In order to solve economic problems of our country, the government took several steps including control by the State of certain industries, central planning and reduced importance of the private sector. The main objectives of India’s development plans were:
a) Initiate rapid economic growth to raise the standard of living, reduce unemployment and poverty;
b) Become self-reliant and set up a strong industrial base with emphasis on heavy and basic industries;
c) Reduce inequalities of income and wealth;
d) Adopt a socialist pattern of development based on equality and prevent exploitation of man by man.
As a part of economic reforms, the Government of India announced a new industrial policy in July 1991. The broad features of this policy were as follows:
a) The Government reduced the number of industries under compulsory licensing to six.
b) Policy towards foreign capital was liberalized. The share of foreign equity participation was increased to 51% and in many activities 100 per cent Foreign Direct Investment (FDI) was permitted.
c) Government will encourage foreign trading companies to assist Indian exporters in export activities.
d) Foreign Investment Promotion Board (FIPB) was set up to promote and channelise foreign investment in India.
e) Automatic permission was now granted for technology agreements with foreign companies.
f) Relaxation of MRTP Act (Monopolies and Restrictive Practices Act) which has almost been rendered non-functional.
g) Dilution of foreign exchange regulation act (FERA) making rupee fully convertible on trade account.
h) Disinvestment was carried out in case of many public sector industrial enterprises incurring heavy losses.
i) Abolition of wealth tax on shares.
j) General reduction in customs duties.
k) Provide strength to those public sector enterprises which fall in reserved areas of operation or in high priority areas.
l) Constitution of special boards to negotiate with foreign firms for large investments in the development of industries and import of technology.
Liberalization, Privatisation and Globalization
The economic reforms that were introduced were aimed at liberalizing the Indian business and industry from all unnecessary controls and restrictions. They indicate the end of the license-permit-quota raj. Liberalization of the Indian industry has taken place with respect to:
a) Abolishing licensing requirement in most of the industries except a short list,
b) Freedom in deciding the scale of business activities i.e., no restrictions on expansion or contraction of business activities,
c) Removal of restrictions on the movement of goods and services,
d) Freedom in fixing the prices of goods services,
e) Reduction in tax rates and lifting of unnecessary controls over the economy,
f) Simplifying procedures for imports and experts, and
g) Making it easier to attract foreign capital and technology to India.
The new set of economic reforms aimed at giving greater role to the private sector in the nation building process and a reduced role to the public sector. To achieve this, the government redefined the role of the public sector in the New Industrial Policy of 1991. The purpose of the sale, according to the government, was mainly to improve financial discipline and facilitate modernization. It was also observe that private capital and managerial capabilities could be effectively utilized to improve the performance of the PSUs. The government has also made attempts to improve the efficiency of PSUs by giving them autonomy in taking managerial decisions.
Globalizations are the outcome of the policies of liberalisation and privatisation. Globalisation is generally understood to mean integration of the economy of the country with the world economy, it is a complex phenomenon. It is an outcome of the set of various policies that are aimed at transforming the world towards greater interdependence and integration. It involves creation of networks and activities transcending economic, social and geographical boundaries.
Globalisation involves an increased level of interaction and interdependence among the various nations of the global economy. Physical geographical gap or political boundaries no longer remain barriers for a business enterprise to serve a customer in a distant geographical market.
Impact of Government Policy Changes (New Industrial Policy, 1991) on Business and Industry
1. Increasing competition: As a result of changes in the rules of industrial licensing and entry of foreign firms, competition for Indian firms has increased especially in service industries like telecommunications, airlines, banking, insurance, etc. which were earlier in the public sector.
2. More demanding customers: Customers today have become more demanding because they are well-informed. Increased competition in the market gives the customers wider choice in purchasing better quality of goods and services.
3. Rapidly changing technological environment: Increased competition forces the firms to develop new ways to survive and grow in the market. New technologies make it possible to improve machines, process, products and services. The rapidly changing technological environment creates tough challenges before smaller firms.
