A.

Long Answer Questions

1) Define industrial sickness. What are its symptoms and causes? What are the measures
adopted by the government to rehabilitate sick units.

Ans: Industrial Sickness

Sickness in industry is as old as modem industry itself. In one sense. we can say that sickness is
an inevitable feature of industrial capitalism.

Symptoms of Sickness

An industrial unit is sick when it is not healthy. The health of an industrial unit can be measured
on the basis of a number of criteria. Among these, a few important symptoms are as follows:

⦁ Slow turnover in the accounts of the unit,

⦁ Frequent requests for overdrafts or drawing beyond the sanctioned limit, sometimes
even without prior intimation to the bank,

⦁ Failure to honour bills on maturity,

⦁ Return of bills drawn by a unit on its buyers,

⦁ Slow offtake of stocks,

⦁ Inexplicable delays in the submission of stock statements,

⦁ Tendency to draw less by cheques than in cash, and

⦁ Overvaluation of stocks, diversion of stocks, or failure to endure stocks, etc.

Causes of Sickness

External Causes

i) High costs of manufacture coupled with a low realisation of sales revenue. High costs may be
due to inflated prices of inputs.

ii) Non-availability of raw materials regularly or smoothly, or availability at high prices.

iii) A lack of regular supplies of inputs such as power and transport bottlenecks.

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iv) A general recessionary trend in the economy affecting the overall performance of the
industrial units.

v) Fiscal dues, such as, excise duties, import duties, etc. These hit more generally the profit
margins.

Internal Causes

i) An improper demand estimation for the products to be sold.

ii) An improper choice of technology. unsuitability of product-mix, or single product technology,

wrong location of industry, non-flexibility of fixed assets, mainly machinery, for possible use in
the diversified manufacturing set-up.

iii) A defective capital structure especially on account of delayed constructions and operations,
resulting in cost overruns and larger borrowings.

iv) A growing shortage of working capital, as the units go into operation, due to a shortage of
raw materials, and high prices, poor debtors' collection, inadequate inventory managements,
etc. is a serious constraint.

v) Managerial ineffectiveness, poor control and absence of control on such key areas of
operations as finance, inventory and marketing.

Rehabilitation

i) Financial institutions must adopt a rigorous project appraisal. Loans should be extended only
when the lending agency has fully satisfied itself about the viability of the project.

ii) There should be cooperation among term lending institutions and commercial banks.
Commercial banks, by and large, provide working capital finance.

iii) In many practical cases commercial banks sacrifice the major dues by way of reducing the
rate of interest on loans, writing off excess interest changes, etc. and sanctioning of funds at a
lower rate of interest for further needs after rehabilitation scheme has been worked out.

iv) There should be coordination between various government agencies, inclusive of both
regulatory and promotional, and all financial institutions including banks.

v) There should be fill cooperation from various suppliers, unsecured creditors and other
stakeholders who are interested in the rehabilitation of the units and particularly from the
employees.

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vi) Management deficiencies should be overcome by inducting professionals on the Board of
Directors and by appointing competent technical and managerial personnel in key positions in
production, finance and marketing.

2) Briefly describe the nature of linkages of the industrial sector with agriculture and services
sectors in India.

Ans: Agricultural growth and industrial growth are complementary, and per se, interdependent.

We can discuss this complementarity and linkage in two parts.

⦁ Agriculture's contribution to the industrial growth.

⦁ Industry's contribution to the growth of the agricultural sector.

Agriculture's Contribution to the Industrial Growth

Simon Kuznets identifies four possible types of contribution that the agricultural sector is
capable of making to overall economic development. These are as follows:

i) Product contribution, i.e. making available food and raw materials,

ii) Market contribution, i.e. providing the market for producer goods and consumer goods in the
non-agricultural sector,

iii) Factor contribution, i.e. making available labour and capital to the nonagricultural sector,

iv) Foreign exchange contribution, i.e. earning foreign exchange required for diversified imports.

Let us elucidate further the contribution of the agricultural sector to the industrial growth in the
following:

a) Food supply and Industrialisation

Industrialisation is characterised by a substantial increase in the demand for agricultural

products, and failure to expand food supplies can seriously restrict growth.

b) Inputs for Industry

Two essential inputs required for industries may be procured only from the agricultural sector.
These are: (i) raw materials and (ii) labour.

c) Source of Capital Formation

The lion's share of national income in a developing economy is generated in the agricultural
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sector.

d) Source of Foreign Exchange

In its infant stage industry creates little foreign exchange but creates demand for it.

e) Market for Industrial Products

Industry needs a strong, well-developed market to operate and function efficiently.

