module iii indus.rev

8/10/2019 Module III Indus.rev

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MODUL E III INDUSTRIA L SECTOR

GROWTH & PATTERN OF INDUSTRIALIZATION

INDUSTRIAL POLICY OF 1991

PUBLIC SECTOR ENTERPRISES & DISINVESTMENT

SMALL SCALE SECTOR


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GROW TH & PATTERN OF INDUSTRIA L ISATION

GROWTH OF INDUSTRIES DURING 1951-1991

PERIOD & PATTERN REA SONS

1951 -65 : ESTABLISHING INDUSTRIAL BASE AVERAGE INDUSTRIAL GROWTH

MORE THAN 7% & CAPITAL & BASICGOODS = MORE THAN 10%

MAHA LNOBIS MODEL, HUGEINVESTMENTS IN BA SIC GOODS

BY PUBL IC SECTOR

1965 76 :SLOW GROWTH

INDUSTRIAL GROWTH RATE,LESS THAN 5%

SLOW GROWTH OF AGRI,,INFRA.,LICENS ING, MRTP, FERA ,PA KISTAN WARS OF 65 & 71,OIL CRISIS OF 1973, DRAUG HT 65-66

1976-1990 : INDUSTRIAL RECOVERY HUGE PUBL IC SECTOR INVESTMENT,LIB ERAL ISATION, FISCAL INCENTIVES,LIBERAL TRADE POLICIES


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INDUSTRIA L GROW TH SINCE 1991

PERIOD & PHASE REASONS

1991-94: SLOW DOWN2.3% IN 1992-93; NEGATIVE GROWTHOF CAPITAL GOODS SECTOR; -4.1%

INADEQUATE FOREX RESERVES,AFTER DEVAL UATION EXPENSIVE

INDUSTRIAL EXPORTS,L IQUIDITYCRUNCH IN B ANK S DUE TOTIGHT MONETARY POL ICY, WAIT &WATCH APRO ACH OF DOMESTIC INVESTORS

1994-96: REVIVAL9.1% IN 1994-9513% IN 1995-96

GROW TH IN EXPORTS, STA B ILITY INA GRO GROW TH, MORE GOVT. INVESTMENT,MORE CONSUMPTION DEMAND, LOW ER CRR,SLR & THUS MORE FUNDS

1997-02: IN GENERALSLOW DOWN EXCEPT 99-005%, IN 01-02, 2.7%

97-98, FA L L IN A GRO PROD UCTION, STA GNATEDINDUSTRIAL INVESTMENT, EXTRA CAUTIOUS BA NKSLESS EXPORTS, LA RGE INDUSTRIES SPENTFOR RESTRUCTURING & NOT FOR EXPANSION


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2002-07: RECOVERY8.2% (10 th plan)

GROWTH IN MA NUFA CTURING DUE TOMICRO & MEDIUM ENTERPRISES. GROWTH INTEXTILES, PAPER, BA SIC METAL S, MA CHINERY

& EQUIPMENT, BEVERA GES, TOBA CCO

(2007 08 2011) 11 th planGROWTH DECLINED FROM11.6% IN 06-07 TO 8.5% IN 07-08& MANUFACTURING TO 2.4% IN 08-09AS PER ECO SURVEY 07-08.Rise 5.3% to 8.2% in 2009-to 11

PERSISTA NT RISE IN CRUDE OIL &METAL PRICES, GLOB A L FINA NCIALCRISIS, RECESSION, DECLINE INEXPORTS & A LSO DOMESTIC DEMAND

years IIP Industrial Growth (%)

2005-06 108.6 8.6

2006-07 122.6 12.9

2007-08 141.7 15.6

2008-09 145.2 2.6

2009-10 152.9 5.3

2010-11 165.5 8.2

Index of Industrial Production & Industrial growth based on IIP ( base 2004-05)

Economic Survey 2011-12


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PATTERN OF INDUSTRIA L IZATION

Use based classification of industriesBasic goods capital goods intermediate goods consumer goods

DurableNon-durables

Minerals, metals,Crude oil,chemicals

Machines,Equipment,Engineering goods

Coal, cement, steel,Power,

Use-based Weight (%)

Basic Goods 45.68

Capital Goods 8.83

Intermediate Goods 15.69

Consumer Goods 29.81Consumer Durables 8.46

Consumer non-durables 21.35

General IIP 100.00

Weighted contribution of use-based industries in IIP ( base 2004-05)

Economic survey 2011-12


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On the basis of sectors1 ) M i n in g : w ei g h t i s 14 .1 6%2 ) M an u f ac t u r in g : 75.5 3%3 ) E le c tr i c it y : 10 .3 2%

On the basis of ownershipPublic ,Private sector and Joint sector industries

On the basis of size of Investment

Nature Category Investment in plant & machinery in Rs.

