Sunday, February 12, 2017

Import Substituting Regulatory Policy Regime

Import Substituting Regulatory Policy Regime

http://www.slideshare.net/ProfMKGhadoliya/import-substituting-regulatory-policy-regime

  1. 1. Policy Regime: Import substituting Regulatory policy www.ghadoliyaseconomics-mahendra.blogspot.in
  2. 2. Industrial Policy, 1948: On April 6, 1948, the Government of India adopted its first industrial policy The policy laid a foundation of a mixed economy which included both the public sector as well as private sector for accelerating the industrial development of the country. 1. Division of Industrial Sector: (a) Industries with complete state Monopoly: In this first category the manufacture of arms and ammunition, the production and control of atomic energy and ownership and management of railway transport were included. Their expansion, development and new construction was the responsibility of the government.
  3. 3. (b) Mixed Sector: The second category included coal, iron and steel, aircraft manufacture, ship-building, manufacture of telephone, telegraphs and wireless sets and mineral oil industries. (c) The Sector of Government control: In this category various industries such as salt, automobiles, tractors, prime movers, heavy chemical, electric engineering, machine tools, fertilizers, electro-chemical industries, rubber manufactures, power and industrial alcohol, non-metals, cotton and woollen textiles, sugar, paper, cement, newsprint, air and sea transport, minerals and industries related to defence were included. (d) Private Sector All the remaining industries were placed in the fourth category which were kept open to private sector including both individual as well as co-operative
  4. 4. 2. Role of cottage and Small Scale Industries: Employment creation, safeguard from competition 3. Role of Foreign Capital: Regarding foreign capital, the industrial policy recognized the need for security and participation of foreign capital and enterprise especially in respect of technology and knowledge. 4. Harmonious Relation between Management and Labour: The policy emphasised the need for harmonious industrial relations and evolving a machinery which would ensure congenial working atmosphere.
  5. 5. Industrial Licensing Policy: Industries (Development and Regulation) Act, 1951: The IDRA Act, 1951 was passed by the Parliament in October 1951 in order to control and regulate the process of industrial development. The main objectives of the Act were: (a) To regulate industrial investment and production as per priorities and targets of plan; (b) To protect small industries from large industries; (c) To prevent growth of monopoly and concentration of ownerships; and (d) To attain balanced regional development. (e) Optimum utilisation of scarce foreign capital
  6. 6. 1. Restrictive provisions in the Act: The following are some of the important restrictive provisions in the IDRA Act to check the unfair practices adopted by industries. (a)Registration and licensing: License will be essential for establishment of any industry whether in Public or Private sector Extension of the existing units also require government permission. (b) Enquiry of Industries: (c) Cancellation of Registration: 2. Reformative Provisions: In order to make necessary reforms in those industries, the following reformative measures were undertaken:
  7. 7. (a) Direct regulation or control by government: Provisions were made to issue directions for reforms of those industries which were showing unsatisfactory performances. In the extreme case the government might take over the management and control of mismanaged unit. (b) Control on price and supply: Provision was made through this Act to empower the government to regulate and control the prices, distribution and supply of the product produced by any industrial unit included in the schedule of the Act. (c) Constructive measures: Government established Central Advisory Council along with a number of Development Councils for different products. Initially 37 industries were brought under the purview of the Act and later on their number was raised to 70.
  8. 8. Although initially capital investment limit was fixed at Rs. 1 lakh but later on it was decided that any industrial units employing less than 100 workers and maintaining fixed capital less than Rs. 10 lakh should not be brought under the purview of the Act. This investment exemption limit was later raised to Rs. 25 lakh in 1963, Rs. 1 crore in 1970, Rs. 3 crore in 1978 and then to Rs. 5 crore. In 1988-89, the government announced the industrial de-licensing package in which the system of licensing was abolished for those industries set up in backward areas having investment less than Rs. 50 crore and for those industries located in non-backward areas. But this licensing policy was criticized on the ground that it led to under-utilization of production capacity, expansion of large industrial houses, economic concentration, increased regional imbalances, and promotion of inefficient enterprises. ***
  9. 9. Industrial Policy Resolution, 1956: On April 30, 1956, a second Industrial Policy Resolution was adopted in India replacing the policy Resolution of 1948. It was a socialist, progressive and well defined industrial policy Objectives: To accelerate the rate of growth and industrialization To develop heavy industries and machine making industries To expand public sector To reduce inequalities in income and wealth To build-up large and growing cooperative sector To prevent Monopolies and Concentration of wealth and income in the hands of a few.
