Infrastructure Bottlenecks &

Economic Development in India

Programme: Post GraduationDiploma in Management

Course: Macro Economics

Group- 3

Sambit Biswal- 32

NIdhi Pratap- 26

Shweta- 43

Uma- 53

Saswat Rn. Parida- 39

Siba Narayan Dora- 42

Deepak Kumar Mishra- 15

Background :

India's inadequate infrastructure is a major roadblock to the country's target of achieving a 9.0%-9.5% annual

growth in 2012-2017. That's according to a report that Standard & Poor's Ratings Services published today, titled

"Can India's Developing

Infrastructure Keep Pace

With Economic Growth?".

The report looks at the key

factors hindering the

development of

infrastructure in the country.

"An immediate consequence

of increasing urbanization in

India (BBB-/Stable/A-3) in

recent years has been

manifold growth in demand

for infrastructure. Such

demand supports our stable outlook for the sector," said Standard & Poor's credit analyst Rajiv Vishwanathan.

"We expect the demand to keep increasing in step with growth in the Indian economy. The country's power

deficit is fueling demand for energy projects, while rapid industrialization and urbanization are creating an

urgent need for efficient road and rail connectivity and other improvements in infrastructure."

The Indian government has stepped up infrastructure spending in recent years. Nevertheless, the slow pace of

reforms and a lack of long-term funding options constrain the sector's growth.

"We believe reforms to create a robust framework with transparent policies for project execution and funding

will be critical to keep up the pace of infrastructure development in India," said Mr. Vishwanathan. "Constraints

in securing clearances, land rights, and long-term funding could cause companies to fall short of their targets."

The twelfth five-year plan focuses on removing some of these roadblocks and creating a sustainable framework

for private-sector participation. Nevertheless, the fate of the infrastructure sector over the next few years will

depend on the ability of India's leaders to execute these plans.

Statement of the Problem:

“Infrastructure Bottlenecks & Economic

Development in India.”

Analysis:

India and China have been the world's two

fastest growing economies. However, the dragon

nation has consistently outpaced its Asian

counterpart. Apart from the exchange rate policy

- which gives China an unfair advantage in

world trade - infrastructure is the major dividing

factor between the differential growth rates

amongst the two Asian giants.

Infrastructure development is a key to any

country's economic growth. And it is a known

fact that India is facing huge infrastructure problems. The government has taken various steps to address these

issues but with little success. Every year the government allocates trillions of rupees towards infrastructure

development.

Now, one wonders despite such gargantuan allocation why is the progress on this front so slow. India is a

democratic country unlike China - a communist economy - with a single party government. Infrastructure

projects are typically awarded by the government. And India has a history of coalition governments.

So essentially when the government decides to award the project, it requires an approval from the allies as well.

This proves to be time consuming. Secondly, if the project falls outside the geographical purview of the ally, the

entire process faces severe roadblocks. This is because the allies have to keep their votebank happy. And to woo

them they need to shower some goodies. Now how is that possible? - Bring in as much investment as possible

into your hinterland!

Land acquisition proves to be another major issue in infrastructure development. Around 70% of the

infrastructure projects are delayed because of land acquisition problems. Whenever any infra project is executed

lot of people need to be displaced. However, these people, mostly villagers, are not keen on moving despite

being offered a fair price for displacement. They file court cases to bring stay orders on the projects extending

the time line for the projects.

It is high time that India adopts a legislation that prevents the displaced people from lodging cases, unnecessarily

extending the time line. Litigation if any, should primarily relate to the fair price regarding their land rather than

allowing homeowners to block land acquisitions by going to court. This phenomenon is prevalent in the

developed world and the results are to see for us.

Land acquisition issue typically is

more relevant for road projects.

However, we believe that the

government is taking right steps in

this direction. NHAI is in the final

stages of acquiring 80% of the land

for the projects to be awarded till

June. The pace of land acquisition

has also improved four times than it

was earlier. In order to bolster

investments in the sector, the

government should encourage

connectivity amongst rural India by

improving interior roadways. This

can be done by encouraging private companies to bid for these projects with government providing the balance

amount through viability gap funding.

Apart from land acquisition, utilization of the funds available for infrastructure spending is a moot point. Let us

take the example of Bandra-Worli sea link. The initial cost of building the bridge was estimated to be around Rs

3 bn. However, various reasons led to the increase in cost by more than five fold to Rs 16 bn! To say the least the

traffic data on the bridge is not encouraging either (50% below initial estimates!).

