MCom I Semester Environment Industrial Policy & Industrial Licensing Study Material Notes

MCom I Semester Environment Industrial Policy & Industrial Licensing Study Material Notes  : Meaning of Industrial policy Industrial Policy in Free India Main COntents or Features Arguments in Favour of New Industrial policy Merits of New Industrial Policy Arguments against new Industrial policy Shortcomings of New Industrial PolicyIndustrial Licensing Policy Objectives of Licensing System MRTP ACT 1969 Long Answer Questions Short Answer Questions Objectives Questions  :

CTET Paper Level 2 Questions Answer Language II English Model paper

Industrial Policy & Industrial Licensing

MEANING OF INDUSTRIAL POLICY

Industrial policy is a part of economic policy in any type of economy. It is comprehensive concept and it covers all those procedures, principles, policies, rules and regulations which control the industrial undertakings of a country and shape the pattern of industrial location. It also describes the government policy towards foreign capital, labour, tariff and other related aspects. It also indicates the respective areas of large, small and medium scale sectors.

The industrial policy is neither fixed nor inflexible. It is amended, modified and redrafted according to the changed situations, requirements and perspectives of development.

INDUSTRIAL POLICY IN FREE INDIA

After independence, the first Industrial Policy was declared on April 6, 1948. This policy established a base for Mixed and Controlled Economy in India and clearly divided the industrial sectors into private and public sectors.

Later on 1948 Industrial Policy was replaced by a new Industrial Policy Resolution declared on April 30, 1956 with the basic objective of establishing ‘Socialistic Pattern of Society’ in the country. Industrial Policy Resolution of 1956 categorised industries which would be the exclusive responsibility of the state or would progressively come under state control.

Earmarking the pre-eminent position of the public sector it envisaged private sector coexisting with the State and thus attempted to give flexibility to the policy framework. Though the Government had declared a number of new industrial policies after 1956, but every new policy accepted the 1956 Industrial Policy Resolution as its base.

Subsequent announcements were by and large in the nature of minor changes in one or the other part or parts of the 1956 policy, largely to meet the problems faced in the years when these changes were made. These policy statements were made in 1973, 1977, 1980, 1985 and 1986. Together these did amount to some significant modification of the 1956 policy. But in its essentials, the 1956 policy remained intact all these years.

PRESENT INDUSTRIAL POLICY OF 1991

The new industrial policy statement has been announced on 24th July, 1991. This policy has changed the industrial scenario in the country by scraping the industrial licensing and ending monopoly law. It has the definition of public sector and industrial location.

Objectives of Industrial Policy: The main objectives of of Government are :

: The main objectives of Industrial Policy

1 To maintain a sustained growth in productivity;

2. To enhance gainful employment;

3. To achieve optimal utilization of human resources;

4. To attain international competitiveness;

5. To transform India into a major partner and player in the

MAIN CONTENTS OR FEATURES

The main contents of New Industrial Policy can be studied under the following headings:

1 Policy for Public Sector

(1) Reduction in Reserved Enterprises in Public Sector : Number of industries exclusively reserved for public sector has been reduced from 17 to 2, viz., (i) atomic energy, and (ii) railway transport. All other industries will hence forth form part of private sector.

(2) Revival of Sick Industries: Public enterprises which are chronically sick and which are unlikely to be turned around will, for the formulation of revival rehabilitation schemes, be referred to the Board of Industrial and Financial Reconstruction.

(3) Reforms in Working of Memorandum of Understandings: There would be a greater thrust on performance, improvement and managements would be granted greater autonomy through Memorandum of understanding (MOUS) and would be held accountable.

(4) Sale of Public Sector Shares : In order to raise resources and encourage wider public participation, a part of the government’s shareholding in the public sector would be offered to mutual funds, financial institutions, general public and workers.

(5) Professionalisation of Public Sector Management: Boards of public sector companies would be made more professional and given greater powers.

2. Policy for Private Sector

( Elimination of Licensing System : With the exception of 5 industries, industrial licensing has been abolished for all other industries. Industries. for which licences are still necessary, are :

(1) liquor, (ii) cigarette, (iii) defence equipments, (iv) Industrial explosives. (v) dangerous chemicals.

