Short notes on Industrial Policy, 1991

A major shift in the industrial policy was made by the Congress (I) Government l ed by Mr. P.B. Narasimha Rao on July 24, 1991. The main aim of this policy was to unshackle the country's industrial economy fro m the cobwebs of unnecessary bureaucratic control, introduce liberalisation with a view to integrate the Indian economy with the world economy, to remove restri ctions on direct foreign investment and also to free the domestic entrepreneur fr om the restrictions of MRTP Act. Besides, the policy aims to shed the load of th e public enterprises which have shown a very low rate of return or are incurring losses over the years. The salient features of this policy are as follows: 1. Except some specified industries (security and strategic concerns, social rea sons, environmental issues, hazardous projects and articles of elitist consumptio n) industrial licensing would be abolished. 2. Foreign investment would be encouraged in high priority areas up to a limit o f 51 per cent equity. 3. Government will encourage foreign trading companies to assist Indian exporters in export activities. 4. With a view to injecting the desired level of technological dynamism in India n industry, the government will provide automatic approval for technology agreemen ts related to high priority industries. 5. Relaxation of MRTP Act (Monopolies and Restrictive Practices Act) which has a lmost been rendered non-functional. 6. Dilution of foreign exchange regulation act (FERA) making rupee fully convert ible on trade account. 7. Disinvestment of Public Sector Units' shares. 8. Closing of such public sector units which are incurring heavy losses. 9. Abolition of C.C.I, and wealth tax on shares. 10. General reduction in customs duties. 11. Provide strength to those public sector enterprises which fall in reserved a reas of operation or in high priority areas. 12. Constitution of special boards to negotiate with foreign firms for large inve stments in the development of industries and import of technologyCritique of the New Industrial Policy The keynote of the new industrial policy includes liberalisation and globalisati on of the economy. Liberalisation means deregularisation of the industrial secto r by cutting down to the minimum administrative interference in its operation so as to allow free competition between market forces. Similarly globalisation mean s making the Indian economy an integral part of the world economy by breaking do wn to the maximum feasible the barriers to movement of goods, services, capital a nd technology between India and the rest of the world. The new Industrial Policy fulfils a long-felt demand of the industry to remove l

icensing for all industries except 18 industries (coal, petroleum, sugar, motor cars, cigarettes, hazardous chemicals, pharmaceuticals and luxury items). It proposes to remove the limit of assets fixed for MRTP Companies and dominant undertakings. Hence business houses intending to float new companies or undertake expansion will not be required to seek clearance from the MRTP Commission. This step will enable MRTP Companies to establish new undertakings, and effect plans of expansions, mergers, amalgamations and takeovers without prior government appr oval. They shall have the right to appointment of directors. The new Industrial Policy goes all out to woo foreign capital. It provides 51% f oreign equity in high priority industries and may raise the limit to 100% in cas e the entire output is exported. This runs counter to the Nehruvian Model. Experts fear that this over-enthusiasm to wlecome foreign capital and to give free hand to multinationals will be detri mental for indigenous industries more so house-hold and small scale industries. This may lead to economic and political crisis in future. It is also alleged tha t the Policy has been framed at the instance of the IMF and is going to protect the interests of developed Western countries at the cost of national interests. Critics also argue that once foreign capital is permitted free entry the distinc tion between high and low priority industries will disappear and all lines of pro duction will have to be opened to facilitate foreign investment. This may create Brazil or Mexico like economic crisis. By opening the gates of the Indian economy wide to the multinationals, the self reliance aspect has been completely ignored. These multinationals with slightest of inconvenience may shift their operations elsewhere leaving the economy in the lurch. Since multinational and private entrepreneurs would prefer most favourable locat ions for their industries it would further intensify spatial disparity in econom ic development. This fact has been well collaborated by the letters of intent so far approved. While selling out public sector shares and companies to private investors the Go vernment is not only ignoring the interests of the employees but is transferring the assets at throw away prices. These public sector companies could have been handed over to the working class or autonomous organisations to manage their affa irs independently. In the absence of MRTP safeguard private companies may develop monopolistic outl ook and may indulge in unfair trade practices. There is also a risk of growing consumerism rather than strengthening the sinews of the economy. Foreign investors may prefer to invest in low priority consumer sector instead of going for high priority sector. With the state yielding to the private enterprise the social objectives of equity with growth and protecting the interests of the down trodden and semi-skilled l abourers would be thrown to the winds. This will be against the cherished goals of our Constitution and may create socio-economic disparity and tension.