4. Necessity for change: In a regulated environment of pre-1991 era, the firms could have relatively stable policies and practices. After 1991, the market forces have become turbulent as a result of which the enterprises have to continuously modify their operations.
5. Threat from
Massive entry of multi nationals in Indian marker constitutes new challenge.
The Indian subsidiaries of multi-nationals gained strategic advantage. Many of
these companies could get limited support in technology from their foreign
partners due to restrictions in ownerships. Once these restrictions have been
limited to reasonable levels, there is increased technology transfer from the
The monopolies and Restrictive Trade Practices Act, 1969, brought into force from 1st June 1970, was a very controversial piece of legislation. The principal objectives of the MRTP Act which extends to the whole of India except to the state of Jammu and Kashmir, viz.:
a) Prevention of concentration of economic power to the common detriment.
b) Control of monopolistic, restrictive and unfair trade practices which are prejudicial to public interest.
The MRTP Act was significantly amended in 1982, 1984, 1985 and 1991. After the amendments the first objective has become irrelevant as the relevant provisions to achieve the objective have been deleted. The objectives now are:
a) Controlling monopolistic trade practices.
b) Regulating restrictive and unfair trade practices.
Monopolistic Trade Practices (MTP’S):
A monopolistic trade practice is essentially a trade practice which represents the abuse of the market power in the production or marketing of goods, or in the provision of services, by charging unreasonably high prices, preventing or reducing competition, limiting technical development, deteriorating product quality, or by adopting unfair or deceptive practices. Two tests will determine whether a trade practice is an MTP or not:
i) abuse of market power, and
ii) Unreasonableness in any practice.
Thus, the following are MTPs:
1. Maintaining the prices of goods or charges for any services at an unreasonable level.
2. Limiting technical development or capital investment to the common detriment.
3. Unreasonably preventing or lessening competition.
4. Allowing quality of goods produced, supplied or distributed or any service rendered to deteriorate.
5. Increasing unreasonably the cost of production of any goods or charges for provision or maintenance of services.
6. Increasing unreasonably the selling price of goods, or charges at which the services may be provided.
7. Increasing unreasonably the profits that are derived from the production, supply or distribution of any goods or the provision of any services.
8. Preventing or lessening competition in the production, supply or distribution of any goods or in the provision or maintenance of any services by adopting unfair methods of unfair practices.
Restrictive Trade Practices (RTP):
A trade practice which restricts or reduces competition may be termed as restrictive trade practice. The following are the RTPs as described by section 33(1) of the MRTP Act:
(a) Refusal to deal with persons or classes of persons: Any agreement which restricts or it likely to restrict by any methods, the persons or classes of persons to whom goods are sold or from whom goods are bought.
(b) Tie-in sales or full line forcing: Any agreement requiring purchaser of goods, as a condition of such purchase, to purchase some other goods.
(c) Exclusive dealing agreement: Any agreement restricting in any manner the purchaser in the course of his trade from acquiring or otherwise dealing in any goods other than those of seller or any other goods.
(d) Collective price fixation and tendering: Any agreement to purchase or sell goods or to tender for the sale or purchase of goods only at prices or terms and conditions agreed upon between the sellers or purchaser.
(e) Discriminatory Dealings : Any agreement to grant or allow concession or benefits, including allowances, discounts, rebate or credit, in connection with or by reason of dealings.
(f) Re-sale price maintenance: Any agreement to sell goods on condition that the prices to be charged on resale by the purchaser shall be the prices stipulated by the seller unless it is clearly stated that prices lower than those prices may be charged.
(g) Restriction on output or supply of goods: Exclusive distributorship, territorial restriction and market sharing.
(h) Control of manufacturing process.
(i) Price control arrangements.
(j) Governmental recognition of practice as restriction.
(k) Residual restriction trade practices: Any agreement to enforce the carrying out of any such agreement as is referred to in the foregoing classes.
Differences between MTPs and RTPs
1. Market power is sought to be misused. Stress is on abusing market power.
1. Competition is sought to be curbed. Stress is on preventing competition from its free play.
2. Commission can conduct enquiry on either reference from the Central Government, or on its own knowledge or information.
