Amity School of Business
business environment
Dharmendra Pandey
Assistant Professor
@profdpandey
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Amity School of Business
Industrial Policy
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Industrial Policy
Amity School of Business
• It covers rules, regulations, principles,
policies, & procedures laid down by
government for regulating & controlling
industrial undertakings in the country.
• It prescribes the respective roles of the
public, private, joint, cooperative large,
medium & small scale sectors for the
development of industries.
Industrial Policy Contd...
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• It incorporates fiscal & monetary
policies, tariff policy, labor policy.
• It shows the government attitude not
only towards external assistance but
also toward public & private sectors.
Main Objectives
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• To maintain a sustained growth in
productivity
• To enhance gainful employment
• To prevent undue concentration of
economic power
Main Objectives
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• To achieve optimal utilization of human
resources
• To attain international competitiveness
and
• To transform India into a major partner
and player in the global arena
Introduction of DIPP
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• The Department of Industrial Policy &
Promotion was established in 1995 and
has been reconstituted in the year 2000
with the merger of the Department of
Industrial Development.
Industrial Policies
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•
•
•
•
•
•
Industrial Policy Resolution of 1948
Industrial Policy Resolution of 1956
Industrial Policy Resolution of 1973
Industrial Policy Resolution of 1977
Industrial Policy Resolution of 1980
The New Industrial Policy of 1991
Industrial Policy 1991
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• Policy focus is on –
– Deregulating Indian industry;
– Allowing the industry freedom and
flexibility in responding to market
forces and
– Providing a policy regime that
facilitates and fosters growth of Indian
industry.
Industrial Policy 1991
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•
In pursuit of the industrial objectives,
Government decided to take a series of
initiatives in respect of the policies
relating to the following areas:
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–
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–
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Industrial Licensing
Foreign Investment
Foreign Technology Agreements
Public Sector Policy
MRTP Act
Industrial Licensing Policy
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• The Industrial Policy Resolution of 1956
identified the following three categories of
industries:
– Those that would be reserved for
development in public sector.
– Those that would be permitted for
development through private enterprise with
or without State participation.
– Those in which investment initiatives would
ordinarily emanate from private
entrepreneurs.
Industrial Licensing Policy
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• Industrial Licensing is governed by the
Industries (Development & Regulation)
Act, 1951.
• Industrial licensing was abolished for all
industries, except those specified (18
industries), irrespective of levels of
investment.
Foreign Investment
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• Limit on foreign equity holdings raised
from 40% to 51% in a wide range of
industries
• Foreign Equity Proposals need not to be
accompanied by Foreign Technology
Transfer Agreement
• Procedure for FDI streamlined by creating
a Foreign Investment Promotion Board to
consider individual application case by
case
Foreign Technology
Agreements
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• Foreign technology agreements in highpriority industries upto Rs. 1 crore were
given automatic permission.
• No permission was required for hiring
foreign technicians and foreign testing of
indigenously developed technologies.
Public Sector Policy
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• List of industries reserved for the public (Schedule
A) reduced from 17 to 8
• List of sector reserved for dominance by public
sector (Schedule B) effectively abolished
• Disinvestment in selected public sector enterprise to
raise finance for development, bring in greater
accountability & help create a new culture in their
working for improved efficiency
MRTP Act
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•
Removed the threshold limits of assets in respect of MRTP
companies and dominant undertakings
•
Eliminated the requirement of prior approval of Central
Government for
Establishment of new undertakings
Expansion of undertakings
Merger, Amalgamation and Takeover
Appointment of Directors under certain circumstances.
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•
The newly empowered MRTP Commission will be authorised
to initiative investigations on complaints received from
individual consumers or classes of consumers in regard to
monopolistic, restrictive and unfair trade practices.
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FOREIGN EXCHANGE
REGULATION ACT(1973)
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 Foreign
exchange is the system or
process of converting one national
currency into another, and of
transferring money from one country
to another
FOREIGN CURRENCY
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• Foreign currency means any currency other than Indian
currency.
