business environment notes - 55 pages

8/12/2019 Business Environment Notes - 55 Pages

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UNIT -1

MEANING OF BUSINESS ENVIRONMENT

As stated earlier, the success of every business depends on adapting itself to the environment within which

it functions. For example, when there is a change in the government polices, the business has to make the

necessary changes to adapt itself to the new policies. Similarly, a change in the technology may render the

existing products obsolete, as we have seen that the introduction of computer has replaced the typewriters;

the colour television has made the black and white television out of fashion. Again a change in the fashion

or customers' taste may shift the demand in the market for a particular product, e.g., the demand for eans

reduced the sale of other traditional wear. All these aspects are external factors that are beyond the control

of the business. So the business units must have to adapt themselves to these changes in order to survive

and succeed in business. !ence, it is very necessary to have a clear understanding of the concept of

business environment and the nature of its various components.

"he term 'business environment' connotes external forces, factors and institutions that are beyond the

control of the business and they affect the functioning of a business enterprise. "hese include customers,

competitors, suppliers, government, and the social, political, legal and technological factors etc. #hile

some of these factors or forces may have direct influence over the business firm, others may operate

indirectly. "hus, business environment may be defined as the total surroundings, which have a direct or

indirect bearing on the functioning of business. $t may also be defined as the set of external factors, such as

economic factors, social factors, political and legal factors, demographic factors, technical factors etc.,

which are uncontrollable in nature and affects the business decisions of a firm.

FEATURES OF BUSINESS ENVIRONMENT

%n the basis of the above discussion the features of business environment can be summarised as follows.

&usiness environment is the sum total of all factors external to the business firm and that greatly

influence their functioning.

$t covers factors and forces like customers, competitors, suppliers, government, and the social,

cultural, political, technological and legal conditions.

"he business environment is dynamic in nature, that means, it keeps on changing.

"he changes in business environment are unpredictable. $t is very difficult to predict the exact

nature of future happenings and the changes in economic and social environment.

&usiness nvironment differs from place to place, region to region and country to country.

(olitical conditions in $ndia differ from those in (akistan. "aste and values cherished by people in

$ndia and )hina vary considerably.

IMPORTANCE OF BUSINESS ENVIRONMENT

CHANGING IMPRESSIONS, Opp. Samata College, Besides Chowdar !ess

Se"tor # 9, $pp%ghar &oad, !'( Colo) (age 1


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"here is a close and continuous interaction between the business and its environment. "his interaction

helps in strengthening the business firm and using its resources more effectively. As stated above, the

business environment is multifaceted, complex, and dynamic in nature and has a far*reaching impact on

the survival and growth of the business. "o be more specific, proper understanding of the social, political,

legal and economic environment helps the business in the following ways+

a- etermining %pportunities and "hreats+ "he interaction between the business and its environment

would identify opportunities for and threats to the business. $t helps the business enterprises for meeting

the challenges successfully.

b- /iving irection for /rowth+ "he interaction with the environment leads to opening up new frontiers

of growth for the business firms. $t enables the business to identify the areas for growth and expansion of

their activities.

c- )ontinuous 0earning+ nvironmental analysis makes the task of managers easier in dealing with

business challenges. "he managers are motivated to continuously update their knowledge, understanding

and skills to meet the predicted changes in realm of business.

d- $mage &uilding+ nvironmental understanding helps the business organisations in improving their

image by showing their sensitivity to the environment within which they are working. For example, in

view of the shortage of power, many companies have set up )aptive (ower (lants )((- in their factories

to meet their own re1uirement of power.

e- 2eeting )ompetition+ $t helps the firms to analyse the competitors' strategies and formulate their own

strategies accordingly.

f- $dentifying Firm's Strength and #eakness+ &usiness environment helps to identify the individualstrengths and weaknesses in view of the technological and global developments.

TYPES OF BUSINESS ENVIRONMENT

)onfining business environment to uncontrollable external factors, it may be classified as a- conomic

environment; and b- 3on*economic environment. "he economic environment includes economic

conditions, economic policies and economic system of the country. 3on*economic environment comprises

social, political, legal, technological, demographic and natural environment. All these have a bearing on

the strategies adopted by the firms and any change in these areas is likely to have a far*reaching impact on

their operations.

ECONOMIC ENVIRONMENT

"he survival and success of each and every business enterprise depend fully on its economic environment.

"he main factors that affect the economic environment are+

(a)Economic Conditions"he economic conditions of a nation refer to a set of economic factors that have

great influence on business organisations and their operations. "hese include gross domestic product, per




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capita income, markets for goods and services, availability of capital, foreign exchange reserve, growth of

foreign trade, strength of capital market etc. All these help in improving the pace of economic growth.

(!)Economic Po"ici#sAll business activities and operations are directly influenced by the economic

policies framed by the government from time to time. Some of the important economic policies are+

i- $ndustrial policy

ii- Fiscal policy

iii- 2onetary policy

iv- Foreign investment policy

v- xport *$mport policy xim policy-

"he government keeps on changing these policies from time to time in view of the developments taking

place in the economic scenario, political expediency and the changing re1uirement. very business firm

has to function strictly within the policy framework and respond to the changes therein.

Im$o%tant Economic Po"ici#s

(i) Ind&st%ia" $o"ic'"he $ndustrial policy of the government covers all those principles, policies, rules,regulations and procedures, which direct and control the industrial enterprises of the country and shape thepattern of industrial development.

ii- Fiscal policy+ $t includes government policy in respect of public expenditure, taxation and public debt.

iii- 2onetary policy+ $t includes all those activities and interventions that aim at smooth supply of credit to

the business and a boost to trade and industry.

iv- Foreign investment policy+ "his policy aims at regulating the inflow of foreign investment in various

sectors for speeding up industrial development and take advantage of the modern technology.

v- xport*$mport policy xim policy-+ $t aims at increasing exports and bridge the gap between expert

and import. "hrough this policy, the government announces various duties4levies. "he focus now*a*days

lies on removing barriers and controls and lowering the custom duties.

c- conomic System+ "he world economy is primarily governed by three types of economic systems, vi5.,

i- )apitalist economy; ii- Socialist economy; and iii- 2ixed economy. $ndia has adopted the mixed

economy system which implies co*existence of public sector and private sector.

NON-ECONOMIC ENVIRONMENT

"he various elements of non*economic environment are as follow+




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SOCIA ENVIRONMENT

"he social environment of business includes social factors like customs, traditions, values, beliefs, poverty,

literacy, life expectancy rate etc. "he social structure and the values that a society cherishes have a

considerable influence on the functioning of business firms. For example, during festive seasons there is anincrease in the demand for new clothes, sweets, fruits, flower, etc. ue to increase in literacy rate the

consumers are becoming more conscious of the 1uality of the products. ue to change in family

composition, more nuclear families with single child concepts have come up. "his increases the demand

for the different types of household goods. $t may be noted that the consumption patterns, the dressing and

living styles of people belonging to different social structures and culture vary significantly.

POITICA ENVIRONMENT

"his includes the political system, the government policies and attitude towards the business community

and the unionism. All these aspects have a bearing on the strategies adopted by the business firms. "he

stability of the government also influences business and related activities to a great extent. $t sends a signal

of strength, confidence to various interest groups and investors. Further, ideology of the political party also

influences the business organisation and its operations. 6ou may be aware that )oca*)ola, a cold drink

widely used even now, had to wind up operations in $ndia in late seventies. Again the trade union activities

also influence the operation of business enterprises. 2ost of the labour unions in $ndia are affiliated to

various political parties. Strikes, lockouts and labour disputes etc. also adversely affect the business

operations. !owever, with the competitive business environment, trade unions are now showing greatmaturity and started contributing positively to the success of the business organisation and its operations

through workers participation in management.

