• Industry refers to an economic activity concerned with the processing of raw materials and manufacture of goods in factories. Industries are often classified based on their principal product e.g., steel industry, automobile industry, textile industry etc.
  • The products of industries can be consumer goods (goods, which are finally consumed by consumers) like textiles, cosmetics etc or producer goods (goods used by manufacturers for producing some other goods) like machinery, tools, equipment

Importance of Industry

  • The industrial sector of the economy is important for many reasons for a country like
    • Rapid growth of national income is possible only through industrialisation as growth in agriculture is limited by factors including

natural     factors.     Industrial Growth   in   Eight   Five   Year Plan  was  7.29%,  in  9th   Plan 4.29%,    in    10th                             Plan (2002 – 07), 9.17% and in 11th

Plan (approx) 10%.

  • Industries can be provide better quality and more employment than the agriculture sector. The share of industry in total employment increased from 2% in 1999-2000 to 21.9% in 2009-10.
  • Value addition in the industrial sector can earn more foreign exchange than simply exporting raw materials.
  • The industrial sector provides goods for the development of basic infrastructure of the country like power, telecom etc, which then provides the basis for the growth of other sectors like agriculture and services.
  • National security requires that products for defence and other strategic sectors be produced within the country itself so as to guard against adverse eventualities like sanctions, wars etc.


  • An industrial policy provides guidelines for the effective co- ordination of the activities of various sectors of the economy. The evolution of industrial policy in India may be studies in the background to see, how far it has worked as a potent tool to realise the goal of planned
  • When India achieved independence in 1947, the national consensus was in favour of rapid industrialisation of the economy, which was seen not only as the key to economic development, but also to economic
  • In the subsequent years, India’s

Industrial Policy evolved through

successive Industrial Policy Resolutions and Industrial Policy Statements. Specific priorities for industrial development were also laid down in the successive Five Year Plans.

Industrial Policy Resolution (IPR), 1948

  • The 1st Industrial Policy was announced in April, 1948, by then Industrial Minister, Late SP Mukherjee. Its historic importance lies in the fact that it ushered in the system of ‘Mixed Economy’ in the country i.e., it entrusted the task of industrial development on both private and public

Salient Features of IPR 1948

  • Development of mixed
  • State programmes, for the development of
  • Promotion of small scale and cottage
  • Foreign investment was allowed, but effective control should be with
  • Industries Classified into four categories
  • Public Sector
  • Mixed Sector
  • Controlled Private Sector
  • Private and Cooperative Sector

Industrial Policy Resolution, 1956

  • IPR, 1956 was the most comprehensive industrial policy, which was formulated in the backdrop of the adoption of the Constitution and the socio- economic
  • The policy may be described as the ‘Economic Constitution’ of India, as it not only outlined the basic framework of the future industrial policies (especially upto 1991), but also of the general economic
  • Its main objectives were to accelerate the rate of economic growth and to speed up industrialisation for achieving a socialistic pattern of

Public sector steel plants

Bhilai(MP)Russian government
Durgair(WB)British government
Bokaro(Jharkhand)Soviet (1964)
Burnpur(WB)Acquired from private sector in 1976
Vishakhapatnam (AP)Russian government
Salem (Tamil-
Vijai Nagar(Karnataka)
Bhadrawati (Karnataka)nationalisation of Vishveshvarayya Iron and Steel Ltd(owned by Central and State government)

Salient Features (IPR 1956)

  • The policy divided the industries into three categories
  • Schedule A (Public    Sector) Seventeen   industries   were

exclusively reserved for the public sector.

  • Schedule B (Mixed Sector) Twelve industries were placed in the mixed sector of public and private enterprise. These were to be progressively state- owned and in which state would generally set up new units.
  • Schedule C (Private Sector) All the remaining industries and their future development would, in general be left to the initiative and enterprise of the private
    • The policy laid emphasis on the state assuming a predominant role for setting up new industrial undertakings.
    • The state was to facilitate and encourage the development of industries in the private
    • The state would support small- scale and cottage industries
    • The policy stressed the necessity of reducing regional
    • The policy welcomed the foreign capital, but the effective control should remain in Indian

Industrial Licensing

  • The Industries (Development and Regulation) Act, 1951, empowered the government to issue licenses for the setting up of new industries, expansion of existing ones and for diversification of
  • The main aims of the industrial licensing policy were the production as per national priorities, checking    the concentration of industries and ensuring balanced regional development.
  • However, from time to time, many deficiencies in the licensing system came to light. The government set-up several committees for the study of the licensing system and giving suggestions for its
  • Such committees included RK Hazari Committee, 1964 and Dr Subimal Dutt Committee, 1967. On the basis of Subimal Dutt Committee recommendation, government enacted the Monopolies and Restrictive Trade Practices (MRTP) Act, 1969.

Monopolies and Restrictive Trade Practices (MRTP) Act, 1969

  • MRTP Act was enacted in 1969 and MRTP Commission was constituted in 1970, to prevent the concentration of economic power and to prohibit restrictive or unfair trade
  • Under the act, companies having assets beyond the threshold limit (i.e., 20 crores in 1985) were placed under the purview of the act.
  • Certain restrictions are imposed on such companies like prior approval of the MRTP. Commission for establishment of new undertakings, expansion of undertakings, mergers and acquisitions.

Industrial Policy Statement, 1977

  • The thrust of the policy was on decentralisation of the industries and the promotion of small scale and cottage
  • It introduced the concept of tiny sector within the small-scale sector.

Annual Survey of Industries (ASI)

Data on registered manufacturing and repairing units are collected through the ASI and on unregistered manufacturing and repairing units, through the Follow-up Surveys of the Economic Census. For selection of units in ASI, the lists of factories maintained by the Chief Inspectors of Factories are used as the sampling frame. On the other hand, the Follow up Enterprise Surveys (FuS), which adopt a stratified two or three- stage sampling design, with villages and urban blocks as the first-stage units (FSUs) and unregistered manufacturing and repairing units as the ultimate stage sampling units, generally use the list of villages and the blocks with information on the number of enterprises and workers as per the Economic Census as the sampling frame for the selection of FSUs. Collection of data from the units in the ASI is record based. But in the Follow-up Enterprise Surveys, data are generally collected by interviewing the respondent, as most units do not maintain any books of accounts.

Industrial Policy Statement, 1980

  • The policy emphasised the optimum utilisation of installed capacity, technological upgradation and
  • The policy selectively liberalised the industrial sector i.e., MRTP Act was liberalised, scope of licensing was reduced, simplified the procedure for regularisation of unauthorised excess capacity etc.

An Evaluation of Industrial Policy Before 1991

  • Several official committees as well as other experts bring to light the major deficiencies of the industrial policies before 1991. Some of the important criticism are
  • The objective of the licensing policy was to ensure capacity creation according to the priorities decided in the Five Year Plan. But, due to inherent demerits of the licensing system, in some areas excess capacity was created and there was under utilisation of capacity, while at same time, despite availability of

licenses, private players deliberately under produced goods, which helped develop monopoly and monopolistic conditions in the economy.

