Chapter 1, INDUSTRIAL POLICY AN) INDUSTRIAL LICENSING POLIcy Industrial development plays a significant role in the economic development of any ny Industrial development of a country calls for an appropriate and progressive industrial policy, To reais ‘ the industry in the desired direction, Government of India has been issuing guidelines from time.t. inthe form of Industrial Poles: Before independence, policy of the government was characterise. | laissez-faire, ie.. nom interference policy in the affairs of industries. Industral development waslefigg, | i exclusive care of private sector. However, in the postindependence era, government has been takings, active interest in the development of industries in India. Through industrial policy, industrial developmen | has been fully controlled and regulated by the government. @ 1. Meaning of Industrial Policy | Industrial policy means those principles and activities which are pursued and performed to hep industrialise a country. Industrial policy includes rules, regulations, principles and procedures to reguat the industrial undertakings of a country in the desired direction, so as to achieve broader objectives ite industrial development, economic development, balanced regional development, increase in employment, etc. Industrial policy includes policy regarding labour and capital, cottage and smal | industries, foreign capital and protection, etc. Its, therefore, aptly said, “Industrial policy is an instrumert with the help of which the state participates in the growth process.” @ 2. Importance of Industrial Policy Importance of industrial policy to an underdeveloped country is evident from the following facts (1) Limited Capacity of Private Sector: Private sector has limited resources and is notina position to undertake risky ventures in underdeveloped countries. It therefore, become imperative that government itself should take active part in industrial development. Industies of public interest and involving huge capital investment and risk are set up by the governmert in public sector. Government develop roads, establishes power stations, heavy and bas industries, etc. As a result, private sector also receives stimulus. Private sector also develor® various industries. Some industries are developed jointly by public and private sector | (2) Regulation of Private Sector: To regulate private sector in the desired directio” appropriate industrial policy is required. Resources of underdeveloped countries b2"3. | limited, the same should be utilised according to the priorities of the plans. Governme™ therefore, controls and regulates private sector to work in accordance with the priorite® determined by the plans. Thus, proper industrial policy is very essential to control the psv™ sector.jicy and Industrial Licensing Policy 231 asl re {g) Regulation of Foreign Sector: In the initial sta has to depend on foreign capital, foreign assistance and foreign trade, ete. Proper policiesin thisrespect are of utmost significance. It therefore, becomes imperative for the government to formulate appropriate policies; so that foreign sector does not go against the national interest and helps to promote economic development. Public, private and foreign sectors make great contribution to industrial development, A firm and clear industrial policy is, therefore, very necessary to coordinate and demarcate these sectors, a industrial Policy in Free India Need foranew. well-planned and clear industrial policy was felt in independent India, To meet this eed, ve industrial policies at different time intervals have so far been formulated in India, ie., Industrial , 1948, 1956. 1977. 1980 and 1991 respectively. Government announced National Manufacturing poy in year 2011 and ‘Make in India’ programme in year 2014 53. Industrial Policy of 1948 Late Shyama Prasad Mukherjee, the then Industrial Minister announced first Industrial Policy on6th April, 1948. In this policy the system of mixed economy was started. Under this system government sassupposed to take keen and active interest in the progress of the country. Under this policy, therefore, beth public and private sectors had enough opportunities to develop and progress. ¢ Main Features of Industrial Policy of 1948 (1) Classification of Industries: Large-scale industries were divided into four categories: (i) Public Sector: In this category 3 industries were included over which state will have full control. It included industries like arms and ammunitions, atomic energy and railways. Under emergency conditions, state could take over any industry of defence and strategic importance. (ii) Public-cum-Private Sector: In the second category were included 6 main basic industries, viz., coal, iron and steel, aircraft, shipbuilding, mineral oil, telephone cables and wireless apparatus industries. All new undertakings relating to these industries would be