INDUSTRIAL POLICY

The World Bank (1992) has provided a working definition of industrial policy as government efforts to alter industrial structure to promote productivity ased growth!" #ndustrial policy is pro a ly the most important document $ which indicates the relationship etween government and usiness!

%ustification why industrial policy e&ist Correct the imbalances in the development of ind stries and helps in brin!in! abo t a desirable balance and diversification in them" Prevent the #astef l se of scarce reso rces and direct their flo# in the most desirable areas of investment in accordance #ith national priorities" $mpo#er the !overnment to re! late the establishment and e%pansion of private ind str& in accordance #ith the planned ob'ectives" Prevent ( thro !h fiscal and monetar& policies ( the formation of monopolies and concentration of #ealth in a fe# hands so that the evils associated #ith monopolies can be effectivel& c rbed" )ive ! idelines for importin! forei!n capital and the conditions on #hich s ch capital sho ld be permitted to operate"

R$SOLUTION O* INDUSTRIAL POLICY O* INDIA +" INDUSTRIAL POLICY R$SOLUTION +,-. /0 April( +,-.1 2" INDUSTRIAL POLICY R$SOLUTION /34th April( +,501 3" INDUSTRIAL POLICY *$6 2( +,73 -" INDUSTRIAL POLICY D$C 23( +,77 5" INDUSTRIAL POLICY STAT$8$NT O* 9ULY( +,.4 0" INDUSTRIAL POLICY( 9ULY 2-( +,,+

Economic reforms taken in India after Independence: (1) New Industrial Policy Under Industrial Policy, keeping in view the priorities of the country and its economic development, the roles of the public and private sectors are clearly decided.

Under the ew Industrial Policy, the industries have been freed to a large e!tent from the licenses and other controls. In order to encourage modernisation, stress has been laid upon the use of latest technology. " great reduction has been effected in the role of the public sector. Efforts have been made to encourage foreign investment. Investment decision by companies has been facilitated by ending restrictions imposed by the #$%P "ct. &imilarly, 'oreign E!change $egulation "ct ('E$") has been replaced with 'oreign E!change #anagement "ct ('E#"). &ome important points of the ew Industrial Policy have been highlighted here (i) Abolition of Licensing: *efore the advent of the ew Industrial Policy, the Indian industries were operating under strict licensing system. ow, most industries have been freed from licensing and other restrictions. (ii) Freedom to Import Tec nology: %he use of latest technology has been given prominence in the ew Industrial Policy. %herefore, foreign technological collaboration has been allowed. (iii) !ontraction of Public "ector: " policy of not e!panding unprofitable industrial units in the public sector has been adopted. "part from this, the government is following the course of disinvestment in such public sector undertaking. (&elling some shares of public sector enterprises to private sector entrepreneurs is called disinvestment. %his is a medium of privatisation.) (i#) Free $ntry of Foreign In#estment: #any steps have been taken to attract foreign investment. &ome of these are as follows: (a) In +,,+, -+. of foreign investment in /0 high priority industries was allowed without seeking government permission. (b) on1$esident Indians ( $Is) were allowed to invest +22. in the e!port houses, hospitals, hotels, etc. (c) 'oreign Investment Promotion *oard ('IP*) was established with a view to speedily clear foreign investment proposals. (d) $estrictions which were previously in operation to regulate dividends repatriation by the foreign investors have been removed. %hey can now take dividends to their native countries. (#) %&TP &estrictions &emo#ed: #onopolies and $estrictive %rade Practices "ct has been done away with. ow the companies do not need to seek government permission to issue shares, e!tend their area of operation and establish a new unit.

(#i) F$&A &estrictions &emo#ed: 'oreign E!change $egulation "ct ('E$") has been replaced by 'oreign E!change #anagement "ct ('E#"). It regulates the foreign transactions. %hese transactions have now become simpler. (#ii) Increase in t e Importance of "mall Industries: Efforts have been made to give importance to the small industries in the economic development of the country. (') New Trade Policy %rade policy means the policy through which the foreign trade is controlled and regulated. "s a result of liberalisation, trade policy has undergone tremendous changes. Especially the foreign trade has been freed from the unnecessary controls. %he age1old restrictions have been eliminated at one go. &ome of the chief characteristics of the ew %rade Policy are as follows: (i) &eduction in &estrictions of $(port)Import: $estrictions on the e!ports1imports have almost disappeared leaving only a few items. (ii) &eduction in $(port)Import Ta(: E!port1import ta! on some items has been completely abolished and on some other items it has been reduced to the minimum level. (iii) $asy Procedure of $(port)Import: Import1e!port procedure has been simplified. (i#) $stablis ment of Foreign !apital %ar*et: 'oreign capital market has been established for sale and purchase of foreign e!change in the open market. (#) Full !on#ertibility on !urrent Account: In +,,01,-, full convertibility became applicable on current account. 3ere it is important to clarify the meaning of current account and full convertibility. %herefore, this has been done as follows: !urrent Account: %ransactions with the foreign countries are placed in two categories: (i) transaction with current account, for e!ample, import1e!port, (ii) 4apital account transactions, like investment.