  • Targets were not fixed for private sectors and they invested only assured profit and avoided
  • The objective of licensing policy was to check monopoly in the economy, but it infact led to development of monopoly in the economy. Big industrial houses succeeded in getting the licenses, while others
  • Due to licensing policy, developed states gained, more units were set-up in already developed states, while poor and under developed states
  • Rigidity and complex nature of licensing caused delay in permission and there was problem of delay in projects, which slowed down the growth rate.


  • The Government of India announced the New Industrial

Policy on July 24, 1991. The main objective of this policy is to unshackle the Indian industrial economy from administrative and legal controls.

Main Features of NIP, 1991

  • Delicensing: The industrial licensing was abolished

irrespective of the level of investment, except for 18 specified industries like defence, atomic energy etc. Since then most of these industries were delicensed and now only three industries fall under the purview of industrial licensing.

  • Foreign Investment: Foreign capital investment limit was raised from 40% to 51% in high technology and high investment priority
  • Foreign Technology: Automatic approval was granted for    foreign         technology agreements upto the limit of Rs.200 crore subject to 5% royalty on domestic sales and 8% on
  • Foreign Investment Promotion Board (FIPB): It was established to expeditiously clear foreign investment proposals. It serves as a single window clearing agency for the FDI
  • Industrial Location Policy: Excepting the big cities with population of one million, in other cities, industrial licensing

will not be required, but for those industries, where licensing is compulsory.

  • In case of cities with population of one million or above, excepting non-pollutant industries, all other units will be set-up at a distance of 25 km from the city limits.
  • MRTP Limit Scrapped: The threshold limit of Rs.100 crore worth of assets for classification of a company as MRTP company was removed, such companies were to be recognised on case-by- case evaluation
  • Mandatory Convertibility Clause was Abolished It is the condition imposed by the financial institutions on private companies that a part of their lending would be converted into equity at some future
  • New Small Enterprise Policy: A separate policy was announced by the government in August, 1991, for the promotion of small- scale
  • Like the private enterprises, sick PSUs were also placed under the purview of the Board for

Industrial   and  Financial Reconstruction (BIFR).

  • Disinvestment of the shares of PSUs was

Competition Act, 2002

  • The Competition Act was enacted by the government in 2002, on the recommendation of the SVS Raghavan Committee. It repealed the MRTP Act and the MRTP Commission was replaced by the Competition Commission of India (CCI).
  • The objectives of the act are to encourage competition, prevent abuse of dominance (rather than dominance as such) and to ensure a level playing field for all the enterprises in the Indian economy.

Competition Act, 2013

  • This Act introduces significant changes in the provisions related to governance, e-management, compliance and enforcement, disclosure norms, auditors and mergers and acquisition. Also, new concepts such as one-person company, small companies,

dormant company, class action suits, registered valuers and corporate social responsibility have been included. The changes in the Act, 2013 has far reaching implications that are set to significantly change the manner, in which corporates operate in India. The Act, 2013 has introduced several new concepts and has also tried to streamline many of the requirements by introducing new definitions.

Index of Industrial Production (IIP)

  • One Person Company The Act, 2013 introduces a new type of entity to the existing list i.e., apart from forming a public or private limited company, the Act, 2013 enables the formation of a new entity a ‘One Person Company’ (OPC).
  • Small Company A small company has been defined as a company, other than a public company.
    • Paid-up share capital of which

The Central Statistical Organization (CSO) is responsible for the compilation and publication  of  the  Index  of  Industrial  production  (IIP)  since  1950.  The  IIP  is compiled as a simple weighted arithmetic mean of production relatives by using Laspeyre’s formula. The IIp is a quantum index, the production of items being expressed in physical terms. The eight core sectors in the index which account for combined weight of around 37 per cent to 90 per cent are cement, coal, crude oil,  natural  gas,  electricity,  petroleum  refinery  products,  fertilizer  and  steel. However,  the  unit  of  reporting  with  respect  to  certain  items  like  machinery, machine tools, ship building and so on is in value terms. The monthly figure of production  value  in  such  cases  is  first  deflated  by  the  Wholesale  Price  Index (WPI)  of  the  corresponding  categories,  released  by  the  Office  of  the  Economic Adviser,  Ministry  of  Industry.  The  scope  of  the  IIP  as  recommended  by  the United   Nations   Statistical   Office   (UNSO)   includes   mining,   manufacturing, construction, electricity, gas and water supply. But because of the constraints of data  availability,  the  IIP  compiled  in  India  has  excluded  construction,  gas  and water supply sectors.

does not exceed 50 lakh INR.

  • Turnover of which as per its last profit and loss account does not exceed 2 INR or such higher amount as may be prescribed which shall not be more than 20 crore INR.
  • Dormant Company The Act, 2013 states that a company can be classified as dormant when it is formed and registered under this Act, 2013 for a future project or to hold an asset or intellectual property and has no significant accounting
  • National Financial Reporting Authority (NFRA) The Act, 2013 requires the Constitution of NFRA, which has been bestowed with significant powers not only in issuing the authoritative pronouncements, but also in regulating the audit
  • Serious Fraud Investigation Office (SFIO) The Act, 2013 has bestowed legal status to
  • Corporate Social Responsibility The Act, 2013 makes an effort to introduce the culture of Corporate Social Responsibility (CSR) In Indian

corporates    by    requiring companies to formulate a corporate social responsibility policy and atleast incur a given minimum expenditure on social activities.


  • At the time of independence, the country was predominantly agrarian and lacked basic industries and infrastructure facilities. The economy needed a big
  • The push could not come from the Indian private sector, which was starved of funds and lacked technical and managerial abilities. Further, it was incapable of taking risk involved in long gestation investments. So, the development in the public sector became imperative.

The expansion of public sector in the field of industries took place in a big way with the launching of the Second Plan (1956-61), which gave top priority to the industrial growth of the country.

Expansion of Public Sector

  • There were only five Central Public Sector Enterprises (CPSEs) in 1951, with investment of Rs.29 The number of CPSEs (excluding financial institutions) has increased to 244 by 31st March, 2007.
  • There were over 800 state level public enterprises with total investment in public sector in the entire country (i.e., Centre + States) stood at over Rs.6 lakh crore.

Contribution of Public Sector

  • The public sector was instrumental in the creation of infrastructure and the development of basic industrial structure of the
  • PSUs did a commendable job in the promotion of strategic and key industries like atomic energy, armaments and ammunition, aircrafts, heavy machinery, iron and steel, coal, drugs, fertilizers, etc.
  • The public sector provided employment to about 70% of the workers employed in the organised sector. Presently, public sector contributes about 24% to the GDP and accounts for over 20% of the Gross Domestic Capital Formation (investment).
  • The contribution of PSUs has been significant in achieving self- reliance in foreign exchange. On one hand, several PSUs like State Trading Corporation (STC) and Metals and Minerals Trading Corporation (MMTC) played an important role in export promotion and on the other, some PSUs like Bharat Heavy

Electricals Limited (BHEL), Hindustan Antibiotics Limited (HAL), ONGC, etc played a crucial role in import substitution.

