|9th Five Year Plan (Vol-2)||<< Back to Index
Industry and Minerals
(including Village, Small, Cottage, Agro and Food Processing Industries)
5.1 Fullfledged liberalisation, no doubt, started in 1991. But in the industrial sector, the Seventh Plan witnessed the commencement of liberalisation of policy measures in 1985 itself. The major ones were: delicensing of non-MRTP, non-FERA companies for 31 industry groups and MRTP/FERA companies in backward areas for 72 industry groups; raising the assets limit for exemption of companies from the purview of MRTP Act; exempting 83 industries under the MRTP Act for entry of dominant industries, etc. Some other changes were also made in the areas of licensing and procedures, import of technology, import of capital goods, allowing broad banding of products in a number of industries, etc. The Government also took some major decisions regarding the public sector reforms e.g. limiting the role of the public sector o strategic, hi-tech and essential infrastructure areas and gradually withdrawing from other areas. The Sick Industrial Companies Act (SICA) was extended to public enterprises in 1993 enabling sick public sector enterprises to be referred to the Board for Industrial & Financial Reconstruction (BIFR). Partial disinvestment was introduced in order to encourage wider public participation and a greater public accountability. Other reforms were also announced, such as professionalisation of the Boards of Directors of the public sector enterprises and evaluation of performance through Memoranda of Understanding (MOUs). These liberalisation measures and improvements in the infrastructure sector viz power, coal, etc., contributed to a significant growth in industrial production during the Seventh Plan period.
Review Of Policy Reforms and Major Initiatives
5.2 With the announcement of a new industrial policy in July 1991, a more comprehensive phase of policy reforms was ushered in with a view to consolidating the gains already achieved in the Seventh Plan and providing greater competitive stimulus to the domestic industry. This was followed by a series of reforms introduced in the fiscal, trade and foreign investment policies. With these reforms, the Indian economy in general, and industry in particular, was freed from controls and opened to international competition for integration of Indian economy with the world economy. The policy reforms continued through the Eighth Plan period and even subsequently.
5.3 A number of policy initiatives were undertaken during the Eighth Plan. The thrust of the new industrial policy was on substantial reduction in the scope of industrial licensing, simplification of procedures, rules and regulations, reforms in the Monopolies and Restrictive Trade Practices (MRTP) Act, reduction of areas reserved exclusively for the public sector, disinvestment of equity of selected public sector enterprises (PSEs), enhancing limits of foreign equity participation in domestic industrial undertakings, liberalisation of trade and exchange rate policies, rationalisation and reduction of customs and excise duties and personal and corporate income taxes, extension of the scope of MODVAT etc. The basic objectives are to promote growth, increase efficiency and international competitiveness.
5.4 The number of industries requiring industrial licences was gradually reduced to 14 by the end of the Eighth Plan; this has since been reduced to six. Only six industries are now reserved for public sector. Separate policy measures were announced for Export Oriented Units/Export Processing Zones and Technology Parks. Foreign Direct Investment Policy was further liberalised. In July 1996, a new list of nine industries was approved, where joint ventures upto 74 per cent of foreign equity would be cleared automatically in sectors like infrastructure,non-conventional energy, electronics, software and sectors having a significant export potential. The list of industries eligible for automatic approval upto 51 per cent foreign equity was also expanded from 35 to 48. Trade liberalisation has reduced effective protection to import substitution activities and encouraged export oriented activities based on comparative advantage. Thus, the policy initiatives have focussed on changing the basic orientation of industry from inward looking to outward orientation and closer linkage with the global economy. Highlights of policy reforms and major initiatives in the Eighth Plan are indicated in Box.
5.5 The Industrial Policy statement, 1991 envisaged disinvestment of a part of the Government holding in the share capital of selected public sector enterprises. The disinvestment of Government-owned equity constitutes a major step for improving the performance of PSEs, increasing public accountability and broad basing their management and ownership. A programme of partial disinvestment in public enterprises has been set in motion. In order to suggest modalities of disinvestment of PSEs, Disinvestment Commission was constituted in August, 1996. The Government had referred 43 PSEs to the Commission upto March 31, 1998. The Commission has since submitted eight Reports covering all the 43 PSEs. The Commission has recommended varying levels of disinvestment in some of the PSEs and strategic sale/trade, sale/closure and sale of assets in some of these PSEs. Some of its general recommendations relate to corporate governance of PSEs, professionalisation of management, setting up of a Disinvestment Fund, restructuring of PSEs, greater autonomy to PSEs, etc.
5.6 In pursuance of these recommendations of the Commission, the Government has decided to disinvest its equity at different levels in GAIL, IOC, MTNL, CONCOR, ITDC, Modern Food Industries ltd. and VSNL. The other enterprise specific recommendations of the Commission are at various stages of examination / implementation.
5.7 The Sick Industrial Companies Act (SICA), 1985 was amended in 1993 to bring the Public Sector Enterprises also within the ambit of the Board of Industrial and Financial Reconstruction (BIFR). Since its inception in May, 1987, 3148 references have been registered with BIFR upto March 31, 1998 under the Sick Industrial Companies Act (SICA) 1985 both in respect of private companies and public sector undertakings. The BIFR has approved/sanctioned 625 rehabilitation schemes and has recommended winding up in 579 cases. As many as 202 companies, including four PSEs, have been declared "no longer sick" on successful completion of the rehabilitation schemes sanctioned by the BIFR.
5.8 The National Renewal Fund (NRF) was announced by the Govt. of India, as a part of the new Industrial Policy, 1991 and was established on February 03, 1992 to protect the interests of the workers likely to be affected by technological upgradation and modernisation in the Indian industry. The aim of the NRF is to provide a social safety-net for labour. The Fund, to begin with, is of a non-statutory nature and may include contributions from, inter-alia, the Government of India, State Governments, financial institutions, insurance companies and industrial undertakings. The major objectives of the Fund include providing assistance to cover the costs of re-training and re-deployment of employees arising out of industrial restructuring, providing funds, wherever necessary, for compensation of employees affected by restructuring or closure of industrial units both in the public and private sectors and providing funds for employment generation schemes both in the organised and unorganised sectors. At present there are two approved schemes under NRF, namely, implementation of Voluntary Retirement Scheme (VRS) for central public sector undertakings and re-training scheme for rationalised workers in organised sector. A total of 2,17,489 workers had availed of the VRS as on 31.08.1997. The NRF has been strengthened with the setting up of Employee Resource Centres (ERC)/Employee Assistance Centres (EAC). Nearly 65,000 workers have been covered by the Employee Assistance Centres and as on 31.03.1997, 64,360 number of workers have been surveyed, 31,714 counselled, 23,946 re-trained and 6,273 re-deployed. The EAC network has been extended to additional locations where there is a substantial work outflow and presently, the scheme has a coverage of 49 locations spread over 16 States through 13 nodal agencies.
5.9 For promoting industrialisation of backward areas in an effective manner by way of developing the infrastructure, a Centrally sponsored scheme of Growth Centres was taken up during the Eighth Plan. As against the target of setting up 71 Growth Centres in all the States/Union Territories during the Eighth Plan period, 66 Growth Centres had been approved till 31st March, 1998. Work on the setting up of these Centres is in progress. A sum of Rs 253.75 crore was released as Central assistance for the approved Centres upto 31st March, 1998.
5.10 To promote industrialisation of specific hilly, remote and inaccessible areas such as Jammu & Kashmir, Himachal Pradesh, Sikkim, North-Eastern States, Andaman and Nicobar Islands, Lakshadweep, eight hill districts of Uttar Pradesh and Darjeeling district of West Bengal, the Government of India has extended the Transport Subsidy Scheme till 31st March, 2000. Since the inception of the scheme in 1971, a sum of Rs.360.77 crore had been re-imbursed by the Government of India till 31st March, 1998 as transport subsidy to States/Union Territories.
5.11 A new Drug Policy was announced in 1994 and Drug Price Control Order 1986 was amended in 1995 with the objective of giving more freedom to the private sector including fixing of prices of drugs. The number of drugs under price control was reduced from 143 to 72.
5.12 The Government announced a new National Mineral Policy in 1993 for non-fuel and non-atomic minerals and also further amended the Mines & Minerals (Regulation & Development) Act 1957 under which the mining industry was opened to private sector for 13 minerals, including direct foreign investment up to 50 per cent equity participation. Beyond this limit approvals would be given on case by case basis. The other important objective of the new National Mineral Policy is to give more powers to the States for mineral development. The mineral concession rules and procedures have also been simplified for the benefit of investors.
