Industrial Policy, Objectives and Industrial Climate

By: EconomyWatch   Date: 29 June 2010

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Industrial policy of a nation is the true determinant of foreign investment as well as domestic investment. Objective of the Industrial policy should be for bringing higher growth and prosperity for a country.

Objectives of the Industrial Policy
  • Maintaining a sustained growth in productivity;
  • Enhancing gainful employment;
  • Achieving optimal utilisation of human resources;
  • Attaining international competitiveness and
  • Transforming the country into a major partner and player in the globa arena.

Policy focus

  • Deregulating Indian industry;
  • Allowing the industry freedom and flexibility in responding to market forces and
  • Providing a policy regime that facilitates and fosters growth of Indian industry.

Following are some important policy measures announced by the Ministry of Finance, Department of Industrial policy to pursue the above objectives.

1. Liberalisation of Industrial Licensing Policy At present, only six industries are under compulsory licensing mainly on account of environmental, safety and strategic considerations. Similarly, there are only three industries reserved for the public sector.

2. Introduction of Industrial Entrepreneurs' Memorandum(IEM) Industries not requiring compulsory licensing are to file an Industrial Entrepreneurs' Memorandum (IEM) to the Secretariat for Industrial Assistance (SIA). No industrial approval is required for such exempted industries. Amendments are also allowed to IEM proposals filed after 1.7.1998.


3. Liberalisation of the Location Policy A significantly amended locational policy in tune with the liberlised licensing policy is in place. No industrial approval is required from the Government for locations not falling within 25 kms of the periphery of cities having a population of more than one million except for those industries where industrial licensing is compulsory. Non-polluting industries such as electronics, computer software and printing can be located within 25 kms of the periphery of cities with more than one million population. Permission to other industries is granted in such locations only if they are located in an industrial area so designated prior to 25.7.91. Zoning and land use regulations as well as environmental legislations have to be followed.

4. Policy for Small Scale A differential investment limit has been adopted since 9th October 2001 for 41 reserved items where the investment limit upto rupees five crore is prescribed for qualifying as a small scale unit. The investment limit for tiny units is Rs. 25 lakhs.
749 items are reserved for manufacture in the small scale sector. All undertakings other than the small scale industrial undertakings engaged in the manufacture of items reserved for manufacture in the small scale sector are required to obtain an industrial licence and undertake an export obligation of 50% of the annual production. This condition of licensing is, however, not applicable to those undertakings operating under 100% Export Oriented Undertakings Scheme, the Export Processing Zone (EPZ) or the Special Economic Zone Schemes (SEZs).

5. Non-Resident Indians Scheme The general policy and facilities for Foreign Direct Investment as available to foreign investors/company are fully applicable to NRIs as well. In addition, Government has extended some concessions specially for NRIs and overseas corporate bodies having more than 60% stake by the NRIs. These inter-alia includes (i) NRI/OCB investment in the real estate and housing sectors upto 100% and (ii) NRI/OCB investment in domestic airlines sector upto 100%.
NRI/OCBs are also allowed to invest upto 100% equity on non-repatriation basis in all activities except for a small negative list. Apart from this, NRI/OCBs are also allowed to invest on repatriation/non-repatriation under the portfolio investment scheme.

6. Electronic Hardware Technology Park (EHTP)/Software Technology Park (STP) schemeFor building up strong electronics industry and with a view to enhancing export, two schemes viz. Electronic Hardware Technology Park (EHTP) and Software Technology Park (STP) are in operation. Under EHTP/STP scheme, the inputs are allowed to be procured free of duties.
The Directors of STPs have powers to approved fresh STP/EHTP proposals and also grand post-approval amendment in repsect of EHTP/STP projects as have been given to the Development Commissioners of Export Processing Zones in the case of Export Oriented Units. All other application for setting up projects under these schemes, are considered by the Inter-Ministerial Standing Committee (IMSC) Chaired by Secretary (Information Technology). The IMSC is serviced by the SIA.

7. Policy for Foreign Direct Investment (FDI)The Department has put in place a liberal and transparent foreign investment regime where most activities are opened to foreign investment on automatic route without any limit on the extent of foreign ownership. Some of the recent initiatives taken to further liberalise the FDI regime, inter alia, include opening up of sectors such as Insurance (upto 26%); development of integrated townships (upto 100%); defence industry (upto 26%); tea plantation (utp 100% subject to divestment of 26% within five years to FDI); Encenhancement of FDI limits in private sector banking, allowing FDI up to 100% under the automatic route for most manufacturing activities in SEZs; opening up B2B e-commerce; Internet Service Providers (ISPs) without Gateways; electronic mail and voice mail to 100% foreign investment subject to 26% divestment condition; etc.
The Department has also strengthened investment facilitation measures through Foreign Investment Implementation Authority (FIIA).

CURRENT INDUSTRIAL PERFORMANCEThe industrial sector has shown a sustained increase during the fiscal year 2003-04. the overall growth in industrial production, as measured by the index of industrial production (IIP) has increased from 2.7% in 2001-02 to 5.7% in 2002-03. further, it grew by 6/.9% during April- March, 2003-04.

SECTORAL INDUSTRIAL GROWTH (%) PERIODMINING &QUARRYINGMANUFACTURINGELECTRICITYOVERALL(WEIGHT)(10.47)(79.36)(10.17)(100.00)1997-986.96.76.66.7 1998-99-0.84.46.54.11999-001.07.17.36.7 2000-012.85.34.05.0 2001-021.22.93.12.72002-035.86.03.25.72003-045.17.25.06.9

COMPARATIVE GROWTH RATES FOR SIX INDUSTRIAL INDUSTRIES (%)
Base Year-1993-94=100
SECTOR (in IIP)Weight1997-981998-991999-002000-012001-022002-032003-04Electricity Generation10.176.6.6.67.23.93.13.25.0(a) Hydel 8.511.1-2.5-7.6-0.7-13.715.6(b) Thermal Nuclear 6.25.79.37.42.56.23.5Coal3.223.6-2.13.13.54.24.65.1Finished Steel5.136.31.415.06.43.610.16.9Crude Petroleum4.173.0-3.4-2.41.5-1.23.21.0Petroleum Refinery Products2.003.75.225.420.33.74.98.2Cement1.999.15.714.2-.0.97.48.86.1Overall26.685.72.89.15.13.25.65.4

INVESTMENT CLIMATE
Due to many positive developments in the Indian Economy have further improved the investment climate of the country. The overall growth in GDP as per CSO in real terms is 8.2%. in 2003-04. During April-March 2003-04,growth rate in industrial output was 6.9% against 5.7% in corresponding period in previous year.
Further surge in foreign exchange reserves, which not only strengthens India's external sector, is also a source of confidence to prospective foreign investors. The soft interest rate is helping the industry to improve its competitiveness.

Investments y Foreign Institutional Investors (FIIs) has shown a significant increase on account of economic recovery. According to data published in the RBI Bulletin of May 2004, there was an inflow of FII investment in Dollar terms of US $9947 million during 2003-04 against US $562 million in the corresponding period last year.

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