Problems of the Public Sector

  • The return on capital invested in PSUs has been deplorably low due to low profitability and losses of some
  • Problems related with the Price Policy i.e., Administered Prices of the products of PSUs were deliberately kept lower than the market
  • Lack of autonomy to the management of the PSUs due to excessive political
  • Excessive overheads especially in providing housing and other amenities to the employees e.g., townships.
  • Over staffing inflated the wage bills.
  • Inappropriate investment decisions like inappropriate location, technology, product mix


  • Indiscriminate expansion of the public sector in almost all
  • In case of public sector, the yardstick of profitability cannot be used to judge the performance. The public sector has been entrusted with multiple responsibilities including social, political, economic etc. Even, while making losses, the public sector might be serving certain important social

Public Sector Reforms

  • To improve the performance of the PSUs, the government has adopted the following measures, especially in the post reform (1991 onwards)
  • Memorandum of Understanding: The concept of  Memorandum                                               of Understanding (MoU) was introduced in 1987, on the recommendation of the ‘Committee to Review the Policy for the Public Enterprises’ headed by Mr Arjyn
  • MoU refers to the agreement between the concerned ministry and the management of a PSU,

in which the latter is provided a reasonable degree of autonomy and simultaneously held accountable for the performance of the PSU.

  • New Industrial Policy, 1991: The policy contained the following reformative measures for    PSUs, dereservation, disinvestment, professionalisation      of management, reference of sick PSUs to the BIFR and expanding the scope of
  • Voluntary Retirement Scheme (VRS): The VRS (or Golden Handshake Scheme) was launched in 1988, for the rationalisation of manpower in the central PSUs. The scheme enabled the PSUs to shed their excess staff by offering attractive compensation package to the workers, who seek voluntary retirement.
  • Dismantling of Administered   Price Mechanism (APM): The government has initiated steps for dismantling of price controls in respect of a number of

products of PSUs. e.g., it removed the price and distribution controls on iron, steel and cement. The government also decontrolled the prices of most of the fertilizers and petro-products.

Policy of Navratnas

  • Navratna was the title given originally to nine Public Sector Enterprises (PSEs), identified by the Government of India in 1997, as its most prestigious, which allowed them greater autonomy to compete in the global

Criteria for Navratna Status for PSUs

  • It should have a schedule ‘A’ and

Miniratna category_1 status.

  • It should have atleast three ‘excellent’ or ‘very good’ Memorandum of Understanding (MoU) ratings during the last five
  • It should have a composite score of 60 out of 100 marks based on its performance during the last three years on these six criterias-

Net Profit to Net worth, manpower cost to cost of production or services, gross margin as capital employed, gross profit as turnover, earnings per share, inter-sectoral comparison based on net profit to net worth.

  • The company should also have four independent directors on its board.
  • Navratna status empowers the PSUs to invest up to Rs.1000 crore or 15% of their net worth on a single project without seeking government approval. The overall ceiling on such investments in all projects put together is 30% of the net worth of the

Policy of Miniratnas

  • The government has also accorded the status of Miniratna to some profit making PSEs. There are two types of Miniratnas-Category I and Category II.

Category-I Miniratna

  • These are companies, which have made a profit in each of last three years and earned a profit of Rs.30 crore in atleast one of the three years.
  • They are allowed to incur capital expenditure without government approval upto Rs.500 crore or equal to their net worth whichever is lower. There are 52 Miniratnas of this category at present

Category-II Miniratna

  • These are companies, which have made profits for the last three years continuously and have a positive net worth. They can incur capital expenditure upto Rs.300 crores or 50% of their net worth whichever is
  • There are presently 16 such category-II

The Maharatnas

  • Maharatna Scheme was introduced for Central Public Sector Enterprises (CPSEs), with effect from May 19, 2010, in order to empower mega CPSEs to

expand their operations and emerge as global giants.

  • The objective of the scheme is to delegate enhanced powers to the boards of identified large-sized Navrantna CPSEs, so as to facilitate expansion of their operations, both in domestic as well as global
  • CPSEs fulfilling the following criteria are eligible to be considered for grant of Maharatna status
  • Having Navratna status
  • Listed on the Indian stock exchange, with a minimum prescribed public shareholding under SEBI regulations.
  • An average annual turnover of more than ₹ 25000 crore during the last three
  • An average annual net worth of more than ₹ 15000 crore during the last three
  • An average annual net profit after tax of more than ₹ 5000 crore during the last three years.

– Significant global presence or international operations.

  • Then coveted status empowers the boards of these firms to take investment decisions up to

₹ 5000 crore as against the present ₹ 1000 crore limit for Navrantnas without seeking government approval.

  • The Maharatna firms would now be free to decide on investments up to 15% of their net worth in a project, limited to on absolute ceiling of ₹ 5000

List of Maharatna and Navratna CPSEs

Maharatna CPSEs

  • Oil and Natural Gas Corporation Limited (ONGC)
  • Indian Oil Corporation Limited (IOCL)
  • Steel Authority of India Limited (SAIL)
  • National Thermal Power Corporation Limited (NTPC)
  • Coal India Limited (CIL)
  • Bharat Heavy Electricals Limited (BHEL)
  • Gas Authority of India Limited (GAIL)

Navratna CPSEs

  • Bharat Electronics Limited
  • Bharat Petroleum Corporation Limited
  • Hindustan Aeronautics Limited
  • Hindustan Petroleum Corporation Limited
  • Mahanagar Telephone Nigam Limited
  • National Aluminium Company Limited
  • NMDC Limited
  • Oil India Limited
  • Power Finance   Corporation Limited
  • Power Grid Corporation of India Limited
  • Container Corporation of India Limited
  • Engineers India Limited
  • National Buildings Construction Corporation Limited
  • Rashtriya Ispat Nigam Limited
  • Rural Electrification Corporation Limited
  • Shipping Corporation    of    India Limited
  • Navyeli Lignite   Corporation Limited


  • The New Industrial Polilcy, 1991, envisaged disinvestment of a part of government shareholdings in selected PSUs as an important element of public sector reforms. In pursuit of this, the process of disinvestment began in 1991-92, with the sale of minority stakes in some
  • The primary aim of disinvestment in this phase was to raise non-inflationary finance to plug budgetary deficit. But, the focus of disinvestment shifted to strategic sale since 1999, in which substantial chunk of government equity is sold to private sector enterprises with an objective to improve the performance of the PSUs and to reorient public investment.

Objectives of Disinvestment

  • To transfer the resources from non-strategic sector to the strategic sector, which is much higher on social priority such as basic health, family welfare, primary education
  • To raise funds to cover up the

fiscal deficit of the government.

  • To improve efficiency of the public sector by inducing private initiative and
  • To enhance accountability of the PSUs by exposing them to the capital
  • To reduce political interference by imparting market orientation to the
  • Bring down government equity in all non-strategic PSUs to 26% or lower, if
  • Restructure and    revive potentially viable
  • Close down PSUs, which cannot be revived.
  • Fully protect the interest of workers.

Disinvestment vs Privatisation

Disinvestment refers to selling of equity of a PSU to a private organisation or to general public. Privatisation refers to providing for larger role for private capital and enterprise in the functioning of an economy. Privatisation is a wider term than disinvestment. Disinvestment is one of the means for achieving privatisation.

