industrial policy new microsoft power point presentation revised (4) (3)

8/6/2019 Industrial Policy New Microsoft Power Point Presentation Revised (4) (3)

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Industrial policy of India

rp_juyal2k2 @ rediffmail.com

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Industrial policy of IndiaAn overview

Industrial policy 1948

Laid down the foundation of mixed economy, with a socialist undertone

Industries divided in four categories State Monopolies : Arms and ammunition, atomic energy, and rail

transport (3)

Mixed sector : Coal, iron and steel, aircraft manufacturing, shipbuilding, manufacturing of telephones, telegraph, and wirelessapparatus (excluding radio sets ) and mineral oils ( 6). New

undertaking were to be set up by state.The government was to review the performance of privateindustries after 10 years and if felt necessary may acquire any, afterpaying compensation.

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Industrial policy of India :1956

The Back ground The first five year plan ( 1951-52to55-56)

was completed. Optimism was running high First General election completed

Congress Party in its Awed Sessiondeclared that it is for socialist pattern ofsociety

Second Five year plan : RapidIndustrialization, infrastructure and

institution building to priority Consumer good deficiency model to over

come the shortage of investment

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The Back ground Lack of confidence in private sector

: Low profitability, balanced regional

development. Self reliance : Apprehension towards

foreign capital.

To reduce the disparities of wealthand income.

Soviet influence.

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The Back ground To prevent monopolies

To Build a large and growing

cooperative sector Public sector Commending heights

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The Salient features State monopoly : 17 industries ( schedule

A)

Out of these four industries : Arm andAmmunition, atomic energy Rail and Airtransport were the exclusive domain of thestate

In rest the 13 private sector was allowedto continue but new private units were tobe allowed when the national interest sorequired.

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The Salient features Mixed sector : 12 industries ( scheduled B)

State increasingly establish units but not todiscourage private sector

Private sectors

The industrial policy 1956 relied heavily onIndustrial Development and Regulation Act1951 for implementation to which licensingwas the main instrument.

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Operational mechanismThe industrial policy 1956 reliedheavily onIndustrial Development and Regulation Act

1951 for implementation to which licensingwas the main instrument.This Act was a mechanism to regulate

industries as per the plan priorities, and other objectives of

social policy of government Protect small industries and develop

cooperative sector

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Operational mechanism Direct investment in to the desired spheres

: Activities and areas

Correlate supply and demand

Optimum utilization of social capital

Enquires about the functioning of industries

Control on prices and distributions.

Central Advisory boards and developmentboards of various industries.

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Lessons Leant Monopolies Enquiry commission 1964

R.K Hazari Committee 1965

Dutt Committee 1967

Underutilization of capacity

Large industries restricted output andallowed price to rise

Oligopoly became the feature : pre-emption ofinvestment opportunities

Rent seeking

u

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Lessons Leant Regional Imbalances :1979 to 1992

Maharashtra , Gurjarat,Tamil Nadua andWest Bengal- 46 percent license Bihar ,

Orrisa, M.P. and U.P. about 16 percent Even the Backward areas of developed

state was favourved vis--vis of poorstates. The backward areas of the four

industrially advanced state got 37,6percent and of backward state mentionedabove only 9.8 percent

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Industrial policy of India :1956Lessons Leant

MRTP & FERA : Growth of Parallel

Economy In some instances private sectorwas denied opportunity to enter inthe industries badly needed e.g.

Birla was not given license to start13


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Industrial policy of India :1956Lessons Leant

Tata made 119 proposal between1960-1989 none was approved

Birlas shifted to East Asian countries

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Lessons Leant The East Asian countries which also

has more problem of resources (

financial and managerial, technical )vis--vis India govt. took active rolein providing resources to privatesector to grow.

The Democratic compulsions vis--visauthoritarian government

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Objective

To build on the gains already made

To correct the distortion or weaknessthat might have crept in

Maintain sustain growth in

productivity and gainful employment International competitiveness.

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Industrial policy of India :1991Industrial Licensing

In 1991 was restricted to 18 categories butnow only six industries viz

alcohol

cigarettes

hazardous chemicals,

electronics aerospace

defense equipmentsdrug and pharmaceuticals( excluding bulk drugs)

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Industrial policy of India :1991Public sector Monopoly Initially 8

industries but now only 3.

Atomic energyminerals specified in thescheduled to atomic energy

Rail Transport

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Progress Since 1991License No approval of government is

required .

