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Industrial Policy
- 1. Industrial Regulatory perspectiveof business • Introduction • Industrial and Regulatory Perspectives • Role of government • Impact of political environment • Industrial Policy and Performance • Public sector and Private Sector • Privatization
- 2. Introduction • It isone of the important factor contributing for GNP. We have various types of industries like Large, Medium, small and tiny industries. • Growth has been slow before 1960’s due to rule of foreigners. • It is TATA who started industries in India and accompanied by Krishnadevaraya-IV
- 3. Importance of IndustrialPolicy • A nations industrial growth pattern gets guided by the policy I t makes and implements. • “Industrial policy of a nation is a document to guideline the type of growth expected in a certain period.” • Usually the industrial policy gets updated once in 3 to 5 years • Policies are cover all category of industries along with foreign capital investment.
- 4. Continued…… • During 1951-1961more emphasis was given to starting of basic industries. Eg- Bhilai, Durgapur, Rourkela, copper plant at Udaipur • Around 1965-1990 many private entrepreneurs would take up big industries with the help of skilled and trained executives. – Bajaj, Modi, Herogroups etc
- 5. • Government Interfacein Business • Industrial Production Trends • SMEs Policy and Development • Incentives for SSI-types, Provisions and Institutions • Industrial Sickness • Role of BIFR(Board of Industrial Finance and Re-constructions) • Status of Entrepreneurship in India
- 6. • IT(Information Technology), ITES(InformationTechnology Enabled Services), and New Business Sector India.
- 7. Reasons for Policiesand changes in policies To avoid Monopoly To have a proper growth(to Avoid uneven growth) To Utilize the national resources judiciously Invest on priority area- To develop infrastructure To provide guidelines for importing machinery, technology, and services to improve the quiality
- 8. Continued…….. • To restrictmonopoly • To restrict Unfair trade practices • To facilitate flow of funds in the areas where there is more demand • To have a balanced growth of regions
- 9. Role of Governmentin regulation To facilitate liberalization policies of the following area were drastically revised A) Industrial Licensing B) Foreign Investment C) Foreign Technology D) Public sector policy E) MRTP Act
- 10. Continued….. The present rusticationsare on pollution control, safety, and security matters Now most of the industries whether small or medium are free from licensing matters except Atomic industries which are still in the hands of government. These measures are taken mainly to increase entrepreneurial activities and create healthy competition amongst various industries.
- 11. Industrial Licensing Policy •The industrial polices were formulated in 1951, and it continued till 1991 with series of changes. • Till 1991 the polices were more concerned about guiding the industries about the directions and focus on industrial growth. • In 1991 the regulations were made to liberalize the rules allowing entrepreneurs to start ay business with domestic or foreign investor’s contribution
- 12. Foreign investment • Foreigncollaborations gives easy access to export market. • Foreign investment was allowed up to 51%. • Indian industries were able to develop expertise skills due to foreign investment • Indians export share in the world is too meager, so still we need qualitative and improved acts for improvement
- 13. Foreign Technology • Indiasuffered with outdated technology due to protected market(between 1950- 1980) • Liberalization helped in adoption of latest technology and knowledge. • Before liberalization technology agreement was necessary to transfer the technology • Indian industries had a very less importance for research and development this problem was also overcome by
- 14. Public sector policy Formore than decades PSE played great role in India. There were 242 big and medium PSE in India But after 1980 it was realized that many PSE suffered from outdated technology, excess employment, low efficiency, unionism, poor R and D Bcz of above factors and gap in the top level positions many PSE’s were undergoing loss
- 15. FERA Act • ForeignExchange Regulation Act had to clear projects involving foreign participation, plant import, Machineries, raw material etc. • BCz of amendments FERA was replaced by FEMA ie Foreign exchange Management Act, • FEMA concentrates mainly on guiding on type of proportion of foreign investment, and no of foreign directors in the board etc
- 16. MRTP Act • Beforeamendments govt used to control monopolies and trade practices through this act. • Prior to liberalizations the clearance of MRTP was very much necessary for investment decisions. • This was removed by govt in the industrial policy act of 1991.
