Sahas Institute :- 11-12 Comm / FY – SY – TY B.

com /CA & CS Page |1

11th 12th (Commerce)

F.Y S.Y. T.Y. B.COM
C.A. & C.S ( All levels)
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F.Y.B.Com [sem 2] I.E.P.P UNIT 3 MIMP Question List

QUE 1) New industrial policy-1991

:- On July 24, 1991, the government announced the new industrial policy.
:- The policy was related with Liberalisation, Privatizations, and Globalisation.
:- The following are the objectives of IPR 1991,
[1] To make Indian economy free from unnecessary control.
[2] To introduce liberalisation to integrate Indian economy with the world economy.
[3] To remove restrictions on direct foreign investment.
[4] To remove the restrictions of MRTP Act. Download
[5] To correct weakness in the industrial structure.
[6] To build on the gains already made.
[7] To maintain a high growth in productivity.
[8] To maintain gainful employment.
[9] To attain international competitiveness.
 Policy Changes (Features of NIP, 1991):
:- Important changes in the NIP 1991 and subsequent changes are as under:
(A) Industrial Licensing Policy:
:- The licensing system was abolished for industries except 18 industries (for security, social and
environment reasons).
:- At present, compulsory licensing is necessary for only six industries such as Alcoholic drinks, Cigarettes,
electronics, aerospace and defense equipment, industrial explosive, hazardous chemicals and drugs
and pharmaceuticals.
:- In case of Delicensed industries, there is no need to get government approval.
:- The entrepreneurs have to submit only Industrial Entrepreneur Memorandum.(IEM)
:- Now approval from the Central Government is not required for locating the industries in cities where
population is less than one million.
:- Where population is more than one million, industries must be located outside the 25 kms of the city
area.
:- However, non-polluting industries such as software development, printing, electronics and so on can be
located within this area
:- Since the announcement of new industrial policy till December 2005, over 66,000 IEMS/LOIS have been
files with
o Investment intentions amounting to Rs.1894202 crores, and
o Additional employment potential of 12 million.
(B) Foreign Investment:
:- Foreign Exchange Regulation Act - FERA was abolished under new policy.
:- For industrial development. Foreign Direct Investment (FDI) has been encouraged.

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:- Because it would also bring technology, marketing expertise, modern management and export
promotion possibilities in India.
:- Liberal provisions are declared for easy entry of FDI.
:- 51% of FDI was allowed in certain high priority industries.
:- From 9 may 2001, FDI is allowed up to 26% in defense production, 49% in banking sector, 74% in telecom
sector and 100% in drug and pharmaceutical sector, hotels and tourism and so on.
:- Foreign Investment Promotion Board (FIPB) has been established to negotiate with MNFs (multinational
firms)
(C) Foreign Technology Agreement:
:- Automatic approval is to be given for foreign technology agreement in high priority industries up to a
lumpsum payment of $ 2 million.
:- In other industries, automatic permission will be given if no foreign exchange is required.
:- No permission would be required for hiring foreign technicians.
(D) Public Sector:
:- The 1956 policy resolution had reserved 17 industries for the public sector.
:- While, NIP 1991 has reduced this number to 8.
:- Due to subsequent changes, at present only 3 industries are reserved for public sector enterprises.
:- They are (i) Atomic Energy
(ii) Minerals specified by department of Atomic Energy, and
(iii) Rail Transport
:- It was decided that the sick units are to be referred to the board of industrial and financial reconstruction
(BIFR) for advice about rehabilitation and reconstruction.
:- The public sector will be provided a more management autonomy.
:- A part of the Government share-holding in the public sector would be offered to mutual funds, financial
institutions, workers and general public. (Disinvestment)
:- Over the period of 1991-92 up to 2004-05 the government has raised Rs.47690 crores through this
means.
:- Disinvestment Commission was set up for identifying PSES (Public Sector Enterprise) for equity
disinvestment.
(E) MRTP Act:
:- New industrial policy was adopted in the spirit of liberalisation, privatization and globalisation of the
economy.
:- It was basically introduced for promotion of exports and generation of employment.
:- But it failed to achieve its objectives.
:- It has the following defects (Shortcomings).
(1) Erosion of Public Sector:
:- There is erosion of public sector.
:- Number of industries reserved for public sector has been reduced from 17 to 3.
(It adversely affected the rapid growth of basic and key industries.) Download
(2) Concentration of Economic Power and Regional Disparities:
:- Various provisions of NIP (about FERA, MRTP and FDI) have private sector is expanded.
:- Thus, there is greater reliance on market and market forces for development.
(3) Great Reliance on Market:
:- Role of public sector is reduced while scope of private sector is expanded.
:- Thus, there is greater reliance on market and market forces for development.
(4) Foreign Capital:
:- With liberalisation, foreign capital entered in non-priority sectors and transferred obsolete technology in
India.
(5) Globalisation of the Economy
:- Due to Globalisation foreign entrepreneurs have entered in Indian market and influenced the decisions
of domestic entrepreneurs.
:- With this, foreign exchange rate, trade policies and fiscal policies are also affected.