Any entrepreneur can float any new company and sell its shares without any restriction.

(2) Abolition of Registration : All existing registration schemes are sought to be abolished. Now the entrepreneurs will have to give only a

random of information for new projects and substantial expansion of existing units.

3. Foreign Investment Policy Capital Investment:

Equity limit of foreign capital investment from 40 percent to 51 to 100 percent. In 47 high priority industries has been raised from 40 percent to 51 to 100 percent.  foreign direct investment to the extent of 100 percent will be allowed without any restriction and red-tapes. Export trading houses will also be allowed more capital investment upto 100 percent.

(2) Formation of Boards: A special empowered board would be constituted to negotiate with a number of large international firms and approve direct foreign investment in selected areas. This would be a special programme to attract substantial investment that would provide access to high technology and world markets.

4. Policy for Foreign Technology

(1) Foreign Technology : Now the Indian companies could enter into technology agreements with foreign companies and import foreign technology for which permission would be automatically granted provided the agreements involved a lump sum payment of upto 1 crore and royalty upto 5 percent on domestic sales and 8 percent on exports.

(2) Non-high Priority Industries : In respect of industries other than the high priority industries, automatic permission was to be granted, subject to the same guildelines as above if no foreign exchange was required for any payments. All other proposals required specific approval under the general procedure in force.

(3) Technical Experts : Hiring foreign technicians or foreign testing of indigenously developed products, will need no permission. For these payments foreign exchange can be purchased from Reserve Bank of India.

5. Policy for Monopoly and Big Business

Modification in MRTP Act: As per the MRTP Act, any firm with assets over a certain size (* 100 crore since 1985) was classified as MRTP firms and such firms were allowed to start only selected industries on a case by case approval. But the government felt that this MRTP limit had become deleterious in its effects on the industrial growth of the country. Thus the new policy states that the pre-entry scrutiny of investment decisions by the so called MRTP companies will no longer be required. However, under this policy more emphasis will be laid on checking unfair trade practices to safeguard the interests of the consumers. The newly empowered Monopoly Board will be authorised to investigate any matter suomerty or on complaints received from individual consumers.

6. Policy for Workers

In order to rehabilitate retrenched employees and workers, the policy provides for social security mechanism, with a view to providing social security to workers. National Renewal Fund is proposed to be set up. The fund will provide relief to the workers affected by technological changes.

7. Other Features

(1) Small Industry Sector : The New Industrial Policy seeks to provide greater government support to the small-scale industries so that they may grow rapidly under environment of economic efficiency and technological upgradation. A package of measures announced in this context provides for setting up of an agency to ensure that credit needs of these industries are fully met. It also allows for equity participation by the large industries in the small scale sector exceeding 24 percent of their total shareholding. Investment limit of the small Industries has been raised to 1 crore so as to enable them to introduce modernization.

(2) Location Policy Liberalized : Regarding the loc cities of less than 1 million population, no industrial approval Issued: Regarding the location of industries in the centre. In cities, with more than 1 million population, industries on, no industrial approval is required from those of non-polluting in nature will be located outside 25 kms. of its per an 1 million population, industries other than

(3) Abolition of Phased Manufacturing Programme removal of import licence for a large part of raw material interned and components there is no longer any need for enforcing the requiremen urge part of raw material intermediate goods a case by case administrative basis under the phased manufacturing program

(4) Removal of Mandatory Convertibility Clause: A substantial part of industrial finance in India is provided by Banks and financial institutions, we have a convertibility clause in their lending operations for new projects. (Partly conversion of loans to equity). Now financial institution will not be allowed to impose this clause.

ARGUMENTS IN FAVOUR OF NEW INDUSTRIAL POLICY

OR MERITS OF NEW INDUSTRIAL POLICY

1 Ending the ‘Licence-Permit Raj’: The new Industrial Policy of July 1991 aims to unshackle India’s Industrial economy from the cobwebs of unnecessary bureaucratic controls. According to this policy the role to the government should charge from that of only exercising control over industry to that of helping it to grow rapidly by cutting down delays, removal of entry barriers and bringing about transparency in procedures. This policy, therefore, aims at virtually ending the ‘Licence Permit Raj.’

