INDUSTRIAL POLICIES AND REGULATIONS

INDUSTRIAL POLICY

Industrial Policy up to 1991The New Industrial PolicyAn Evaluation of the New PolicySummary

INDUSTRIAL POLICY UP TO 1991

It Was Characterized By The Following Features

• Reservation of Industries• Dominance of Public Sector• Entry and Growth Restrictions • Restrictions on Foreign Capital and Technology

THE NEW INDUSTRIAL POLICY

• It was announced on July 24, 1991• Announced the economic reforms in India• Expanded the scope of the Private Sector• Dismantling the entry and growth restrictions

OBJECTIVES

The major objectives of the new Industrial policy are

• To build on the gains already made • To correct the distortions or weakness that

may have crept in• To maintain a sustained growth in productivity

and gainful employment• To attain international competitiveness

REDEFINITION OF THE ROLE OF THE PUBLIC SECTOR

• Delicensing • Removal of MRTPA Restrictions • Liberalization of Foreign Investment• Related Measures

INDUSTRIAL POLICY CHANGES Pre- 1991 Policy Current Policy

Industrial licensing was the rule Licensing is an exception

Public sector monopoly/dominance in basis and heavy industries

All but two industries are open to the private sector

MRTP Act restrictions on entry and growth of large companies

No such restrictions

Foreign investment allowed only in select industries, that too subject to, normally, a ceiling of 40% of total equity and prior permission

Foreign investment allowed in a large number of industries, including up to 100% of equity in many of them. Automatic route available subject to specific conditions

Restrictive policy towards foreign technology

Very liberal policy towards foreign technology

Reservation of large number of products for small scale sector

Reservation list is being pruned

IRDA & INDUSTRIAL LICENSING

• Industries (Development and Regulation) Act• Industrial Licensing• Summary

INDUSTRIES (DEVELOPMENT AND REGULATION) ACT

OBJECTIVES • To provide the Central Government with the

means to implement their Industrial Policy.• To take necessary steps for the development of

industries.• To regulate the pattern and direction of industrial

development.• To control the activities, performance and results

of industrial undertakings in the public interest.

Main Provisions

• Development measures• Regulation of entry and growth• Supervision and Control• Take over of Management

INDUSTRIAL LICENSING

The Industries (Development and Regulation) Act 1951

• License• Conditions to be fulfilled• Letter of intent

THE NEW POLICY

• Abolished industrial licensing• Compulsory licensing for the following

Industries1. Distillation and brewing of alcoholic drinks2. Cigars and cigarettes of tobacco and

manufactures tobacco substitutes3. Electronic Aerospace and defense equipment4. Industrial explosives5. Specified hazardous chemicals

LOCATIONAL POLICY

• Free to select the location of a project• 25km away from the Standard Urban Area• Non polluting Industry • Local zoning and land use regulations

PUBLIC, PRIVATE, JOINT AND CO-OPERATIVE SECTORS

• Public Sector• The New Public Sector Policy• Public Sector Rathnas• Organisation of Public Enterprises• Pricing Policy in Public Enterprises• Government and Parliamentary Controls over Public

Enterprises• Department of Public Enterprises• Nationalisation• Private sector• Joint sector• Co-operative sector

PUBLIC SECTOR

Objectives– Help in the rapid economic growth and industrialization – Earn return on investment – Promote redistribution of income and wealth– Create employment opportunities– Promote balanced regional development– Assist the development of small-scale and ancillary

industries– Promote import substitution, save and earn foreign

exchange

THE NEW PUBLIC SECTOR POLICY

Priority areas for growth of public enterprises

• Essential infrastructure goods and services• Exploration and exploitation of oil and mineral

resources • Technology development and building of

manufacturing capabilities • Manufacture of products

Withdrawal from the following cases

• Industries based on low energy• Small- scale and non strategic areas• Inefficient and unproductive areas • Areas with low or zero social responsibility or

public purpose• Areas where private sector has developed

sufficient enterprise and resources

Main elements of the current Government Policy towards Public Sector Undertakings

• Bringing down Government equity in all non-strategic PSUs to 26 percent or lower

• Restructure and revive potentially viable PSUs• Close down PSUs which cannot be revived • Fully protect the interest of workers

PUBLIC SECTOR RATNAS NAVRATNAS• Bharat Heavy Electricals Ltd.(BHEL)• Bharat Petroleum Corporation Ltd.(BPCL)• Hindustan Petroleum Corporation Ltd.(HPCL)• Indian Oil Corporation Ltd.(IOC)• Indian Petrochemicals Corporation Ltd.(IPCL)• National Thermal Power Corporation Ltd.(NTPC)• Oil and Natural Gas Corporation Ltd.(ONGC)• Steel Authority of India Ltd.(SAIL)• Videsh Sanchar Nigam Ltd.(VSNL)

