on disinvestment was set up under C. Rangarajan in 1993 on recommendation of which govt. set up disinvestment commission under G.B. Ramakrishnan for preparing long term plans for disinvestment. The commission was replaced in 1999 by Ministry of Disinvestment currently it is department under finance ministry.

-          Operationalization of MoU’s . MoU is agreement between controlling ministry and PSU’s. The objective is to improve performance to evaluate management performance three objective criteria, provide incentive for better future investment from just four MoU’s in 1987-88 risen to 207 in 2014.

Policy regarding Nav-Ratna, Maha and Mini Ratnas

                Maha-Ratna - govt. has introduced Maha-ratna scheme in Feb. 2010 with the objective to delegate enhanced powers to the board of identified large sized Nav-Ratna CPSUs so as to facilitate expansion of their co-operation both in domestic as well as global markets. criteria for grant of Maha-Ratna status.

-          Having Nav-Ratna status

-          Listed on Indian Stock Exchange with min. Prescribed public share holding under SEBI regulation

-          Average annual turnover of more than 25,000 cr during the last 3 years.

-          Average annual net worth of more than 15000 cr during the last 3 year.

-          Average annual net profit (after tax), of more than 5000 cr during the last 3 years.

                The Maharatna CPSU to have additional powers in the area of investment in Ioint Venture’s / subsidiaries and HR development. The Maha Ratna companies can invest 5000 crore in one project and can create below board level post upto E-9 level i.e. upto executive director level. The govt. has conferred Maha Ratna Status to 7 CPSU’s namely

 (1) Bharat heavy electrical

(2) Coal India Limited

 (3) Gail India Ltd.

 (4) Indian Oil Corp. Ltd.

 (5) NTPC Ltd.

(6) Oil and Natural Gas Corp. Ltd. (ONGC)

(7) Steel Auth. of India Ltd. (SAIL).

Nav-Ratna Scheme: In 1997, GOI identified efficiently performing PSU’s and introduced Nav-Ratna scheme to identify PS companies that have comparative advantages and support them in their drive to become global giants. Proposed Nav-Ratna. CPSU’s have been given enhanced autonomy and delegation of power to incur capital expenditure to enter into technology jv’s / strategic alliances (2) effect organizational restructuring (3) to create post upto E-6 level . (4) and wind up post upto board level. To raise capital from domestic and int. markets. Presently there are 17 NR CPSU’s.

(1) Bharat Electronics Ltd.

 (2) Bharat Petroleum Corp. Ltd.

 (3) Containers Corp. of India Ltd.

 (4) Engineers India Ltd.

 (5) Hindustan Aeronautics Ltd.

(6) Hindustan Petroleum Corp. Ltd.

 (7) Mahanagar Telephone Nigam Ltd.

(8) National Aluminium Comp. Ltd.

(9) National Building Const. Ltd.

 (10) Neyveli Lignite Corp. Ltd.

 (11) NMDC Ltd. (12) Oil India Ltd.

(13) Power Finance Corp. Ltd.

(14) Power Grid Corp. of India Ltd.

 (15) Rashtriya Ispath Nigam Ltd.

(16) Rural Electrification Corp. of india Ltd.

 (17) Shipping Corp. of India Ltd.

                In 1997, govt. also identified small profit making PSU’s as mini-Ratna’s as MR-1 and MR-2.

MR-1 is that PSU which is earning profit for last 3 years and profit of 30 crore rupees in 1 or more of these 3 years.

 MR-2 simply earning profit since last 3 year.

Package  for MR-1 and MR-2.

                MR-1 can incur expenditure upto 300 crore without govt. approval or equal to their net worth whichever is lower. MR-2 can do this upto 150 crore or upto 50% of these net worth whichever is lower. Presently there are 72.  54 categories MR-1 and 18 MR-2.

Disinvestment and Privatization

                Disinvestment is a process by which govt. transfers productive activity from govt. to private sector but all disinvestment does not mean privatization like disinvestment through public share.

Rationale behind Disinvestment and Privatization

-          It would introduce profit oriented decision making in PSU’s.

-          It provides for better accountability of personal.

-          Privatization also ensures greater financial discipline.

-          Political interferences in working of PSU’s is minimized.

-          There is greater customer satisfaction

Methods of Disinvestment

1.       Initial Public Offering (IPO): In this method stake is sold to workers, citizens and also institutional investors.

Adv. (1) It ensures wide participation of people and helps in broad basing of ownership. (2) It is likely to face less resistance from employees as they are less affected.

Disadv. (1) How to determine price of share

2.       Strategic Sales: In this method stake is sold to strategic partners and this results in management passes on to 1 buyer.

Adv. (1) Govt. can ensure sale of loss-making PSU’s.

(2) Strategic buyers would bring in better technology and would introduce managerial efficiency.

Disad. (1) Unfair to ordinary citizen

(2) Lack of transparency (exp. Bulco plant sold to sterlite group for just 550 crore though its corba plant was more than 800 cr.

Public sector employees face risk of  loosing  their jobs.

3.       Management- employee buyout: Not resorted in India in this method shares are sold to employees. If PSU is loss making share holder would get poor share.