- 17. Continued………… • The actcame in to force from 1st June, 1970,and has been amended in 1974, 1980, 1984, 1991. • The act is applicable to whole of India except Jammu and Kashmir.
- 18. Regulations.. • As perSection 31 of the MRTP Act, the owners of one or more undertakings are including in any monopolistic trade practices, the central government may refer the matter to the MRTP commission for enquiry. • The central government has authority to pass an appropriate order for
- 19. Continued…. • Regulating theproduction, storage, supply and distribution • Fixing standards for the goods used or produced by the undertaking • Declaring unlawful
- 20. Scope and Applicationof MRTP • This act applies to whole of India except the state of Jammu and Kashmir. • The act shall be applicable to all the companies registered and operating with India only under the Companies Act of 1956.
- 21. Removal of MRTPACT • The removal of restriction would result export and others adversely • The restriction would not affect the competition directly or indirectly. • Some restrictions are necessary to meet the requirements of the defense. • Restrictions are necessary to ensure the maintenance of essential goods and services.
- 22. Enforcement MRTP commission mayenquire into any monopolistic trade practices based on A) Directions of central government B) With its own knowledge and information C) An application made tit by central government
- 23. Related issues • Similarto this we have Restrictive Trade Practices • Unfair trade practices. • In January 2003, MRTP act was replaced by Compensation act and competition commission of India was established in october @))# to implement the provisions of the act
- 24. Impact of politicalenvironment. • A system where there is combination of system of politics and government is called as political system. • Indian political system are still evolving and yet to take a proper shape and it needs to be strong and reliable. • The government of developed countries are very stable and reliable.
- 25. Definitions… “The political systemcan be defined as “ A political system is a complete set of institutions, political organizations, interest groups the relationship between those institutions and the political norms and rules that govern their functions” “ A political system is composed of the members of a social organization who are in power”
- 26. Impact of politicalenvironment on business. In India we have three wins: A) Legislative organ B) Executive Organ C) Judicial Organ
- 27. Legislative Organ • Thelegislative organ of India is parliament. This organ makes laws for governance of the country. It has absolute control over the country. • No new taxes can be collected with out the consent of legislative organ, and no extra expenditure can be done with out taking approval
- 28. Executive Organ • Acouncil of ministers looks after the matters of administration in the country. • The union cabinet formulates the general policy of the country. • The cabinet also prepare the drafts of all important bills and presents if before the parliament for approval
- 29. Judicial Organ • InIndian constitution an independent judiciary is provided with wide powers. • In India we have two levels for judiciary, ie High court and Supreme Court. • The Supreme court had the highest powers of law in the country.
- 30. Industrial Policy • TheIndustrial policy can be understood as the government policy towards industries, their establishment, function, growth and management. • Industrial policy is the most important document, which indicates the relationship between government and business. • This gives clear guidelines for promoting and regulating industries.
- 31. Phases of IndustrialPolicy • The Industrial olicy can be studied under phases • Industrial Policy of 1948 • Industrial Policy of 1956 • Industrial policy of 1991.
- 32. Industrial policy of1948 • The thinking of India started with Ago Industries, which were present to support the other agricultural production. • On April 1949 a new Industrial policy was formulated with the below mentioned objectives • A) Mixed economy, • B) Categorizing Industries- State monopoly enterprises, Government regulated area, Mixed Category, Privae Enterprises
- 33. Continued……… • Resolution stressesimportance of harmonious relations between the management and union . • Fair wages to labor • Labor participation in management was also encouraged. • Foreign capital accepted only Indian’s role and Importance is protected • Scope should be given to develop small industries and cottage industries. • Indian Constituion also had big impac on industrial policy
- 34. Industrial Policy of1956. Formulated in 1956, after the first five years plan. This was also drafted on the bases of industrial policy of 1948. At the time many suggestions were accepted from economists. PSE’s were considered as the main industrial units to develop SSI and MSE.