  10. 10. In this new policy, industries were re-classified into three schedules. (a) Schedule A: In the schedule A, 17 industries were listed and the future developments of these industries were to be the exclusive responsibility of the State. These industries include arms and ammunition, atomic energy, iron and steel, heavy castings and forgings of iron and steel, heavy machinery, heavy electrical industries, coal, mineral oil, mining; iron ore and other important minerals like, copper, lead and zinc; railway transport, aircraft, ship building, telephone, telegraph and wireless equipment, and generation and distribution of electricity.
  11. 11. (b) Schedule B: In this schedule 12 industries were placed which will be progressively state- owned. In this schedule, the state would gradually set up new units and the private industries would also be expected to supplement the effort of the state in this regard. These twelve industries include aluminium, other mining industries and other non-ferrous metals not included in the schedule A, machine tools, Ferro alloys and tool, steels, fertilizers, the chemical industry, antibiotics and other essential drugs, synthetic rubber, carbonization of coal, chemical pulp, road transport and sea transport.
  12. 12. (c) Schedule C: In this schedule all the remaining industries were included and their future development would be left to the initiative and enterprise of the private sector. The state would facilitate and encourage the development of all these industries in the private sector as per the programmes finalized in the Five Year Plans of the country. These industries were controlled by the state in terms of the Industries (Development and Regulation) Act of 1951 and other relevant legislations.
  13. 13. (ii) No water-tight Classification: It is important to note that the grouping of industries into three schedules was not placed in water-tight compartments. As these classifications remained open, thus the State may start any industry even in schedule C and similarly privately owned units may be permitted to establish industrial units even in schedule A in appropriate cases. (iii) Fair and Non-discriminatory Treatment for the Private Sector: The State would facilitate and encourage the private sector industries by ensuring infrastructural facilities like power, transport and other services and provide non-discriminatory treatment to both public and private owned units.
  14. 14. (iv) Encouraging Cottage and Small Scale Industries: The State would continue to support cottage, village and small scale industries by restricting the volume of production in the large scale industrial units, by imposing differential taxation or by direct subsidies and would concentrate to improve their competitive strength by modernizing the techniques of production. (v) Removal of Regional Disparities: In order to secure a balanced development, the policy emphasized to remove regional disparities in respect of industrial development and tries to attain higher standard of living for the people of the country.
  15. 15. (vi) Amenities for Labour: The Resolution recognized the importance of labour and recommended to associate the workers and technicians with management progressively. The policy stressed the need for improving the living and working conditions of workers and also to raise their standard of efficiency. (vii) Attitude towards Foreign Capital: Regarding the foreign capital the resolution maintained the same attitude as enunciated in our Industrial Policy, 1948. The policy recognized the importance of foreign capital and has given clear assurance for the safety and facilities for investment of the foreign investors. Thus the policy laid a strong foundation for a mixed economy in the country.
  16. 16. Industrial Licensing Policy, 1970: As per the recommendations of Dutt Committee, the Government of India announced a new Industrial Licensing Policy in February 1970. Following are some of the basic features of this policy: 1. A ‘core sector’ was introduced which consisted of basic industries and industries related to defence requirements and of critical and strategic importance. 2. The 1970 Licensing Policy mentioned about another sector as ‘heavy investment sector’ which included all those industries having investment more than Rs. 5 crore. 3. Other middle sector and delicensed sector were open for private investment except those reserved for the public sector.