Industry's Contribution to Agricultural Growth

Industry contributes to and makes possible agricultural progress in a number of

i) Most of the modem inputs, including fertilisers, pesticides and even water are

made available by industry.

ii) Industry supplies the machinery required on the farms.

iii) Agricultural engineering is a significant branch of industry.

iv) Most of the research that has gone in to bring about green revolution in our

country has been undertaken in what can be described as industrial culture.

v) Industry helps raise the necessary infrastructure required for agricultural progress. This may
consist of transportation and communication, trade and commerce, banking and marketing
channels, etc.

vi) Industry is to meet the growing demand for consumer goods in the rural sector in the wake
of growing population and income in this sector.

To sum up, it is a wise and rational strategy for a developing country to promote integrated
development of both agriculture and industry, not mainly because of their inter-dependence in
course of economic development, but also because of their technical inter-relationship in the
sense that each sector uses some kind of output or the other in its own production process. In
formulating the strategy of integrated development of agriculture and industry, agro-industries
should be assigned an important role since they form a vital link between the two. In their bid
to promote fashionable modern industrial complexes, developing countries easily tend to
overlook the crucial role that agro-industries could play in promoting the integrated
development of agriculture and industry and in transforming a stagnant rural economy into
dynamic industrialised economy.

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B. Medium Answer Questions

3) Briefly summarise the opportunities and challenges posed by globalisation to the Indian
industrial sector.

Ans: India can gain by participating in the global economy. It can get access to technologies,
managerial expertise and world markets. The advantage is that India has a large domestic
market. India also has the advantage of cheap labour and a large pool of scientific and educated
manpower. This should attract foreign investment to India. Then you may ask why foreign
direct investment is flowing to China and not to India.

The critical problem areas are infrastructure and labour productivity. The quality of
infrastructure available to Indian industrial producers is much inferior. The power supply is not
continuous and frequently breaks down. This causes work stoppages and poor capacity
utilisation.

Secondly our ports and custom procedures are inefficient. It is observed that it takes only one
month to import a product from China but takes more than two months from India.

Thirdly we need to improve the quality of our human capital base. Indian labour may be cheap
but it is also true that the productivity of Indian labour is lower compared to other countries.

To improve productivity we need to absorb new knowledge and train our workforce. The
number of people with secondary education is very low in India compared to

What attracts investment is the availability of electricity, transport and communication

facilities. The two basic necessities to participate and succeed in the globalised economy are the
quality infrastructure and productive labour. This requires more and more investment.

4) Bring out the important policy changes pertaining to industrial sector since economic
liberalisation.

Ans: In fact the process of liberalization started in mid-eighties and did not suddenly come
about in 1990s. Several steps like exemption limit from licensing, re-endorsement of the
existing capacitates etc. were taken. Some important measures taken are :

i) Relaxation to MRTP and FERA Companies

Under the pretext of expanding industrial production and promoting exports, various

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concessions were provided to companies falling under the MRTP Act (Monopolies and
Restrictive Trade Practices Act) and FERA (Foreign Exchange Regulation Act).

ii) Delicensing

With a view to encouraging production, the government delicensed 28 broad categories of

industries and 82 bulk drugs and their formulations. For these industries only registration with
the Secretariat for Industrial Approvals was now required: no license had to be obtained under
the Industries (Development and Regulation) Act.

iii) Minimum Economic Scales of Operation

Another important concept introduced in the field of industrial licensing was that of minimum
economic level of operation. This was introduced in 1986.

iv) Incentives for Export Production

Various concessions were announced by the government in its industrial policy and export-
import policy from time to time to promote the expansion of exports. Also MRTP and FERA
companies were permitted if the product is predominantly for exports.

v) Enhancement of Investment Limit for SSI Units and Ancillary Units

The July 1980 Statement fixed the investment limit for small-scale industries at Rs. 20 lakh and
for ancillary units at Rs. 25 lakh. A government notification issued in April 1991 raised the
investment limit for both of them. The investment limit for tiny units was raised from Rs. 5 lakh
to Rs. 25 lakh. The investment limit for small-scale industry was reduced to Rs. 1 crore in 1999.

