Business Environment- UPTU

What do you mean by Business
Environment??
• The environment of any organization is “ the
aggregate of all conditions, events and influences
that surround and affect it.”
• In other words , business environment is
individual and organisation that exists outside the
business and have influence direct and indirect to
the business.

Why study Business Environment??
The success of every business depends upon adapting itself to the
environment within which it functions.
For Example:
1. When there is a change in government policies, the business has
to make the necessary changes to adapt itself to the new policies.
2. Change in technology may render the existing products obsolete,
introduction of colour T.V television replaced the black and white
T.V or introduction of computers replaced type writers.
3. Introduction of Jeans affected traditional wear. Etc.
All these aspects are external factors that are beyond the control
of business. Hence it is very important to have a clear
understanding of concepts of business environment in order for
business units to adapt themselves to the BE.

Importance Of Business
Environment
• Firm to identify Opportunities and getting the first mover advantage. E.g.
Maruti for small cars.
• Firms to identify threats and early warning signals. E.g.. Multinational
entering Indian market.
• Continuous learning: Environmental analysis makes the tasks of managers
easier in dealing with business challenges.
• Image Building: By showing their sensitivity towards the environment.
E.g. Captive power plants in factories.
• Meeting competition: It helps the firms to analyse the competitors
strategies and formulate their own strategies accordingly.
• Identifying firms strengths and weaknesses.

Features Of Business Environment
a) Business environment is the sum of all factors external to
the business firm and that greatly influence their
functioning.
b) It covers factors and forces like customers, competitors,
suppliers, government and the social, cultural, political,
technological and legal conditions.
c) The business environment is dynamic in nature and it
keeps on changing.
d) The changes of business environment are unpredictable. It
is very difficult to predict the exact nature of future
happenings and the changes in economic and social
environment.
e) Business environment differs from place to place, country
to country. Like political conditions in India will differ from
those in Pakistan.

Political factors affecting business
environment :
Political factors are the factors relating to policies and
nature of the government. Some of the factors are :
•Taxation Policy
•Regulatory framework
•Governmental stability
•Nature of government’s policies towards business- related
to taxation, regulation of business and industry

Retrospective taxation and GAAR spooked investors as it
was thought that it was a disincentive for companies to do
business in India. Therefore, the implementation of GAAR
has been postponed to 2016 since the growth rates are
already low right now. And this policy might slump the
growth further by creating a negative business
environment.
Regulatory framework and red tapism.
According to World Bank, India is at 132th position in
terms of ease of doing business (out of 180 countries) due
to excessive regulations and red-tapism
Recently POSCO and Arcelor mittal pulled out their
projects out of Orissa due to these reasons
Examples :

Economic factors relate to the general conditions of
the economy within which a firm/business operates.
These factors can be :
•Inflation
•Interest rates
•Growth rates
•Unemployment levels
•Levels of disposable incomes
•Whether the country is experiencing
boom/recession

Examples :
Increasing disposable incomes would mean that people
would have greater demand for products. Therefore,
firms would respond to such increasing incomes by
expanding their businesses in such areas.
An increase in interest rates would mean increase in
borrowing costs for both consumers and firms.
Therefore, investments would be curtailed or postponed
resulting in lower growth rates for the entire economy

SOCIO-CULTURAL ENVIRONMENT
1.A set of customs, beliefs, behaviour and practices that
exists within a population.
2.Companies often include an examination of socio-cultural
environment before entering their target markets.

Factors which affect socio-cultural environment
1.Demographic factors
2.Attitude of people
3.Social responsibilities
4.Religion
5.Taste & Preference
6.Education
7.Family
8.Natural & Technological factors
9.Income & Lifestyle

Social culture adopted by Indians
1.Language : Sometimes a firm faces language problems like ford
faced when they introduced their truck brand named ‘fiera’ which
means ugly old woman in spanish.
2.Taste & Preference : Taste & preference of a consumer also affects a
product’s demand, so companies have to modify their product
accordingly.
3. Dressing & Lifestyle: These factors also impact the demand for a
product.
4.Religion : Religious aspects also play a important role in creating &
deteriorating the demand for a product.

