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Ind envt of India: Industrial policies, public and private sectors in India

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Industrial policies of India. Public and private sector roles. Fragmented and concentrated industries, Competition act 2002

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Ind envt of India: Industrial policies, public and private sectors in India

  1. 1. • Ancient times industries in India: small scale and cottage industries. • Well developed technology, labour intensive. • Large scale started with British; pig iron unit in Barakar (West Bengal) in 1875, TISCO Jamshedpur, 1907, Bhadravati 1923. • After Independence, priority given to Industrial development • For capital formation and economic development.1/23/2012 P.Panth 2
  2. 2. • Industrial Policy is Government’s policy towards – Establishment, functioning, growth and management of industries, – National priorities and economic development strategy. – Roles of public, private, joint and co-operative sectors; – Role of Small, medium and large scale industries in the economy – Role of foreign capital and technology, labour policy, tariff policy etc of the industrial sector. P.Panth 3
  3. 3. • Public sector, Mixed sector, and Private sector industries• State monopoly in Arms and ammunition, atomic energy and railway transport• State exclusively responsible for the establishment of new undertakings in six basic industries• Rest of the industrial field open to private enterprise but State would also participate. P.Panth 4
  4. 4. • Socialist method of production.• Public Sector dominance, PlanningObjective:  To reduce regional imbalances,  develop backward areas, and  provide infrastructure for industrial development. 5 P.Panth
  5. 5. Three types of ownership:1. Public Sector: Schedule A. 17 industries of which 4 were Government monopolies (arms and ammunition, atomic energy, railways and air transport).2. Joint Sector: Schedule B. 12 industries, road and sea transport, machine tools, ferroalloys, drugs, fertiliser, rubber, chemical, paper, etc.3.Private Sector: Schedule C: All others not included in A and B, but public sector could still participate.Products reserved for Small scale and cottage industries 6 P.Panth
  6. 6. • Some progress in industrialisation of India.• But slow growth, and many shortcomings of 1956 policy. – Licence Raj: 80 depts, to get licences. – Public sector units: burdensome, inefficient, losses. – Capacity Underutilisation: Private sector applied for licences, did not install, – Large industrial houses, monopolies, very little competition, – Govt – Industrial nexus: in licensing, permits and funds. 7 P.Panth
  7. 7. • Total departure from Nehru’s model of socialism.• Dominance of MNC on the Indian Economy.• Threat from foreign competition due to cheaper imports, and local industries inability to meet the challenge due to their weak economic strength.• Moved away from too much protectionism to too little protectionism - CII• Trade Unions oppose the policy due to fear of unemployment due to privatisation. P.Panth 8
  8. 8. • Monopolies and concentration of economic power in a few hands.• Rising inequalities of income and consumption.• Priority industries and goods diverted to inessentials.• Slow down development of backward areas.• No proper policy regarding industrial sickness. No clear exit policy for sick units.• Many Indian industries unable to face foreign competition. P.Panth 9
  9. 9. • Capitalism: supposed to comprise of competitive markets,• Large number of small firms, producing homogenous products, price takers, normal profit• No concentration of economic power and monopoly,• Rational allocation of scarce resources and• Equitable distribution of incomes.• Actually capitalism is dominated by large firms in oligopolistic or monopolistic competitive markets. 10 P.Panth
  10. 10. • Monopolists – try to reduce or remove all forms of competition, – Through mergers with small companies, (Pepsi – Parle) – Ownership/Control of a Key Resource - (DeBeers diamond monopoly). – Exclusive Rights - patents, copyrights, franchise (pharmaceutical companies, research, authors). – Large scale or economies of scale, lower AC, (natural monopoly), – Vertical integration (raw materials to final products), – Horizontal expansion: into various other products and industries. 11 P.Panth
  11. 11. • Fragmented industries have many small competitors and structural factors that inhibit concentration. – Exhibit low entry barriers, – excess capacity in the industry, – No standardisation of products/ services, – Price competition: to maintain market shares. – Result: experience boom-and-bust cycles and price wars. – Profits affected, companies are forced out of the market, or acquired by larger competitors. 12 P.Panth
  12. 12. Examples: Book publishing, plant nurseries, Auto repair, Restaurant industry , Clothing retailers, Furniture, cement, construction• Strategy options: – Decentralise operations – Become a low-cost producer; – Provide more service with the sale and add value to the customer; – Specialise by product type and customer type; – Operate "bare bones/no frills" business; – Focus on a limited geographic area. 13 P.Panth
  13. 13. • Consists of a few large firms that make up a large percentage of the market, – Exhibit high entry barriers, – differentiated products, – established brand preferences, – bitter price and non-price wars, – Possibility of mergers, and cartels, for pricing, output levels, or market sharing – Prohibited by government in USA, e.g. Anti Trust Laws 14 P.Panth
  14. 14. Top 10 Companies in India by Market CapitalisationS.No Company Name 47 Indian companies headed1. Reliance Ind (pvt) by the corporate giant Reliance2. ONGC (public) Industries listed among the3. Coal India Ltd. (public) biggest 2,000 companies of the4. Tata Consultancy (pvt) world by the Forbes US Magazine.5. ITC Ltd. (pvt) The new entrants in this list6. Infosys (pvt) are:7. Bharti Airtel (pvt, MNC) • Hero Honda Motors (MNC)8. NTPC (public) • Indian Bank (public)9. SBI (public) • Sun Pharma (MNC?) and10. HDFC Bank (pvt) • Jindal Steel and Power Ltd (pvt) As on 19/10/2011 P.Panth
  15. 15. • Establishment of Competition Commission of India.• To prevent practices that have adverse effect on competition, such as cartels and mergers, both national and international• Prevent use of Dominant position: happens when an enterprise imposes – unfair or discriminatory conditions in purchase or sale of goods or services or – in the price of goods or services. 16 P.Panth
  16. 16. Shares of Private and Public sectors 2000 - 2010 68.5 70 64 60.8 60 51.1 48.8 50 39.1 36Percentage 40 31.45 30 20 10 0 Private Public Private Public Net Manufacturing and services Net profits 2000-01 2009-10 17 P.Panth
  17. 17. • State action or government control that interferes with individual autonomy limits economic freedom.• Economic freedom is not absence of government constraint, but creation and maintenance of a sense of liberty for all.• Freedom also requires responsibility to respect the economic rights and freedom of others.• Too many restrictions will stifle economic development,• And too much of liberalisation will result in anarchy.• Even after Liberalisation, Indian economy does not enjoy much Economic and Business Freedom. 18 P.Panth
  18. 18. Business and Investment Freedom 2011 99.9 100 90 90 90 90 80 70 60percentage 49.8 50 36.9 40 35 30 25 20 10 0 Hong Kong Denmark Singapore Finland Sweden China Iceland New Zealand Canada India United Kingdom Business Freedom Investment Freedom P.Panth 19
  19. 19. P.Panth

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