ORGANISATION OF PUBLIC ENTERPRISES

• Ministry• Departmental Undertakings• Government Company• Public Corporation– Holding Company – Suitable Form of Organisation• Industrial and Manufacturing Undertaking• Public Utilities and Services• Promotional and Development Undertaking• Commercial and Trading Concerns

PRICING POLICY IN PUBLIC ENTERPRISES

THEORIES OF PRICING • Marginal Cost Pricing • Average Cost Pricing• No-Profit, No-Loss Pricing• Profit Making Pricing

Indian Public Sector and Profit Objective

Influences and Guidelines on Pricing Policy

On the basis of the nature of the business, public enterprises can be classified as follow

• Production or provision of public utilities and services

• Production of consumer goods• Production of basic and capital goods• Trading business• Financial Enterprises

Recommendation by Administrative Reforms Commission on pricing policies

• Earning surpluses to make a substantial contribution

• Pay their way and should not return into losses

• Stress should be laid on output than on return on investment

• Keep the level of output as near the rated capacity

Guidelines issued by BPE on pricing policies

• Enterprises which produce goods and services in competition

• Enterprises which operate under monopolistic or semi-monopolistic conditions

• Ministries and government departments and public sector Enterprises should purchase their requirements from public sector undertaking

Classification by BPU of Enterprises based on pricing criteria and practices

• A system of price control• Sell their products entirely to the government• Sell products mainly to State government

enterprises or Public Sector Enterprises• Selling the products in the International market• Operating in the open market• Steel• Price fixation by arbitration and award by the

government

PRICING STRATEGIES

• Administered Prices• No-Profit, No-Loss Prices• Cost-Plus Prices• Competitive Prices• Following the Leader • Parity Pricing • Subsidized Prices• Trade Association Pricing • Discriminatory Pricing

GOVERNMENT CONTROL OVER PUBLIC ENTERPRISES

• Appointments of chief executives and full time and part time members of the Boards of Directors

• Sanctioning of capital programmes involving expenditure of a certain magnitude

• Approval of five- year annual plans of development and capital budgets

• Authorization of capital to be raised and the conditions thereof• Approval of the revenue budget where a deficit was required

to be met by the government• Calling for returns, accounts and other information on the

activities of the enterprise • Giving directions to the enterprise on matters involving

national security or substantial public interest

PARLIAMENTARY IMPACT

Direct Impact

Questions in Parliament

Submission of Annual Reports

Approval of budgets, Subventions, Outlays

etc

Inquiries by Committees

Indirect Impact

Ministerial & Executive

Board membership

Through the govt. audit system

By appointment of ad hoc commissions

of enquiry

Accountability to Parliament

Directives Informal interventions

PARLIAMENTARY CONTROL AND PUBLIC ACCOUNTABILITY

• Holding debates in Parliament• By interpellation• By parliamentary Committees

DEPARTMENTAL OF PUBLIC ENTERPRISES

PRIVATISATION AND DISINVESTMENT

• Expansion of Public Sector and its Defects• Ways of Privatisation• Obstacles to Privatisation• Conditions for success of Privatisation• Benefits of Privatisation• Arguments Against Privatisation• Sins and Pitfalls of Privatisation• Privatisation/ Disinvestment

Expansion of Public Sector and its Defects

• Public sector expansion in 1960s and 1970s• In particular an expansion of the State Owned

Enterprises(SOEs)• 1960- Nationalisation trend • 1970- Privatisation by selling SOEs• Growing interest in Privatisation• Privatisation Reaction

WAYS OF PRIVATISATION

• Divesture or Privatisation of ownership• Denationalisation or Reprivisation• Contracting • Franchising • Privatisation of Management • Liquidation- Formal or Informal

OBSTACLES TO PRIVATISATION

• Government willing to sell the least profitable enterprises

• Divestiture• Relatively undeveloped capital markets

Conditions for success of Privatisation

• Public arising out of dissatisfaction• Alternative institutional arrangements should

not stop competition• Freedom of entry to private goods and services • Public services provided to the private sector

must be specific or have measurable outcome• Consumers should be able to link the benefits

they receive from a service to the cost they pay for it

• Privately provided services should be less sesceptible to fraud than the government service