Disinvestment  program of the govt.

                Started 1992, the main approach of the govt. was to reduce its equity in all non-strategic PSU’s to 26% or less objectives of disinvestment program.

1.       Raising of resources

2.       Reducing interference in day to day functioning of PSU’s

3.       Giving management the autonomy to act in its own commercial discretion

4.       Modernization and up gradation of public sector undertakings.

Disinvestment strategy as given by disinvestment commission

1.       To strengthen the PSU’s to a appropriate level before disinvestment.

2.       Protect employee interest

3.       Broad basing the ownership i.e. disinvestment commission was not in favour of strategic sales.

                In Nov. 2009, govt. revisited approach for disinvestment. govt. approved following action for disinvestment in profit making govt. companies.

1.       Already listed profitable CPSE’s (not meeting mandatory share holding listing of 10%) are to be made complicate by govt. through issue of fresh shares.

2.       Unlisted CPSE’s with no accumulated losses and having earned net profit in 3 preceding consecutive years are to be listed.

National Investment Fund

                Govt. constituted NIF in Nov. 2005 into which the proceeds from disinvestment of CPSE were to be channelized. The corps. of the fund was to be of permanent nature and the same was to be professionally managed in order to provide sustainable returns to the govt. NIF was to be maintained outside consolidated fund of india.

Salient features of NIF :

1.       The proceeds from disinvestment of CPSE’s will be channelized into the national investment fund which is to be maintained outside consolidated fund of India.

2.       NIF will be of a permanent nature

3.       This should be professionally managed

4.       15% of the annual income of the fund will be used to finance selected social sector schemes which promoted education, health and employment. The residual 25% of the annual income of the fund will be used to meet the capital investment requirement of profitable and revivable CPSE that yield adequate return in order to enlarge their base.

        In Nov. 2009, govt. changed the policy and used the fund to meet the difficult situation caused by global slowdown of 2008-09. Further, this exemption was extended till March 2013. The govt. in 17^th Jan. 2013, has approved restructuring of the NIF and decided that disinvestment proceeds w.e.f. the fiscal year 2013-14 will be credited to the existing public account under the head NIF. The NIF would be utilized for the following purpose.

1.       Subscribing to the shares being issued by the CPSE’s including PS boards and PS insurance companies on right basis so as to ensure 51% ownership of the govt. in those CPSE’s public insurance companies is not diluted.

2.       Recapitalization of PS banks and PS insurance companies.

3.       Investment by govt. in RRB’s etc.

4.       Equity infusion in various metro projects.

5.       Investment in railway.

Board for reconstruction of PSE

                BRPSE set up in 2004-05 and is located in dept. of public enterprises in ministry of heavy industry. This is an advisory body and advises govt. on ways and means for strengthening PSE;s in general and to make them autonomous and professional. It would also advise the govt. on disinvestment, closure and sale of chronically sick PSU’s. Proceeds from disinvestment and methodologies accepted govt. has adopted two methods of disinvestment.

-          Selling of shares in select CPSE’s

-          Strategic sale of PSU’s to private sector

                The former method was used over the period between 1991-99. The govt. experimented with various other methods from 1999-2004. The emphasis shifted to later method which involves strategic sale of PSU’s to a private sector company through a process of competitive bidding. After 04-05 disinvestment realization has been mostly through sale of equity.

A critique of privatization and disinvestment

-          Proceeds have been less than expected

-          Under valuation of assets and shares

-          Absence of restructuring before disinvestment

-          Allegation of kickbacks in strategic sale. (sale of Balko plant for just 550 cr, where expert argued that only Korba plant of Balko should be of Rs. 1000 cr.

Utilization of proceeds

-          Disinvestment commission recommended that it should be utilized for

-          Retiring public dept

-          Restructuring PSU’s

-          Developing social infrastructure

-          Financing VRS (vol. Retirement. Scheme)

                But govt. has used most proceeds in meeting revenue deficit i.e. for maintenance expenditure. Fiscal convenience appears to be prime motive in disinvestment.

                Shift of monopoly from public to private this has not been largely debated by the govt.

                Public sector social objective should be deemphasised by commercial aspect of their function would be sanctioned.

In the 2015-16 fiscal, the government has raised around Rs 24,200 crore through stake sales in Coal India Ltd and Steel Authority of India Ltd (SAIL).

The Modi government's first full Budget(2015-16) in February (2015) announced a Rs 69,500-crore plan to sell stakes in government companies. Of this, the government has budgeted Rs 41,000 crore through stake sales in public sector units and Rs 28,500-crore via strategic disinvestment.

               

MRTP Act 1969

                Mahalanobis  Committee in 1964 and the monopolies enquiry commission 1965 revealed tendency of increasing concentration. of ownership in industry. To curb such tendency of large business houses, MRTPA was enacted. Monopolistic and restrictive trade practices act and monopolistic RTP commission was set up in 1970.

Aim of act: Aim was to provide that operation of economic system does not result in concentration of economic power to common man determent, to control monopolies, for prohibition of monopolistic and restrictive trade practices. MRTP Act covered two types of undertakings.

