INDUSTRIAL DEVELOPMENT POLICY AND PUBLIC SECTOR REFORMS
Section - 1
Overview 7.1 The 8th Plan strategy with regard to indus- trial development lays emphasis on clear pri- oritisation of sectors for investment in order to facilitate operationalisation and implementa- tion of the policy initiatives taken in the areas of fiscal, trade and industrial sectors and hu- man development. For the industrial sector, the new Industrial Policy of 1991 provides the backdrop for evolving the strategy for its de- velopment. The basic tenets pertain to promo- Lion of efficiency, growth and competitiveness. The major highlights of the industrial policy being pursued since 1991 are:
i) Enhancement of domestic competition through virtual abolition of industrial li- cencing except for a short list of indus- tries related to security and strategic concerns, social reasons, hazarduous chemicals and overriding environmental concerns;
ii) Reforms in the Monopolies and Restrictive Trade Practices (MRTP) Act to remove threshold limit of assets and elimination of requirement of prior approval for es- tablishment of new undertakings, expan- sion, merger or amalgamations:
iii) Enhancement of external competition through substantial deregulation of im- port procedure, virtual elimination of quantitative restrictions on capital goods and raw material and reduction in tariff rates;
iv) Liberalisation of foreign investment ap- provals and foreign technology agree- ments; and
v) Public sector reform including substantial dereservation of industries earlier re- served exclusively for the public sector.
Liberalisation 7.2 Steps have been initiated on almost all fronts. The Industrial Policy of 1991 reduced the industries exclusively reserved for the pub - lic sector from 17 to 8. The list has further been shortened to 5 (Annex - 7.1). Similarly, 18 Industries were retained under compulsory li- cencing which were further reduced to 16 (An- nex-7.2). The MRTP Act has been amended to remove the threshold limit of assets in respect of the MRTP Companies. The peak customs duty as well as tariff on capital goods, machine tools and components of capital goods have been gradually reduced, the rates proposed in the budget for 1995-96 being 50 per cent and 25 percent, respectively. In order to encourage foreign investment in the high priority areas requiring large investments and advanced technology, approval for direct foreign invest- ment upto 51 % foreign equity has been made automatic. In the same vein, automatic ap- proval for foreign technology agreements has been agreed upon to inject the desired techno- logical dynamism in the Indian industry. As a result, during the post-policy period i.e. An- gust 1991 to December 1994 5484 foreign collaborations have been approved involving a total foreign investment of Rs.27,340 crore. Public sector restructuring is being undertaken with a view to generating more internal re- sources through improved efficiency so as to reduce recourse to budgetary support. The measures taken in this regard include partial disinvestment of shares in selected Public Sec- tor Enterprises (PSEs) and bringing sick PSEs within the purview of the Board for Industrial and Financial Reconstruction (BIFR) through an amendment of the Sick Industrial Compa- nies (Special Provision) Act., 1985, to help revival of the sick industries in the Public sector and obviate the need for the Govern- ment to make investment of scarce resouces in unviable units. The Memorandum of Under- standing (MOU) system has been introduced to ensure greater accountability and National Renewal Fund (NRF) established to protect the workers affected by industrial restructur- ing. Besides, for encouraging industrial pro- duction for exports new schemes like the Export Promotion Industrial Parks (EPIPs) Scheme has been introduced and Export Proc- essing Zones (EPZs)/ Export Oriented Units (EOUs) strengthened.
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Deregulation 7.3 The new policy alms at generation of high rate of industrial growth to the tune of about 7.5% per annum during the 8th Plan. The Plan specifically emphasised upon industrial de- regulation and rational administered price pol- icy. It was observed that domestic economic activities have been subject to a wide array of detailed and discretionary Govt. controls. In the industrial sector, such controls took vari- ous forms: barrier to entry and expansion im- posed through industrial licencing; reservation of a large number of industries for the public sector as well as small scale sector; highly time-consuming procedures required for the exit of firms from an industry; price and distri- bution controls on various industrial products; etc. Eventhough, the new industrial policy re- duced the extent of industrial licensing quite substantially, continuance of licensing re- quirement of consumer goods such as sugar, entertainment electronics etc. may also be re- viewed. Therefore, only industries related to defence, explosives and hazardous chemicals need to be in the restricted list of industries requiring industrial licensing. The liberal entry policy needs to be matched by easy exit of the incidence of sickness in the industry is to be avoided. While protecting the legitimate inter- est of the workforce, an effective policy needs to be evolved towards restructuring of sick units. The liberal entry policy is likely to be successful provided there is an equally rational policy towards restructuring of unviable units.
