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8/6/2019 Industrial Policy New Microsoft Power Point Presentation Revised (4) (3)
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Industrial policy of India
rp_juyal2k2 @ rediffmail.com
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Industrial policy of IndiaAn overview
Industrial policy 1948
Laid down the foundation of mixed economy, with a socialist undertone
Industries divided in four categories State Monopolies : Arms and ammunition, atomic energy, and rail
transport (3)
Mixed sector : Coal, iron and steel, aircraft manufacturing, shipbuilding, manufacturing of telephones, telegraph, and wirelessapparatus (excluding radio sets ) and mineral oils ( 6). New
undertaking were to be set up by state.The government was to review the performance of privateindustries after 10 years and if felt necessary may acquire any, afterpaying compensation.
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Industrial policy of India :1956
The Back ground The first five year plan ( 1951-52to55-56)
was completed. Optimism was running high First General election completed
Congress Party in its Awed Sessiondeclared that it is for socialist pattern ofsociety
Second Five year plan : RapidIndustrialization, infrastructure and
institution building to priority Consumer good deficiency model to over
come the shortage of investment
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Industrial policy of India :1956
The Back ground Lack of confidence in private sector
: Low profitability, balanced regional
development. Self reliance : Apprehension towards
foreign capital.
To reduce the disparities of wealthand income.
Soviet influence.
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Industrial policy of India :1956
The Back ground To prevent monopolies
To Build a large and growing
cooperative sector Public sector Commending heights
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Industrial policy of India :1956
The Salient features State monopoly : 17 industries ( schedule
A)
Out of these four industries : Arm andAmmunition, atomic energy Rail and Airtransport were the exclusive domain of thestate
In rest the 13 private sector was allowedto continue but new private units were tobe allowed when the national interest sorequired.
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Industrial policy of India :1956
The Salient features Mixed sector : 12 industries ( scheduled B)
State increasingly establish units but not todiscourage private sector
Private sectors
The industrial policy 1956 relied heavily onIndustrial Development and Regulation Act1951 for implementation to which licensingwas the main instrument.
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Industrial policy of India :1956
Operational mechanismThe industrial policy 1956 reliedheavily onIndustrial Development and Regulation Act
1951 for implementation to which licensingwas the main instrument.This Act was a mechanism to regulate
industries as per the plan priorities, and other objectives of
social policy of government Protect small industries and develop
cooperative sector
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Industrial policy of India :1956
Operational mechanism Direct investment in to the desired spheres
: Activities and areas
Correlate supply and demand
Optimum utilization of social capital
Enquires about the functioning of industries
Control on prices and distributions.
Central Advisory boards and developmentboards of various industries.
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Industrial policy of India :1956
Lessons Leant Monopolies Enquiry commission 1964
R.K Hazari Committee 1965
Dutt Committee 1967
Underutilization of capacity
Large industries restricted output andallowed price to rise
Oligopoly became the feature : pre-emption ofinvestment opportunities
Rent seeking
u
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Industrial policy of India :1956
Lessons Leant Regional Imbalances :1979 to 1992
Maharashtra , Gurjarat,Tamil Nadua andWest Bengal- 46 percent license Bihar ,
Orrisa, M.P. and U.P. about 16 percent Even the Backward areas of developed
state was favourved vis--vis of poorstates. The backward areas of the four
industrially advanced state got 37,6percent and of backward state mentionedabove only 9.8 percent
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Industrial policy of India :1956Lessons Leant
MRTP & FERA : Growth of Parallel
Economy In some instances private sectorwas denied opportunity to enter inthe industries badly needed e.g.
Birla was not given license to start13
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Industrial policy of India :1956Lessons Leant
Tata made 119 proposal between1960-1989 none was approved
Birlas shifted to East Asian countries
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Industrial policy of India :1956
Lessons Leant The East Asian countries which also
has more problem of resources (
financial and managerial, technical )vis--vis India govt. took active rolein providing resources to privatesector to grow.
The Democratic compulsions vis--visauthoritarian government
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Industrial policy of India :1991
Objective
To build on the gains already made
To correct the distortion or weaknessthat might have crept in
Maintain sustain growth in
productivity and gainful employment International competitiveness.
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Industrial policy of India :1991Industrial Licensing
In 1991 was restricted to 18 categories butnow only six industries viz
alcohol
cigarettes
hazardous chemicals,
electronics aerospace
defense equipmentsdrug and pharmaceuticals( excluding bulk drugs)
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Industrial policy of India :1991Public sector Monopoly Initially 8
industries but now only 3.
Atomic energyminerals specified in thescheduled to atomic energy
Rail Transport
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Progress Since 1991License No approval of government is
required .
