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Business Environment

(BE)
MGT511

ABBAS ANSARI
Why to study Industrial
Policy?
 Industrial policy and regulation determine,
to a large extent, business opportunities
and threats
 Also it sets certain limits and norms for the
conduct of business
 It decides the development path of the
economy to a larger extent
Industrial Policy
 It covers rules, regulations, principles,
policies, & procedures laid down by
government for regulating & controlling
industrial undertakings in the country.
 It prescribes the respective roles of the
public, private, joint, cooperative large,
medium & small scale sectors for the
development of industries.
Industrial Policy
 It incorporates fiscal & monetary
policies, tariff policy, labor policy.
 It shows the government attitude
not only towards external
assistance but also toward public &
private sectors.
Main Objectives
 To maintain a sustained growth in
productivity
 To enhance gainful employment
 To prevent undue concentration of
economic power
Main Objectives
 To achieve optimal utilization of
human resources
 To attain international
competitiveness and
 To transform India into a major
partner and player in the global
arena
Industrial Policies
 Industrial Policy Resolution of 1948
 Industrial Policy Resolution of 1956
 Industrial Policy Resolution of 1973
 Industrial Policy Resolution of 1977
 Industrial Policy Resolution of 1980
 The New Industrial Policy of
1991
Industrial Policy up to
1991
 Reservation of Industries
 Future development of most of the import
industries was exclusively reserved for the
public sector
 Mfg of a large no ( over 850 in 1991) of
items was reserved for the small scale
sector
Industrial Policy up to
1991
 Dominance of Public sector
 Industry Policy Resolution 1948 established
public sector monopoly in 9 industries
 IPR 1956 further expanded substantially the role
of public sector
 17 most imp industries development was
reserved for the public sector (Scheduled A)
Industrial Policy up to
1991
 Further, public sector was assigned
priority for the establishment of
new units in 12 most imp of
remaining industries (Scheduled
B)
 Public sector also monopoly in the
remaining of the industries
Industrial Policy up to
1991
 Entry and Growth Restriction
 Entry and growth restriction for the private
firms even in the industries open for them
 Large firms ( Assets > Rs 100 crore & Market share > 25%) had
to obtain clearance under MRTP Act
 Industrial Licence, for new undertaking
establishment, substantial expansion and
mfg of new items
Industrial Policy up to
1991
 Restrictions on Foreign Capital &
Technology
 Scope of foreign capital and tech. was
ltd ( Ceiling of 40 % total equity)
 Operations of foreign comp. in India
and issue of securities aboard by Indian
companies were routed(regulated) thro’
Foreign Exchange Reg. Act(FERA 1973)
The New Industrial
Policy
 Objectives
 To maintain a sustained growth in
productivity and gainfull
employment
 To attain international
competitiveness
The New Industrial
Policy
 Redefinition of Role of Public
sector
 No of industries reserved for public
sector was reduced to 8 and later
on reduced to 2 ( atomic energy
and railway transport)
 Selective privatisation
The New Industrial
Policy
 Expansion of Scope of Private Sector
and Dismantling of Entry and growth
restriction
 Delicensing : All but 18 industries were
freed from licensing
 Removal of MRPTA restriction : Most of the
provisions of MRTP Act were scrapped
( related to expansion, mfg of new items
and M&As)
The New Industrial
Policy
 Liberalisation of Foreign
Investment
 Policy towards foreign capital and
technology are being modified
 FDI allowed in all industries
( except industries falling in small –
ve list) from 26 to 100 %
The New Industrial
Policy
 Related Measures
 Liberal Import policy : reduction in
tariff levels and quant. Restriction
 Price controls have been gradually
eased out
Industrial Policy 1991
 Policy focus is on –
 Deregulating Indian industry;
 Allowing the industry freedom and
flexibility in responding to market forces
and
 Providing a policy regime that facilitates
and fosters growth of Indian industry.
Industrial Policy 1991
 In pursuit of the industrial objectives,
Government decided to take a series of
initiatives in respect of the policies relating
to the following areas:
 Industrial Licensing
 Foreign Investment
 Foreign Technology Agreements
 Public Sector Policy
 MRTP Act
Industrial Licensing
Policy
 The Industrial Policy Resolution of
1956 identified the following three
categories of industries:
 Those that would be reserved for
development in public sector.
 Those that would be permitted for
development through private enterprise
with or without State participation.
 Those in which investment initiatives would
ordinarily emanate from private
entrepreneurs
Industrial Licensing
Policy
 Industrial Licensing is governed by
the Industries (Development &
Regulation) Act, 1951.
 Industrial licensing was abolished
for all industries, except those
specified (18 industries),
irrespective of levels of investment
Foreign Investment
 Limit on foreign equity holdings raised
from 40% to 51% in a wide range of
industries
 Foreign Equity Proposals need not to be
accompanied by Foreign Technology
Transfer Agreement
 Procedure for FDI streamlined by
creating a Foreign Investment
Promotion Board to consider individual
application case by case
Foreign Technology
Agreements
 Foreign technology agreements in high-
priority industries upto Rs. 1 crore were
given automatic permission.
 No permission was required for hiring
foreign technicians and foreign testing
of indigenously developed technologies.
Public Sector Policy
 List of industries reserved for the public
(Schedule A) reduced from 17 to 8

 List of sector reserved for dominance by public


sector (Schedule B) effectively abolished

 Disinvestment in selected public sector


enterprise to raise finance for development,
bring in greater accountability & help create a
new culture in their working for improved
efficiency
MRTP Act
 Eliminated the requirement of
prior approval of Central
Government for
 Establishment of new undertakings
 Expansion of undertakings
 Merger, Amalgamation and Takeover
 Appointment of Directors under
certain circumstances.

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