-          National monopolies and product monopolies NMP were either single large undertaking or groups of interconnected undertaking which had asset of atleast 100 cr. (prior to 1985 this limit was 20 cr.).

-          Product monopolies are dominant undertakings which control atleast 1/4^th of production or market of a product and had assets of atleast 3 cr. The new IP 1991 scrapped the asset limit for MRTP companies.

-           According to MRTP Act, a restrictive trade practices mean a trade practices which has or many have the effect of preventing, distorting or restricting competition in any manner. A monopolistic trade practices is / are:

-          Maintaining prices at unreasonable level

-          Unreasonably preventing or lessening competition

-          Limited technical development or capital investment to common detriment

-          Allowing the quality to deteriorate

                After the govt. of India decided to liberalize economic policy in 1991, provisions in respect of concentration. of economic power. Conc. of economic power were deleted by omitting many chapters. Commission became toothless tiger as it was now required to look after cases relating to unfair trade and restrictive trade patios only without having any power.

Competitive Commission Act, 2002

                Since the adoption of economic reforms  programme in 1991, corporate having been pressing of abolishing MRTP Act. The argument is that MRTP Act has lost its relevance in the new liberalized and global competitive scenario. Infact it is said that only large companies can survive in the new competitive markets, therefore size should not be a constraint. Thus, there is a need to shift our focus from curbing monopolies to promoting competition. govt. appointed an expert committee headed by SVS Raghavan to examine the issue. Raghavan committee submitted its report its 2000 and proposed adoption of a new competition law and doing away with MRTP Act Govt. accordingly enacted competition act 2002.

Competition Commission of India

                The act provides for establishment of CCI. It is the duty of the commission to eliminate practices having adverse effects on competition, to promote and sustain competition in markets, to protect the interest of consumers and insure freedom of trade carried on by other participants in the market competition act prohibits,

-          Anti competitive agreements

-          Prohibition of abuse of dominant position. Dominant position means a position of strength to operate independent of competitive forces in the market and to effect its competitors or consumers in its favour.

Regulation of combination

                The acquisition of one or more enterprises by one or more person or merger or amalgamation of prices shall be treated as combination of such enterprises and person in the following cases (1) acquisition by large enterprises (2) acquisition by group (3) acquisition of enterprises having similar goods and services.

                Enterprises shall not enter into a combination which causes adverse effect on competition and such combination shall be void. Thus combination is not prohibited, it will be held void only if it adversely affects competition.

Comp. Act 2002  VS   MRTPA 1969

                While the focus of MRTP Act was on controlling the concentration. of economic power, the focus of competition act is on ensuring free and fair competition in the market. The spirit behind the competition act is that big is no more bad, hurting competition and consumer interest is.

Make in India (MII)

                The govt. of India launched MII program to promote manufacturing in the country. The MII initiative is based on 4 pillars which have been identified to give boost to entrepreneurship in India. Not only manufacturing but also other sectors.

 Four  pillars are :

-          New processors – MII recognizes ease of doing business as a single most important factor to promote entrepreneurship.

-          New infrastructure – govt. intends to develop industrial corridors and smart cities, create world class infrastructure with state of art technology and high speed communication. Innovation and research activities are supported through a fast paced registration system and improved infrastructure for Intellectual Property rights registration. The requirement of skills for industry to be identified and accordingly development of work force to be taken up.

-          New sectors – FDI has been opened up in defense production, insurance, medical devices, const. and railway infrastructure in a big way.

-          New mindset – In order to partner with industry in economic deviation of a country govt. shall act as a facilitator not a regulator. The following sector have been included in the make in India program.

1.       Auto components

2.       Automobiles

3.       Aviation, biotechnology, chemicals, construction., defence manufacturing, food processing, leather, mining, pharmaceuticals, renewable energy, sports, railways, roads and highways, space, thermal power, tourism and hospitality.

                The vision statement commits to achieve for the country among other things are increase in manufacturing sector growth to 12-14 per annum over the medium term. Increase in share of manufacturing sector in GDP from 16% to 25% by 2022 and create 100 million additional jobs by 2022 in manufacturing sector alone, creation of appropriate skill sets among the rural migrants and the urban poor for inclusive growth, an increase in domestic value addition and technological depth in manufacturing sector, enhancing the global competitiveness, ensuring sustainability of growth, particular with regard to environment.

Favorable milestones:

1.       India has already marked its presence as one of the fastest growing economies of the world.

2.       The countries expected to rank amongst the world top 3 growth economies and amongst the top 3 manufacturing destination by 2020.

3.       Favourable demographic dividend for next 2-3 decades

4.       Sustained availability of quality workforce.

5.       The cost of manpower is relatively low as compared to other countries.

6.       Responsible business houses operating with credibility and professionalism

7.       Strong consumerism in domestic market

8.       Strong technical and engineering capabilities

9.       Well regulated and stable financial markets

10.    The MII campaign is designed by Wyden + Kennedy group which had previously worked on incredible India (W + K) group led by V. Sunil.