Now, one wonders whether Mumbai needed such an iconic structure or basic improvement in the pathetic

condition of the roads and railway lines. It is for the government to take prudent steps in infrastructure

management. It is believed that the poor condition of India's infrastructure is impacting the country's GDP

growth rate by at least 2 percentage points annually. If the government think tank can find out a solution to the

infrastructure problems, it will not be long before we overtake the dragon nation!

Infrastructure bottlenecks continue to stifle the economic growth in the India :

India inherited colonial economy at the time of her independence. Infrastructure at this stage was below the level

from where effective growth could be carried out.

Thus Infrastructure bottlenecks both social and economic has been the cause of concern for economic

development.

To achieve fast growth of economy, various factors are responsible, including Natural and Mineral resources,

Capital, skill and technology, Liberal and Cooperative Government Policy and Infrastructure.

Except infrastructure, India is good with all other factors in India. Infrastructure for an industry includes

transportation, raw-material, power, policies of government, services, resources etc. Due to lack of

transportation, India's primary as well as secondary sector suffers with loss of financial losses. Goods are not

able to reach its destination in time. Agricultural Produces are not able to reach its market in time, which inhibits

the agricultural growth.

Further Power, electricity and fuels are other main setbacks- which disturbs the economic growth in India. India

currently need about 1 lakh MW power extra than what it currently entails, otherwise this will continue haunting

the overall development of entire economic structure of the country.

Infrastructure bottlenecks affect India’s competitiveness:

Port and road infrastructure bottlenecks coupled with difference in tax structure across states are impacting

India’s competitiveness in the global market.

According to an ongoing study by industry body Confederation of Indian Industry (CII) and Friedrich-Naumann-

Stiftung fur die Freiheit (FNF), “road infrastructure in the country has not kept pace” with overall growth in

economic activities.

The country also lacks of “efficient and cheap trans-shipment facilities between rail hubs and sea ports”.

On the sidelines of a seminar in Kolkata, Sanjay Budhia, Chairman, CII National Committee on Exports and

Imports, said these challenges before domestic trade would ultimately impact India’s exports.

CII will, in early 2014, submit a report on the barriers to internal trade and ways to promote exports.

According to Budhia, faster implementation of Goods and Services Tax (GST) would ease internal trade by

reducing compliance costs. However, exclusion of petroleum and alcohol from GST regime might pose

challenges to domestic trade.

Demanding more benefits to Special Economic Zones, Budhia said SEZs should also get incentives available

under the focus market scheme, focus product scheme (chapter 3 of Foreign Trade Policy) to boost export. He

also claimed the Minimum Alternate Tax should be removed from the SEZs to encourage the industry to execute

their committed investment in these zones.

Economic Development of India:

The economic development in India followed socialist-inspired policies for most of its independent history,

including state-ownership of many sectors; India's per capita income increased at only around 1% annualised rate

in the three decades after its independence. Since the mid-1980s, India has slowly opened up its markets through

economic liberalisation. After more fundamental reforms since 1991 and their renewal in the 2000s, India has

progressed towards a free market economy.

In the late 2000s, India's growth reached 7.5%, which will double the average income in a decade. Analystssay

that if India pushed more fundamental market reforms, it could sustain the rate and even reach the government's

2011 target of 10%. States have large responsibilities over their economies. The annualised 1999–2008 growth

rates for Tamil Nadu (9.9), Gujarat (9.6%), Haryana (9.1%), or Delhi (8.9%) were significantly higher than for

Bihar (5.1%), Uttar Pradesh (4.4%), or Madhya Pradesh (6.5%).India is the tenth-largest economy in the world

and the third largest by purchasing power parity adjusted exchange rates (PPP). On per capita basis, it ranks

140th in the world or 129th by PPP.

The economic growth has been driven by the expansion of services that have been growing consistently faster

than other sectors. It is argued that the pattern of Indian development has been a specific one and that the country

may be able to skip the intermediate industrialisation-led phase in the transformation of its economic structure.

Serious concerns have been raised about the jobless nature of the economic growth.

Favourable macroeconomic performance has been a necessary but not sufficient condition for the significant

reduction of poverty amongst the Indian population. The rate of poverty decline has not been higher in the post-

reform period (since 1991). The improvements in some other non-economic dimensions of social development

have been even less favourable. The most pronounced example is an exceptionally high and persistent level of

child malnutrition (46% in 2005–6).