Full !on#ertibility: In short, full convertibility means unrestricted sale and purchase of foreign e!change in the foreign e!change market for the purpose of payments and receipts on the items connected with current account. It means that there is no government restriction on the sale and purchase of foreign e!change connected with current account. 5n the other hand, sale and purchase of foreign e!change connected with capital account can be carried on under the rates determined by the $eserve *ank of India ($*I), (#i) Pro#iding Incenti#e for $(port: #any incentives have been allowed to E!port1 oriented Units (E5U) and E!port Processing 6ones (EP6) for increasing e!port trade. (+) Fiscal &eforms %he policy of the government connected with the income and e!penditure is called fiscal policy. %he greatest problem confronting the Indian government is e!cessive fiscal deficit. In +,,21,+, the fiscal deficit was 7. of the 89P. (It is important to understand the meaning of fiscal deficit and 89P.) (i) Fiscal ,eficit: " fiscal deficit means that the country is spending more than its income, (ii) -ross ,omestic Product (-,P): %he 89P is the sum total of the financial value of all the produced goods and services during a year in a country. 8enerally, the financial deficit is calculated in the form of 89P:s percentage. Presently, the government of India is making efforts to take it to 0.. "olutions of Fiscal ,eficit In order to handle the problem of fiscal deficit, basic changes were made in the ta! system. %he following are the ma;or steps taken in this direction: (i) %he rate of the individual and corporate ta! has been reduced in order to bring more people in the ta! net. (ii) %a! procedure has been simplified. (iii) 3eavy reduction in the import duties has been implemented. (.) %onetary &eforms #onetary policy is a sort of control policy through which the central bank controls the supply of money with a view to achieving the ob;ectives of the general economic policy. $eforms in this policy are called monetary reforms. %he ma;or points with regard to the monetary reforms are given below:

(i) &tatutory <i=uidity $atio (&<$) has been lowered. (" commercial bank has to maintain a definite percentage of li=uid funds in relation to its net demand and time liabilities. %his is called &<$. In li=uid funds, cash investment in permitted securities and balance in current account with nationalised banks are included.) (ii) %he banks have been allowed freedom to decide the rate of interest on the amount deposited. (iii) ew standards have been laid down for the income recognition for the banks. (*y recognition of income, we mean what is to be considered as the income of the bank. 'or e!ample, should the interest on the bad debt be considered as the income of the bank directions have been issued in this conte!t. (iv) Permission to collect money by issuing shares in the capital market has been granted to nationalised banks. (v) Permission to open banks in the private sector has also been granted. (/) !apital %ar*et &eforms %he market in which securities are sold and bought is known as the capital market. %he reforms connected with it are known as capital market reforms. %his market is the pivot of the economy of a country. %he government has taken the following steps for the development of this market: (i) Under the Portfolio Investment &cheme, the limit for investment by the $Is and foreign companies in the shares and debentures of the Indian companies has been raised. (Portfolio Investment &cheme means investing in securities.) (ii) In order to control the capital market, the &ecurities and E!change *oard of India (&E*I) has been established. (iii) %he restriction in respect of interest on debentures has been lifted. ow, it is decided on the basis of demand and supply. (iv) %he office of the 4ontroller of 4apital Issue which used to determine the price of shares to be issued has been dispensed with. ow, the companies are free to determine the price of the shares. (v) Private sector has been permitted to establish #utual 'und. (vi) %he registration of the sub broker has been made mandatory. (0) P asing out "ubsidies 4ash 4ompensatory &upport (44&) which was earlier given as e!port subsidy has been stopped. 44& can be understood with the help of an e!ample. If an e!porter wants to import some raw material which is available abroad for +22, but the same material is available in India for +>2 and the governments wants the raw material to be

purchased by the e!porter from India itself for the protection of indigenous industries, the government is ready to pay the difference of >2 to the e!porter in the form of subsidy. %he payment of >2 will be considered as 44&. In addition to this, the 44& has been reduced in case of fertili?ers and petro products. (1) ,ismantling Price !ontrol %he government has taken steps to remove price control in case of many products. (Price 4ontrol means that the companies will sell goods at the prices determined by the government.) %he efforts to remove price control were mostly in respect of fertili?ers, steel and iron and petro products. $estrictions on the import of these products have also been removed.