Module –III
INDUSTRIAL AND REGULATORY PERSPECTIVE
•
An Entrepreneur, in order to successfully expand and grow
his/her business on a sustained basis, must take into account the
basic regulatory requirements of the country.
•
These requirements are necessary for the functioning of his/her
enterprise in the statutory framework of the country and help
him/her to know about his/her rights and responsibilities as
well as the challenges that he/she may have to face.

The need to have a proper regulatory environment which can
ensure a healthy competition in the economy so that all
business enterprises can grow and expand and stimulate
economic development of a country.

Business to grow on a sustainable basis, there has to be a
healthy and fair competition in the market economy.

The Ministry of Commerce and Industry is the most important
organ concerned with the promotion and regulation of the
Domestic /Foreign trade in India.

The Ministry has an elaborate organizational set up to look
after the various aspects of trade. Within the Ministry, The
Department of Commerce is responsible for formulating and
implementing the foreign trade policy.
Regulatory policy framework had four major objectives :

1. The promotion of heavy industry with an emphasis on the
public sector.

2. Economic self-reliance, which translated into broad efforts at
import substitution and restrictions on technology imports to
promote indigenous innovation.

3. Protection to small industry sector

4. Balanced regional development
To achieve these objectives, the regulatory policy
framework comprised a variety of policy instruments :

Reservation of vast areas of industrial activities for the public
sector

Industrial licensing to regulate and control investments in
industry and locations

Legislation to control large and dominant firms

Legislation to control foreign investment and technology
inflow

Comprehensive policies and incentives to protect small scale
industry

Restriction on location of industrial units and incentives to
move into backward regions

Price administration of infrastructural inputs and

Taxation

INDUSTRIAL LICENSING

To regulate the flow of investment in desired channels of
industries and locations and to match supply of industrial
commodities with demand on the lines of national priorities

A license is a written permission from the Government to an
industrial undertaking to manufacture specific articles..
It
includes particulars of the industrial undertaking, its
location, the articles to be manufactured, their capacity on the
basis of maximum utilization of plant and machinery and other
appropriate conditions which are enforceable under the Act.

It is also subject to a validity period within which the
licensed capacity should be established.

Industrial licensing was introduced under the Industries
Development and Regulation(IDR) Act.

The IDR Act was passed in October 1951 and the Act came
into force on 8thMay, 1952.

The Act applies to all the industries specified in the first
schedule of the Act.

Originally this schedule listed 37 industries but the scope of the
Act had been enlarged from time to time to include more
industries.
The salient features of the IDR Act 1951

Existing undertakings need to be registered with the
Government within the prescribed time limit


New units are permitted only through an industrial license
Government has the power to conduct an investigation,
assume management control provide relief or control supply
and distribution of products of certain industrial undertakings.

To change the location of the unit.
Competition Policy

Refers to the government policy designed to ensure
contestability and fair competition in the market by removing
or preventing those factors and forces which tend to distort
such competition.

It promotes the creation of a healthy business environment
which improves static and dynamic efficiencies and leads to
maximization of consumer and producer welfare.
The main objectives of competition policy

To create and promote active competitive environment so as to
ensure efficient allocation of resources in an economy.

To promote efficiency in the market economy and maximize
both consumers' and producers' welfare.

To control the concentration of economic power and encourage
innovation.

To support small and medium sized enterprises and encourage
regional integration.

To aid the process of creating globally competitive firms with
enhanced investment and technical capabilities.
Monopolies and Restrictive Trade Practices (MRTP)

prevent the emergence of private monopolies and the
concentration of economic power in the hands of a
small number of individuals.

The
Monopolies
and
Restrictive
Trade
Practices(MRTP) Bill was enacted in 1969 and came
into force in 1970.
MRTP Commission

To review periodically the trends in ownership of industries
and advise the Government on measures to prevent the
concentration of economic power

To investigate into monopolistic trade practices and to report
to the Central Government its findings for necessary action.