EGA ENVIRONMENT

"his refers to set of laws, regulations, which influence the business organisations and their operations.

very business organisation has to obey, and work within the framework of the law. "he important

legislations that concern the business enterprises include+

i- )ompanies Act, 789:

ii- Foreign xchange 2anagement Act, 7888

iii- "he Factories Act, 78

v- (ayment of /ratuity Act, 78=>

vi- $ndustries evelopment and ?egulation- Act, 7897

vii- (revention of Food Adulteration Act, 789




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viii- ssential )ommodities Act, >@@>

ix- "he Standards of #eights and 2easures Act, 789:

x- 2onopolies and ?estrictive "rade (ractices Act, 78:8

xi- "rade 2arks Act, 7888

xii- &ureau of $ndian Standards Act, 78

&esides, the above legislations, the following are also form part of the legal environment of business,

(i) P%oisions o* t+# Constit&tion "he provisions of the Articles of the $ndian )onstitution,

particularly directive principles, rights and duties of citi5ens, legislative powers of the central and state

government also influence the operation of business enterprises.

(ii) ,&dicia" #cisions "he udiciary has to ensure that the legislature and the government function

in the interest of the public and act within the boundaries of the constitution.

"he various udgments given by the court in different matters relating to trade and industry also influence

the business activities. d- "echnological nvironment

"echnological environment include the methods, techni1ues and approaches adopted for production of

goods and services and its distribution. "he varying technological environments of different countries

affect the designing of products. For example, in SA and many other countries electrical appliances are

designed for 77@ volts. &ut when these are made for $ndia, they have to be of >>@ volts. $n the modern

competitive age, the pace of technological changes is very fast. !ence, in order to survive and grow in the

market, a business has to adopt the technological changes from time to time. $t may be noted that scientific

research for improvement and innovation in products and services is a regular activity in most of the big

industrial organisations. 3ow a days infact, no firm can afford to persist with the outdated technologies.

EMOGRAP.IC ENVIRONMENT

"his refers to the si5e, density, distribution and growth rate of population. All these factors have a direct

bearing on the demand for various goods and services. For example a country where population rate is

high and children constitute a large section of population, then there is more demand for baby products.

Similarly the demand of the people of cities and towns are different than the people of rural areas. "he

high rise of population indicates the easy availability of labour. "hese encourage the business enterprises

to use labour intensive techni1ues of production. 2oreover, availability of skill labour in certain areas




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motivates the firms to set up their units in such area. For example, the business units from America,

)anada, Australia, /ermany, B, are coming to $ndia due to easy availability of skilled manpower. "hus,

a firm that keeps a watch on the changes on the demographic front and reads them accurately will find

opportunities knocking at its doorsteps.

NATURA ENVIRONMENT

"he natural environment includes geographical and ecological factors that influence the business

operations. "hese factors include the availability of natural resources, weather and climatic condition,

location aspect, topographical factors, etc. &usiness is greatly influenced by the nature of natural

environment. For example, sugar factories are set up only at those places where sugarcane can be grown. $t

is always considered better to establish manufacturing unit near the sources of input. Further, government's

policies to maintain ecological balance, conservation of natural resources etc. put additional responsibility

on the business sector.

E/TERNA ENVIRONMENT

$t is now un1uestionably accepted that the prospects of a business depend not only on its resources but

also on the environment. An analysis of strengths, weaknesses, opportunities and. "hreats S#%"- is verymuch essential for the business policy formulation.

"he external environment consist of a micro environment and a macro environment.

MICRO-ENVIRONMENT

"he micro environment consists of the factors in the company's immediate environment that affect the

performance of the company. $t is 1uite obvious that the micro environment factors are more intimately

linked with,*'the company than the macro factors. "hese include the suppliers, marketing intermediaries,

competitors, customers and the public.

a) S&$$"i#%s

An important force in the micro environment of a company is the suppliers i.e., those who supply the

inputs to the company. "he importance of reliable source4sources of supply to the smooth functioning of

the business. ncertainty regarding the supply often compel companies to maintain high inventories

causing cost increases. #hen compared to Capan with our country

Va" S'st#ms




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"he value systems of the founders and those at the helm of affairs has important bearing on the choice

of business, the mission and obectives of the organi5ation business policies and practices for ex+ After the

&$ parry group was taken by the 2urugappa group. %ne of most profitable business li1uor- of the ailing

parry group was sold off the li1uor business did not fit into the value system of the 2urugappa /roup.

!) Mission and O!0#cti#s

"he business domain of the company, priorities, directions of development, business philosophy,

business policy etc., are guided by the mission and obectives of the company.

c) Mana#m#nt St%&ct&%# and Nat&%#

"he organi5ational structure, the composition of the &oard of irectors, extent of professionalisation of

management etc., are important factors influencing business decisions.

d) Int#%na" Po2#% R#"ations+i$

Factoi*b like amount of support the top management enoys from different levels of employees. Share

holders and &oard of irectors have important influence on the decision and their implementation.

#) .&man R#so&%c#s

"he characteristics of human resourcesD like skill, 1uality morale commitment attitude etc. could

contribute to the strength and weakness of an organi5ation. Some organi5ations find it difficult to carry out

restructuring or moderni5ation because of resistance by employees whereas they are smoothly E done in

some others.

d) Ma%3#tin Int#%m#dia%i#s

"he immediate environment of a company may consist of a number of marketing intermediaries which

are firms that and the company in promoting, selling and distributing its goods to final buyers.

"he marketing intermediaries include middlemen such as agents and merchants who help the companyfind customers or close sales with them. 2arketing intermediaries are vital links between the company

and the final consumers. A dislocation or disturbance of this link, or a wrong choice of th link may cost the

company very heavily.

#) P&!"ics

A company may encounter certain publics in its environment A. public is any group that has an actual

or potential interest in or impact on an organi5ation's ability to achieve its interests. 2edia publics citi5ens

action publics and local publics are some examples.




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2any companies are also affected by local publics. nvironmental poilution is an issue often taken up

by a number of local publics actions by local publics on this issue have caused some companies to suspend

operations and or take pollution abatement measures.

/rowth of consumer publics is an important development affecting business.

$t is wrong to think that all publics are threats to business some of the actions of the publics may cause

problems for companies. !owever, some publics are an opportunity for the business. in maintaining

indigeneous stock they maintain an average oka few hours to two weeks while we maintain G* months

stock.

$t is very risky to depend on single supplier because a strike or production problem with supplier may

seriously affect the company. !ence multiple sources of supply often help reduce such risks.

!) C&stom#%s

As it is often exhorted, the maor task of a business is to create and sustain customers. A business exists

only because of its customers. 2onitoring the customer sensitivity is therefore a pre re1uisite for the

business success.

"he choice of the customer segments should be made by considering a number of factors including the

relative profitability, dependability stability of demand, growth prospects and the extent of competition.

c) Com$#tito%s

A firm's competitors include not only the firms which market the same or similar products but also all

those who compete for the discretionary income of the consumers. "his competition among these products

may be described as desire competition as the primary task here is to influence the basic desire of the

consumer. Such desire competition is generally very high in countries characteri5ed by limited disposable

income and many unsatisfied desires.

$f the consumer decides to spend his discretionary income on recreation he will still be confronted with

a number of alternatives to choose. "he competition among such alternatives which satisfy a particular

category of desire is called generic competition.

MACRO-ENVIRONMENT




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2acro environment consists larger societal forces that affect all the factors in the company's macro

.environment * namely, the demographic, economic, natural, technological, political and cultural forces.

2acro environment is again divided into two environment those are

14 Economic Eni%onm#nt >. 3on*conomic nvironment

1) Economic Eni%onm#nt

conomic nvironment broadly covers the aspects relating to nature of the economy, anatomy of the

economy, functioning of the economy, economic progress and programmes, economic policy statements

and proposals, economic controls and regulations, economic legislations, economic problems and

prospects and to understand all these, we should invariably discuss the concept of economic system.

conomic environment of business refers to the broad characteristics of the economic system in which

a business firm operates. An economic system defines the institutional frame work of environment. %nce

w"e are fully conversant with the different aspects of economic systems, they provide us an overall view

about the economic environment under which the business unit has to function.

