INDUSTRY AND MINERALS
Seventh Plan Performance 5.1.1 The Industrial Policy Statement of July 22, 1991 has set out the broad outlines of the nation's industrial policy in the near-term future. In many respects, it signifies a return to the 1956 Industrial Policy Resolution with only one major exception, viz., the reduction of the industrial activities exclusively reserved for the public sector from 17 to 8 industries. Indian industry has developed a highly diversified structure, considerable entrepreneurship and a vastly expanded capital market. All this makes it possible for the public sector to vacate many areas hitherto exclusively reserved for it and throw them open to private sector initiative. This will free scarce public resources for investment in priority sectors. Also, the new Policy emphasizes efficiency and surplus generating capability in the public sector, a larger entrepreneurial and managerial freedom for both domestic private sector and foreign investment, a more open access to technology and greater reliance on the capital market for raising resources.
5.1.2 India stands totally committed to a policy of mixed economy as propounded by Nehru and other founding fathers under which both the public sector and the private sector enterprises co-exist and function side by side. But both need to be efficient. It is this strong motive for inducting efficiency which has partially prompted the recent policy of partial disinvestment of the shareholding in the public sector enterprises. The other consequence will be to free part of the public resources locked up in these enterprises for deployment elsewhere where it is needed more.
5.1.3 The relatively open foreign investment policy has been dictated by the following considerations :-
(i) A general awareness that foreign investment in India has been abysmally low and that the country has substantial absorptive capacity;
(ii) Realisation that foreign direct investment is less costly but more productive than international non-concessional credit at commercial rate;
(iii) Knowledge that to a limited extent foreign direct investment can provide both balance of payment support and ensure the inflow of latest technology.
5.1.4 There is, however, no intention to permit foreign investment indiscriminately in all areas, but to welcome it selectively in desired or priority areas.
5.1.5 The Eighth Plan starts against a back-drop of impressive industrial growth during the eighties, a rate which was higher than that achieved by the great majority of other nations. The average annual growth rate of the industrial sector including mining, manufacturing and electricity generation during the Seventh Plan period was 8.5 % which though marginally lower than targetted 8.7% was much higher than the 3.5% achieved during the Sixth Plan.
5.1.6 The manufacturing sector which achieved an average annual growth rate of 8.9 per cent during the Seventh Plan period contributed significantly to this higher growth rate in the economy. Within the manufacturing sector, manufacture of electrical machinery and chemi- cals and chemical products achieved growth rates of 25.8% and 11.7% respectively. These two groups contributed about 61 % of the indus- trial growth in the manufacturing sector.
5.1.7 Table 1 shows the average annual rate of growth recorded in 17 selected industry groups during the Seventh Plan period and 1990-- 91.
5.1.8 It will be seen that compared to the Sixth Plan, the Seventh Plan achieved higher annual growth rates in the manufacturing and electricity sectors. The mining sector, however, witnessed a substantial slow down in growth from 12.7 per cent in the Sixth Plan to 5.6 per cent in the
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Table - 1 Growth rates of index of industrial production
(Base: 1980-81 = 100)
Code-Group Idustry Group Weight% Growth Rate
Seventh Plan 1990-91
Average
1. 2. 3. 4. 5.
20-21 Food Products. 5.327 5.0 12.5
22 Beverage, Tobacco & Tobacco products. 1.571 -1.1 1.3
23 Cotton Textiles. 12.309 1.8 14.7
24 Jute, Hemp & Mesta Textiles. 1.999 -0.3 4.4
25 Textile products.(incl.wearing apparel) 0.817 11.8 -32.0
26 Wood & Wood products & Furniture & 0.448 -2.5 12.7
Fixtures.
27 Paper & Paper products. 3.235 6.7 9.0
28 Manufacture of Leather & Fur products. 0.489 6.4 3.1
29 Manufacture of Rubber Plastic, Petro- 4.000 3.6 - 0.1
leum & Coal products.
30 Manufacture of Chem. & Chem. products. 12.513 11.7 2.7
31 Manufacture of Non-metallic Minerals. 2.299 6.7 1.7
32 Basic Metals & Alloy industries. 9.802 6.1 10.8
33 Metal products & parts. 2.888 6.3 0.4
34 Machinery, Machine tools & parts. 6.240 6.0 8.4
35 Manufacture of Electrical Machinery. 5.779 25.8 22.4
36 Manufacture of Transport Equipment & 6.386 6.5 6.3
parts.
37 Miscellaneous Manufacturing industries. 0.905 23.1 -2.9
2-3 Manufacturing 77.107 8.9 9.1
1 Mining & Quarrying 11.464 5.6 4.9
4 Electricity 11.429 9.3 8.7
Overall Index. 100.000 8.5 8.5
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Seventh Plan. Among the major industry groups, the annual growth rates of textile products, basic metals and alloys, metal products and parts, electrical machinery and appliances, and other manufacturing products accelerated during the, Seventh Plan period, whereas those of beverages, tobacco and tobacco products, wood and wood products decelerated.