National Renewal Fund 7.4 In the aforesaid context, it may be noted that the National Renewal Fund (NRF) was set up by a Government resolution dated 3.2.1992 to protect the interest of workers affected by industrial restructuring. In terms of the ap- proved guidelines, the NRF has two compo- nents viz. National Renewal Grant Fund (NRGF); and Employment Generation Fund (E G F).
7.4.1 The NRGF provides assistance mainly for (i) worker counselling, retraining and rede- ployment; (ii) worker compensation packages in both the public and private sectors, and (iii)
interest subsidies to financial institutions of- fering loans at concessional rates for labour rationalisation.
7.4.2 The EGF provides assistance mainly to: (i) area regeneration schemes sponsored by the State Governments; and (ii) employment gen- eration schemes in both formal and non -formal sectors.
7.4.3 To administer the NRF, a high-power Empowered Authority has been set up. Funds were made available to Central Public Sector Units (CPSUs) to implement the Voluntary Retirement Scheme (VRS) as a mechanism for reducing their surplus labour force. A total of 73,267 workers had availed of the VRS as on 31.10.1994. The amount spent on this purpose was Rs.528.24 crore in 1992-93 and Rs.476.06 crore in 1993-94 respectively. The average outgo for VRS per worker was approximately Rs.1.5 lakh. Employee Resource Centre (ERCs) have been set up by 20 CPSUs and workers retraining schemes are being imple- mented by Employee Assistance Centres (EACs) at five places. Besides, Ministry of Labour has made retraining facilities available for rationalised workers in 15 ITIs and 6 ATIs.
7.4.4 It is proposed to set up EACs in all locations where substantial worker outflows have taken place. An area regeneration scheme in respect of 19 closed textile units of Ahmed- abad is being initiated.
7.4.5 It is observed that eventhough initially, the activities of NRF centred around VRS of CPSUs, recently more emphasis is being given to retraining/redeployment and employment generation schemes.
Turning round sick units 7.5 The problem of industrial sickness has been a matter of concern as at the end of September, 1992, 1599 non-SSI units with an outstanding bank credit of Rs.6,805 crore was in the list of sickness. Similarly, 828 non-SSI units with an outstanding bank credit of' Rs.2,436 crore were found to be weak whereas 2,33,441 SSI units out of 23.84 lakh (as on 31.3.94) were sick blocking a bank credit of Rs. 3,346 crore. The Government has been taking various steps from time to time such as monitoring of industrial sickness by the bank and Financial Institutions, provision of' tax benefits under Section 72A of the Income Tax Act to promote amalgamation / merger of the sick units with healthy ones etc. to help recover these units from sickness.
7.6 The most important step taken by the Government in recent time is the enactment of the comprehensive legislation namely Sick in- dustrial Companies (Special Provision) Act (SICA), 1985 with view to secure timely de- tection of sick and potentially sick companies,
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speedy determination through a Board of Ex- perts of the preventive, ameliorative remedial and other measures which need to be taken with such sick companies and the expeditious enforcement of measures so determined.
7.7 The SICA Act is being implemented by the Board of Industrial Finance and Restruc- turing (BIFR). The BIFR is a quasi-judicial body with power to regulate its procedure and conduct of business. It became operative w.e.f. 15.5.1987. BIFR generally takes a conscien- tious approach in consultation with all con- cerned parties namely the Financial Institutions, the sick units, the Administrative Ministry and the State Governments. Nor- mally, the operating agency appointed by BIFR sumbits a revival package that is dis- cussed in forums represented by all concerned. While BIFR provides a forum whereby all concerned agencies are brought together for analysing, diagonising and evolving a consci- entious decision for revival or otherwise of the sick industrial units, the process sometimes involved is rather time consuming and the Committee on Industrial Sickness and Corpo- rate Restructuring (Goswami Committee) felt that BIFR need to be a fast track facilitator by taking expeditious decisions.
7.8 In the context of liberalisation of economy, competitiveness has become the buzzword for survival. In order to be competitive, the indus- try needs to upgrade the technology restructure the financial and managerial capability and improve upon the efficiency. The Government and Financial Institutions should assist the po- tentially viable sick units in turning round with such measures.
Public Sector Reforms 7.9 The 8th Plan visualises an important role for an autonomous and efficient public sector in providing essential infrastructural and stra- tegic support for achieving the targeted rate of economic growth during the plan period. Broad policy measures envisaged are:
i) Restructuring involving modernisation, ra- tionalisation of capacity, product-mix changes, selective exit and privatisation;
ii) Increase in autonomy and performance accountability. through the MOU system;
iii) Changes in management in specific enter- prises to promote leadership, resourceful- ness and innovation; iv) State Governments to promote reforms in their public sector enterprises which are beset with Intearference, lack of professionalism and ad hoc investment and employment decisions;
v) Technological upgradation through an in- tegrated R&D effort and import of tech- nology;
vi) Reorientation of approach in Ministries and other Govt. agencies corresponding to liberalisation and dismantling of regu- lation (price, distribution, investment and import control) to develop new institu- tional capability to facilitate operation of market forces, orchestrisation of inte- grated R&D effort and evolution of con- census and partnership among various stake-holders.
