INDUSTRIAL POLICIES

AND REGULATIONS

INDUSTRIAL POLICY
Industrial Policy up to 1991
The New Industrial Policy
An Evaluation of the New Policy
Summary

INDUSTRIAL POLICY UP TO
1991
It Was Characterized By The Following
Features
Reservation of Industries
Dominance of Public Sector
Entry and Growth Restrictions
Restrictions on Foreign Capital and
Technology

THE NEW INDUSTRIAL

POLICY
It was announced on July 24, 1991
Announced the economic reforms in
India
Expanded the scope of the Private
Sector
Dismantling the entry and growth
restrictions

OBJECTIVES

The major objectives of the new

Industrial policy are
To build on the gains already made
To correct the distortions or
weakness that may have crept in
To maintain a sustained growth in
productivity and gainful employment
To attain international
competitiveness

REDEFINITION OF THE ROLE OF THE

PUBLIC SECTOR

Delicensing
Removal of MRTPA Restrictions
Liberalization of Foreign Investment
Related Measures

INDUSTRIAL POLICY
CHANGES
Pre- 1991 Policy

Current Policy

Industrial licensing was the rule

Licensing is an exception

Public sector
All but two industries are open to
monopoly/dominance in basis and the private sector
heavy industries
MRTP Act restrictions on entry
and growth of large companies

No such restrictions

Foreign investment allowed only

in select industries, that too
subject to, normally, a ceiling of
40% of total equity and prior
permission

Foreign investment allowed in a

large number of industries,
including up to 100% of equity in
many of them. Automatic route
available subject to specific
conditions

Restrictive policy towards foreign

technology

Very liberal policy towards foreign

technology

Reservation of large number of

products for small scale sector

Reservation list is being pruned

IRDA & INDUSTRIAL

LICENSING
Industries (Development and
Regulation) Act
Industrial Licensing
Summary

INDUSTRIES (DEVELOPMENT AND

REGULATION) ACT

OBJECTIVES
To provide the Central Government with the
means to implement their Industrial Policy.
To take necessary steps for the development
of industries.
To regulate the pattern and direction of
industrial development.
To control the activities, performance and
results of industrial undertakings in the
public interest.

Main Provisions

Development measures
Regulation of entry and growth
Supervision and Control
Take over of Management

INDUSTRIAL LICENSING
The Industries (Development and
Regulation)
Act 1951
License
Conditions to be fulfilled
Letter of intent

THE NEW POLICY

Abolished industrial licensing
Compulsory licensing for the
following Industries
1. Distillation and brewing of alcoholic
drinks
2. Cigars and cigarettes of tobacco and
manufactures tobacco substitutes
3. Electronic Aerospace and defense
equipment
4. Industrial explosives

LOCATIONAL POLICY
Free to select the location of a
project
25km away from the Standard Urban
Area
Non polluting Industry
Local zoning and land use regulations

PUBLIC, PRIVATE, JOINT AND

CO-OPERATIVE SECTORS

Public Sector
The New Public Sector Policy
Public Sector Rathnas
Organisation of Public Enterprises
Pricing Policy in Public Enterprises
Government and Parliamentary Controls over
Public Enterprises
Department of Public Enterprises
Nationalisation
Private sector
Joint sector
Co-operative sector

PUBLIC SECTOR
Objectives
Help in the rapid economic growth and
industrialization
Earn return on investment
Promote redistribution of income and wealth
Create employment opportunities
Promote balanced regional development
Assist the development of small-scale and
ancillary industries
Promote import substitution, save and earn
foreign exchange

THE NEW PUBLIC SECTOR

POLICY
Priority areas for growth of public
enterprises
Essential infrastructure goods and
services
Exploration and exploitation of oil
and mineral resources
Technology development and
building of manufacturing
capabilities

Withdrawal from the following

cases

Industries based on low energy

Small- scale and non strategic areas
Inefficient and unproductive areas
Areas with low or zero social
responsibility or public purpose
Areas where private sector has
developed sufficient enterprise and
resources

Main elements of the current

Government Policy towards Public
Sector Undertakings
Bringing down Government equity in all
non-strategic PSUs to 26 percent or lower
Restructure and revive potentially viable
PSUs
Close down PSUs which cannot be revived
Fully protect the interest of workers

PUBLIC SECTOR RATNAS

NAVRATNAS

Bharat Heavy Electricals Ltd.(BHEL)

Bharat Petroleum Corporation Ltd.(BPCL)
Hindustan Petroleum Corporation Ltd.(HPCL)
Indian Oil Corporation Ltd.(IOC)
Indian Petrochemicals Corporation Ltd.(IPCL)
National Thermal Power Corporation Ltd.
(NTPC)
Oil and Natural Gas Corporation Ltd.(ONGC)
Steel Authority of India Ltd.(SAIL)
Videsh Sanchar Nigam Ltd.(VSNL)