5.1.9 The significant growth in industrial production during the Seventh Plan is attributable to a number of factors, the most important being improvement in the performance of the infrastructure viz., power, coal, etc. The other contributory factors were :(a) changes in the area of licensing and procedures; (b) import of technology; (c) higher import of capital goods; (d) better utilisation of installed capacities; and (e) allowing broadbanding of products in a number of industries. The Seventh Plan also witnessed a higher dose of liberalisation measures such as (i) raising the assets limit for exemption to companies from the purview of MRTP Act; (ii) exempting 83 industries under the MRTP Act for entry of dominant industries; (iii) grant of exemption from licensing for industrial units with an investment of upto Rs.50 crores in backward areas and Rs.15 crores in other areas on the basis of a negative list; and (iv) delicensing non-MRTP, non-FERA companies for 31 industry groups and MRTP/FERA Companies in backward areas for 72 industry groups.
Performance of Central Public Sector Enterprises 5.1.10 As on 31.3.1991, there were 246 Central Public Sector Enterprises (PSEs) owned by the Government of India with a total investment of Rs. 113,234 crores. Out of these, 236 were operational enterprises with an employed capital of Rs. 101,702 crores and employee strength of 23.01 lakhs. Of these, 131 enterprises earned an overall net profit of Rs.5731 crores during 1990-91 and 109 suffered a net loss of Rs.3064 crores. The profitability profile of the PSEs over the last decade is detailed in statement 5.1.
5.1.11 The performance of the Central Public Enterprises has been the subject of debate for some years now, and a number of Commit- tees/Working Groups have gone into the matter in detail. In the context of the role which the Public Sector is required to play in the prevailing environment, the Government has taken the following decisions:
i) Portfolio of public sector investments will be reviewed with a view to focussing the public sector on strategic, high-tech and essential infrastructure. Whereas some reservation for the public sector is being retained, there would be no bar on areas of exclusivity being opened up to the private sector selectively. Similarly, the public sector may also be allowed entry in areas not reserved for it.
ii) Public enterprises which are chronically sick and which are unlikely to be turned around will, for the formulation of revival/rehabilitation schemes, be referred to the Board for Industrial and Financial Reconstruction (BIFR), or other similar high level institutions created for the purpose. A social security mechanism is being created to protect the interests of workers likely to be affected by such rehabilitation packages.
iii) In order to raise resources and encourage wider public participation, a part of the Government's share-holding in the public sector would be offered to mutual funds, financial institutions, general public and workers. This is also expected to bring in greater public accountability and help create a new culture in the working of PSEs and improve their operational efficiency.
iv) Boards of public sector companies would be made more professional and given greater powers.
v) There will be a greater thrust on performance improvement through the Memoranda of Understanding (MOU) system through which managements will be granted greater autonomy and held accountable. Technical expertise on the part of the Gov- ernment would be upgraded to make the MOU negotiations and implementation more effective.
vi) To facilitate a fuller discussion on perform-ance, the MOUs between the Government
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and the public enterprises will be placed in Parliament. While focussing on major management issues, this will also help place matters on day to day operations of public enterprises in their correct perspective.
5.1.12 The implementation of these decisions has already started. During 1991-92, it was possible to mop up Rs. 3038 crores through disinvestment of equity of RSEs. Similarly, the number of MOU signing companies is being gradually increased. In 1992-93, 120 PSEs are expected to sign MOUs. The Government has also established a National Renewal Fund to provide a social safety net to protect the workers from the adverse consequences of the technological tranformation.
State Level Public Enterprises 5.1.13 There are in all about 1100 State Level Public Enterprises (SLPEs) with an estimated investment of about Rs.50,000 crores. Unfortunately, a large proportion of these State level public enterprises has not been working satisfactorily. As a first step towards making these PSEs more responsive, the Government has decided to disinvest from some of the SLPEs.
Subsidies by the State Governments 5.1.14 The State Governments have been offering various concessions to entrepreneurs for setting up new industrial units. It is anomalous that while the State Governments are raising power rates to meet the losses of State Electricity Boards (SEBs), they are also offering power subsidy to new units. Similarly, most State Governments have announced deferment/exemption of sales tax for new units, capital sub- sidy and subsidy for purchase of generating sets. As most States are announcing similar incentives, it is a zero sum game, with the State Governments giving up revenue. It would only be appropriate that a detailed review of the various subsidies/concessions offered by the State Governments is undertaken so that a more rational policy frame is developed.
New Growth Centres Scheme 5.1.15 For promoting industrialisation of backward areas Government of India announced in June, 1988, a scheme to develop growth centres in all States/Union Territories. These growth centres will be endowed with adequate infrastructural facilities like power, water, com- munications, banking etc. so that they can act as magnets for attracting industries to these areas. It has been decided to develop about 70 growth centres during the Eighth Plan. The locations of 63 growth centres have so far been finalised in consultation with the concerned State Governments/Union Territory Administrations. However, the pace of implementation is slow. With the abolition of licensing in most of the sectors, this is the only instrument available for facilitating regional dispersal. Considering the imperative need to minimise regional imbalances within the shortest time, intensive efforts would need to be made to ensure that these Centres are fully operational in the next 3-4 years.
