Industrial Policy Presentation

Presentation

Managerial Economics

MMM Group 7

Members & Roll Nos. ______________ (Roll No)______________ (Roll No) ______________ (Roll No) ______________ (Roll No) ______________ (Roll No) ______________ (Roll No)

ISSUES, OBJECTIVES & EXPERIENCE

• Industrial policy means rules regulations, principles, policies,

and procedures laid down by government for regulating,

developing and controlling industrial undertakings in the

country. It prescribes the respective roles of the public, private

joint and cooperative sectors for the development of industries.

It also indicates the role of the large , medium , and small sector

. It incorporates fiscal and monetary policies, tariff policy, labour

policy and the government attitude towards foreign capital, and

role to be played by multinational corporations in the

development of the industrial sector.

Meaning : Industrial Policy

Features of Industrial Policy

• Public Sector Policy: The priority areas for growth of public enterprises in the future will be the following:

Essential infrastructure goods and services.

Exploration and exploitation of oil and mineral resources.

Technology development and building of manufacturing capabilities in areas which are crucial in the long term development of the economy and where private sector investment is inadequate.

Manufacture of products where strategic considerations predominate such as defense equipment.

Objectives:

Accelerating the overall rate of growth through industrialization.

Expanding the industrial base in relation to industrialization needs of

the country.

Generating employment and reducing poverty.

Preventing monopolies and concentration of industrial power.

Creating competitive conditions and encouraging the growth of

entrepreneurship

Promoting balanced industrial development.

Promoting linkages with others sectors of the economy.

Assisting small enterprisesEncouraging the growth of industrial

research and development

Ob

jecti

ves:

Improving living standards and working conditions for the mass of the people.

To reduce disparities in income and wealth.

To prevent private monopolies and concentration of economic power in different fields in the hands of small

numbers of individuals

The State will progressively assume a predominant and direct responsibility for setting up new industrial

undertakings and for developing transport facilities.

At the same time private sector will have the opportunity to develop and expand.

The adoption of the socialist pattern of society as the national objective.

• Outlined the approach to industrial growth and development

• Emphasized the importance of securing a continuous increase in

production and ensuring its equitable distribution.

Progressively active role for the State in the development of

Industries.

• State monopoly: Arms and ammunition, atomic energy and

railway transport

• State exclusively responsible for the establishment of new

undertakings in six basic industries-except where, in the national

interest, the State itself found it necessary to secure the

cooperation of private enterprise.

• Rest of the industrial field open to private enterprise though the

State would also progressively participate in this field.

Industrial Policy Resolution 1948

Industrial Policies & Resolutions in India

Industrial policy

resolution of 1948

Industrial policy

resolution of 1956

Industrial policy

resolution of 1973

Industrial policy

resolution of 1977

Industrial policy

resolution of 1980

Industrial policy

resolution of 1991

• After the adoption of the Constitution and the socio-economic goals, the Industrial Policy was comprehensively revised and adopted in 1956.

• Sought to accelerate the rate of economic growth and speed up industrialization to achieve a socialist pattern of society.

• Capital was scarce & the base of entrepreneurship not strong enough. Hence, the gave primacy to the role of the State to assume a predominant and direct responsibility for industrial development.

Industrial Policy Resolution 1956

Objectives IPR 1956

– Improvement in living standards and working conditions for the mass of the people.

– Reduction in income and wealth disparities

– Prevention of private monopolies and concentration of economic power in different fields in the hands of small numbers of individuals.

– Progressively predominant and direct responsibility for the State in setting up new industrial undertakings and for developing transport facilities

– Undertake State trading on an increasing scale.

– Equal opportunity for the private sector to develop and expand.

– Private sector to develop on the principle of cooperation; increasing proportion of the private sector activities to develop on cooperative lines.

– The adoption of the socialist pattern of society as the national objective.

– The need for planned and rapid development.

– Public sector: All industries of basic and strategic importance, or in the nature of public utility services.

– The State can undertake any type of industrial production.

Categorization of industries

• Set of industries the future development of which will be the exclusive responsibility of the State

• Category of industries which will be progressively state-owned and in which the State will, therefore, generally take the initiative in establishing new undertakings, but in which private enterprise will also be expected to supplement the efforts of the State.

• Rest of industries left to the initiative andenterprise of the private sector.

• Stress the role of cottage and village and small scale industries in the development of the national economy.

• Disparities in levels of development between different regions should be progressively reduced.

Objectives IPR 1956

• Certain structural distortions called for policy changes in IPR 1956

• Provide for a closer interaction between the agricultural and industrial sectors

• Highest priority to the generation and transmission of power.

• Identify products to be reserved for the small scale sector: list of industries exclusively reserved for the small scale sector expanded from 180 items to more than 500 items.