The progress of economic reforms in India is followed closely. The World Bank suggests that the most important

priorities are public sector reform, infrastructure, agricultural and rural development, removal of labour

regulations, reforms in lagging states, and HIV/AIDS. For 2015, India ranked 142nd in Ease of Doing Business

Index, which is setback as compared with China 90th,Russia 62nd and Brazil 120th. According to Index of

Economic Freedom World Ranking an annual survey on economic freedom of the nations, India ranks 123rd as

compared with China and Russia which ranks 138th and 144th respectively in 2012.

Agriculture

India ranks second worldwide in farm output. Agriculture and allied sectors like forestry, logging and fishing

accounted for 18.6% of the GDP in 2005, employed 60% of the total workforceand despite a steady decline of its

share in the GDP, is still the largest economic sector and plays a significant role in the overall socio-economic

development of India. Yields per unit area of all crops have grown since 1950, due to the special emphasis

placed on agriculture in the five-year plans and steady improvements in irrigation, technology, application of

modern agricultural practices and provision of agricultural credit and subsidies since the green revolution

India is the largest producer in the world of milk, cashew nuts, coconuts, tea, ginger, turmeric and black pepper.

It also has the world's largest cattle population (193 million). It is the second largest producer of wheat, rice,

sugar, groundnut and inland fish. It is the third largest producer of tobacco. India accounts for 10% of the world

fruit production with first rank in the

production of banana and sapota, also

known as chiku.

The required level of investment for the

development of marketing, storage and

cold storage infrastructure is estimated to

be huge. The government has implemented

various schemes to raise investment in

marketing infrastructure. Amongst these

schemes are Construction of Rural Go

downs, Market Research and Information

Network, and Development / Strengthening

of Agricultural Marketing Infrastructure,

Grading and Standardisation.[

Main problems in the agricultural sector, as listed by the World Bank, are

India's large agricultural subsidies are hampering productivity-enhancing investment.

Overregulation of agriculture has increased costs, price risks and uncertainty.

Government interventions in labour, land, and credit markets.

Inadequate infrastructure and services.

Research and development :

The Indian Agricultural Research Institute (IARI), established in 1905, was responsible for the research leading

to the "Indian Green Revolution" of the 1970s. The Indian Council of Agricultural Research (ICAR) is the apex

body in kundiure and related allied fields, including research and education. The Union Minister of Agriculture

is the President of the ICAR. The Indian Agricultural Statistics Research Institute develops new techniques for

the design of agricultural experiments, analyses data in agriculture, and specialises in statistical techniques for

animal and plant breeding. Prof. M.S. Swaminathan is known as "Father of the Green Revolution" and heads the

MS Swaminathan Research Foundation. He is known for his advocacy of environmentally sustainable

agriculture and sustainable food security. Was labertihrNuttenim Club.

Industrial output

India is tenth in the world in factory output. Manufacturing sector in addition to mining, quarrying, electricity

and gas together account for 27.6% of the GDP and employ 17% of the total workforce. Economic reforms

introduced after 1991 brought foreign competition, led to privatisation of certain public sector industries, opened

up sectors hitherto reserved for the public sector and led to an expansion in the production of fast-moving

consumer goods. In recent years, Indian cities have continued to liberalise, but excessive and burdensome

business regulations remain a problem in some cities, like Kochi and Kolkata.

Post-liberalisation, the Indian private sector, which was usually run by oligopolies of old family firms and

required political connections to prosper was faced with foreign competition, including the threat of cheaper

Chinese imports. It has since handled the change by squeezing costs, revamping management, focusing on

designing new products and relying on low labour costs and technology.

Services

India is fifteenth in services output. Service industry employ English-speaking Indian workers on the supply side

and on the demand side, has increased demand from foreign consumers interested in India's service exports or

those looking to outsource their operations. India's IT industry, despite contributing significantly to its balance of

payments, accounts for only about 1% of the total GDP or 1/50th of the total services.

During the Internet bubble that led up to 2000, heavy investments in undersea fibre-optic cables linked Asia with

the rest of the world. The fall that followed the economic boom resulted in the auction of cheap fiber optic cables

at one-tenth of their original price. This development resulted in widely available low-cost communications

infrastructure. All of these investments and events, not to mention a swell of available talent, resulted in India

becoming almost overnight the centre for outsourcing of Business process. Within this sector and events, the

ITES-BPO sector has become a big employment generator especially amongst young college graduates. The

number of professionals employed by IT and ITES sectors is estimated at around 1.3 million as on March 2006.