established only by the government and the existing units will continue to be managed and developed for the next ten years by the private sector, after which the question of their nationalisation was to be decided. (iii) Controlled Private Sector: In the third category 18 important industries were included, viz., tractor, motor vehicles, heavy machine tools, cotton textile, heavy chemicals, cement, power, sugar, paper, shipping, minerals, etc. These industries would continue to remain under private sector but the central government, in consultation with the state government, would have general control over them. (iv) Private and Cooperative Sector: In the fourth category were included all those temaining industries which were to be run on private ownership or cooperative basis. It was also resolved that if any industry did not function satisfactorily, the government will have the power to interfere in its working. 2) Cottage and Small-scale Industries: Under this policy, it was decided to accord considerable importance to cottage and small-scale industries. Rapid development of these industries was stressed with a view to making use of local resources, achieving greater efficiency in the production of consumer goods and generating more employment ges of economic development, a country232 Business Environment and Inter, opportunities. In order to provide government eee develope 4 industries emphasis was laid on the setting up of speci stitutions (3) Labour and Capital Relations: Special stress be ie i" ce oop eon wi capital for the smooth industrial development of nat oa vl Sef oy atmosphere conducive to the amicable relation between the two. It was decided gy wages, social security and other facilities to. the labourers. It was also eng ne ‘i appropriate measures willbe taken to ensure labour participation in manogener them proper and fair share in industrial prosperity. ng (4) Attitude towards Foreign Capital: Importance of foreign capital for Coes development was recognized. It was necessary to take recourse to foreign cage . ‘economic and industrial development of the country. It increases the technical in, the country, However, to safeguard the interests of the country, full control over al by the government was considered necessary. It was made sufficiently clear that. of management and ownership will be in the hands of Indians in those indus a foreign capital is invested. . (5)_Change in Tariff Policy: Optimum utilisation of country’s natural resources and Pri, Indian industries from foreign competition called for a change in government's tarps Heavy tariffs were imposed to protect the domestic industry but it was ensured that igh may not put extra burden on the consumers, (6) Social Overhead Costs: Emphasis was laid on the improvement of transport fi electricity irigation, import of capital goods and supply of raw material, (7) Planning Commission: A planning commission for the planned development oi + country was set up. Thus, the main objective of this policy was to build a mixed economy on the basis of copes! between private and public sectors. @ 4. Industrial Policy of 1956 © Main Features of Industrial Policy of 1956 (1) Classification of Industries: Large-scale industries have been divided is ™ categories: ( Public Sector: Under Schedule ‘17 industries were enlisted for pubes industries included such industries as arms and ammunition, atomic ener" sed, Seed heavy electrical parts, mineral oll, coal, air ans? "ine | nsport, shipping, telephones, witeless aod ‘Generation of electricity, etc. een mae of (M) Public-cum-Private Sector: Under Schedule ‘BY 12 industries werentand Industrial Licensing Policy - om (2) @) (4) 6) (6) ™ (8) (9) a S Industrial Policy of 1977 ee State enterprises In ths schedule industries included minerals, ete, *: Grugs, chemical fertilizers, road and sea transport, (iil) Private Sector: Under Schedule ‘C’, All the remaining industries not included in the » Their establishment and development were both left social policies of the state Fair Treatment to Private Sector: Provision private sector industries by giving them fai Government will not adopt any discriminatin given fair and equal treatment. has been made under this policy to promote cilities of power, transport and finance. 