Chapter Five Industrial Policy
Industrial growth measurement based on IIP IIP weightage % (Mining and Quarrying – 10.5, Manufacturing - 79.4, Electricity – 10.1) Trend (2004-05) - 7.8% Trend - 6.9% (2003-04)
INDUSTRIAL POLICY • Industrial Policy Resolution of 1948 • Industrial Policy Resolution of 1956 • Industrial Policy Statement of 1973 • Industrial Policy Statement of 1977 • Industrial Policy Statement of 1980 • New Industrial Policy of 1991
INDUSTRIAL POLICY RESOLUTION OF 1948 Activities were divided into four broad areas: Items under Central Government Control (Arms etc.) • Items under State Government Control (Coal, Steel etc.) • Items of basic importance regulated by Central Government (Salt, Sugar, Cement etc.) • Items for Private Sector
INDUSTRIAL POLICY RESOLUTION OF 1956 Industries were classified under 3 heads. Schedule A, Schedule B and C. Schedule A industries were treated as exclusive responsibility of the state. Schedule B industries were progressively state owned. Schedule C industries were left for private sector.
NEW INDUSTRIAL POLICY 1991 Areas covered: • Industrial Licensing • Foreign Investment • Public Sector Policy • Import of Technology • Policy on MPTP Act • Exclusive Small Sector Policy
NEW INDUSTRIAL POLICY 1991 contd. Highlights: • Threshold of assets of companies under MRTP Act removed • FDI upto 51% of equality allowed in high-priority sectors • Foreign equity proposals need not be accompanied by technology transfer • Industrial licensing dispensed with except in 18 items • Part of government shareholding in PSUs to be disinvested.
POLICY ISSUES Indian industrial sector has long been inhibited by following policy issues. a. Reservation of items for the small scale sector b. High customs tariffs c. Rigidities in Labour Law acting as impediment to build large firms d. Exit barriers for the closure of firms in response to market dynamics e. Distortions in the structure of taxes India achieved progress in 03-04 in the import liberalisation by reducing `peak’ custom tariffs on non-agricultural goods to 20% (now 12.5%).
FDI • Foreign Direct Investment gives opportunities to industries for technological upgradation, access to global managerial skills and practices. • FDI has become central for India’s integration into global production chains by way of liberalising policy framework. FDI upto 100% permitted in many sectors
FDI TRENDS • World FDI inflows declined significantly in the previous three years from US$ 1.4 trillion in 2000 to US$ 824 billion in 2001 and US$ 651 billion in 2003. As against this, FDI flows in India has remained unaffected by global decline over the same period. • In China, FDI flows increased from US$ 41 billion (2000) to US$47 billion (2001) and US$ 53 billion (2002). • Share of top countries in India’s FDI inflows during 1991 to 2004. • Mauritius (35%), USA (17%), Japan (8%), Netherlands (7%), U.K (7%).
INDUSTRIAL FINANCE One factor impeding the growth of industrial finance availability, has been poor credit recovery, that has led to symptoms like Non-performing Assets in Banks. COMPETITION POLICY Govt. has enacted new law, Competition Act, 2002, for upholding competition in the Indian market and established competition commission of India on October 14, 2004.
PRIVATISATION The process began in 1991-92 with the sale of minority stakes in some PSUs. From 1999-2000 onwards, the focus shifted to strategic sales. SSIs • Small enterprise accounts for 55% of industrial production, 40% of exports and over 88% of manufacturing employment. • SSI sector continues to remain an important sector of the economy. SSIs provide jobs to 2.5 crore persons in India. • Initially only 47 items were reserved for SSI units, which went upto 873 in 1984.
SSIs • At present, there are 675 items reserved for SSI units. • Large industries can produce these items, if they agree to export 50% of their production. • SIDBI has set up a small and medium enterprise fund of Rs.10,000 crore, to address the problems of inadequacy of financial resources at highly competitive rates for SSIs. • Laghu Udyami Credit Card Scheme liberalized with enhanced credit limit of Rs.10 lakhs for borrowers with satisfactory track records.