 

 Make in India Program logo : The logo is the silhouette of a lion on the prow made entirely of cogs; symbolizing manufacturing, strength and national pride. The national emblem also has four lions. In Indian society, a lion denotes, attainment of enlightenment besides representing power, courage, courage, pride and confidence.

Steps by govt.:

-          A technology acquisition and development fund has been proposed for the acquisition of appropriate technologies, the creation of a patent pool, and the development of domestic manufacturing of equipment used for controlling pollution and reducing energy consumption.

-          The govt. has also to deal with menace in bureaucratic circle. The bureaucratic bottle necks that hinder ease of doing business need to be removed.

-          Training of work force the manufacturing sector cannot develop on it own without skilled labour force therefore the new ministry for skill development and entrepreneurship has been developed. The ministry started Pd. Din Dayal Upadhya Scheme. The new program envisage setting up of at least 15-2000 training centre across the country. The new training program would enable the youth to get jobs in demand oriented markets like Spain, US, West Asia etc. The govt. proposes to train about 3 lack youth annually in 1^st 2 years and by the end of 2017 it has set a target of reaching out to as many as 10 lack rural youths.

-          To address the issues like adequate development of basic infrastructure i.e. road, power etc. govt. has developed industrial corridor between Delhi and Mumbai. The govt. is also working on multi-pronged strategies like development of infrastructure linkages including assured water supply high capacity transport, and logistic facilities.

-          Process of applying for industrial license and industrial entrepreneur memorandum made online on 24 * 7 basis through e-biz portal.

-          Validity of industry license extended to 3 years.

-          States asked to introduce self-certification and 3^rd party certification under boilers act.

-          Major components of defense products list excluded from industrial licensing.

-          Dual use items having military as well as civilian application deregulated eg. certain chemicals.

-          Process of obtaining environmental clearness made online.

-          All the registered required to be maintained by business should be replaced with a single electronic register.

-          A new national industrial corridor deviation authority is being created to co-ordinate, integrate, monitor and superior deviation of all industrial corridor.

-          Impetus on developing industrial corridor and smart cities work on 5 smart cities is in progress as a part of Delhi Mumbai Industrial Corridor (DMIC). Dholer, shendra bidkim greater Noida, Ujjain, Gurgaon.

-          Amritsar Kolkatta Industrial Corridor : A feasible study has been conducted at a fast pace.

-          Policy in defense sector liberalized and FDI capital raised from 26 to 49%.

-          Portfolio investment in defense sector permitted to 24% under automatic route

-          100% FDI under automatic route permitted in construction, operation and maintenance in specified rail infrastructure such as high speed train, railway electrification, signaling system etc.

Advantages of India

-          India’s GDP has grown around 7.9% between  2003-12. According to IMF this trend is likely to continue for next 5 years with an average GDP growth of 7.7% p.a. till 2017. India’s GDP for 2013 valued at 1.9 trillion US $ at current prices - is the 10^th largest in the world. The govt. has set target of 8% during 12^th five year plan based on demonstrative ability to sustain national economic growth despite global melt down.

-          India not only supports one of the largest population  in the world, but also one of youngest. 50% of its population is under age of 25 and  are under 35. Also about 65% of Indians are in the working age group of 16-24 giving the country a significant edge in terms of cost competitiveness and also low labour cost.

-          The rise of India’s new middle class is globally significant as it will usher fundamental changes in India and around the world by triggering waves of innovation in production, distribution and delivery of goods in the service.

Industrial sickness:

 Sick industry was 1^st defined by SICA, 1985. According to this act, the company should be registered for atleast for 7 years (now to 5 years) and has incurred cash losses of its net worth. The company act, 2013 define a sick industry which is different from SICA. The coverage of SICA is/ was only limited to industrial companies while 2013 act covers revival and rehabilitation of all companies irrespective of their sector. The determination of a company to be sick would no longer is based on a situation where accumulated loss exceeds its net worth. Rather it would be determined on the basis, whether is company is able to pay its debt. In other words, the determining factor of a sick company has now shifted to secured creditors and financial institutions with regard to assessment of a company as a sick company. The 2013 act does not recognize the role of all stake holders in the revival and rehabilitation of a sick company and the provision predominantly revolve around ‘secured creditors’. The fact that 2013 act recognizes the presence of unsecured creditors is felt only at the time of approval of scheme of revival and rehabilitation. Under Sec. 253 of Companies Act, 2013 a company is assessed to be sick. On a demand by the secured creditors of a company representing 50% or more of its outstanding amount of debt under the following circumstances

·         the company has failed to pay the debt within a period of 30 days of the service of the notice of demand.

·         The  company has failed to secure or compound the debt to the reasonable satisfaction of the creditors.

                To speed up the revival and rehabilitation process the act process the act provides, one year time period for finalization of rehabilitation plan. Presently it is said that 73 CPSE’s are sick, 85,591 small scale industries are sick and many more PSU’s are sick.

Causes for industrial sickness

                Some industries are born sick , sickness is thrust upon some, while others become sick due to no. of causes. The general belief is that incidence of sickness result from the changing economic factors and the external influence which tilt the economic viability. The causes of sickness may vary from one unit to another but the most common causes of sickness can be grouped under 2 head internal and external.