 McDonalds made segment according to the
demographic in Indian societies.
McDonalds made their food according to religions
in India.
McDonalds believed in Total Quality Management.
They offer food at affordable and convenience
rates which gives direct benefit to them.
A company which benefited due to socio cultural
environment

Legal Environment
This refers to the set of laws and regulations which influence the
business organisations. The important legislations that concern the
business enterprises include :
1.Companies act ,1956
2.Foreign exchange management act ,1999
3.Bureau of Indian standards act ,1986
4.Consumer protection act ,1986
5.Environment protection act
6.Prevention of food adulteration act, 1956
7.Minimum wages act,1948
8.Right to information act,2005
9.Indian income tax act,1961

Legal factors can limit or change how a business operates. For
example :
1.A company may have to hire additional supervisory staff or
purchase safety equipment after a new health and safety law is
passed.
2.Child labor laws often limit the hours a minor can work and
require set break periods. If an organization employs several minors,
it may have to hire additional help to cover the hours when the
minors cannot legally work.

Economic Environment
Major factors are:
Economic conditions
Economic policies
Economic systems
Economic condition
The economic conditions of a country –for example, the nature of the
economy, the stage of development of the economy, economic resources,
the level of income, the distribution of income and assets, etc.- are among
the very important determinants of business strategies.
In a developing country, the low income may be the reason for the very
low demand for the product.

Economic Environment
Economic policies
Some types or categories of business are favourably affected by
government policy, some adversely affected, while it is neutral to some
others.
E.g. a restrictive import policy may greatly help the import competing
industries, while a liberalisation of the import policy may create
difficulties for such industries
Economic System
The scope of the private business depends on the economic system.
The freedom of the private enterprise is the greatest in the free market
economy.

Physical & technological environment
 Business prospects demands availability of certain physical
facilities
 E.g. demand for electrical appliances is affected by the extent of
electrification and the reliability of power supply.
 Demand for LPG stoves depend on rate of growth of gas
connections
 differing technological environment of different markets may
call for product modifications
 E.g. Many appliances are designed for 110 V in USA. They should
be converted for 240v in India
 Technological developments may increase or decrease the
demand for some existing products
 E.g. voltage stabilizers help increase in sale of electrical appliances
in markets characterised by frequent voltage fluctuations
 Introduction of TVs, Refrigerators, etc. with in-built stabilizers
adversely affects the demand for voltage stabilizers.

Microenvironment
• Microenvironment is an internal part of a company.
• These factors can be controlled by the company.
• Micro environmental factors have much more direct impact on a
business environment.
• Some factors are:
• Suppliers
• Employees
• Marketing Intermediaries
• Customers
• Competitors
• Publics

SUPPLIERS
• Suppliers provide products and services needed to add value
to own product and services.
• These services must be provided on time and should meet
ones specifications of quality.
• If requirements are not met then the production as well as
the quality suffers. It also changes the perception of a
customer to some extent.
1) A supplier should be reliable.
2) There should be more than one supplier in a company.
IMPORTANT

The ‘TOYOTA’ Case
• During 2009 – 2011 , Toyota had to
recall nearly 10 million vehicles all
around Europe as the accelerators
were not working properly.
• It was because the supplier had
supplied faulty mechanical
accelerators.
• Due to the faulty accelerators there
were many accidents out of which
nearly 37 were fatal and ended in
death.
• Out of 10 million cars nearly 7 million
were Toyota Camry and Corolla.
• Toyota repaired all these cars and sent
them back to their owners , but they
lost the trust of the customers.

Market Intermediaries
• Firms that aid the company in promoting, selling and distributing
its goods to final buyers.
• Vital links between the company and the final consumers.
• Include
 The middlemen and merchants who “help the company find
customers or close sales with them”
 Physical distribution firms which “ assist the company in stocking
and moving goods from their origin to their destinations”
 Marketing service agencies which “assist the company in targeting
and promoting its products to the right markets”

Customers
• The company must study its customer markets closely since
each market has its own special characteristics.
• The least controllable of all.
• New customers may be affected by any aspect of your
business.
• E.g. Toyota cars in year 2002 had issues with its clutch system.
They recalled the faulty cars and resolved the issue. It was
expected because of this the market share will fall for Toyota
but nothing happened. Why??? Because their previous
experience with Toyota products or services means they're
more likely to opt for Toyota after the problem is resolved.

Competitors
Every company faces a wide range of competitors.
The competitors affect the business's profits by trying to take
business away from them.
Their activities affect business’s profits.
No single competitive strategy is best for all companies.
 Companies must gain a strategic advantage by positioning their
products and services against their competitors in the minds of their
customers.
It is all about positioning. Companies have to differentiate itself
from your competitors.
If a company provide better products for a lower cost -- and
possibly faster -- than its competition, then that company can
compete with them in ways they may not be able to match.