• Within the small scale sector, a tiny sector was also defined with investment in machinery andequipment up to Rs.1 lakh & located in townswith a population < 50,000 according to1971 census figures, and in villages.

• Proposal for special legislation to protect cottage and household industries

• Compulsory export obligations, merely for ensuring the foreign exchange balance of the project, would no longer be insisted upon while approving new industrial capacity.

• In the areas of price control of agricultural andindustrial products, the prices would be regulated to ensure an adequate return to the investor.

Objectives IPR 1973

Objectives IPR 1977

The Government would promote the development of a system of linkages between nucleus large plants and the

satellite ancillaries

To boost the development of small scale industries, the investment limit in the case of tiny units was enhanced to

Rs.2 lakh, of a small scale units to Rs.20 lakh and of ancillaries to Rs.25lakh.

A scheme for building buffer stocks of essential raw materials for the Small Scale Industries was introduced for

operation through the Small Industries Development Corporations in the States and the National Small Industries

Corporation in the Centre.

Industrial processes and technologies aimed at optimum utilisation of energy or the exploitation of alternative sources of energy would be given special assistance, including finance on concessional terms.

Correction of regional imbalances;

Maximum production and achieving higher productivity; Higher employment generation;

Strengthening of the agricultural base through agro based industries;

Promotion of export-oriented industries;

Promotion of economic federalism through equitable spread of investment and dispersal

of returns;

Consumer protection against high prices and bad quality.

Objectives IPR 1980

• Govt . recognizes the need for

– social and economic justice, to end poverty and unemploymentand to build a modern, democratic, socialist, prosperous andforward-looking India

– India to grow as part of the world economy and not in isolation

– Greater emphasis placed on building up ability to pay forimports through our own foreign exchangeearnings

– development and utilization of indigenous capabilities intechnology and manufacturing as well as its upgradation toworld standards.

• Sound policy framework encompassing encouragement ofentrepreneurship, development of indigenous technology throughinvestment in research and development, bringing in newtechnology, dismantling of the regulatory system, development ofthe capital markets and increasing competitiveness for the benefitof the common man.

Objectives IPR 1991

• The spread of industrialization to backward areas of the country will beactively promoted through appropriate incentives, institutions andinfrastructure investments.

• Government will provide enhanced support to the small-scale sector sothat it flourishes in an environment of economic efficiency andcontinuous technological up gradation

• Foreign investment and technology collaboration will be welcomed toobtain higher technology, to increase exports and to expand theproduction base.

• Government will endeavor to abolish the monopoly of any sector or anyindividual enterprise in any field of manufacture, except onstrategic or military considerations and open all manufacturing activityto competition.

• Foreign investment and technology collaboration will be welcomed to obtain higher technology, to increase exports and to expand theproduction base.

• Government will endeavor to abolish the monopoly of any sector or any individual enterprise in any field of manufacture, except onstrategic or military considerations and open allmanufacturing activity to competition.

Objectives IPR 1991

• The Government will ensure that the public sector playsits rightful role in the evolving socioeconomic scenarioof the country.

• Government will ensure that the public sector is run onbusiness lines as envisaged in the IndustrialPolicy Resolution of 1956 and would continue toinnovate and lead in strategic areas of nationalimportance.

• Government will fully protect the interests of labour,enhance their welfare and equip them in all respects todeal with the inevitability of technological changeLabour will be made an equal partner in progress andprosperity

• Workers’ participation in management will be promoted

Objectives IPR 1991

• Workers cooperatives will be encouraged to participate in packagesdesigned to turn around sick companies.

• The major objectives of the new industrial policy package will be tobuild on the gains already made, correct the distortions or weaknessesthat may have crept in, maintain a sustained growth in productivity andgainful employment and attain international competitiveness.

• Need to preserve the environment and ensure the efficient use ofavailable resources.

• Government’s policy will be continuity with change.

• In pursuit of the above objectives, Government have decided to take aseries of initiatives in respect of the policies relating to the followingareas.

A. Industrial Licensing.

B. Foreign Investment.

C. Foreign Technology Agreements.

D. Public Sector Policy.

E. MRTP Act.

Objectives IPR 1991

• Industrial licensing:

– Modified industrial licensing policy to easerestrictions on capacity creation, respond toemerging domestic & global opportunities byimproving productivity

– Abolished industrial licensing for mostindustries but for 18 categories

– Small scale sector reserved

• Foreign Investment:

– FDI (up to 51% foreign equity) permitted inhigh priority industries (high investment andadvanced technology) & export orientedcompanies

Objectives IPR 1991

• Foreign Technology Agreements:

• Towards technological dynamism, automatic approval fortechnological agreements related to high priority industries; easedprocedures for hiring foreign technical expertise

• Public Sector Policy:

Restructuring pubic sector units, raise resources through pubicparticipation PSUs, refer sick units to Board of Industrial &Financial Reconstruction

• MRTP Act: (Monopolistic Restrictive Trade Practices):

Removal of threshold limits of assets in respect of MRTP Companies& dominant undertakings.

