Industry
in India, Industrial Policies and Disinvestment
Industry
For
non-services (goods) sector:
Tiny Industry: Has maximum assets less than 25
lakh rup
Small Scale Industry: has assets between 25 lakh - 5
crore
Medium Scale Industry: has assets between 5 crore - 10
crore
Large Scale Industry: has assets more than 10 crore rup.
For
services sector:
Tiny Industry: Has maximum assets less than 10
lakh rup
Small Scale Industry: has assets between 10 lakh - 2
crore
Medium Scale Industry: has assets between 2 crore - 5
crore
Large Scale Industry: has assets more than 5 crore rup
Cottage Industry:
The Industry in which production is done without using modern machines
and which doesnt have salaried labourers.
Rural Industry: Industries set up in rural areas
which have labourers not more than 100 and investment not more than 15000 rup
per labour.
Ancillary Industry: Industry set up near large scale
industries and which produces good required by this large scale industry. e.g.
Bottle or Label industry near coca cola factory.
Industrial
Policies in India
Industrial Policy-1948: was prepared by Shyama Prasad
Mookerjee. It was not in much detail but still catagorised industries into
four-
1st
Catagory: 3 Industries defence, atomic energy, Ind. Railway reserved
for public sector.
2nd
Catagory: 6 industries viz Iron and steel, Minerals, Petroleum, Coal
etc were reserved for public sector but existing private companies were allowed
to continue and these companies were to be reviewd after 10 years
3rd
Catagory: had 18 Industries for which only government could start
business but private sector was allowed to become partners with government.
4th
Catagory: had all other industries apart from above 27 industries and
was fully opened for private sector.
Industrial Policy-1956: It was a socialism driven, broad and
important policy which remained in effect for several years . It divided
industries into 3 catagories-
1st
Catagory: Included 17 industries like defence, atomic enegry, railway,
petroleum, iron and steel, mineral, telecommunication etc and all of these were
completely reserved for public sector.
2nd
Catagory: had 12 industries like medicine, rubber, alluminium,
marine transportation etc in which only govt was allowed to take initiative and
private sector could later become partners with government.
3rd
Catagory: Had all the other
industries except these 29 (17+12) and wer fully open for private sector.
Private
sector was imposed several restrictions upon by MRTP (Monopoly and Restricted
Trade Practices Act-1969) and IDRA (Industrial Development and Regulation
Act-1951) and promoted "License Raj".
Objectives
of Industrial Policy-1956: (As the govt said)
•
Promote investments as our then private sector was not
strong enough, govt itself took responsibility of doing investment.
•
Prevent dominance of multinational companies (like East
India Company).
•
Discourage monopoly in market in any sector.
•
Achieve geographically balanced development by investments
in all regions.
•
Increase production and create employment opportunities.
•
Avail social services to public like telephone, railway etc.
Criticism
of Industrial Policy-1956: (what actually happened)
•
Maximum industries were reserved for public sector but govt
couldnt invest properly in all industries and this is why some industries did
not develop properly.
•
Most of the sectors had govt monopoly and had no competition
so neither the qulity improved nor the prices came down.
•
Functioning of PSUs was not proper, they had less
accountability and little responsibility, excessive corruption, unnecessary
labourer burden (had more employees than required), no proffessionalism, poor
services, political interference etc.
•
most of the PSUs suffered losses and became unnecessary liabilities
to the govt and worsened our fiscal deficit.
•
Foreign investments were discouraged so adverse impact on
technology, management and marketing skills, investments suffered.
•
Exports were less because our production costs were high
and quality was cheap.
New Industrial Policy-1991-92: PM
Narsimha and FM MANmohan prepared this policy. Economic reforms were
implemented through it.
•
It abolished "License Raj" and except five
socialiy and strategically important industries, license was required nowhere
else.
•
Privatisation was promoted and all the sectors except atomic
energy, atomic minerals and indian railway were opened to private sector.
•
Foreign Investment was promoted and more and more sectors
are being opened for foreign investments. Foreign Indirect Investment has been
increase to 10% from 5%.
•
Labour Laws are being made more liberal and practical.
•
Administrative procedures are bieng made simpler and
companies are getting rid of "Red Tapism".
Disinvestment
When govt
sells its share holding in PSUs to Private Sector, its called disinvestment.
Privatisation: If the
limit of disinvestment is 51% or more, its called privatisation because it
transfers management rights from govt to private partner.
Disinvestment
is performed through two methods:
1. Strategic Sale: If govt
sells its shareholding to a single enterprise or a person. e.g. disinvestment
of BALCO to Serlite.
2. Public Offer: If govt
releases IPOs of PSU in share market and the offer is open for the common
public.
In
Strategic sale scope of corruption is high so the govt prefers to disinvest
through public offer (unwillingly though).
Development of Disinvestment Policy in India
Phase 1: Chandrashekhara Govt- it adopted policy
of disinvestment upto 20%.
Phase 2: Narsimha Rao Govt- A disinvestment committee was set
up headed by C. Rangarajan which recommended the limit of disinvestment to be
increased upto 49%.
Phase 3: Devegaura Govt- A disinvestment
commission was set up and PSUs were divided in three catagories.