5.13 A number of initiatives were taken under the new R&D policy for strengthening technological capabilities of the Indian industries. A Technology Development Board was established in 1996 with the mandate to facilitate development of new technologies and assimilation and adaptation of imported technologies by providing catalytic support to industries and R&D institutions to work in partnership. A system of matching grants to R&D institutions showing commercial earnings through technology services was introduced in 1996.
5.14 The Prime Minister's Rozgar Yojana (PMRY) was launched on 2nd October, 1993. Under this scheme, self-employment opportunities to educated unemployed youths, both rural as well as urban, are being provided with financial assistance from banks/financial institutions upto Rs. 1 lakh, with a subsidy of 15 per cent of the project/venture cost, subject to a maximum of Rs.7,500, without collateral guarantee. During 1993-94, 31,800 beneficiaries were provided financial assistance by the banks. The number of loans sanctioned were 1,94,292 in 1994-95, 2,99,265 in 1995-96 and 2,18,327 in 1996-97. During 1997-98 and 1998-99 (upto September 1998) the number of loans sanctioned were 2,64,696 and 32,840 respectively.
5.15 With the aim of reducing the backlog of unemployment, a High Powered Committee (HPC) under the chairmanship of the then Prime Minister recommended in 1994-95, the creation of two million new job opportunities under the Khadi & Village Industries (KVI) sector during the remaining period of the Eighth Plan. The KVIC is implementing this programme at an estimated cost of Rs.5,600 crore, with one-third as budgetary support and the balance through loans from commercial banks.
5.16 A number of measures have been initiated for promoting the growth and development of the food processing sector. These include:
Performance of Industrial Sector
5.17 The industrial sector recorded an average annual compound growth rate of 4.6 per cent from 1970-71 to 1979-80 and 6.6 per cent from 1980-81 to 1989-90 (at constant prices). It achieved a growth rate of 8.5 per cent in the Seventh Plan (1986-86 to 1989-90). Thus the Seventh Plan witnessed a high growth rate of 8.5 per cent per annum compound. The main reason for the good performance was starting of the liberalisation process and a number of policy measures taken during the Plan period, inter-alia, including changes in the areas of licensing and procedures, import of technology, import of capital goods coupled with a reasonable rate of public investment and almost total protection to domestic industries from international competition through quantitative restrictions on imports as well as high tariff rates.
5.18 The Eighth Plan started in the backdrop of an impressive industrial growth during 1970s and 1980. Though the average annual growth rate of the industrial sector including mining, manufacturing and electricity generation during the Seventh Plan and the Annual Plan 1990-91 was 8.5 per cent, it was followed by a recession in the year 1990-91 when the average industrial growth rate achieved was just 0.6 per cent. Even so, the growth rate achieved during the Eighth Plan was encouraging as may be observed from Table 5.1.
Table 5.1 Sector-wise Growth Rates in Eighth Plan ----------------------------------------------------------- Year Manufacturing Mining Electricity General ----------------------------------------------------------- Eighth Plan 7.30 8.00 7.80 7.4 target 1992-93 2.18 0.53 5.02 2.3 1993-94 6.07 3.50 7.45 6.0 1994-95 9.80 7.47 8.48 9.4 1995-96 13.00 7.07 8.17 12.1 1996-97 8.00 1.20 3.80 6.8 --------------------------------------------------------- Overall Eighth 7.80 3.80 6.50 7.3 Plan ---------------------------------------------------------
5.19 The overall rate of industrial growth gradually increased from 2.3 per cent in 1992-93 to 6.0 per cent in 1993-94, 9.4 per cent in 1994-95 and 12.1 per cent in 1995-96. However, in 1996-97 it slumped to 7.1 per cent resulting in an average growth rate of 7.3 per cent - against a target of 7.4 per cent - during the Eighth Plan period. While manufacturing maintained an upward trend in growth from 1992-93 to 1995-96, mining and electricity generation maintained upward trend in growth only upto 1994-95 and declined thereafter. The year 1996-97 witnessed lower growth in all the sub-sectors of industry compared to previous years. On the whole, the annual growth rates in the Eighth Plan have been lower than those in the Seventh Plan in all the three sectors of industrial activity though the growth rate in the manufacturing sector has been higher than targeted.
Table - 5.2 Growth Rates of Selected Industry Groups (Base: 1980-81 = 100) ---------------------------------------------------------------- Code- Industry Group Weight % Growth Group --------------- Seventh Eighth Plan Plan Average Average ----------------------------------------------------------------- 1. 2. 3. 4. 5. ----------------------------------------------------------------- 20-21 Food Products 5.327 5.0 3 22 Beverage, Tobacco & Tobacco products. 1.571 -1.1 11 23 Cotton Textiles. 12.309 1.8 4 24 Jute, Hemp & Mesta Textiles. 1.999 -0.3 0 25 Textile products. (incl. wearing 0.817 11.8 0 apparel) 26 Wood & Wood products & 0.448 -2.5 4 Furniture & Fixtures. 27 Paper & Paper products. 3.235 6.7 9 28 Manufacture of Leather & Fur products.0.489 6.4 5 29 Manufacture of Rubber Plastic, 4.000 3.6 3 Petroleum & Coal Products. 30 Manufacture of Chemicals & 12.513 11.7 7 Chemical Products. 31 Manufacture of Non-metallic Minerals. 2.299 6.7 6 32 Basic Metals & Alloy industries. 9.802 6.1 10 33 Metal Products & Parts. 2.888 6.3 5 34 Machinery, Machine tools & parts. 6.240 6.0 6 35 Manufacture of Electrical Machinery. 5.779 25.8 8 36 Manufacture of Transport Equipment 6.386 6.5 13 & parts. 37 Miscellaneous Manufacturing Industries0.905 23.1 1 2-3 Manufacturing. 77.107 8.9 7 1 Mining & Quarrying 11.464 5.6 3 4 Electricity 11.429 9.3 6 ------------------------------------------------------------------ Overall index of industrial 100.000 8.5 7.3 production. ------------------------------------------------------------------
5.20 The Table 5.2 shows the average annual rate of growth recorded in industry groups at the two digit level during the Seventh and Eighth Plan periods.
5.21 The group- wise industrial growth rates indicate that Food Products, manufacture of chemicals and chemicals products, manufacture of electrical machinery and miscellaneous manufacturing industries recorded significantly lower growth rate during the Eighth Plan period than in the Seventh Plan. However, beverages, tobacco & tobacco products, cotton textiles, paper and paper products, basic metals and alloy industries, manufacture of transport equipment and parts achieved higher growth rates.
5.22 The most important reason for the lower growth rates during the Eighth Plan period as compared to the Seventh Plan period seems to be that the industrial sector, which had been almost totally protected from both internal as well as external competition during the previous four decades, was suddenly exposed to foreign competition through a significant liberalisation of imports and a drastic reduction in import duties. The industry was hardly prepared for it and the slow-down was only to be expected as is reflected in the very low growth rates realised in the first two years of the Eighth Plan. By far, the worst affected was the capital goods sector. First, the user sectors now had the option of importing the most modern capital goods and equipment which was often not available indigenously and which was imperative for enabling these sectors to modernise themselves and thus be in a position to meet the challenge of opening up of the economy. Second, with a progressive reduction in import duties, many of the user sectors preferred to adopt a `wait and watch' policy and postponed their investment plans. The capital goods sector with a weight of 16.4 percent in the Index of Industrial Production (IIP), recorded growth rates of (-)12.8percent, (-)0.1percent and (-)4.1 percent in 1991-92, 1992-93 and 1993-94 respectively. The capital goods sector took a number of steps like import of drawings and designs and upgradation of technology to meet this challenge assisted by a resumption of investment in a number of sectors, the capital goods sector was able to achieve a phenomenal growth of 24.8 per cent in 1994-95 and 17.8 per cent in 1995-96.
5.23 A number of industries were not able to meet external competition due to a variety of reasons, an important one being their historical background. For example, the development of copper industry in the country was taken up on strategic considerations even though the quality of domestic ore is very poor by international standards. The substantial import duty reduction effected in the last few years has been accompanied by a drastic fall in international prices of copper resulting in the only producer viz Hindustan Copper Ltd cutting down its production, incurring severe losses and not being in a position to make even essential renewals and replacements. The paper industry was unable to meet external competition, reasons for the same being non-availability of captive plantations to the industry. In the hydrocarbon sector also, a number of petroleum intermediates were imported while the domestic capacity languished. A number of commodities faced the problem of dumping. The machinery for investigation of dumping was not adequate to deal with the increasing number of cases.