  17. 17. The core sector industries were divided into 9 sectors which were consisted of: (i) Agricultural inputs, (ii) Iron and steel, (iii) Non-ferrous metals, (iv) Petroleum, (v) Cooking coal, (vi) Heavy industry machinery (vii) Ship building and building of dredgers, (viii) Newsprint and (ix) Electronics. Industries which were earlier reserved for public sector in the 1956 policy would continue to be reserved and in other sectors, large industrial house and foreign companies would be allowed to develop.
  18. 18. 3. The ‘middle sector’ consisting of all those industries having investment between Rs. 1 crore and Rs. 5 crore, would be considerably liberalized and their licensing procedures would be simplified to a large extent. 4. Industries having investment less than Rs. 1 crore were placed in the ‘Unlicensed sector’ where to set up any industry no license henceforth would be required. 5. Joint sector-It is mentioned that while sanctioning loans or subscribing to debentures in future, all public financial institutions should have the option to convert them into equity within the definite period of time. In respect of small scale sector, the existing policy of reservation was continued and the area of such reservation was extended.
  19. 19. Industrial Licensing Policy 1973: In February, 1973, another industrial Licensing Policy statement was adopted in which a new definition of ‘large industrial houses’ was adopted. In 1973 policy this definition for large houses was adopted as per the MRTP Act in which any industrial establishment having assets more than Rs. 20 crore would be called large houses as against the limit of Rs. 35 crore permitted earlier by 1970 licensing policy.
  20. 20. In this new policy two previous recommendations, of 1970 policy i.e., exemption limit from licensing (raised from Rs. 25 lakh to Rs. 1 crore in 1970) and the joint sector were maintained. This 1973 licensing policy also expanded the area of core sector which would now include 19 industry groups as compared to 9 industries permitted in 1970 policy. This was major concession to large industrial houses as the sector now included “low priority but highly profitable industries like man- made fibres and synthetic detergents”. It was claimed that the new policy would net in more large industrial houses. But the claim was not justified.
  21. 21. Industrial Policy Development in Eighties—Liberalisation Wave: During eighties, various steps were taken by the Government for liberalizing the industrial policy of the country. These steps were as follows: 1. Exemption from Licensing: In order to liberalise the industries, the exemption limit of licensing was continuously enhanced from non-MRTP and non-FERA companies. The exemption limit which was Rs. 3 crores in 1978, gradually enhanced to Rs. 5 crores in 1983 and then substantially to Rs. 55 crores for those projects to be located in non-backward areas and to Rs. 50 crores for those projects located in backward areas in 1988-89.
  22. 22. 2. Relaxation to MRTP and FERA Companies: The government made provision for various relaxations to those companies under MRTP Act (Monopolies and Restrictive Trade Practices Act) and FERA (Foreign Exchange Regulation Act) in order to expand industrial production and also to promote exports. These relaxations include: (a) Raising the limit of MRTP companies from Rs. 20 crores to Rs. 100 crores in March, 1985; (b) Allowing the MRTP to set up new capacities in those industries of high national importance and with import substitution potential or using sophisticated technology without the approval to government in 1983 (May); (c) Giving permission for unrestricted entry of large industrial houses and companies governed by FERA in 21 high technology items of manufacture in December, 1985. Accordingly, large industrial houses under the purview of MRTP Act and FERA companies were given permission to freely undertake the manufactures of 83 items.
  23. 23. (d) Specifying a list of 33 broad group of industries under Appendix I where MRTP and FERA companies were given permission to set up capacities provided these items are not in the reserved list of small scale sector or public sectors; (e) Making provision for various other concessions such as regularisation of excess capacity and capacity re-endorsement, special facilities to set up industries in backward areas etc. to MRTP and FERA companies. 3. Delicensing: Government delicensed 28 broad categories of industries and 82 bulk drug and their formulations.