What is the role of WTO in international trade?

S Chirag (i) WTO's aim is to liberalise international trade. (ii) WTO establishes rules regarding international trade and sees that these rul es are obeyed. (iii) 153 countries of the world are currently members of the WTO. (iv) It is seen that the developed countries have unfairly retained trade barrie rs. On the other hand, WTO rules have forced developing countries to remove trad e barriers.

Short Essay on World Trade Organization Nirav S In December 1996, Singapore hosted the first biennial Ministerial Meeting of the WTO. The participants reasserted their faith in commitment for the multilateral trading system and free trade as envisaged by the WTO. Several new issues such as multilateral investment agreement, government procure ment, competition policy and labour standards have been discussed. Negotiations regarding liberalisation of financial sector, maritime services and telecommunic ations were observed to be slow in progress. Twenty-eight member countries, however, signed an agreement on Information Techn ology (IT) for completely scrapping the tariffs on related items, such as, compu ters, software, semiconductors, photocopiers, capacitors and fibre-optics cables . Critics, however, observed that the negotiations were mostly in favour of the ri ch and not the poor countries. Domination of the developed countries was clearly revealed in this meeting. A notable feature of the WTO is active functioning of the Dispute Settlement Bod y with several cases of disputes to be solved in hand. It acted boldly and gave a ruling against a United States gasoline tax and the country had to agree for t he suggested legal amendment. Further in November 1996, it gave its ruling in favour of Costa Rica against the United States regarding the sale of cotton shirts. Similarly, in December 1996, it gave a ruling against the United States regardin g the sale of Indian woollen garments. The just approach of the DSB has, thus, strengthened the confidence of the devel oping countries in the WTO. Most of the criticisms levelled against the GATT and Uruguay Round negotiations still hold true about the WTO. Economic implications of the WTO Agreement on var ious fields will be wide and varied. Though, it may succeed in freeing trade and globalisation to an extent, it will fail to create a balanced growth of world e conomy. It may also pave a greater way for the growth of economic imperialism of a few d eveloped industrialised nations world over. A new economic order which may be en visaged through the operation of the WTO will certainly breed new problems and n

ew issues with more complications and undesirable consequences in the New Centur y to follow. A vicious circle of unending negotiations, disputes and disagreements is not unl ikely when side by side with WTO globalisation, regionalism and trade blocs and emerging and strengthening in the process of expanding unbalanced world economy. Possible emergence of economic imperialism with the growing dominance of foreign MNCs as well as emerging 'Rober Capitalism' under speculative pursuit in stock market and forex market developing countries are exposed to a new danger under t he impact of globalisation and liberalisation forced by the WTO. If it goes beyond limit, globalised market economies may derail with dire conseq uences at all levels economic, social and political. The WTO needs a rethinking on the issue to build-up a just and 'Robust Global Capitalism' rather than pavin g the way for 'Rober Capitalism' in the new world economic order.

Useful notes on the highlights of Exim Policy, India 2002-07 I- Special Economic Zones (SEZs) 1. It has been decided to permit External Commercial Borrowings (ECBs) for tenur e of less than three years in SEZs. The detailed guidelines will be worked out by RBI. This will provide opportuniti es for accessing working capital loan for these units at internationally competi tive rates. 2. Offshore Banking Units (OBUs) shall be permitted in SEZs. This should help so me of our cities emerge as financial nerve centres of Asia. II- Employment Oriented (a) Agriculture 1. Export restrictions like registration and packaging requirements are being re moved on butter, wheat and wheat products, coarse grains, groundnut oil and cash ew to Russia. 2. Restrictions on export of all cultivated (other than wild) varieties of seed, except jute and onion have been removed. 3. To promote export of agro and agro-based products, 20 agri-export zones have been notified. 4. In order to promote diversification of agriculture, transport subsidy shall b e available for export of fruits, vegetables, floriculture, poultry and dairy pr oducts. 5. 3% special DF.PB rate for primary and processed foods exported in retail pack