5.24 A major reason for the slow-down of growth rate in the recent past has been the slow down of investment. As is well known, the pace of public investment came down rather significantly. The Government efforts to control the fiscal deficit resulted in a substantial decrease in the Plan expenditure which, coupled with a larger proportion of Plan investment going to sectors like rural development, poverty alleviation and other social sectors, considerably reduced the public investment. The rate of private investment also came down drastically due to (i) the capital market being in a bad shape, (ii) high cost of borrowings, and (iii) introduction of Minimum Alternate Tax (MAT). With considerable freedom being granted to the private sector in the pricing of issues, a large number of companies came into the market with unduly high rates of premium. Besides, some of the other steps taken by the Government, i.e. the changes in Badla system, affected investors' confidence adversely. As a result, even good companies were not able to raise funds from the capital market. With very high rates of interest prevailing in the market during the last couple of years, public limited companies have been in no position to come up with viable proposals and raise funds from any source.
5.25 Inadequate availability of infrastructure like power and transportation bottlenecks, inadequate handling facilities at ports, also affected industrial production. More importantly, the quality of infrastructure e.g. frequent interruptions of power, and unduly long handling times at ports added to the real costs of manufacture and thus affected competitiveness of the domestic industry. The addition to power capacity in the Eighth Plan was less than in the Seventh Plan even in absolute terms. With electricity generation having a weight of 11.43 percent in the index of industrial production, a low rate of growth of electricity generation also depressed the growth rate of industrial production. Second-hand machinery and large-scale imports of basic materials and intermediate goods and components due to anomalies in the tariff structure, uneconomic scales of domestic production in a number of cases and the inability of domestic industry to meet external competition by ensuring quality products, keeping to delivery schedule, etc., depressed industrial production. There was also low value-addition within the country, particularly in high growth sectors like automobiles and electronics due to increase in import of components and intermediates to a considerable extent. There were also a number of anomalies in the tariff structure such as in the case of fertilizer sector and refineries, where the finished capital goods enjoyed `zero' rate of import duty but the domestic manufacturers were subject to taxes and duties and import duties on intermediates and components.
5.26 This analysis of the industrial growth during the Eighth Five Year Plan is based on the Index of Industrial Production 1980-81. In May 1998, the Central Statistical Organisation revised the base year to 1993-94; a revised series of indices for the period April 1994 to October 1997 has been brought out, taking into account the changes in the industrial structure during this period; with these changes, there has been a slight change in the yearly industrial growth rates since 1994-95. A comparative position of the industrial growth rates based on 1980-81 and 1993-94 series is shown in Table 5.3.
Similarly, there has been some change in the growth rates in mining, manufacturing and electricity sub-sectors.
5.27 The growth in exports has been quite encouraging, especially in the initial years of the Eighth Plan An average annual compound growth rate of 13.1 per cent in dollar terms is estimated to have been achieved in the Eighth Plan as against the target of 13.6 per cent. Against the export target of US $ 33.5 billion for the terminal year of the Eighth Plan, the exports in 1996-97 were valued at US $ 33.1 billion. There has, however, been a slow-down in the export growth rate in the recent past due to a slow-down in international trade, melt-down of currencies of a number of South-East Asian countries and various non-tariff barriers being raised by many countries e.g. the ban on use of azo dyes, inflammability test on skirts in U.S.A., alleged use of child labour in carpet making, etc.
5.28 The number of Industrial Entrepreneurs Memoranda (IEM) and Letters of Intent (LOI) filed from 1991 to December, 1996 totalled 31,157 with overall investment intention of Rs.6,34,760 crore and estimated employment of 5.7 million. There has been a substantial growth in the assistance disbursed by the all-India financial institutions during this period. Foreign firms and Multi-National Corporations (MNCs) were showing keen interest in investing in India. The total number of foreign collaborations during 1991-1996 were 10,041 of which 5,434 proposals involved foreign direct investment (FDI) amounting to Rs.78,030 crore. Besides, more than 75 per cent of these foreign investments are in the priority sectors of core and infrastructure industries, capital goods and services. The actual inflow was around Rs.32,642 crore during this period.
5.29 The village & small industries (VSI) sector has been growing at the rate of about two to three percentage points higher than the large and medium industries sector. Today, it contributes more than 40 per cent of value-added in the manufacturing sector and 80 per cent of total employment in the industries sector. Its contribution to exports is significant and accounts for more than 40 per cent (both direct and indirect). The food processing industry has also recorded a good growth during the Eighth Plan period.
5.30 The implementation of the Prime Minister's Rozgar Yojana (PMRY) has been quite satisfactory but the implementation of the two million jobs programme of the KVIC has been unsatisfactory due to initial teething troubles and non-utilisation of credit from the consortia of banks by the KVIC and the States' Khadi and Village Industries Boards (KVIBs). During 1995-96, new jobs created under this programme were 1.5 lakh against the target of three lakh. The targets for 1996-97 and 1997-98 were kept at 3.5 lakh and 5.5 lakh respectively. In order to step up the pace of implementation, the KVIC is taking steps like (i) setting up of project appraisal cells (ii) adoption of project approach, (iii) formulation of bankable project profiles for the village industries sub-sector, (iv) laying more emphasis on creation of new jobs, (v) setting up of national projects in areas of leather, bee-keeping, food processing and (vi) implementing margin money scheme for village industries by involving nationalised banks intensively.
Performance of the Central Public Sector Enterprises
5.31 As on 31st March 1997, there were 242 Central public sector enterprises (PSEs) owned by the Government Of India with a total investment of Rs. 1,93,121 crore. Out of these, 238 were operational enterprises with an investment of Rs.1,89,141 crore and employees' strength of 20 lakh. Of these, 129 were profit-making and 104 were loss-making enterprises; 3 PSEs were neither making loss nor profit and six had not commenced operation. The profitability profile of the PSEs over the last decade is detailed in Statement-5.1.
5.32 For improving the performance of the PSEs a number of measures were taken during the Eighth Plan. The portfolio of public sector investments is continually reviewed with a view
to focussing the public sector on strategic, hi-tech and essential infrastructure and opening other areas selectively to the private sector. The Sick Industrial Companies Act, 1985 was amended for enabling referral of sick PSEs to BIFR for their revival/rehabilitation or closure as the case may be. A social security mechanism was created to protect the interests of the workers likely to be affected in the revival process. A part of the Government equity was disinvested for encouraging wider public participation and developing market-driven accountability. The Boards of Directors of PSEs were given more powers particularly for investment decisions and were made more professional. A system of Memorandum of Understanding (MOUs) was introduced to provide the managements of the PSEs with more autonomy and accountability. The Concept of Navratnas and Mini Ratnas for giving autonomy to PSEs was also introduced.
5.33 In general, the PSEs have responded well to the challenges of globalisation and the opening up of the economy. However, there have been some major problems. The mobilisation of internal and extra budgetary resources by the PSEs has been well below the level projected in the Eighth Plan. Coupled with the severe constraint in budgetary support that could be provided to the PSEs, this has led to a slow-down in investments and growth plans of the PSEs. This has also affected their plans for expansion, modernisation, upgradation of technology, diversification, etc. and thus their competitiveness.
State Level Public Enterprises
5.34 According to a survey carried out by the Institute of Public Enterprises, Hyderabad, (based on a little more than 50 per cent response), there were 885 State-level public enterprises (SLPEs), as on 31.3.1994, with an estimated investment of about Rs.31,848 crore. Number-wise, the maximum concentration of State-level public enterprises is in Kerala (104 units) followed by U.P. (74 units), Karnataka and Tamil Nadu (68 units each), Andhra Pradesh (59 units), Bihar (50 units), Gujarat (45 units), Maharashtra, Orissa and Rajasthan (43 units each). Tripura has the minimum number of units (two units).
5.35 Out of the total investment of Rs.31,848 crore, the maximum is in Maharashtra (Rs.7,069 crore) followed by Gujarat (Rs.4,473 crore), Andhra Pradesh (Rs.4,178 crore) and Karnataka (Rs.3,934 crore). At the bottom of the list is Mizoram with an investment of only Rs.4.56 crore (as on 31.3.1993).
5.36 There were 137 continuously profit-making SLPEs with Gujarat and U.P. (13 enterprises each), heading the list followed by Maharashtra (11 enterprises), Haryana, Karnataka and Punjab (nine enterprises each), Rajasthan (eight enterprises); and at the bottom of the list were Jammu & Kashmir (one unit) Meghalaya (two units) and Bihar (three units).
5.37 There were 41 continuously loss-making SLPEs with Kerala heading the list (eight units), followed by U.P. (five units), Assam, Maharashtra and Orissa (four units each). Andhra Pradesh, Bihar, Gujarat, Meghalaya, Punjab, Rajasthan, Tamil Nadu had one unit each in this category.