5) Non-Economic Eni%onm#nta" Facto%s

3on*economic environmental factors refer to social, political, legal, technological and cultural factors.

0et us discuss briefly about those factors which itself influence the decisions of a business enterprise.

a) Socio-c&"t&%a" Eni%onm#nt

&usiness must have a social purpose H business concerns must discharge social responsibility, social

obligations and social commitment without which business cannot enoy social sanction. "he following

aspects are of much help of us+

7- Social $nstitutions and System+ "he caste system, the oint family system, the child marriage etc. may

be cited as illustrations under this head.

>- Social Ialues and Attitudes+ "hese are changing very fast in almost all the nations including $ndia. "he

influence of western values of individualism has its bearing impact on the $ndian population. "he role of

$ndian women is not confined only to house hold duties. %n the other hand, she has been competing

e1ually with her counter part in all the fields similarly4 choosing a particular profession at present is not

based on community or caste as it was

G- ducation and )ulture+ nder this, we may refer to the attitude towards education need for business

education, educational match with skill re1uirements of industry, business culture etc.




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- ?ole and ?esponsibility of /overnment+ "he role of government especially in a democracy is very

significant in order to bridge the gap between the aspirations and achievements of the society. "he

government has a very responsible function of maintaining social order and harmony to protect the

interests of the maority.

9- Social /roups and 2ovements+ $n a society individuals have groups basing on caste, creed, religion,

language, trade H profession, etc., which may have direct business interests consumerism, trade*unionism,

co*operative movement, shareholders association, &ank epositors Association, may be mentioned as

examples under this head.

:- Social (roblems and (rospects+ "he excessive population growth rate in a country like $ndia is a definite

potential source of danger, as it results in growing.unemployment and poverty, poor housing and incidence

of social tensions. "hat is the reason why the business enterprise must consider the problems while they

take business decisions.

b- (olitical*0egal nvironment+

$n the present world, business of any type and si5e is influenced by government policies, programmes

and legislations. "he following aspects help us to understand more about political*legal environment.

7- "he Form of /overnment+ $rrespective of the economy, government intervention in business activity all

over the world is an existence in one form or the other. "herefore, the form and structure of government is

very significant. emocratic government, Federal Form of /overnment etc. may be cited as examples.

>- $deology of the ?uling (arty+ "his factor influences much on the management, ownership structure and

si5e of business. $f the ruling party has the rightist ideology, it usually formulates pro*business policies on

the other hand if it is inclined towards leftist ideology, it will adopt measures like nationali5ation and

excessive centrali5ation.

G- Strength of %pposition+ $n the democratic nations, the opposition has to play a significant role. "he

strength of the opposition to a greater extent depends on whether or not opposition parties are invited or

divided. "hough there may likely be ideological differences among different opposition parties. "hey must

be united a udge the every more of the ruling party critically. $f the opposition is fair, firm and consistent,

it can initiate constructive criticism of the ruling parties policies affecting business. As a result, the

government can not act irresponsibility with regard to the business sector.

. &ureaucracy+ $n order to run the government administration without any break, bureaucracy is having a

pivotal role to assume. $t is meant to keep the continuity in government policy operations in connection

with business and non*business sectors. $n a system which is influenced more by government controls and

regulations with regard to business, bureaucracy is very powerful in enforcing government rules andregulations, systems H procedures, licenses and restrictions.




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9. (olitical Stability+ "his is another factor which governs business operations. &usiness flourishes in an

economy which is politically stable. As we observed, whenever the nation becomes politically not stable,

the flow of foreign capital and enterprise is adversely affected and this sends wrong signals to the business

both national and multi*national.

:. (lans and (rogrammes of the /overnment+ "he /overnment formulates and executes a variety of

policies and programmes. $f the government fre1uently change its policies on industries, money, fiscal and

other economic matters, it adversely affects the business sector. %n the other hand, if government policies

are stable, the business unit can plan their activities accordingly.




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UNIT - II

STRUCTURE OF T.E INIAN ECONOMY

)ountries in the world are divided into developed and backward or developing countries.

MEANING OF A EVEOPING ECONOMY

"here is no doubt that the distinction between developing and developed countries is rather loose and

also arbitrary to a certain extent. "he nited 3ations /roup of experts states. #e have had some

difficulty in interpreting the term. eveloping )ountries. #e use it to mean countries in which per capita

real income is low when compared with the per capita real incomes of nited States of America, )anada,

Australia and #estern urope.

BASIC C.ARACTERISTICS OF T.E INIAN ECONOMY

$ndia is an developing economy. "here is no doubt that the bulk of its population lives in conditions of

misery. (overty is not acute but is also a chronic melody in $ndia. At the same time there exist unutili5ed

natural resources. $t is therefore, 1uite important to understand the basic characteristics of $ndian economy

which are as follows+

14 G#n#%a" Po#%t' And o2 P#% Ca$ita Incom# 2ost of the under developed countries have maority

of people living in poverty. "his is because of low levels of income. "he low levels of income are due to

low levels of production. !ence, most of these countries remain backward. According to )airn*)ross the

poverty in under developed countries is reflected by the low level of per capita income when compared

with developed countries.

According to the estimates of the world development report in 78


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these economics are excessively depended on agriculture. "his means higher percentage of people are

concentrated in agriculture about =@K to 99 to G@9. According to )olin*)lark

for every 7K growth rate of population threshold be an increase in capital formation by 9K. "his is

re1uired to meet the necessaries of the grown population. !ence, for $ndia as the annual growth rate of

population is >.9K an additional capital formation of 7@K is re1uired annually. !ence, we can say the

under*developed countries are featured with the existence of capital deficiency.




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84 Un#m$"o'm#nt 9 Und#% Em$"o'm#nt "he under developed economy is characteri5ed

by* *the existence of unemployment and under employment. 2oreover, another feature is that there

is disguised unemployment. "he un*employment is being caused because of lack of opportunities

due to deficiency in capital formation. nder employment..is. due to lack of technology to utili5e the

natural resources. "he another feature of disguised un*employment is seen in these countries. "his is

because of over crowding un*employment is seen in these countries. "his is because of over crowding un*

employed in the primary sector means that although the labourers seemed to be employed in the primary

sector the productivity of that sector will not fall even if some labour force is removed. "his means that the

marginal productivity of these disguisedly employed people is '%' $n $ndia this; situation is being caused

due to lack of alternative employment opportunities.

:4 o2 ##" O* T#c+no"o'"echnological backwardness is another common feature of developing

countries. "his means that the under developed or the developing countries are backward in their

economic performance as compared to the developed countries. "his is because due to lack of capital,

they use backward and out dated technology. ue to this the labour productivity is very low. 2oreover the

cost of production becomes .high. !ence, when compared with the developed countries the goods

produced by these countries are not only of inferior 1uality but are also high priced. !ence, they become

uncompetitive in the international markets. "his feature is seen in the ease of $ndian economy also. $n $ndia

lack of scientific research, absence of skilled labour force and trained technicians are some of the

constraints for introducing modern technology. ven in the primary sector also the methods of production

are very olds and primitive. "his is casing lower productivity in that sector also.

