BUSINESS ENVIORNMENT

WORKSHEET 3
Q.1 Liberalisation , Privatisation , Globalisation had been the buzzword of all
the governments since 1991 discuss and critically examine the impact of LPG
on the Indian economy since last decade ?

A.1 Impact of liberalisation on the Indian Economy :

 The low annual growth rate of the economy of India before 1980,
which stagnated around 3.5% from 1950‟s to 1980‟s which per
capital income averaged 1.3%. At the same time Pakistan grew
by 5%, Indonesia by 9%, Thailand by 9%, South Koria by10% and
in Taiwan by 12%.
 Only four to five licenses would be given for steel, Power and
communications,license owners built up huge powerful empires.
 A huge public sector emerged. State owned enterprises made
large losses.
 Infrastructure investment was very poor because of the public
sector monopoly.

Impact of privatization on the Indian Economy :

 It frees the resources for a more productive utilisation.

 Private concerns tend to be profit oriented and transparent in their
functioning as private owners are always oriented towards making
profits and get rid of sacred cowsand hitches in conventional
bureaucratic management.
 Since the system becomes more transparent all underlying corruption
are minimisedand owners have a free reign and incentive for profit
maximisation so they tend to getrid of all free loaders and vices that are
inherent in government functions.
  Gets rid of employment inconsistencies like free loaders or over
employeddepartments reducing the strain on resources.
 Reduce the government‟s financial and administrative burden.
 Effectively minimises corruption and optimises output and functions.

Impact of Globalisation on the Indian Economy:

 India‟s share in the world trade which had fallen 0.53% in 1991 from
178% in 1950has been reversed trends and has improved to 0.86% in
2003.
 Our foreign currency reserves which had fallen to barely one billion
dollars to June,1991 rose substantially to about 141 billion dollars in
March, 2005.
 Exporters responding well to sweeping reforms in exchange rate and
trade policies.This would be clear from the fact that as against a fall in
the dollar value of exports by1.5 % in 1993-96. However, export growth
slowed down during 1996-2002. Theannual average growth rate during
this period was around 8%. Since 2002-2003however, exports have
picked up once again. The average growth of export has beenaround
10% per annum during 1992-2004.
 Exports now finance over 80% of imports, compared to only 60% in the
latter half ofthe eighties.
 The current account deficit was over 3% of GDP in 1990-91. It has fallen
to less the1% in 2000-01. During 2001-03 we even had surplus in current
account ranging between 0.7-1.08percent of GDP.

Q.2 “Government plays a multidimensional role in establishing various

industrial sectors as economic power in our country.” Do you agree ? Explain.

A.2 Yes, I agree with the above statement. It can be explained by the following
important roles that played by public sector in Indian economy.

1. Generation of income:
Public sector in india has been playing a definite
positive role in generating income in the economy. The share of public sector
in net domestic product (NDP) at current prices has increased from 7.5% in
1950-51 to 21.7% in 2003-04.
2. Capital formation:
Public sector has been playing an important role in the GDC formation of the
country. The share of public sector in GDC formation has increased from 3.5%
during the first plan to 9.2% during the eighth plan.

3. Employment:
Public sector is playing an important role in generating
employment in the country.

Public sector employments are of 2 categories:

A) Public sector employment in government administration, defence and other

government services

B) Employment in public sector economic enterprise of both centre, state and

local bodies. In 1971, the public sector offered employment opportunities to
about 11 million persons but in 2003 their number rose to 18.6 million showing
about 69% increase during this period.
4. Infrastructure:
Without the development of infrastructural facilities,
economic development is impossible. Public sector investment on
infrastructure sector like power, transportation, communication, basic and
heavy industries, irrigation, education and technical training etc. has paved the
way for agricultural and industrial development of the country leading to the
overall development of the economy as a whole.

5. Strong industrial base:

Another important role of the public sector is that it
has successfully build the strong industrial base in the country. The industrial
base of the economy is now considerably strengthened with the development
of public sector industries in various fields like- iron and steel, coal, heavy
engineering, heavy electrical machinery, petroleum and natural gas, chemical
etc.

6.Contribution to central exchequer:

The public sector enterprises are
contributing a good amount of resources to the central exchequer regularly in
the form of dividend, excise duty, custom duty, corporate taxes etc. During the
sixth plan, the contribution of public enterprise to the central exchequer was
to tune of RS. 27570 crores.
7. Removal of regional disparities:
From the very beginning industrial
development in india was very much skewed towards certain big port cities like
Mumbai, Kolkata and Chennai. In order to remove regional disparities, the
public sector tried to disperse various units towards the backward states like
Bihar, Orissa, and Madhya Pradesh. Thus, considering all the foregoing aspects
it can be observed that in spite of showing poor performance, the public sector
is playing.