  24. 24. 4. Re-endorsement of Capacity: In order to achieve maximum capacity utilisation, in April 1982, the scheme of capacity re-endorsement was announced. Again in 1986, this scheme was liberalised further to permit those undertakings in availing such facility which achieved 80 per cent capacity utilization (previously 94 per cent). The industries which were not permitted for automatic re- endorsement of capacity was reduced from 77 to 26. 5. Broad Banding Industries: In 1984, the scheme of broad banding of industries was introduced in order to classify these industries into broad categories. This was done to enable the producers to change their product-mix rapidly in order to match the changing demand pattern.
  25. 25. 6. Minimum Economic Scales of Operation: In 1986 the government introduced the minimum economic scales of operation in order to encourage relations of economies of scale through the expansion of its installed capacities. Till 1989, minimum economic capacities (MECs) were specified gradually for 108 industries and in 1989-90 some more industries were specified under MECs. 7. Development of Backward Areas: In March 1986 the Scheme of delicensing was extended to MRTP and FERA companies. Later on the scheme was extended to 49 industries. Again in 1988- 89, the government set up 100 growth centres throughout the country to provide infrastructural facilities to these backward areas. Moreover, in 1988 income tax reliefs were announced for promoting industrialisation of backward areas.
  26. 26. 8. Incentives for Export Production: In order to promote exports, the government announced various concessions in its industrial policy and export (Exim) policy. Again, all 100 per cent export- oriented industries were exempted from Section 21 and 22 of the Act which were set in Free-Trade Zones. Some more industries were identified from export angle which were permitted 5 per cent automatic growth rate annually over and above their normal capacity.
  27. 27. 9. Enhancement of Investment of Small Scale and Ancillary Units: The investment limits for small scale units and ancillary units which was Rs. 20 lakhs and 25 lakhs respectively as per 1980 policy statement, gradually enhanced to Rs. 35 lakhs and Rs. 45 lakhs respectively in 1985 and Rs. 2 lakhs for tiny units. In 1991, these limits were again raised to Rs. 60 lakhs and Rs. 75 lakhs for both the small scale and ancillary units respectively. Moreover about 200 times which were earlier reserved, were completely de-reserved and kept open for large and medium scale sector.
  28. 28. Industrial Policy Statement, 1977: In December 1977, the Janata Party Government announced its New Industrial Policy through a statement in the Parliament. 1. Development of Small Scale Industrial Sector: The main thrust of the new policy was the effective promotion of cottage and small industries widely dispersed in rural areas and small towns. In this policy the small sector was classified into three groups—cottage and household sector, tiny sector and small scale industries.
  29. 29. This Industrial policy 1977, suggested following measures for the promotion of small scale and cottage industries of the country: (a) Expanding the list of items from 180 to 807 items. (b) Establishment of ‘District Industries Centre’ for the development of cottage and small scale industries. (c) Revamping Khadi and Village Industries Commission. (d) Special arrangement for widespread application of suitable technology for small scale and village industries.
  30. 30. 2. Areas for Large Scale Sector: The 1977 Industrial Policy prescribed the following areas for large scale industrial sector: (a) Basic industries, (b) Capital goods industries, (c) High technology industries and (d) Other industries outside the list of reserved items for the small scale sector. 3. Big Business Houses: The 1977 Industrial Policy restricts the scope of large business houses so that no unit of the same business group acquired a dominant and monopolistic position in market.
  31. 31. 4. Role of the Public Sector: The new policy prescribed the expansion of the role of public sector especially in respect of strategic goods of basic nature. The public sector was also encouraged to develop ancillary industries and to transfer its expertise in technology and management to small scale and cottage industry sectors. 5. Promotion of Technological Self-reliance through the inflow of technology in sophisticated areas was another feature of the 1977 policy. 6. The policy recommended a consistent line of approach towards sick industrial units of the country.