2. Commission can conduct enquiry on any of five bases :
a) a complaint from 25 or more consumers or dealers,
b) reference from Central Government,
c) reference from the State Government,
d) the application of the Director General or
e) On its own knowledge of information.
3. Commission’s role is advisory. It can only conduct enquiry.
3. Commission has the power of passing final order which is subject to appeal only to Supreme Court.
4. Commission submits report about the findings to the Central Government. The power of making final order rests with the Central Government.
4. Commission itself can pass final order after enquiry.
5. Agreements relating to MTPs need not be registered.
5. All agreements relating to specified restrictive trade practices are required to be furnished for registration to the Director-General.
6. Consequences of indulging in an MTP are more serious. Apart from the order to prohibit the person concerned from indulging in an MTP the Central Govt is empowered to pass orders to remedy or prevent any mischief resulting from the practice.
6. Consequences of indulging in an RTP are not very serious. A cease and desist order is passed and he relevant clauses of the RTP agreement are declared void.
The MRTP Commission has the following powers:
a) Power of Civil Court under the Code of Civil Procedure, with respect to:
i) Summoning and enforcing the attendance of any witness and examining him on oath;
ii) Discovery and production of any document or other material object producible as evidence;
iii) Reception of evidence on affidavits;
iv) Requisition of any public record from any court or office.
v) Issuing any commission for examination of witness; and
vi) Appearance of parties and consequence of non-appearance.
Proceedings before the commission are deemed as judicial proceedings with in the meaning of sections 193 and 228 of the Indian Penal Code.
b) To require any person to produce before it and to examine and keep any books of accounts or other documents relating to the trade practice, in its custody.
c) To require any person to furnish such information as respects the trade practice as may be required or such other information as may be in his possession in relation to the trade carried on by any other person.
d) To authorise any of its officers to enter and search any undertaking or seize any books or papers, relating to an undertaking, in relation to which the inquiry is being made, if the commission suspects tat such books or papers are being or may be destroyed, mutilated, altered, falsified or secreted.
Before making an inquiry, the Commission may order the Director General to make a preliminary investigation into the complaint, so as to satisfy itself that the complaint is genuine and deserves to be inquired into.
Under the Monopolistic and Restrictive Trade Practices Act, 1969, the commission has the power to attend complaint, inquire facts and pass orders regarding any unfair trade practice, monopolistic trade practice and/or restrictive trade practice. The commission can order any person to bring in any books of accounts, or other documents to investigate the matter of such practices. During investigation, if the commission has grounds to believe that any books or papers are being destroyed, mutilated, altered, falsified or secreted, it may authorize any officer of the Commission to search and seizure any such books or papers. The commission after inquiring the case shall pass the remedial order.
The remedies under this Act are:
a) Temporary Injunction
Section 12A Power of the Commission to Grant Temporary Injunctions
Section 12A of the MRTP Act, 1969, accounts for the power of the Commission to grant temporary injunctions. The provisions of the section are:
Where it is proved that any undertaking or any person is carrying on any monopolistic or restrictive, or unfair, trade practice and such monopolistic or restrictive, or unfair, trade practice is likely to affect the interest of any trader, class of traders or of any consumer or public generally, the Commission may, for the purposes of staying or preventing the undertaking, grant a temporary injunction restraining such undertaking or person from carrying on any monopolistic or restrictive, or unfair, trade practice until the conclusion of such inquiry or until further orders.
For the purposes of this section, an inquiry shall be deemed to have commenced upon the receipt of any complaint or reference by the Commission or upon its own knowledge or information reduced to writing by the Commission.
For the removal of doubts, the power of the Commission with respect to temporary injunction includes power to grant a temporary injunction without giving notice to the opposite party.