FOREIGN SECURITY
• Foreign security means any security, in the form of
shares, stocks, bonds, debentures or any other
instrumental denominated or expressed in foreign
currency and includes securities expressed in foreign
currency but where redemption or any form of return such
as interest or dividends is payable in Indian currency.
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The 1973 law was created during the tenure of Prime Minister
Indira Gandhi with the goal of conserving India's foreign
exchange resources. The country was facing a trade deficit, which
was followed by a devaluation of the currency and an increase in
the price of imported oil. The act specified which foreign
exchange transactions were permitted, including those between
Indian residents and nonresidents.
AN INTRODUCTION TO FERA
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• The FERA (Foreign Exchange Regulation
Act) deals with laws which relate to foreign
exchange in India
• The laws were made to manage foreign
investments in India. The FERA has its origin
at the time of Indian Independence.
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• .
In the beginning, it was a temporary arrangement
to control the flow of foreign exchange. In 1957
the act was made permanent. As the industrialization
grew in India, there was an increase in the foreign
exchange investments. As a result, there arose a need
to protect it.
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• . Accordingly, in 1973 the Foreign Exchange
Regulation Act was amended.
• FERA consists of 81 complex sections
• Under FERA, any offence was a criminal one
which included imprisonment as per code of
criminal procedure, 1973.
OBJECTIVE’S
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• prevent the outflow of Indian currency
• To regulate dealings in foreign exchange and
securities
• To regulate the transaction indirectly affecting
foreign exchange
• To regulate import and export of currency and
bullion
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• To regulate employment of foreign nationals
• To regulate foreign companies
• To regulate acquisition, holding etc of immovable
property in India by non-residents
To regulate certain payments .
To regulate dealings in foreign exchange and
securities.
To regulate the transactions indirectly affecting
foreign exchange.
PROVISIONS
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• Regulation of dealing in foreign exchange.
• Restrictions on payments.
• Restrictions regarding assets held by non
residents and import & export of certain
currency & bullion .
• Duty on persons entitled to receive foreign
exchange and payment for exported goods.
cont…
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• Restriction on appointment of certain persons
and companies as agents or technical or
management advisers in india
• Restriction on establishment of place of
business in india
• Prior permission of Reserve Bank required for
taking up employment in india by nationals of
foreign state
• Restrictions on immovable property
AMENDMENTS TO THE ACT
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• Government proposed to introduce
comprehensive amendments in FERA due to
changes in economic policy ,especially
liberalization of industrial sector and most to
open up the economy through changes in trade
policy and encouragement of foreign investment
.As a result ,the required changes were
announced in budget speech of 1992-1993. The
changes so introduced by issue of notification
by RBI or Central Government.
•
cont…
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• The important changes are :Power of central government to direct
payment in foreign currency in certain cases.
Export & transfer of securities.
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Custody of securities by a depository or any
other person.
 Restrictions on the holding of immovable
property
outside India.
Restriction on persons resident in India
associating themselves with or participating in
concerns outsides India.
Regulation on booking passages outside India
& restriction on foreign travel.
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Foreign Exchange Management Act
(FEMA), 1999
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Foreign Exchange Management Act (FEMA),1999
• Enacted in 1999, replaced the earlier Foreign
Exchange Regulation Act (FERA), 1973.
• Came into force on the 1st day of June, 2000;
Objectives of FEMA:
1. To facilitate external trade and payments; and
2. To promote orderly development and
maintenance of foreign exchange market in
India.
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FEMA (continued) • To investigate into violations of the Act, the
Central Govt. has established a department
called ‘Enforcement Directorate’.
• This Act extends to the whole of India and also
applies on all branches, offices and agencies
outside India owned or controlled by a person
resident in India. It is also applicable on any
contravention committed outside India by any
person to whom this Act is applicable.