Internal: These are those factors which are under internal control of the management. Sicknesses  arises because of disorder of following concern.

Planning

-          Technical infeasibility: Inability of technical knows-how, location disadvantages and outdated production process, high cost of input, uneconomic size of project, underestimation of financial requirement, unduly large investment and over estimation of demand. These are such factors which are related to planning.

-          Implementation: Cost overruns resulting from delays in getting licenses, section etc.

-          Production: In appropriate product mix, poor quality, control, high cost of production, lack of adequate modernization, high wastages etc.

-          Financial problems: Dependence of limited no. of customer, poor sales realization, defective pricing policy etc.

External causes

1.       Infrastructural Bottlenecks

        Non availability or irregular supply of critical raw materials or other inputs, chronic power shortage etc.

-          Finance Constraints: This arises due to credit restrain policy, delay in disbursement of loan by govt., unfavourable investment, fear of nationalization.

2.       Govt. controlled causes i.e. price control, abrupt changes in govt. policy, procedural delays on the part of financial, licensing or regulating authorities, RBI, SEBI etc. Extraneous factors like natural calamity, wars etc.

Consequences of industrial sickness

1.       setback to employment prospects

2.       it may lead to industrial unrest, violence

3.       wastage of resources

4.       adverse impact on related units

5.       losses to banks

6.       loss of revenue for govt.

7.       adverse impact on entrepreneurs and investor psychology

Remedial measures:

Steps taken by Banks

-          Grant of additional working capital facility to meet day to day expenses.

-          Recovery of loans at reduced rates

-          Suitable moratorium on payment of debt

-          Setting up of special sick industrial undertaking all in RBI

-          RBI’s guidelines to bank ensure that potentially viable units receive adequate attention and timely support.

Policy framework of govt. w.r.t  industrial sickness

                The initial guidelines relating to sickness appeared in 1981. The administrative ministries were given specific responsibilities for prevention and remedial measures in relation to sick industries. They were required to monitor and to co-ordinate action for revival of sick units. Financial institutions were asked to strengthen their monetary system so that timely action is taken. The govt. also offered concession in the form of tax benefit to healthy units which take over sick units. Select sick units were made eligible for loans, not exceeding 50% of excise duty paid by the industry in the 5 years. In 1985 on the recommendation of “Tiwari  Committee” govt. enacted comprehensive legislation to deal with sick industrial i.e. SICA. In 1987, under SICA the govt. set up BIFR of determining the preventive and remedial measures in respect of sick companies. In 1991, govt. companies were also brought within ambit of BIFR.

Sick Industries

Policy framework continued: In 1991, govt. companies were also brought under the ambit of BIFR following courses of action can be taken as soon as company is referred fits BIFR. (1) It may allow the company time of its own, to make its net worth positive.

 (2) It may have schemes prepared for its revival or rehabilitation.

 (3) It may decide on winding up of the company.

                Decisions of BIFR are binding on all with an appeal to appellate authority. So far BIFR has received more than 7000 references out of which 297 were of central and state PSU’s, more than 825 rehabilitation schemes have been sanctioned while more than 1300 companies have been wound up. The process is so slow and this is the biggest lacuna in BIFR.

 Sick industries company special provision Repeal Act 2003.

-          Under this act definition of sick industries have been changed. It has accumulated losses in any financial year equal to 50% or more of its average net worth immediately four years preceding such financial year. And it has failed to repay its debt in any three consecutive quarters on demand made in writing for such repayment.

-          It provides for setting up of National Company Law Tribunal (NCLT) which would now take over functioning of BIFR and company Law Board. BIFR would be wound up.

-          A national company law appellate tribunal has been set up which would entertain appeal against decisions of national company law tribunal.

-          Within 180 days of date of detection of sickness, reference to NCLT is mandatory. It can be made by company’s board or its financial institution.

-          Every case shall be disposed within 60 days and in any exceptional case should not go beyond 90 days. It also provides for setting up of rehabilitation and revival fund.

-          The govt. in order to have strong and effective public sector had constituted for Board for Reconstruction of Public Sector Enterprises (BRPSE) in 2004 as an advisory body. To address the task of strengthening  modernization ,revival and restructuring of central public sector enterprises.

Small scale and cottage industry

                Small scale industry and registration

REGITERATION  is voluntary but it is mandatory for manufacturing sector, if it is employing 10 or more labourers with power or 20 or more labourers without power.

Difference between SSI and CI

SSI	CI
1.        SSI are mainly located at urban centres as separate establishment	1.        CI are associated with agriculture and provides subsidiary employment in rural area
2.        SSI produce goods with partially or wholly mechanized means	2.        CI involves operation mainly by hand and carried but primarily by family members
3.        SSI employ outside labour	Family members

Role and performance of small scale industries

-          Presently there are 311.5 lack units (2010-11) in the country contributing 45% of total industrial production.

-          About 732.5 lacks people find employment in SSI.

-          They have played an important role in equitable distribution of income as their ownership is more widespread. They are generally labour intensive.

-          Labour intensity of small scale industries is four times that of large scale sector.