- 35. Objectives of Industrialpolicy of 1956. • To increase Economic condition of the country • To increase the economic role of PSE’s by establishing new units in various need based industries • To improve employment opportunity, working conditions and living standards. • To extend support to private sector enterprises. • To restrict and control monopoly • Encourage small enterprise, cottage industries and rural development oriented industries.
- 36. Continued • The policydivided industries into three categories. But majority was in the hands of PSE’s, and entrepreneurs have to get license for opening any industry. • Schedule A -17 Industries( Atomic energy, Iron and Steel, Heavy industries, plant and machineries, coal, lignite Etc) • In this category government role is very big and the said sectors started a trend in the industrial sectors
- 37. Continued • Schedule BIndustries – 12 Industries were listed in this schedule. They are not covered in A Category they are Aluminum, Machine tool, fertilizers, drugs, synthetic rubber, coke, paper pulp, road transport and sea transport. • Schedule C Industries – All other industries not covered in schedule A and B will come under this sector • And this is open to private sectors.
- 38. Objectives of IndustrialPolicy • To provide guidelines for importing foreign capital in cash and kind and their role • To clearly divide the areas of product in under public sector and private sectors • To help for optimum utilization of resources for optimum production • To have a proper balance of industrial growth in the country • To prevent and cut the monopoly in any sector • To solve unemployment problem • To bring about diversification of industries to avoid economic growth
- 39. Advantages of IndustrailPolicy A. Initiative to develop basic Industries B. Steps taken for the spreading of PSE’s at various places across the country C. An effort was taken to stop the concentration of industries in one hand. D. Many SSI’s came up to help PSE’s E. Public got the information about the country's growth bcz of five years plan. F. Leading Industrialists, economists, and scientists were involved in policy making. G. Public safety was ensured by keeping arms ammunition and atomic energy under exclusive control of government.
- 40. Disadvantages of thePolicy • Too much interference of government. • Bcz of too much of government intervention and management gave a way for corruption. • PSE’s were too organization for which Indian managers were not trained, bcz of this inefficiency and failure increased. • Leaders felt that state was concentrating less on governance and more on industrialization
- 41. Industrial Policy 1991. •A revolutionary policy enacted on 24th July 1991 Under the guidance of Finance mister Mr.Manmohan Singh. • The policy was under pressure from IMF and World Bank as India had heavy debt • The important initiative was to liberalize import and export by removing MRTP, trade barriers
- 42. Objectives of theindustrial policy • Govt is only a facilitator, not the regulator • Helps to improve technology and competitiveness • Incentives for backward areas. • Encourage modernization and technology transfer to enhance quality and reliability of Indian products. • Reduce import barriers for all the products • Allow foreign tie ups and FDI • To raise Indian business to global market level of competition. • Protect interest of employees by strengthening existing corporates
- 43. PUBLIC Sector Enterprises Thestate owned or Government owned owned public enterprises are referred as PSE’s • A PSE can be defined as “A Public sector enterprise is an organization which is owned by public authorities like central government, state government, local authorities separately or jointly with 50% or more capital investment”
- 44. The definition defines •The investing authorities control the management by appointing professionals to manage the functioning • The purpose of forming PSE’sis to serve the society. • It is accountable to the business
- 45. Objectives of PSE’s •To Develop the industry in the country • To start more of basic industries • To generate employment opportunity • To reduce imports by increasing Research and Development • To invest in areas where private investment is not there or less • Make use of natural resources and develop all regions • Create a competitive atmosphere among PSE’s • The are expected to be an ideal employer by giving facilities to employees like, ideal jobs, housing, health, social benefits