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Various provisions (measures) of FEMA, 1999
• Section 3 - Prohibits dealings in foreign exchange
except through an ‘authorised person’ (forex dealer).
• Section 2(c) - defines ‘authorised person’ as one
who is an authorised dealer, money changer, off
shore banking unit or any other person for the time
being authorized (by RBI) to deal in foreign
exchange or foreign securities.
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• Section 4 – provides that no person can, without a
general or special permission of the RBI(a) Deal in or transfer any foreign exchange or foreign
securities;
(b) Make / receive any payment to/from any person
resident outside India;
(c) Enter into any financial transaction for acquiring
any asset outside India.
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Section 5 - provides that any person may sell or draw
foreign exchange to and from an authorised person
for a current account transaction, provided that the
Central Government may, in public interest, impose
such reasonable restrictions as may be prescribed.
Section 6 - provides that any person may sell or draw
foreign exchange to and from an authorised person
for a capital account transaction, provided that the
Central Government may, in public interest, impose
such reasonable restrictions as may be prescribed.
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• Section 7 - deals with export of goods and services.
Every exporter is required to furnish to the RBI or
any other authority, a declaration regarding full
export value.
• Section 8 - casts the responsibility on the persons
resident in India who have any amount of foreign
exchange due or accrued in their favour to get same
realised and repatriated to India within the specific
period and the manner specified by RBI.
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• Sections 10 and 12 - deal with duties and liabilities
of the authorised persons.
• Sections 13 and 15 - of the Act deal with penalties
and enforcement under the Act.
• Section 36 and 37 - pertains to the establishment of
Enforcement Directorate and its powers to
investigate any violation of under the Act.
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ENFORCEMENT DIRECTORATE (ED)
The ED is mainly concerned with enforcing the
provisions of the FEMA for preventing the leakage
of foreign exchange. Such leakage of foreign
exchange generally occurs through following
malpractices (contraventions of FEMA):1) Foreign exchange remittances by Indians otherwise
than through normal banking channels;
2) Acquisition of foreign currency illegally by a
person in India;
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Continued 3) Non-repatriation of export proceeds;
4) Under-invoicing of exports and over-invoicing of
imports and any other type of invoice manipulation;
5) Unauthorised maintenance of accounts in foreign
countries;
6) Illegal acquisition of foreign exchange through
Hawala.
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Difference between FEMA and
Points of Comparison
FEMA -2000
FERA -1973
FERA
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1.Content
There are 49 sections out of
which 12 section relate to
operational part and rest
with penal provisions
There were 81 sections out
of which 32 sections related
to operational part and rest
deals with penalty, appeals
etc.
2. Nature
Basically it is a civil law
It was considered as a
criminal law
3. Applicability
The Act applies to all
branches , offices and
branches outside India
owned or controlled by a
person resident in India
The Act applied to all
citizens of India and to
branches and agencies
outsides India and to
branches and agencies
outside India
4. New Terms
Capital account
transactions, current
account transactions,
persons, services like new
terms are introduced.
These terms were not
defined.
5.Penality
Limited to three times the sum
Five times of the sum
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of Businessin
involved if it is quantifiable .If it is involved
+ imprisonment
not quantifiable .
most of the cases
6. Object
The object is to encourage
external trade.
The object was to control,
regulate and prohibits
foreign exchange
transactions
7. Legal Help
The complainant has full right to
take legal help from a lawyer or
a chartered accountant
There was no provision for
legal assistance
8.Power of Police
Authorities
The power to the police officers
has restricts to great extent
Extensive powers had given
to police officer
9. Definition of
“authorized person”
It has been extended to include
banks, money changes, off
shore banking units etc
It was limited in case of
FERA
10.Definition of
“Resident”
The term has defined in
accordance with income tax act
The term defined was not in
accordance with income tax
act
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Competition act
2002
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Definition of competition
Competition is “a situation in the market in which firms or
sellers independently strive for the buyers’ patronage in order to
achieve a particular business objective for example, profit, sales or
market share” (World Bank, 1999)
What is competition in the market?