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(6) Employment:
:- Under NIP 1991, we largely depend on high priority industries.
:- These industries are capital intensive, energy intensive and market intensive.
:- So they generate comparatively less employment.
Industrial Policy of 1956 NIP of 1991
[1] It made classification of industries into three [1] It makes no such classification of industries.
categories. [2] Industrial licensing system has been abolished
[2] Industrial licensing system was applicable. except for only five industries.
[3] Provisions of FERA and MRTP were applicable. [3] These provisions are removed.
[4] It emphasized on prevention of monopoly and [4] It has increased monopoly and concentration of
concentration of economic power in few economic power in few hands and regional
hands and achievement of balanced imbalance.
regional development. [5] It has emphasized the role of private sector.
[5] It emphasized the role of public sector. Only 3 industries are reserved for public sector.
Therefore, 17 industries were reserved for [6] Under NIP 1991, the development depends upon
pubic sector. role of private sector i.e. privatization or
[6] Under the policy of 1956, the development was marketization.
dependent upon role of government. So there is greater reliance on market forces.
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QUE 2) Write a notes on :-
[A] Sources of industrial finance.
 Introduction:
:- Finance is considered as the life force of industry.
:- Due to the lack of adequate finance, industrial development is not at all possible.
:- Industries require short term, medium term and long term finance for meeting their requirements of
fixed capital expenditure and also to meet their working capital needs.
 Sources
[1] On the Basis of time
(a) Long-Term finance (3 years & above):
:- Long term finance for industries includes those financial resources which are given to the industries by
the banks for a period of 3 years and above.
:- Long term finance is quite important for the expansion and modernisation of industrial projects and also
to meet its fixed capital expenditure requirement.
:- Long term finance is mostly available from the sale of shares and debentures, and loan from lending
financial institutions like IDBI, IFCI, ICICI etc.
(b) Medium - Term (from 1 years to upto 3 years):
:- Medium term loan is also available from banks and other financial institutions for a period above 1 year
and up to 3 years.
(c) Short Term (From1 Month to 12 Month):
:- Short-term finance for industries includes those financial resources which are given by baks to the
industries for a period between 1 month to 12 months.
:- Short-term finance is required to meet working capital needs and other sundry expenses of the industrial
projects.
:- Commercial banks offer short term loans on cash - credit basis on the security or stocks and overdraft
facilities to the industries.
[2] Sources of industrial finance:
:- Following are some of the major sources from which Indian industries are getting their necessary finance
in a regular manner:
(a) Shares and Debentures:
:- Indian industries are normally get a major portion of their capital by selling shares in low denominations
of Rs.10 each.

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:- Share may be a preference share or an ordinary share.

:- Debentures are also issued in the capital market by the companies and in recent years convertible
debentures are gradually becoming more popular.
(b) Public Deposits:
:- Another source of industrial finance is the deposit raised from the public.
:- E.g. Ahmedabad textile industry was primarily established on the basis of public deposit.
:- Besides Cotton Mills of Mumbai and Sholapur.
:- Tea Gardens of Assam and Bengal have also raised their fixed capital in sufficient quantity through public
deposit.
:- The main defect of this source is that these deposits may be withdrawn at any moment and cannot be
used for long-term investment projects.
(c) Commercial Banks:
:- The commercial banks are generally advancing loan for meeting working capital needs of the industries
in the form of advancing loan, overdraft, and cash credit facilities against government securities
and pledge of stocks.
:- Commercial Banks, nowadays, have been advancing medium term loan to the industries particularly
since the establishment of IDBI.

