By-Smita Bansal IV sem IMP

Overview Public sector - Need - Forms of organization - Contribution to Indian economy - Importance - Problems encountered - Pricing policy Private sector - IPR 1948, 1956, 1991 - Role in Indian economy Joint sector - Features - Role in Indian economy Co-operative sector - Features - Challanges and solution

mixed economy Industrial policy allows coexistence of Public sector Private sector Joint sector & Co-operative sector
A

 Prior

to Independence- few Public Sector Enterprises in the country like Railways, the Posts and Telegraphs, the Port Trusts, the Ordinance Factories, All India Radio, few enterprises like the Government Salt

economy with a weak industrial base, low level of savings, inadequate investments and infrastructure facilities Public sector could be an instrument for self reliant growth Passage of Industrial Policy Resolution of 1948 and followed by Industrial Policy Resolution of 1956
Agrarian

of core sectors through the public enterprises Emphasis on the expansion of production, both agricultural and industrial; and in particular on the production of capital equipment(public sector) and goods satisfying the basic needs of the people, and of commodities the export of which would increase earnings of foreign exchange(private sector)
Development

 Private

investment- small goods would block imports and utilization of excess capacity And increase profits Public investment being autonomous investment in low profit yielding, long gestational period, complex management industries

 Gave

primacy to the role of the State which was directly responsible for industrial development Planning process( 5 year plan) gained life to counter the needs of people

shed year Gave way to liberalization Massive growth of industrial sector

Water

Public sector undertakings

Departmental undertakings

Public corporations

Government company

Holding company

under control of Govt Ex Indian Railways, Posts and Telegraphs, atomic power projects, security and currency presses etc Financed out of general budget except railways
Directly

 Merits

- Can be molded acc to governmental requirements - best for defense and strategic industries - Earnings directed to treasury so helps in raising revenue

 Demerits

- lack of flexibility due to excessive centralization in decision process( Beaurocracy ) - too much political interference so does not run on sound business lines -

 It

combines the flexibility of private enterprise with public ownership Expected to run on commercial principles Two types - Financial corporations like LIC, UTI, SBI etc - Non financial corporations like ONGC, Indian Airlines etc

 Merits

- Managerial autonomy so helps in more benefits and easy running of the organization Demerits - Undue interference by Parliament - Dependency on government for funds

to Companies Act 1956, a company which has not less than 51% of the paid up share capital held by central government or state government or jointly Classified as - mining - manufacturing and refining - commercial, miscellaneous
According

- trading - financial - promotional and developmental Ex State trading corporation, General insurance corporation of India etc

 Merits

- conduction of business on the lines of private sector - free from political interference - greater flexibility Demerits - they become irresponsible in their business behavior

parent corporation that owns enough voting stock in another corporation to control its board of directors (and, therefore, controls its policies and management) Merits - ending of fragmentation of industrial effort in the public sector - reduce government control enabling them to function them in an efficient way
A

- Permits more utilisation of financial resources trough transfer of unutilised resources from one subsidiary to another Ex First time the idea was incorporated in Iron and steel industry so SAIL was established in 1973 owned Bokaro Steel ltd. as a subsidiary company

 Capital

formation-

 Role

of nationalized banks like IDBI,LIC, UTI in mobilizing resources and collecting savings Savings in public sector

of infrastructure- a major role Investment in infrastructure in the public sector, at both the Centre and state levels, was 4.2% of the countrys GDP As per Planning Commission estimates, the same is expected to be 6.4% of the GDP by FY12.
Development

 Strong

industrial base - Industry contributed 29.1% in GDP in 2008 Implies the importance and strengthening of industry base in Indian economy Investment in iron and steel, petroleum and natural gas, heavy engineering machinery, chemicals and drugs etc hence giving a boost to consumer goods industries

 Removal

of regional disparities- backward states like UP, MP, Orissa and Bihar by setting up plants like Bhilai steel plant, Bokaro steel plant Import substitution and export promotionSecond plan and subsequent plans gave way to import substitution by setting up industries like HAL, BHEL, ONGC etc

 Abandoning

concentration of economic

power by - diverting profits towards welfare programes for poorer sections of society - discriminatory policy in material supply promoting SMEs - implementing programs of labour welfare, township and colonies for labourers and better wages than private sector

 Price

policy- main objective is to serve the masses Indian railways and State Electricity board enjoy monopoly but do not take advantage Also bodies like Fertilizer Corporation of India and Hindustan Insecticides etc have no profit motive

 The

public utility approach- No profit no loss situation Rate of return approach- focuses on ROI