2. Acceleration of Industrial Production : The new industrial policy seeks to raise efficiency and accelerate industrial production in two ways:

(a) A number of changes in industrial licensing policy, foreign investment, foreign technology agreements and MRTP Act are such as to do away with the prior clearance of the government. In such cases, project time and, therefore, project cost will be reduced. Material and human resources engaged in cultivating contacts and ‘getting things done’ will be released for more productive uses. Thus efficiency will improve.

(b) The changes in respect of foreign investment and foreign technology agreement are also designed to attract capital, technology and managerial expertise from abroad. This will raise the availability of such scarce resources in the country on the one hand, and will improve the level of efficiency of production on the other hand.

3. Improvement in the Performance of Public Sector: Reforms relating to public sector like privatisation and transferring chronically sick units to the BIFR will improve the performance of the public sector undertakings. Moreover. the disinvestment of public holdings of some of the public enterprises would subject these enterprises to the discipline of market force.

4. Conducive for Foreign Investment and Technology : The liberalization of the rules relating to direct foreign investment, permittine 51 percent equity in a wide range of industries, the easier facilitation of for technology agreements and other related measures go a long way foreign investment and technology.

5. Market Friendly : The new policy is more ‘market friendly and aims ” the best use of available entre preneurial talent in a congenial environment. The industry is thus expected to grow faster under the new Industrial Policy of July 1991.

6. Beneficial Elements to Small Sector : The New Industrial Policy provides for almost all that the small sector, including tiny sector, needs for sound growth. The supply of inputs, in particular raw materials, is ensured, much has been done to provide credit in adequate quantities, including participation of non-SSI enterprises in the form of equity capital to the extent of 24 percent. Provision has also been made for the supply of risk capital through partnership. Arrangements have also been made for a proper marketing of their products.

7. Enhance the Welfare of the Workers : The government will fully protect the interest of the labor, enhance their welfare and equip them all respect to deal with the inevitability of technological changes. Labor will be made an equal partner in progress and prosperity.

8. Increase in Foreign Investment: New Industrial Policy has promoted foreign investment in India.

9. Increase in Exports: In the New Industrial Policy various concessions like liberal loans, setting of special economic zones, liberal import of capital goods and raw materials etc. are given to export-oriented units. It has resulted into an increase in exports.

10. Balanced Regional Development : In the new Industrial Policy various incentives are given to industries located in backward regions. This has helped to achieve balanced regional development in the country.

ARGUMENTS AGAINST NEW INDUSTRIAL POLICY

OR SHORTCOMINGS OF NEW INDUSTRIAL POLICY

Several aspects of the new industrial policy had come in for sharp criticisms:

1 Policy Regarding Foreign Capital: The various measures to promote foreign investment contained in the New Industrial Policy and the various concessions to such investment announced in recent years have provided opportunities to MNCs to penetrate the Indian economy and gobble up Indian enterprises.

2. Centralisation of Economic Power: It is feared that the new policy will lead to an increase in the concentration of economic power. The amendment of the MRTP Act to remove the thereshold limits of assets in respect of MRTP companies run counter to the objective of prevention of centralisation of economic power in private hands.

3. Increase in Regional Imbalances: While liberalising of licensing and procedures gives the freedom to set up any industry (except those reserved for the public sector), the locational policy shows concern about the big cities (of over 1 million population) and rural and backward areas, without the least regard for the regional imbalances. As such the NIP goes against the objective of ensuring regional balance.

4. Reduction in the Role of Public Sector : The new industrial policy has reduced the role of the public sector. For example, reduction in the number of industries reserved for the public sector, closure and proposed privatisation of some public sector enterprises reduce the area of public erosion of the public ownership and public the area of public sector. Following this growth of basic and capital goods industries will no longer and public character of the public sector, the even main concern. Their growth. despite their key important capital goods industries will no longer be its exclusive or will be conditioned by market signals. heir growth, despite their key importance for the economy

5. Adverse Effect on Economic Sovereignty freedom to foreign capital may ultimately aff flex on Economic Sovereignty : It is feared that excessive foreign capital may ultimately affect our economic sovereignty.