Publics
• Publics are small groups of people who follow one or more particular
issue very closely. They are well informed about the issue(s) and also
have a very strong opinion on it/them.
• In simple terms, a Public is any group of people that may have an
real or potential interest in or an impact on your business's ability to
achieve its objectives.
• Why should you care about Publics? It's simple. Publics can help,
or hinder your ability to get your message out to your customers,
and collect value from them.
• Publics can be categorized to :-
• Financial Publics
• Media Publics
• Government Publics
• Local Publics
• General Publics
• Internal Publics

First Five Year Plan(1951-55)
• Objectives:
 To correct the disequilibrium in the Indian economy caused by the
second world war and the partition of the country.
 To achieve self sufficiency in food grains production and to improve
availability of raw materials
 To control inflationary tendencies
 To attempt to provide for an all round balanced development which
would ensure a rising, national income and a steady improvement in
living standards over a period of five years.

Second Five Year Plan(1956-60)
• Objectives:
 To secure an increase in national income by about 25 percent over five
years.
 To initiate rapid industrialization with special emphasis on basic and
heavy industries. To generate more employment opportunities
 To reduce the growing inequalities in the distribution of income and
wealth. To increase the rate of investment from 7 percent of National
income to 11 percent of National income by 1960-61.

Third Five Year Plan(1961-65)
• Objectives:
 To secure a growth in National Income of over 5 percent per annum
 To achieve self sufficiency in food grains and to increase agricultural
production to meet the requirements for industrial development and
export promotion
 To expand basic industries like steel, chemicals, fuel, and power and
machine building capacity so that future industrial requirements can
be satisfied domestically.
 To utilize manpower efficiently by generating more employment
opportunities.
Indicator 1961 1962 1963 1964 1965
GDP growth (annual %) 3.87 3.13 6.28 7.44 21.51
GDP per capita (current US$) 84.18 59.40 58.30 65.36 74.52

Plan Holiday : 1966-69
1966 and 1968 : Famine years
• Economic difficulties disrupted the planning
process in the mid 1960s.
 India faced two wars one with china in 1962 and then with Pakistan in
1965.
 There was negative impact on industrial and agriculture growth.
 Three annual plans guided development between FY 1966 and FY
1968 while plan policies and strategies were re-evaluated.
Indicator 1966 1967 1968 1969
GDP growth (annual %) -0.04 7.83 3.37 6.54
GDP per capita (current US$) 120.73 90.81 96.95 100.30

Fourth Five Year Plan(1969-73)
• Objectives:
 To attain a 5.5 percent growth in national income per annum
 To bring about economic stability
 To achieve self reliance
 To achieve social justice and equality
 To utilize Panchayati Raj institutions in local and regional planning.
 To recognize the management of public enterprises.
Indicator 1969 1970 1971 1972 1973
GDP growth (annual %) 6.54 5.15 1.63 -0.55 3.32

Fifth Five Year Plan(1974-78)
• Objectives:
 To remove poverty and achieve self reliance
 To achieve an adequate expansion of employment opportunities
particularly in rural areas.
 To achieve development without stimulating further inflationary
pressures by introducing fiscal and monetary measures.
Indicator 1974 1975 1976 1977 1978

Sixth Five Year Plan(1980-84)
• Objectives:
 To remove widespread poverty particularly in rural areas to have an
appreciable step up in the rate of growth of the economy.
 To strengthen the impulses of modernization for economic and
technological self reliance to provide basic needs of the people
(drinking water, elementary education, health, etc).
 To reduce inequalities of income and wealth through redistribution in
favour of the poor.
Indicator 1980 1981 1982 1983 1984

Seventh Five Year Plan(1985-89)
• Objectives:
 To achieve growth, equity, social justice, self reliance and improved
efficiency and productivity
 To accelerate production of food grains
 To increase employment opportunities
 To lessen agricultural constraints on industrial development
 To initiate rapid expansion of scientific and technological capabilities.
Indicator 1985 1986 1987 1988 1989

Eight Five Year Plan(1992-96)
• Objective:
 Managing the change and transition from a
centrally planned economy to a market led
economy, without fearing our socio-cultural fabric.
Indicator 1992 1993 1994 1995 1996