Privatisation may result from any of the following

  • Disinvestment
  • Denationalisation (i.e., complete sell off of a PSU)
  • Transfer of management and control of a PSU to the private sector
  • Dereservation of areas reserved for the public sector

The Disinvestment Process

  • In 1992, government constituted a committee on the disinvestment of shares in PSE’s headed by Dr
  1. Rangarajan to recommend on the policy of disinvestment. The committee recommended that upto 49% equity of the PSUs under the exclusive participation of the state could be disinvested but for rest of the industries disinvestment can be allowed upto 74%.
  • Further, the government constituted a five member Disinvestment Comission, under the chairmanship of Shri GV Ramakrishnan in August, 1996, to draw up a comprehensive

policy for the long term disinvestment programme.

  • The commission was mandated to advise the government on the extent, methodology, strategy and timing of
  • In May, 2004, the government adopted National Common Minimum Programme, which outlined the policy of the government with respect to the public sector as follows
  • In general, profit making

PSU’s will not be privatised.

  • In case of privatisation of profitable PSU’s government will retain at least 51% of the equity and the management control of the
  • Navratna PSUs will be retained under the public sector.
  • Chronically, loss-making companies will be either sold- off or closed, after all workers get their legitimate dues and compensation.
  • All privatisations will be considered on a transparent and consultative case-by-case basis.
  • A Board for Reconstruction of Public Sector Enterprises (BRPSE) to be
  • A National Investment Fund will be
  • On 25th Novemember, 2005, the government decided, in principle, to list large, profitable CPSEs on domestic stock exchanges and to selectively sell small portions of equity in listed, profitable CPSEs (other than Navratnas).

Present Disinvestment Policy

  • Budget 2011-12, announced the present policy on disinvestment. This included
    • Government not to bring its stake below 51%. That is government will retain the managerial control; and
    • Government will resort to IPO route as it will give the government                  access mechanism to retain control, public ownership and flexibility   in   further
  • Budget 2013-14, has targeted to raise ₹ 40000 crore through disinvestment in the fiscal year 2013-14.

National Investment Fund

  • In pursuance of the policy laid down in NCMP, the Central Government set up National Investment Fund in Novemeber, 2005. The proceeds from disinvestment of CPSUs will be channelized into NIF, which is to be maintained outside the Consolidated Fund of
  • NIF will be professionally managed to provide sustainable returns to the government, without depleting the corpus. Selected Public Sector Mutual Funds will be entrusted with the management of the corpus of NIF, 75% of the annual income of NIF will be used to finance selected social sector schemes, which promote education, health and
  • The residual 25% of the annual income of the fund will be used to meet the capital investment requirements of profitable and revivable CPSUs that yield adequate returns, in order to enlarge their capital base to finance expansion /
  • The following Public Sector Mutual Funds have been appointed initially as Fund Managers, to manage the funds of NIF.
  • UTI Assets Management Company Limited
  • SBI Funds Management Company (Private) Limited
  • Life Insurance Corporation, Asset Management Company Limited


  • Over the last five decades, the Small – Scale Industries (SSIs) sector has acquired place of prominence in the economy of the country. It has contributed significantly to the growth of the GDP, employment generation and
  • The sector now includes not jointly SSI units but also Small- Scale Service and Business Enterprises (SSSBEs) and is thus,

referred   to   as  the  small enterprises sector.

  • In India, Small – Scale Industries (SSIs) can be differentiated from the large-scale industries on the basis of three criteria viz volume of investment in the unit, annual turnover and number of workers employed.
  • In accordance with the provision of Micro, Small and Medium Enterprises Development (MSMED) Act, 2006, the Micro, Small and Medium Enterprises (MSMEs) are classified in two classes.
  • Manufacturing Enterprises The enterprises engaged in the manufacture or production of goods pertaining to any industry specified in the First Schedule to the Industries (Development and Regulation) Act, 1951. The Manufacturing Enterprise are defined in terms of investment in plant and
Manufacturing Sector
Investment in Plant and Machinery
Micro EnterprisesDoes not exceed ? 25 lakh
Small EnterprisesMore than ? 25 lakh, but does not exceed ? 5 crore
Medium EnterprisesMore than ? 5 crore, but does not exceed ? 10 crore
  • Service Enterprises The enterprises engaged in providing or rendering of services and are defined in terms of investment in equipment.
  • Enterprise
    Manufacturing Sector
    Investment in Plant and Machinery
    Micro EnterprisesDoes not exceed ? 25 lakh
    Small EnterprisesMore than ? 25 lakh, but does not exceed ? 5 crore
    Medium EnterprisesMore than ? 5 crore, but does not exceed ? 10 crore

Cottage and Village Industries Cottage Industries

  • This type of industry is run by family members on full or part time basis. It has negligible capital investment. There is hand made production using own tools and

Village Industries

  • The industries established in rural area having population below 10000 and having less than 15000 as fixed capital investment
  • Cottage industries have very little capital investment, while small industries can have up to ₹5 crore invested.
  • Cottage industries produce mostly traditional goods, while small industries produce many modern goods
  • Cottage industries are located in the homes of workers, while small industries are not located in homes.

Contribution of Small Scale Industries in Indian Economy

  • The Small Scale sector accounts for over 80% of the manufacturing sector’s

per worker are termed as village industries.

Differences between Cottage and Small Scale Industries

  • Cottage industries are mostly in rural areas, while small industries are mostly in urban
  • Cottage industries are run by family members, while small industries have hired
  • It contributed significantly

towards the economic growth of the nation, with over 39% of the industrial production.

  • The Small – scale sector accounts for over 34% of the total exports and about 45% of the manufacturing exports. Further, over 90% of exports of the SSIs consists of non- traditional items like sports

goods, readymade garments, processed foods, chemicals etc.

  • SSIs are conductive for the economic development of underdeveloped countries like India. Such industries are relatively labour intensive, so they make economical use of the scarce
  • Small scale industries are instrumental in reducing the inequalities in wealth. In these industries, capital is widely distributed in small quantities and the surplus of these industries is distributed among large number of
  • Small scale industries brings about regional dispersal of industries and alleviates regional imbalances.
  • Small-scale industries, make use of local resources including the capital and entrepreneurial skills, which would have remained unused for want of such
  • Small industry sector has performed exceedingly well and enabled the country to achieve a

wide  measure  of industrial growth and diversification.

Problems of Small Scale Industries

  • These industries are not able to get raw material of adequate quality. The raw material they get, is also high in
  • They are not able to get regular power
  • They are not able to get loans, since they cannot offer good security.
  • Due to old methods of production, the goods are many times of poor quality. They lack marketing support due to lack of funds.
  • Their cost of production is high due to expensive raw
  • They have mostly focussed on producing artistic goods, whose demand is limited and so production cannot be increased beyond a
  • They have to compete with large scale industries in many areas. Large industries are able to achieve low costs of production due to economies of

Government Measures to Promote Small Scale Industries

  • Government initiated several measures for the promotion of small scale and cottage industries immediately after independence. The importance of these industries was recognised in the very first Industrial Policy Resolution of 1948 and reiterated in all future industrial policy
  • Steps taken by the government for the development of these industries can be categorised as organisational, financial, fiscal, technical

Organisational measures

  • Establishment of Boards Government constituted several boards at all India level to provide an organisational structure, through which the promotional efforts were to be carried out. These boards include Cottage Industries Board, Handloom Board, Handicraft Board, Khadi and Village Industries Board,
  • Industries Estates The policy of setting up Industrial Estates was initiated in 1955, for the construction of factory premises and to provide basic facilities like power, water roads
  • District Industries Centre (DIC) The concept of DIC was introduced in the Industrial Policy Statement of 1977. This programme was initiated in 1979, to cater to all the requirements of small scale and village industries, under one

Financial Measures

  • Small Industries Development Fund (SIDF) It was set-up in 1986, to provide refinance (i.e., finance to the financial institutions expansion, modernisation, rehabilitation of SSIs.
  • National Equity Fund (NEF) It was set-up in 1987, to provide initial capital for setting up of new projects in small-scale sector in the form of equity (i.e., shares).
  • Single Window Scheme (SWS) It was introduced in

1988, to provide short-term as well as long term financial assistance to SSIs.