6. Adverse Effect on Small-Scale Industries: The New Industrial Policy will increase competition by liberalizing licensing, foreign investment, for technology agreements, reducing areas reserved for public sector and the ve Acts. Our small-scale units are not in a position to face competition from MIS: All this would badly affect small-scale industries.

7. No Exit Provision: Another pitfall of the new policy is that it overlooked some important requirement without which the policy loses its strong hoidm industrial sector. For instance, there are various relaxations which tacitate easy entry into the industry. But, in the new policy, there is little scope to exit if business makes losses and there is no scope for recovery.

8. Research and Development Neglected : The Industrial Policy has not paid much attention to the role of research and development in making the industry innovative in respect of the resource use, processes and products and their marketing.

9. Overlooking Employment : The generation of employment opportunities to cope with the increase in labour force has been neglected in the new industrial policy.

10. Lack of Social Security Policy: The policy is silent about tackling the growing industrial sickness. The government has not announced a clear exit policy for sick unit. The new industrial policy only mentioned about loss incurring public sector enterprises which would be referred to BIFR. Thus while passing this sick enterprises to private business houses or to close such sick enterprises adequate social security measures must be undertaken. But the new policy clearly states that government seems to have yielded to the pressure of trade union lobby.

11. Misplaced Faith in Foreign Investment : Despite various tax concessions and incentives given by the Government none of the multinational tried to expand export markets. In fact, instead of developing India as a major production and export base, many MNCs have only attempted to use their international trade capacities and contacts mainly for exporting goods manufactured by other-usually small scale-units. Thus, they have operated more as trading companies rather than as manufacturing and exporting concerns.

12. Incentives for Technological Innovations are Absent: The New Industrial Policy of Liberalization has failed to achieve one of its major objectives of creating more innovative Indian firms and perhaps we had overestimated private sector’s abilities. The fiercely competitive and fragmented industry structure has led to greater technological imports than to make greater inhouse innovative efforts.

13 Social Obiectives Ignored : The New Industrial Policy has ignored

The social objectives of our five  Year Plans. Included in these objectives are concentration of economic power in private hands, promotion of the social objectives of our Five Year Plans.  prevention of concentration of economic power small scale industry, balanced regional development, generation of employment, greater emphasis on social welfare.

INDUSTRIAL LICENSING POLICY

Meaning : A license is a written permission granted to an enterprise by the government, according to which the product mentioned therein can be manufactured by the enterprise. The license also includes other particulars such as:

(i) The place where the factory is to be established.

(ii) The limit of the production capacity.

(iii) The name of the product to be produced.

(iv) Expansion of the enterprise, etc.

(v) A validity period within which the licensed capacity should be implemented.

OBJECTIVES OF LICENSING SYSTEM

The main objectives of licensing are:

1 To direct investment in industries according to plan priorities.

2. To regulate the location of industrial units so as to secure a balanced regional development.

3. To limit industrial capacity within the targets set by the plans.

4. To foster technology and economic improvements in industries by ensuring units of economic size and adopting modern processes.

5. To protect small-scale industries against undue competition from largescale industries.

6. To prevent both monopoly and concentration of wealth.

7. To encourage new entrepreneurs to start industrial units, thus broadening the entrepreneurial base. The legislative framework for industrial licensing is provided in the Industrial (Development and Regulation) Act, 1951.

INDUSTRIAL (DEVELOPMENT AND REGULATION) ACT, 1951

To give concrete shape to its industrial policy, the Government of India enacted the Industries (Development and Regulation) Act, 1951 which laid down the precise manner in which the industries, particularly those in the private sector were to be regulated.

The important provisions of the Act were:

1 Registration and Licensing of Industrial Undertaking: No new industrial units could be established or substantial extension to existing plants made without a licence from the Central Government, and while granting licence for new undertakings, government could lay down conditions regarding location, minimum size, etc., if necessary.