In common parlance, competition in the market means
 Sellers striving independently for buyers’ patronage to
maximize profit or other business objectives.
 Buyer prefers to buy a product at a price that maximizes his
benefits whereas the seller prefers to sell the product at a price
that maximizes his profits.
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Why do we need competition in the market?
Competition
 Makes enterprises more efficient and offers wider choice for consumers
at lower prices.
 Ensures optimum utilization of available resources.
 Enhances consumer welfare since consumer can buy more of better
quality products at lower prices.
 Beneficial for the consumers, producers/sellers and finally for the
whole society since it induces economic growth.
What is meant by unfair competition?
Collusive price fixing, Deliberate reduction in output in order to increase
prices, Creation of barriers to entry, Allocation of markets, Tie-up sale,
Predatory pricing, Discriminatory pricing.
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What constitutes competition policy? Government measures that affect the
behavior of enterprises and structure of the industry with the view to
promote efficiency and maximize welfare.
Two elements of competition policy: First, a set of policies, such as
liberalized trade policy, relaxed FDI policy, de-regulation, etc., that enhance
competition in the markets. Second, legislation to prevent anti-competitive
practices with minimal government intervention.
Competition Law - It is a tool to implement and enforce competition policy
and to prevent and punish anti competitive business practices by firms and
unnecessary Government interference in the market.
Competition Law generally covers three areas:
 Anti-competitive Agreements e.g., cartels
 Abuse of dominant position by enterprises e.g., predatory pricing,
barriers to entry and
 Regulation of Mergers and Acquisitions
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Salient features of the Act




Prohibition of Anti-competitive Agreements
Prohibition of abuse of dominance
Regulation of combinations
Establishment of Competition Commission of India and
functions and powers of CCI
Objectives of Competition Act
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
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
To prevent anti – competitive practices,
Promote and sustain competition
Protect the interest of the consumers
Ensure freedom of trade
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How would the objective of the Act achieved?
Competition Commission of India (CCI) which has been established
by the Central Government with effect from 14th October, 2003.
Functions of CCI



CCI shall prohibit non-competitive agreements and abuse of
dominance, and regulate combinations (merger or amalgamation or
acquisition) through a process of enquiry.
It shall give opinion on competition issues on a reference received
from authority established under any law (statutory authority)/Central
Government.
CCI is also mandated to undertake competition advocacy, create
public awareness and impart training on competition issues.
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What orders the Commission can pass in case of anti-competitive
agreements and abuse of dominance?
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
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
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Grant interim relief restraining a party from continuing with anti
competitive agreement or abuse of dominant position
To impose a penalty of not more than 10% of turnover of the enterprises
and in case of cartel – 3 times of the amount of profit made out of cartel
or 10% of turnover of all the enterprises whichever is higher
Commission may direct a delinquent enterprise to discontinue and not
to re-enter anti-competitive agreement or abuse the dominant position
To award compensation
To modify agreement
To recommend to the Central Government for division of enterprise in
case it enjoys dominant position
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What is Globalization
• Globalization is the process of international
integration of products, technologies, human
resources, capital, information and cultures. It is
characterized by increasing social and economic
openness
and
growing
interdependence
between the countries of the world. As
globalization progresses, economic, social and
political systems of different countries more
freely interact with one another and adapt to
promote further interaction.
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Levels of Globalization
• World level globalization
• Country level globalization
• Industry level globalization
• Firm level globalization
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Characteristics of globalization
• Rapid growth in international financial
actions
• Fast growth in trade
• The emergence of global markets
• The diffusion of technologies, ideas and
communication system
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Advantages of Globalization
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•
•
•
•
•
•
•
Competitive and learning effects
Technological gains
Larger markets
Outsourcing and sub-contracting advantages
Greater specialization
Price stabilization
International investment inflow
International economic cooperation.