Manufacturing Micro Less than 25 lakh

Small 25 lakh- less than 5 crore

Medium 5 crore to less tha 10 crore

Service Micro Less than 10 lakh

Small 10 lakh to less than 2 crore

Medium 2 crore to less than 5 crore


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Chang es in Ind us tr ia l Pat tern

1) Changes in use based industries : independence consumer non-durables

current - basic & intermediate goods2) Change in ownership based industries : prior to 1991 public sector

post 1991 private sector joint sector growth is insignificant

3) Changes in manufacturing sector : (between 1990-91 to 2004-05)increase in shares of chemical & chemical products 8.42% to 16.4%increase in share of basic metals & alloy industry 12.9% to 19%increase in share of transport equipment & parts 8.35 to 9.5%

decrease in share of machinery, machine tool & electrical machinery 16.14 -10%decrease in textiles 14.37 to 7.3%

Capital intensity per employee has increased at CAGR 6.5% since 1991CONTRIBUTION OF INDUSTRY IN NATIONAL INCOME HAS INCRESED FROM

16.78% IN 1951-56 TO 27% BY 2002

4) Labor absorption rate in manufacturing sector increased 2004-05 onwards


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Problems of Industrial sector

Infrastructural Constraints

Industrial Productivity- low due to poor input quality & work cultureStatistical outline of India 2009- 10, factor productivity in 90s 0.9%

Employment is falling: 1994-2008, % growth of employment by organizedsector = 0.05

Burden of Public Sector: March 31, 2010, 249 CPSEsin 2009-10, 158 CPSEs net profit & 54 net losses

Industrial Sickness: Board of Industrial & Financial Reconstruction BIFRin 2007, 3,992 large & medium enterprises & 1,14,132 small sick

Regional Imbalances

New challenges

Industrial Pollution


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THE NEW INDUSTRIAL POL ICYWAS ANNOUNCED ON JULY 24, 1991

POLICY STATEMENT: SOCIAL & ECONOMIC JUSTICE TO END POVERTY &UNEMPLOYMENT & TO BUILD A MODERN, DEMOCRATIC, SOCIALIST &FORWARD LOOKING INDIA

OBJECTIVES:Full utilization of indigenous capabilities of entrepreneurs & thereby

employment generationImprovement in efficiency & productivitySelf-relianceGovt. investments in R&D

Removing existing govt. restrictions & regulations on industryEncouraging competitionDevelopment of backward areas & small scale sectorImproving efficiency of public sectorPrevention & abolition of monopoly in manufacturing except for some areasOpen the economy for global market


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Ini t ia t ives w ere taken in the fol lo w ing areasINDUSTRIAL LICENSINGFOREIGN INVESTMENTFOREIGN TECHNOLOGY AGREEMENTPUBLIC SECTOR POLICYMRTP ACT

INDUSTRIA L L ICENSING:abolition of industrial licensing : except for 18 industries; submit IEM to secretariat

of industrial approval.Automatic license: in projects where imported capital is required, if requirement isof the value of less than 25% or max value 2 crore & also in case of foreign equityparticipation

Locational restriction : were removed for industries of non-polluting nature.The mandatory convertibility clause was removed .Registration schemes were a bolishedPhased manufacturing programmes were abolishedInvestment promotion & Project monitoring cell was set up to provide infoto entrepreneurs & to monitor progress of implementation of various projectsAT PRESENT ONLY 6 ITEMS OF HEALTH & STRATEGIC & SECURITYCONSIDERATION REMAIN UNDER PURVIEW OF LICENSING


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FOREIGN INVESTMENTS :Automatic approval to FDI : all sectors except for some sensitive one .Exportoriented trading companies, hotel & tourism related industries,high technology& high investment priority industries. Upto 51%

Raising foreign equity : up to 51% for expansion programmes, automaticapproval from RBIForeign Investment Promotion Board (FIPB): to examine all proposals ofFDI and to speed up the process.Local partner : foreign investors need not have local partnerForeign brand name : was permitted

100% foreign equity allowed : in export oriented unit, power sector, electronics& software technology parksSmall scale sector : foreign equity up to 24%

FOREIGN TECHNOLOGY AGR EEMENT:Automatic approval by RBI to foreign techno . Agreement in specified

high priority areasRepatriation of foreign capital invested in india, & sales proceeds were allowedForeign technicians: no permission will be requiredPayment of royalties allowed for technical know-how & no permission required

for hiring foreign technicians.