Ninth Five Year Plan(1997-2001)
 Prepared under the United Front Govt. was released in
Mar’98. The same was modified and approved by the NDC
in Feb’99, (2 yrs after its implementation from Apr’97).
 Objectives:
 The Ninth Plan was developed in the context of four important
dimensions of state policy, viz. Quality of life, generation of
productive employment, regional balance and self-reliance.
 The Ninth Plan focused on accelerated growth, recognizing a
special role for agriculture for its stronger poverty reducing and
employment generating effects, which will be carried out over a
15 year period.
 The focus of the Ninth Plan was on: "Growth with Social Justice
and Equality'
Indicator 1997 1998 1999 2000 2001

Tenth Five Year Plan (2002-06)
• Prepared with High Expectations:
 GDP growth in the post-reforms period improved to an average of
about 6.1 per cent in the Eighth and Ninth Plans from an average of
about 5.7 percent in the 1980s, making India one of the ten fastest
growing developing countries.
 The percentage of population in poverty continued to decline, even if
not as much as was targeted.
 Population growth decelerated below 2 per cent for the first time in
four decades.
 Literacy increased from 52 per cent in 1991 to 65 per cent in 2001 and
the improvement was evident in all States.
• Objectives:
 To strengthen sectors such as software services and IT enabled services which were
emerging and creating confidence about India's potential.
Indicator 2002 2003 2004 2005 2006

Eleventh Five Year Plan(2007-12)

Objective
 “Faster and More Inclusive Growth.”
 Growth rate of approximately 10% by the end of plan period.
 Growth of 4% in agriculture sector, faster employment creation.
 Reducing disparities across regions and ensuring access to basic
physical infrastructure and health and education services to all.
Indicator 2007 2008 2009 2010
GDP growth (annual %) 9.63 5.12 7.66 8.37
GDP per capita (current US$) 855.27 1096.04 1065.13 1134.01

Allocation for Major Sectors
• Increase in provision for:
 Bharat Nirman by 31.6% from Rs 18,696 crore to Rs 24,603
crore.
 Education by 34.2% to Rs 32,352 crore & for health and family
welfare by 21.9% to Rs 15,291 crore.
 Drinking Water and Sanitation: Allocation for Rajiv Gandhi
Drinking Water Mission to be increased from Rs 4,680 crore to
Rs 5,850 crore and for Total Sanitation Campaign from Rs 720
crore to Rs 954 crore.

Means-Cum-Merit Scholarships
 National Means-cum-Merit Scholarship Scheme to
be introduced to arrest drop out ratio;
 Selection through a national test from among
students who have passed class VIII;
 Each student to be given Rs 6,000 per year;
 100,000 scholarships to be awarded every year;
 A corpus fund of Rs 750 crore to be created this
year, and augmented by a like amount annually
over the next three years.

Health Sector, National Rural Health Mission
 All districts to complete preparation of District Action
Health Plans by March 2007
 Major emphasis to be on mother and child care and on
prevention and treatment of communicable diseases
 Convergence sought to be achieved among various
programmes such as immunization, antenatal care,
nutrition and sanitation through Monthly Health Days
(MHD) organised at Anganwadi centres
 320,000 Associated Social Health Activists (ASHAs)
recruited with over 200,000 given orientation training
 90,000 link workers selected by the States
 AYUSH systems being mainstreamed into health
delivery system at all levels; increase in allocation
forNRHM from Rs 8,207 crore to Rs 9,947 crore.

HIV/AIDS/Polio
 NACP-III, starting in 2007-08, to target high risk groups
 More hospitals to provide treatment to prevent
transmission of HIV/AIDS from mother to child;
provision for AIDS control programme to be Rs 969
crore.
 Number of polio rounds to be increased, monovalent
vaccine to be introduced, with intensive coverage in the
20 high risk districts of Uttar Pardesh and 10 districts of
Bihar
 Provision for AIDS control programme to be Rs 969
crore.

Integrated Child Development Services
 To cover all habitations and settlements during
Eleventh Plan and to reach out to pregnant
women, lactating mothers and all children below
the age of six
 Allocation to be increased from Rs 4,087 crore to
Rs 4,761 crore.