-          The organized sector requires an investment of 5 lacks to generate employment to 1person whereas the small scale industrial sector generates employment to 7 person  with same investment.

-          They have been instrumental in mobilization of capital and entrepreneurial skills across the length and breadth of the country, therefore they can be set up in all parts of the country and thus capital and skilled which is scattered in the country can be put to good use.

-          Also solve the goal of regional disbursal of individuals. Therefore help in achieving regional development.

-          About 40% of export earnings come from SS sector industries

Govt. policy on SSI

Pre 1991 policy -

-          In 1947 govt. set up the cottage industry board which was split into 3 boards

-           (1) Handloom

-          (2) Khadi & Vill. Ind. Board

-           (3) Handicraft Board later three more boards were set up (1) SS I Board (2) Central Silk Board (3) Coir Board

-          In 1954, the govt. set up Small Industry Development  Organisation (SIDO) to co-ordinate policies for small scale industries.

-          In 1955 the program of industrial estate was started for providing factory accommodation and a no. of facilitations like power, transport etc. at one place.

-          The program for Dist. Ind. Centre (DIC) was charted out in 1997.  Proliferation   for govt. program and bodies for small scale industries led to the confusion of entrepreneurs. DIC were set up to co-ordinate and support to small scale industries.

-          The policy of reserving items to be produced exclusively in small scale sector began in 1967. These reserved goods reached at a peak point with 900 items but this policy has been reserved since 1997, on the recommendation ofAbid Hussein committee. Now only 20 reserved for micro, small, medium enterprises eg

-           (1) pickles and chutney (2) bread (3) mustard oil (4) ground nut oil (5) wooden furniture and fixture (6) exercise books and register (7) wax candours (8) laundry soap (9) safety matches (10) fire box works (11) agarbatti (12) glass bangles (13) steel almiras (14) rolling shutters (15) steel chairs (all types) (16) steel tables (17) steel furniture’s (18) stainless steel utensils (19) domestic utensils (aluminium).

Reasons for de-reserving items for SSI

-          Logic of reserving items became redundant in context of liberalization, privatization and globalization.

-          Govt. believes that it would encourage the small scale industries to upgrade their technology, improve quality of products and boosts exports. But govt. realize that a certain dereservation  could cause large scale dislocation of small scale industries and their employees. Therefore it has been introduced in phased and progressive manner i.e. certain items are taken out now 20 items.

-          Govt. also introduced policy of purchase preference from SSI.

-          The govt. set up Council for Advancement of Rural Technology (CART) to provide technical inputs to rural.

-          In 1986, the govt. set up small industry development fund (SIDF) to provide for financial assistance for deviation, expansion and rehabilitation of small scale industry, especially in rural areas.

-          The govt. established National Equity Fund in 1988, which provide equity type support to small entrepreneurs to set up new projects.

Single windows scheme 1988

                It provides for term loan for fixed capital investment along with working capital loans for small scale industries govt. set up small industrial deviation bank (SIDBI) in 1989. It now serves as apex institution facilitating flow of credit to small scale industries.

Post 1991 Era

                In 1991, the concept of industry was redefined to include services also. So, now our country has small business policy not a small industry policy.

                A separate policy for tiny sector was proposed through which tiny sector was to receive various types of support on continuous basis.

-          The new policy allowed equity participation of large scale industry in small scale industry with stake not exceeding 24%. It was envisaged that through this large scale industry would develop stake in the survival of SSI and the burden of capital expenditure on SSI would also be reduced.(2015 govt. do away this ceiling , so that ssi can be more developed)

-          The policy also accorded priority to the ting sector in the govt. purchased program.

-          The policy also accorded priority to small scale industry with stake not exceeding 24%. It was envisaged that through this large scale industry would develop stake in the survival of SSI and the burden of capital expenditure on SSI would also be reduced.

-          The policy also accorded priority to the tini sector in the govt. purchased program.

-          The policy also accorded priority to small scale industry in allocation of indigenous raw material.

-          The policy purposed to meet the entire credit demand of small industry and shifted the emphasis from cheapness to credit to adequacy and timely availability of credit.

-          An integrated infrastructural deviation program for small scale industry was also proposed to facilitate their location in rural and backward region.

-          Besides, the 9^th five year plan gave pace to govt. policy of de-reserving items meant exclusively for small scale industry production.

In the year 2000, the govt. came out with another comprehensive package for small scale industry having following features.

-          The govt. committed itself to conducting 3^rd census of small enterprises done in 2002-03 as without effective data statistics, govt. policy became irrational. 1^st was in 1973-74, 2^nd was in 1990-91.

-          The govt. encouraged SSI to set up and operate testing and quality satisfaction laboratories collectively specially for boosting export.

-          Govt. raised the investment limit MSME act 2006

-          Govt. enhanced excise exemption limit from 3 cr. To 4 cr.

-          With the objective of making available credit to SSI, govt. launched credit guarantee fund scheme for micro and small enterprises.

-          The loans upto 100 lac would be given without collateral or 3^rd party guarantee.

-          Scheme for technology up-gradation under this scheme, 15% capital subsidy is admissible on loans upto 1 cr. advanced by scheduled commercial banks for technology upgradation.