aging of 1 kg or less. (b) Cottage Sector and Handicrafts 1. An amount of Rs. 5 crore under Market Access Initiative (MAI) has been earmar ked for promoting cottage sector exports coming under the KVIC. 2. These units shall be enticed to the benefit of Export House status on achievi ng lower average export performance of Rs. 5 crore as against Rs. 15 crore for o thers; 3. The units in handicraft sector shall be entitled to duty free imports of an e nlarged list of items as embellishments up to 3% of the value of their exports. (c) Small Scale Industry With a view to encouraging further development of centres of economic and export excellence such as Tirupur for hosiery, woollen blanket in Panipat, woollen kni twear in Ludhiana, following benefits shall be available to small scale sector: (i) The recognised associations of units in these areas will be able to access t he funds under the Market Access Initiative scheme for creating focused technolo gical services and marketing abroad. (ii) Such areas will receive priority for assistance for identified critical inf rastructure gaps from the scheme on Central Assistance to States. (d) Leather Duty free imports of trimmings and embellishments up to 3% of the FOB value hith erto confined to leather garments extended to all leather products. (e) Textiles (i) Sample fabrics permitted duty free within the 3% limit for trimmings and emb ellishments. (ii) Duty Entitlement Passbook (DEPB) rates for all kinds of blended fabrics per mitted. Such blended fabrics to have the lowest rate as applicable to different constituent fabrics. (F) Gems & Jewellery (i) Customs duty on import of rough diamonds is being reduced to 0%. Import of r ough diamonds is already freely allowed. Licensing regime for rough diamonds is being abolished. This should help the country emerge as a major international ce ntre of diamond industry. (ii) Value addition norms for export of plain jewellery reduced from 10% to 7%. Export of all mechanized unstudied jewellery allowed at a value addition of 3% o nly. (iii) Personal carriage of jewellery allowed through Hyderabad and Jaipur airpor t as well. III. Technology Oriented (a) Electronic Hardware 1. The Electronic Hardware Technology Park (EHTP) scheme is being modified to en

able the sector to face the zero duty regimes under ITA (Information Technology Agreement)-1. (b) Chemicals and Pharmaceuticals 1. Free export of samples without any limit. 2. Reimbursement of 50% of registration fees for registration of drugs. (c) Projects 1. Free import of equipment and other goods used abroad for more than one year. IV. Growth Oriented (a) Strategic Package for Status Holders The status holders shall be eligible for the following new/special facilities: 1. Licence/Certificate/Permissions and Customs clearances for both imports and e xports on self-declaration basis. 2. Priority finance for medium and long term capital requirement as per conditio ns notified by RBI; 3. 100% retention of foreign exchange in Exchange Earners' Foreign Currency (EEF C) account; 4. Enhancement in normal repatriation period from 180 days to 360 days. (b) Neutralizing high fuel costs 1. Fuel costs to be rebated in Standard Input Output Norms (SIONs) for all expor t products. This would enhance the cost competitiveness of our export products. (c) Diversification of Markets 1. Setting up of "Business Centre" in the Indian missions abroad for visiting In dian exporters/businessmen. 2. ITPO portal to host a permanent virtual exhibition of Indian export products. 3. Focus LAC (Latin American Countries) was launched in November, 1997 in order to accelerate our trade with Latin American countries. This has been a great suc cess. To consolidate the gains of this programme, we are extending this up to Ma rch, 2003. 4. Focus Africa is being launched. There is tremendous potential for trade with the Sub-Saharan African region. The first phase of the Focus Africa programme sh all include 7 countries namely, Nigeria, South Africa, Mauritius, Kenya, Ethiopi a, Tanzania and Ghana. The exporters exporting to these markets shall be given E xport House Status on export of Rs. 5 crore and above. 5. Links with CIS countries to be revived. We have traditional trade ties with t hese countries. In this group, Kazakhstan, Kyrgyzstan, Uzbekistan, Turkmenistan, Ukraine and Azerbaijan arc to be in special focus in the first (d) North Eastern States, Sikkim and Jammu and Kashmir 1. Transport subsidy for exports to be given to units located in North East, Sik