;4 Uti"isation And Und#% Uti"is#d Nat&%a" R#so&%c#s the natural resources in

underdeveloped or developing countries are either unutili5ed or remain under utili5ed. Although these

countries are not deficient in natural resources like land, water, minerals, forests etc., most of them

remain unutili5ed or under utili5ed. "his is because they are not able to overcome the natural resources by

making the necessary institutional and technological changes. "his is seen in the case of $ndian economy

also. $t is aptly said that $ndia is a rich country inhabited by poor people. "his is because the resources are

not being utili5ed properly which is the main cause of poverty in the country. For example in $ndia 7=

million hectares of land is still remaining unutili5ed. #e have not yet utili5ed more than >9K of our water

resources. 2oreover the forest wealth in our country is also mis*utilised. #astage of resources is the

.main cause for underdevelopment. For any country to achieve development not only it should have

resources but they have to be utili5ed completely. ,


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are literate, :K of the population are illiterate. 2oreover cast'eism, oint family system, regionalism and

the philosophic trends sharing Barma Siddantham are the main causes for low of mobility of labour and

the efficiency of labour becoming very low. !ence poor 1uality of human resources is not only the cause

but also the effect of economic backwardness of these countries.

>4 #*#cti# Economic O%anisation conomic organi5ation plays an important role in the

economic development in any country. * &ut the underdeveloped countries kick in such organi5ation.

2ost of taxes like customs, central excise and other indirect taxes are very high. "hey are regressive.

2oreover economic institutions such as banks, credit institutions ,, are not also well developed. "his is a

feature of $ndian economy also. "here is no scientific economic organi5ations for the $ndian economy.

Financial institution are not sufficiently developed for financing agriculture. 2oreover in case of industrial

structure 2anaging Agency System which as several defects dominates the $ndustrial organi5ation. $n

case of agriculture land reforms are not properly implemented. "hese are the fundamental causes for lack

of economic development.

1?4 Fo%#in T%ad# O%i#ntation 2ost of the underdeveloped countries were found to be foreign

trade oriented according to a study. !owever this foreign trade is dome mainly through the complete

expert of primary commodities. "hey import consumer goods and machinery from other countries.

Forex in 7897


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$ndia, which embarked on a programme of structural reforms in Cune 7887 after four decades of planning,

is currently attracting significant attention throughout the world. $ts large economy and population, vast

natural resources and, above all, its highly educated, skilled and scientific labour force mean that $ndia is

destined to play a maor role in the community of nations.

#ith a per caput income of about SMG7@ in 788, $ndia is one of the world's low*income countries.

nlike those of most ast Asian countries, the economy in $ndia was characteri5ed by slow growth during

most of the period since the Second #orld #ar. $t was only during the 78


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uring the 78G.9 billion in 78< percent of total export revenues went to service the debt. "he most important reason for

the internal savings rate falling increasingly short of investment re1uirements was the expanding fiscal

deficit of the government which had risen from an average of :.G percent of /( during the Seventh Five*

6ear (lan to percent by 788@*87.

0arge fiscal deficits arose for a number of reasons+ exorbitant expenditures were incurred by the central

government's subsidies of fertili5ers, food and exports and by the state governments' of power, transport

and irrigation. "he inefficient functioning of many of the central and state public sector enterprises furtherburdened the government budget.

Finally, in addition to the current account deficit, mounting capital account expenditures by the

government and public enterprises had to be financed through public borrowing. &y 788@, internal debt

liabilities had increased to 9G percent of /( compared with G9 percent in 78 percent of total government expenditure. $n addition, the sources of foreign

borrowing underwent some important changes, as soft $nternational evelopment Association $A- and

government*to*government loans dried up and high*cost commercial loans from the banks and non*

resident $ndians had to fill the gap.

As long as the international credibility of $ndia was high, loans were forthcoming and the country could go

on living on foreign borrowing. !owever, the combination of a number of factors, including the sharp rise

in import prices of oil and the downgrading of $ndia's credit rating, led to a loss of confidence that resulted

in the drying up of short*term credit along with a net outflow of non*resident $ndian deposits. "hus, in

spite of borrowing from the $nternational 2onetary Fund $2F-, the foreign exchange reserves declined.




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$t was against this background that the new economic policy was introduced. "he multilateral agencies

such as $2F and the #orld &ank insisted that the policymakers undertake structural reforms before they

agreed to salvage the country from the foreign exchange crisis.

T+# main com$on#nts o* n#2 #conomic $o"ic'

"he aim of the new policy was to bring about a realignment of domestic demand with available resources

and to initiate changes in supply and production structures with a view to eliminating the external

imbalance. "he economy was to be liberali5ed and gradually integrated with the world economy by the

dismantling of tariff walls, the protection of foreign direct investment and upgrading the technology of

production in various fields. "he broad thrusts of the programmes were financial stability, outward*looking

policies and deregulation of domestic markets.

"he reforms consisted of two components. "he short*term immediate stabili5ation measures focused on

correcting the dise1uilibrium in the foreign exchange market through demand reduction, reforms in trade

policy, a reduction in the fiscal deficit and the dismantling of barriers to the free flow of capital. xternal

competitiveness was to be improved through a large nominal depreciation of the exchange rate.

"he medium*term structural adustment programme introduced reforms in fiscal, exchange rate, trade and

industrial policy as well as policies concerning the public sector, the financial sector and the capital

market. "hese reforms included elements such as deregulation of prices and investments, changes in the

structure of taxation and public expenditure, moderation in wage increases, privati5ation of public

enterprises and greater integration with the world economy.

"he adustment policies introduced were not specific to the agricultural sector, but concerned the entire

economy. 3evertheless, keeping in view the importance and predominance of the agricultural sector in the

$ndian economy, in terms of both income generation and employment and its intimate relationship with

other sectors of the economy through input*output and consumption linkages, the macroeconomic and

other changes implied in the stabili5ation and structural adustment programme had a significant impact on

the sector.

A general review of agricultural development since independence helps to provide the necessary basis for

understanding the full implications of structural reform for the agricultural sector of $ndia.

PANNINGin $ndia derives its obectives and social premises from the irective (rinciples of State

(olicy enshrined in the )onstitution. (ublic and private sectors are viewed as complementary. "he private

sector covers not only organised industry but also small*scale industries, agriculture, trade and a great deal

of activity in housing, construction and other fields. $ndividual effort and private initiative are considered

necessary and desirable in national endeavour for development with optimum voluntary cooperation.

Although in the past, economic planning did envisage a growing public sector with massive investments in




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basic and heavy industries, now the emphasis on the public sector is less pronounced and the current

thinking on planning in the country, in general, is that it should increasingly be of an indicative nature.

"he (rime 2inister Atal &ihari Iapayee is the )hairman of the (lanning )ommission and B.). (ant,

eputy )hairman, (lanning )ommission. 2embers of the (lanning )ommission include Shri CaswantSingh, 2inister of xternal Affairs and 2inister of lectronics; Shri 6ashwant Sinha, 2inister of Finance;

Shri ?am 3aik, 2inister of State for (lanning and (rogramme $mplementation ; Shri 2ontek Singh

Ahluwalia, r S.(. /upta, r S.?. !ashim and r .3. "iwari.

FIRST PAN

Beeping in view the large*scale imports of foodgrain in 7897 and inflationary pressures on the economy,

the First (lan 7897*9:- accorded the highest priority to agriculture including irrigation and power

proects. About .: per cent of the total outlay of ?s >,@:8 crore in the public sector later raised to ?s

>,G=< crore- was allotted for its development. "he (lan also aimed at increasing the rate of investment

from five to about seven per cent of national income.

SECON PAN

"he Second Five 6ear (lan 789:*9= to 78:@*:7- sought to promote a pattern of development which

would ultimately lead to the establishment of a socialistic pattern of society in $ndia. $ts main aims were+

i- an increase of >9 per cent in the national income; ii- rapid industrialisation with particular emphasis on

the development of basic and heavy industries; iii- large expansion of employment opportunities; and iv-

reduction of ine1ualities in income and wealth and a more even distribution of economic power. "he (lan

also aimed at increasing the rate of investment from about seven per cent of the national income to 77 per

cent by 78:@*:7. "he (lan laid special stress on industrialisation, increased production of iron and steel,

heavy chemicals including nitrogenous fertili5ers and development of heavy engineering and machine*

building industry.