  • Small Industries Development Bank of India (SIDBI) It was established in October, 1989, by amalgamation of Small Industries Development Fund (SIDF) and Natural Equity Fund (NEF). SIDBI is the apex financial institution for small enterprises sector. It provides finance to SSI refinance assistance and coordinates the activities of other financial institutions for the provision, of credit to

Fiscal Measures

  • Small-scale enterprises having turnover, upto ₹ 1 crore are fully exempted from the excise
  • Concessional rate of custom duties are levied on import of certain kind of raw materials and components used by
  • Price and purchase preference is granted to    products manufactured in the Small-scale sector in government purchase programme.

Technical Measures

  • Small – scale Industries Development Organisation (SIDO) It was established in 1954. SIDO provides technical, managerial, economic and marketing assistance to SSIs through its network of extension centres and service
  • Council for Advancement of Rural Technology (CART) It was established in 1982, to provide technical assistance to rural industries.
  • Technology Development and Modernisation Fund (TDMF) It was set-up for the technological upgradation and modernisation of the export oriented

Schemes/Programmes for Small Industries

Rajiv Gandhi Udhyami Mitra Yojana

  • Under the scheme, the selected lead agencies i.e., Udyami Mitras are providing guidance and assistance to the potential entrepreneurs registered with them, in preparation of project report, arranging finance,

selection of technology, plant and machinery, marketing tie- ups with buyers, as well as obtaining various approvals, clearances and NOCs etc.

  • Udaymi Mitras are expected to assist the new entrepreneurs in the establishment and successful running of the enterprise for the first six
  • The scheme is beneficial to all potential first generation entrepreneurs, in all towns as well as rural areas, by encouraging establishment of new enterprises and thereby creating new job opportunities locally.
  • A Udyami Helpline (a Call Centre for MSMEs) with toll-free number 1800-180-6763 is in operation to provide information, support, guidance and assistance to first generation entrepreneurs as well as other existing

Credit Rating Scheme to Micro and Small Enterprises

  • National Small Industries Corporation (NSIC)   in

consultation with Credit Rating Agencies and India Bank’s Association has formulated a Performance and Credit Rating Scheme for Micro and Small Enterprises.

  • NSIC is the nodal agency for the implementation of the scheme. NSIC empanelled the leading credit rating agencies like CARE, CRISIL, Dun and Bradstreet, FITCH, ICRA, ONICRA and SME Rating Agency of India Limited (SMERA) to conduct the rating of interested Micro and Small Enterprises under the scheme.

National Manufacturing Competitiveness Programme

  • The National Manufacturing Competitiveness Programme (NMCP) for the MSMEs aims at enhancing the competitiveness of enterprise in this sector. There are 10 components of the NMCP, which have been approved and are available for MSMEs, These are
    • Lean Manufacturing Competitiveness    Scheme

(LMCS) for MSMEs.

  • Design Clinics Scheme for design expertise to MSMEs manufacturing
  • Marketing Assistance and Technology Upgradation Scheme for
  • Enabling manufacturing sector to be competitive through Quality Management Standards (QMS) and Quality Technology Tools (QTS).
  • Technology of Quality upgradation support for MSMEs.
  • Promotion of information and Communication Technology (ICT) in MSME
  • Setting up Mini Tool Room and Training Centres under PPP
  • Marketing Assistance/Support to MSEs (Bar Code).
  • Building Awareness on Intellectual Rights for MSMEs.
  • Scheme for Providing Support for “Entrepreneurial and Managerial Developments of SMEs through Incubators”.

Procurement Policy

  • Government has approved a public procurement policy for Micro   and   Small Enterprises, which mandates  that    Central Ministries/Departments/PSUs have to procure minimum 20% of their total annual purchases from MSEs. Out of this 20%, a share of 4% has to be earmarked for the MSEs owned by SC/ST entrepreneurs.
  • Central Ministries   / Departments / PSUs will prepare their annual plan for setting of goal of 20% procurement and will mention in their annual reports. The policy will help to promote MSEs by improving their market access and competitiveness  through increased participation by MSEs in government purchases and encouraging linkages between MSEs and large

Credit Linked Capital Subsidy Scheme for Micro and Small Enterprises

  • The scheme aims at facilitating technology up-gradation of Micro and Small Enterprises

(MSEs) by providing 15% capital subsidy  (limited  to  maximum  ₹ 15  Lakhs)  for  purchase  of  Plant and Machinery.

National Awards for MSMEs

  • These awards are in three categories: (a) Outstanding Entrepreneurs of Mico, Small and Medium Enterprises (Entrepreneurship, Research and Development and Quality Products), (b) Khadi and Village Industries and (c) Coir Industries. There are special awards for women and SC/ST entrepreneurs and banks for excellence in Micro and Small Enterprises

Marketing Assistance Scheme

  • The main objectives of Marketing Assistance Scheme are to enhance the marketing competitiveness of the Micro, Small and Medium Enterprises (MSMEs), to provide them a platform for interaction with the individual/institutional buyers, to update them with prevalent market scenario and to provide

them    a    forum    for    redressing their problems.

Reservation of items for SSIs

  • The policy to reserve certain items for the small-scale sector was introduced in 1967. It aims to promote the SSIs by protecting them  from competition with the large-scale units.
  • In April 1967, there were only 47 items in the reserved category, which were increased in several phases to 873 in 1984.

New Small Enterprise Policy, 1991

  • Government announced a separate industrial policy for the small enterprise sector on 6thAugust, 1991. It was titled as, “Policy Measures for Promoting and Strengthening Small, Tiny and Village Enterprises”.

Salient Features

  • The ceiling of investment for the ‘tiny sector’ was raised from ` 2 Lakh to ` 5
  • Large units including foreign firms were allowed to purchase

upto 24% equity (shares) of the small scale industries. Scope of tiny sector was enlarged to include all industry related service and business enterprises.

  • Introduction of a new legal form of business organisation, limited partnership. In this form, the liability of atleast one partner is unlimited whereas other partners have their liability limited to the invested

Current Policy on SSIs

  • The report of the Task Force on micro, small and medium enterprises, presented to the Honorable PM on 30th January, 2010, provides a roadmap for the development and promotion of MSMEs.
  • The detailed recommendations cover six major thematic areas, namely credit, marketing, labour, rehabilitation and exit policy, infrastructure, technology and skill development and taxation as also special measures for the North-Eastern region and Jammu and

Abid Hussain Committee Report

  • The Abid Hussain Committee is appointed by the Government of India to suggest measures to improve the performance of small scale industries. The committee submitted its report in January


  • The government defined the industrial sickness for the first time in the Sick industrial Companies (Special Provisions) Act, 1985. According to this act, a medium or large (i.e., non SSI) company was defined as sick if
  • It was registered for at least 7 years (later reduced to 5 years).
  • It incurred cash losses in the current year and the preceding year.
  • Its entire net worth (i.e., paid – up capital and reserves) was eroded.
  • A company is regarded, as weak or incipiently sick on the erosion of 50% of its peak net worth during any of preceding five

financial years. Industrial sickness has been covered in the Companies (Second Amendment) Act, 2002, and Companies Act, 2012.