2. Enquiry of Industries Listed in the Schedule: The responsibility of the State does not end with the registration or granting of licences to the undertakings. If the working of a particular industrial unit was not satisfactory, the govt. could set up an enquiry into the affairs of the particular undertaking,

3. Cancellation of Registration and Licence: If a Particular industrial undertaking had succeeded in obtaining industrial and Licence: If a particular industrial submitting wrong information, the government could cancel there caining industrial licence and registration by up within the stipulated period. govt. could cancel the licence if the undertaking was not set regulation or Control by the Government : Government instructions for improvement in management and policies. sown management undertakings which failed to carry out its

4. Control on Price, Distribution, Supply etc.: This Act also empowered the govt. to prescribed prices, methods and the volume of production and channels of distribution

5. Constructive Measures : To inspire mutual confidence and elicit cooperation from the workers, the govt. established Central Advisory Council and a number of Development councils for different products.

EVOLUTION OF LICENSING IN INDIA

The government set up many Committees for the study of the licensing system and giving suggestions for its improvement, such as:

In 1967, Hazari Committee reported some serious malpractices in the working of the licensing system, such as cornering of licences by the large industrial houses.

Dutta Committee Report in 1969, confirmed that such malpractices indeed prevailed due to which there was a substantial growth of large industrial houses. The Committee found that many industrial houses were given multiple licenses and the licensing system favoured the already industrially developed areas such as Maharashtra, Gujarat, Tamil Nadu and West Bengal, Public financial institutions also provided massive assistance to large industrial houses.

After publishing the conclusions and recommendations of the Dutta Committee, the govt. announced the new Industrial Licensing Policy in 1970. Many changes have been made in this policy from time to time, for example, in 1973, 1975, 1978, 1980, 1982, 1983 and 1991.

It should be noted that the licensing system was an exercise in futility. It played its useful role during the 60s and 70s when our economy faced acute shortage of resources. Whatever resources we possessed had to be rationed across different industries through physical controls.

NEW INDUSTRIAL LICENSING POLICY

As a result of the various changes made in the licensing policy since 1970, the following are the main changes made in the licensing policy of India :

1 Compulsory Licensing : The New Industrial policy has abolished industrial licensing irrespective of the levels of investment for all industries excent. 5 specified industries. These are alcohol, cigarettes, hazardous chemicals. electronics, aerospace and defence equipment and industrial explosives.

In respect of delicensed industry, no approval is required from the government. However, entrepreneurs are required to submit an Industrial Entrepreneur Memorandum (IEM) to the Secretariat for Industrial Approvals (SIA) which acknowledges receipt.

2. Industries Reserved for Public Sector : Now only 2 industries are reserved exclusively for the public sector-atomic energy and rail transport.

3. Industrial Location Policy Liberalised : In a departure from the earlier locational policy for industries, the new industrial policy provided that in locations other than cities of more than 1 million population, there will be no requirement of obtaining industrial approvals from the Centre, except for industries subject to compulsory licensing. In cities with a population of more than 1 million, industries other than those of a non-polluting nature, were required to be located outside 25 kms. of the periphery.

4. Imported Capital Goods : In projects where imported capital goods are required, automatic clearance will be given in cases where foreign exchange availability is ensured through foreign equity, or if the CIF value of imported capital goods required is less than 25% of total value (net of taxes) of plant and equipment, upto a maximum value of 2 crore.

In other cases, imports of capital goods will require clearance from the Secretariat of Industrial Approvals (SIA) in the Department of Industrial Development according to availability of foreign exchange resources.

5. Other Provisions : (i) No license is required for the expansion of production capacity. (ii) The list of protected items for the small scale industry is still applicable. (iii) The new policy lays greater stress on preventing unfair trade practices in monopoly rather than on the size of the business houses. (iv) Existing units would be provided a new broad banding facility to enable them to produce any article without additional investment.

In brief, since 1970, the licensing policy has been constantly simplified and liberalised. Now that the economy has grown in all directions and has become fairly vibrant, licensing and other controls need to be removed. The delicensing phase initiated by the government, therefore, needs to be appreciated.

MRTP ACT, 1969

To curb and control the monopolistic and restrictive trade practices of the large business houses, the Government of India adopted the Monopolies and Restrictive Trade Practices (MRTP) Act in 1969.

