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

2. • 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

3. • 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

4. • 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

5. • Socialist method of production.
• Public Sector dominance, Planning
Objective:
 To reduce regional imbalances,
 develop backward areas, and
 provide infrastructure for industrial
development.
5
P.Panth

6. 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

7. • 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

8. • 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

9. • 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

10. • 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.
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P.Panth

11. • 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

12. • 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.
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P.Panth

13. 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.
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P.Panth

14. • 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
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P.Panth

15. Top 10 Companies in India by Market Capitalisation
S.No Company Name 47 Indian companies headed
1. Reliance Ind (pvt) by the corporate giant Reliance
2. ONGC (public) Industries listed among the
3. Coal India Ltd. (public) biggest 2,000 companies of the
4. Tata Consultancy (pvt) world by the Forbes US
Magazine.
5. ITC Ltd. (pvt)
The new entrants in this list
6. Infosys (pvt) are:
7. Bharti Airtel (pvt, MNC) • Hero Honda Motors (MNC)
8. NTPC (public) • Indian Bank (public)
9. SBI (public) • Sun Pharma (MNC?) and
10. HDFC Bank (pvt) • Jindal Steel and Power Ltd
(pvt)
As on 19/10/2011 P.Panth

16. • 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.
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P.Panth

17. Shares of Private and Public sectors 2000 - 2010
68.5
70
64
60.8
60
51.1
48.8
50
39.1
36
Percentage
40
31.45
30
20
10
0
Private Public Private Public
Net Manufacturing and services Net profits
2000-01 2009-10
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P.Panth

18. • 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.
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P.Panth

19. Business and Investment Freedom 2011
99.9
100 90
90 90
90
80
70
60
percentage
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

20. P.Panth