The entrepreneur submit Industrial
Entrepreneur Memorandum (IEM) to thesecretariat of Industrial Approval
Till 2004- 55335 IEM submitted , InvestmentRs 13,75,152 crore
Employment 107 Lakh personLetter Intent 3,966
Investment 1,14,841 crore
Employment 8.60 lakhs19
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Industrial Policy -1991The location of industries are subject to following
regulations
Local Authorities Land use planning Like
master plan and zonal planRegulation of Ministry of Forest and Environment
If the proposed location is not in designatedindustrial area, it ought to be at least 25 K.M.from 25 kilometers from the million plus city
(1991 census).The electronic , printing and soft ware and non
polluting industries are excluded from theseprovision
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Foreign Technology and
InvestmentForeign Technology and Investment
Prior 1991
Very restricted &Allowed only in priority areas
In. Other areas on merit linked toexport.Three categories were
1. Foreign Investment (FI)was allowed
2. Only technological collaboration (No FI)
3. NO collaboration ( FI or Technology)Foreign (Investment) equity ceiling 40
percent
Foreign royalty payments: limited for 5 years21
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Foreign Technology and
Investment Since 1991 Foreign Investment in most of the
industries is allowed through direct
route (NO approval pf RBI &Government )
In 1991 only 36 industries was inthis category FDI up to 51 percent
later modified it in various ways
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Foreign Technology and
Investment Since 1991 Now excluding the followings all
industries are in the automaticapproval
Industries requiring license
Only 24 percent foreign equity ispermissible in items reserved for
Small scale sector. All items requiring industrial license in
terms of location.
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Industrial Development
Average Annual growth rateSector Weight
inIndex
1980-81
to
1991-92
Post reforms
VIII Plan1992-92 to1996-97
IX Plan1997-98
2001-02
Basic goods 35.5 7.4 6.8 4.1
Capital Goods 9.3 9.4 8.9 4.7
Intermediate
Goods
26.5 4.9 8.5 5.8
Consumer Goods 28.7 6.0 6.6 5.5
Durable 5.4 10.8 13.4 10.7
Non Durable 23.3 5.3 4.8 3.8
All Index 100 7.4 7.4 5.024
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Industrial Development
Average Annual growth rateSector /goods Pre
reform
2002-03 2003-
04
2004-05 2005-06 2006-07 2007-08
Basic 7.4 4.9 5.4 5.5 6.7 10.3 8.4
Capital 9.4 10.5 13.6 13.9 15.8 18.2 20.8
Inter 4.9 3.9 6.4 6.1 2.5 12.0 10.1
Consumer 6.0 7.1 7.1 11.7 12.0 10.1 5.2
Durable 10.8 -5.3 11.6 14.4 15.3 9.2 -1.7
Non Durable 5.3 12.0 5.8 10.8 11.0 10.4 7.8
All Index 7.4 5.7 7.0 8.4 8.2 11.6 9.225
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Industrial Progress : 1951-55
to 1960-65Creating Industrial Base
Significant growth
The 1st plan , 5.7 % compound annual
growth rate increased to 7.2 % in 2nd planto 9.0 %in 3rd plan
Massive investment in industries andmineral in 2nd &3rd plan
2.8 %( about 55 crores) of the totalexpenditure of 1st plan to 20.1 percent in2nd and 3rd plan ( 938 cores and 1726crores these plan respectively at current prices ).
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Industrial Progress : 1951-55
to 1960-65Creating Industrial Base
High growth rates attributed togrowth of
Capital goods industries from 9.8% in 1st plan , to 13.1 % in 2nd planto 19.6 % in 3rd plan
Basic industries, from 4.7 % in 1st
plan to 12.1 % in 2nd plan to 10.4 %in 3rd plan
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Creating Industrial Base
Creating Industrial Base
Besides small scale industries alsoattributed for about 2.1 % , 4.0% and 2.8percent of the total plan expenditure. In
absolute terms about 42,187 and 241croes respectively
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Creating Industrial Base Power and Energy also accounted for
about 7.6 %, 9.7 % and about 14.6
% of the total plan out lay ( Inabsolute terms about 149, 452 and1252 crores, at current prices )
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Industrial Deceleration 1965-80 The growth rate decelerated from 9 percent
of 3rd plan to 4.1 % between 1965-76
If this is included the growth rate comes to
be 3.1 % The growth picked up in fifth plan to 6.1%
These growth rates are not actualreflection as these include the sharp
increase of 10.6 % in 1976-77 In 1979-80 the growth rate was
(-)1.6 %
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Industrial Deceleration 1965-80 The worse part of this recession was
growth of capital goods was as low as 2.6percent% per annum ( from 1965 to 76)
although it picked up during fifth plan (1974-79) to 5.7% but this remained lowthen the average of first three plan .