7.10 The basic features of public sector re- forms underway have been spelt out in para 7.2. As on 31.3.1994, there were 246 Central Public Sector Enterprises (CPSEs) with a total investment of Rs.1,64,332 crore and capital employed of Rs.1,59,307 crore. Its break-up along with the profitability position, cognate group-wise is given in Annex-7.4. During 1993-94, 120 enterprises earned an overall profit of Rs.9,722 crore, 117 enterprises suf- fered a loss of Rs.5,287 crore and 3 enterprises made neither profit nor loss. The total net profit increased by 35.58% from Rs.3,271 crore in 1992-93 to Rs.4,435 crore in 1993-94.
7.10.1 While petroleum and power are most profit-earning cognate groups, consumer goods and textiles were the main loss-making ones. The total number of persons employed in the public sector enterprises during 1993-94 was 21.49 lakh, reduced from 22.16 lakh in 1992-93. However, return on investment im- proved only marginally from 2.33% in 1992- 93 to 2.78% in 1993-94. Such a meagre return on investment has been a matter of concern to the Govt. and needs to be addressed urgently.
7.11 In the I&M Sector, the Public Sector outlay for large and medium industries in the Central Sector for the 8th Plan was envisaged to be Rs.35,150 crore (later revised to Rs.35,195 crore) at 1991-92 prices from Rs.17,268 crore in 7th Plan. The outlays/ex- penditures in the first three years amounted to Rs.20,068.39 crore at current prices, which after allowing for changes in the price level, comes to about half of the outlay provided for the five year period. The sectoral outlays and
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expenditures in the first three years of the 8th Plan are given in Annex-7.5.
7.12 The financing pattern of PSEs envisaged raising more resources from the internal and extra budgetary sources so as to release scarce resources for funding of social sectors. The reduction in the budgetary support in financing of the PSEs resource requirements was to be made up by recourse to extra-budgetary re- sources (e.g. borrowings) and generation of internal resources. Out of the approved outlay of Rs.35,150 crore in the 8th Plan for Industry and Mineral sector, the budget support was to be Rs.7,150 crore(20.35%), with rest of the resources coming from internal and extra- budgetary resources(IEBR). The review of the expenditure pattern in the first half of the 8th Plan, however, shows that the PSEs could not raise the required resources through IEBR and the budgetary support had to be increased to meet the shortfall. As against an estimated 20.35% of budget support, the actual budget support for the first three years (1992-95) formed 39% of the total expenditure of Rs.20,900 crore approximately. The actual budget support in the three years was of the order of Rs. 8,090 crore.
7.13 The PSEs have not been able to raise the projected borrowings on account of their past record of not being run on commercial basis. With rationalisation of the tax structure in the recent budgets, such as uniform excise duty of 15% on capital good components, reduction in duty on aluminimum to 15% and lowering of peak customs duty to 50%, it is expected that the PSEs would be able to generate internal resources for their sustenance and growth.
7.14 Fifty two chronically sick PSEs have been registered with BIFR. BIFR have decided re- vival of two PSEs and recommended winding up of three PSEs. They are considering draft schemes for four companies and issued wind- ing up notices in respect of nine companies. The employees of four companies have filed writ petition in Calcutta High Court against BIFR award and obtained stay.
MoU concept 7.15 Following the recommendation of the Arjun Sengupta Committee Report, the Govt. of India introduced the concept of the Memo- randum of Understanding (MOU) in early 1988. MOU is an instrument which defines clearly the relationship if the PSU with the Govt. and clarifies thier respective roles. The MOU emphasizes achieving the negotiated and agreed objectives rather than interfering in the day to day affairs. For the year 1 993 -94, 101 PSUs signed MOUs with their respective Administrative Ministries/Departments. For the year 1994-95, 106 PSEs are expected to sign MOUs. MOU system, however, has not been very effective and requires review. For instance, targets envisaged in the MOUs are often subjected to a number of obligations to be fulfilled by the Administrative Ministries as well as the PSEs which are not always met. It is, therefore, necessary that some responsibil- ity be fixed both on the concerned Govt. agency and the Public Sector Enterprises for fulfilling their respective obligation. Then only can the MOU have a positive impact on the outcome of the enterprises signing such MOUs. A number of steps are being taken to bring further improvement in the MOU policy:
i) It has been decided to give 80% weight to MOU performance in the Annual Confi- dential Reports (ACRs) of the MOU sign- ing PSE Chief Executives.