National Rural Employment Gurantee Scheme
 Allocation of Rs 12,000 crore for NREGS;
 coverage to expand from 200 districts to 330
districts; Rs 2,800 crore provided for Sampoorna
Gramin Rozgar Yojana in districts not covered by
NREGS;
 allocation for Swaranjayanti Gram Sarozgar Yojana
to promote self employment among rural poor to
increase from Rs 1,200 to Rs 1,800 crore

Urban Employment
 Increase in allocation for Swarna Jayanti Shahari
Rojgar Yojana from Rs 250 crore to Rs 344 crore.
 Targeted PDS and Antyodaya Anna Yojana:
Scheme for evaluation, monitoring, management
and strengthening of targeted PDS to be
implemented, will include computerization of PDS
and an integrated information system in Food
Corporation of India.

Scheduled Castes and Scheduled Tribes
 Allocation of Rs 3,271 crore in respect of schemes benefiting only SCs
and STs and Rs 17,691 crore in respect of schemes with at least 20% of
benefits earmarked for SCs and STs
 To increase in allocation for Rajiv Gandhi National Fellowship
Programme from Rs 35 crore to Rs 88 crore
 Post- Matric Scholarships: provision to be increased from Rs 440 crore
to Rs 611 crore; a separate provision of Rs 91 crore proposed for
similar scholarships to students belonging to socially and educationally
backward classes.

Minorities/ Woman
 Increase in share capital of National Minorities
 Development and Finance Corporation to Rs 63
crore; provision of Rs 108 crore for a multi-
sector development programme in districts
with a concentration of minorities; allocation
for Pre-matric scholarships at Rs 72 crore, Post-
matric scholarships at Rs 90 crore and Merit-
cum-Means scholarships at graduate and
postgraduate levels at Rs 48.60 crore.
 Outlay for 100% women specific programmes is
Rs 8,795 crore and for schemes where at least
30% allocation is for women specific
programmes is Rs 22,382 crore.

North Eastern Region (NER)
 Allocation increased from Rs 12,041 crore to Rs
14,365 crore
 New industrial policy for NER, with suitable fiscal
incentives to be in place before March 31, 2007.

GDP growth over the years – in USD
GDP Growth of India in USD

GDP growth over the years - Percentage
-10.00
-5.00
0.00
5.00
10.00
15.00
20.00
25.00
1961 1966 1971 1976 1981 1986 1991 1996 2001 2006
GDP Growth Rate (Annual %)
Data Source: World Bank: World Development Indicators: Last updated on October 23, 2010.

PLANNING COMMISSION
The Planning Commission was an institution
formed in March 15 1950 by Government of
India, which formulated India's Five-Year Plans,
among other functions. It was established in
accordance with article 39 of the constitution
which is a part of directive principles of state
policy.
An Overview

Genesis
1950 Planning commission was established
May 29 , 2014
The first IEO(Independent Evaluation Office ) assessment report was
submitted to Prime Minister Modi on May 29, three days after he was
sworn in. According to Ajay Chibber, who heads the IEO, views in the
report are based on the views of stakeholders and some Planning
Commission members themselves. Planning Commission to be replaced
by "control commission"
August 13 , 2014 Cabinet of Modi govt. scrapped the Planning Commission
Aug. 15 2014
Honb. PM. Narendra Modi mentioned to replace Planning Commission
by National Development and Reform Commission(NDRC) on the line of
China

Present Members
1. Chairperson Prime Minister Narendra Modi
2. Vice Chairperson Arvind Panagariya
3. Ex-Officio Members Rajnath Singh, Arun Jaitley, Suresh Prabhu and Radha
Mohan Singh
4. Special Invitees Nitin Gadkari, Smriti Zubin Irani and Thawar Chand
Gehlot
5. Full-time Members Bibek Debroy & V. K. Saraswat
6. Governing Council All Chief Ministers and Lieutenant Governors of Union
Territories
7. CEO Sindhushree Khullar

NITI AAYOG
THE BASICS
Directional and policy dynamo
The institution will serve as a ‘think tank’ of the government. It will provide
governments at the Central and State levels with relevant strategic and technical
advice across the spectrum of key elements of policy.
Instead of being in the controlling seat, is going to provide a direction. It is going to
be an ‘enabler’ instead of a ‘provider of first and last resort’.
COOPERATIVE FEDERALISM

The key Differences
Financial clout
• NITI Aayog will be an advisory body, or a think-tank.
The powers to allocate funds might be vested in the
finance ministry
• Planning Commission - Enjoyed the powers to allocate
funds to ministries and state governments

Full-time members
• NITI Aayog - The number of full-time members
could be fewer than Planning Commission
• Planning Commission - The last Commission
had eight full-time members