Also, Indian IT-ITES is estimated to have helped create an additional 3 million job opportunities through indirect

and induced employment.

India's resource consumption

Oil:

India consumes the second-largest amount of oil in the Asia-Pacific region behind China. The combination of

rising oil consumption and fairly unwavering production levels leaves India highly dependent on imports to meet

the consumption needs.

Natural gas:

As per the Oil and Gas Journal, India had 38 trillion cubic feet (1.1×1012 m3) of confirmed natural gas reserves

as of January 2007. A huge mass of India's natural gas production comes from the western offshore regions,

particularly the Mumbai High complex. The onshore fields in Assam, Andhra Pradesh, and Gujarat states are

also major producers of natural gas. As per EIA data, India produced 996 billion cubic feet (2.82×1010 m3) of

natural gas in 2004.[22]

India imports small amounts of natural gas. In 2004, India consumed about 1,089×109 cu ft (3.08×1010 m3) of

natural gas, the first year in which the country showed net natural gas imports. During 2004, India imported

93×109 cu ft (2.6×109 m3) of liquefied natural gas (LNG) from Qatar.

Sector Organization :

As in the oil sector, India's state-owned companies account for the bulk of natural gas production. ONGC and

Oil India Ltd. (OIL) are the leading companies with respect to production volume, whilst some foreign

companies take part in upstream developments in joint-ventures and production sharing contracts (PSCs).

Reliance Industries, a privately owned Indian company, will also have a bigger role in the natural gas sector as a

result of a large natural gas find in 2002 in the Krishna Godavari basin.

The Gas Authority of India Ltd. (GAIL) holds an effective control on natural gas transmission and allocation

activities. In December 2006, the Minister of Petroleum and Natural Gas issued a new policy that allows foreign

investors, private domestic companies, and national oil companies to hold up to 100% equity stakes in pipeline

projects. Whilst GAIL's domination in natural gas transmission and allocation is not ensured by statute, it will

continue to be the leading player in the sector because of its existing natural gas infrastructure.

Issues:

Regulation, public sector, corruption :

India ranked 133rd on the Ease of Doing Business Index in 2010, compared with 85th for Pakistan, 89th for

People's Republic of China, 125th for Nigeria, 129th for Brazil, and

122nd for Indonesia.

Extent of corruption in Indian states, as measured in a 2005 study by

Transparency International India. (Darker regions are more corrupt)[23]

Corruption in many forms has been one of the pervasive problems

affecting India. For decades, the red tape, bureaucracy and the Licence

Raj that had strangled private enterprise.[24] The economic reforms of

1991 cut some of the worst regulations that had been used in corruption.

Corruption is still large. A 2005 study by Transparency International

(TI) India found that more than half of those surveyed had firsthand experience of paying a bribe or peddling

influence to get a job done in a public office.[23] The chief economic consequences of corruption are the loss to

the exchequer, an unhealthy climate for investment and an increase in the cost of government-subsidised

services. The TI India study estimates the monetary value of petty corruption in 11 basic services provided by

the government, like education, healthcare, judiciary, police, etc., to be around 211 billion (US$3.4 billion).[23]

India still ranks in the bottom quartile of developing nations in terms of the ease of doing business, and

compared with China, the average time taken to secure the clearances for a startup or to invoke bankruptcy is

much greater.

The Right to Information Act (2005) and equivalent acts in the states, that require government officials to furnish

information requested by citizens or face punitive action, computerisation of services and various central and

state government acts that established vigilance commissions have considerably reduced corruption or at least

have opened up avenues to redress grievances.The 2006 report by Transparency International puts India at 70th

place and states that significant improvements were made by India in reducing corruption.