AUTOMATIC APPROVAL NOW IS GIVEN FOR 50%, 51%, 74%, 100%IN EVER WIDENING INDUSTRIES GROUP


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PUBL IC SECTOR:scope of public sector: only 4 industrial groups were reserved, arms & ammunition,

Atomic energy, substances notified by department of atomic energy, railwaysMOU : enterprises in public sector will be provided more autonomy through

MOUBoard of Industrial and Financial Reconstruction (BIFR) : to take care of sickPublic sector unitsGovt. shareholding in public enterprises to be brought downNOW 3 INDUSTRIES ARE EXCLUSIVELY CONTROLLED BY PUBLIC SECTORNAVRATNAS & MINIRATNAS ARE GIVEN GREATR AUTONOMY

DISINVESTMENT POLICY BEGAN IN 1991-92SEZs WERE INTRODUCED; & SEZ ACT WAS PASSED IN 05.6 items require licensing alcohol, cigarettes, hazardous chemicals,electronic aerospace, defence equipment, industrial explosives,drugs & pharma

Competition Act 2002

MRTP ACT:All restriction on expansion , new enterprise were removedEmphasis was to be led only on controlling restrictive trade practices


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EVALUATION

POSITIVE : REDUCED PROJ ECT COST & TIMEAVA ILA B ILITY OF FOREIGN CAPITA L & TECHNOL OGYIMPROVED EFFICIENCY OF PUB LIC SECTORMRTP TO PROMOTE COMPETITIONB ENEFITS TO CONSUMERSINTERNATIONA L IZATION OF INDUSTRIES

NEGATIVE : DOMINA NCE OF MULTINATIONA LSUNSUITA B LE & INFERIOR FOREIGN TECHNOLO GYUNEMPLOYMENT

EMERGENCE OF LA RGE MONOPOLIES RISK HA S GROWNNOT AB LE TO TA CKL E PROBL EM OF SICKNESS OF SSI


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SMALL SCALE INDUSTRYYEAR SSI UNITS

before1975 7.5 lakh ancillary 10 lakh1976 10 lakh 15 lakh1980 20 lakh 25 lakh1989 60 lakh 75 lakh

tiny = < 5 lakh

1997 3 crores tiny = 25 lakh2000 1 crores tiny = 25 lakh

Micro, Small & Medium ent.Development Act 2006

Micro = 25 lakhSmall = 25 lakh to 5 croreMedium = 5 10 crores

service enterprises:Micro up to Rs. 10 lakhSmall 10 lakh to 2 croreMedium - 2 crore to 5 crore


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PERFORMANCE, ROLE & SIGNIFICANCE OF SSI(Eco survey 07-08)YEAR No. of units

(lakh)Production atconstant price(cr.) 01-02

Employment(lakh)

Exports(Rs. Cr)

2002-03 109.49 3,06,771 263.68 86,0132003-04 113.95 3,36,344 275.30 97,644

2004-05 118.59 3,72,938 287.55 1,24,417

2005-06 123.42 4,18,884 299.85 1,50,242

2006-07 128.44 4,71,663 312.52

2006-07MSMEsAll India Census

26 million28% manu. 72%service

45% 60 million 40%

Contribution to industrial production: MSMEs 8% GDP & 45% NI in 2010-11

Employment generation: 65.9 million in 2008-09Exports: 93% non-traditional;Mobilization of capital & entrepreneur skillsEquitable distribution of income & wealthRegional dispersal of industriesSupport to LSI

Support to agricultureEfficiency of SSI


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PROBLEMS OF SSIINADEQUATE FINA NCE

INADEQUATE RAW MATERIAL SUPPLY

COMPETITION FROM LSI

OUTDATED TECHNOLOG Y

POOR UTILIZATION OF CAPACITY48% is ut i l izedLA CK OF MARK ETING FAC ILITIES

INDUSTRIAL SICKNESS- 50% or >50%Cumu lat ive cash loss es or defaul ted inmeet ing 4 co nsecut ive or 2 ha l f yr.ly

in teres t ins ta l lmentsRBI- March 31 s t 2001, 2,49,630 un itsRBI outs tanding bank credi t Fr.306/- cr. (1980) 3722/-cr. (1996 )March 31 s t , 2007 1 .14 lakh s ick uni t s wi thOutstand ing bank c redit 5267/- cro res.