  32. 32. 7. Management-labour Relations: The new policy of 1977 put emphasis on reducing the occurrence of labour unrest. The Government encouraged the worker’s participation in management from shop floor level to board level. But the industrial Policy 1977, is subjected to serious criticism as there was absence of effective measures to curb the dominant position of large scale units and the policy did not envisage any socioeconomic transformation of the economy for curbing the role of big business houses and multinationals.
  33. 33. Adverse consequences: • Dominance of public sector- industrial policy 1948,1956 • Trade and exchange control, Tariff, Quota, Taxes • Selective access to foreign investment, FERA • Industrial licensing, MRTP • Administered prices MSP, import restrictions • Subsidy to private sector • Increasing Role of the State
  34. 34. • Huge losses in the Public Sector • Fiscal deficit • Debt Burden • Low savings and investment • Poor efficiency and low competitiveness • Low productivity • Increased prices • Unemployment • Balance of Payment crisis • Slow growth in exports • Regional disparities • Slow rate of economic growth
  35. 35. 1980-1990, a phase of piecemeal and Ad-hoc Policy Regime
  36. 36. Industrial Policy of 1980: On 3rd July, 1980 the Congress (I) Government announced its new industrial policy. This new policy seeks to promote the concept of economic federation, to raise the efficiency of public sector and to reverse trend of industrial production of the past three years and reaffirms its faith in the Monopolies and Restrictive Trade Practices (MRTP) Act and the Foreign Exchange Regulation Act (FERA). While preparing this policy statement, the 1956 resolution was considered as its basis.
  37. 37. Socio-economic Objectives of the Policy: The industrial policy statement, 1980 has laid down the following objectives: (i) Optimum utilization of installed capacity; (ii) Maximizing production and to achieve higher productivity and higher employment generation; (iii) Correction of regional imbalance through a preferential development of industrially backward areas; (iv) Strengthening of the agricultural base according to a preferential treatment to agro-based industries and promoting optimum inter-sectoral relationship; (v) Faster promotion of export-oriented and import substitution industries; (vi) Promoting economic federalism with an equitable spread of investment over small but growing unit in the rural as well as urban areas; and (vii) Revival of the economy by removing the infrastructural gaps.
  38. 38. Policy Measures: Besides in this industrial policy, 1980 the following policy measures were proposed to normalize the situation and to put the economy again on its feet: 1. Effective Operational System of Management of the Public Sector: The new policy reaffirmed its faith in the public sector in-spite of having erosion of faith in it in recent years. Thus, the Government decided to launch a time bound programme in order to revive the efficiency of public sector undertakings.
  39. 39. 2. Integrating Industrial Development in the Private Sector by Promoting the Concept of Economic Federalism: The policy statements state that for integrated industrial development, it would promote the concept of economic federalism with setting up of a few nucleus plants in each district, identified as industrially backward district, to generate as many ancillaries and small and cottage units as possible. 3. Nucleus Plants: The new policy has introduced the concept of nucleus plants which would concentrate on assembling the products of the ancillary units falling within its orbit, on producing the inputs needed by a large number of smaller units and making adequate marketing arrangements. The nucleus plant would also make provision for upgrading the technology of small units.
  40. 40. 4. Redefining Small Units: In view of the sufficient changes in the price level, price escalation and to develop the cottage and small scale industries, the Government decided: (a) To raise the limit of investment in respect of tiny units from Rs. 1 lakh to Rs. 2 lakh; (b) To raise the investment limits in case of small scale units from Rs. 10 lakh to Rs. 20 lakh; and (c) To raise the investment limit in case of ancillary units from Rs. 15 lakh to Rs. 25 lakh. Thus, the upward revision of investment limits would eliminate the tendency to circumvent the present limit by under-estimating the value of machinery and equipment, falsification of accounts or resort to ‘benami’ units. This would also help the qualified entrepreneurs in order to set up genuine small scale units and also facilitate the long overdue modernization of the existing small scale units. Further, the new policy also provides other facilities like financial support to small units, buffer stocks of critical inputs for small units, marketing support and reservation of items for small scale industries as a whole.