Causes of Industrial Sickness

  • The causes of industries sickness can be classified into two categories i.e., internal and external

Internal Causes

  • Originate with the unit, so they can be controlled by the unit. These
  • Faults at  planning   and construction stage
  • Inappropriate plant    and machinery
  • Management problems
  • Entrepreneurial problems
  • Labour problems
  • Financial problems, etc

External Causes

  • Supposed to originate outside the unit, so are not under the control of the unit. Such factors include
  • Erratic supply of inputs
  • Power cuts
  • Demand and    credit constraints
  • Changes in    government policies, etc

Revival of Sick Units

Government Undertake the following Measures to revive the sick industrial

Industrial    Investment    Bank    of India (IIBI)

  • The government established the Industrial Reconstruction Corporation of India (IRCI) in 1971, as a company registered under the Companies Act. Its objective was to revive and rehabilitate the sick units by providing financial, managerial and technical
  • In 1985, IRCI was renamed as Industrial Reconstruction Bank of India (IRBI) and was converted into a statutory corporation. Further in 1997, the IRBI was transformed into a full- fledged development financial institution and rechristened as Industrial Investment Bank of India (IIBI).

Board for Industrial and Financial Reconstruction (BIFR)

  • The government set-up BIFR in 1987, under the Sick Industrial Companies (Special Provision) Act (SICA), 1985. The BIFR is an autonomous quasi-judicial body to take final decision regarding revival and rehabilitation or winding up of the sick
  • It is mandatory for a sick / weak unit to refer itself to the BIFR. On receipt of such reference, the board ascertains whether the company is indeed
  • If sickness is confirmed, the board may allow the company some time to make its net worth positive on its own, prepare revival and rehabilitation package or windup the
  • High interest rates and slower growth in household or retail credit resulted in slower growth in consumer
  • Industry is creating jobs, which have been relatively low- productivity jobs. As a result, per capita income in India has not benefited as much from inter- sectoral migration of workers out of

agriculture as other Asian countries have.


Corporate    Social    Responsibility (CSR)

  • According to the provision for Corporate Social Responsibility (CSR), every company have net wo0rth of ` 500 crore or more or turnover of ` 1000 crore or more or a net profit of ` 5 crore or more during any financial year is required to constitute a corporate social responsibility
  • The Corporate  Social Responsibility Committee will formulate a Corporate Social Responsibility
  • Such a company is required to spend at least 2% of the average net profits of the company made during the three immediately preceding financial years, in pursuance of its Corporate Social Responsibility

Index    of    Industrial    Production (IIP)

  • IIP is an index for measuring the level of industrial activity in the country. The all India IIP is a composite indicator that measures the short-term changes in the volume of production of a basket of industrial products during a given period with respect to that in a chosen base period.
  • It is complied and published monthly by the Central Statistics Office (CSO), with the time lag of six weeks from the reference month.
  • The Index of Industrial Production (IIP), with 2004-05 as base is the leading indicator for industrial performance in the country. Compiled on a monthly basis, the current IIP series based on 399 products/product groups is aggregated into three board groups of mining, manufacturing and electricity. The IIP as an index shows both the level of production and
  • The Central Statistics Office (CSO) of the Ministry of Statistics

and Programme Implementation (MOSPI) released the new series of the IIP with 2004-05, as its new base on June 10, 2011, replacing the IIP series with 1993-94 as base.

India’s Manufacturing Sector

  • The Eleventh Plan and Targeted growth in manufacturing at 10- 11%, but actual performance was only about 7%. It is a matter of concern that the manufacturing sector has not shared in the dynamism of the economy not just in the 11th Plan, but even in preceding plan periods. As a result, the share of the manufacturing sector in GDP is only 15% in India, compared with 34% in China and 40% in Thailand.
  • The slow pace of growth in the manufacturing sector at the stage of India’s development is not an acceptable Manufacturing must provide a large portion of the additional employment opportunities as opposed to agriculture, for India’s increasing number of youth.
  • The challenges to developing and implementing a cohesive manufacturing strategy
  • There is a multiplicity of ministries dealing with different aspects of industry e.g., commerce, labour, environment, science, finance etc. The states have a major role in facilitating the growth of manufacturing in terms of provision of infrastructure, management of various local regulations and managing labour related
  • Industry association lobbying for their members (often conflicting) interests are important
  • Other stakeholder groups, who must be involved in the consultations in a more

systematic and productive way are unions, land owners etc.

– There are many over-sight bodies and committees, perhaps too many. There is need to sharpen their roles and improve co-ordination amongst them.

National Manufacturing Plan as Suggested by the 12th Plan

  • India’s strategic objectives for the manufacturing sector in the next 15 years should be to bring about a quantitative and qualitative change through a set of policies and plans with the following five objectives.
    • Increase manufacturing sector growth to 12-14%, over the medium term to make it the engine of growth for the economy. The     2-4% differential over the medium term growth rate of overall economy   will enable manufacturing to contribute at least 25% of GDP by 2025.
    • Increase the rate of job creation in manufacturing to create 100 million additional jobs by the year 2025.

Emphasis should be given to creation of appropriate skill sets among the rural migrant and urban poor to make growth inclusive.

  • Increase domestic values addition and technological ‘depth’ in
  • Enhance global competitiveness of Indian manufacturing   through appropriate policy
    • Ensure sustainability of growth, particularly with regard to the environment.
    • The National Manufacturing Plan must have three components
  • Special focus on some sectors of manufacturing, which will enable the country to rapidly achieve its goals for manufacturing and strengthen the overall manufacturing sector. For each of these sectors, a long-term plan will be prepared by working groups with participation of the sectoral
  • An identification of the constraints that cut across manufacturing sectors;

implement policies to relieve these constraints and build capabilities.

– Active attention  to improving the processes of implementation.

Consultations between policy- makers and producers are required within each of the policy-areas.

National Manufacturing Policy (NMP) 2011

  • The major objectives of the National Manufacturing Policy are
    • to increase the sectoral share of manufacturing in GDP to at least 25% by the year 2022;
    • to increase the rate of job creation, so as to create 100 million additional jobs by the year 2022;
    • to enhance global competitiveness, domestic value addition, technological depth and environmental sustainability of growth;

Highlights of the National Manufacturing Policy

  • It will set-up National Investment and Manufacturing Zones

(NIMZ). The minimum land area of each NIMZ or greenfield integrated industrial townships with the modern infrastructure is to be 5000 hectares.