Elimination of need of prior approval of Central Government forestablishment, expanding, merger, amalgamation & takeover.

Emphasis on controlling & regulating monopolistic, restrictive &unfair trade practices.

Enabling the MRTP Commission to exercise punitive &compensatory powers.

Objectives IPR 1991

• Substantial changes:

– Only six industries require compulsory licensing

– Only three industries reserved for the public sector

– Relation of restriction on FDI: FDI up to 100 % under automatic route for most manufacturing activities in Special Economic Zones; FDI ceiling in pvt banking sector up to 74%; oil exploration (100%); natural gas and LNG pipelines (100%); telecom (74%)

• Small Scale industries sector: reduced # of items reserved from 821 (1991) to 506 (2005)

Current Scenario:

TENTH FIVE YEAR PLAN (2002-07)

Two major reforms that took place from the year 2002 were:

1) RISE IN INTERNATIONAL COMPETITION : Removal of quantitativerestrictions on imports.

2) DECLINE IN ROLE OF PUBLIC SECTOR : Disinvestment processconverted many of the existing public sector enterprises into non-governmental enterprises.

INDUSTRIAL GROWTH RATES ANNUALLY :

2002-03 : 6.8 percent

2003-04 : 7.9 percent

2004-05 : 8.9 percent

2005-06 : 8.2 percent

2006-07 : 10.6 percent

Fluctuating trends

2007-08: 15.5 percent

Started declining owing to global economic meltdown

2008-09 : 2.5 percent

2009-10 : 5.3 percent

2010-11 : 8.2 percent

2011-12 : 3.8 percent

TENTH FIVE YEAR PLAN (2002-07)

12th FIVE YEAR PLAN (2012-17)

Key Priorities

1) Mainstreaming and promoting greenbusiness.

2) Protecting natural resources3) Addressing funding issues:

INDUSTRIAL POLICY OF INDIA

CHALLENGES FACED :

A. Dumping in Indian markets

B. Indian Industry needs to be cost effective along with delivering value.

C. Ensuring that investments made in infrastructure projects fructify quickly.

D. Growth of labour intensive industries.

• Industrial Policy should not be about:

– Controlling Prices

– Controlling Quantity

– Specifying Geographical Location of Activity

– Preemption by Public Sector

– Policy Body, Regulatory Body and Service Provider being Government

Agencies

• The bureaucracy has a tendency to attempt to defeat measures aimed at

deregulations.

• Foreign investors still regard the policy and procedural system in India confusing.

Rather many feel that policy and development environment in China is superior

to India.

• Distortion in Industrial pattern would occur due to slow pace of investment in

few basic and strategic industries. Absence of a mechanism would slow down the

development of backward areas.

Lessons from India:

INDUSTRIAL POLICY OF INDIA

Industrial Policy cannot be Viewed in Isolation

Education • Schooling → Vocational \ Technical Education →Entry into Workforce → Employment ↔ Life Long

Learning

• Typology of Higher Education Institutions

Innovation • Public – Private – Partnership Models

• Open Science Model, Licence Model, Innovation Model

• Industry – Academia Collaboration

• Office of Sponsored Projects: Funding agreements

• Office of Technology Transfer: Patenting and licensing technology

Global Cooperation

• Open Source Drug Discovery is a CSIR Team India Consortium with Global Partnership with a vision to provide affordable healthcare to the developing world. http://www.osdd.net/

Fiscal • Tax Incentives for R&D Expenditure

• Funding for Industry – Academia Collaboration

• Transparent Process (Metrics for Evaluation) for Funding Basic Research Vs Applied Research

Industrial Policy cannot be Viewed in Isolation

Infrastructure & Industrial Policy

• Infrastructure Sectors -

• Heavy Industries -

• Local Infrastructure Development needs to be Dovetailed with Industrial Structure

• Cluster Program

• Specialization, Flexibility in Production, Linkages, Sub-contractors, Cooperation among Firms, Economies of Scale and Scope

• Knowledge Transfer on Best Practices

• Research Parks in the Industrial Cluster

• 1999 to 2009 – 57 percent increase in number of students attending a university outside their home countries (Size: 3 million)

• Since 1990 – Doubling of cross-border scientific collaboration (measured by co-authored journal articles)

• Half of the world's top physicists no longer work in their home countries

• 60 percent increase in number of “branch campuses" (operating outside national borders) in just five years.

Global Universities are Reshaping the World: Ben Wildavsky

Internationalization of Higher Education

Source: Joseph Klafter (2010) Together, we’re better, The Times Higher Education July 1, 2010

Thank You