States' role
• NITI Aayog - State governments are expected to play
a more significant role than they did in the Planning
Commission
• Planning Commission - States' role was limited to the
National Development Council and annual
interaction during Plan meetings

Member secretary
• NITI Aayog - To be known at the CEO and to be
appointed by the prime minister
• Planning Commission - Secretaries or member
secretaries were appointment through the
usual process

Part-time members
• NITI Aayog - To have a number of part-time
members, depending on the need from time
to time
• Planning Commission - Full Planning
Commission had no provision for part-time
members

FOCUS
• Special stress will be put on the benefit of
those marginalised sections of the society that
have been ignored due to the template-nature
of the Planning Commission so far.

Constitution
• Niti Aayog - Governing Council has state chief
ministers and lieutenant governors.
• Planning Commission- The commission
reported to National Development Council
that had state chief ministers and lieutenant
governors.

Organization
• Niti Aayog - New posts of CEO, of secretary rank,
and Vice-Chairperson. Will also have five full-time
members and two part-time members. Four
cabinet ministers will serve as ex-officio
members.
• Planning Commission - Had deputy chairperson, a
member secretary and full-time members.

Participation
• Niti Aayog- Consulting states while making
policy and deciding on funds allocation. Final
policy would be a result of that.
• Planning Commission- Policy was formed by
the commission and states were then
consulted about allocation of funds.

Allocation
• Niti Aayog- No power to allocate funds
• Planning Commission- Had power to decide
allocation of government funds for various
programmes at national and state levels.

Nature
• Niti Aayog- NITI is a think-tank and does not
have the power to impose policies.
• Planning Commission- Imposed policies on
states and tied allocation of funds with
projects it approved.

CONCLUSION
There is a paradigm shift in the way the policy
formulation and implementation are being
worked out. Instead of being the last resort,
the government will act as an enabler.
( bottoms up approach)

Major Highlights
1. The new National Institution for Transforming India (NITI) will act more
like a think tank or forum, say its supporters, in contrast with the
Commission which imposed five-year-plans and allocated resources to
hit set economic targets.
2. NITI will include leaders of India's 29 states and seven union territories.
But its full-time staff - a deputy chairman, Chief Executive Officer and
experts - will answer directly to the 64-year-old Prime Minister, who will
be chairman.
3. The opposition Congress mocked the launch as a cosmetic relabelling
exercise - the new body's acronym-based name means 'Policy
Commission' in Hindi, suggesting a less bold departure than the English
version does.
4. Despite being blamed by critics for the slow growth that long plagued
India, the Commission survived the market reforms of the early 1990s,
riling Mr Modi with its interventions when he was Chief minister of
industry and investor friendly Gujarat.
5. Mr Modi, elected by a landslide last year on a promise to revive flagging
growth and create jobs, had vowed to do away with the Planning
Commission that was set up in 1950 by Congressman and Prime
Minister Jawaharlal Nehru.

Contd..
6. . But his plans have been derided by the Congress party, which
wants to defend the Nehru legacy and describes Mr Modi's vision of
"cooperative federalism" as cover for a veiled power grab.
7. India's first Prime Minister Jawaharlal Nehru, a socialist who
admired Joseph Stalin's drive to industrialize the Soviet Union, set
up and chaired the Commission to map out a development path for
India's agrarian economy.
8. In 2012, the Planning Commission was pilloried for spending some
Rs. 35 lakh to renovate two office toilets, and then it was
lampooned for suggesting that citizens who spent Rs. 27 or more a
day were not poor.
9. The commission had remained powerful over the decades because
it had emerged as a sort of parallel cabinet with the Prime Minister
as its head.
10. The Commission's power in allocating central funds to states and
sanctioning capital spending of the central government was deeply
resented by states and various government departments.

Industrial policy resolution of 1948
Industrial Policy resolutions
NEW EONOMIC POLICY 1991

•Important distinction was made-
Industries to be kept under :
-public sector,
-private sector and the
-joint sector.
•Industrial Department and Regulation Act (IDR
Act) was enacted in 1951.

Objective of IDR 1951
Empowering the Government to take
necessary steps to regulate the pattern of
industrial development through licensing.
• This paved the way for the Industrial Policy Resolution of
1956, which was the first comprehensive statement on the
strategy for industrial development in India.