kim and jammu and Kashmir so as to offset the disadvantage of being far from por ts. (e) Re-location of Industries 1. To encourage re-location of industries to India, plant and machineries would be permitted to be imported without a licence, where the depreciated value of su ch relocating plants exceeds Rs. 50 crores. V. Reduction in Transaction Time & Cost With a view to reduce transaction cost, various procedural simplifications have been introduced. These include: DGFT 1. A new 8 digit commodity classification for imports is being adopted. This cla ssification shall also be adopted by Customs and DGCI & S shortly. The common classification to be used by DGFT and Customs will eliminate the clas sification disputes and hence reduce transaction costs and time. Similarly, Mini stry of Environment and Forests is in the process of finalization of guidelines to regulate the import of hazardous waste. 2. Further simplification of all schemes. 3. Reduction of the maximum fee limit for electronic application under various s chemes from Rs. 1.5 lakh to Rs. 1.00 lakh. 4. Same day licensing introduced in all regional offices. Customs 1. The percentage of physical examination of export cargo has already been reduc ed to less than 10 per cent except for few sensitive destinations. 2. The application for fixation of brand rate of drawback shall be finalized wit hin 15 days. Banks 1. Direct negotiation of export documents to be permitted. This will help the ex porters to save bank charges. 2. 100% retention in EEFC accounts. 3. The repatriation period for realization of export proceeds extended from 180 days to 360 days. The facility is already available to units in SEZ and exporter s exporting to Latin American countries. 4. These facilities are being made available to status holders only for the pres ent. VI. Trust Based 1. Import/Export of samples to be liberalized for encouraging product up gradati on. 2. Penal interest rate for bonafide defaults to be brought down from 24% to 15%.

3. No seizure of stock in trade so as to disrupt the manufacturing process affec ting delivery schedule of exporters. 4. Newcomers to be entitled for licences without any verification against execut ion of Bank Guarantee. VII. Duty Neutralization Instruments (a) Advance Licence 1. Duty Exemption Entitlement Certificate (DEEC) book to be abolished. 2. The exporters can avail Advance Licence for any value. 3. Mandatory spares to be allowed in the Advance Licence up to 10% of the CIF va lue. (b) Duty Free Replenishment Certificate (DFRC) 1. Technical characteristics to be dispensed with for audit purpose. (c) Duty Entitlement Passbook (DEPB) 1. Value cap exemption granted on 429 items to continue. 2. No Present Market Value (PMV) verification except on specific intelligence. (d) Export Promotion Capital Goods (EPCG) 1. EPCG licences of Rs. 100 crore or more to have 12 year export obligation (EO) period with 5 year moratorium period. 2. Supplies under Deemed Exports to be eligible for export obligation fulfillmen t along with deemed export benefit. 3. Re-fixation of EO in respect of past cases of imports of second hand capital goods under EPCG Scheme.

What are the Functions of World Bank? Soumya Singh World Bank performs the following functions: (i) Granting reconstruction loans to war devastated countries. (ii) Granting developmental loans to underdeveloped countries. (iii) Providing loans to governments for agriculture, irrigation, power, transpo rt, water supply, educations, health, etc (iv) Providing loans to private concerns for specified projects. (v) Promoting foreign investment by guaranteeing loans provided by other organis ations.

(vi)Providing technical, economic and monetary advice to member countries for sp ecific projects (vii) Encouraging industrial development of underdeveloped countries by promotin g economic reforms. Resources The World Bank had initially authorised capital of $10 billion subscribed by the member countries in accordance with their economic strength. The United States of America is the largest subscriber. The Bank collects funds from members as we ll as by issue of international bonds.