'g Policy against private sector and it will be Cottage and Small-scale Industries: An important role was assigned to cottage and small-scale industries as these industries have potential to generate more and quick employment, remove the inequalities in the distribution of wealth and make proper use of the local capital. Government made efforts to promote the development of these industries. Balanced Regional Growth: In order to check unbalanced growth of industries in different arts of the country, special provisions have been made in this policy. Those regions which are industrially backward will receive priority in the establishment of new industries. More and more facilities will be provided for the development of industries in these regions. Technical and Managerial Personnel: Arrangements will be made to impart technical and managerial training to the personnel of both private and public sectors. Special training institutions, business management courses will be started in universities to meet the requirement of managerial personnel. Proper Amenities for Labourers: Under this policy, arrangements were made to provide proper amenities for labourers like, social security measures, pension-benefits, etc. Special efforts were made to raise the standard of living of labourers and improve their working conditions. It was resolved to give opportunities to the labourers to participate in management. Proper Management of Public Enterprises: In this policy emphasis was placed on the importance of need for efficient management of public enterprises. It was hoped that these public enterprises would be a source of adequate revenue to ‘the state and make proper use of country's resources. “esta te ok - i : ‘concerning foreign Several modifications were introduced in the policy ees were offered to attract foreign capital on a large scale. gover to go in for any kind of licy, the ment was empowered | kind Pee ner th py, 2s ees nr ls was not rigid. It was flexible and can be changed by the coe ifso needed. Industries of one sector may be allowed to be developed by the other se Government announced a new industrial policy. The same 23 December, 1977, Janata Party dustrial policy by Congress Government, d on 23 July, 1980 by another in234 © Main Features of Industrial Policy of 1977 a) (2) (3) (4) (5) © [oy (8) (9) \ Business Environment and Ineraoy iy Small-scale Industries: Industrial policy has so far been laying emp, large-scale industries. In this policy emphasis will be placed on the successfy| qo.,"™ small and tiny industries. One District Industries Centre will be set up in each di the requirements of industries of that src. In the Industrial Development Ban cell will be established which will lay special stress on the needs of smal ind a attention will be laid on the marketing of the products of this sector, Standage products, quality control, etc. Labour-intensive Technology: Under this policy, special efforts will be made, small and ordinary type of machines and make maximum use of them in. order‘oine Productivity and income earning capacity of the workers engaged in smal} end, industries. Use of labour-intensive technology will be promoted to create more er: Attempts will be made to coordinate these production techniques with rural devin programmes. Role of Large-scale Industries: A distinct role of large-scale industies ta, recognised in this policy as in the Industrial Policy of 1956. The role of large scl ind, \was limited to certain key and strategic areas like production of capital goods, ion ads. petroleum, fertilizers, etc Licensing Policy: The objective of the licensing policy under this industrial poly xe regulate the activities of big industrial houses so as to achieve social and economicains:: county. Big units will not be allowed to expand their production capacity, while sal cottage industries will be encouraged to expand. Public Sector: Government will aim at making public sector enterprises viable. Theyit run more efficiently in a bid to earn sufficient profit on the investment made in these indus They will be managed by efficient managers who will enjoy necessary freedom to watt Indigenous and Foreign Technology: Country has a well-developed structureof determined on the basis of political, social and other non- economic consideraigy cases, prices are deliberately kept less than the cost of production. Consequent ni, enterprises suffer losses. Privatisation is advocated to avoid such losses, (8) Burden on the Government: Losses incurred by public sector enterprises are ney, their management or any other person. Losses are made good from governmen,,, ‘Managers are, therefore, indifferent to profits earned or losses incurred. No attention the productivity and the efficiency ofthe enterprise. 