• Equity is an important consideration in the delivery of public services

BENEFITS OF PRIVATISATION• Reduces the fiscal burden of the state• Government to mop up funds- SOEs • Trims size of the administrative machinery• Concentrate more on the essential state

functions • Accelerates economic development • Better management of the enterprises• Encourage entrepreneurship• Increase the number of workers and common

man(shareholders)- public vigilance

ARGUMENTS AGAINST PRIVATISATION

• Noble objectives of public sector being discarded

• Encourage concentration of economic power• Results in the acquisition• Privatisation of profitable enterprises may

result into a loss• Privatisation of strategic and vital sectors is

against national interests

• Quality and commitment of the management• Capital markets of developing countries not

being developed • Expected results may not be achieved • Vested interests behind privatisation leads to

deceiving the nation

SINS AND PITFALLS OF PRIVATISATION

• Lack of proper strategy• Ambiguity of objectives• Connivance • Wrong Timing• Lack of Political Consensus• Wrong Labour Strategies• Lack of Political Will• Poor Financial Strategies• Wrong Environment• Prevalence of Monopoly Elements• Problem of cultural change

PRIVATISATION / DISINVESTMENT IN INDIA

• Disinvestment Policy– Initial phase– The Second Phase • strategic and non strategic classification

VILLLAGE AND SMALL INDUSTRIES

• Definitions• Promotional Measures • Institutional support structure• State Industries Policy• Khadi and Village Industries• Ancillary Industries• Drawbacks and Problems

THE VSI SECTOR

• Traditional cottage and household Industries• Modern small-scale industries including tiny

units and powerlooms

• Women Enterpreneurs Enterprise• Export Oriented Units• Organized and Unorganized Sector

IMPORTANCE OF KHADI AND VILLAGE INDUSTRIES

• High employment potential• Provide employment in the off season• Employment of special categories of people• Employment opportunities within the

household• Capital-output and Capital-labour ratios are

comparatively very low• Promote non-inflationary growth• Help to the weaker sections of the society

• Resource utilization and conservation of resources

• Reducing the regional economic imbalances• Increase the rural development• Less ecological problems• Does not cause energy crisis and foreign

exchange crisis• Accounts for one-third of the economy

DEVELOPMENT OF VSIS UNDER THE PLANS

Objectives• To assist in the growth and widespread dispersal

of industries• To increase the levels of earning of artisians• To sustain and create avenues of self

employment• To ensure regular supply of goods and services• To develop entrepreneurship• To preserve craftmanship and art heritage

PROMOTIONAL MEASURESThe important protective and promotional measures

include the following • Reservation of products• Reservation and Preference in Government

Procurement• Infrastructure and Institutional Support• Machinery on Hire Purchase• Marketing Assistance • Training• Supply of Raw Materials• Promotion of Ancillarisation

SOME OF THE PROMOTINAL ASPECTS

• Industrial Estates• EPZs/SEZs Export Industrial Parks• Integrated Infrastructural Development Scheme

(IID)• Cluster Development• Industrial Growth Center Schemes• Recent Measures• Micro, Small and Medium Enterprise

Development Act, 2006

• Categorization of SMEs• Manufacturing Enterprises• Service Enterprises• Other Features

INSTITUTIONAL SUPPORT STRUCTURE

Women Entrepreneurs• 1991 Industrial Policy• SIDO• SIDBI

Marketing• NSIC• Sub-Contracting Exchanges• Quality Clarification• Marketing Development Assistance(MDA)

Scheme• Training Programmes for Export Packaging• Organising Exhibition and International Trade

fairs• Export Promotion Councils• SIDBI’s Marketing Finance & Development

Department

STATE INDUSTRIAL POLICIESThe main areas of support and facilities

extended by state governments• To develop and manage industrial areas • Financial support services• Technical guidance• Human resources development• Human resources development• Infrastructure development• Export promotion• Single Window Assistance

KHADI AND VILLAGE INDUSTRIES

Objectives • The social objective of providing employment• The economic objective of producing saleable

articles• The wider objective of creating self- reliance

Functions • Training of persons• Building up reserve of raw materials and

implements• Provide for sale and marketing• Encourage and promote research in the technique

of production• Maintain or assist in the maintenance of institutions• Undertake, assist or encourage production• Promote and encourage co-operative efforts among

manufacturers• Ensuring the genuineness and granting certificates

ANCILLARY INDUSTRIES

• The government policy has been one of encouraging ancillarisation

• BENEFITS– The society also benefits from economies of scale – Advantages to large units in an era of power

shortage and financial problems • PROBLEMS– Satisfactory quality– Do not have the resources for carrying out R&D

DRAWBACKS AND PROBLEMS

• Problem of inputs• Financial problems • Marketing problems• Competition from the large units • Institutional constraints