What are the features of globalization? Maulin Joshi The features of globalization may be discussed as follows: 1. It means free access to the markets in the or fiscal (tariff) or any other governments) rs emerge demanding high quality products and any restrictions like parochial, regional or world without any physical (quota) restriction. Hence, global consume more value for their money without national consideration.

2. Globally standardized products need be marketed ail over the world. There are already many such products having world market. It includes the "lead" products in a region taking care of dominant needs of that region. 3. Globalization requires resources like raw materials, finance and technology. Free access to quality raw materials, latest technology and cheap finance are im portant characteristics of this process at less cost. 4. In globalization. Free mobility of managerial personnel and entrepreneurs res ult into mergers, takeovers and structural regrouping in countries across the gl obe.

What is the impact of globalization on the functions of the state? Maulin Joshi The functions of the state have undergone a sea change due to the impact of glob alization. The states are eager to increase their share in the world market by m eans of exports and imports. Multinational corporations are playing a vital role in the domestic economy of the states.

International agencies like International Monetary Fund (IMF), the World Bank (I BRD) and the World Trade Organization (WTO) control and modify, to some extent, the fiscal policies of the states. Public sectors are being privatized. Private enterprise is preferred to the public sector. Foreign Direct Investments (FDI) i s being encouraged. The states are gradually withdrawing themselves from economic, social and welfar e activities. Individual initiative is being emphasized at every level. Market e conomy has replaced the command economy. Imperative planning has been replaced b y indicative planning. Moreover, neo liberals advocate for the promotion of free economy for the best realization of human potential. The state exhorts the peop le to act on the principle that "self help is the best help". In other words, th e state's role is now confined to be a facilitator rather than serving people fr om cradle to grave. Justification The era of globalization is opening many opportunities for millions of people ar ound the world. Increased trade, new technologies, foreign investments, expandin g media and Internet connections are fuelling economic growth and human advance. All these offer enormous potential to eradicate poverty in the twenty first cen tury. As tariff and other barriers are being lowered, trade is expanding. Thus, global ization is turning the whole world into a common village. Hence, it has opened u p new opportunities for developed as well as developing countries. Explaining po int-wise, globalization may be justified on the following grounds. (1) Globalization aims to achieve free trade between the economies. (2) It allows no restriction in the form of licenses and controls in taking up a ny industrial activity. (3) It allows multinationals to have free access to investment in enterprises to enable the natural flow of capital and technology. (4) It allows no curb on imports and exports. (5) It advocates that the customs and tariff should be based on a sound rational e to encourage free international trade. (6) It advocates enormous increase in direct investment. (7) It advocates growth of organization and administrative structures to manage resources and risks across sovereign borders. (8) It advocates gains in technology and their transfer from one economy to anot her. (9) It advocates consumer gains, faster rate of growth, specialization, developm ent of infrastructure, employment generation and above all availability of capit al at competitive rates Criticism Globalization is more criticized in developing countries than developed ones. In a developing country like India, the 1990s has seen more retrenchment as firms downsize or merge to stand has rigors of competition. This is happening in an en vironment when Gross Domestic Product (GDP) growth is not generating jobs. Trade liberalization has resulted in increase in cheaper imports which hurt local man ufactures. Further. Globalization has income levels with the rich getting richer

and the poor becoming poorer. Skeptics doubt that the WTO may not give justice to the developing countries. Explaining point wise, globalization may be criticized follows:(1) International competition affects domestic industry and leads to unemploymen t. (2) Exchange rate may become more volatile due to free flow of capital. (3) National resources of the developing countries may be exhausted. (4) The global happenings affect directly a country's economy on account of inte rdependence of economies. (5) Globalization may adversely affect the social, political and cultural life o f the people of the country. (6) It affects the economic sovereignty of a nation. (7) The developing states are compelled to be guided by international agencies, like IMF, World Bank and the WTO etc. (8) Globalization affects local security measures and leaves the individual to h is lot. (9) Under globalization, health and education become more expensive and they are available to the rich only.