Employment

India's labour force is growing by 2.5% every year, but employment is growing only at 2.3% a year. [28] Official

unemployment exceeds 9%. Regulation and other obstacles have discouraged the emergence of formal

businesses and jobs. Almost 30% of workers are casual workers who work only when they are able to get jobs

and remain unpaid for the rest of the time.[28] Only 10% of the workforce is in regular employment.[28] India's

labour regulations are heavy even by developing country standards and analysts have urged the government to

abolish them.[1][29]

From the overall stock of an estimated 458 million workers, 394 million (86%) operate in the unorganised sector

(of which 63% are self-employed) mostly as informal workers. There is a strong relationship between the quality

of employment and social and poverty characteristics.[30] The relative growth of informal employment was more

rapid within the organised rather than the unorganised sector. This informalisation is also related to the

flexibilisation of employment in the organised sector that is suggested by the increasing use of contract labour by

employers in order to benefit from more flexible labour practices.[3]

Children under 14 constitute 3.6% of the total labour force in the country. Of these children, 9 out of every 10

work in their own rural family settings. Around 85% of them are engaged in traditional agricultural activities.

Less than 9% work in manufacturing, services and repairs.[31] Child labour is a complex problem that is basically

rooted in poverty. The Indian government is implementing the world's largest child labour elimination program,

with primary education targeted for ~250 million. Numerous non-governmental and voluntary organisations are

also involved. Special investigation cells have been set up in states to enforce existing laws banning employment

of children (under 14) in hazardous industries. The allocation of the Government of India for the eradication of

child labour was US$10 million in 1995–96 and US$16 million in 1996–97. The allocation for 2007 is

US$21 million.

Environmental degradation & Environmental issues in India :

About 1.2 billion people in developing nations lack clean, safe water because most household and industrial

wastes are dumped directly into rivers and lakes without treatment. This contributes to the rapid increase in

waterborne diseases in humans. Out of India's 3119 towns and cities, just 209 have partial treatment facilities,

and only 8 have full wastewater treatment facilities (WHO 1992).114 cities dump untreated sewage and partially

cremated bodies directly into the Ganges River.]Downstream, the untreated water is used for drinking, bathing,

and washing. This situation is typical of many rivers in India as well as other developing countries. Globally, but

especially in developing nations like India where people cook with fuel wood and coal over open fires, about

4 billion humans suffer continuous exposure to smoke. In India, particulate concentrations in houses are reported

to range from 8,300 to 15,000 μg/m3, greatly exceeding the 75 μg/m3 maximum standard for indoor particulate

matter in the United States. Changes in ecosystem biological diversity, evolution of parasites, and invasion by

exotic species all frequently result in disease outbreaks such as cholera which emerged in 1992 in India. The

frequency of AIDS/HIV is increasing. In 1996, about 46,000 Indians out of 2.8 million (1.6% of the population)

tested were found to be infected with HIV.

Conclusion:

(1) New Industrial Policy :

Under Industrial Policy, keeping in view the priorities of the country and its economic development, the roles of

the public and private sectors are clearly decided. Under the New Industrial Policy, the industries have been

freed to a large extent from the licenses and other controls. In order to encourage modernisation, stress has been

laid upon the use of latest technology. A great reduction has been effected in the role of the public sector.

Abolition of Licensing:

Before the advent of the New Industrial Policy, the Indian industries were operating under strict licensing

system. Now, most industries have been freed from licensing and other restrictions.

(ii) Freedom to Import Technology:

The use of latest technology has been given prominence in the New Industrial Policy. Therefore, foreign

technological collaboration has been allowed.

(iii) Contraction of Public Sector:

A policy of not expanding unprofitable industrial units in the public sector has been adopted. Apart from this, the

government is following the course of disinvestment in such public sector undertaking. (Selling some shares of

public sector enterprises to private sector entrepreneurs is called disinvestment. This is a medium of

privatisation.)

(iv) Free Entry of Foreign Investment:

Many steps have been taken to attract foreign investment. Some of these are as follows:

(a) In 1991, 51% of foreign investment in 34 high priority industries was allowed without seeking government

permission.

(b) Non-Resident Indians (NRIs) were allowed to invest 100% in the export houses, hospitals, hotels, etc.

(c) Foreign Investment Promotion Board (FIPB) was established with a view to speedily clear foreign investment

proposals.

(d) Restrictions which were previously in operation to regulate dividends repatriation by the foreign investors

have been removed. They can now take dividends to their native countries.

(v) MRTP Restrictions Removed:

Monopolies and Restrictive Trade Practices Act has been done away with. Now the companies do not need to

seek government permission to issue shares, extend their area of operation and establish a new unit.

(vi) FERA Restrictions Removed:

Foreign Exchange Regulation Act (FERA) has been replaced by Foreign Exchange Management Act (FEMA). It

regulates the foreign transactions. These transactions have now become simpler.