•Shaped by the Mahalanobis Model of growth, which suggested
that emphasis on heavy industries would lead the economy towards
a long term higher growth path.
The Industrial Policy Resolution - 1956 classified industries into
three categories :
Industrial Policy Resolution - 1956
17 industries :
exclusively under the domain of the Government. These
included inter alia, railways, air transport, arms and ammunition, iron and steel and
atomic energy.
12 industries
which were envisaged to be progressively State
owned but private sector was expected to supplement the efforts of the State.
The third category contained all the remaining industries and it was expected
that private sector would initiate development of these industries but they
would remain open for the State as well.

Objectives
• To accelerate economic growth and boost
the process of industrialization as a means to
achieving a socialistic pattern of society.
• Removal of regional disparities through
development of regions with low industrial
base.

Improving living standards and working conditions for the mass of the people.
To reduce disparities in income and wealth.
To prevent private monopolies and concentration of economic power in different
fields in the hands of small numbers of individuals
The State will progressively assume a predominant and direct responsibility
for setting up new industrial undertakings and for developing transport facilities.
At the same time private sector will have the opportunity to develop and expand.
The adoption of the socialist pattern of society as the national objective.

It provided for a closer interaction between the agricultural and industrial
sectors. Accorded the highest priority to the generation and transmission of
power.
An exhaustive analysis of industrial products was made to identify products
which are capable of being produced in the small scale sector.
The list of industries exclusively reserved for the small scale sector was
expanded from 180 items to more than 500 items.
Within the small scale sector, a tiny sector was also defined with investment in
machinery and equipment upto Rs.1 lakh and situated in towns with a
population of less than 50,000 according to1971 census figures, and in villages.
Special legislation to protect cottage and household industries was also
proposed to be introduced.
INDUSTRIAL POLICY RESOLUTION, 1973

The Government would promote the development of a system of
linkages between nucleus large plants and the satellite ancillaries
To boost the development of small scale industries, the
investment limit in the case of tiny units was enhanced to
Rs.2 lakh, of a small scale units to Rs.20 lakh and of
ancillaries to Rs.25lakh.
A scheme for building buffer stocks of essential raw materials for the Small
Scale Industries was introduced for operation through the Small Industries
Development Corporations in the States and the National Small Industries
Corporation in the Centre.
Industrial processes and technologies aimed at optimum utilisation
of energy or the exploitation of alternative sources of energy would
be given special assistance, including finance on concessional terms.
INDUSTRIAL POLICY RESOLUTION, 1977

Correction of regional imbalances;
Maximum production and achieving higher
productivity; Higher employment generation;
Strengthening of the agricultural base through
agro based industries;
Promotion of export-oriented industries;
Promotion of economic federalism through equitable
spread of investment and dispersal of returns;
Consumer protection against high prices and bad
quality.
INDUSTRIAL POLICY RESOLUTION 1980

 The spread of industrialization to backward areas of
the country will be actively promoted through
appropriate incentives, institutions and
infrastructure investments.
 Foreign investment and technology collaboration will be
welcomed to obtain higher technology, to increase
exports and to expand the production base.
 Abolish monopoly
 Workers’ participation in management will be
promoted

INDUSTRIAL POLICY 1991
ISSUES
 Government recognizes the need for
• social and economic justice, to end poverty and unemployment
and to build a modern, democratic, socialist, prosperous and
forward-looking India
• India to grow as part of the world economy and not in isolation
 Enhanced support to the small-scale sector so that it flourishes in an
environment of economic efficiency and continuous technological up
gradation
 Emphasis on building our ability to pay for imports through our own
foreign exchange earnings

OBJECTIVES
In pursuit of the above objectives, Government
have decided to take a series of initiatives in
respect of the policies relating to the following
areas:
A. Industrial Licensing.
B. Foreign Investment.
C. Foreign Technology Agreements.
D. Public Sector Policy.
E. MRTPAct.

A.Industrial Licensing:
 Industrial licensing abolished for all projects except a short list
of 18 industries related to security and strategic concerns, social
reasons, hazardous chemicals etc.
 Areas where security & strategic concerns predominate,
reserved for public sector.
 In projects where imported capital goods are required,
automatic clearance given.
 In locations other than cities of more than 1 million population,
no requirement of obtaining industrial approvals from Central
Government.
 Incentives & investments in infrastructural development, to
promote dispersal to rural and backward areas.
 Existing units enabled to produce any article without additional
investment.