- 46. Types of PSE’s Manyof the British units like railways, coal mines, iron, aluminum, gold, post and telegraph are converted into public sector The other area which covers public sectors are:- Irrigation projects, Power Projects, Railways, post and telegraphs, coin mint, and departmental undertakings, banking, insurance and financial services Statutory corporations – Air India, Indian airlines, Food corporation of India,
- 47. How a publicsector was formed • Many industries which were acquire by central and state government by it self became a PSE’s. • By parliament resolution some large banks were nationalized. • Some public units automatically transferred from British government to Indian government, and they became PSE’s • During five year plans, government started many new units for industrialization of the country • Government acquired some key industries like petroleum, and petroleum products
- 48. Advantages of PSE’s •National Income • Employment • Exports • Regional Income • SEM’s Growth • Resource Utilization
- 49. Limitations of PSE’s •Many PSE’s were doing good only in the beginning, later they started incurring loss due to outdated technology. • PSE’s failed in updating knowledge, skill, technology and machinery in the unit. • PSE’s failed in facing competition from private enterprises. • As it was managed by politicians more importance was not given for development
- 50. Continued………. • The guesthouses and facilities of PSE’s have been rapidly being used by politician and bureaucrats. • Cost of Manufacturing of the PSE’s were increasing day by day and their products were loosing order in the market due to competition
- 51. Reasons for failurein PSE’s • Project Delay • Too much of interference from political and bureaucratic • Answering Queries on Unfair trade practices, public issues, industrial problems etc • Selection problems in employees, and managers • Too many unions and unionism • Too much of in efficiency • Les utilization capacity • High costs and less profits – Wrong selection, too much of employees, unmaintained machineries.
- 52. Categories of PSE’s •Profit Making • Poor Performing • Loss Making
- 53. Reforms • Vision, Mission,and polices of the company were rewritten • Change the ownership patters • introduce corporate culture • Make changes in composition of board of directors. • Create accountability • Upgrade Product, Marketing strategies, and marketing processes. • Introduce training and development programmes • Encourage R&D, Innovations and creativity
- 54. Privatizations • Measures forPrivatizations • A) Reducing Subsidies • B) Stop government investment in PSE’s • C) Stopping of control and license system on trade and industry. • D) To have control on interest rates, exchange rates • E) Disinvestment in PSE’s phase wise
- 55. Process of Disinvestment UKhas set a trend in 1979 in case of privatization. During 1980’s to 1990’s many developing countries and socialist countries started thinking deliberating and implementing the process of privatization
- 56. Reasons for privatization A)Internal Problems – Financial crunch, Deficit balance of payment etc B) External Pressures – Pressure from IMF, World Bank, etc., C) Uncontrollable environmental problems – Declining industries, competition, market expectations etc
- 57. Mode of disinvestment •Transfer of Ownership • Management Transfer • Commercialization
- 58. Transfer of Ownership •In medium and small sized organizations it is possible to go for transfer the ownership completely. But in large scale enterprises it is possible go for partial disinvestment • Methods 1) Total Disinvestment »2) Partial Disinvestment »3) Joint Ventures »4) Liquidation
- 59. Methods of disinvestment •Introduction of MF for investment in PSE’s • Shares were also purchased by Financial Institutions • Public issues.
- 60. Management Transfer Management transferis the transfer of management through contract with out transferring the ownership. The methods followed for this type of privatization is licensing, franchising, and subcontracting The work is executed by private owners.
- 61. Commercialization • It aimsto mobilize efficiency, participative management, accountability, autonomy and profit oriented thinking. • It can also be done by a particular CEO who is well focused and also to lead others on commercialized way of working. • But this is not possible to apply in every unit and cannot be effective in every unit.
