Module - V

Industrial policies & structure

Industrial policies & structure Problems in industrial development Classification of industries based on ownership New industrial policy 1991 Public sector enterprises Private sector enterprises Small scale industries Privatisation & Disinvestment

Module overview

In 1948, immediately after Independence,Government introduced the Industrial PolicyResolution. This outlined the approach toindustrial growth and development. After the adoption of the Constitution and thesocio-economic goals, the Industrial Policywas comprehensively revised and adopted in1956. To meet new challenges, from time to time, itwas modified through statements in 1973,1977 and 1980. Rathish.s.nair, M.S.W.2

History

In 1956, capital was scarce and the base of entrepreneurship not strong enough. Hence,the 1956 Industrial Policy Resolution gaveprimacy to the role of the State to assume apredominant and direct responsibility forindustrial development.
The Industrial Policy statement of 1973, interalia, identified high-priority industries whereinvestment from large industrial houses andforeign companies would be permitted. Rathish.s.nair, M.S.W.3

History (contd.)

The Industrial Policy Statement of 1977 laidemphasis on decentralisation and on the roleof small-scale, tiny and cottage industries.

The Industrial Policy Statement of 1980focussed attention on the need for promotingcompetition in the domestic market,technological upgradation and modernisation. The policy laid the foundation for anincreasingly competitive export based and forencouraging foreign investment in high-technology areas. This found expression in theSixth Five Year Plan which bore the distinct policies created a climate for rapidindustrial growth in the country. Thus on theeve of the Seventh Five Year Plan, a broadbased infrastructure had been built up.

History (contd.)

The Seventh Plan recognized the need toconsolidate on these strengths and to takeinitiatives to prepare Indian industry torespond effectively to the emergingchallenges. A number of policy and proceduralchanges were introduced in 1985 and 1986under the leadership of Shri Rajiv Gandhiaimed at increasing productivity, reducing In the seventh plan, public sector was freedfrom a number of constraints and given alarger measure of autonomy. Thetechnological and managerial modernizationof industry was pursued as the key instrumentfor increasing productivity and improving ourcompetitiveness in the world. The net result of all these changes was that Indian industrygrew by an impressive average annual growthrate of 8.5% in the Seventh Plan period

History (contd.)

Increase in the share of industrial sector in GDP Growth of infrastructure industries Building up of heavy & capital goods industries A well diversified industrial structure Rapid growth of consumer durables Emphasis on chemicals , petrochemical & allied industries in the 1980 Emergence of public sctor

Changes in industrial structure during the planning period

Shifts in favour of consumer goods & intermediate goods Structural changes within basic industries & capital goods industries Changes within intermediate goods sector Changes within the consumer goods sector Declining the role of public sector

Changes in Industrial Structure in 1990s

Gaps between targets & achievements Underutilisation of capacity Performance of public sector Infrastructural constraints growth of regional imbalances Industrial sickness Emerging challenges

Problem of Industrial development in India

Industrial policy resolution of 1948 Industrial policy resolution of 1956 New industrial policy 1991 Appraisal of new industrial policy

Industrial policy

Acceptance of the importance of both private & public sectors Division of the industrial sector Role of small & cottage industries Other important features of the industrial policy

Industrial Policy Resolution 1948

Objectives are To accelerate the rate of growth & to speed up industrialisation To develop heavy industries & machine making industries To expand public sector To reduce disparities in income & wealth

Industrial policy resolution of 1956

 To

build up large & growing cooperative sector To prevent monopolies To prevent concentration of wealth & income in the hands of small nos. of individuals It would help in generating more employment opportunities To raise the std. of living of masses

Industrial policy resolution of 1956

Exemption from licensing Relaxation to MRTP & FERA co. Delicensing Broad branding of industries Min. economic scale of operation Development of backward areas Incentive for export promotion Enhancement of investment limit for SSI units

Industrial policy developments in 1980

Government have decided to take a series of initiatives in respect of the policies relating to the following areas. Industrial Licensing Foreign Investment Foreign Technology Agreements Public Sector Policy MRTP Act.