Section 12B Power of the Commission to Award Compensation
Section 12B provides for the second remedy under this Act. The provision regarding the power of the Commission to award compensation is:
Where any loss or damage is caused to the Central Government or State Government or trader or class of traders or any consumer because of the monopolistic, or restrictive, or unfair, trade practice carried on by any undertaking or any person, then such Government, trader, class of traders or consumer may make an application to the Commission for the recovery of any compensation from that undertaking or person. The recovery shall be of such amount as the Commission may determine as compensation for the loss or damage so caused.
Where any loss or damage is caused to numerous persons having the same interest, then one or more of such persons may, with the permission of the Commission, make an application for the benefit of all the persons so interested.
The Commission after inquiring into the allegations made in the application, shall make an order directing the owner of the undertaking to make payment to the applicant, of the amount determined by it as realizable from the undertaking as compensation for the loss or damage caused to the applicant by reason of any monopolistic or restrictive, or unfair, trade practice carried on by such undertaking or other person.
Where a decree for the recovery of any amount as compensation for any loss or damage has been passed by any court in favor of any, the amount shall be set off against the amount payable under such decree.
Every order made by the Commission, under section 12A granting a temporary injunction or under section 12B awarding compensation, may be enforced by the Commission in the same manner as if it were a decree or order made by a court. In case such orders are not executed by the undertaking or other person, then it shall be lawful for the Commission to send such order to the court.
Special Economic Zone (SEZ) is a geographical region that has economic laws that are more liberal than a country's typical economic laws. The category 'SEZ' covers a broad range of more specific zone types, including Free Trade Zones (FTZ), Export Processing Zones (EPZ), Free Zones (FZ), Industrial Estates (IE), Free Ports, Urban Enterprise Zones and others. Usually the goal of an SEZ structure is to increase foreign investment.
One of the earliest and the most famous Special Economic Zones were founded by the government of the People's Republic of China under Deng Xiaoping in the early 1980s. The most successful Special Economic Zone in China, Shenzhen, has developed from a small village into a city with a population over 10 million within 20 years. Following the Chinese examples, Special Economic Zones have been established in several countries, including Brazil, India, Iran, Jordan, Kazakhstan, Pakistan, the Philippines, Poland, Russia, and Ukraine.
SEZ AT INDIA
India was one of the first in Asia to recognize the effectiveness of the Export Processing Zone (EPZ) model in promoting exports, with Asia's first EPZ set up in Kandla in 1965. With a view to overcome the shortcomings experienced on account of the multiplicity of controls and clearances; absence of world-class infrastructure, and an unstable fiscal regime and with a view to attract larger foreign investments in India, the Special Economic Zones (SEZs) Policy was announced in April 2000.
This policy intended to make SEZs an engine for economic growth supported by quality infrastructure complemented by an attractive fiscal package, both at the Centre and the State level, with the minimum possible regulations.
To instill confidence in investors and signal the Government's commitment to a stable SEZ policy regime and with a view to impart stability to the SEZ regime thereby generating greater economic activity and employment through the establishment of SEZs, a comprehensive draft SEZ Bill prepared after extensive discussions. The Special Economic Zones Act, 2005, was passed by Parliament in May, 2005.
The main objectives of the SEZ Act are:
(a) Generation of additional economic activity
(b) Promotion of exports of goods and services;
(c) Promotion of investment from domestic and foreign sources;
(d) Creation of employment opportunities;
(e) Development of infrastructure facilities;
It is expected that this will trigger a large flow of foreign and domestic investment in SEZs, in infrastructure and productive capacity, leading to generation of additional economic activity and creation of employment opportunities.
OBJECTIVES OF SEZ AT INDIA
a) Generation of additional economic activity across all the states
b) Promotion of exports of goods and services across all Indian sates according to their indigenous capabilities
c) Promotion of investment from domestic and foreign sources
d) Creation of employment opportunities across India
e) Development of world class infrastructural facilities in these units
f) Simplified procedures for development, operation, and maintenance of the Special Economic Zones and for setting up units and conducting such business activities
g) Single window clearance cell for the establishment of Special Economic Zone
h) Single window clearance cell within each and every Special Economic Zones
i) Single window clearance cell relating to formal requirements of Central as well as all State Governments.
j) Easy and simplified compliance procedures and documentations with stress on self certification.