5.38 As many as 159 enterprises have shown mixed performance with Kerala and Karnataka leading the list (19 units each), followed by Maharashtra, Andhra Pradesh and Punjab (13 units each), Goa (12 units), U.P. and Haryana (10 units each), Orissa and Tamil Nadu (eight units each), Rajasthan (seven units), West Bengal (six units), and Himachal Pradesh (five units). At the bottom of the list are Tripura & M.P. (one unit each), Arunachal Pradesh, Bihar, Jammu & Kashmir, Manipur, Meghalaya (two units each), and Assam (four units).
5.39 The reasons for the industrial sickness of the SLPEs have been numerous and varied. The product mix or the range of services provided by these enterprises, the existence of a poor marketing organisation, cost structure of the enterprises were some of the important factors. The business culture in these enterprises also contributed in a substantial measure to their bad performance. Most of these enterprises are in the commercial sector and are engaged in the manufacture of scooters, textiles, electronics, power generating devices, detergents and chemicals, plywood products, rubber products, engineering goods, drugs & pharmaceuticals, etc.
5.40 All the states, by and large, have initiated reforms of their SLPEs. The central purpose of these reforms is to cut down public spending either to reduce the budgetary deficits by reducing budgetary support or to increase allocative efficiency. Efforts are also afoot to restructure as well as privatise the SLPEs which began in the late 1980s when the Auto Division of Hyderabad-based Allwyn Ltd. was hived off and handed over to Mahindra & Mahindra Ltd. and the Refrigerator Division was privatised with the sale of its assets to Voltas in 1994.
5.41 Some progress has been reported in the privatisation drive in the SLPEs. A number of SLPEs have been privatised in Goa. In Gujarat, the State Government had asked the Gujarat State Finance Commission to conduct a detailed exercise on privatisation of the SLPEs. The Commission made several recommendations on disinvestment and privatisation of the SLPEs and many companies have been identified for privatisation which include Gujarat Insecticides Ltd., Gujarat State Seeds Corporation, Gujarat State Handicrafts Corporation, Gujarat Maritime Board, Gujarat Agro Industries Corporation, Gujarat Industrial Development Corporation, Gujarat Small Industries Development Corporation, etc.
5.42 Haryana has made rapid strides towards privatisation. It has won remarkable appreciation on account of transparency in various transactions adopted in the entire process of restructuring its public enterprises. Haryana Concast Ltd. and Haryana Breweries, two large public enterprises have been privatised.
5.43 The Karnataka and Kerala Governments have drawn up ambitious programmes to privatise their public enterprises, particularly the loss-making ones. Some of the units listed for pivatisation in Karnataka include Karnataka Telecom Ltd. and Karnataka State Electronics Development Corporation Ltd. Kerala has identified enterprises for privatisation such as Kerala Minerals & Metals Ltd., Trivandrum Rubber Works Ltd., Scooters Kerala Ltd., Kerala State Salicylates & Chemicals Ltd., etc.
5.44 The Maharashtra Government has decided to privatise State Industrial Corporation of Maharashtra (SICOM) and Maharashtra Tourism Development Corporation. It has also developed one of the best voluntary retirement schemes in the country.
5.45 The Government of Orissa has taken some very meaningful measures in the direction of privatisation of its public enterprises. The SLPEs have been transferred to the private sector on the basis of outright sale, lease and management contracts. The Charge Chrome Division of Orissa Mining Corporation was sold to Tata Iron & Steel Company in 1991. The Baramba Cooperative Sugar Mills was handed over to Shakti Sugar Management Corporation of Tamil Nadu on management contract in 1991. The Baragarh Cooperative was handed over to Ponni Sugar Management Industry on a management contract in 1991. The East Coast Breweries was leased to United Breweries in 1993.
5.46 There are also similar examples of successful privatisation of State-level public enterprises from other States such as Punjab (three units), Rajasthan (two units privatised and two units closed down), Tamil Nadu (four units under restructuring), U.P. (15 sugar mills, 1 electronics unit and several textile mills have been listed for sale), West Bengal (13 electronic units partly/wholly privatised and 3 units listed for outright sale), Assam (five units listed for privatisation and Ashok Paper Mills has already been leased out on a long term basis to Sanghi Industries). In Bihar though a large possibility of privatisation exists, performance in this regard has not been satisfactory and no concrete steps have been taken for privatisation of the SLPEs in the State (only one unit, namely, Gavia Corporation was closed in late 1980s in view of its continuing dismal performance). In the North Eastern States, the progress in privatisation is reportedly slow. Meghalaya has, however, privatised the activities of its State Electricity Board.
5.47 Profitability profile of public sector enterprises is given in Statement 5.1
Outlays and Expenditure
5.48 Outlays and actual expenditure for industry and mineral projects in the central sector during the Eighth Plan period are given in Statement-5.2.
Outlook and Issues for the Ninth Plan
5.51 There has been a slow-down in the rate of industrial growth in the recent past. There are many reasons for this; these include slow pace of investment especially in infrastructural sectors, lack of demand, inadequate availability and poor quality of infrastructure, global recession leading to slow down in international trade, etc. Taking into account the prevailing environment and the measures taken to improve it, the target for industrial growth in the Ninth Plan has been set at 8.2 percent comprising 8.2 percent in manufacturing, 9.3 percent electricity generation and 7.2 percent in mining.
5.52 One of the major constraints faced by the industrial sector is inadequate availability of infrastructural support. Further, the poor quality of infrastructure e.g. frequent interruptions in power supply, transportation bottlenecks, communication problems, delays in handling cargo at ports, etc. is adding to the real costs of manufacture and thus affecting the competitiveness of domestic manufacturers and providers of services. These are also affecting exports adversely. Unless the existing infrastructural capabilities are strengthened adequately, the target for industrial growth at 8.2 per cent per annum and for export growth at 11.8 per cent per annum as envisaged in the Ninth Plan would be difficult to achieve With the opening up of the economy and globalisation, the importance of competitiveness and hence the importance of adequate availability and requisite quality of infrastructure cannot be over emphasised.
5.53 Indian industry has responded reasonably well to the challenge of liberalisation and opening up of the economy. There is a good awareness of the need to modernise and upgrade process technologies; plant and equipment; achieve economies of scale; improve product quality; and devote greater attention to research and development. Such positive responses to the challenges of market forces are resulting in improved competitiveness as well as increased exports. This process of adjustment needs to be continued and broadened. For instance, in the era of a liberalised economic environment, there is little justification for continuing with licensing in the case of coal. In the case of coal, partial delicensing has already been done by allowing captive coal mines for power generation. This process needs to be taken further to its logical conclusion. Delicensing of coal would lead to more efficient mining, greater attention to quality of coal and customer satisfaction and promote healthy development of the sector.
5.54 Sound investment and foreign trade policies play an important role in promoting and sustaining a high rate of growth as well as exports. Foreign direct investment (FDI) enhances technological strengths and economic efficiency of domestic production, besides augmenting domestic resource availability and reducing dependence on external borrowings. It also boosts exports and ensures a smooth and effective transition to a more open economy. The rate of foreign direct investment has started picking up in response to the improved policy environment. However, the country is not yet able to attract foreign direct investment commensurate with its potential. Many of the smaller countries in Asia as well as China are able to attract much larger inflows of foreign investment. It should be possible to achieve foreign direct investment of US $ 10 billion per annum in the next two to three years. In order to stimulate FDI inflows, the list of industries for which automatic approval upto 51 per cent foreign equity participation has been permitted will be suitably enlarged to cover, among others, mining and exploration services. Besides, this limit will be raised to 74 per cent. Foreign equity participation upto 100 per cent will be considered in selected sectors such as hotels, tourism etc.
5.55 The pace of development of backward areas continues to be a cause for concern. With the doing away of the system of licensing of industries and coming into play of market forces, the industries tend to gravitate towards already developed areas which provide better infrastructure, easier availability of skilled work- force and forward and backward linkages in terms of availability of raw materials and markets for products. Thus, the regional imbalances in industrial development may tend to increase. It is, therefore, imperative to take special measures to promote development of industries in backward areas.
5.56 The Growth Centres Scheme was initiated in the Eighth Plan to tackle the problem of regional imbalances in industrial development. However, the Scheme has not been able to make much headway during the Eighth Plan period and not a single Centre out of the 66 approved had become functional upto 31.3.1998; whereas substantial resources have been thinly spread over a large number of such Growth Centres. It is imperative to prioritise the efforts on the large number of Growth Centres under implementation, so that maximum benefits can be obtained from the investments in these Centres in the shortest possible time. As a rule, work on new Growth Centres should not be taken up. However, an exception would be made in the case of North-Eastern States and in very special cases. It is now proposed to split the Growth Centres in the North- Eastern States into two or more sub-Centres since a large area may not be available at one place; nor will there be enough takers for so many units at one location. Here again, it would be appropriate to concentrate on only one location in each of North- Eastern States and start work on the next sub-Centre only when the work on the first sub-Centre is nearing completion.