New Industrial Policy , 1991

Abolition of Industrial licensing Public sectors Role Diluted MRTP limit goes Free entry to Foreign Investment & Technology

New Industrial Policy , 1991

Other liberalisation Measures Industrial location policy liberalised Abolition of Phased Manufacturing Programmes for new projects Removal of mandatory convertibility clause

New Industrial Policy , 1991

Nos. of changes in industrial licensing policy , foreign investment , foreign technology agreements , MRTP act so that efficiency will improve Changes in respect of foreign investment &technology agreement are designed to attract capital, technology & managerial expertise from abroad Changes regards public sector may enhance the allocative efficiency

Appraisal of new industrial policy

Formulation & implementation of Memorandum of understanding & its monitoring Greater emphasis in controlling & regulating MRTP practices

Appraisal of new industrial policy

Erratic & fluctuating industrial growth Distortion in production structure Threat from foreign competition Dangers of business colonalisation Misplaced faith in foreign investment Personalistic relationships & practices continue to prevail

Criticism of New Industrial Policy

Industrial development during the period of planning can be divided into diifferent phase : I phase (1951-1965) laid emphasis for industrial development in the future by building up a strong industrial structure II phase (1965 -1980) marked by period of industrial decelaration & structural retrogression

Trends in Industrial Production

III phase (1980-1991) marked by period of industrial recovery IV phase (period 1991 onwards) covering the post reform period

Trends in Industrial Production

Private sector Public sector Joint sector Co operative sector

Classification of Industries based on ownership

Public sector

Public sector & capital formation Development of infrastructure Strong industrial base Economies of scale Removal of regional disparities Import substitution & export promotion Check over concentration of economic power

Role of Public sector

Performance should not be judged by what they earn in the form of profits but by total additions they make to the flow of goods & services in the economy Expansion of the public sector & its share in national production The question of profitability Employment & labour welfare Public sector & foreign exchange earnings The questions of efficiency

Performance of public sector

Public sector performance

Price policy of public enterprises Under utilisation of capacity Problems related to planning & construction of projects Problems of labour, personnel & management

Problem of public sector enterprises

Dereservations Policy regarding sick units Memorandum of understanding Navratnas ,Maharatnas & miniratnas Privatisation & disinvestment Setting up of BRPSE

Reforms of public sector

Private sector

The part of the economy that is not state controlled, and is run by individuals and companies for profit. The private sector encompasses all for-profit businesses that are not owned or operated by the government. Companies and corporations that are government run are part of what is known as the public sector, while charities and other nonprofit organizations are part of the voluntary sector.

Private sector

The dominant sector Importance for development Extensive modern industrial sector Potentialities due to personal incentive in the small sector

Role of private sector

Profit generation is the main motive Focus on consumer durables sector Monopoly & concentration Declining share of net value added in total output Infrastructure bottlenecks

Problems of private sector

Contribution to trade deficit Industrial disputes Industrial sickness Problems relating to finance & credit Threat from foreign competition

Problems of private sector

Meaning of privatisation process by which the govt. transfers the productive activity from the public sector to the private sector Meaning of disinvestment The action of an organization or government selling or liquidating an asset or subsidiary. Also known as "divestiture". A reduction in capital expenditure, or the decision of a company not to replenish depleted capital goods.

Privatisation & Disinvestment

Disinvestment

Improvement in efficiency & performance Fixing responsibility is easier Private units are subject to capital market discipline Political interference is unavoidable in public enterprise Succession planning

Rationale for privatisation & disinvestment

Response time in case of private sector is less Remedial measure are taken early in private sector Political consideration make improvement in efficiency difficult in public enterprises Privatisation leads to better services to customer

Rationale for privatisation & disinvestment

Interim budget & budget speech , 1991-92 Report of Rangarajan committee on disinvestment of shares 1993 Disinvestment commission recommendations : feb 1997 oct. 1999 Budget speech 1998-99 Strategic & non strategic classification , 1999 Address by president to joint session of parliament , feb. 2001 National common min. prog. 2004

Evolution of privatisation policy in India

Selling of shares in select PSUs Strategic sale of a PSU to private sector company

Methods of disinvestment

Undervaluation of Assets Utilisation of money from disinvestment Privatisation is bound to result in unemployment Sale of PSU to a private co. can only result in the substitution of a public monopoly by a private monopoly

Critique of privatisation & disinvestment

Small scale industries

SSI covers wide spectrum of industries: Small scale industrial undertaking Ancillary industrial undertaking Export oriented units Small scale service enterprises (SSSEs) Artisans , village & cottage industries Women entrepreneurs