 It

is that part of the economy which is both run for private profit and is not controlled by the state

 IPR

- 1948 -Features Division of the Industrial sector into 4 major categories. Small and Cottage Industries were given privileges. Considered the importance of private participation

1.State Monopoly Arms and ammunition Atomic Energy Rail Transport 2. Mixed Sector (IPR - 1948 ) Six industries were specified -Coal -Iron & Steel -Aircraft Mfg -Ship Building -Telephone, Telegraph & Wireless (Excluding Radio) -Mineral Oils

3. The field of government control The government will regulate Industries in this category -Automobiles -Heavy Machinery -Heavy Chemicals -Fertilizers -Sugar -Paper -Cement -Cotton -Woollen textiles etc

4. The field of private enterprises All the other Industries

 IPR

1956 divided industries into 3 major categories1) 17 industries in schedule A- future development a responsibility of state 2) 12 industries in schedule B- state-owned but private enterprises will supplement the efforts of growth for development of them 3) All other industries not in schedule A or B given full freedom to operate

 Private

sector flourished by taking advantage of the loopholes in IPR 1956 and the elbow room allowed to venture into industries reserved for state

 New

era of liberalization- after IMF bailed out the bankrupt state Breakthrough reforms under the government of Mr. P.V. Narasimha Rao and then finance minister Mr. Manmohan Singh

 Policies

included - opening for international trade and investment - deregulation - initiation of privatization - tax reforms and inflation measures - curbing The License raj

of the role of public sector Increased FDI Curbing Red Tapism or License Raj Tariffs were reduced considerably Reduced fiscal deficit Unbelievable growth rate
Dilution

Initiator and moving force behind Industrialization, revolutionizing the production process by acting as innovator Extensive modern industrial sector- potential to harbor modern industries like cotton textile, sugar industry in pre- independence period -FMCG and chemical industries like paints, varnishes etc as offer early return on investment
Development-

 Potentialities

due to personal incentives in

small sector - contribution by small and cottage industries - personal decision making and small investment earn stupendous profits - 800 items reserved for Small scale industries

 Importance

in National income generation ad employment - contributes >73% of GDP - maximum employment generator as majority of people depend on this sector for livelihood

 Form

of a partnership between government and private sector Earlier only a few princely states like Travancore and Hyderabad practised World Bank team visited during Pt. J.L Nehru and suggested IPR 1956 led to government joining hands with private sector

 Few

like Madras Fertilizer company with Amoco Ltd, Cochin refineries with Phillips Petroleum Ltd USA Indians like Mr. J.R.D Tata a pioneer as Air India with 51% equity participation In 1969, by Industrial Licensing policy Enquiry committee this gained momentumwhich got approval

 Main

objective was development of State and small scale industries- State Industrial Finance corporation etc Features1. Equity participation- Govt shares NLT 50% 2. Management and control- mainly vests in the hands of maximum shareholder apart from Private representative 3. Accountability functioning not accountable to government

 Social

control over industries- curb monopoly and concentration of economic power in the country Fulfilling of social objectives like regional disparities, export sector development, employment opportunities Better industrial growth Broad basing of industrial entrepreneurshipgovt may instill confidence in SMEs

Persons united voluntarily to meet their common economic, social, and cultural needs and aspirations through a jointlyowned and democratically-controlled enterprise Ex- handloom, coir and certain village industries

 The

Co-operative Societies Act- village credit societies were formed as a tool against prevalent indebtness The act permitted the formation of such societies for various activities GOI set up an Agricultural Credit Department in the RBI with a view to providing financial assistance and credit to the co-operatives.

 Operation

mechanisms- cooperation only for certain activities like procuring raw material etc and production individually - production, marketing etc all are undertaken jointly - members work independently but cooperative workshops are set up

 Governments

help - loans at concessional rates of interest - granting managerial staff, tools and equipment - sanctioning of advances to cooperative financing agencies etc

 Challenges

- Emergence of MNCs and large scale economic activities - Internal and structural weaknesses & lack of proper policies along with corruption of financial corporations hinder the growth

 What

can be done? - reorientation of policies - venturing into capital market for mobilizing funds by debentures, deposits etc - Intensify linkages with NGOs or Self-help Groups to attract funds and assistance from World bank, Asian development bank etc - incorporating professionalism by intensive training programs

 Economic

environment of business by S.K. Misra and V.K. Puri Wikipedia.com http://isid.org.in/pdf/jscfnl.pdf http://news.indiamart.com http://www.blurtit.com http://www.businessdictionary.com http://business.mapsofindia.com