T.IR PAN

"he "hird (lan 78:7*:> to 78:9*::- aimed at securing a marked advance towards self*sustaining growth.

$ts immediate obectives were to + i- secure an increase in the national income of over five per cent per

annum and at the same time ensure a pattern of investment which could sustain this rate of growth during

subse1uent (lan periods; ii- achieve self*sufficiency in foodgrains and increase agricultural production to

meet the re1uirements of industry and exports; iii- expand basic industries like steel, chemicals, fuel and

power and to establish machine*building capacity so that the re1uirements of further industrialisation could

be met within a period of 7@ years or so mainly from the country's own resources; iv- utilise fully the

manpower resources of the country and ensure substantial expansion in employment opportunities; and v-

establish progressively greater e1uality of opportunity and bring about reduction in disparities of income




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and wealth and a more even distribution of economic power. "he (lan aimed at increasing the national

income by about G@ per cent from ?s 7,9@@ crore in 78:@*:7 to about ?s 78,@@@ crore by 78:9*:: at

78:@*:7 prices- and per capita income by about 7= per cent from ?s GG@ to ?s G


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"he actual expenditure in the Sixth (lan stood at ?s 7,@8,>87.= crore current price- as against the

envisaged total public sector outlay of ?s 8=,9@@ crore 78=@* per cent

increase in nominal terms. Average annual growth rate targeted for the (lan was 9.> per cent.

SEVENT. PAN

"he Seventh (lan 78G per cent as compared to a long*term growth rate of >.: crore current prices-

as against the envisaged total public sector outlay of ?s 7,7.9> per cent

increase in nominal terms. uring this (lan period, the /ross omestic (roduct /(- grew at an average

rate of 9.: per cent exceeding the targeted growth rate by @.: per cent.

ANNUA PANS

"he ighth Five 6ear (lan 788@*89- could not take off due to the fastchanging political situation at the

)entre. "he new /overnment which (lanning assumed power at the )entre by Cune 7887 decided that the

ighth Five 6ear (lan would commence on 7 April 788> and that 788@*87 and 7887*8> should be treated

as separate Annual (lans. Formulated within the framework of the earlier Approach to the ighth Five

6ear (lan 788@*89-, the basic thrust of these Annual (lans was on maximisation of employment and

social transformation.

EIG.T. PAN

"he ighth Five 6ear (lan 788>*8=- was launched immediately after the initiation of structural

adustment policies and macro stabilisation policies which were necessitated by the worsening &alance of

(ayments position and inflation position during 788@*87. "he various structural adustment policies were

introduced gradually so that the economy could be pushed to a higher growth path and to improve its

strength and thus prevent the &alance of (ayments and inflation crisis in future. "he ighth (lan took note

of some of these policy changes which were to come about due to these reforms. "he ighth (lan aimed at

an average annual growth rate of 9.: per cent and an average industrial growth rate of about =.9 per cent.




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"hese growth targets were planned to be achieved with relative price stability and substantial improvement

in the country's &alance of (ayments.

Some of the salient features of economic performance during the ighth Five 6ear (lan indicate, among

other things, a- faster economic growth, b- faster growth of manufacturing sector and agriculture andallied sector, c- significant growth rates in exports and imports, improvement in trade and current account

deficit, and significant reduction in the )entral /overnment's fiscal deficit. !owever, shortfall in

expenditure in the )entral sector due to inade1uate mobilisation of internal and extra budgetary resources

by the (Ss and various departments was witnessed. $n the States sector, the reason for shortfall was lack

of mobilisation of ade1uate resources due to deterioration in the balance of current revenues, erosion in the

contribution of state electricity boards and state road transport corporations, negative opening balance,

mounting non*(lan expenditure and shortfalls in the collection of small savings, etc.

"he total expenditure during the entire ighth (lan stood at ?s ,89,::8 crore by taking 788:*8= ?- as

actual- at current prices as against envisaged total public sector outlay of ?s ,G,7@@ crore 7887*8>

prices- resulting in a 7.> per cent increase in nominal terms. uring the ighth (lan, the /( grew at an

average rate of :.< per cent exceeding the targeted growth rate of 9.: per cent.

NINT. PAN

"he 3inth Five 6ear (lan 788=*>@@>- launched in the 9@th year of $ndia's $ndependence is based on a

careful stock taking of the strengths and weaknesses of past development strategies and seeks to provide

appropriate direction and balance for the socioeconomic development of the country. "he principal task of

the 3inth (lan is to usher in a new era of growth with (lanning social ustice in which not only the

/overnment at the )entre and States, but the people at large, particularly the poor can become effective

institutions of a participatory planning process. Nuality of life, generation of productive employment and

regional balance summarise the main dimensions of State (olicy. $t focuses on accelerated growth,

recognising a special role for agriculture for its stronger poverty reducing and employment generating

effects and for ensuring food and nutritional security. "he obectives of the 3inth (lan include + i- priority

to agriculture and rural development with a view to generating ade1uate productive employment and

eradication of poverty; ii- accelerating the growth rate of the economy with stable prices; iii- ensuring

food and nutritional security for all, particularly the vulnerable sections of society; iv- providing the basic

minimum services of safe drinking water, primary health care facilities, universal primary education,

shelter and connectivity to all in a time bound manner; v- containing the growth rate of population; vi-

ensuring environmental sustainability of the development process through social mobilisation and

participation of people at all levels; vii- empowerment of women and socially disadvantaged groups such

as scheduled castes, scheduled tribes and other backward classes and minorities as agents of socio*

economic change and development; viii- promoting and developing people's participatory institutions

like (anchayati ?a institutions, cooperatives and self*help groups; and ix- strengthening efforts to build




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selfreliance. "he process of reforms which has yielded many good results will be continued and

strengthened during the 3inth (lan. "he reforms involve a maor reorientation of role of the State and the

contribution of the private sector. A vigorous private sector operating under the discipline of competition is

central to the attainment of the 3inth (lan obectives. $t also must increase its involvement in the areas of

social development and economic infrastructure.

xport performance will be critical to the attainment of high growth rates and achieving self*reliance. "he

foreign trade and investment policies should facilitate greater integration with the world economy. "here is

an imperative need to motivate the private sector to participate in the development process, if the

infrastructure gap has to be bridged. !owever, public sector investment in infrastructure will continue to

be crucial in this area. As the second largest developing economy in Asia, $ndia can be a maor destination

for foreign investment and policies in the 3inth (lan have been designed to take advantage of this

possibility.

ANNUA PANS

"he envisaged total public sector outlay of ?s 7,7>,78= crore for the Annual (lan 788*89, was revised to

?s 7,@9,@=,G

crore. "he share of the states and "s in total plan provision ?- was G=.7 per cent.

"he Annual (lan 788:*8= envisaged a total public*sector outlay of ?s 7,,=8< crore comprising ?s

8,7*8=- amounts to ?s ,G,7@@

crore at 7887*8> prices. "he share of the )entral (lan in this amount is ?s >,=,9@ crore or 7. per cent of the overall ighth (lan

(ublic Sector outlay. A review in real terms i.e. after allowing for inflation- has shown that the (lan

performance in financial terms during the ighth (lan 788>*8=- accounts for about 8> per cent of the

approved ighth (lan outlay in the )entral Sector. "he corresponding proportion works out to about =8 per




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cent and 7@ per cent for State (lans and " (lans respectively. "hus, in the case of the )entre, the

shortfall in anticipated (lan expenditure during the ighth (lan period has been marginal vis*a*vis the

approved ighth (lan outlay. #hereas there is no shortfall in the case of " (lans, maor shortfall was

likely to occur in the (lan provision as well as expenditure of States vis*a*vis their ighth (lan approved

outlays.

uring 788=*8 per cent. "he public sector outlay envisaged for the Annual (lan 78877


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"he industries were classified by the /overnment into categories.

$. )ategory industries which are an exclusive monopoly of the state.