SSI role in indian economy

Separate investment limits have been prescribed for manufacturing & service enterprise Manufacturing Enterprises

Service

Enterprises

Def. of Small scale Industries Sector

Manufacturing enterprises Micro enterprise investment in plant & machinery does not exceed Rs. 25 lac Small enterprise investment in plant & machinery is more than Rs.25 lac but does not exceed Rs. 5 cr. Medium enterprise investment in plant & machinery is more than Rs. 5 cr but less than Rs. 10 cr

Def. of Small scale Industries Sector

Service enterprise Micro enterprise investment in equipment does not exceed Rs. 10 lacs Small enterprise investment in equipment is more than Rs. 10 lac but does not exceed Rs. 2 cr. Medium enterprise investment in equipment is more than Rs. 2 cr but does not exceed Rs. 5 cr.

Def. of Small scale Industries Sector

Expansion of SSI sector & its share in industrial output Employment generation Efficiency of small scale industries Equitable distribution of national income Mobilisation of capital & entrepreneurial skill Regional dispersion of industries Less industrial disputes Contribution to exports

Role & performance of cottage & small scale industries in Indian Economy

It is divided into sub sectionsPolicy prior to 1991 New small enterprise policy 1991 Comprehensive policy package 2000 & recent policy measure Critical evaluation of the policy

Govt. policy for SSIs

Building up of organisational structure Increase in outlay for SSI sector in plans Reservation for SSI sector Financial assistance for SSIs Setting up of SIDBI Other measure

Govt. policy for SSIs policy prior to 1991

Other measure -for providing technical input to rural industries a Council for Advancement of Rural Technology was set up - price & purchase pref. was granted to products manufactured in SSI Excise concession were granted to both registered & unregistered depending on turnover upto Rs. 300 lac Full exemption was granted to a turnover of Rs. 30 lac & concessional rate of excise duty for a turnover exceeding Rs. 30 lac but not exceeding Rs. 75 lac

Govt. policy for SSIs policy prior to 1991

 Objective of imparting vitality & growth Raising the investment limit for Tiny units

Rs. 2 lac to Rs. 5 lac Proposed separate package for the promotion of tiny enterprise (like pref. in land allocation/ power connection /access to facilities for skill ,technology,upgradation) Change related to equity participation not exceeding 24 % of total share holding Introduction of new legal form of organisation of business namely , restricted or limited partnership

from

Govt. policy for SSIs New Small Enterprise Policy 1991

Other features To meet the entire credit demand of small & tiny units Scope of National Equity Fund (NEF) scheme & Single Window Scheme was enlarged Allocation of indigenous raw material should be acc. to priortised. Market promotion of products to be undertaken by cooperatives , public sector institutions & other professional agencies.

Govt. policy for SSIs New Small Enterprise Policy 1991

This policy was announced by Prime minister on Aug.30, 2000 Raising the investment limit - prior to 2000 it was Rs. 1 cr now its raised to Rs. 5 cr Enhancing the Excise exemption limit turnover limit was raised from Rs. 3 cr Rs. 4 cr Credit Guarantee Fund Scheme for Micro & small enterprise for loan up to Rs. 25 lac without collateral / third policy gurantees

Govt. policy for SSIs comprehensive policy package 2000

Scheme for Technology Upgradation Extension of integrated infrastructure development (IID) Market development assistance was launched Dereservation Credit Delivery to SSI sector Enactment of MSMED Act,2006 Package for promotion of Micro & Small Enterprise

Govt. policy for SSIs comprehensive policy package 2000

There has been substantial growth in modern small scale industries falling within the purview of SIDCO Institutional credit has generally gone to small percentage of small scale units Considerable underutilisation of capacity SSI product reservation had adverse effect on the growth of exports

Govt. policy for SSIs Critical Evaluation of the policy

There has been spatial concentration of these industries in clusters in particular product lines Though employment in small scale sector has been rising , it is totally inadequate to solve the problem of unemployment in rural areas

Govt. policy for SSIs Critical Evaluation of the policy

Finance & credit Infrastructural constraint Inverted tariff structure & raw material availability Machines & other equipment Problems of marketing Delayed payments

Problem of cottage & small scale industries

Problem of sickness Poor database Other problem Adverse effects of economic reforms & globalisation

Problem of cottage & small scale industries