Industry
By Dr Vipan Goyal
Industrial Policy
• This Policy holds importance in the economy as it was pursued till
the Economic Reforms in 1991.
• Industrial Policy Resolution, 1948
It declared Indian economy as Mixed Economy
Small scale industries and cottage industries were given
importance
Government imposed restriction on foreign investments
Industrial Policy Resolution, 1956
• This policy laid down the basic framework of Industrial Policy.
• This policy is also known as Economic Constitution of India.
• It is classified into three sectors
Schedule A – which covers Public Sector (17 Industries)
Schedule B – covering Mixed Sector (i.e. Public & Private) (12
Industries)
Schedule C – only Private Industries
Industrial Policy Resolution, 1956
• Public Sector
• Small Scale Industry
• Foreign Investment
• This Policy holds importance in the economy as it was pursued till
the Economic Reforms in 1991.
Industrial Policy Statement, 1977
• Focused on Decentralisation
It gave priority to small scale Industries
It created a new unit called “Tiny Unit”
Restrictions on Multinational Companies (MNC) were imposed
Industrial Policy Statement, 1980
• Focus of this was on selective Liberalization
• MRTP Act (Monopolies Restrictive Trade Practices), FERA Act
(Foreign Exchange Regulation Act, 1973 were introduced.
• The objective was to liberalize industrial sector to increase
industrial productivity and competitiveness of the industrial sector
New Industrial Policy, 1991
• Its Objective was to provide larger role to market forces and to increase
efficiency
• Larger roles were provided by
L – Liberalization (Reduction of government control)
P – Privatization (Increasing the role & scope of private sector)
G – Globalization (Integration of the Indian economy with the world
economy)
• Because of LPG, old domestic firms have to compete with New Domestic firms,
MNC’s and imported items
New Industrial Policy, 1991
• Government allowed Domestic firms to import better technology so as to
improve efficiency and to have access to better technology
• Foreign Direct Investment ceiling was increased from 40% to 51% in
selected sectors.
• Maximum FDI limit is 100% in selected sectors like infrastructure sectors.
• Foreign Investment promotion board was established. It is a single window
FDI clearance agency.
• Technology transfer agreement was allowed under automatic route.
• Phased Manufacturing Programme was a condition on foreign firms to
reduce imported inputs and use domestic inputs, it was abolished in 1991.
New Industrial Policy, 1991
• Public Sector to be Diluted
Disinvestment
De-reservations – Industries reserved exclusively for public sector were
reduced
Professionalization of Management of PSUs
Sick PSUs to be referred to Board for Industrial and financial restructuring.
(BIFR)
Scope of MoUs was strengthened.
MoU is an agreement between a PSU and concerned ministry.
Public Sector
• It can be classified into:-
Departmental Undertaking – Directly managed by concerned ministry
or department. (e.g. Railways, Posts etc.)
Non Departmental Undertaking – PSU (e.g. HPCL, IOCL etc.)
Financial Institution (e.g. SBI, UTI, LIC etc.)
Objectives of setting up PSU were:-
To create industrial base in the country
To generate better quality of employment
To develop basic infrastructure in the country
To provide resource to the government
To promote exports and reduce imports
To reduce inequalities
Public Sector
• Problems of PSUs
Inappropriate investment decisions
Pricing Policy
Excessive overhead cost
Lack of Autonomy & Accountability
Overstaffing
Trade Unionism
Under Utilization of capacity
PSU Reforms
• New Industrial Policy 1991
• Voluntary Retirement Scheme, 1988 (Golden Handshake)
• Administered Price Mechanism
• Policy of Navratnas (Best performing PSUs were called Navaratnas)
Government gave them significant degree of autonomy so they can
perform better.
• Policy of Mini Ratnas (Presently 60 PSUs have been granted this status)
• Profitability of PSUs has increased significantly.
PSU Reforms
• Policy of Maharatnas (category created in 2010)
• Three years with an average annual net profit of over Rs. 2500 crore, OR Average annual Net
worth of Rs. 10,000 crore for 3 years, OR Average annual Turnover of Rs. 20,000 crore for 3
years
PSU must be a Navratna and must be listed in Stock Exchange
PSU also must have a significant global presence.
• List of Maharatnas
• National Thermal Power Corporation (NTPC) Oil and Natural Gas Corporation(ONGC)
• Steel Authority of India Limited(SAIL) Bharat Heavy Electricals Limited (BHEL)
• Indian Oil Corporation Limited (IOCL) Coal India Limited (CIL)
• Gas Authority of India Limited (GAIL) Bharat Petroleum Corporation Limited (BPCL)
DISINVESTMENT
• Disinvestment refers to selling of equity of a PSU to a private sector companies,
financial institutions, general public or workers
Disinvestment versus Privatisation
• Disinvestment refers to selling of equity of a PSU to a private organization or to
general public.