-          The no. of items reserved for SSI were brought down to 20. No. of items de-reserved are 20.

Micro Units Development and Refinance Agency Bank

MUDRA Bank

Micro Units Development and Refinance Agency Bank (or MUDRA Bank) is a public sector financial institution in India. It provides loans at low rates to microfinance institutions and non-banking financial institutions which then provide credit to MSME's. It was launched by Prime Minister Narendra Modi on 8 April 2015.

Overview

-          The formation of the agency was initially announced in the 2015 Union budget of India in February 2015. It was formally launched on 8 April.

-          The MUDRA banks will be set up under the Pradhan Mantri MUDRA Yojana scheme. It will provide its services to small entrepreneurs outside the service area of regular banks, by using last mile agents. About 5.77 crore (57.7 million) small business have been identified as target clients using the NSSO survey of 2013. Only 4% of these businesses get finance from regular banks. The bank will also ensure that its clients do not fall into indebtness and will lend responsibly.

-          The bank will have a initial corpus of ₹20,000 crore  (about US$3,213.86 million) and a credit guarantee fund of ₹3,000 crore . The bank will initially function as a non-banking financial company and a subsidiary of the Small Industries Development Bank of India (SIDBI). Later, it will be made into a separate company. It will also serve as a regulator for other micro-finance institutions (MFIs) and provide them refinancing services. It will provide guidelines for MFIs and give them ratings.

-          The bank will classify its clients into three categories and the maximum allowed loan sums will be based on the category:

-          Shishu (शिशु): Allowed loans up to ₹50,000.

-          Kishore (किशोर): Allowed loans up to ₹5,00,000

-          Tarun (तरुण): Allowed loans up to ₹10,00,000

-          Recently Govt. Has decided to provide an additional fund of ₹ 100000 crore to the market and will be allocated as

-          40% to shishu

-          35% to kishor

-          25% to tarun

-          Eligible to borrow from MUDRA bank

-          Small manufacturing unit

-          Shopkeepers

-          Fruits / Vegetable vendors

-          Artisans

National Manufacturing Competitiveness Program

-          The program aimed at enhancing the competitiveness and the productivity of the enterprises. So that they can withstand global and organized competition. The 10 components of the program seek to introduce the best elements of industrial competitiveness.

Exp. (1) Building awareness on IP rights.

(2) Managerial deviation of SSI etc.

-          All the central ministries, departments, CPSU’s shall procure a minimum of 20% of their annual value of goods, services required by them from MSE. Further policy has earmarked a sub-target of 4% procurement, out of this 20% from MSE’s owned by SC’s, ST’s entrepreneurs.

12^th five year plan has following objectives:

(1) Promoting competitiveness and productivity in MSME’s. (2) making  MSME sector innovative, important technology and depth. (3) Enabling environment for promotion and deviation of MSME’s

Capital formation in India

                It is considered to be the most important determinant of economic  Development . It consist of 3 components – savings mobilization of saving – actual investment. Any  country’s desired capital requirement depends upon following factors – desired rate of growth – countries ICOR

Domestic saving: excess of current income over the expenditure is saving. There are 3 components of domestic saving calculated as percentage of GDP.

1.       Public sector saving (govt. saving) 1.6% (2013-14)

2.       Private corporate sector – 10.9% (2013-14)

3.       Household sector – 18.2%

(a) small financial saving – 7.2%

(b) savings in physical assets (gold, land) – 11%

                Saving rate stood at 8.9% of GDP in 1950-51. Now stands at 30.6%. So saving rate has been consistently increasing with the latest rise contributed by spurt in private sector and household sector. It is impossible at this level but is still less than protected.

The reason for this are low per capita in were  :

-          Exemption of agriculture income from income tax.

-          The failure of private sector to generate large surplus due to low productivity and low efficiency.

-          Failure of public sector to generate surplus.

-          Demonstration effect in cities.

Suggestions for improving savings

In household sector

-          Restrict production of unnecessary consumer goods and increased duty on them

-          Raise exemption limits of income tax for saving scheme

-          Control inflation

-          Develop banking habit among people

In private corporate sector

-          Reduction in expenditure of companies executives

-          Ceiling on salaries in private sector

In public sector

-          Show courage to tax agriculture

-          Restrict reckless expenditure

-          Raise efficiency of PSU’s

-          Increase capacity utilization

                The 12^th 5 year plan have projected gross domestic sale rate to increase to 34.2% slightly higher than 33.5% recorded in 11^th 5 year plan. Savings of household sectors are projected to average 23.3% for the 12^th 5 year plan (nearly the same as in the 11^th plan where they averaged 23.4% of GDP). Saving in the private corporate sector are projected to 8.2% in 12^th 5 year plan (it was 8.1% in 11^th 5 year plan). Saving in the public sector are projected to the average of 2.7% of GDP in the 12^th plan which is somewhat higher than average recorded in 11^th 5 year plan.