Arms ammunition defence atomic energy industries which are of strategic importance.

$$. )ategory industries which include basic and key industries. "hey consists of non and steel telephone

telegraph ship building, transport, power etc. "he new units will be in private sector for the next 7@ years.

After 7@ years they will be nationali5ed.

$$$. )ategory industries which also included certain basic industries like automobiles, fertili5ers,

chemicals, tractors, heavy machines, machine tools etc., "he new industries in this category will be started

by the private sector. &ut the state can also start progressively the new units in this category.

"he $I category industries which are remaining industries such as +

7. Small scale industries+ "he 78< industrial OO resolution emphasis OOOO of small scale industries

in co*operative basis and also as comliments OOOO industries.

>. workers participation in management+ "his policy gave importance for good relations between the

0abour and management of various industries for ensuring this policy stressed the need for workers

participation in management.

G. "his policy explained the important role to be played by the foreign capital in the industriali5ation.

. "o prevent unhealthy competition from foreign industrial units the policy assured the implementation of

a sound and suitable tariff policy.

REVIE@ OF INUSTRIA POICY RESOUTION OF 1>7. "his policy has mixed two opposite lines. $t backed the $ndustries and also promised protection to

labourers which cannot happen.

G. "here was always a fear of nationalism to private enterprise. !ence private enterprise could not

develop.




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. "here was a doubt about the co*ordination of private sector and public sector.

INUSTRIA POICY RESOUTION OF 1>8:

"he $ndustrial (olicy ?esolution of 78< announced by the government faced several criticisms. $t was

critici5ed that the threat of nationali5ation which was proposed in that policy has effected the growth of

private enterprise. 2oreover in 789@ we have drafted our constitution and decided to move towards

establishing a socialistic pattern of society. "he directive principles of state policy were announced and the

second plan started as the first plan was over by 789:. All of these above factors made the government to

announce another industrial policy within < years of the announcement of first policy. "hat was the

industrial policy resolution of 789:.

INUSTRIA POICY RESOUTION OF 1>8:

a. 3ew classification of industries+ "he 789: industrial policy resolution gave a new classification of

industries consisting of three categories.

i- xclusive responsibility of states+ 7= industries are included in this schedule. "hey are arms and

ammunition, atomic energy, iron and steel, minerals like copper, transport, telephone, telegraph and radio

e1uipment, generation and distribution of electricity.

ii- (rogressively state owned+ #hich includes industries, machine tools, ferro alloys, antibiotics, essential

drugs, fertili5ers road transport and sea transport.

iii- %ther $ndustries+ All the remaining industries were left to initiative and enterprise of the private sector.

"hese industries were also subect to the control and regulation of the state.

b; ?ole of small scale and cottage industries+ "hese are having higher employment potential ensure more

e1uitable distribution of income and wealth. !ence /overnment could support actively these industries

through various ways by giving direct assistance and indirect assistance.

c. "he need for removing regional disparities+ "he industrial xJolicy resolution of 789: suggested

that one of the aims of national.

INUSTRIA POICY (1>>?)

"he Canatha al /overnment announced its new industrial policy on 2ay G7 788@.

FEATURES OF POICY

14 PROMOTION OF SMA SCAE INUSTRIES




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7. "he investment ceiling in plant and machinery for small * scale industry of 78a. (resently


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$ndian $ndustry must be made more competitive internationally. $t also needs to be released from

unnecessary bureaucratic shackles by reducing the government would continue to examine large proects

in view of resource constraints, decision in respect of medium si5ed investments would be left to the

entrepreneurs. "o achieve these obectives the following decision have been taken.

a. elicensing+ All new units up to an investment of ?s.>9 crores in fixed assets in non*backward

areas and ?s.=9 crores in centrally notified backward areas would be exempted from re1uirement of

obtaining licence4registration.

b. $mport of capital goods+ $mport of capital goods the entrepreneur would have entitlement to

import upto a landed value of G@K of the total value of plaint and machinery re1uired for the unit.

c. $mport of raw material+ ?aw material and components, imports would be permissible upto a

landed value of G@K of the ex*factory value of annual production. "he ex*factory value of production will

exclude, the exercise duty on the item of production.

d. foreign )ollaboration+ $n respect of transfer of technology, if import of technHlogy is considered

necessary by the entrepreneur, he can conclude an agreement with the collaborator without obtaining any

clearance from the government provided that royalty payment does not exceed 9K on domestic sales and


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$ndustrial 2inister 2r. Ait Singh announcing the new industrial policy made a case for the growth of

the small scale industries ust on the lines of the Canata party /overnment in 78=8 the new industrial policy

is a curious amalgam of the philosophy of the Canata al and the philosophy of indiscriminate

liberalisation followed by the congress$-.

"he new industrial policy intends to identify more items amendable to reservation besides the >1

"he congress 7- government led by 2r. (.I. 3arasimha ?ao announced the new industrial policy on

Culy >, 7887. "he main aim o the new industrial policy is to unshackle the $ndian industrial econcruv with

the world economy to remove restrictions on direct foreign investments as also free the domestic

entrepreneur from the industrial of 2?"( Act. All these refpfms of industrial policy have led the

government to take a series of initiatives in respect of policies in the following areas.

a. $ndustrial 0icensing.

b. Foreign $nvestment.

c. Foreign "echnology (olicy

d. (ublic Sector (olicy

e. 2?"( Act. .

a4 Ind&st%ia" ic#nsin $n the Sphere of industrial licensing, the role of the government was to be

changed from that of only exercising control to one of providing help and guidance by making essential

procedures fully transparent and by eliminating delay. "his calls for bold and imaginative decisions

designed to remove restraints on capacity creation, which at the same time ensure that over * riding

national interests are not eopardi5ed.




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$ndustrial licencing will henceforth be abolished for all industries, except those specified irrespective of

levels of investment.

"hese specified industries will continue to be subect to compulsory licensing for reasons related to

security and strategic concerns, social reasons, problems related to safety and over riding environmentalissues, manufacture of products of ha5ardous nature and articles of elitist consumption.

!4 Fo%#in In#stm#nt$n order to invite foreign investment in high priority industries re1uiring large

investments and advanced technology, it*has been decided to provide approval for direct foreign

investment upto 97 percent foreign e1uity in such industries.

For the promotion of exports of $ndian products in world markets the government will encourage foreign

trading companies to assist $ndian exporters in export activities.

&eside this the government will appoint a special board to negotiate with such firms so that purposive

negotiations can be carried out with such large firms, which provide the avenues for "arge investments in

the development of industries and technology in the national interest.

c4 Fo%#in T#c+no"o'#ith a view to inecting the desired level of technological dynamism in $ndian

$ndustry government will provide automatic approval for technology agreements related to high priority

industries with in specified parameters.

d4 P&!"ic S#cto% Po"ic'(ublic enterprises have shown a very low rate of returns on capital invested. "heresult is that many of the public enterprises have became a burden rather than being an asset to the

government. "he most striking example is to take over of sick units from the private sector. "his category

of public sector units accounts for almost one third of the total losses of centered public enterprises.

$t is time therefore that the government adopt a new approach to public enterprises. nits which may be

faltering at present but are potentially viable must be structured and given a new lease of life. "he priority

areas of growth of public enterprises in the future will be the following.

i. ssential infrastructure goods and services.

ii. xploration and exploitation of oil and mineral resources.

iii. "echnology development and building of manufacturing capabilities in areas which are crucial in the

long term development of the economy and where private sector investment is inade1uate.

a. 2anufacture of products where strategic consideration predominate such as defence e1uipment.