To inquire into any restrictive trade practices prejudicial to
public interest and order for its discontinuance.

Monopolies and Restrictive Trade Practices (MRTP) Act, 1969
The main objectives of the Act are:
To provide for the establishment of a commission to prevent
practices having adverse effect on competition

To promote and sustain competition in markets in India

To protect the interests of consumers

To ensure freedom of trade carried on by the participants in the
markets in India and for related matters.
Foreign Exchange Regulation Act (FERA)
 The Foreign Exchange Regulation Act (FERA) was enacted in
1973 by the Indian Parliament to consolidate and amend the
FERA Act of 1947.
 Regulating certain payments, foreign exchange and securities
transactions, and transactions that affect India's currency trade.
 FERA Violation--A Criminal Offense
 Dealings that were not mentioned in the act were not
permitted.
 FERA was replaced by the Foreign Exchange Management
Act (FEMA) in 1999, which eased restrictions on foreign
exchange
and
overseas
investment
in
India.
REGULATIONS ON BANKING ANDFINANCING
SERVICES
 The role of RBI is to frame regulations that help the orderly
functioning of the institutions that raise and lend the capital.
 Commercial banks and non-banking financial institutions are
two major set of institutions that come under the regulation of
RBI.
 It is the licensing authority to sanction the establishment of
new bank or new branch
 b) It prescribes the minimum capital, reserves and use of
profits and reserves, distribution of dividends,
 It has the authority to inspect or conduct investigation on the
working of the banks.
REGULATIONS ON INSURANCE SERVICES
 Insurance Regulatory Authority (interim) was set up in
1996 based on the recommendations of the Malhotra
Committee primarily
 To regulate, promote and ensure orderly growth of the
insurance business in a free market economy.
 To protect the interest of the policyholders in matters
concerning assigning of policy, nomination by
policyholders, insurable interest, settlement of
insurance claims
 To promote efficiency in the conduct of insurance
business;
 To promote and regulate professional organizations
connected with the insurance business;
The Securities and Exchange Board of India (SEBI)
 Government of India has set up the Securities and Exchange
Board of India on 12th April, 1988. The Board initially
functioned as advisory agency but in 1992, the SEBI has been
given the legal status by the Securities and Exchange Board of
India Ordinance 1992.
 Entrusts the responsibility of protecting the interest of
investors in securities
 To promote the development of, and to regulate securities
market
 promoting and regulating self-regulatory organizations
 prohibiting fraudulent and unfair trade practices relating to
securities markets
 promoting investors education and training of intermediaries
of securities markets
SMALL SCALE INDUSTRY
 Encouragement to Small Scale Industry (SSI) through
exclusive policy measures of protection formed another face of
the regulatory framework
Principal measures of protection for SSI comprised
 Reservation of products for exclusive manufacturing in SSI
sector.
 Restrictions on the growth of output and capacity in the large
scale industry sector producing items reserved for SSI sector
 Concessional credit from the banks
 Excise and sales tax exemptions/concessions
 Exemption from many labour legislations
 Exemption from licensing
Public Sector company
 Its owned and controlled by the Government – Either Central
or State
Objectives

To provide quality service and social concern

Not for profit motive but for service motive

Brings about economic growth and development of the nation

Set up to prevent the monopoly
Public Sector would correct the regional imbalances
 Create employment.

These included the Railways, the Posts and Telegraphs, the
Port Trusts, the Ordinance Factories, All India Radio, few
enterprises like the Government Salt Factories which were
departmentally managed.
 Industrial policy has seen a sea change with most Central
Government industrial controls being liquidated.
 The Central Public Sector Enterprises (CPSEs) were classified
into ‘strategic’ and ‘non-strategic’. Strategic CPSEs were
identified in
 The areas of (a) Arms & Ammunition and the allied items of
defence equipments,
 Defence air-crafts and warships; (b) Atomic Energy (except in
the areas related to

the operation of nuclear power and applications of radiation
and radio-isotopes to agriculture, medicine and non-strategic
industries); and (c) Railway transport.
 All other CPSEs were considered as non-strategic. Further,
Industrial licensing by the Central Government has been almost
abolished except for a few hazardous and environmentally
sensitive industries.
 Number of CPSUs has increased spectacularly to
247enterprises with a total investment of about 130 billion
euros.
 Out of these 247 enterprises, as many as 197 public
enterprises are profitable. Only fifty public enterprises out
of this large group of 247 enterprises are loss-making.


