Business Sectors in India

8/3/2019 Business Sectors in India

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By-Smita Bansal

IV sem IMP


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Overview

Public sector

- Need

- Forms of organization

- Contribution to Indian economy

- Importance- Problems encountered

- Pricing policy

Private sector

- IPR 1948, 1956, 1991

- Role in Indian economy

Joint sector- Features

- Role in Indian economy

Co-operative sector

- Features

- Challanges and solution


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Amixed economy

Industrial policy allows coexistence of

Public sector

Private sector

Joint sector &

Co-operative sector


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Prior to Independence- few Public Sector

Enterprises in the country

like Railways, the Posts and Telegraphs, the

Port Trusts, the Ordinance Factories, All IndiaRadio, few enterprises like the Government

Salt


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Agrarian economy with a weak industrial

base, low level of savings, inadequate

investments and infrastructure facilities

Public sector could be an instrument for selfreliant growth

Passage of Industrial Policy Resolution of

1948 and followed by Industrial Policy

Resolution of 1956


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Development of core sectors through the

public enterprises

Emphasis on the expansion of production,

both agricultural and industrial; and inparticular on the production of capital

equipment(public sector) and goods

satisfying the basic needs of the people, and

of commodities the export of which wouldincrease earnings of foreign exchange(private

sector)


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Private investment- small goods would block

imports and utilization of excess capacity

And increase profits

Public investment being autonomousinvestment in low profit yielding, long

gestational period, complex management

industries


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Gave primacy to the role of the State which

was directly responsible for industrial

development

Planning process( 5 year plan) gained life tocounter the needs of people


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Water shed year

Gave way to liberalization

Massive growth of industrial sector


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Public sector

undertakings

Departmental

undertakingsPublic

corporations

Government

companyHolding company


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Directly under control of Govt

Ex Indian Railways, Posts and Telegraphs,

atomic power projects, security and currency

presses etc Financed out of general budget except

railways


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Merits

- Can be molded acc to governmental

requirements

- best for defense and strategic industries

- Earnings directed to treasury so helps in

raising revenue


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Demerits

- lack of flexibility due to excessive

centralization in decision process(

Beaurocracy )- too much political interference so does not

run on sound business lines

-


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It combines the flexibility of private

enterprise with public ownership

Expected to run on commercial principles

Two types

- Financial corporations like LIC, UTI, SBI etc

- Non financial corporations like ONGC,

Indian Airlines etc


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Merits

- Managerial autonomy so helps in more

benefits and easy running of the organization

Demerits

- Undue interference by Parliament

- Dependency on government for funds


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According to Companies Act 1956, a company

which has not less than 51% of the paid up

share capital held by central government or

state government or jointlyClassified as

- mining

- manufacturing and refining

- commercial, miscellaneous


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- trading

- financial

- promotional and developmental

Ex State trading corporation, General

insurance corporation of India etc


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Merits

- conduction of business on the lines of

private sector

- free from political interference

- greater flexibility

Demerits

- they become irresponsible in their business

behavior


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A parent corporation that owns enough

voting stock in another corporation to

control its board of directors (and,

therefore, controls its policies andmanagement)

Merits

- ending of fragmentation of industrial

effort in the public sector- reduce government control enabling them

to function them in an efficient way


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- Permits more utilisation of financial

resources trough transfer of unutilised

resources from one subsidiary to another

Ex First time the idea was incorporated inIron and steel industry so SAIL was

established in 1973 owned Bokaro Steel ltd.

as a subsidiary company


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Capital formation-


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Role of nationalized banks like IDBI,LIC, UTI

in mobilizing resources and collecting savings

Savings in public sector


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Development of infrastructure- a major role

Investment in infrastructure in the public

sector, at both the Centre and state levels,

was 4.2% of the countrys GDP As per Planning Commission estimates, the

same is expected to be 6.4% of the GDP by

FY12.


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Strong industrial base - Industry contributed

29.1% in GDP in 2008

Implies the importance and strengthening of

industry base in Indian economy Investment in iron and steel, petroleum and

natural gas, heavy engineering machinery,

chemicals and drugs etc hence giving a boost

to consumer goods industries


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Removal of regional disparities- backward

states like UP, MP, Orissa and Bihar by setting

up plants like Bhilai steel plant, Bokaro steel

plant Import substitution and export promotion-

Second plan and subsequent plans gave way

to import substitution by setting up

industries like HAL, BHEL, ONGC etc


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Abandoning concentration of economic

power by

- diverting profits towards welfare programes

for poorer sections of society- discriminatory policy in material supply

promoting SMEs

- implementing programs of labour welfare,

township and colonies for labourers andbetter wages than private sector


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Price policy- main objective is to serve the

masses

Indian railways and State Electricity board

enjoy monopoly but do not take advantageAlso bodies like Fertilizer Corporation of

India and Hindustan Insecticides etc have no

profit motive


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The public utility approach- No profit no loss

situation

Rate of return approach- focuses on ROI


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It is that part of the economy which is both

run for private profit and is not controlled by

the state


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IPR - 1948 -Features

Division of the Industrial sector into 4 major

categories.