• Privatisation refers to providing for larger role for private capital and enterprise
in the functioning of an economy.
• Privatisation is a wider term than disinvestment. Disinvestment is one of the
means for achieving privatization.
DISINVESTMENT
• Privatisation may result from any of the following:-
Disinvestment
Denationalisation (i.e., complete sell off of a PSU)
Transfer of management and control of a PSU to the private
sector
Dereservation of areas reserved for the public Sector etc.
Objectives of Disinvestment
• To transfer the resources from non-strategic sector to the strategic sector,
which is much higher on social priority such as basic health, family
welfare, primary education etc.
• To raise funds to cover up the fiscal deficit of the government.
• To improve efficiency of the public sector by inducing private initiative and
competition.
• To enhance accountability of the PSUs by exposing them to the capital
market.
Objectives of Disinvestment
• To reduce political interference by imparting market orientation to the
enterprise.
• Bring down Government equity in all non-strategic PSUs to 26 % or lower,
if necessary.
• Restructure and revive potentially- viable PSUs
• Close down PSUs which cannot be revived
• Fully protect the interest of workers.
The Disinvestment Process
• In 1992, Government constituted a committee on the Disinvestment of
shares in PSE’s headed by Dr. C. Rangarajan to recommend over the policy
of disinvestment.
• The committee recommended that upto 49% equity of the PSUs under the
exclusive participation of the state could be disinvested but for rest of the
industries disinvestment can be allowed upto 74%.
• Further, the government constituted a five member Disinvestment
Commission under the chairmanship of Shri G.V. Ramakrishnan in August
1996 to draw up a comprehensive policy for the long term disinvestment
programme.
• The target for disinvestment is Rs 40,000 crore every year.
SMALL SCALE & COTTAGE INDUSTRIES
• Small Scale Industries are industries in which the investment limit is upto
certain limit which was 1 crore initially 1 crore and now has been
increased to 5 crore
• New Definitions of Micro, Small & Medium Enterprises
• In accordance with the provision of Micro, Small & Medium Enterprises
Development (MSMED) Act, 2006
Medium Enterprises Classification
Manufacturing Sector
Enterprises Investment in plant & machinery
Micro Enterprises Does not exceed twenty five lakh rupees
Small Enterprises More than twenty five lakh rupees but does not
exceed five crore rupees
Medium Enterprises More than five crore rupees but does not exceed ten
crore rupees
Medium Enterprises Classification
Service Sector
Enterprises Investment in equipment
Micro Enterprises Does not exceed ten lakh rupees:
Small Enterprises More than ten lakh rupees but does not exceed two
crore rupees
Medium Enterprises More than two crore rupees but does not exceed five
core rupees
Contribution of Small Scale Industries
• The small scale sector accounts for over 80% of the manufacturing sector's
employment.
• The small-scale accounts for over 34% of the total exports and about 45%
of the manufacturing exports. Further over 90% of exports of the SSIs
consists of non-traditional items like sports goods, readymade garments,
processed foods, chemicals etc.
Problems of Cottage and Small-Scale Industries
1. Non-availability of timely and adequate credit.
2. Inefficient management
3. Lack of infrastructure
4. Technological obsolescence
5. Limited availability of raw materials
6. Marketing problems
7. Competition with large-scale industries and imports.
8. Excessive burden of local taxes,
9. Widespread sickness.
Government Measures to Promote SSI
• (a) Organisational measures
Establishment of Boards
National Small Industries Corporation (NSIC)
District Industries Centre (DIC)
• (b) Financial measures
Small Industries Development Fund (SIDF) - set up in 1986 to provide refinance (i.e.
finance to the financial institutions in lieu of their lending to SSIs) assistance for
development, expansion, modernization, rehabilitation of SSIs.
Small Industries Development Bank of India :lt was established in October, 1989 by
amalgamation of small Industries Development Fund (SIDF) and Natural Equity Fund.
• (c) Fiscal Measures
Small-scale enterprises having turnover, upto 1 crore are fully exempted from the excise
duty.
Government Measures to Promote SSI
• (d) Technical assistance
Small-scale Industries Development Organisation (SIDO):—It was
established in 1954.
SIDO provides technical, managerial, economic and marketing
assistance to SSIs through its network of extension centres and service
institutes.
Thank You