  41. 41. 5. Promotion of Industries in the Rural Areas: The policy statement emphasized the necessity to promote suitable industries in the rural areas in order to generate bigger employment and for raising per capita income of the rural people without disturbing ecological balance in rural areas. In this respect the development of handloom, handicrafts and khadi and village industries would be given greater attention. 6. Removal of Regional Imbalance: The policy encourages dispersal of industry and setting up of industrial units in industrially backward areas for making necessary correction in regional imbalances. 7. Liberalisation of Existing Capacities: The policy statement gave recognition to the excess productive capacity as a result of replacement and modernization, and regularized these unauthorized excess capacities on selective basis.
  42. 42. 8. Automatic Expansion: The policy also gave concession to the large scale units about their extension and simplification for automatic expansion until now permitted to 15 industries. 9. Industrial Sickness and State Policy: The policy statement also proposed to introduce “a checklist” to serve as ‘early warning system’ for identifying symptoms of sickness and also to take stern measures about deliberate mismanagement and financial improprieties leading to sickness. In exceptional cases only the management of sick units would be taken over on public interests. Conclusion: In conclusion it can be observed that the New Industrial Policy (1980) is guided mainly by the considerations of growth. The policy liberalized licensing for large and big business, wanted to promote large scale industries at the cost of small scale units. Thus the policy favours a more capital intensive path for development and paves the way for the expansion of large and big industrial houses.
  43. 43. Industrial Policy 1991:  Reduction in the scope of industrial licensing  Simplification of Procedures, Rules and Regulations  Reforms in MRTP Act  Reduction in areas reserved for public sector to only 8  disinvestment  Enhancing limits of foreign equity participation  Liberalization of Trade  Reduction in customs and excise duties and personal and corporate income tax  Extension the scope of Modified Value Added Tax.
  44. 44. Industrial Licensing Policy 1991:  Abolition of industrial licensing for all the new projects and expansion of existing projects except for security and strategic concern, social reasons, hazardous chemicals, overriding environmental reasons and items of elitist consumption.  Only 8 industries reserved for the public sector  Automatic clearance for import of project machinery  No requirement for industrial approval except for cities population over one million  Mandatory convertibility clause will no longer be applicable for term loan from financial institutions  Phase manufacturing programmes will not be applicable for new projects  Entrepreneurs to file information on new projects and subsequent expansions.
  45. 45. Concentration of Economic Power and MRTP Act 1969 Restrictions on Large industrial houses and Dominant undertakings. Prior approval from the Central Government for establishing new project, merger or take over. Regulation and prevention of Monopolistic trade practices MRTP commission was empowered to enquire into any restrictive trade practice and issue suitable orders. Enquire into unfair trade practices. In 1991 the act was amended and the clause of enquiry for restrictive trade practice and unfair practice were abolished. Dominant undertakings were defined. Definitions of goods and services enlarged. More strict penalty provisions. Amended the definition of unfair trade practice. Powers of the Commission widened. No prior permission for investment.
  46. 46. Competition Law for India was triggered by Articles 38 and 39 of the Constitution of India. These articles are the part of Directive principles of state policy it was first adopted in 1969 and then amended in 2002. Salient Features 1. IDRA Act 1951 not necessary 2. Industrial Dispute Act 1947 to be amended for easy exit 3. BIFR should be abolished 4. WTO provisions to be examined for competition clauses 5. MRTP act to be repealed. Components of the competition Act: 1. Anti-competition Agreements 2. Abuse of Dominance 3. Combinations Regulations 4. Competition Advocacy
  47. 47. Earlier Development efforts during planned era initiated the process of development- Dominance of public sector- industrial policy 1948,1956 Trade and exchange control, Tariff, Quota, Taxes Selective access to foreign investment, FERA Industrial licensing, MRTP Administered prices MSP, import restrictions Subsidy to private sector Increasing Role of the State
  48. 48. Adverse consequences Dominance of public sector- industrial policy 1948,1956 Trade and exchange control, Tariff, Quota, Taxes Selective access to foreign investment, FERA Industrial licensing, MRTP Administered prices MSP, import restrictions Subsidy to private sector Increasing Role of the State
  49. 49. • Huge losses in the Public Sector • Fiscal deficit • Debt Burden • Low savings and investment • Poor efficiency and low competitiveness • Low productivity • Increased prices • Unemployment • Balance of Payment crisis • Slow growth in exports • Regional disparities • Slow rate of economic growth
  50. 50. New Economic Policy-1991 The Congress (I) led by Narasimha Rao Government has announced its new industrial policy on July 24, 1991. In line with the liberalisation move introduced during the 1980s, the new policy radically liberalized the industrial policy itself and de-regulates the industrial sector substantially.