- 62. Impact of disinvestment Strategies •Reservations for PSE’s were reduced • Import policy were liberalized and duties drastically reduced . • Competitive edge of Indian industries has improved • The medium and SSI who depend mainly on SSI’s PSE’s and who could not modernize started suffering. • The growth of FDI increased
- 63. continued • Joint venturesthus enabling India to absorb latest technology and able to produce products of global standards • Public sector will participate in infrasatructure development areas where private enterprises were not entering • Exiting PSE’s should accept the competition and improve them self in commercial way of working
- 64. Continued…. Since government stopsinvestment in PSE’s govt can invest on more procesing areas such as education, health and infrastructure
- 65. Disinvestment Ministry • DuringNational Democratic Alliance a special ministry called “Ministry for Disinvestment” was created. • Popular journalist Mr.Arun Shourie was in charge of the ministry • The process of disinvestment started during July 1991 slowly and picked up during 1998 onwards.
- 66. Benefits of Disinvestment Process Thecapable SME’s having growth potential will grow faster due to mobilized funds It Is possible to attract public capital by way of good performance Government will be able to allocate the funds to more needy areas if PSE’s. It becomes mandatory for the PSE’s to compete with Private enterprises
- 67. Possibilities of Disinvestment A)Offer for Sale-A type of measure involves a total or partial change in equity ownership through a direct sale of share by book-building process. B) Leasing – This involves leasing out to certain assets of a company to the best bidders, But the ownership lies with the governement
- 68. • Buy-out –This type of disinvestment involves the sale of assets either to employees or management who take over the leadership. It includes handing over of assets to professionals for restructuring of the organization. • Liquidation – This is the last option for national Democratic Alliance which can be executed after all the options are exhausted
- 69. Sales Modalities • A.Selection and Role of Intermediaries. • B. Methods of Sale • C.Pricing the Sale • D. Target group for Sale.
- 70. Disinvestment Plans A committeeof five members were formed on 23rd August 1996 under Mr.G.V.Ramakrishnan Tasks for the commission- To plan for long term disinvestment plan. To decide the extent of disinvestment plan. To supervise sales process To monitor disinvestment plan
- 71. Program for removingPSU’s • Power of creating joint venture • Removing investment permission from public enterprise board. • Power to fix salaries of top management. • Give accountability to top management. • Protecting interest of the employees.
- 72. Assignment To write aboutthe arguments for and against Disinvestment or privitization
- 73. Trends in IndustrialProduction • There is a faster and better development in industrial production after liberalization. • The growth directly helps for employment opportunity. • There was also development in the area of quality, quantity and products. • Indian population got an opportunity to use imported goods.
- 74. Advantages of Industrial Production A)MNC’s B) Transfer of technology C) Products D) Service Sector E) Specialization F) Outsourcing G) Flow of capital
- 75. Disadvantages Unnecessary product MRTP practiceof MNC’s Un necessary competition Economic Factors
- 76. Industrial Diversification • Diversificationis adopted to enjoy the fruits of synergy and to enjoy the benefits of expansion activities. • How expansion:- • It can be achieved by Adding more capacity • Using outside capacity • Diversifying activites
- 77. Advantages of Diversification 1.For different products 2. To have units in more than one location 3. To utilize the resources and facilities in a better way. 4. Types of Diversification – Concentric Diversification, Conglomerate diversification.
- 78. SME policy andDevelopment • Government of India has announced special credit facilities to SME. • Government has encouraged bank and financial institutions to lend money to SME segment.
- 79. SSI and Itsincentives • Financial assistance, tax concessions for backward areas, • Subsidy Payments • Infrastructure facilities • Lands at concessional rates • Assistance for modernizing of plant • Development of testing laboratories in leading industrial cities and towns to help tiny and small industries. • Organizing training programs at various places and for various levels. • SIDO was established to help SSI’s for export development activites.