  • The first phase of the NIMZ will be established along the Delhi- Mumbai Industrial
  • The National Investment and Manufacturing Zone (NIMZ) proposed under the National Manufacturing Policy will be managed by a Special Purpose Vehicle SPV), headed by a government official and have experts, including those on environment.
  • The industrial townships will be self-governing and autonomous bodies. Single window clearance will be provided to improve the regulatory environment.
  • The Central Government will create the enabling policy framework, provide incentives for infrastructure development on a private – public partnership basis through appropriate financing instruments, while State Governments will identify

suitable land and be equity holders in the NIMZs.

  • The special purpose vehicle, which will administer the NIMZ will set up skill development centres on a build own and operate
  • Private sector will be given standards deduction of 150% of expenditure for skill development institutes.
  • With a view to protect the interests of labour in cases of closure of units, the policy has a mechanism of fund to insure the workers against such
  • The focus will also be on Green manufacturing. In this regard, a Technology Acquisition Fund will be set-up to acquire global technologies and build a patent pool especially for equipment manufacturing that seeks to reduce energy
  • Environmental clearances will continue to be given as per existing rules and regulations, but the Environment Ministry has agreed to give priority in processing cases from the manufacturing
  • The Environment Ministry will also designers officials from the State Pollution Control Board to ensure speedy


  • The NMP provides for the development of NIMZs as integrated industrial townships with state-of-the-art infrastructure and land use on the basis of zoning; clean and energy-efficient    technology; necessary social infrastructure; and skill development facilities to provide a productive environment to persons transiting from the primary sector to the secondary and tertiary

Delhi-Mumbai          Industrial Corridor Project (DMIC)

  • The DMIC is proposed to be developed on either side along the alignment of the 1483 km long Western Dedicated Rail Freight Corridor between Dadri (Uttar Pradesh) and Jawaharlal Nehru Port Trust (JNPT), Navi Mumbai. The project seeks to create a strong economic base with a globally competitive environment and state-of-the-art infrastructure to activate local commerce, enhance investments and attain        sustainable development.
  • A model industrial corridor of international standards is proposed to be developed with emphasis on expanding the manufacturing and services base and creating a ‘Global Manufacturing and Trading Hub’. The DMIC runs across the six states of Uttar Pradesh, Haryana, Madhya Pradesh, Rajasthan, Gujarat and Maharashtra and majority of projects in DMIC are envisaged to be implemented

through    public    private partnership.

  • The DMIC Development Corporation (DMICDC) was incorporated in January, 2008, for project development, coordination and implementation of the numerous projects in the DMIC.
  • Six investment regions and six industrial area are approved to be developed in Phase I of the project.


Iron and Steel Industry

  • ‘Steel was a symbol of strength and a portent of the glory of India of the future’- Jawaharlal
  • The first public-owned steel plant was Rourkela Integrated Steel Plant was set-up in 1954 with the help of German
  • Steel Authority of India Limited (SAIL) was set up in 1974 and was responsible for the development of the steel industry and for major inputs for the industry.
  • India is the fourth largest producer of the Crude Steel in the world after China, Japan and the USA in 2010. In 2009, India was ranked 3rd. India is the largest producer of Sponge Iron since 2002.

Cotton and Synthetic Textile Industry

  • It is the largest industry in India, accounting for about 20% of industrial output, provides employment to 20 million persons and contributes 33% to total export
  • The Indian textile industry is predominantly cotton based with 65%.
  • The organised textile industry comprises of (i) spinning mills;

(ii) coarse and medium composite mills and (iii) fine and superfine composite mills.

  • Average per capita consumption of cloth has increased steadily since eighties. It stood at 39 m in 2008-09.
  • Textile Export Promotion Council (TEXPROCIL) was established by

the government to strengthen and facilitate the textiles exports.

  • The Scheme for Integrated Textile Park (SITP) was launched in July 2005, merging two schemes, i.e., Apparel Parks for Export Scheme (APES) and Textile Centre Infrastructure Development Scheme (TCIDS).
  • In Global Textiles Exports, India now stands at 2nd
  • India’s share in Global Textiles has increased by 5% in the year 2013.

Jute Industry

  • Jute industry was started in 1885 and India is the largest producer and second largest exporter of jute in the
  • Jute Technology Mission was launched on 2nd June, 2006.
  • The revival package of National Jute Manufactures Corporation (NJMC) envisages operationalisation of three jute mills viz., Kinnison and Khardah in Paschim Banga and Rai Bahadur Hadrut Mill, Katihar (Bihar). Government has enacted Jute Packaging Materials

(Compulsory use in packing commodities) Act, 1997 to broaden the usage of jute.

Food Processing Industry

  • Food processing is one of the most heterogeneous sectors of manufacturing covering marine products dairy products, grain, meat products, fruits, vegetables, sugar, edible oils and beverages. This sector has, however, been one of the fastest growing segment in manufacturing in the current year contributing 27% to average industrial

Major schemes implemented by the Ministry of Food Processing Industries Mega Food Parks (MFOs)

  • Ten MFPs were approved in the first phase
  • Five MFPs were approved in the second
  • Proposals have been invited for additional 15
  • Each of these MFPs is likely to consist of 30-40 food-producing units in the

Sugar Industry

  • India is the largest producer of sugar in the world with a 22% share.
  • It is the second largest agro- based industry in the country. Statutory Minimum Price (SMP) of sugar is fixed by the government on   the recommendation of Commission for Agricultural Costs and Prices (CACP) and after consulting the State Governments, Association of Sugar Industry and cane growers.
  • Dual price mechanism with partial control is applied to sugar industry. Under this, the government fixed the ratio levy and free sale sugar quota in the ratio 28:72. The levy sugar is sold to consumers through fair price shops at lower price and free sale sugar quota is sold by sugar factories at higher prices in the open

Cement Industry

  • The foundation of stable Indian Cement Industry was laid in 1914, when the Indian Cement

Company Limited started manufacturing of cement at Porbandar in Gujarat.

  • India is the second largest producer of cement in the
  • The per-capita consumption of cement in India is just 68

Petrochemical Industry

  • The real thrust to this industry came with the establishment of Indian Petrochemical Corporation Limited at
  • Petrochemical industry mainly, comprises synthetic fibres, polymers, elastomers, synthetic detergents and performance plastics. The main source of feedstock and fuel to this industry are natural gas and
  • National Policy    on Petrochemicals was announced in 2007 with the objective of increasing investment, demand and achieve environmentally sustainable growth.

India Hydrocarbons Vision, 2025

  • To assure energy security by achieving self-reliance through increased indigenous production

and investment in equity oil abroad. To enhance quality of life by progressively improving product standards to ensure a cleaner and greener India.

  • To develop hydrocarbon sector as a globally competitive industry, which could be benchmarked against the best in the world through technology upgradation and capacity building in all facts of the industry. To have a free market and promote healthy competition among players and improve the customer
  • To ensure oil security for the country keeping in view strategic and defence

Fertilizer Industry

  • The first fertilizer industry was set-up in 1906 in Ranipat near Chennai.
  • India meets 85% of its requirement through indigenous production, but is largely import dependent for meeting the phosphorus and potassium fertilizer.
  • India is the third largest producer of fertilizer after China and USA

and second largest consumer after China.