In the era of LPG (Liberalisation, Privatisation, Globalisation, it was felt that the existing Monopolies and Restrictive Trade Practices Act., 1969 has become obsolete in certain respects and there is a need to shift our focus from curbing monopolies to promoting competition. Hence a new Law, the Competition Act has been enacted and published in the gazette of India on 14 January, 2003 for bringing competition in the Indian Market.

NATIONAL MANUFACTURING POLICY, 2011

The Government of India has announced a National Manufacturing Policy on 4th November, 2011 with the following objectives :

(i) To increase manufacturing sector growth to 12-14 percent over the medium term.

(ii) To increase the share of manufacturing in GDP from the present level of about 16.0 percent to 25 percent by 2022.

(iii) To enhance global competitiveness of Indian manufacturing.

(iv) To increase domestic value addition and tech manufacturing.

(v) To create 100 million additional jobs in manu

(i) Creation of 100 million additional jobs in the next 10 years.

(ii) Incentivisation of green technology.

(iii) Increasing the share of manufacturing in GDP to 25 percent by 2022 from current around 16 percent.

(iv) Incentives to states for infrastructure development.

(v) Financial and tax incentives to small and medium enterprises.

(vi) Liberalization in labour and environment regulations.

(vii) Mega industrial township equipped with world-class infrastructure proposes to be autonomous and self-regulated.

(viii) Special purpose vehicle created to develop infrastructure to publicprivate partnership mode.

(ix) Setting up of national investment and manufacturing zones.

(x) Single window clearance for all issues related to industrial units.

Establishment of National Investment and Manufacturing Zones (NIMZs)

For developing best manufacturing hubs in the world, modern industrial townships named National Investment and Manufacturing Zones (NIMZs) will be developed. Key features of the proposed NIMZs are as follows:

(i) The state government would be responsible for the selection of suitable land having an area of 5,000 hectares in size.

(ii) The state government would facilitate the provisioning of water, power connectivity and other infrastructure and utilities linkages.

(iii) A special purpose vehicle (SPV) will be constituted to discharge the affairs of the NIMZ.

(iv) At least 30 percent of the total area proposed under NIMZS will be utilised for location of manufacturing units.

(v) The central government will provide financial support in the form of viability gap funding (VGF) not exceeding 20 percent of project costs.

(vi) Government announced setting up to 12 such zones in year 2012-13.

Evaluation of National Manufacturing Policy (NMP)

chambers FICCI have haild the policy for aiming to enhance India’s economic growth by creation of productive jobs. While FICCI said, it will But, like any other policy, experts believe the success beginning and well on time. But, like any other policy, expert the policy will depend only in its implementation, which may face several challenges like land acquisition, industrial relations, environment clearance and so on. All these issues involve the masses, who need to be satisfied before each NIMZ is set up. Anand Seth, Dy. Director General of India’s major export body. Federation of Indian Exporters Organisation said, “The manufacturing policy looks good on paper, but all will depend on how it is translated into action.”

EXERCISE QUESTIONS

Long Answer Type Questions

1 Critically examine the main features of Industrial Policy of 1991.

2. Explain the main components of New Industrial Policy of India.

3. Discuss the Industrial Policy of 1991. How far it has succeeded in achieving its objectives?

4. Point out salient features of the New Industrial Licensing Policy of 1991.

Short Answer Questions 

1 What do you understand by Industrial Policy?

2. Write the main objectives of New Industrial Policy.

3. Write the impact of New Industrial Policy.

4. What is the meaning of Industrial Licensing?

5. Write the objectives of Industrial Licensing.

6. What are the main provisions of Industrial (Development and Regulation) Act, 1951?

7. Write a note on National Manufacturing Policy, 2011.

Objective Questions

(1) Select the Correct Alternatives :

1 When was the New Industrial Policy announced ?

(a) 24 July, 1991

(b) 25 July, 1992

(c) 26 July, 1993

(d) 27 July, 1994

2. When was the Industrial (Development and Regulation) Act passed ?

(a) 1951

(b) 1952

(c) 1953

(d) None of these

3. MRTP Act was established in:

(a) 1969

(b) 1970

(c) 1971

(d) 1972.

[Ans. 1. (a), 2. (a), 3. (b).)

Industrial Policy & Industrial Licensing