5.57 The approved funding pattern of the Growth Centres envisaged a contribution of Rs.10 crore as equity by the Centre, Rs.5 crore as equity by the concerned State, Rs.4 crore, including Rs.2 crore as equity from financial institutions, Rs.1 crore from Nationalised Banks and Rs.10 crore as market borrowings, giving a total of Rs.30 crore per Growth Centre. However, the financial institutions and banks have not been forthcoming to contribute their share even where they have appraised the project reports. Nor has it been possible to raise any worthwhile amounts as market borrowings. Against the Eighth Plan provision of Rs.50 crore by the Central Government for the Growth Centres Scheme as a whole, Rs.178.75 crore were actually provided during the Plan period. A revised financing pattern for the Growth Centres taking into account the problems being faced in the existing financing arrangement and the likely escalation in cost since the scheme was conceived in 1988, would need to be worked out and implemented at the earliest.
5.58 The North Eastern States have continued to remain industrially backward due to isolation of the region from the main centres of trade and industry, inadequate economic and physical infrastructure, small size of the regional market, low accessibility of the market outside the region, lack of entrepreneurs, difficult terrain conditions, etc. The development of the North Eastern Region would need special attention. A special package involving, among others, changes in the funding pattern of the Growth Centres and integrated infrastructure development centres, extension of transport subsidy scheme, strengthening of institutions concerned with entrepreneurship and human resources development etc., various physical concessions and incentives and specific measures for development of individual sub-sectors like sericulture, handicrafts, handlooms, etc has been announced under a new Industrial Policy for the North Eastern States. It is hoped that this package would help to spur industrial and economic development of the North Eastern Region and help remove the feeling of isolation of the region from the mainland.
5.59 The working of the BIFR has left much to be desired. First, the stage at which the sick industrial units are referred to the BIFR does not leave much scope for their revival. Second, the BIFR has been taking too long a time to come up with appropriate revival plans which, in most cases, only call for financial restructuring, conversion of loans into equity, waiver/ moratorium of interest on loans and sacrifices on the part of Central Government, State Governments, financial institutions and other Government agencies, etc. which is generally not acceptable to the concerned organisations. The technical content of the revival schemes does not get adequate attention. More importantly, it has not been possible to close down a single unit, whether in private or public sector, based on the BIFR's recommendation. The entire system and working of the BIFR, including the criteria for identification of industrial sickness and referring to the BIFR would have to be critically examined and modified suitably to make it an effective instrument for revival of sick industrial units.
5.60 Additionally, in the case of PSUs referred to the BIFR it involves repeated inter- ministerial consultations and multiple references to the Committee of Secretaries, the Group of Ministers, the Cabinet Committee on Economic Affairs, etc. In the meantime, the various creditors stop giving supplies to such units on credit and insist on cash payments while the Government does not provide adequate funds even for essential renewals and replacements. Thus, the working condition of the concerned PSU deteriorates rather sharply. The result is that in many instances, huge sums are being provided to non-viable, non- revivable units as non-Plan support, whereas many border-line units are not able to get even relatively small sums for maintaining their technological health in modernisation/ diversification to improve their competitiveness. It is imperative to devise appropriate alternative mechanism for sick public sector enterprises which involves a single point decision-making authority and includes technical expertise.
5.61 The National Renewal Fund (NRF) was set up in 1992 to protect the interests of the workers affected by industrial restructuring and provide a social safety net for the worker While the voluntary retirement component of the scheme is under implementation, the retraining and redeployment component of the scheme has not progressed as per the objectives set out for it due to operational problems relating to motivation of employees, their age profile,pecialisation, availability of proper institutional apparatus, etc. The scheme, therefore, would have to be recast through appropriate modifications to make it more effective and achieve the objectives for which NRF was set up.
5.62 The public sector enterprises (PSEs) can be divided broadly into three categories:
5.63 The first set of PSEs i.e those making good profits are limited in number and include all companies in the oil sector, Steel Authority of India Ltd (SAIL), Bharat Heavy Electricals Ltd (BHEL), Indian Petrochemicals Corporation Ltd (IPCL), etc In pursuance of the policy objective to make the public sector more efficient and competitive, the Central Government has decided to grant enhanced autonomy and delegation of powers to profit-making public sector enterprises in terms of incurring capital expenditure, establishing joint ventures and subsidiaries of strategic alliances and restructuring and implementation of schemes for HRD subject to meeting the eligibility criteria and other guidelines. Eleven PSEs have been categorised as Navratnas and granted freedom and powers in the above cited areas apart from enabling them to open offices in India and abroad, wind up posts upto Director level and raise loans from the domestic market for emerging as global giants capable of withstanding international competition. The eleven PSEs are Indian Oil Corporation Ltd (IOC), Hindustan Petroleum Corporation Ltd (HPCL)), Bharat Petroleum Corporation Ltd (BPCL), Oil & Natural Gas Commission (ONGC), Gas Authority of India Ltd (GAIL), Indian Petrochemicals Corporation Ltd (IPCL), Steel Authority of India Ltd (SAIL), Bharat Heavy Electricals Ltd (BHEL), National Thermal Power Corporation (NTPC), Videsh Sanchar Nigam Ltd (VSNL) and Mahanagar Telephone Nigam Ltd (MTNL).
5.64 Another 97 profit-making PSEs have been identified for grant of increased financial and managerial autonomy. These have been further divided into two categories - (Category-I) and (Category- II). Category-I covers those PSEs which had made profits in the last three years continuously, had pre-tax profit of Rs.30 crore or more in at least one of the three years and have a positive networth. Category-II covers those PSEs which have made profits in the last three years continuously and have a positive networth. The concerned administrative Ministry, however, will decide whether a public sector enterprise fulfils the requirements of category-I/ category-II company before granting it enhanced powers.
5.65 The second set of PSEs i.e those making marginal profits/losses, would need to be provided limited budgetary support and other assistance to enable them to stand on their own feet i.e independent of budgetary support, in the shortest period. It needs to be borne in mind that the public sector has been created and nurtured over the last four and a half decades of planned development as an effective instrument for development and meeting the socio- economic imperatives. The public sector has played an important role in meeting the objectives of growth, modernisation and self-reliance. However, problems have arisen in a number of cases primarily because of insufficient autonomy and lack of operational freedom on the one hand and multiplicity of objectives on the other. The result is that many of the PSEs have become procedure-oriented rather than result-oriented and are not able to respond adequately to the opening up of the economy and challenge of market forces. Such undertakings would need to be provided limited support and assistance to enable them to graduate to the first type of PSE, and to stand on their own in the shortest possible time.
5.66 In the third group, there are a number of enterprises which have been incurring huge losses for many years. Quite a few of these undertakings were originally in the private sector, became sick and were nationalised, primarily to protect the employment of their workers Many of these enterprises are not serving any socio-economic purpose. As a matter of fact, keeping them on huge doses of budgetary support - both Plan as well as non-Plan - is only resulting in sub-optimal usage of scarce resources. Such financial resources can be utilised much better in many other areas with much greater gains to the economy as a whole. In the case of units which are not serving any socio- economic purpose and cannot be revived at reasonable cost and in limited time frame, hard decisions would need to be taken.
5.67 The disinvestment of equity of the public sector enterprises (PSEs) was started primarily to subject the PSEs to the discipline of market forces and make their managements more professional and result-oriented. Unfortunately, so far, the disinvestment has been carried out mainly with a view to raising resources for reducing the fiscal deficit. Besides, for a variety of reasons, the progress of disinvestment has been rather slow. The Disinvestment Commission was set up in August 1996 to consider the various issues related to disinvestment programme and impart transparency to the system. Forty three PSEs were referred to the Commission for advice and recommendations. The Disinvestment Commission has submitted eight reports on reforms and restructuring of PSEs till August 1988 making specific recommendations on each of the forty-three PSEs. Three more PSEs, namely, MMTC, STC and PEC have been referred to the Commission subsequently.
5.68 A number of decisions have been taken on some of the general recommendations of the Commission made in its earlier reports such as granting greater autonomy to PSEs and induction of nonofficial directors. The Government has also decided to dismantle the administered price mechanism (APM) in respect of petroleum products in a phased manner as also recommended by the Disinvestment Commission in its third report that disinvestment in companies dealing in petroleum products should be preceded by an announcement of dismantling of the APM as it would help enhancement of their share values. It is imperative that decisions on other important issues such as creating a Disinvestment Fund, offering shares in the domestic retail market, revamping of Voluntary Retirement Scheme (VRS), Employee Pension-cum- Insurance Scheme, Counselling Service to those taking VRS and providing safeguards to officers and staff for bonafide commercial decisions are expedited. The Disinvestment Commission has suggested that the Government should set up a definite time-frame for taking action to eliminate further delays in implementation of the recommendations of the Commission.