THE SALIENT FEATURES OF THE FIRST SEZ POLICY OF INDIA
a) Exemption from duties on all imports for project development
b) Exemption from excise / VAT on domestic sourcing of capital goods for project development
c) Freedom to develop township in to the SEZ with residential areas, markets, play grounds, clubs and recreation centers without any restrictions on foreign ownership
d) Income tax holidays on business income
e) Exemption from import duty, VAT and other Taxes
f) 10% FDI allowed through the automatic route for all manufacturing activities
g) Procedural ease and efficiency for speedy approvals, clearances and customs procedures and dispute resolution
h) Simplification of procedures and self-certification in the labor acts
i) Artificial harbor and handling bulk containers made operational throughout the year
j) Houses both domestic and international air terminals to facilitate transit, to and fro from major domestic and international destinations
k) Well connected with network of public transport, local railways and cabs
l) Pollution free environment with proper drainage and sewage system
m) In-house Customs clearance facilities
n) Abundant supply of technically skilled manpower
o) Abundant supply of semi-skilled labor across all industry vertical
p) Easy access to airport and local Railway Station
q) 10-year tax holiday in a block of the first 20 years
r) Full authority to provide services such as water, electricity, security, restaurants and recreational facilities within the zone on purely commercial basis
No country is self-sufficient in the world today. Therefore, every country has to import goods and to pay for imports it has to export goods to other countries. The ideal situation would be if every country specialized in the production of those goods in which it has a comparative cost advantage. But in addition to comparative cost several other factors including political considerations have played an important part in determining the pattern of imports and exports. To protect domestic industries, many countries in the past had imposed heavy tariffs to restrict imports.
Export- Import (EXIM) Policy 2002-07
In order to maintain the balance of payments and to avoid trade deficit the government of India has announced a trade policy for imports and exports. After every five years the government of India reviews the import and export policy in view of the changing international economic situation. The policy relates to promotion of exports and regulation of imports so as to promote economic growth and overcome trade deficit. Accordingly, the export-and import policies (EXIM Policy) were announced by the government first in 1985 and then in 1988 which was again revised in 1990. All these policies made necessary provision for extension of import liberalisation measures. All these policies made necessary provision for import of capital goods and raw materials for industrialization, utilisation and liberalisation of REP (Registered Exporters Policy) licenses, liberal import of technology and policy for export and trading houses. The government announced its new EXIM policy for 2002-2007 which is mainly a continuation of the EXIM policy of 1997-2002. The new export-import policy for 2002-2007 aims at pushing up growth of exports to 12 per cent a year as compared to about 1.56 per cent achieved during the financial year 2001-2002.
The main features of this export- import policy are given below:--
a) Concessions to exporters: To enable Indian companies to compete effectively in the competitive international markets and to give a boost to sagging exports various concessions had been given to the exporters in this new EXIM policy 2002-2007. These concessions are:
i) Exporters will now have 360 days to bring in their foreign exchange remittances as compared to the earlier limit of 180 days.
ii) Exporters will be allowed to retain the entire amount held in their exchange earner foreign currency (EEFC) accounts.
iii) Exporters will now get long-term loans at the prime lending rate for that tenure.
b) Duty Entitlement Pass Book (DEPB) and Export Promotion Capital Goods (EPCG) Schemes: DEPB and EPCG are important tools of promoting exports. These schemes have been made more flexible. In the DEPB and EPCG schemes new initiatives have been granted to the cottage industries, handicrafts, chemicals and pharmaceuticals, textile and leather products.
c) Strengthening Special Export Zones (SEZ): The new long-term EXIM policy has sought to enable Indian SEZs to be at par with its international rivals. The EXIM policy has given a boost to the banking sector reforms by permitting Indian banks to set up overseas banking units in SEZs.
d) Soft options for computer hardware industry: The export import (EXIM) policy has put the Indian computer manufacturers at par with manufacturers in other parts of the world. Companies manufacturing or assembling computers in the country will be able to import both capital and raw materials at lower duty rates to sell in the domestic market.