78 public sector units are runnin, This creates unnecessary economic burden on the government. For reducing ae burden government has promoted privatisation. - (4) Eres tence Elec ees ch aales Industrial nations of Asia ie with the help of privatisation, So acm = a ae Privatisation and to expand the area of private 7 aoa eae (5) To Avail Benefits of . (6) To Solve Financial Cri (8) ForPromoting Industrial oe “eentequity and retaining 51 per centequiy wit th wth: " burden of developing bac ommnent thought that publicsecor (8) was enc ‘eavy industries alone, because ) For Promoting Globa ‘Ouraged to, Promote industrial ‘south. because forei tion: G| n Globalisati Denes of foreign ne P™EMCUIS prefer el can only be promoted tous ine cot the con Busines Environment and Ine 256 utofjob. This increases the feeling gp own ih among staf. ts id of political interference, (8) Reduction n Political Interference ial decisions ng ne, cl , us ee ape oningot these indusresby the experts eroy hy sound economicprinciples, Fur tlons: In private sector, more emphasis gyg eee ne au nventins research ad devon activites Privatisation encour jeeps 0) Gloallaton of Economy: Wit he aouth of een Mer, “0 vom ieiteracting with the est ofthe world. Ihisis po aus oa ofoure: ; alobalisation aa : Privatisation promotes industrialist dustrial Growth Rate: Priva tig ere enploment boos industrial production and promotes export (12) Increase in Foreign Direc Investment: Privatisation promotes lobalsaon ena, foreign investors invest in domestic economy. In India, from Apri 2000 ty 2017, €20,18,479 crore were invested in the form of Foreign Direct Invesiney (43) Reduction in Loss of Public Sector Units: Privatisation also encourages ering, sector unit to improve ther eficiency because there is always threat of privatsany, making publisector us, Ths way privatisation helpsin improving the profitably, sector units. Many loss making PSUs have started generating profits because of tra, privatisation, @ 6. Arguments Against/Disadvantages/Obstacles in Privatisation (1) Industrial Sickness: Privatisation does not necessarily add to efficiency. Wide: industrial sickness in Indias a glaring example. In 2016, there were 4,80,280 sick nine small scale industrial units in private sector. Bank loans amounting to % 32,674 ame: Outstanding against them Ifa person does not work, he is tht (2) (3) (4) ple, o monopeyinthe hand of Ta SO¥eTAMENt privatised, VSNL and PCL (5) Opposition by Empl Tai and Reliance espectively, / SHEP Acoma io tee HOHE tons in Indie oppose rewatatin 12 employees 9 10 them, it wil ee i National Pe th. nord nro aa Unemployment and lead t0 ori $0 far favoured ns eta has provid = Of the employees, gover ‘sit (©) Problem of Privatisation, ded & 200 crore fort, yet the Trade Ur" 8 Priva etl, “mot manage large finns huge resources to buy pubiese2 fa" cial resources all by itself. If it bor"buy PSUs. Shares of pub be sold to the public through stock matkets, Hove rh Pad ieee at sero generally people are less sue ofthe proitabiliyof publ ene Posty oft, because ire: Some political Parties mainly communists. privatisation. So, it hinders the proce Ss of privatisation. (8) Increase in Unemployment: There is more (left parties) are against (9) Wasteful Expenses: Many wasteful expenses are incurred by private sector units like wasteful advertising, sales promotion, perquisites for promoters and directors, etc. These wasteful expenses are passed on to the customers in the form of higher prices. Exploitation of Poor Nations: Privatisation promotes globalisation. In globalisation some Tich nations exploit the poor nations and use these poor nations as their colonies. MNCs of Tich nations prove fatal for domestic industries of poor nations, (10) (11) Ignores Weaker Sections: Profit motive is the guiding principle of privatisation. Private sector producers aim at maximising profits. Entrepreneurs are more inclined to produce goods that cater to luxuries and comforts. Needs of weaker sections of the ‘society are ignored. Moreover, private sector does not offer job reservations to SC, ST and BC candidates. (12) Ignores Enterprises of National Importance: Private sector works only for profit motive. So this sector does not enter in such area in which profitability is low. So sometimes key and basic industries are ignored by private sector. (13) Increase in Regional Imbalances: Because of inadequate infrastructure private sector hesitates to set up units in backward areas. Private entrepreneurs prefer to set up their units in already developed regions. It has led to regional imbalances. "7. Privatis: i i p ation in India Before independence, private sector dominated in India. During the period of planning, "portance of public sector increased and that of private sector relatively declined. In 1991, New EonomicPolcy was declared, Under this policy, private sector has been accorded great hie ete wees of privatisation has been initiated, Main features of the process of privatisation in India are as s . industries reserved for the public sector has 7 Contraction of Pubic Seer: N ee ee RASH eat eee a er ag ste have been opened for private sector. pe Nai i infrastructure has also been opened for private sector. This measure tl roche fine ply sec. Hoped lconeton ad efficiency will increase in the areas which have been oper 7258 Business Environment and jn J after privatisation huge funds are ix ty th f telecommunication, after P investe, in the area of tion. . a and it has promoted competi the Private Sector: Upto 74 po, cent, to a (2) Sale of Shares of Public Sector investors, institutional investors, mutalg