The main elements of the present Government policy towards
Public Sector enterprises as contained in the National
Common Minimum Programme (NCMP) are:

To devolve full managerial and commercial autonomy to
successful, profit making companies operating in a competitive
environment

Generally , profit-making companies will not be privatized

Every effort will be made to modernize and restructure sick
public sector companies and revive sick industry

Chronically loss making companies will either be sold off, or
closed, after all workers have got their legitimate dues and
compensation

Private industry will be inducted to turn-around companies
that have potential for revival

Privatization revenues will be used for designated social sector
schemes

Public sector companies and nationalized banks will be
encouraged to enter the capital market to raise resources and
offer new investment avenues to retail investors.
ERP AND PUBLIC SECTOR

Enterprise Resource Planning
software
systems
(ERP)
encompass a wide range of software products supporting dayto-day business operations and decision-making.

ERP serves many industries and numerous functional areas in
an integrated fashion, attempting to automate operations from
supply chain management, inventory control, manufacturing
scheduling and production, sales support, customer relationship
management, financial and cost accounting, human resources
etc..,

ERP systems
are
designed
to
enhance
organization’s
competitiveness by upgrading an organization’s ability to
generate timely and accurate information throughout the
enterprise and its supply chain.

A successful ERP system implementation can shorten
production cycles, increases accuracy of demand for materials
management & sourcing and leads to inventory reduction
because of material management, etc.
Three main factors that can be held responsible for failure of
ERP system are:

Poor planning or poor management

Change in business goals during project and

Lack of business management support.
Tangible Benefits after ERP Implementation
 Inventory Reduction
 Personal reduction
 Productivity improvement
 Order management improvement
 Technology cost reduction
 Cash management improvement
 Revenue/profit improvement
 Transportation/ logistics cost reduction
 Maintenance reduction
 On time delivery improvement
Intangible benefits after ERP implementation
 New/improved business processes
 Customer responsiveness
 Integration
 Standardization
 Flexibility
 Business performance
 Supply/ demand chain
 Information/visibility
 Economic Performance of firm (Internal coordination cost)
Business Performance factor
 Reduced organizations business risks
 Enhanced organizations regulatory compliance
 Makes MIS more accurate and accessible.
 Facilitate improved services to customer and suppliers
 Allows new services to customer and suppliers
 Enhanced primary users knowledge and skills
 Increased institutional accountability
 Increased shareholders confidence in organization
 Enhanced support to organizational activities
 Enhanced organization business performance
 Decreased work load in various departments

PRIVATE COMPANY

Under Section 3(1) (iii) of the Companies Act of 1956, B
private limited company has been defined as a company which,
by its Articles of Association

Restricts the right to transfer its share if any

Limits the number of its members to fifty, and

Prohibits any invitations to the public to subscribe for any
shares in, or debentures of, the company.

The private sector refers to all types of individual and
corporate enterprises, domestic and foreign, in any field
of productive activity with the intention of making a
profit. The characteristic of the private sector enterprises
is that their ownership and management lies in private
hands.
The capital market institutions developed rapidly and have
been playing an important part in the private sector expansion.
 The Institutions such as
 Industrial Finance Corporation of India (IFCI), Industrial
 Development Bank of India (IDBI),
 National Bank for Agriculture and Rural
 Development (NABARD) and
 State Financial Corporations (SFCs) have been
 playing significant promotional and financing role to help the
private sector growth- In the provision of infrastructure,
raw materials, technology development etc.