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Disadvantages of globalization
•
•
•
•
•
•
•
Spread of economic evils
Jobless growth
Loss of economic sovereignty
External technological dependence
Drain of basic raw materials
Problem of shift from national priorities
High burden of dividend outflow.
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Major Steps Towards Globalization
in India
• Control of devaluation of rupee
• Market determined exchange rate
• Import liberalization
• Opening up to foreign capital
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Globalization- impact on
Indian economy
•
•
•
•
•
Capital-oriented Globalization
Worsening Distribution
Jobless Growth
Mc’Donaldization
Globalization and Capitalism
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PRIVATIZATION
• Privatization means transfer of ownership
and/or management of an enterprise from
the public sector to the private sector. It
also means the withdrawal of the state
from an industry or sector partially or fully.
Another dimension of privatization is
opening up of an industry that has been
reserved for public sector to the private
sector.
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Defects of public sector:
• Economic inefficiency in the production activities of the
public sector, with high costs of production, inability to
innovate, and costly delays in delivery of goods
produced
• Ineffectiveness in the provision of goods and services,
such as failure to meet intended objectives, diversion of
benefits to elite groups and political interferences in the
management of enterprises
• Rapid expansion of bureaucracy, severely straining the
public budget causing problems in labour relations within
the public sector, inefficiency in government, and
adverse effects on the whole economy.
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Ways of Privatization
• One of the important ways of privatization is divestiture
or privatization of ownership through the sale of equity.
• Denationalization or re- privatization is another way of
privatization.
• Another way of privatization is contracting. Government
may contract out services they have planned and
specified to other organizations that produce and deliver
them.
• Franchising is another way of privatization in which the
delivery of certain services in designated geographical
areas is authorized to private players.
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Conditions for success of
Privatization:
•
•
•
•
Political commitment
Multiplicity of private suppliers
Fewer regulations on private sector
Freedom of entry
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Benefits of Privatization
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• It reduces the fiscal burden of the state by relieving it of the losses of
PSUs and reducing the size of bureaucracy.
• Privatization of PSUs enables the government to mop up funds.
• Privatization helps the state to trim the size of the administrative
machinery.
• It enables the government to concentrate more on the essential state
functions.
• Privatization helps accelerate the pace of economic development as it
attracts more resources from the private sector for the development.
• It may result in better management of the enterprises.
• Privatization may also encourage entrepreneurship.
• Privatization may increase the number of workers and common man
who are share holders. This could make the enterprises subject to more
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public vigilance.
Arguments against Privatization
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• The public sector has been developed with certain noble
objectives and privatization means discarding them in a
single stroke.
• Privatization will encourage concentration of economic
power to the common determinant.
• If privatization results in the substitution of monopoly power
of the public enterprises by the monopoly power of private
enterprises, it will be very dangerous.
• Privatization many a times results in the acquisition of
national firms by foreign firms.
• Privatization of profitable enterprises, including potentially
profitable, means foregoing future streams of income for the
government.
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Arguments against Privatization
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• Privatization of strategic and vital sectors is against
national interests.
• There are well managed and ill managed firms both in the
public and private sectors. It is not the sector that matters,
but the quality and commitment of management.
• The capital market of developing countries is not
developed enough for efficiently carrying out privatization.
• In many instance, there are vested interests behind
privatization and its amounts to deceiving the nation. The
UNDP’s Human Development Report 1993 observes that
in many countries privatization often has been a ‘garage
sale’ to favour individual and groups.
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Disinvestment in India
• The
disinvestment
policy
as
enunciated
by
Chandrashekhar government in interim budget 1991-92,
was to divest up to 20% of the govt. equity in selected
PSUs in favour of public sector institutional investors.