5.69 The concept of Memorandum of Understanding (MOUs) between public sector undertakings and the Government was introduced to provide greater autonomy to the PSUs in day-to-day management, hold them accountable for the overall performance and maintain an arms's length relationship between the PSUs and the Government. However, in practice, these MOUs have tended to become one-sided with the Government hardly making any commitments on its part in the MOUs. Furthermore, the targets of production, profitability etc. mentioned in the MOUs needs a critical review and appropriate modifications to make it achieve the objectives for which this system was introduced.
5.70 In order to enable the institutions/organisations like National Institute of Design, National Productivity Council, etc. to play a more effective role and augment their operations, a system of block grants is proposed to be introduced to provide them limited additional support in the initial years of the Ninth Plan. It is expected that this will help to suitably strengthen these organisations in selected areas and augment their resource generation capabilities so that they can stand on their own feet in subsequent years.
5.71 It is generally believed that the machinery for investigations of anti-dumping is not adequate to deal with the increasing number of cases. The increasing work load may be gauged from the fact that the number of petitions increased from 3 in 1991-92 to 22 in 1996-97. Out of the 22 cases only 11 could be finalised. Adoption of anti-dumping measures has assumed significance following liberalisation of the Indian economy. Strict enforcement of these measures, therefore, would have to be an essential component of the import liberalisation programme in order to safeguard interests of the domestic industry.
5.72 It has become a practice for the State Governments to bring out their industrial policy guidelines to attract industrial investment into the States while the framework of the main policy guideline for industrial approval has been formulated by the Central Government, the State policies are sometimes not in conformity with the Central Government's policy guidelines. Further, unhealthy competition among the States in regard to offering of fiscal concessions and incentives for promotion of industrialisation may become counterproductive. There is a need to bring a greater degree of coordination between the Centre and the State Governments and between State Governments themselves regarding policy issues and fiscal concessions being offered by different States.
5.73 There appear to be a number of deficiencies in the existing system of retention pricing of fertilizers. First, there is no incentive for the fertilizer companies to optimise the capital cost of the plants. As a matter of fact, higher the capital cost of a plant, higher is the profit margin in absolute terms. Thus, there is a tendency on the part of fertilizer companies to `gold- plate' their capacity. Second, in the case of old plants, since the net block is extremely low and the retention price is based on the net worth, the returns are not adequate to maintain the plant in good technological health and carry out the necessary additions, modifications and replacements. Third, the operating norms are based on the best performance of the previous two years. This means that a unit, which has achieved excellent level of working, has to maintain it in order to be able to earn a reasonable return whereas a unit which has been working inefficiently continues to get a good profit margin in spite of higher consumption of inputs and energy. This is patently unfair. Fourth, the system does not provide enough incentive for continued improvements in technological norms and energy consumption. Fifth, in practice there are considerable delays in fixing the retention prices and payment of subsidy to the fertilizer companies, which adversely affects their ways and means position. It is, therefore, imperative to move away from the complex system of retention price system for individual plants.
5.74 The retention price-cum-subsidy scheme (RPS) was introduced with the objective of supplying fertilizers to farmers at affordable prices and at the same time ensuring a reasonable return on investment and promoting healthy development and growth of the domestic fertilizer industry. As elaborated above, a number of weaknesses of the existing RPS have become apparent. It would be better to separate the two objectives. The objective of facilitating healthy growth and development of fertilizer industry can best be achieved by subjecting it to competitive market forces. The second objective of making available fertilizers to the farmers at a reasonable price may be achieved through provision of a uniform subsidy to all fertilizer plants, taking into account the need to promote the use of fertilizers and the fiscal capacity of the Government. The amount of subsidy payable on different types of fertilizers may take into account the long run marginal cost of producing/importing such fertilizers on the one hand and ensuring optimum balance in the usage of different fertilizers on the other. So long as the petroleum products continue to be under administered price mechanism, the prices of feedstock would also need to be taken into account in determining the fertilizer prices payable to the manufacturers.
5.75 In other words, all the three types of fertilizers i.e nitrogen, phosphatic and potassic may be decontrolled, with the Government providing a flat rate of subsidy per unit of each type of fertilizer taking into account its fiscal capacity so as to achieve an optimum ratio in the consumption of different types of nutrients on the one hand and making available fertilizers to the farmers at a reasonable price on the other. Clear signals may be given to the domestic fertilizer industry that they should restructure, modernise, control costs and improve their competitiveness so as to be able to produce fertilizers at international prices at an early date.
5.76 Another major issue affecting fertilizer production is the lack of a feedstock policy. So far, the choice of feedstock for fertilizers has been influenced primarily by the availability of different feedstocks. In the early 1970s, naphtha emerged as the most important feedstock for nitrogenous fertilizers as against coke and coke oven gas used in the production of nitrogen in India before 1970s. After the oil crisis of 1973, naphtha prices rose sharply. This resulted in the use of fuel oil and coal as feedstock by the new fertilizer plants. Presently, natural gas is the preferred feedstock for production of ammonia and urea in India and elsewhere in the world. But it is scarce and not easily available. Therefore, new fertilizer units are still being based on naphtha as feedstock. The fertilizer units can be technology- wise flexible enough to switch over to natural gas or liquefied natural gas (LNG), which has also emerged as a competitive feedstock for production of nitrogenous fertilizers.
5.77 The cost of production of fertilizers is highly sensitive to the cost of feedstock. Fuel oil, LSHS and naphtha have been priced for industrial users at import parity prices. The price concession extended for the use of these petroleum products for fertilizer production has been withdrawn. The price of natural gas has been increased and linked to the international price of fuel oil with staggering ratio of parity price i.e. in the first year it will be 50 per cent of the fuel oil parity price, 65 per cent in the second year and 75 per cent in the third year. It will be reviewed after three years with a view to introducing 100 per cent fuel oil parity price from the fourth year onwards. The transportation cost on HBJ pipeline has also been increased from Rs.850 per 1000 cu. Mtr. to Rs.1150 per 1000 cu. Mtr. Today, LNG is the preferred feedstock for production of nitrogenous fertilizers. It has been estimated that the cost of imported LNG is lower than the likely delivered cost of imported naphtha to the consumers on HBJ pipeline. The fertilizer industry is beset with problems due to large differences in the cost of production when different feedstocks are used. The natural gas reserves are not sufficient to cater to the rising demand of the power, as well as the fertilizer sectors. There are bottlenecks with regard to storage and supply of LNG. The uncertainties regarding availability of different feedstocks and the prices thereof is a major problem facing the fertilizer industry. It is imperative to formulate and implement an appropriate feedstock policy so that the manufacturers can plan their capacity on a long-term basis.
5.78 With the coming into force of the Uruguay round of the General Agreement on Tariffs and Trade (GATT) and the World Trade Organisation (WTO), the textile importing countries have committed themselves to phase out the Multi-Fibre Arrangement (MFA) in 10 years beginning January 1995. This development is a mixed bag for developing countries, including India. As far as the impact of the MFA being phased out on the country's textile industry is concerned, it will have implications on both domestic and export front. The textile industry will have to gear itself to face competition from the producers of cheap quality cloth. The implications of the new trade regime under WTO would need to be worked out in right earnest at appropriate levels in order to face the new challenges successfully after 2005 A.D. For this long-term policies need to be adopted rightaway.
5.79 The TRIPS agreement under WTO is one of the main challenges in the area of knowledge and technology for Indian industry. The global regime represented by TRIPS severely restricts national autonomy. By enhancing the protection of intellectual property rights across-the-board, this regime has tilted the balance between the public interest, on the one hand, and the private interest of the inventor, on the other, excessively in favour of the latter. The challenge posed by the new global regime has been compounded by unilateral and arbitrary restrictions being placed by industrialised countries on transfer of technology on the specious ground of preventing proliferation of "dual use". This situation will have to be faced in a concerted manner both at the national and international levels. National laws will have to be suitably strengthened to withstand such unilateral restrictions. Gaps and ambiguities in the international regime will have to be availed of creatively to seek more favourable interpretations of its provisions. At the international level, a new initiative will have to be launched in concert with the developing countries to mitigate the rigours of the international regime and to secure a more favourable deal at the impending review of the TRIPS Agreement in the WTO. Further, research and development capabilities in general and industry- related in particular, would need to be strengthened. The industry-R&D linkage at present is not strong as in developed countries. While it is quite likely that the competitive market forces would throw up institutional mechanisms, including skills, for this linkage to get established, the State would intervene as a matter of policy and strategy, including adoption of comprehensive approach in research and development for creating competitive and dynamic industry-R&D linkages to meet the challenges of TRIPS.