The private sector plays the following dominant role in
Indian economy

It has an extensive modern industrial sector

It has become the powerful driver of development

It has led to the growth of Small scale industries

It has huge employment and investment potential

It plays significant role in health and education sector
SSIs - small scale industries (SSIs)



The small scale industries (SSI)constitute an important
segment of the Indian economy in terms of their
contribution to the country’s industrial production, exports,
employment and creation of an entrepreneurial base.
The Government established the Ministry of Small Scale
Industries and Agro and Rural Industries(SSI & ARI) in
October, 1999 as the nodal Ministry for formulation of
policies and Central sector programmes/schemes, their
implementation and related co-ordination, to supplement
the efforts of the States for promotion and development of
these industries in India.
The Ministry of SSI &ARI was bifurcated into two separate
Ministries, namely, Ministry of Small Scale Industries and
Ministry of Agro and Rural Industries in September, 2001.
Role of the ministry of small scale industries



The role of the Ministry of Small-scale Industries is
thus to mainly assist the States in their efforts to
promote growth and
Development
of
competitiveness in
economy and
the
SSI,
enhance
their
an increasingly market led
Generating additional employment opportunities.

Adequate credit from financial institutions/banks

Funds for technology up gradation and modernization

Integrated infrastructural facilities

Modern testing facilities and quality certification
laboratories

Access
to
modern
management
practices,
entrepreneurship

Development
and
skill
appropriate training facilities
upgradationthrough

Assistance for better access to domestic and export
markets and

Cluster-wide
measures
to
promote
building and empowerment of the units
capacity-
Small Industry Development Organization
(SIDO)
 The Office of the Development Commissioner
(Small Scale Industries) [DC(SSI)] is also known as
the Small Industry Development Organization
(SIDO).
 Established in 1954, it is the apex body for
assisting the Government in formulating and
overseeing the implementation of its policies and
programmes/projects/schemes.
 The SIDO is headed by the Additional Secretary &
Development Commissioner (SSI).
MAJOR ACTIVITIES OF SIDO
 Advising the Government in formulation of policies
and programmes/projects/schemes for the promotion
and development of the MSME.
 Providing
techno-economic
and
managerial
consultancy, common facility and extension services
to the MSME.
 Providing support for technology upgradation,
modernization,
quality
improvement
and
infrastructure facilities.
 Assisting
the MSME in human resource
development
through
training
and
skill
upgradation.
Providing economic information services to the
MSME.
 Maintaining a close liaison with the Central
Ministries,
Planning
Commission,
State
Governments, Financial Institutions and other
organizations concerned with the development of the
MSME.
 Evolving, implementing and coordinating policies
andprogrammes for development of theMSME.
 Providing testing and calibration services to the
MSME.

INDUSTRIAL SICKNESS

sick unit may mean a unit which is not healthy in
terms of yielding profits and fetching return on
investment

It incurred cash losses for the current and the
preceding year
One which operates below 20 Percentage of its
production (Installed Capacity)
CAUSES -EXTERNAL FACTORS

Shortage of key inputs

Changes in Govt Policies – Customs, Excise,
Licensing

Overcapity of the plant

Technological Obsolescence

Changes in consumer Preference

Natural Calamities

Development in International Trade
Internal Causes
Function Wise
 Production
 Marketing
 Finance
 Human Resources
Production
 Imprpoer location of Plant
 Bad/Wrong Technology in process
 Unfesible Plant size
 Inadquate R&D
 Less Maintenance


Marketing

Inaccurate demand Projection

Improper product mix

Inadequate sales promotion

High distributi o n costs

Poor customer service

Finance

Wrong capital structure

Bad investment decisions

Weak budgetary control

Inadequate MIS

Bad cash planning & control

Improper tax planning
HUMAN RESOURCE


Ineffective leadership
Bad labour Industrial relations

Inadequate human resources

Overstaffing

Poor commitment of employees