- 80. Continued • Help formarketing activities. (National Small Industries Corporations and Co- Operatives) • Bureau of Indian Standards has established its officers and laboratories to help SSI’s on small industry service institutes in important industrial towns. • SIDBI has also come in to existence to help SSI’s
- 81. Continued…….. • SFC, SIDC,and IDB are also there for giving financial assistance and rehabilitation loans. • Taxation Benefits to small unites like Excise Duty, Sales Tax, Octroi, Income Tax, electricity tariffs etc.,
- 82. Industrial Sickness • Anindustry is said to be sick if it has at the end of any accounting year, accumulated losses equal or exceeding 50% of its peak net worth in the immediately proceeding five accounting years. • RBI “ A sick small scale unit is one which fails to generate internal surplus on continual basis and depends for its survival upon frequent infusion of external funds”
- 83. Symptoms of sickness •Frequent closure of unit due to workers strikes, less workload, powers shutdown and natural causes. • Frequent break down of machinery. • Heavy rejection of goods due to quality issues and blockage of funds. • Unsold Inventory. • Decline in the capacity utilization. • Shortage of funds – inability to pay taxes, provident fund, rent water etc. • Frequent turnover of personnel at various levels. • Cash problems and fraudulent accounts • Decreasing financial ratios
- 84. Continued………… • Low moraleof employees • Reasons for Sickness- • Internal Reasons:- A) Improper selection of product, process and layout • B) Poor quality machinery • C) Excess investment on building • D) Underutilization of capacity • E) Poor skill amongst workmen • F) Marketing problems • G) Inability to meet the competition
- 85. External Reasons forSickness • Infrastructure like power, water communication and location • Financial issues • The partiality of big industries • Low technology.
- 86. Measures of Industrial Sickness. •Internal problems should be solved first • Additional products, diversification, etc • Strict documentation of salaries and record maintenance • A good relation with government officials, banks financial institutions, vendors. • Allotment of resources and funds on priority basis • Avoiding of workers non-co operation. • The industrial sickness is not resolved should be informed to Board of Industrial and Financial Corporation • Any rehabilitation program has to be finalized and attended at a faster rate • Auditing of resources put for rehabilitation.
- 87. Consequences of Industrial Sickness •Unemployment • The loss of jobs will have social causes • National waste • Idling of Machinery • Loss to financial institution • Employees loose their bargaining powers • The owners may close their business
- 88. BIFR • Role ofBIFR: - Board of Industrial Finance and Re- construction came in to existence with an aim to provide remedial measure to industrial sickness. • Financial Bankruptcy • 1. Creditors issuing law suits. • 2. Difficult to buy raw materials • 3. Inability to complete pending orders • 4. Company failing to pay salary • 5. Burdon of financial institutions • 6. Inability to get further finance
- 89. Entrepreneurship • Entrepreneurship isa process of crating something different with value by devoting the necessary time and effort, assuming the accompanying financial, psychological and social risk and receiving the result- rewards of monitory and personal satisfaction .
- 90. ENTREPRENEUR • Entrepreneur isa person who takes initiative to bring new ideas, innovation, starts new venture and acts as an analyst agent for new project which can create wealth. • With this activity we can understand that he acts as a chain agent between society and economic activity.
- 91. Entrepreneurship development in India •Industrial Period • Modern Period
- 92. Importance of Entrepreneurship inIndia • Important for the development of the country • Higher rate of economic growth by creating values • Speedy industrial development • Employment opportunity • Development of backward and tribal areas • Sectoral Development • Improving standard of living • Socio economic change in the country • Develop technological change • Improve business culture • Improved commercial activities. • It acts as a change agent
- 93. It sector inIndia • Many services carried out by Indian information technology business is the form of technology development, software BPO’s, KPO;s etc., • Benefits of BPO:- • Productivity Improvements • Expertise knowledge • Cost effective • Accountability • Improved HR • Concentrate on core business.
- 94. ITES (Information Technology EnabledServices) • Existing Services: Telemarketing, Support work, Data entry process, payroll management, billing services, Insurance Processing. • Emerging Services: Risk Analysis, Market research, Healthcare etc • Future expected : R&D Outsourcing, Biotech Research, Defense related services.