Science & Technology in Industry & Minerals Sector 5.1.16 Research & Development (R&D) is the watch word for maintaining an edge in quality and cost in today's competitive world. Indian industry has made significant strides in building up a strong base for manufacture of various goods, largely through acquired technologies. There is an imperative need for assimilation, adaptation and improvement of imported technologies as well as development of indigenous technologies suited to local conditions.
5.1.17 A large number of industries in the public and private sectors have established corporate R&D facilities. Organisations like Steel Authority of India Ltd, Bharat Heavy Electricals Ltd, Project Development India Ltd, Hindustan Machine Tools, Instrumentation Ltd, Indian Petrochemicals Corporation Ltd, Petrofils Cooperative Ltd, Hindustan Organic Chemicals Ltd and Hindustan Insecticides Ltd have established in-house R&D facilities for product and process improvement and applied research. In addition, a large number of industry specific research institutes and Cooperative Research organisations are doing very useful work. Moreover, there are a large number of technical consultaney organisations having expertise in operational areas, a resource to be reckoned with for undertaking various developmental activities. Besides, in-house R&D efforts and foreign collaborations with reputed manufacturers abroad, UNIDO/UNDP assistance for frontier technologies is being sought for technological development in the country. However, there is need
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to improve the interaction between the industry and the academics.
Outlays and Expenditure 5.1.18 The Seventh Plan provided an outlay of Rs. 19,708 crores, out of which Rs. 17,268 crores were for Central sector (excluding coal and petroleum, which form part of the energy sector) and the balance Rs. 2,440 crores were in the Plans of States and Union Territories. The actual expenditure (at current prices) is estimated at Rs. 23,175 crores in the Central sector and Rs.3,120 crores by States and Union Territories. Expenditure in the Central sector at constant prices has also been higher, being Rs. 18,564 crores. Year- wise actual expenditure both at current prices and at constant prices in the Central sector is shown in Statement 5.2.
5.1.19 The overall outlay envisaged in the Eighth Plan for Industrial and Mineral programmes in the public sector is Rs. 40,673.43 crores, out of which Rs. 35,150 crores are for the Central Sector and the balance of Rs.5,523.43 crores is for the States sector. The Ministry/Department-wise outlays provided in the Central sector are detailed in Statement 5.3 and the State-wise outlays are detailed in Statement 5.4.
Outlook for the Eighth Plan 5.2.1 With a view to consolidating the gains already achieved during the 1980s and providing greater competitive stimulus to the domestic industry, the Government has introduced a series of reforms in the industrial, fiscal, trade and foreign investment policies. These reforms are intended to de-regulate or unshackle the industry and enable it to take decisions on its own without the need for Government approvals for specific actions. With these, the industry will be able to take timely steps to adjust to the changes in internal as well as external environment and meet the needs of a dynamic market. These reforms will lead to increased globalisation of the economy and its greater integration with the world economy. The freedom and flexibility allowed to the industry will enable it to optimise its operations and improve its competitiveness. In this background, there will be less emphasis on quantitative targets and the planning will become more "indicative". The desired growth of different sectors will be achieved primarily through modifications in industrial, trade, fiscal policies and changes in duties and taxes rather than through quantitative restrictions on imports/exports or licensing mechanism.
Role of Public Sector 5.3.1 The public sector has played a pioneering role in the development of the Indian economy and has a number of achievements to its credit. It deserves a major share of the credit for the self- reliant growth of the economy so far. However, there are some notable weaknesses too, the most important being the inability of the public sector to generate adequate resources for sustaining the, growth process. Besides, the private sector has now come of age and has developed considerable entrepreneurial, managerial, technological, financial and marketing strengths. In this background, a review of the role of the public and private sectors is called for in order to enable them to jointly shoulder the responsibility for further development of the economy.
5.3.2 The new Industrial Policy of July 1991 has brought down the number of areas reserved for public sector from 29 - earlier 17 areas were reserved exclusively for public sector while twelve other areas were to be progressively State-owned with State generally taking the initiative in establishing new undertakings -- to the following eight: arms and ammunition and allied items of defence equipment; defence aircraft and warships; atomic energy; coal and lignite; mineral oils; mining of iron ore, manganese ore, chrome ore, gypsum, sulphur, gold and diamond; mining of copper, lead, zinc, tin, molybdenum and wolform; minerals specified in the Schedule to the Atomic Energy (Control of Production and Use) Order, 1953; and railway transport.
5.3.3 The private sector is expected to play an increasing role in industrial activities, especially where security and strategic or social considerations are not very important. The public sector will concentrate increasingly on basic and core sectors. Even in these areas, emphasis will be on financing industrial and mineral projects primarily through internal and other extra-budgetary resources instead of depending on budgetary allocations. This is in line with the general philosophy of placing greater reliance on competitiveness of industries and efficiency of operations. The undertakings which are in a