5.80 Environmental pollution due to developmental activities has increasingly become the focus of concern, particularly due to the wide variety of emissions from the automobile and industrial activities. The Rio Conference held in June 1992 had adopted Agenda 21 to tackle the growing problem of environmental deterioration and its adverse consequences, inter-alia due to industrialisation. It has become necessary to keep in focus this concern while developing industries in the Ninth Plan. Therefore, new projects will be based on environmentally sound industrial- friendly technologies and the existing units would be upgraded and modernised inter-alia with the objective of achieving environment-friendly production from these units in the Ninth Plan. The present mechanism of environmental surveillance and monitoring industrial production would also be strengthened.
5.81 The small scale sector has shown considerable resilience and in-built strength. After the opening up of the economy, its growth rate has been about two to three percentage points higher than that of large and medium industries. The sector has matured and is in a position to make a much greater contribution to the national economy as well as to meet the competition from large industry, including multi-nationals. The SSI sector will be provided with necessary incentives and support, including making available credit to facilitate its growth and development leading to increased contribution to output, exports and employment generation.
5.82 In accordance with the recommendations of the Abid Hussain Committee, the definition of small scale sector will be broadened from Small Scale Industries to small scale enterprises (SSEs), which will include not only industrial enterprises but also business enterprises. Incentives, credit and promotional facilities would be made available to all SSEs. This would promote entrepreneurship, rapid growth of industrial and business ventures in small scale sector and thus, additional employment.
5.83 The small scale sector is presently producing about 8000 items, out of which 822, items are still reserved for production in the small scale sector. However, it has been observed that out of the reserved items, as many as 200 items are either not produced at all in the small scale sector or their production is insignificant. In the case of some reserved items, the present policy is only benefitting the existing large scale producers having "carry on business" licences by effectively shutting out competition, to the detriment of the consumer, without any benefit to the small scale sector. Besides, in the last few years, the growth of SSI sector in the nonreserved areas has been higher than in the reserved categories which is proof of the inherent strength and resilience of the small scale sector and its ability to respond to the challenge of market forces. Furthermore, out of these 822 items, about 600 items are allowed to be imported under OGL, which means that the SSI units have to face competition from multinational corporations and large units abroad, whereas large units in the country are not allowed to produce these items, thus preventing economic activity and employment within the country. De- reservation would also help a number of SSI units to upgrade their technology, improve the quality of their products, expand their scale of operations, and boost their exports as presently a number of export orders are being lost because of inability of domestic producers to supply the desired quantity in the required time-frame. Thus, there does not appear to be much of a justification for continued reservation of these items for production in the small scale sector. The biggest argument in favour of dereservation is that, if, at all, this is helping only a small percentage of units, whereas the policy framework should be supporting the entire SSI sector. The Abid Hussain Commitee has also recommended complete dereservation of the products, presently reserved for the small scale sector. However, it needs to be ensured that this does not cause any sudden dislocation and problems for the weak small scale units and an appropriate policy framework is provided, including phased dereservation to help small scale industries to sustain their growth. In the meantime, the list of products reserved for small scale sector will have to be continually reviewed and the investment limit for the small scale sector will have to be revised upwards periodically to take account of inflation and to enable the small scale sector to reap the economies of scale and effect upgradation of technology to withstand the emerging competition, particularly in the export market. The Government has enhanced the investment limit for tiny units from Rs.5.00 lakh to Rs.25 lakh. The investment limit for small scale units was also raised from Rs.60 lakh to Rs.300 lakh in December 1997 which is now contemplated to be reduced to Rs.100 lakh.
5.84 Perhaps, the biggest problem being faced by the small scale industries is inadequate avaiability of credit. The Nayak Committee had made a number of recommendations to help the SSI sector in this regard. Most of its recommendations have been accepted by the Reserve Bank of India. However, there is a need to closely monitor the implementation of these recommendations and see that they are implemented in letter and spirit. The financial institutions will be motivated to offer factoring services on a large scale to the small scale sector in addition to the present system of discounting bills. The non-banking financial companies (NBFCs) would need to be encouraged through suitable finacial incentives to provide/earmark enhanced loans/lending to the SSI units. Friends and relatives of SSI entrepreneurs could be given fiscal incentives at par with those investing in large units/public limited companies to lend to SSI units. The financial and management base of SFCs and SIDCs may be suitably strengthened to enable them to provide better services to the SSI sector. Banks/financial institutions may concentrate upon cluster approach and set up specialised branches in such clusters of SSI concentrations. Setting up Local Area Banks (LAB) by financially strong and better managed SSI associations would also help in making available adequate credit to the SSI units.
5.85 The Informal Group constituted by the Planning Commission to examine and recommend ways and means of increasing the availability of bank credit to SSIs and village and tiny units has recommended that the volume of credit available to SSI and village and tiny units should be in proportion to the contribution of SSI sector to the output of the manufacturing sector. The Reserve Bank of India should examine the feasibility of implementing this recommendation.
5.86 The Delayed Payments Act does not appear to have really helped the small scale industries. It is highly desirable to review this Act and make appropriate changes to ensure that it achieves the objectives for which it has been enacted.
5.87 The "consortium" concept for consumer items with approved quality standards would be more helpful to SSI units in marketing their consumer products. The State Industries Development Corporations (SIDCs), the National Small Industries Corporation (NSIC), the SSI associations, etc., may also be allowed to help the SSI units by setting up consortia of marketing agencies. Simultaneously, to improve the quality standards of SSI products, this sector may be provided quality testing facilities at the clusters of SSI concentrations. The SSI associations may be helped by providing one-time grant for setting up such quality testing facilities.
5.88 In the unorganised sector, provision of training, upgradation of skills and improvement in tool kits, equipment and production techniques would go a long way in increasing production, productivity and income levels of artisans, craftspersons weavers, spinners and workers, etc.
5.89 There is a vast potential to increase exports of the products of handlooms, handicrafts, khadi and village industries, wool (unorganised sector) and coir industry. Enhancement of design inputs, adoption of new production techniques and information about trends in export markets regarding products, utility aspects, prices, demand, etc, would help these sub- sectors to improve their performance and to achieve higher export targets.
5.90 There is an urgent need to improve the data base for the SSI sector. Involving SSI associations/units on a voluntary basis, setting up computer facilities and computer-based networks and encouraging SSI units to submit information on a voluntary basis regarding production, employment, flow of working capital, term loans and performance of units on a quarterly basis through their associations would help in this effort. The SSI units may be persuaded to provide such information regularly and may be assured that this information would not be used against them. The usefulness of this information in the preparation of suitable policy measures for the growth of the SSI sector cannot be over- emphasised.
5.91 India is the second largest producer of fruits and vegetables. However, only about one per cent of fruits and vegetables are processed in the country, as against 70 to 80 per cent in the developed countries. Besides, about 25 to 30 per cent of the produce perishes due to grossly inadequate storage and cold chain facilities. It is imperative to set up extensive cold chain facilities throughout the length and breadth of the country. Of late, there has been some interest on the part of multi-nationals to set up such facilities but this would need considerable policy support, fiscal concessions and other assistance to make the private sector come forward in a big way.
5.92 Many provisions of the food laws and their implementation strategy have created hurdles in the way of the growth and development of food processing industry and trade. Particularly, the Prevention of Food Adulteration Act and Rules has been a source of considerable harassment. The standards are unrealistic and there is more emphasis on policing than on prevention and even the definition of adulteration is defective. The various food laws would need to be reviewed and suitably modified at a very early date. Further, the quality of fruits and vegetables produced in the country is generally unsuitable for production of high quality processed products. There are also large variations in terms of quality, size of products, colour, taste, degree of maturity, etc. Proper grading and sorting facilities are almost non- existent. The farming of fruits and vegetables needs to be organised on a scientific basis and forward linkages with the food processing units need to be established so as to facilitate the growth and development of food processing industry.
5.93 Lack of quality control and testing facilities is another major constraint being faced by the food processing industry. As the industry is highly dispersed and many of the units are too small to afford individual testing facilities, the initiative for such facilities would have to be taken primarily by Industry Associations and other specialised agencies with the Government providing technical as well as financial support, especially in the initial stages.
5.94 The unhygienic and insanitary conditions under which slaughtering and processing of livestock as well as marine products take place pose important problem to this sector. Already there have been cases of exports of marine products having been rejected by certain countries on grounds of unhygienic processing and handling conditions. This is an area which needs urgent attention.