  51. 51. Objectives: The prime objectives of the new industrial policy are to promote the growth to build on the gains already experienced, to correct the distortions or weakness involved in the system, to introduce liberalisation measures in order to integrate Indian economy with world economy, to abolish restrictions on direct foreign investment, to liberate the indigenous enterprise from the restrictions of MRTP Act, to maintain a sustained growth in productivity and employment to achieve international competitiveness. to contain inflation To reduce the role of public sector incurring loss
  52. 52. Thus to fulfil these objectives, the government introduced a series of initiatives in the new industrial policy in the following areas: 1. Industrial sector Policy Reforms: In order to liberalise the economy and to bring transparency in the policy, the new industrial policy has abolished the system of industrial licensing for all industrial undertaking, irrespective of the level of investment, except for a short list of industries related to security and strategic concerns, social reasons, hazardous chemicals and overriding environmental concerns and items of elitist consumption. As per Annexure II of the policy there are only 18 industries for which licensing was made compulsory.
  53. 53. These include: (1) Coal and lignite; (2) Petroleum (other than crude) and its distillation products; (3) Distillation and brewing of alcoholic drinks; (4) Sugar; (5) Animal fat and oils; (6) Cigars and Cigarettes of tobacco and manufactured tobacco substitutes; (7) Asbestos and asbestos based products; (8) Plywood and decorative veneers and other wood based products; (9) Raw hides and skins, leather, chamois leather and patent leather, (10) Tanned and dressed skins; (11) Motor car; (12) Paper and newsprint except bagasse based units; (13) Electronic aerospace and defence equipment—all types; (14) Industrial explosives; (15) Hazardous chemicals; (16) Drugs and Pharmaceuticals; (17) Entertainment Electronics; (18) White goods such as domestic refrigerators, washing machines, microwave ovens and air conditioners.
  54. 54. 2. Public Sector Policy reforms: Reduced the role of public sector loss making units to be closed The government decided to disinvest the equity shares of selected public units The priority areas for the growth of future public sector enterprises included—essential infrastructure, exploration and exploitation of minerals and oil, technology development and products with strategic consideration. The new policy has now reduced the list of industries under public sector to 8 as against the 17 industries reserved earlier as per 1956 policy. The industries which are now removed from the list of reserved industries include—iron and steel, electricity, air transport, ship building, heavy machinery industries, telecommunication cables and instruments.
  55. 55. Those 8 industries which remained in the reserved list for the public sector are : (1) Arms and ammunition and allied defence equipment, defence aircraft and warships; (2) Atomic energy; (3) Coal and lignite; (4) Mineral oil; (5) Mining of iron ore, manganese ore, chrome, gypsum, sulphur, gold and diamond; (6) Mining of copper, lead, zinc, tin, molybdenum and wolfarm; (7) Minerals specified in the schedule to the Atomic Energy (Control of Production and Use) Order, 1953; and (8) Rail transport.
  56. 56. Industries earning higher profit will be provided with much higher degree of management autonomy through the system of MOU. Private sector participation would be invited to raise the competitive capacity of these industries. Sick units will now be referred to the Board of Industrial Finance and Reconstruction (BIFR) for getting advice about its rehabilitation and reconstruction.