st "Di, ign it public sector have been a eae 9017, shares of public sector worth & 2.47 and workers. Tillthe end of Ma hres re divested. Now shag ie, sold. In some PSUs, even 100 per cents! ocanes re ite: Public sector units will be treated in the same: ey (8) Sick Public Sector mi Teorganise the sick enterprises of public sector, the “tiny ine Eeleand “for Reconstruction of Public Sector Enterprise, et a of sick industrial companies of pubic sector have been forwarded 3 ‘Sick PSUs which cannot be revived are sold to private sector. (4) National Renewal Fund: This fund was established for protecting the interest ofan, cn account of privatisation. All the employees of public sector unit which is sald py. sector cannot be absorbed in private sector. Some employees are retrenched and se, offered voluntary retirement under this scheme. Upto March 2017, 6.25 lakh employes, sought voluntary retirement from public sector units. This fund is even used for page compensation and for providing social security measures to retrenched employees i and for making payment for voluntary retirement. It has been decided that workers: will be protected in all disinvestment decisions. (5) Implementation of Recommendations of Rangarajan Committe recommending ways to improve the functioning of PSUs, Rangarajan Commit: appointed. Following recommendations of Rangarajan Committee have been imple" which have gone in the direction of privatisation of PSUs: (i) To disinvest 49 per ei of reserved public sector units and to disinvest 74 per cent ‘equity of other publicseco™ (ii) Corporatisation of public sector uni nol ts (running PSUs as corporate body). i) Pubic shares: Inthe pb issue of shares, employees of the same public sector coma gwen preference. (iv) Ten per cent of disinvestment proceeds be set aside s* concessional loans to PSUs a (6) Setting up National Investment Fund: In year 2005, government has st ate credited to this fund. The 75%", disinves the trates rfid noth and naveeae M29 26, 2004 that the government woe" cane rPeaton (100), Hindu oad PSUs like Oil and Natural Gas Corp i! Lid. (BPCL) mn Ltd. f Authors of nda Li ay i Limited (Oi) Nant, Corporation Lid. (HPCL Bhai * 1ows a ete. He nal Thermal Power Corporatio! ever, * dlsinvestment of sick PSUs was allowed:Actual Amount Realised (© in crore) 1.871 10 23,553 res 23,956 ets 96,925 24,349 } ee 41000 a ett 56,500 40,247 (Source: Dept. of Disinvestment, Ministry of Finance) | _ Amount of disinvestment proceeds was highest in the sevstment proceeds were realised. From 1991 to 2017, _wediinvestment. In the years 2005-06 to 2008-09, 2009-10, government formulated mega disinvestm erat equity of all profitable central PSEs should be disi ‘2201-1010 2016-17, @ 1,93,959 crore was realised by disinvesting minority stake in NHPC, OIL, FCREC,SIVN, EIL, Coal India, PGCIL, MOIL, SCI, NMDC, PFC, ONGC, IOCL, BHEL, HCL, NLC, © Tewtamount to be realised by disinvestment for the year 2017-18 was fixed at € 72.500 crove Table 2. List of main Public Sector Units in which partial/full Disinvestment has already been made year 2016-17. In this year, 7 46,247 crore + Sepping ret and Investment Corporation of India (19) Modern Food Industries (Indi) Lad Container Corporation of India Ltd, (20) Indian Tourism Development Corporation (10 hotels) 5 Vides Sanchar Nigam Ltd. (VSNL) (21) Bharat Aluminium Company Lid. (BALCO) * Gland Natural Gas Corporation Ltd. (ONGC) (22) CMC Ltd. * Gos Authority of India Ld. (GAIL) (23) IBP Company Ltd © Sel Authority of india Lid. (SAIL) (24) Paradeep Phosphates Lid 7 Mtaeoa Telephone Nigam Lid. (MTN) (25) Power Finance Corporation ® idan Perochemicals Corporation Ltd (PCL) (26) National Hydro Power Corporation (NHPC) © Fer Gi Corporation (27) Rural Electrification Corporation (REC) 1h Sg Corporation of India (28) Oi India Limited (OIL) 1 Nona Aluminium ‘Company (NALCO) (29) National Thermal Power Corporation (NTPC) E Fertilisers Lid, (NFL) (80) National Mineral Development Corporation (NMDC) 1 (31) Coal India Ld 15 pe Concraton (32) MOIL Le og Peo (33) Indian OM Corporation Ltd. (OCL) oy ‘en Retnves Lid, (34) Bharat Heavy Electricals Lid. (BHEL) | y "titan Zinc Li (35) Hindustan Copper Lid. (HCL) Uivog Lia (36) NeyveliLignte Corporation Ltd. (NLC)| 260 Business Environment and Internatioy eB ™ 8. Practical Suggestions . In India role of both public sector and private se« objectives, Private sector is known for its efficiency and profit welfare, For the last few vears, working of public sector Is he experience of other nations also reveals that we should give more regard practical suggestions are classified in two parts: (A) Suggestions for Privé tion (B) Suggestions for Improvement in © 8.1 Suggestions for Privatisation (1) Privatisation in Phased Manner: .ctor cannot be ignored. Both sectors achieve, rability while public sector is known, fore ravily criticised for