FEMA- The Central Government of India formulated an act to encourage external payments and

across the border trades in India known as the Foreign Exchange Management Act. FEMA
(Foreign Exchange Management Act) was introduced in the year 1999 to replace an earlier act
FERA (Foreign Exchange Regulation Act). FEMA was formulated to fill all the loopholes and
drawback of FERA (Foreign Exchange Regulation Act) and hence several economic reforms
(major reforms) were introduced under the FEMA act. FEMA was basically introduced to
de-regularize and have a liberal economy in India.
FUNCTION-
1. Controlling dealings in foreign exchange by giving general or special permission for dealing in
foreign exchange, excluding those cases where specific provisions have been made in Act,
Rules or Regulations – Section 3.

2. Specifying conditions for payment in respect of capital account transaction – Section 6(2).
3. Regulate/prohibit/restrict the following, by issuing Regulations:
● Transfer or issue of foreign security to resident and Indian security to non-resident;
● Borrowing and lending in foreign exchange or to a foreign person;
● Export/import of currency or currency notes;
● Transfer of immovable property outside India;
● Giving guarantee or surety where foreign exchange transaction is involved – Section
6(3)
4. Specify (by regulation) period and manner in which foreign exchange due from export of
goods and services should be received – Section 8.
5. To grant exemption from realisation and repatriation in cases specified under Section 9.
6. Granting authorisation to ‘Authorised Person’ to deal in foreign exchange, to give directions to
them and to inspect the authorised person – Sections 10, 11 & 12.

Q. Industrial policy ?
Industrial Policy is the set of standards and measures set by the Government to evaluate the
progress of the manufacturing sector that ultimately enhances economic growth and
development of the country./
The government takes measures to encourage and improve the competitiveness and
capabilities of various firms./
Objectives of Industrial Policy
1 To maintain steady growth in productivity.
2 To create more employment opportunities.
3 Utilize the available human resources better
4 To accelerate the progress of the country through different means
5 To match the level of international standards and competitiveness

Industrial Policy in India

The various industrial policy introduced by the Indian government are as follows:

Industrial Policy Resolution, 1948

1 It declared the Indian economy as Mixed Economy
2 Small scale and cottage industries were given the importance
3 The government restricted foreign investments
4 Industries were divided into 4 categories :
● Exclusive monopoly of central government(arms and ammunitions, production of atomic
energy and management of railways)
● New undertaking undertaken only by state(coal, iron and steel, aircraft manufacturing,
ship building, telegraph, telephone etc.)
● Industries to be regulated by the government(Industries of basic importance)
● Open to private enterprise, individuals and cooperatives(remaining)
Industrial Policy Resolution, 1956 (IPR 1956)
1 This policy laid down the basic framework of Industrial Policy
2 This policy is also known as the Economic Constitution of India
3 It is classified into three sectors:
● Schedule A – which covers Public Sector (17 Industries)
● Schedule B – covering Mixed Sector (i.e. Public & Private) (12 Industries)
● Schedule C – only Private Industries
This has provisions for Public Sector, Small Scale Industry, Foreign Investment. To meet new
challenges, from time to time, it was modified through statements in 1973, 1977, and 1980.
Industrial Policy Statement, 1977
1 This policy was an extension of the 1956 policy.
2 The main was employment to the poor and reduction in the concentration of wealth.
3 This policy majorly focused on Decentralisation
4 It gave priority to small scale Industries
5 It created a new unit called “Tiny Unit”
6 This policy imposed restrictions on Multinational Companies (MNC).
Industrial Policy Statement, 1980
1 The Industrial Policy Statement of 1980 addressed the need for promoting competition in the
domestic market, modernization, selective Liberalization, and technological up-gradation.
2 It liberalised licensing and provided for the automatic expansion of capacity.
3 Due to this policy, the MRTP Act (Monopolies Restrictive Trade Practices) and FERA Act
(Foreign Exchange Regulation Act, 1973) were introduced.
4 The objective was to liberalize the industrial sector to increase industrial productivity and
competitiveness of the industrial sector.
5 The policy laid the foundation for an increasingly competitive export-based and for
encouraging foreign investment in high-technology areas.
New Industrial Policy, 1991
The New Industrial Policy, 1991 had the main objective of providing facilities to market forces
and to increase efficiency.
Larger roles were provided by
● L – Liberalization (Reduction of government control)
● P – Privatization (Increasing the role & scope of the private sector)
● G – Globalisation (Integration of the Indian economy with the world economy)
Because of LPG, old domestic firms have to compete with New Domestic firms, MNC’s and
imported items/
The government allowed Domestic firms to import better technology to improve efficiency and to
have access to better technology. The Foreign Direct Investment ceiling was increased from
40% to 51% in selected sectors.

Review of the Public sector under this New Industrial Policy, 1991 are:
1 Public sector investments (Disinvestment of Public sector)
2 De-reservations –Industries reserved exclusively for the public sector were reduced
3 Professionalization of Management of PSUs
4 Sick PSUs to be referred to the Board for Industrial and financial restructuring (BIFR).
5 The scope of MoUs was strengthened (MoU is an agreement between a PSU and concerned
ministry).

Q. Small scale industry

Small scale industries are those industries in which production, manufacturing and providing the
services are executed on a small or micro scale.
Let us look into the roles and importance of small scale industries in India:
1. Employment generation: Small scale industries are one of the best sources of employment
generation in India. Employment is one of the most important factors that determines the growth
of a nation. Therefore, development of small scale industries should be encouraged for the
development of more employment opportunities in the nation.
2. Less Capital Requirement: Small scale industries are less capital intensive than the large
scale industries. Capital is scarce in developing countries like India and therefore, small scale
industries are most suitable for maintaining the balance.
3. Use of resources and development of entrepreneurial skills: Small scale industries allow
for the development of entrepreneurial skills among the rural population which is not having the
scope of large scale industries. These industries help in the appropriate use of the resources
available in the rural areas, which leads to development of rural areas.
4. Equal income distribution: Small scale industries by generating employment opportunities
create equal income opportunities for the youth of the underdeveloped areas. This leads to the
growth of the nation in terms of employment, human development.
6. Short production time: Small scale industries have a shorter production time than the large
scale industries which results in flow of money in the economy.

Q. Sick industry?
Industrial sickness can be defined as a steady imbalance in the debt-equity ratio and distortion
in the financial position of the unit. A sick unit is one which is unable to support itself through the
operation of internal resources.

CAUSES
(a) Delay in land acquisition and building construction
(b) Delay in obtaining financial as­sistance from public financial institutions
(c) De­layed supply of machinery by the manufacturers
(d) Problems related to recruitment of technical and managerial staff
(e) Delay on the part of the Government in sanctioning licences, permits, etc.
(f) Shortages of basic inputs like power and coal. Other causes include
(g) Cost over-runs due to factors beyond the control of management
(h) Lack of demand for products or shift of demand to products of rival firms due to delays in
project implementation
(i) Unsatisfactory performance by collaborators—financial and technical
(j) Large changes in the scale of operation and optimum product mix in the long run and, last
but not the least
(k) Changes in the policy of the Government relating to movement of goods from one place to
another within the country

REMEDIES - 1. The government amended the Income Tax Act in 1977 to provide a tax benefit
to those units which take over the sick units for reviving them.
2. The government announced a scheme for the grant of excise loans to sick/weak units.
3. Under this scheme, selected sick units are eligible for excise loans not exceeding 50% of the
excise duty paid over the preceding 5 years.
4. Grant of additional working capital
5. Waiving off interest on loans