The objective of the policy was stated to be to broadbase equity, improve management, enhance availability
of resources for these PSUs and yield resources for the
exchequer. In 1993 govt. of India set up a committee on
disinvestment in public sector enterprises under
chairmanship of C. rangarajan.
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Disinvestment Commission
• Disinvestment commission is an advisory body and its
role and function would be to advise the govt. on
disinvestment in those public sector units that are
referred to it by the government. The commission shall
also advise the government on any other matter related
to disinvestment as may be specifically referred to it by
the government, and also carry out any other activity
related to disinvestment as may be assigned to it by the
government. In making its recommendations, the
commission is also required to take into consideration
the interests of workers, employees and other stake
holders, in the public sector unit(s).
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Disinvestment Commission
• The commission has recommended disinvestment at
varying levels for a number of PSUs for example MFIL,
GAIL, MTNL, CONCOR, PHL, PT&T, HVOC, HCIL,
RICL, R-ASHOK and U-ASHOK and NALCO.
• Strategic sales in various proportions have been
recommended for many enterprises like BALCO, ITI,
HTL, KIOCL, ITDC, BRPL, MFL, HCL, SCI, EIL, EPIL,
HPL, IBP, NEPA, HZL, PPCL, FACT, HLL, IPCL, NFL
and SAIL. For several enterprises, namely, ONGC,
MOIL, OIL, RITES, PGCL, NTPC, NLC and NHPC, the
commission has advocated no disinvestment for the
present.
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Industrial Sickness
• Sickness is a relative concept
• According to Reserve Bank of India, an industrial
unit is regarded as sick if it has incurred cash
loss for one year and in the judgment of the
bank, it is likely to continue to incur cash loss in
the two following years and it ha s imbalance in
its financial structure such as current ratio being
less than 1:1 and worsening debt- equity ratio.
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• The sick Industrial Companies Act 1985,
as amended in 1993, defines a sick
industrial company as an industrial
company which had at the end of any
financial year accumulated losses equal to
or exceeding its entire net worth.
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Symptoms of industrial sickness
• Common symptoms of industrial sickness
include failure to pay statutory liabilities like
provident funds and E.S.I contributions, failure to
pay timely installment of capital and interest on
loans taken from financial institutions and
through public deposits, increase in inventories
with a large number of slow or non moving
items, high rate of rejection of goods
manufactured, low capacity utilization and
frequent industrial disputes.
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Weak units
• An industrial unit is termed as weak if at
the end of any accounting year it has:
• Accumulated losses equal to or exceeding
50% of its peak net worth in the immediate
preceding five accounting years.
• A current debt equity ratio of less than 1:1
• Suffers a cash loss in the immediately
preceding accounting year.
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Cause of sickness
• Lack of experience of promoters, wrong selection of
project, faulty project planning etc may give birth to a
sick unit.
• Paucity of funds and faulty financial management any
also cause the birth of sick units
• Time and cost overruns sometimes prove be very
disastrous particularly in the case of large projects and it
can make a foundation of sick unit by birth.
• Sickness may arise from locational problems also.
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Cause of sickness
• Technological factors like selection of obsolete
or improper technology can also cause industrial
sickness.
• Wrong assessment of market potential or faulty
demand forecasting, change in market
conditions, change in consumer’s tastes and
preferences can also bring sickness to the
companies.
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Preventive and Curative measures
• Sick industrial companies act was passed
in 1985.
• Industrial reconstruction bank of India was
established to assist the rehabilitation of
non-SSI sick units.
• National
textile
corporation
was
established to manage sick textile mills
taken over by the government.
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Preventive and Curative measures
• Central government has established Board of
Industrial and Financial Reconstruction (BIFR) in
1987 as a board of experts to determine the
measure to be adopted with respect to the sick
company. BIFR can give recommendations
regarding



Financial reconstruction of the company
Takeover of management of sick unit by government
The sale or lease of part or whole of sick industrial unit.
Amalgamation of sick industrial company with another
company.
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