The entrepreneur submit Industrial

Entrepreneur Memorandum (IEM) to thesecretariat of Industrial Approval

Till 2004- 55335 IEM submitted , InvestmentRs 13,75,152 crore

Employment 107 Lakh personLetter Intent 3,966

Investment 1,14,841 crore

Employment 8.60 lakhs19


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Industrial Policy -1991The location of industries are subject to following

regulations

Local Authorities Land use planning Like

master plan and zonal planRegulation of Ministry of Forest and Environment

If the proposed location is not in designatedindustrial area, it ought to be at least 25 K.M.from 25 kilometers from the million plus city

(1991 census).The electronic , printing and soft ware and non

polluting industries are excluded from theseprovision

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Foreign Technology and

InvestmentForeign Technology and Investment

Prior 1991

Very restricted &Allowed only in priority areas

In. Other areas on merit linked toexport.Three categories were

1. Foreign Investment (FI)was allowed

2. Only technological collaboration (No FI)

3. NO collaboration ( FI or Technology)Foreign (Investment) equity ceiling 40

percent

Foreign royalty payments: limited for 5 years21


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Investment Since 1991 Foreign Investment in most of the

industries is allowed through direct

route (NO approval pf RBI &Government )

In 1991 only 36 industries was inthis category FDI up to 51 percent

later modified it in various ways

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Investment Since 1991 Now excluding the followings all

industries are in the automaticapproval

Industries requiring license

Only 24 percent foreign equity ispermissible in items reserved for

Small scale sector. All items requiring industrial license in

terms of location.

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Industrial Development

Average Annual growth rateSector Weight

inIndex

1980-81

to

1991-92

Post reforms

VIII Plan1992-92 to1996-97

IX Plan1997-98

2001-02

Basic goods 35.5 7.4 6.8 4.1

Capital Goods 9.3 9.4 8.9 4.7

Intermediate

Goods

26.5 4.9 8.5 5.8

Consumer Goods 28.7 6.0 6.6 5.5

Durable 5.4 10.8 13.4 10.7

Non Durable 23.3 5.3 4.8 3.8

All Index 100 7.4 7.4 5.024


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Industrial Development

Average Annual growth rateSector /goods Pre

reform

2002-03 2003-

04

2004-05 2005-06 2006-07 2007-08

Basic 7.4 4.9 5.4 5.5 6.7 10.3 8.4

Capital 9.4 10.5 13.6 13.9 15.8 18.2 20.8

Inter 4.9 3.9 6.4 6.1 2.5 12.0 10.1

Consumer 6.0 7.1 7.1 11.7 12.0 10.1 5.2

Durable 10.8 -5.3 11.6 14.4 15.3 9.2 -1.7

Non Durable 5.3 12.0 5.8 10.8 11.0 10.4 7.8

All Index 7.4 5.7 7.0 8.4 8.2 11.6 9.225


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Industrial Progress : 1951-55

to 1960-65Creating Industrial Base

Significant growth

The 1st plan , 5.7 % compound annual

growth rate increased to 7.2 % in 2nd planto 9.0 %in 3rd plan

Massive investment in industries andmineral in 2nd &3rd plan

2.8 %( about 55 crores) of the totalexpenditure of 1st plan to 20.1 percent in2nd and 3rd plan ( 938 cores and 1726crores these plan respectively at current prices ).

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Industrial Progress : 1951-55

to 1960-65Creating Industrial Base

High growth rates attributed togrowth of

Capital goods industries from 9.8% in 1st plan , to 13.1 % in 2nd planto 19.6 % in 3rd plan

Basic industries, from 4.7 % in 1st

plan to 12.1 % in 2nd plan to 10.4 %in 3rd plan

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Creating Industrial Base

Creating Industrial Base

Besides small scale industries alsoattributed for about 2.1 % , 4.0% and 2.8percent of the total plan expenditure. In

absolute terms about 42,187 and 241croes respectively

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Creating Industrial Base Power and Energy also accounted for

about 7.6 %, 9.7 % and about 14.6

% of the total plan out lay ( Inabsolute terms about 149, 452 and1252 crores, at current prices )

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Industrial Deceleration 1965-80 The growth rate decelerated from 9 percent

of 3rd plan to 4.1 % between 1965-76

If this is included the growth rate comes to

be 3.1 % The growth picked up in fifth plan to 6.1%

These growth rates are not actualreflection as these include the sharp

increase of 10.6 % in 1976-77 In 1979-80 the growth rate was

(-)1.6 %

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Industrial Deceleration 1965-80 The worse part of this recession was

growth of capital goods was as low as 2.6percent% per annum ( from 1965 to 76)

although it picked up during fifth plan (1974-79) to 5.7% but this remained lowthen the average of first three plan .