#4 Mono$o"' And R#st%icti# T%ad# P%actic#s Act (MRTP Act)#ith the .growing complexity of

industrial structure and the need for achieving ; ecdrvomics of scale for ensuring higher productivity and




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competitive advantage in the international market, the interference of the government through

2?"( Act in investment decisions of large companies has become delirious in its effects on $ndian

industrial growth. "he pre*entry scrutiny of investment decisions by so*called 2?"( companies will no

longer be re1uired. $nstead emphasis will be on controlling and regulating monopolistic, restrictive and

unfair trade practices rather than making in necessary for the monopoly houses to obtain prior approval of

central government for expansion, establishment of new undertakings, merger take over and amalgamation

and appointment of certain directors. "he trust of policy will be more on controlling unfair or restrictive

business practices.

#cisions o* o#%nm#nt

$n the view of the considerations outlines above government decides to take a series of measures to

unshackle the $ndian industrial economy from the cobwebs of unnecessary bureaucratic control. "hese

measures being taken by government in the areas of trade policy, exchange rate management, fiscal policy,

financial sector reform and overall macro*economic management.

Ind&st%ia" ic#nsin Po"ic'

i. $ndustrial 0icensing will be abolished for all proects except for a short list of industries related to

security and strategic concern, social reasons, ha5ardous chemicals and overriding environmental reasons

and items of elitists consumption. $ndustries reserved for the small scale sector will continue o be reserved.

ii. Areas where security and strategic concerns predominate will be continue to be reserved for the

public sector.

iii. $n locations other than cities of more than one million population there;J will be no re1uirement of

obtaining industrial approvals from the central government except for industries subect to compulsory

licensing. $n respect of cities will population great than one million industries other than those non*

polluting nature such as electronics will be located outside >9 km of the periphery except in prior

designated industrial areas.

iv. xisting units will be provided a new broad banding facility to enable them to produce any article

without additional investment.

v. "he exemption from licensing will apply to all substantial expansions of existing units.

vi. All existing registration schemes will be abolished.

!4 Fo%#in In#stm#nt

i. Approval will be given for direct foreign investment upto 97K foreign e1uity in high priority industries.

)learance will be available if foreign e1uity covers the foreign exchange re1uirement for imported capital

goods.




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ii. "he payment of dividends would be monitored through the reserve bank of $ndian so as to ensure that

outflows on account of dividend payments are balanced by export earnings over a period of time.

iii. %ther foreign e1uity proposal which do not meet criteria i- will continue to need prior clearance.

c4 Fo%#in T#c+no"o' A%##m#nts

i. Automatic permission will be given for foreign agreements in high priority industries upto a lump sum

payment of ?s.l )rore 9K of royalty of domestic sales and


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ii. mphasis will be placed on controlling and regulating monopolistic restrictive and unfair trade

practices simultaneously newly empowered 2?"( commission will be authori5ed to initiate

investigations on complaints received from individual consumers or classes of consumers in regard to

monopolistic, restrictive and unfair trade practices.

A4 CRITI=UE OF T.E NE@ INUSTRIA POICY

"he new industrial policy announced by the government of $ndia on >th 7887 fulfils a long felt

demand of industry. 0icencing has been abolished for all industries except 7< industries. &esides this all

industrial policy proposes to remove the limit of assets fixed for 2?"( companies and dominant

undertakings numerous cases of bottlenecks created by the bureaucracy are given a go*bye by this singular

decisions of the government.

!owever, there are several other areas which have come in for sharp criticism. $t should be desirable to

take a few points.

14 POICY REGARING FOREIGN CAPITA"he new industrial policy goes all out to foreign

capital. $t has been decided to provide approval for. direct foreign investment upto 97K foreign e1uity in

high priority industries "he government has further clarified that it will permit 7@@K foreign e1uity incase

the entire output is exported. All this is done in the belief that foreign investment is crucial to our

development.

&ut events have not turns the way 3ehru would have endeavoured to build the $ndian economy. "he

idea of free flow of foreign capital is being sold with the understanding that it shall provide the much *

needed foreign exchange and secondly that it shall lead to inecting a heavy do5e of investment in high

priority sector.

So government should therefore should be very careful about the hidden implication reverse outflow of

foreign exchange in the coming

2oreover the government has also assured maority foreign e1uity holdings upto 97K even for trading

companies primarily engaged in export activities. $t does not seem ustified as to whether $ndian trading

companies cannot probe foreign market effectively, this area does not re1uire model technology .then why

should government add additional burden by permitting foreign e1uity in trading companies.

PUBIC SECTOR POICY

$ndustrial policy very rightly classifies public enterprises in to three categories.

i. "hose which fall in the reserved areas of operations.




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ii. (ublic units which may be faltering at present but are potentially viable must be restructured and given a

new life and

iii. "hose public enterprises which are chronically sick and incur heavy losses, operating in a competitive

market and serve little or no public purpose. "hese enterprises the government either intends to close downor pass their ownership to the private sector.

EVEOPMENT AN REGUATION ACT OF 1>81

"he $ndustrial evelopment and ?egulation Act of 7897 was passed for securing a planned industrial

development in the country for regulating controlling and developing the industries prescribed in schedule

A of the Act. ?egulation of industries is done by means of registration of existing industrial undertakings

and licensing o substantial expansion, production of new articles change of location of undertakings etc.,

)ontrol of industrial undertaking can be achieved by investigation into the affairs of industrial under*

takings. evelopment of industries is sought to be achieved through )entral Advisory )ouncils and

evelopment )ouncil by offering various facilities.

OB,ECTIVES OF T.E ACT

"he act has three important obectives.

7. $mplementation of $ndustrial (olicy+ "he Act provides the necessary means to the central government

for implementation the industrial policy.

>. ?egulation and evelopment $ndustries+ "he act provides that the imported, industries which are

mentioned in the first schedule should be brought under the control of the )entral /overnment. "he

development and regulation of such industries is important for the country. !ence, the development of

such industries should be considered by taking the economic factors on all $ndia basis.

G. (lanning and evelopment of Future ndertakings+ "he Act provides a system of licensing to regulate

planning and future development of new undertakings on sound and balanced lines as may be deemed

necessary in the opinion of central government for achieving this act.

a. )onfers powers on the central government to make rules for the regulation of existing

undertakings.

b. For regulating the production and development of industries specified in the first schedule.

c. "he act also provides for constitution .of )entral Advisory )ouncils and development councils.

SCOPE OF T.E ACT

"his act applies to whole of $ndia including the states of Cammu and Bashmir. $t is applicable to all the

industries and undertakings manufacturing goods specified in the first schedule. According to the

provisions of Act an industrial undertaking is said to be one.




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a. #hich carries on the process of manufacture with the aid of power and having 9@ or more workers

in the preceeding 7> months.

b. )arrying on the process of manufacture without aid of power with 7@@ or more workers in the

preceding 7> months.

"he act exempts certain industries which in the opinion of the central government deserve exemption.

PROVISIONS OF T.E ACT

"he provisions in this act may be broadly classified into G categories. 7- (reventive provisions >-

)urative (rovisions and G- )reative provisions.

PREVENTIVE PROVISIONS

"he preventive provisions provided in the act are a- ?egistration of undertakings and licensing of

undertakings, b- $nvestigation, c- ?evocation of licence.

a. ?egistration of ndertakings+ Section 7@ of the Act provided that the owner of any industrial

undertaking other than the central government shall get registered within a specified period. !owever, the

central government may also cause every industrial undertaking under the government also to get

registered. !owever, as a conse1uence of the new industrial policy of 7887 the registration system has

been abolished.

0icensing of undertakings+ Section 77, 77A, 7G of this Act provides that licence is re1uired for establishinga new undertaking for raanufacturing a new article by an existing undertaking for effecting a substantial

expansion by existing, unit for changing location of an existing undertaking and to carry on business by an

existing undertaking. !owever, these provisions have become inoperative from >9th Culy, 7887 wide+ /.%.