LIST OF INDUSTRIES IN RESPECT OF WHICH INDUSTRIAL
LICENSING WILL BE COMPULSORY
1. Coal and Lignite.
2. Petroleum (other than crude) and its
distillation products.
3. Distillation and brewing of alcoholic
drinks.
4. Sugar.
5. Animal fats and oils.
6. Cigars and cigarettes of tobacco and
manufactured tobacco substitutes.
7. Asbestos and asbestos-based
products.
8. Plywood, decorative veneers, and
other wood based products such as
particle board, medium density fibre
board, block board.
9. Raw hides and skins, leather, chamois
leather and patent leather.
10. Tanned or dressed furskins.
11. Motor cars.
12. Paper and Newsprint except bagasse-based
units.
13. Electronic aerospace and defence
equipment; All types.
14. Industrial explosives, including detonating
fuse, safety fuse, gun powder, nitrocellulose
and matches.
15. Hazardous chemicals.
16. Drugs and Pharmaceuticals (according to
Drug Policy).
17. Entertainment electronics (VCRs, colour TVs,
C.D. Players, Tape Recorders).
18. White Goods (Domestic Refrigerators, Domestic
Dishwashing machines, Programmable Domestic Washing
Machines, Microwave ovens, Airconditioners).

PROPOSED LIST OF INDUSTRIES TO BE
RESERVED FOR THE PUBLIC SECTOR
1. Arms and ammunition and allied items of defence
equipment, Defence aircraft and warships.
2. Atomic Energy.
3. Coal and lignite.
4. Mineral oils.
5. Mining if iron ore, manganese ore, chrome ore, gypsum,
sulphur, gold and diamond.
6. Mining of copper, lead, zinc, tin, molybdenum and
wolfram.
7. Minerals specified in the Schedule to the Atomic Energy
(Control of Production and Use) Order, 1953.
8. Railway transport.

B. Foreign Investment:
 Approval upto 51 percent foreign equity in high
priority industries.(Annex-III)
 Imports governed by general policy applicable to
other domestic units, payment of dividents
monitored by RBI to ensure that outflows on
account of dividents are balanced by export
earnings.
 Other foreign equity proposals, not covered
above, need prior clearance.
 A special Empowered Board- to negotiate with a
number of large international firms & get FDIs
approved.

INDUSTRIAL POLICY
1991C. Foreign Technology Agreements:
 Automatic permissions for foreign technology
agreements in high priority industries
(Annex-III) upto a lumpsum payment of Rs.
1 crore.
 For industries other than those in Annex
III, automatic permissions if no foreign
exchange is required for payment
 All other proposals need specific approval
 No permission for foreign technicians,
foreign testing of indigenously developed
technologies.

ANNEX III
• LIST OF INDUSTRIES FOR AUTOMATIC APPROVAL OF FOREIGN
TECHNOLOGY AGREEMENTS AND FOR 51% FOREIGN EQUITY APPROVALS
• 1. Metallurgical Industries
• 2. Boilers and Steam Generating Plants
• 3. Prime Movers (other than electrical generators) i. Industrial turbines. ii.
Internal combustion engines.
• 4. Electrical Equipment
• 5. Transportation
• 6. Industrial Machinery
• 7. i. Machine tools and industrial robots and their controls and
accessories. ii. Jigs, fixtures, tools and dies of specilised types and cross
land tooling,
• 8. Agricultural Machinery
• 9. Earth Moving Machinery
• 10. Industrial Instruments

D. Public Sector Policy:
 Portfolio of public sector investments reviewed with a view
to focus public sector on strategic, high tech & essential
infrastructure.
 Chronically sick public enterprises, referred to Board of
Industrial & Financial Reconstruction (BIFR).
 A part of government’s shareholding in public sector offered
to mutual funds, financial institutions, public & workers.
 Boards of public sector companies- more professional &
powerful.
 MOU system- managements would be granted greater
autonomy & held accountable.

INDUSTRIAL POLICY
1991
E. MRTP Act: (Monopolistic Restrictive Trade Practices):
 Removal of threshold limits of assets in respect of
MRTP Companies & dominant undertakings.
 Elimination of need of prior approval of Central
Government for establishment, expanding, merger,
amalgamation & takeover.
 Emphasis on controlling & regulating monopolistic,
restrictive & unfair trade practices.
 Enabling the MRTP Commission to exercise punitive &
compensatory powers.

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