Q.3 Explain silent features of India’s latest industrial policy .What changes
you can point in our Industrial policy ?

A.3 The industrial policy does away with licensing for all major industries, irre-
spective of the investment level, proposes liberal foreign investment,
dispenses with MRTP clearances but curbs unfair trade practices and empha-
sises technological up-gradation.While allowing a greater role for the private
sector, it vests the Government with necessary control in key areas of industry
as per the Industrial Policy Resolution of 1956.

The silent features of India’s latest industrial policy are :-

(a) Abolition of licensing procedures:

The NIP has abolished the industrial licensing requirement irrespective of the
level of investment in all industries except those 18 industries specified in
Annexure II of the ID & R Act (1951). The industries where industrial licensing
will be necessary include areas like coal, petroleum, sugar, cigarettes, motor
cars, hazardous chemicals, drugs and pharmaceuticals and some luxury items.

(b) Broad branding facility and FMP:

Existing and new industrial units have been provided with the broad branding
facility to produce any article so long as no additional investment in plant and
machinery is undertaken. The Phased Manufacturing Programme (PMP) will no
longer be applicable to new projects.

c) Modifications in the MRTP Act:

The MRTP Act will be amended to remove the threshold limit of assets in
respect of MRTP companies and dominant undertakings. This would eliminate
the requirement of prior approval of the Central Government for
establishment of new undertakings, merger, amalgamation, takeover and
appointment of directors under certain circumstances.

(d) Foreign investment:

While welcoming foreign investment with its attendant advantage of

technology transfer, marketing expertise, introduction of modern managerial
techniques and export promotion, the NIP provides for automatic approval of
foreign equity participation up to 51% in high priority industries which include
34 broad areas like metallurgy, electrical equipment, transformer, food
processing, hotel and tourism.

(e) Import of capital goods:

The NIP envisages automatic clearances for import of capital goods provided
the foreign exchange requirement for such imports is ensured through foreign
equity. In addition, with effect from April 1992, such automatic approval would
be given provided the cost, insurance and freight (c.i.f.) value of the capital
goods to be imported was less than 25% of the total value of plant and
machinery and subject to maximum limit of Rs. 2 crores.

Changes in industrial policy:

1. Industrial policy of 1948:

The first industrial policy after independence was announced on 6th April 1948.
It was presented by Dr. Shyama Prasad Mukherjee then industry minister. The
main goal of this policy was accelerate the industrial development by
introducing a mixed economy where the private and public sector was
accepted as important in the development of the economy.

2. Industrial policy resolution, 1956:

This second industrial policy was announced on April 20, 1956, which
replaced the policy of 1948. The features of this policy were:
 A new classification of industries.
  Non-discriminatory and fair treatment for the private sector.
Promotion of village and small-scale industries.
 To achieve development by removing regional disparity.
 Labour welfare.

3. Indian policy statement, 1977:

This was announced by George Fernandes then the union industry minister of
the parliament. The highlights of this policy are:

A] Target on the development of small-scale and cottage industries

B] Large-scale sector

C] Restrict the control of big business houses

D] Revival and rehabilitation of sick units.

4. Industrial policy, 1980:

The congress government announced this policy on July 23rd, 1980. The
features of this policy are:

 Promotion of balanced growth.

 Taking over industrial sick units.
 Improving the performance of the public sector.

5. New industrial policy, 1991:

The features of NIP, 1991 are as follows:

 Industrial licencing.
 Liberalized foreign investment policy.

Q.4 Do you agree that there is a great role of government

industrial policy in Indian economy from supply point of view as
well as employment generation?

A.4 -The government is coming out with a new industrial policy that will
link the country with the global supply chain that will be mutually
beneficial, commerce and industry minister Suresh Prabhu.
  Industrialisation is the first and foremost requirement of rapid
economic development of a country. The industrialisation is not only
helpful in the development of industries but it also promotes agriculture,
trade, transport, foreign trade, services and social sectors of the
economy. It increases employment opportunities, national income, per
capita income and living standard of the populace.
 Therefore, an industrial policy is required to establish healthy traditions
of industrialisation and to guide, regulate and control (if required)
industrial development. The industrial policy helps the country making it
self-sufficient and prosperous by preparing a structure and basis of
industrial development. Hence, the industrial policy of the govt. must be
well defined, clear and progressive.
 Employment generation: Accelerating employment growth is crucial for
uplifting the socio-economic status of the citizens of the state and offer
them higher standards of living. Given the state is witnessing a
significant demographic growth with an expanding working age
population, the go up intends to lay emphasis on creation of
opportunities that would directly augment employment in india.
 With special benefits for creating job opportunities in industries. The
policy will also incentives industrial units creating employment
opportunities for both skilled and unskilled workers in the public sector
industries in india.

Submitted to – Sir Hemant jain

Submitted by – Aayushi jain