Similar is the story of basic good industries,average 6.5 percent ( 1965-76) for the ten

year period which again picked to 8.4%but remained low compared to previousthree plans.

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Industrial Deceleration 1965-80 The reason for deceleration :Exogenous factors War, 1965,1971 Drought 1966-67 to

1968-69 Oil crisis 1973

Slow growth of agriculture (KN Raj) andSaturation of demand due to persistinginequalities (C. Rangrajan)

Decline in public investment ( Prabhat

Patnaik) &hence lack of stimulus. Irrigational system ( Srinivas, Pdama

Desai)

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Industrial recovery 1981-91Progress during 1981-991Classification 1981-85 1985-90 1990-91

Basic goods

8.7 7.4 3.8Capital Goods 6.2 14.8 17.4Intermediate

Goods6.0 6.4 6.1

Consumer Goods

5.1 7.3 10.4Durable 14.3 11.6 14.8Non Durable 3.8 6.4 9.4All Index 6.4 8.5 8.3

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Industrial recovery 1981-91

Factors resulting in recovery

The recovery is associated with betterproductivity and not associated with growth

of factor input. The total factor productivitywhich meager even negative (-) 0-2 to (-)0.3 percent between 1966-67 to 1979-80picked up in the first of eighties it was3.4% per annum. ( Isher Judge Alhjwalia)

Liberalization of industrial policy ( supplyside )

Liberal fiscal regime ( demand boost up)

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Growth of Agriculture :

Rural demand of non agriculture product rose

from 35 percent in 1967-68 to 47 percent in1983

More per hectare use of manufactured goods.The percentage of purchased inputs to totalinputs ( as a proxy indicator of demand of

industrial product in agriculture production )roughly doubled from 16.4 percent in 1970-71to 35.6 percent in 1983-84 ( R.Thamarajakashi)

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Growth of service sector pushed the growth ofconsumer durable

Resurgence in infrastructure spending , asagainst 4.2% per annum in 1965-66 to1975-76 to 9.9% in 1979-8- to 1985-85and 16 % and 18.3 % in 1985-86 and1986-87. This investment resulted indiscernible improvement in productivity

( I.J Alhuwalia).

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Post Reforms : industrialProgress

In the first year of reform period ( VIII Plan) the industrial development little less thanpre-reform period which decelerated in next

five year ( IX plan ) but picked up in X planperiod and is substantially higher thanreform period .

The rate of growth in capital goods and

basic goods in post reform period has beeninitially less but it is higher in X plan

vis--vis pre reform period growth rate

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In first ten years The rate of growth of nondurables was less but in X plan it washigher than the pre reform period.

But the growth consumer durables hasbarring stray exception has been higherthan pre reform period.Almost similar is thesituation of intermediate goods.

The earlier phase of reforms marked withfluctuation but in X plan it remained byand large consistent.

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Post Reforms : industrial Progress

The improved performance in X plan is attributed toimproved investment climate , expanding externaldemand, improved domestic demand, ease in availabilityof finance and increasing capacity addition in the

industrial sector ( RBI report on currency and Finance2003-04)

The areas of concern

17 states has not shown any significant improvement inindustrial growth(R. Nagrajan-in Shuji Uchikawa

(ed)Economic Reforms and industrial structures in India(2002)

Gujrat, Mharashtra and Tamilnaduaccoutns for about 39%factories, 44 % capital and 44% of the output

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Post Reforms : industrial

ProgressThe areas of concernAlthough the initial hiccups to externalcompetition are almost over but industries arefacing the problem of dumping.

The inadequacies of infrastructure and slowingdown of public investment has its impact in lowstimulus.

Disorderly growth of capital market and theflow funds from institutions to industry is not

satisfactory. And a substantial part of the fundsis being utilized in acquisition and merger .

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The areas of concern International volatility

Slow growth of domestic market because of poor

agriculture growth and also low expenditure onemployment generation programmes in rural area(now being addressed)

Heavy spending on real estates specially inspeculation has impact on investment as wellexpenditure

Increasing inequalities , insecurity of job puts brakeon spending in urban areas

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The areas of concern

Anomalies in tariff structure : leading toimport of second capital goods e.gfinished capital goods in fertilizer andrefinery , enjoyed zero duty but inimport duty on components and

intermediate products.

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