its inefficiency, Moye importance to private cn hy Efficiency of PSUs In India, level of economic development has», reached that level where role of publicsector becomes irrelevant, Public sectors contigs, ‘ignificantly to the development of infrastructure Private sector is also not so viable thatit take whole responsibilty of economic development So privatisation should be done in, phased manner. Inthe initial stage, some non-strategic PSUs should be privatised and the area of private sector should be widened. All loss making PSUs which cannot be reve, spesald be auctioned to private sector. No such privatisation should be done which cata ‘monopoly with private sector. (2) Privatisation of Future Industrialisation: The future industrialisation should be doves private sector only, i. the new industries should be started in private sector. This method Promoting privatisation is likely to be less resisted by labour class and would not leads political tension {) Check and Control on Private Sector: Government should regulate such private sete tunis (which are formed through conversion of PSUs) so as to ensure that these private ser vinits do not go against publi interest and meet their social obligations. (4) Partial Privatisation: In case of strategic PSUs, government should sell only 2 cers ,ctor. In this way government can also retain some shares percentage of PSUs to private se PeUe it all help the government to avail the benefits of privatisation along with con control over it Us shoul be (5) Sale of Shares to Workers: In the scheme of privatisation, some shares of PSI sold to employees, so that their interest can be protected even after privatisation. forts should be mae (6) Social-Security Arrangements for Retrenched Employees: Eff the government to ensure that employees of PSUs are retained in private sector Buti employees are retrenched, then social security measures should be taken to interest, like giving alternative jobs to retrenched employees, granting pension, () oper Valuation of Asset of PSUs: PSUs should be properly value oe government agency as well as private agency. In many cases inderv time of sale to private sector. any PSUs ae © 8. one for Improvement in Efficiency of Public Sector Units Sianing | pesieaetae! of Understanding: Memorandum of understa” to publie —— with Public sector undertakings, so that operational autonomy’ jor undertakings, MoUs delegate more authority and autonomy 0a PSUs. Mat » agers can take independent decisions without much involvement f™ cing nb,won Indi ; , ~ val im prove their efficiency ang Will inctease the . ings. . ane “eountabilty of managers of such, ing Problem of Ov. Overcomi er-Staffing: for their overstaffing. To overcome thy, wale sector retirement schemes (VRS) should be I launched in attractive voluntary receive resistance from employees and wil as theme Sector undertakings. It will not 4) Reorganisation and Merger of PSUy Fj, lem of over-staffing rehabilitate sick public sector unde Mat Should be ma tts will stengthen the sick PSUs wement in Marketing: To j (4) Impro * © IMProve profitability of Ps ef imgrove markting of produets produced by PSUs Brgy — erie should ae improved and price policy should be ratonalced ane ey PSUs to impr tee profitability Ip PSUs to improve their 5) Improvement in Technology: PSUs employed in PSUs so as to improve thei Us to face competition with private sector enterprises and forei m ign enterprises working in India (6) Professional Management: Management of PSUs should be Professionalised. Presently, PSUs are managed by bureaucrats. These bureaucrats lack in professional skills. So to improve profitability of PSUs, professional managers should be appointed who are experienced, are well qualified from top business/management institutes Competitive Environment should be created for PSUs. Private sector should be encouraged to set up units in the areas made ‘open for it. It will create competitive environment for existing PSUs. a “shor, scope of total privatisation is limited in India. While, on the one hand, there is need to run “sector enterprises strictly on commercial lines by improving their efficiency, on the other hand, sor should also take initiative to enter every field of the economy in accordance withthe spirit of sees We should make use of privatisation more as a tonic than as a food. Infact, India's larger "d future well-being lies in the co-existence of private and public ae atisation “tof PSUs should be transparent and beneficial. Profit making PSU with sound trac! Id not be privatised. i int cont h wpe Questions is relevance in the present context of Indian at is meant by privatisation? What is , 2 gonomy? ss causes, advantages and disadvantages lain t tion. What are its d ay i he concept of privatisat aa eein re 4. ull Ptivatisation possible in India? ses a jectives, caus tis meant by privatisation? Explain its obj