5) Give a brief account of the factors that influence the location of industries.

Ans: Historical Factors

At times in past many industries have come to be localised at a particular place or a region for
no obvious reason.

Availability of Raw Materials

The proximity to raw materials is an important factor influencing the choice of location.
Proximity to raw materials supplies assures two things:

a) the proportion of raw material cost in total cost of production of a product,

b) the nature of the raw material.

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Access to Markets

The consumption centres are equally important determinants of the location of an industry.

Transport Connectivity

Industrial location is also influenced by the factor that how well a particular site is connected
with distant places by means of transportation and communication.

Power Resources

Power is the most essential input to run the modem industry. No industry can do without the
supply of regular good-quality energy.

Infrastructure Services

Low prices and easy availability of developed land sites along with the existence of public utility
services attract more industry; social amenities offered by particular areas as regards housing
and medical facilities offer an attraction to industries.

Financial Services

The availability of reliable and cheap financial facilities and services has played an important
part in the gone past in determining the location of industries.

Natural and Climatic Conditions

Factors like the topography of a region, drainage facilities and disposal of waste products affect
the location of industries.

Personal Factors

Entrepreneurs are known to have not always been guided by purely economic considerations in
deciding location of their industrial enterprises.

Strategical Considerations

During recent years strategical considerations have been emphasised in industrial locations.
Industry at times gets decentralised and dispersed on account' of this factor.

6) Critically examine the role of MNCs in a developing economy such as India.

Ans: MNCs are often considered as engines of growth by the global institutions. Potentially, the
MNCs can contribute in various areas such as capital formation, human resources, environment,

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technology, and trade of home as well as the host countries. Through their linkages with local
companies, they can contribute to capital formation and boost the efficiency. Presence of MNCs
can help generate employment, bring in world-class managerial skills, provide training, and can
have learning effects also. It is also believed that MNCs can help utilise underemployed or
unemployed resources. Thus MNCs help in growth and employment and the gain for the host
country can come through optimal use of resources and up gradation of the quality of
resources. Given the lack of resources in less developed countries (LDCs), the investment by
MNEs can come as a boon and lead to further growth. However lack of linkages can lead to
creation of enclave economics.

It is a known fact that MNEs are a huge repository of modem technology, established R&D, and
can be a boon for industrial upgrading. Parent firms usually provide the best managerial skills
and practices, technology, and equipment to firms in host countries. Unless some degree of
management control is allowed, technology owners are normally reluctant to make their
technology available. Thus in multinational activities where the investor retains some
management control over the resources, host countries have the benefits of access to best
technologies available. It not only provides modern technology but also brings in cleaner
environment-friendly technologies.

C. Short Answer Questions

7) Bring out the rationale for disinvestment in India.

Ans: The Industrial Policy Statement of 24th July 1991 envisaged for the first time,
disinvestment of part of Government equity holdings in selected PSEs. The following objectives
were sought to be met through disinvestment of shares: provide market discipline, raise
resources, encourage wider public participation, promote greater accountability and improve
the performance of PSEs. It was proposed that the revenue generated from disinvestment
would be utilised in the two vital areas of health and education, particularly in the poor
backward districts of the country

8) Write short notes on the following:

a) Corporate Social Responsibility

Ans: Corporate Social Responsibility is a management concept whereby companies integrate

social and environmental concerns in their business operations and interactions with their

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stakeholders. CSR is generally understood as being the way through which a company achieves
a balance of economic, environmental and social imperatives (“Triple-Bottom-Line-
Approach”), while at the same time addressing the expectations of shareholders and
stakeholders. In this sense it is important to draw a distinction between CSR, which can be a
strategic business management concept, and charity, sponsorships or philanthropy.

b) Major issues in Competition Law in India

Ans: In the first three decades of independence, India followed a path of planned economic
development characterized by controls and licensing. The resultant market structures were
ones where competition was muted. The Monopolies and Restrictive Trade Practices Act (MRTP
Act) enacted in 1969 focused on control of monopolies and concentration of economic power.

The economic reforms initiated in 1991, resulting in opening-up of the Indian economy through
removals of controls. This transition necessitated the Indian markets to gear up to face
competition both from within and outside. The MRTP Act as a product of the licensing and
controls regime became redundant in the post liberalization era.