5.95 The packaging industry for processed foods is yet to develop as a result of which there is a gap in contemporary packaging of food products. The cost of packaging is also very high. Appropriate policy and fiscal measures are required to encourage scientific development of packaging industry which is a prerequisite for development of food processing industry and exports of processed foods.
5.96 Special efforts are required to rehabilitate and modernise flour milling units, rice hullers, pulse milling, oil extraction, etc. by providing credit and other facilities to improve yields and minimise wastages.
5.97 The experiment of "factory on wheels" being tried in Karnataka will be further developed and extended to other parts of the country so as to give a big boost to decentralised fruit processing industry.
Ninth Plan (1997-2002) - Sectoral Profile
Metallurgical and Mineral Industries
5.98 The metallurgical and mineral industries constitute the bedrock of industrial sector as they provide the basic raw materials for most of the industries. Up to the Seventh Plan, a significant progress was made in the development of mineral resources in the country which is amply depicted in the appreciation of mineral inventory. In the Eighth Plan, greater emphasis was laid on mineral exploration by adoption of improved technologies like remote sensing, geotechniques, etc., particularly for those minerals in which the resource base of the country is poor such as gold, diamond, nickel, tungsten, rock phosphate, sulphur, etc. keeping in view the time lag between identification of new deposits and enhancement of minerals' production.
5.99 As part of the liberalisation drive which commenced with the new industrial policy brought out in July 1991, the Mines and Minerals (Regulation & Development) Act, 1957 was amended in January 1994 and a new Mineral Policy was announced. With this, the mining sector was thrown open to the private sector including foreign direct investment. Further, the States were empowered to grant prospecting licences/mining leases without prior approval of the Central Government for minerals such as apatite and phosphatic ores, barytes, dolomite, gypsum, kyanite, magnesite, molybdenum, nickel, platinum, silver, and other precious metals, sillimanite, sulphur and its ores, tin, tungsten and vanadium ore. With this only 11 minerals are left (excepting atomic and fuel minerals), for which State Governments would require prior approval of the Central Government for giving licence for prospecting. These are asbestos, bauxite, chrome ore, copper, zinc, gold, iron ore, lead, limestone - except where it is used in kilns for manufacture of lime as building material-manganese ore and precious stones. The mining lease period has been increased to a maximum of 30 years and a minimum of 20 years. The prospecting period is also likewise increased from 2 to 3 years and further renewal up to a period not exceeding 5 years is allowed to facilitate more systematic and scientific prospecting and exploration for mineral deposits.
5.100 The restriction on equity holding by foreign nationals in a mining company has also been removed and the need to provide greater stability of tenure to lease holders has been recognised. The amendments would be of particular benefit to captive coal mines in the power sector - where a number of projects have been approved - and other mines attached to mineral processing industries like steel, cement, etc., where an assured supply of raw materials is essential. The period for which prospecting licences can be granted has been increased to three years and these licences can be renewed at the discretion of the State Governments so that the total period does not exceed five years. Besides, it has been provided that no appeal to the Central Government can be made for orders passed by the State Governments with regard to minor minerals. The State Governments have also been empowered to terminate leases of minor minerals without prior approval of the Central Government. The period before which a lease can lapse has also been increased from one year to two years. With these changes in the national Mineral Policy, more power has been transferred to State Governments for mineral development and administration.
5.101 Making available minerals at internationally competitive prices to consumers will be the policy objective in the Ninth Plan. The domestic mining industry will have to compete with imports as no protection will be available except what is permitted within the world trade regime through the fiscal policy. The private sector will play a greater role in mineral development and production in the Ninth Plan. Many joint ventures, including with foreign parties, are expected to come up. As a matter of strategic intervention by the Government in the new economic environment, the dynamism of policies, various rules, procedures and enactments will be maintained, apart from promoting exploration for scarce minerals.
5.102 Iron ore constitutes one of the major items of export of the country. The production of iron ore recorded an average annual compound growth rate of 5.6 per cent during the period 1950-51 to 1995-96, comprising 12.5 per cent during the 1950s, 6.2 per cent during the 1960s, 2.9 per cent during the 1970s and 2.8 per cent during the period 1980-81 to 1995-96. The production target set for the terminal year of the Eight Plan (1996-97) was 72 million tonnes, consisting of 32 million tonnes for exports and 40 million tonnes for domestic consumption. This target by and large has been realised. The reserves of high grade iron ore in the country are limited and, therefore, it is necessary to carry out extensive exploration for establishing more reserves and at the same time ensuring conservation of high grade minerals by blending with low grade ores. As a matter of policy, only low and medium grade ores, fines and temporary surpluses of high grade iron ore (+ 67 per cent iron content) particularly from Bailadila (M.P.) should be exported in the Ninth Plan and beyond.
5.103 A production target of 100 million tonnes of iron ore has been set for 2001-02, out of which, export target is placed at around 32-35 million tonnes. The production capacity of iron ore in the country is about 107 million tonnes, comprising 39.56 million tonnes of lumps, 54.48 million tonnes of fines, 4 million tonnes of concentrates and 9.25 million tonnes of pellets. In order to meet the production target, projects already identified, particularly in the public sector such as 10 & 11-A and 11-B mining projects at Bailadila (M.P), will be completed in the Ninth Plan. Research and development efforts will be intensified for developing new technologies to make Indian steel industry internationally competitive as well as utilise more and more iron ore fines in the production of steel as a measure of conservation of iron ore.
Iron & Steel
5.104 A production target of 22.80 million tonnes of finished steel was set for 1996-97, the terminal year of the Eighth Plan. The actual production was around 22.72 million tonnes. In 1996-97, the actual production of hot metal, crude steel, saleable steel and pig iron from integrated steel plants in the country was 18.64 million tonnes, 16,15 million tonnes, 14.14 million tonnes and 1.72 million tonnes respectively. The demand for 1996-97 was estimated at 24 million tonnes and the actual consumption was around 22.12 million tonnes with imports and exports of the order of 1.56 and 1.62 million tonnes respectively during the year.
5.105 The secondary steel producers contributed about 12.18 million tonnes of finished steel in 1996-97 as compared to 6.79 million tonnes in 1992-93. The main integrated steel plants contributed about 10.54 million tonnes of finished steel in 1996-97 as compared to 8.41 million tonnes in 1992-93.
5.106 Thus, major augmentation in the finished steel capacity was in the private sector. There was a marginal shortfall from the target in the production of finished steel. The growth rate of domestic consumption of finished steel at 4.00 per cent was, however, lower than the Plan estimate of 6.67 per cent during 1996-97.
5.107 The domestic production of finished steel from all sources is estimated to be around 39 million tonnes during 2001-02, the terminal year of the Ninth Plan and around 58 million tonnes in 2006-07, the terminal year of the Tenth Plan. Out of this, domestic consumption would be around 33 million tonnes, leaving a net exportable surplus of around 6 million tonnes during 2001-02. The corresponding figures for 2006-07 would be 49 million tonnes and 9 million tonnes, respectively. Thus, the future thrust would be on producing finished steel not only for the domestic market but also for export. The steel consumption is anticipated to grow at an average annual rate of 8.85 per cent in the Ninth Plan and at 8.30 per cent in the Tenth Plan.
5.108 Bhilai and Bokaro Steel Plants of Steel Authority of India Ltd (SAIL) achieved the production targets set for the Eighth Plan, but Durgapur and Rourkela Steel Plants could not achieve the targets due to delays in completion of modernisation projects and slower-than-planned build-up of production from these modernisations. SAIL's production fell short of the Eighth Plan target because of this reason.
5.109 While the expansions of Bhilai and Bokaro Steel Plants of SAIL have since been completed, modernisation of Durgapur Steel Plant (DSP) and Rourkela Steel Plant (RSP) has been delayed. Several new schemes such as automation of blast furnaces and modernisation of rolling mills, intering plants, coke oven batteries, oxygen plants, etc., were taken up for implementation by SAIL in the Eighth Plan. With these projects becoming fully operational in the early Ninth Plan, SAIL's physical and financial performance would improve further.
5.110 SAIL raised an amount of US $ 125 million during the Eighth Plan period through Global Depository Receipts (GDRs) mainly for financing its Plan programmes. The response to the issue was very encouraging. The issue was widely distributed to over 100 international institutional investors spread over 15 countries and listed at London Stock Exchange. Under the policy of disinvestment, SAIL's shares were also disinvested. The equity structure of SAIL by the end of the Eighth Plan was : Government of India's 85.82 per cent, Financial Institutions 9.35 per cent, GDRs 3.5 per cent, individuals 0.43 per cent, foreign institutional investors 0.11 per cent and domestic companies 0.09 per cent.
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