Science and Technology policies in India - Essay V.Singh Considering policy to be essential for accelerated growth of science and technol ogy in India, the government of India introduced various policing in different p eriod. First of all J.L. Nehru, the first Prime Minister of India moved in Parli ament the Scientific Policy Resolution of 1958. (i) The aim of this policy was to foster, promote and sustain the cultivation of science and scientific research. (ii) To ensure an adequate supply of research scientists of high quality and to recognize their work as an important component of the strength of the nation. (iii) To encourage and initiate all possible programmes for training of scientif ic and technical personal on adequate scale. Later on Technology Policy Statemen t, 1983, was introduced. The purpose of the statement was to give technological development as clear direction for the growth of indigenous technology and the a cquisition of technology from outside. The principle aims of technology policy s tatement are as(i) To attain technological competence and self reliance, reduce vulnerability, particularly in strategic and critical areas, make the maximum use of indigenous

resources. (ii) To use traditional skills and capabilities and making them commercially com petitive. (iii) To ensure correct mix between mass production technologies and production by the masses. (iv) To ensure maximum development with minimum capital outlay. Further Rajiv Gandhi's government introduced Technology Mission in 1985 as an of fshoot of Seventh Plan. Launched in the fields of literacy, immunization, oilsee ds, drinking water, dairy products and telecommunication with various aims, such as(i) To immunize all infants against six diseases. (ii) To improve the availability of quality drinking water in rural areas (iii) To improve milk production and rural employment. (iv) To extend and improve the telecommunication network especially in rural are as. (v) To make substantial improvement in functional literacy. Another technology policy adopted in 1993 was Draft Technology Policy. This poli cy was designed to further strengthen the India economy and to assist the nation in fulfilling its role in the global economic environment. This policy also emphasized on need to decentralize science and technology syste m in response to market and users and the role of users i.e. industries, agricul ture for technology development stressed. This policy proposed incentives and re wards for Reach and Development as a carrier for exceptionally skilled technicia ns etc. This policy also brought out the role of industries in enhancing skills. Apart from these policies, a New Science and Technology Plicy-2003 has been prop osed. This policy outlines the approach to science and technology governance, op timal utilization of existing physical and knowledge resources, development of i nnovative technologies for mitigation and management of natural hazards generati on and management of intellectual property and creation of awareness amongst gen eral masses about the use and benefits of science and technology. Thus, the various technological policies in India aims to spell out a framework to approach areas of emphasis, such as employment, energy, agriculture, dry land agriculture, technological infrastructure natural hazard management, but even t hen it failed to take off. However, the new policy has been framed keeping in vi ew the idea of decentralization and the role of industries and to create abiliti es to respond to users and markets.

Essay on Globalisation and Technology Transfer

Nirav S 1. Technology transfer refers to the transfer of information, human skills, tech nical know how and management techniques. 2. Technology transfers can be effectuated through FDI. 3. The share of technology transfer is determined by the willingness of the indu strial country to transfer technology to a developing country and the latter's c apacity to acquire and adapt imported technology. 4. SMEs should develop a global orientation through adjustment of their business practices in tune with expectations and trends prevailing in the global market places. 5. SMEs can focus on subsidiary supplies for vertical integration process of FDI by developing their linkages with the main producers. Globalisation: Implication of Technology Transfer: 1. Technology transfer has revolutionised world trade and dynamism of the global economy. 2. Proper identification of objective and knowledge of their development import eventually required for a developing host country for FDI inflow in establishing the appropriate transfer of technology. 3. The bargaining strength of LDCs is determined by the factors such as: Demand elasticity for the product reflects the significance of techno-logy o r producer to the host country. Size of the market of the host country. Humler of alternative sources of supply. Infrastructural composition of the host country. Relative development and growth stage of the country. 4. Type of industry or activity in which the foreign investment is intended: Production related to the domestic market. Production related to the export market. Resource extraction. Domestic commerce/trading. When a MNC finds that it is not worthwhile to invest directly in the country it may still sell the technology profitable through: 5. Licensing agreement 6. Turnkey operation 7. Management consultation package 8. Joint ventures