(d) Indigenous Bankers:

:- In India indegenous bankers have been rendering important services to industry in time of their difficulty.
:- In urban areas both the small and medium size industries are getting sufficient finance from indigenous
bankers.
:- But these Indigenous bankers normally charge so high rate of interest on such loan.
(e) Term-lending Institutions:
:- These institutions include Industrial Finance Corporation of India (IFCI), Industrial Credit and Investment
Corporation of India (ICICI), Industrial Development Bank of India (IDBI), Industrial Reconstruction
Corporation of India (IRCI), State Financial Corporations and State Industrial Development
Corporations (in different states).
:- Besides Life Insurance Corporation of India (LICI) and Unit Trust of India are also providing finance.
(f) Retained Profits:
:- Retained profits or undistributed profits of the industries are also being ploughed back into the industry
for meeting its requirements of replacement, modernisation and expansion.
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[B] Term lending institution as a IFCI.
:- Following are the term lending institutions of India:
[1] Industrial Finance Corporation of India (IFCI):
:- After the Second World War, there was a great need for the expansion of industries in India.
:- To meet the requirements of industrial development of the country.
:- In July 1, 1948 the Industrial Finance Corporation of India (IFCI) was established by the Government
under a special Act.
:- The prime object of IFCI is to provide medium term and long-term finance to public limited companies
and co - operative organisations.
:- The authorized share capital of the IFCI is now raised to Rs.20 crore.
:- The IDBI, scheduled banks, insurance companies, investment trusts and co-operative banks are the
shareholders of the IFCI.
:- Later by an amendment to the IFCI Act, private limited companies have become eligible to get financial
assistance from IFCI.
:- After the establishment of Industrial Development Bank of India (IDBI) in 1964, the IFCI became a
subsidiary to the IDBI.
:- Again on 24th March, 1993 the Industrial Finance Corporation (Transfer of Undertaking and Repeal) Bill
1993 was passed in the Parliament in order to privatize the IFCI Now would be free to raise
resources from the open market and face competition.

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 The Corporation is authorized to perform the following functions:

(1) Granting loans and advances to industrial concerns and subscribing to the shares and debentures
floated by them.
(2) Underwriting the issue of stocks, shares, debentures and bonds of industrial concerns provided these
stocks, shares etc., are disposed of by the Corporation within seven years.
(3) Guarantees loans raised by industrial concerns in the capital market.
(4) Granting loans in foreign currencies to specified industries.
(5) Guarantees deferred payments in respect of imports of capital goods made by approved industrial
concerns.
:- The IFCI is authorized to advance long and medium term finance only to those companies which are
engaged in manufacturing, mining, shipping and generation and distribution of electricity.
:- Now the Corporation's capacity to advance loan or to assist a single concern is limited to Rs.1 crore and
the period of loans should not exceed 25 years.
:- The corporation is giving more preference in advancing finance to Download
▪ New entrepreneurs.
▪ Projects aimed at exploring new areas of technology,
▪ Prospect of the projects in earning foreign exchange.
▪ Projects involved for producing inputs for raising agricultural production,
▪ Projects involved in the production of essential consumer goods, and
Projects located in notified list.
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Que ] Major Differences between Public Sector and Private Sector.
Se. No. Basis For Comparison Public Sector Private Sector
1 Meaning The section of a nation's economy, The section of a nation's economy,
which is under the control of which owned and controlled by
government, whether it is central, private individuals or companies is
state or local, is known as the known as Private Sector.
Public Sector.
2 Basic Objective To serve the citizens of the country. Earning Profit
3 Raises money from Public Revenue like tax, duty, Issuing shares and debentures or
penalty etc. by taking loan
4 Areas Police, Army, Mining, Health, Finance, Information Technology,
Manufacturing, Electricity, Mining, Transport, Education,
Education, Transport, Telecommunication,
Telecommunication, Agriculture, Manufacturing, Banking,
Banking, Insurance, etc. Construction, Pharmaceuticals, etc.
5 Benefits of working Job security, Retirement benefits, Good salary package, Competitive
Allowances, etc. environment, Incentives etc.
6 Basis of Promotion Seniority Merit
7 Job Stability Yes No
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