Small and Cottage Industries were givenprivileges.

Considered the importance of private

participation


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1.State Monopoly

Arms and ammunition

Atomic Energy

Rail Transport

2. Mixed Sector (IPR - 1948 )Six industries were specified

-Coal

-Iron & Steel

-Aircraft Mfg

-Ship Building-Telephone, Telegraph & Wireless (Excluding

Radio)

-Mineral Oils


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3. The field of government control

The government will regulate Industries in thiscategory

-Automobiles

-Heavy Machinery

-Heavy Chemicals

-Fertilizers

-Sugar

-Paper

-Cement

-Cotton

-Woollen textiles etc


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4. The field of private enterprises

All the other Industries


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IPR 1956 divided industries into 3 major

categories-

1) 17 industries in schedule A- future

development a responsibility of state2) 12 industries in schedule B- state-owned

but private enterprises will supplement the

efforts of growth for development of them

3) All other industries not in schedule A or Bgiven full freedom to operate


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Private sector flourished by taking advantage

of the loopholes in IPR 1956 and the elbow

room allowed to venture into industries

reserved for state


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New era of liberalization- after IMF bailed

out the bankrupt state

Breakthrough reforms under the government

of Mr. P.V. Narasimha Rao and then financeminister Mr. Manmohan Singh


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Policies included

- opening for international trade and

investment

- deregulation- initiation of privatization

- tax reforms and inflation measures

- curbing The License raj


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Dilution of the role of public sector

Increased FDI

Curbing Red Tapism or License Raj

Tariffs were reduced considerably

Reduced fiscal deficit

Unbelievable growth rate


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Development- Initiator and moving force

behind Industrialization, revolutionizing the

production process by acting as innovator

Extensive modern industrial sector- potentialto harbor modern industries like cotton

textile, sugar industry in pre- independence

period

-FMCG and chemical industries like paints,varnishes etc as offer early return on

investment


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Potentialities due to personal incentives in

small sector

- contribution by small and cottage

industries- personal decision making and small

investment earn stupendous profits

- 800 items reserved for Small scale

industries


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Importance in National income generation ad

employment

- contributes >73% of GDP

- maximum employment generator asmajority of people depend on this sector for

livelihood


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Form of a partnership between government

and private sector

Earlier only a few princely states like

Travancore and Hyderabad practisedWorld Bank team visited during Pt. J.L Nehru

and suggested

IPR 1956 led to government joining hands

with private sector


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Few like Madras Fertilizer company with

Amoco Ltd, Cochin refineries with Phillips

Petroleum Ltd USA

Indians like Mr. J.R.D Tata a pioneer as AirIndia with 51% equity participation

In 1969, by Industrial Licensing policy Enquiry

committee this gained momentumwhich got

approval


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Main objective was development of State and

small scale industries- State Industrial

Finance corporation etc

Features-1. Equity participation- Govt shares NLT 50%

2. Management and control- mainly vests in

the hands of maximum shareholder apart

from Private representative3. Accountability functioning not

accountable to government


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Social control over industries- curb monopoly

and concentration of economic power in the

country

Fulfilling of social objectives like regionaldisparities, export sector development,

employment opportunities

Better industrial growth

Broad basing of industrial entrepreneurship-govt may instill confidence in SMEs


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Persons united voluntarily to meet their

common economic, social, and cultural

needs and aspirations through a jointly-

owned and democratically-controlledenterprise

Ex- handloom, coir and certain village

industries


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The Co-operative Societies Act- village credit

societies were formed as a tool against

prevalent indebtness

The act permitted the formation of suchsocieties for various activities

GOI set up an Agricultural Credit Department

in the RBI with a view to providing financial

assistance and credit to the co-operatives.


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Operation mechanisms-

- cooperation only for certain activities like

procuring raw material etc and production

individually- production, marketing etc all are

undertaken jointly

- members work independently but

cooperative workshops are set up


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Governments help

- loans at concessional rates of interest

- granting managerial staff, tools and

equipment- sanctioning of advances to cooperative

financing agencies etc


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Challenges

- Emergence of MNCs and large scale

economic activities

- Internal and structural weaknesses & lackof proper policies along with corruption of

financial corporations hinder the growth


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What can be done?

- reorientation of policies

- venturing into capital market for mobilizing

funds by debentures, deposits etc- Intensify linkages with NGOs or Self-help

Groups to attract funds and assistance from

World bank, Asian development bank etc

- incorporating professionalism by intensivetraining programs


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Economic environment of business by S.K.

Misra and V.K. Puri

Wikipedia.com

http://isid.org.in/pdf/jscfnl.pdf http://news.indiamart.com

http://www.blurtit.com

http://www.businessdictionary.com

http://business.mapsofindia.com


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Documents

Business Sectors in India