As per the information technology agreement which is part of the world trade organisation zero duty the agreement on I. T. sector, 217 I. T. components would attract a zero duty by 2005. Therefore, foreign companies can import these products into the country while Indian manufacturers who did the same had to meet export obligations on their imports. Now, the new EXIM policy states that domestic sales will be considered as a fulfillment of the export obligation, thereby freeing the domestic manufacturers from exports completely.
In view of the continuing backwardness of North East Region, the need for a new and synergetic incentive package was widely felt to stimulate development of industries. In 1997 a separate Industrial Policy was announced for the industrial development of the North Eastern Region for which Expert groups / committees were constituted by the Ministry of Industry and Planning Commission. Based on the recommendations and proposals finalized by these expert groups / committee the Government of India approved the new Industrial Policy and other concessions for the North Eastern Region.
Features of the policy:
a) Development of Industrial infrastructure growth centre: Currently the funding pattern of the growth centers envisages a Central assistance of Rs. 10 crores for each Centre and the balance amount to be raised by the State Government. Government has approved that entire expenditure on the growth centers would be provided as Central assistance, subject to a ceiling of Rs. 15 crores.
b) Integrated Infrastructure Development Centre: In respect of the IID centres, the funding pattern would be changed from 2:3 between Government of India and SIDBI to 4:1, and the Government of India funds would be a grant.
c) Transport subsidy scheme: The transport subsidy scheme will be extended further in so far as NE States are concerned, for a period of another 7 years i.e. up to 31st March, 2007 being coterminous with the Tenth Five Year Plan on same terms and conditions as per applicable now.
d) Fiscal incentives to new industrial units
1) Total Tax Free Zone: Government has approved for converting the growth centres and IID centres into a Total Tax Free Zone for the next 10 years. State Government would be requested to grant exemptions in respect of Sales Tax and Municipal Tax.
2) Capital Investment Subsidy: Industries located in the growth centres would also be given Capital Investment Subsidy at the rate of 15% of their investment in plant and machinery, subject to a maximum ceiling of Rs. 30 lakh. The commercial banks and the North East Development Financial Corporation (NEDFi) will have dedicated branches/ counters to process applications to term loans and working capital in these centres.
3) Interest subsidy on Working Capital Loan: An interest subsidy of 3% of working capital loan would be provided of 10 years after the commercial production. The working capital requirements would be worked out as per the Nayak Committee.
4) Excise Benefits: Government of India has given sweeping concessions on excise duty. All excisable goods produced in the factory located in the growth centres, IIDs etc. in the state have been exempted from payment of excise duty. Goods produced in specified industries located in areas outside the growth centres/IIDs etc. have also been exempted from payment of excise duty.
e) Relaxation of PMRY Norms: The PMRY would be expanded in scope to cover areas of horticulture, piggery, poultry, fishing, small tea gardens etc. so as to cover all economically viable activities. PMRY would have a family income ceiling of Rs. 40,000.00 per annum for each beneficiary along with his/her spouse and upper age limit will be relaxed to 40 years. Projects costing up to Rs. 2 lakh in other than business sector will be eligible for assistance. No collateral will be insisted for project costing up to Rs. 1 lakh.
f) Other Incentives Proposed: A comprehensive insurance scheme for industrial units in the North East will be designed in consultation with General Insurance Corporation of India Ltd. and 100% premium for a period of 10 years would be subsidized by Central Government. One time grant of Rs. 20 crores will be provided to the North East Development Financial Corporation (NEDFi) by the Central Government through NEC to fund Techno-Economic studies for industries and infrastructure best suited to this region.
The Government may consider setting u a "Debt Purchase Window" by the NEDFi which buys the debt of the manufacturing units particularly in respect of the supplies made to the Government Departments so as to reduce the problem of blocking of funds for these units.
For development of markets in North East, possibilities of Export of products of North East to the neighboring countries particularly, Bangladesh, Myanmar and Bhutan would be explored.