•
PSUs important from National Security point of view in which
no disinvestment was to be made.
•
Heavy Industries of Infrastructure related PSUs which had
possibility of monopoly. These were to have 49% cap on disinvestment.
•
General PSUs which had no upper limit on disinvestment and
could be privatised.
Phase 4: Atal Bihari Govt- A disinvestment ministry was set
up and Arun Shauri was made first disinvestment minister. PSUs were divided in
two catagories
•
PSUs important from strategic point of view, no
disinvestment was to be done in these.
•
Rest all PSUs whic were open for privatisation.
Privatisation
was done for the first time and Modern Food was sold to Hindustan Lever Ltd,
followed by selling of BALCO to sterlite and next VSNL to TATA.
Phase 5: UPA-I Govt- Under pressure of communist
allies against disinvestment govt changed its policy. Disinvestment ministry
was finished, Only those PSUs which suffered losses were to be disinvested and
only by public offer and not by strategic sale.
In 2005
National Investment Fund was set up to have amounts recieved from
disinvestment. 75% of this fund was to be spent on social welfare programmes of
govt and remaining 25% on strengthening of other PSUs.
Phase 6: UPA-II Govt- Govt has targeted to
recieve 40,000 crore rup from disinvestment each year. All PSUs are open for
disinvestment but the upper limit will be 49%. The method of disinvestment will
be public offer only.
Criticism
Of Disinvestment
1.
Ideological Objections: Socialists generally oppose
disinvestment arguing that resources shuld be equally distributed in the
society and should hence remain with public sector only.
2.
Allegations of Corruption: Govt
assests are sold at much lower prices than their actual value due to high level
of corruption involved as was the case of BALCO.
3.
Long Term Financial Losses: Though in
short term govt recieves huge revenues but it loses a sources of its regular
income (PSUs) and is bound to face financial losses in long term. People say
"Disinvestment is like selling utensills of your household and having
luxurious dinner"
4.
Employees' Concerns: Generally employees oppose
disinvestment thinking that their retierment, service conditions etc are not
protected after disinvestment. Doubts like cost cutting etc also frighten them.
5.
Misuse of The Amount Recieved: It si
believed that govt utilises the amount recieved from disinvestment to fullfil
its fiscal deficit. It weakens the financial discipline of the govt and govt
doesnt strive to control unnecessary expenses, neither does it try to increase
its income from other newer sources.
6.
Poor Social Services: The objective of public sector is
public welfare whereas that of private sector is profit. So private sector will
not invest in the regions where it might suffer losses and the services in
those areas will be adversely affected. e.g. a route where govt roadways buses
face losses will still continue to provide service to people but once
privatised it will no longer operate and the
people will not get transportation services.
7.
Exploitation of the natural resources will be profit
oriented rather than environmental safety.
But all
this criticism is BASELESS because:
(read
point 1. against point 1. of Criticism and so on)
1.
Whole world is presently moving towards capitalism.
Socialism has utterly failed in Russia, even a socialist country like China had
started economic reforms in 1979, much ahead of us. China is a capitalist
country now from economic point of view. After 1991 we moved towards capitalism
and this have surely improved the condition of our economy. Capitalism is now a
synonym to Development in whole world and we should stick to it tighter.
2.
The present policy of disinvestment only through public
offer has no scope for corruption by govt because everything is transparent and
open.
3.
Presently most of the PSUs are suffering losses and are a
burden to the budget. PSUs when privatised will perform better, will have more
proffessionalism and competency, so these will in future increase govt revenues
by taxation.
4.
Objections of employees are not genuine because govt
furnishes a separate agreement protecting the interests of employees after
disinvesment. And in general employees who work professionally, actually enjoy
a salary hike due to more incentives based policies of private sector.
5.
In 2005 National Investment Fund was set up to have amounts
recieved from disinvestment. 75% of this fund was to be spent on social welfare
programmes of govt and remaining 25% on strengthening of other PSUs. So there is
no question of misuse of amounts recieved.
6.
Availabitility of goods and services depends on competition
in the market. Private sector will produce better quality goods and services at
lower costs so this will ensure proper suppy of goods and services to the
public. Private sector strives to innovate ways to earn profit rather than
quitting due to losses. So this objection is also baseless.
Advantages
of Disinvestment
•
Extra amount and resources are required for the
modernisation of PSUs which the govt is nto able to provide due to lack of
means, but once disinvested PSUs will get enough resources because its the
first priority of private sector to modernise the company. Modernised PSUs will
Perform better and increase production.
•
Most of the PSUs are facing losses and their disinvestment
will contain the fiscal deficit of the govt.
•
PSUs when privatised will become more productive, this will
add to our GDP growth.
•
Disinvestment encourages competition in market so the
quality of goods and services will increase and the price will decrease. So our
exports will increase and the public will enjoy lower prices.
•
Because of IPOs and FPOs released for disinvestment our
capital market will be developed.
•
Disinvestment has now become and indicator of economic
reforms and and furhter disinvestment will earn more credibility to out economy
at global stage.
References:
4.
The
Hindu
5.
Rajasthan
patrika
6.
Chronicle
7.
Ramesh
Singh