ORGANISATION OF PUBLIC
ENTERPRISES

Ministry
Departmental Undertakings
Government Company
Public Corporation
Holding Company
Suitable Form of Organisation

Industrial and Manufacturing Undertaking

Public Utilities and Services
Promotional and Development Undertaking
Commercial and Trading Concerns

PRICING POLICY IN PUBLIC

ENTERPRISES

THEORIES OF PRICING
Marginal Cost Pricing
Average Cost Pricing
No-Profit, No-Loss Pricing
Profit Making Pricing

Indian Public Sector and Profit

Objective

Influences and Guidelines on Pricing

Policy

On the basis of the nature of the

business, public enterprises can be
classified as follow
Production or provision of public
utilities and services
Production of consumer goods
Production of basic and capital goods
Trading business
Financial Enterprises

Recommendation by Administrative Reforms

Commission on pricing policies

Earning surpluses to make a

substantial contribution
Pay their way and should not return
into losses
Stress should be laid on output than
on return on investment
Keep the level of output as near the
rated capacity

Guidelines issued by BPE on pricing

policies
Enterprises which produce goods and
services in competition
Enterprises which operate under
monopolistic or semi-monopolistic
conditions
Ministries and government
departments and public sector
Enterprises should purchase their
requirements from public sector
undertaking

Classification by BPU of Enterprises

based on pricing criteria and practices
A system of price control
Sell their products entirely to the
government
Sell products mainly to State government
enterprises or Public Sector Enterprises
Selling the products in the International
market
Operating in the open market
Steel
Price fixation by arbitration and award by
the government

PRICING STRATEGIES

Administered Prices
No-Profit, No-Loss Prices
Cost-Plus Prices
Competitive Prices
Following the Leader
Parity Pricing
Subsidized Prices
Trade Association Pricing
Discriminatory Pricing

GOVERNMENT CONTROL OVER

PUBLIC ENTERPRISES
Appointments of chief executives and full time and part
time members of the Boards of Directors
Sanctioning of capital programmes involving
expenditure of a certain magnitude
Approval of five- year annual plans of development and
capital budgets
Authorization of capital to be raised and the conditions
thereof
Approval of the revenue budget where a deficit was
required to be met by the government
Calling for returns, accounts and other information on
the activities of the enterprise
Giving directions to the enterprise on matters involving
national security or substantial public interest

PARLIAMENTAR
Y IMPACT

Direct Impact

Indirect Impact

Questions in
Parliament

Ministerial &
Executive

Submission of
Annual Reports

Board
membership

Approval of
budgets,
Subventions,
Outlays etc

Through the
govt. audit
system

Inquiries by
Committees

By appointment
of ad hoc
commissions of
enquiry

Accountability to
Parliament

Directives

Informal
interventions

PARLIAMENTARY CONTROL AND

PUBLIC ACCOUNTABILITY
Holding debates in Parliament
By interpellation
By parliamentary Committees

DEPARTMENTAL OF PUBLIC
ENTERPRISES

PRIVATISATION AND
DISINVESTMENT
Expansion of Public Sector and its
Defects
Ways of Privatisation
Obstacles to Privatisation
Conditions for success of
Privatisation
Benefits of Privatisation
Arguments Against Privatisation
Sins and Pitfalls of Privatisation

Expansion of Public Sector and its Defects

Public sector expansion in 1960s and

1970s
In particular an expansion of the
State Owned Enterprises(SOEs)
1960- Nationalisation trend
1970- Privatisation by selling SOEs
Growing interest in Privatisation
Privatisation Reaction

WAYS OF PRIVATISATION
Divesture or Privatisation of
ownership
Denationalisation or Reprivisation
Contracting
Franchising
Privatisation of Management
Liquidation- Formal or Informal

OBSTACLES TO
PRIVATISATION
Government willing to sell the least
profitable enterprises
Divestiture
Relatively undeveloped capital
markets

Conditions for success of

Privatisation
Public arising out of dissatisfaction
Alternative institutional arrangements
should not stop competition
Freedom of entry to private goods and
services
Public services provided to the private
sector must be specific or have measurable
outcome
Consumers should be able to link the
benefits they receive from a service to the
cost they pay for it

 Privately provided services should be

less sesceptible to fraud than the
government service
Equity is an important consideration
in the delivery of public services