  57. 57. Exit Policy, National Renewal Fund (NRF) and Voluntary Retirement Scheme (VRS): In order to safeguard the interest of workers who may be affected by technological up-gradation of industry or closure of chronically sick units the government established a National Renewal Fund (NRF) in February 1992. It marks the launching of a process of industrial restructuring in the wake of new economic policies aimed at taking the country globally competitive. NRF would provide a safety net for workers while an “exit policy” formulated to give recognition of the right to “exit” when a unit cannot be run economically or is terminally sick.
  58. 58. 3. MRTP Limit: MRTP firms were allowed to start only selected industries on a case by case approval. Monopolistic, restrictive and unfair trade practices to be controlled. Thus, the new policy states that the pre-entry scrutiny of investment decisions by the so-called MRTP companies will no longer be required. Abolished the system to obtain approval of the centre for expansion, establishment of new undertaking, merger, amalgamation and take over and appointment of certain Director by the monopoly houses. “The thrust of the policy will be more on controlling unfair or restrictive business practices”.
  59. 59. 4. Foreign Investment Policy reforms: Automatic Approval for foreign technology in high technology and high priority industries up to 51% foreign equity. The Annexure III included 34 priority industries. Such as metallurgy, boilers and steam generating plants, electrical equipment, telecommunication equipment’s, transportation, industrial and agricultural machinery, industrial investments, chemicals, food processing, hotel and tourism industry. No permission will be required for hiring foreign technicians or for testing of indigenously developed technology abroad
  60. 60. 5. Location Policy Liberalised: The new policy mentioned that in location other than cities of more than 1 million population, no industrial approvals from the centre will be required except for industries subject to compulsory licensing. In cities with more than 1 million population, industries other than those of non-polluting in nature, will be located outside 25 kms of its periphery.
  61. 61. 6. Fiscal Monetary and price policy reforms:  Reducing non-plan revenue expenditure  Mobilization of resources through tax and non-tax sources  Reducing borrowing  Controlling public expenditure  Rationalizing the subsidy  Ensuring the fiscal discipline  Decontrol prices in case of petroleum products, gas etc. Containing Government Expenditure- Resource mobilization and tax reforms
  62. 62. 7. Foreign investment Policy Reforms:  Relatively open foreign investment  Ensure BoP solution and inflow of latest technology  Selective approach  Simplification of rules  Automatic approval  RBI controlling the outflow of foreign currency in the form of profit / dividend  A special board to approve the FDI
  63. 63. 8. Reforms in Trade Technology and Capital plans:  Easy procedures  Single window clearances  Removing of licencing system  Reduction in quantitative restrictions  Import policy- reducing tariffs  Capital inflow flow  Automatic approval to foreign technological collaboration  Automatic clearance for import of capital goods
  64. 64. 9. Financial Sector Reforms:  Liberalization of financial sector in India  Dismantling of the system of administered interest rates.  Security market reforms  Banking sector reforms  External sector reforms  Setting up institutions in the private sector  Non-Banking Financial Institutions (NBFCs) registration with RBI essential.
  65. 65. Fiscal Monetary and price policy reforms:  Reducing non-plan revenue expenditure  Mobilization of resources through tax and non-tax sources  Reducing borrowing  Controlling public expenditure  Rationalizing the subsidy  Ensuring the fiscal discipline
  66. 66. Foreign investment Policy Reforms:  Relatively open foreign investment  Ensure BoP solution and inflow of latest technology  Selective approach  Simplification of rules  Automatic approval  RBI controlling the outflow of foreign currency in the form of profit / dividend  A special board to approve the FDI
  67. 67. Reforms in Trade Technology and Capital plans:  Easy procedures  Single window clearances  Removing of licencing system  Reduction in quantitative restrictions  Import policy- reducing tariffs  Capital inflow flow  Automatic approval to foreign technological collaboration  Automatic clearance for import of capital goods

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