                A careful analysis of data on domestic capital formation clearly suggests that during the period of economic planning the rate of gross capital formation has risen considerably. However the increase in the rate of investment has been neither steady nor firm. In the 1^st year of 1^st FYP plan the rate of investment was as low as 9.3% per annum. The rate of investment started increasing and it was 16.2% in 1965-66. The rate of investment declined after 1966-67 as a result of poor performance of the economy during the 3^rd plan. In this period wars with China and Pakistan further deepened the crisis. The average investment rate started rising after 1991. Finally during 11^th plan the rate work out at 36.1% as against projected rate of 36.7% of GDP. No doubt the rate of investment has risen considerably during the period of economic planning but it cannot be considered satisfactory due to:

-          The rate of investment has not been commensurate with the targets laid down under the previous plans.

-          Leaving aside the 1^st plan under all other plans the target for increase in GDP were fixed at 5% p.a. or more.

-          Lately India has targeted GDP growth rate of 8-9% assuming an ICOR of the order of 4.4 for the whole period, the warranted rate of investment required is at least 34% of GDP (4.4x8.9). however the actual rate of investment never reached this level except 2005-2011-2012.

-          The investment rates of no. of 3^rd world countries have been higher than investment rate of India. Eg. South Korea, Malaysia, China managed to raise their investment rate to approx. 60%.

Foreign investment

                Any investment in India which has source any other country than India is foreign investment. The foreign money can be invested in India by foreign corporate and nationals or NRI’s. The money can be invested in shares, property, ownership, management, collaboration. On the basis of this, the govt. of India classified foreign investment into following:

1.       Foreign Direct Investment

2.       Foreign Institutional Investment (now FPI)

3.       Non-resident Indian Investment

                The GoI in order to remove ambiguity between FDI and FII appointed   Mayaram committee. The recommendation of Mayaram committee was accepted by govt. now foreign investment would be classified accordingly.

-          FDI – It refers to the direct investment into the production and management. This can be done either by a company or expanding operation of an existing company. This means that FDI bring foreign capital, technology and management. This means that FDI bring foreign capital, technology and management.

-          Foreign investment of 10% or more in a listed company will now be treated as FDI.

-          All existing foreign investment below the threshold limit made under the FDI route shall however continue to be treated as FDI.

-          An investor may be allowed to invest below the 10% threshold limit and this can be treated as FDI subject to the condition that FDI stock is raised to 10% or beyond within 1 year from the date of 1^st purchase.

Foreign Portfolio Investment

                Mayaram committee constituted a foreign portfolio investment a new segment and under this FII and qualified financial investors are placed. Investment by these registered FDI would be made according to SEBI guidelines.

Qualified foreign investor

                A resident in a country i.e. a member of financial action task force (FATF).

What is the procedure for receiving foreign direct investment in Indian economy?

FDI

Automatic Route

Govt.  Route

FPB

CCS

CCEA

 

Automatic route: no central govt. permission required.

                Under government route, applications are considered by FIPB. The proposal involving  investment of 12 billion Rs. Are considered by Cabinet Committee on Economic Affairs (CCEA) the approval from CCS is required for more than 49% FDI in defence.

                India has already marked its presence one of the fastest growing economies of the world. It has been ranked among the top three attractive destinations for inbound investment. Since 1991, the regulatory environment in terms of foreign investment has been consistently eased to make it investor friendly.

Recent policy measures:

-          100% allowed in medical devices

-          Insurance capital increased from 26-49%

-          100% FDI allowed in telecom sector

-          100% FDI in single brand retail

-          FDI limit raised to 74% in credit information and 100% in asset reconstruction companies (ARC) FDI limit of 26% in defense sector raised to 49% under govt. approval route. FDI upto 24% permitted under automatic route in defense sector. FDI beyond 49% is allowed on case to case basis with approval of Cabinet Committee on Security (CCS).

-          Construction, operation and maintenance of specified activities of railway sector open to 100% FDI under automatic route.

Sectors where FDI is prohibited

-          Lottery business

-          Gambling and betting

-          NIDHI company (Nidhi Chit fund Committee)

-          Manufacturing of cigar, cigarette

-          Services like legal, book keeping, accounting and auditing

Sectors with companies

-          Petroleum refining by PSU – 49%

-          Cable network 49%

-          Broadcasting content service – FM Radio 26%

-          News and current affairs TV 26%

-          Print media dealing with news and current affairs 26%

-          Satellite 74%

-          Private security agency (49%)

-          Private sector banking (74%)

-          PS banking (20%)

-          Commodity exchange (49%)

-          Credit information companies (74%)

-          Insurance (49%)

-          Power exchange (49%)

-          Defense (49%)

Sectors requiring central govt. approval

-          Tea sector (including plantation) 100%

-          FDI in enterprise manufacturing items reserved for small sector (100%)

-          Defense (upto 49%) under FIPB, beyond 49% on CCs on case to case basis.

-          Broadcasting content service up-linking of news and current affairs (26%) uplinking of non news and current affairs TV channel (100%)

-          Publishing of news paper and dealing with news and current affairs (26%)

-          Airports (beyond 74%)

-          Satellites (74%)

-          Private security agency (49%)

-          Telecom (49%)

-          Asset reconstruction company (beyond 49%)

-          Pharmaceutical (brownfield 100%)