BENEFITS OF PRIVATISATION

Reduces the fiscal burden of the state

Government to mop up funds- SOEs
Trims size of the administrative machinery
Concentrate more on the essential state
functions
Accelerates economic development
Better management of the enterprises
Encourage entrepreneurship
Increase the number of workers and
common man(shareholders)- public
vigilance

ARGUMENTS AGAINST
PRIVATISATION
Noble objectives of public sector
being discarded
Encourage concentration of
economic power
Results in the acquisition
Privatisation of profitable enterprises
may result into a loss
Privatisation of strategic and vital
sectors is against national interests

 Quality and commitment of the

management
Capital markets of developing
countries not being developed
Expected results may not be
achieved
Vested interests behind privatisation
leads to deceiving the nation

SINS AND PITFALLS OF

PRIVATISATION

Lack of proper strategy

Ambiguity of objectives
Connivance
Wrong Timing
Lack of Political Consensus
Wrong Labour Strategies
Lack of Political Will
Poor Financial Strategies
Wrong Environment
Prevalence of Monopoly Elements
Problem of cultural change

PRIVATISATION / DISINVESTMENT IN
INDIA
Disinvestment Policy
Initial phase
The Second Phase
strategic and non strategic classification

VILLLAGE AND SMALL

INDUSTRIES

Definitions
Promotional Measures
Institutional support structure
State Industries Policy
Khadi and Village Industries
Ancillary Industries
Drawbacks and Problems

THE VSI SECTOR

Traditional cottage and household
Industries
Modern small-scale industries
including tiny units and powerlooms

 Women Enterpreneurs Enterprise

Export Oriented Units
Organized and Unorganized Sector

IMPORTANCE OF KHADI AND

VILLAGE INDUSTRIES
High employment potential
Provide employment in the off
season
Employment of special categories of
people
Employment opportunities within the
household
Capital-output and Capital-labour
ratios are comparatively very low
Promote non-inflationary growth

 Resource utilization and conservation

of resources
Reducing the regional economic
imbalances
Increase the rural development
Less ecological problems
Does not cause energy crisis and
foreign exchange crisis
Accounts for one-third of the
economy

DEVELOPMENT OF VSIS UNDER THE

PLANS

Objectives
To assist in the growth and widespread
dispersal of industries
To increase the levels of earning of artisians
To sustain and create avenues of self
employment
To ensure regular supply of goods and
services
To develop entrepreneurship
To preserve craftmanship and art heritage

PROMOTIONAL MEASURES

The important protective and promotional

measures include the following
Reservation of products
Reservation and Preference in
Government Procurement
Infrastructure and Institutional Support
Machinery on Hire Purchase
Marketing Assistance
Training
Supply of Raw Materials
Promotion of Ancillarisation

SOME OF THE PROMOTINAL

ASPECTS
Industrial Estates
EPZs/SEZs Export Industrial Parks
Integrated Infrastructural Development
Scheme (IID)
Cluster Development
Industrial Growth Center Schemes
Recent Measures
Micro, Small and Medium Enterprise
Development Act, 2006

Categorization of SMEs
Manufacturing Enterprises
Service Enterprises
Other Features

INSTITUTIONAL SUPPORT
STRUCTURE

Women Entrepreneurs
1991 Industrial Policy
SIDO
SIDBI

Marketing

NSIC
Sub-Contracting Exchanges
Quality Clarification
Marketing Development Assistance(MDA)
Scheme
Training Programmes for Export Packaging
Organising Exhibition and International
Trade fairs
Export Promotion Councils
SIDBIs Marketing Finance & Development
Department

STATE INDUSTRIAL POLICIES

The main areas of support and facilities
extended by state governments

To develop and manage industrial areas

Financial support services
Technical guidance
Human resources development
Human resources development
Infrastructure development
Export promotion
Single Window Assistance

KHADI AND VILLAGE

INDUSTRIES
Objectives
The social objective of providing
employment
The economic objective of producing
saleable articles
The wider objective of creating selfreliance

Functions
Training of persons
Building up reserve of raw materials and
implements
Provide for sale and marketing
Encourage and promote research in the
technique of production
Maintain or assist in the maintenance of
institutions
Undertake, assist or encourage production
Promote and encourage co-operative efforts
among manufacturers
Ensuring the genuineness and granting
certificates

ANCILLARY INDUSTRIES
The government policy has been one of
encouraging ancillarisation
BENEFITS
The society also benefits from economies of
scale
Advantages to large units in an era of power
shortage and financial problems

PROBLEMS
Satisfactory quality
Do not have the resources for carrying out
R&D

DRAWBACKS AND
PROBLEMS

Problem of inputs
Financial problems
Marketing problems
Competition from the large units
Institutional constraints