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GOVERNMENT MEASURES

Micro, Small & Medium ent. Development Act 2006 : provided national level statutoryconsultative body, includes provision for establishment of funds for promotion & development,

Progressive credit policies, preference in Government procurement of products.Credit Gurantee Scheme: loan limit to 50 lakh, gurantee cover upto 80%Task Force on MSMES 2010 recommendations for improvement in areas credit, marketing,labour, taxation & Infrastructure and technology development

Five year plans 1st plan 42/- cr. 8 th plan 7266/- cr.Financial assistance Small Industries Financial Corp.( SFCs), National Small

Industries Corp.(NSIC), Commercial banks, NABARD,Small Industries Development Bank of India (SIDBI) in 1989RBIs seven point action plan 2004-05

Small Scale Sector Reservation 873 items in 1984 Eco Survey 2008, 35 itemsFiscal Concession units with turnover upto 300 lac, excise concessionNew Small Enterprise Policy 1991 equity participation upto 24% by other industrial

Units & foreign collaboration.Comprehensive Policy Package, 2000 August 30,2000

a) excise duty exemption limit upto 1 crb) concessional loan for tech. upgradationc) census of SSId) Grant of 75,000/- for ISO 9000e) extension of

Integrated Infrastructure Development Schemef) raising limit of composite loan to 25/- lakh


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Other Measures SIDO for consultancy services, establish industrial estates

Council for Advancement of Rural Technology (CART ) technical assistance

TECHNO Development & Modernization fund for techno upgradationfor export oriented units

Setting up of Khadi & Village Industries Commission, Coir Board,Handloom Board, Biotechnology Cell.

reimbersement of ISO 14001 for environment standard.


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PUBLIC SECTOR &DISINVESTMENT

31 st March 2011, 248 CPSEs,220 in operation, 28 under construction

Role & Significance of Public SectorEmployment: Share of public sector in organized sector 71% in 1995 63% in 2008Labour welfare: high salaries, job security, incentives, welfare services, gratuity etcShare in National Output: 11.85% in 2004-05

Contribution to Exchequer: taxes.1,56,124/ - crores in 2010-11Export Promotion & Import Substitution:FOREX: 96,004/0 crore in 2010-11Capital Formation: eco survey 11-12, cumulative investment in all CPSEs in 2011 was6,66,848/-Strong Industrial Base

Infrastructural DevelopmentBalanced Regional DevelopmentPrevention of monopolies


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Problems of Public Sector Losses 50% units

220- 62 loss making 2011-12Low profitability: 158 profit makingAdministrative problems

OverstaffedUnderutilization 1993-9422% units less then 20%

capacity utilizationFaulty Planning & executionDelaysPrice policy

OFFLOADING PSUEQUITY IN THE MARKET IS

CALLED DISINVESTMENT

DISINVESTMENT

Process of Privatization1) Part /full transfer of assets to pvt.2) Autonomy in management3) Regulating public monopolies


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DISINVESTMENTObjectives

Stated in parliament on 9 th Dec.2002

Raising resources through sale of unitsdeclared sick by BIFR

Restructuring Public Enterprises

Rehabilitation of displaced personnel

Raising Productive Efficiency

Benefit to consumers

Eliminate political interference

Retiring public debt

Modernization & technology upgradation


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PROGRESS OF DISINVESTMENT

New Industrial Policy provision for MOUGreater Autonomy: Navratnas (9) &Miniratnas in 1997-98 (97)2010-11 Maharatna expansion into domestic &Global mkt. 2010-11, 16 Navratnas, 62 mniratnas& 4 Maharatnas(Indain Oil, SAIL,ONGC,NTPC)National Renewal Fund for workers training,

counselling, rehabilitation in 1992Rangarajan committee 1993

49% disinvestment of exclusivelypublic sector company, 74% for others

Disinvestment Commission 1966 for terms &conditions related to Divesting equity,

13 reports till January 2002.New privatization policy 1998

offload 51% in strategic sale now raised to 74%price not prefixed & market determined

PSU shares to be delinked from budgetBoard for reconstruction of PSUs (BRPSE)2004: for restructuring PSUs


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Disinvestment Process:

1) Sale of minority shares: till 99-2000 disinvestment was of sale of shares in small lots

2) Strategic Sale: 2003-04: Govt. sells major portion of stake to strategic partner& also hand over management control;

3) Listing shares on local stock exchanges


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EVALUATION OF DISINVESTMENT POLICIES

YEAR TARGET(Rs. Cr.)

Achievement(Rs.cr.)

1992-93 2,500 1913

1996-97 5,000 380

2001-02 12,000 5,632

2003-04 14,500 15,547

Hasty & unplanned

Majority share holding by Rangarajancommittee

Unproductive use of resources

Finding of Strategic partners

unemployment

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