  • NPK (Nitrogen, Phosphorus, Potassium) consumption ratio in 2008-09 was 6:2:1. The ideal ratio is 4:2:1.
  • Urea is the only fertilizer under statutory price
  • With effect from 1st April, 2010, Nutrients Based Subsidy (NBS) Policy is implemented. The nutrients covered are NPK and Sulphur.

Automotive Industry

  • India is the 2nd largest manufacturer of motorcycle and fifth largest manufacturer of commercial vehicles in the
  • In 2009, India was the 4th largest exporter of passenger cars after Japan, South Korea and Thailand.
  • Automotive industry was delicensed in July, 1991, however, passenger cars industry was delicensed in 1993. India is the largest manufactures of tractor in the
  • India is the 9th largest car manufacturer in the


  • New Economic Policy was announced in July 1991. main components of new economic policy are liberalisation, privatisation and globalisation (LPG) of the

Reasons for Economic Reforms

  • Mounting Fiscal Deficit
  • Adverse Balance of Payments
  • Fall in   Foreign   Exchange Reserves
  • Rise in Prices
  • International Pressures
  • Poor performances of Public Sector Enterprises


  • Liberalisation of the economy means freedom of the producing units from direct or physical controls by the

Measures taken for Liberalisation

  • With the exception of five industries, industrial licensing has been abolished for all other industries. In 2002, MRTP Act

has been abolished and in its place a much liberal Competition Act, 2002 has been enacted.

  • Under the policy of liberalisation, industries (which are not covered under industrial licensing) are free to expand and produce. They need no prior official
  • Investment limit of the small industries has been raised to ` 5 crore so as to enable them to introduce Investment limit of tiny industries or micro enterprises has also been increased to ` 25 lakh.
  • Under the policy of liberalisation, Indian industries will be free to buy machines and raw materials from abroad in order to expand and modernise
  • Earlier, for regulating foreign exchange transactions, government had enacted Foreign Exchange Regulation Act – FERA. This act was very restrictive in nature. It involved various checks and controls on transactions involving foreign
  • Following the economic liberalisation and changed

attitude of government towards foreign capital, FERA was replaced with Foreign Exchange Management Act- FEMA in the year 1999. The provisions of FEMA are liberal.


  • “Privatisation is the general process of involving the private sector in the ownership or operation of a state owned enterprise.” It implies parting with government ownership or management of the public sector enterprises.
  • It may happen in two
  • outright sale of the government enterprises to the private entrepreneurs
  • withdrawal of the government ownership and management from the mixed enterprises (the enterprises jointly owned and managed by the government and the private entrepreneurs)

Measures   Adopted   for Privatisation

  • Number of industries reserved for the public sector has been reduced from 17 to 3
  • Public sector industrial units are treated in the same way as sick industries of private sector. In this respect, Sick Industrial companies Act, 1985, has been amended in December, 1991.
  • With a view to improve the working of public sector enterprises, a system of MoU has been introduced. Under it, management of public sector enterprises will be given more freedom and they will be accountable for the
  • National Renewal Fund was established for protecting the interest of employees were offered Voluntary Retirement under this scheme. Upto March, 2009, more than 6 lakh employees had sought voluntary retirement from public sector units. This fund is even used for providing social security measures to retrenched employees of


  • Globalisation means integrating the economy of a country with the economies of other countries in an environment of free flow of goods and services across the borders.
  • It is a process, associated with increasing openness, growing economic inter-dependence and deepening economic integration with the world
  • Owing to globalisation, it was expected that capital and technology will flow from developed countries of the world into India. Accordingly, India would have access to the fruits of global

Measures   Adopted   for Globalisation

  • Under economic reforms, limit of foreign capital investment has been raised. In many industries, foreign direct investment to the extent of 100% has been allowed without any restriction and red- tapism.
  • To achieve the objective of globalisation, partial

convertibility of Indian rupee was allowed. It was in conformity with economic reforms.

  • This convertibility is valid for the following transactions
  • import and export of goods and services;
  • payment of  interest   or dividend on investment;
  • remittances to meet family expenses.
  • It is called partial convertibility because it does not cover capital transactions.
  • All restrictions and controls on foreign trade have been removed. Open competition has been encouraged. Administrative controls have also been minimised.
  • Custom duties and tariffs imposed on imports and exports are being reduced

UPSC Previous Year Questions:

  1. statements is/are correct regarding National Innovation Foundation- India (NIF)? (CSE 2015)
    1. NIF is an autonomous body of the Department   of   Science and Techonology under the Central
    2. NIF is   an   initiative   to strengthern        the                  highly advanced scientific research in India’s          premier scientific institutions in     collaboration with highly  advanced           foreign scientific

Select the correct answer using the codes given below.

  1. 1 only
  2. 2 only
  3. Both 1 and 2
  4. Neither 1 nor 2
  1. What is/ are the recent policy initiative(s) of Government of India to promote the growth of manufacturing sector?
    1. Setting up of National Investment and Manufacturing Zones
    2. Providing the benefit of ‘single window clearance’
    3. Establishing the Technology Acquisition and Develo pment Fund.

Select the correct answer using the codes given below:

  1. 1 only
  2. 2 and 3 only
  3. 1 and 3 only
  4. 1, 2 and 3
  1. Despite having large reserves of coal, why does India import millions of   tonnes   of   coal?   (CSE 2012)
    1. It is the policy of India to save its own coal reserves for future and import it from other countries for the present
    2. most of the power plants in India are coal based and they are not able to get sufficient applies of coal from within the country?
    3. Steel companies need large quantity of coking coal which has to be imported


  1. 1 only
  2. 2 and 3 only
  3. 1 and 3 only
  4. 1, 2 and 3
  1. In India the overall Index of Industrial Production, the Indices of Eighth Core Industries have combined weight of 90%. Which of the following are among those Eight Core Industries? (CSE 2012)
  1. Cement
  2. Fertilizers
  3. Natural Gas
  4. Refinery products
  5. Textiles

Select the correct answer using the codes given below:

  1. 1 and 5 only
  2. 2, 3 and 4 only
  3. 1, 2, 3 and 4 only
  4. d) 1, 2, 3, 4 and 5
  1. Why is the Government of India disinvesting its equity in the Central Public Sector Enterprises (CPSEs)? (CSE 2011)
    1. The Government intends to use the revenue earned from the disinvestment mainly to pay back the external debt.
    2. The Government no larger intends to retain the management control of the CPSEs.

Which    of    the    statements    given above is/are correct?

  1. a) 1 only b) 2 only
  2. c) Both 1 and 2 d) neither 1 nor 2
  1. With reference to the National Investment Fund to which the disinvestment proceeds are routed, consider the following statements: (CSE 2010)
    1. The assets in the National Investment Fund are managed by the Union Ministry of Finance.
  1. The National Investment Fund is to be maintained within the Consolidated Fund of
  2. Certain Asset Management Companies are appointed as the fund
  3. A certain proportion of annual income is used for financing select social

Which of the statement given above is/are correct?

  1. a) 1 and 2 b) 2 only
  2. c) 3 and 4 d) 3 only
  1. In India, which of the following is regulated by the forward Markets Commission?
  2. Currency Futures Trading
  3. Commodities Futures
  4. Equity Futures
  5. Both Commodities Futures and Financial Futures


  1. (a) 2. (d) 3. (b) 4. (c)  5. (d) 6. (c) 7. (b)
Share Socially