Similar is the story of basic good industries,average 6.5 percent ( 1965-76) for the ten
year period which again picked to 8.4%but remained low compared to previousthree plans.
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Industrial Deceleration 1965-80 The reason for deceleration :Exogenous factors War, 1965,1971 Drought 1966-67 to
1968-69 Oil crisis 1973
Slow growth of agriculture (KN Raj) andSaturation of demand due to persistinginequalities (C. Rangrajan)
Decline in public investment ( Prabhat
Patnaik) &hence lack of stimulus. Irrigational system ( Srinivas, Pdama
Desai)
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Industrial recovery 1981-91Progress during 1981-991Classification 1981-85 1985-90 1990-91
Basic goods
8.7 7.4 3.8Capital Goods 6.2 14.8 17.4Intermediate
Goods6.0 6.4 6.1
Consumer Goods
5.1 7.3 10.4Durable 14.3 11.6 14.8Non Durable 3.8 6.4 9.4All Index 6.4 8.5 8.3
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Industrial recovery 1981-91
Factors resulting in recovery
The recovery is associated with betterproductivity and not associated with growth
of factor input. The total factor productivitywhich meager even negative (-) 0-2 to (-)0.3 percent between 1966-67 to 1979-80picked up in the first of eighties it was3.4% per annum. ( Isher Judge Alhjwalia)
Liberalization of industrial policy ( supplyside )
Liberal fiscal regime ( demand boost up)
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Industrial recovery 1981-91
Factors resulting in recovery
Growth of Agriculture :
Rural demand of non agriculture product rose
from 35 percent in 1967-68 to 47 percent in1983
More per hectare use of manufactured goods.The percentage of purchased inputs to totalinputs ( as a proxy indicator of demand of
industrial product in agriculture production )roughly doubled from 16.4 percent in 1970-71to 35.6 percent in 1983-84 ( R.Thamarajakashi)
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Industrial recovery 1981-91
Factors resulting in recovery
Growth of service sector pushed the growth ofconsumer durable
Resurgence in infrastructure spending , asagainst 4.2% per annum in 1965-66 to1975-76 to 9.9% in 1979-8- to 1985-85and 16 % and 18.3 % in 1985-86 and1986-87. This investment resulted indiscernible improvement in productivity
( I.J Alhuwalia).
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Post Reforms : industrialProgress
In the first year of reform period ( VIII Plan) the industrial development little less thanpre-reform period which decelerated in next
five year ( IX plan ) but picked up in X planperiod and is substantially higher thanreform period .
The rate of growth in capital goods and
basic goods in post reform period has beeninitially less but it is higher in X plan
vis--vis pre reform period growth rate
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Post Reforms : industrialProgress
In first ten years The rate of growth of nondurables was less but in X plan it washigher than the pre reform period.
But the growth consumer durables hasbarring stray exception has been higherthan pre reform period.Almost similar is thesituation of intermediate goods.
The earlier phase of reforms marked withfluctuation but in X plan it remained byand large consistent.
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Post Reforms : industrial Progress
The improved performance in X plan is attributed toimproved investment climate , expanding externaldemand, improved domestic demand, ease in availabilityof finance and increasing capacity addition in the
industrial sector ( RBI report on currency and Finance2003-04)
The areas of concern
17 states has not shown any significant improvement inindustrial growth(R. Nagrajan-in Shuji Uchikawa
(ed)Economic Reforms and industrial structures in India(2002)
Gujrat, Mharashtra and Tamilnaduaccoutns for about 39%factories, 44 % capital and 44% of the output
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Post Reforms : industrial
ProgressThe areas of concernAlthough the initial hiccups to externalcompetition are almost over but industries arefacing the problem of dumping.
The inadequacies of infrastructure and slowingdown of public investment has its impact in lowstimulus.
Disorderly growth of capital market and theflow funds from institutions to industry is not
satisfactory. And a substantial part of the fundsis being utilized in acquisition and merger .
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Post Reforms : industrialProgress
The areas of concern International volatility
Slow growth of domestic market because of poor
agriculture growth and also low expenditure onemployment generation programmes in rural area(now being addressed)
Heavy spending on real estates specially inspeculation has impact on investment as wellexpenditure
Increasing inequalities , insecurity of job puts brakeon spending in urban areas
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Post Reforms : industrialProgress
The areas of concern
Anomalies in tariff structure : leading toimport of second capital goods e.gfinished capital goods in fertilizer andrefinery , enjoyed zero duty but inimport duty on components and
intermediate products.
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