3o.==7.

b. $nvestigation+ Section 79 of this Act give powers to the central government to investigate into the

industrial undertaking on the happening of a- substantial fall in the volume of production of any article

produced by these undertakings b- deterioration of the 1uality of the product which could have been

avoided c- rise or likely rise in the price of product d- for the conservation of natural resources of

national importance conserved by this undertaking e- where the industrial undertaking is being managed

by person who are highly detrimental to the public interest.

Section 7: of the Act. mpowers the central government to give directions regarding regulating the

production of articles controlling the price of any article regulating the distribution of any article produced

by this undptaking after investigation. D




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c. ?evocation of ?egistration and 0icence; Section 7@ of the Act provides powers to the central

government for revoking the registration of any industrial undertaking whose registration has been

obtained by misrepresentation or got an exemption under the Act or has become useless.

II4 CURATIVE PROVISIONS

"he curative provisions include power to takeover management and power to control supply and price

of certain articles.

PO@ER TO TAE OVER MANAGEMENT AN CONTRO

Section 7


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Assisting industries in obtaining raw materials and advising the industries regarding methods of

production, increasing the productivity of labour, training of persons, standardi5ation of products etc.

Sec 8 of the Act provides that central government may collect cess on the products which may be levied

as an excise duty. "his amount is remitted to the development councils.

)entral Advisory )ouncil + Section 9 of the Act provides for the establishment of a central advisory

council. $t advises the central government regarding development and regulation of scheduled E industries.

"he central advisory: council consists of a )hairman and members not exceeding 7G members

representing various goods.




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INUSTRIA POICY RESOUTION - 1>8:

>@77*@8*7 78+@8+G /B"oday

"he $ndustrial (olicy ?esolution was based upon the Ma+a"ano!is Mod#" o* %o2t+. "his

2odel suggested that t+#%# s+o&"d !# an #m$+asis on t+# +#a' ind&st%i#s , which can

lead the $ndian conomy to a long term higher growth path. "he most important outcomes

of the $ndustrial (olicy ?esolution * 789: were+

1.Scope of the (ublic Sector in $ndia got widened.

2."he /overnmentPs aim to achieve a socialistic pattern of growth was reiterated.

3.A clear )ut classification of industries was done in $ndia for the first time.

4.All the industries of basic and strategic importance and the industries which had a nature of

public utility of services and all those which re1uired large scale investment were strictly

kept under the /overnment sector.

5.(rovision of )ompulsory 0icensing was cemented.

6."he policy paved the way of development of (ublic Sector in $ndia.

C"assi*ication o* Ind&st%i#s

$n the $ndustrial (olicy ?esolution * 789:, industries were classified into three

categories named as Schedule A, Schedule & H Schedule ).

Sc+#d&"# A referred to the industries in which )entral /overnment kept the 2onopoly.

Sc+#d&"# B referred to the industries in which State /overnments were given the duty to take

measures and;

#hatever was left was put in Sc+#d&"# C which was open to the private enterprises.

Sc+#d&"# A

"his comprised 7= industrial areas which were strictly under the )entral /overnment. "he

companies of this area were known as )(S central (ublic Sector ndertakings-. "he

)(SPs later became popular as (Ss. "he 7= areas were+

1.Arms and ammunition and allied items of defense e1uipment.


http://www.gktoday.in/indian-industry-general-knowledge/industrial-policy-resolution-%E2%80%93-1956/http://www.gktoday.in/indian-industry-general-knowledge/industrial-policy-resolution-%E2%80%93-1956/


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2.Atomic energy.

3. $ron and Steel.

4.!eavy castings and forgings of iron and steel.

9 . !eavy plant and machinery re1uired for iron and steel production, for mining, formachine tool manufacture and for such other basic industries as may be specified by the

)entral /overnment.

6.!eavy electrical plant including large hydraulic and steam turbines.

7.)oal and lignite.

8.2ineral oils.

9.2ining of iron ore, manganese ore, chrome*ore, gypsum, sulphur, gold and diamond.

10. 2ining and processing of copper, lead, 5inc, tin, molybdenum and wolfram.

11. 2inerals specified in the Schedule to the Atomic nergy )ontrol of (roduction and se-

%rder,

12. 789G.

13. Aircraft.

14. Air transport.

15. ?ailway "ransport.

16. Ship &uilding.

7= . "elephones and telephone cables telegraph and wireless apparatus #c"&din %adio

%#c#iin s#ts-.

7 industrial areas which were put to the State /overnments to take

measures and was left to the state government to follow up with the private sector with

provisions of compulsory licensing. !owever, Schedule & I NOT gave 2onopoly to

State /overnments, as monopoly given to centre in Schedule A. "hey had to be State owned

but private sector was expected to supplement the efforts of the State. States were expected

to facilitate and encourage development of these industries in the private sector, in

accordance with the programmes formulated under the Five 6ear (lans. "he areas of

Schedule & were+

7. All other minerals except Qminor mineralsP as defined in Section G of the 2inerals)oncession ?ules 788.




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> . A"&min&m and ot+#% non-*#%%o&s m#ta"s not included in Schedule A.

3. 2achine tools.

4. Ferro*alloys and tool steels.9 . &asic and intermediate products re1uired by chemical industries such as the manufacture

of drugs, dye*stuffs and plastics.

6.Antibiotics and other essential drugs.

7.F#%ti"i#%s

8.Synthetic rubber.

9.)arboni5ation of coal.10. )hemical pulp.

11. Road t%ans$o%t4

12. S#a t%ans$o%t4

#ords in !o"d mean nothing except that the author considers them important for obectivetests-

Sc+#d&"# C

"he $ndustrial areas which were left out of the Schedule A H & were left with the private

sectors with provisions of licensing and subect to regulation under the $? Act.

Som# mo%# *#at&%#s o* Ind&st%ia" Po"ic' R#so"&tion 1>8:

A"" t+# Sc+#d&"# B and man' o* t+# Sc+#d&"# C came under provisions of compulsory

licensing and thus $ndustrial (olicy established R0icense ?a $n $ndia.

P&!"ic s#cto% *o% +#a' ind&st%i#s 2as mad# t+# main #+ic"# *o% Ind&st%ia"

%o2t+

To tac3"# t+# %#iona" dis$a%it'D PSUs 2#%# to !# #sta!"is+#d in

!ac32a%d %#ions4

Sma"" Sca"# Ind&st%i#s and A%ic&"t&%# s#cto% 2as i#n $%io%it' in

d##"o$m#nt4

1>>1 INUSTRIA POICY AN ECONOMIC POICY

uring the mid 78


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same time allow a whiff of competition and growth to $ndia business. "his, it was hoped would bring a

new dimension to the concepts of 1uality, productivity and growth.

$nevitably, the winds of liberali5ation that swept through the nation opened a variable (andora's box, with

far*reaching implications for human resource management. $t brought in a new era of technology, 1ualityconsciousness and competition, which compelled $ndian business to wake up from its somnambulism and

reassess its assumptions for dealing with the 'compete*or*perish' situation.

T+# P%#%#* o%m Sc#na%io

$n the pre*liberali5ation period $ndia had pursued a shortsighted policy in the name of self*reliance,

blocking out the rest of the world in the manufacturing and services sectors. ?elying on bureaucratic

controls, through licensing and centrali5ed planning, the government had imposed restrictions on the

capacity of business units, their location, choice and source of raw materials and so on. $t had also kept a

check on corporate take*overs and mergers, through the monopolies and ?estrictive "rade (ractices

)ommission 2?"(-.

$ndia had actively discouraged foreign investments in its capital markets to protect domestic industries. $t

had also denied itself access to international capital, technology and markets; nlike the Asian "igers who

went on to beat the first #orld nations at their own game. !owever, as seen by the recent downslide in the

South Asian economy and the currency crisis in $ndonesia, this access to international capital and markets

has been a mixed blessing for these countries. 3otwithstanding this, the tremendous progress made by the

Asian "igers during the last three decades can certainly serve as an example to developing countries such

as $ndia.

3ot that soci

business environment notes - 55 pages

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