(vii) Increase in the Importance of Small Industries:

Efforts have been made to give importance to the small industries in the economic development of the country.

(2) New Trade Policy

Trade policy means the policy through which the foreign trade is controlled and regulated. As a result of

liberalisation, trade policy has undergone tremendous changes. Especially the foreign trade has been freed from

the unnecessary controls.

The age-old restrictions have been eliminated at one go. Some of the chief characteristics of the New Trade

Policy are as follows:

(i) Reduction in Restrictions of Export-Import:

Restrictions on the exports-imports have almost disappeared leaving only a few items.

(ii) Reduction in Export-Import Tax:

Export-import tax on some items has been completely abolished and on some other items it has been reduced to

the minimum level.

(iii) Easy Procedure of Export-Import:

Import-export procedure has been simplified.

(iv) Establishment of Foreign Capital Market:

Foreign capital market has been established for sale and purchase of foreign exchange in the open market.

(v) Full Convertibility on Current Account:

In 1994-95, full convertibility became applicable on current account.

Here it is important to clarify the meaning of current account and full convertibility. Therefore, this has been

done as follows:

Current Account:

Transactions with the foreign countries are placed in two categories: (i) transaction with current account, for

example, import-export, (ii) Capital account transactions, like investment.

Full Convertibility:

In short, full convertibility means unrestricted sale and purchase of foreign exchange in the foreign exchange

market for the purpose of payments and receipts on the items connected with current account. It means that there

is no government restriction on the sale and purchase of foreign exchange connected with current account.

On the other hand, sale and purchase of foreign exchange connected with capital account can be carried on under

the rates determined by the Reserve Bank of India (RBI),

(vi) Providing Incentive for Export:

Many incentives have been allowed to Export- oriented Units (EOU) and Export Processing Zones (EPZ) for

increasing export trade.

(3) Fiscal Reforms

The policy of the government connected with the income and expenditure is called fiscal policy. The greatest

problem confronting the Indian government is excessive fiscal deficit. In 1990-91, the fiscal deficit was 8% of

the GDP. (It is important to understand the meaning of fiscal deficit and GDP.)

(i) Fiscal Deficit:

A fiscal deficit means that the country is spending more than its income,

(ii) Gross Domestic Product (GDP):

The GDP is the sum total of the financial value of all the produced goods and services during a year in a country.

Generally, the financial deficit is calculated in the form of GDP’s percentage. Presently, the government of India

is making efforts to take it to 4%.

Solutions of Fiscal Deficit

In order to handle the problem of fiscal deficit, basic changes were made in the tax system. The following are the

major steps taken in this direction:

(i) The rate of the individual and corporate tax has been reduced in order to bring more people in the tax net.

(ii) Tax procedure has been simplified.

(iii) Heavy reduction in the import duties has been implemented.

(4) Monetary Reforms

Monetary policy is a sort of control policy through which the central bank controls the supply of money with a

view to achieving the objectives of the general economic policy. Reforms in this policy are called monetary

reforms. The major points with regard to the monetary reforms are given below:

(i) Statutory Liquidity Ratio (SLR) has been lowered. (A commercial bank has to maintain a definite percentage

of liquid funds in relation to its net demand and time liabilities. This is called SLR. In liquid funds, cash

investment in permitted securities and balance in current account with nationalised banks are included.)

(ii) The banks have been allowed freedom to decide the rate of interest on the amount deposited.

(iii) New standards have been laid down for the income recognition for the banks. (By recognition of income, we

mean what is to be considered as the income of the bank. For example, should the interest on the bad debt be

considered as the income of the bank directions have been issued in this context.

(iv) Permission to collect money by issuing shares in the capital market has been granted to nationalised banks.

(v) Permission to open banks in the private sector has also been granted.

(5) Capital Market Reforms

The market in which securities are sold and bought is known as the capital market. The reforms connected with it

are known as capital market reforms. This market is the pivot of the economy of a country. The government has

taken the following steps for the development of this market:

(i) Under the Portfolio Investment Scheme, the limit for investment by the NRIs and foreign companies in the

shares and debentures of the Indian companies has been raised. (Portfolio Investment Scheme means investing in

securities.)

(ii) In order to control the capital market, the Securities and Exchange Board of India (SEBI) has been

established.

(iii) The restriction in respect of interest on debentures has been lifted. Now, it is decided on the basis of demand

and supply.

(iv) The office of the Controller of Capital Issue which used to determine the price of shares to be issued has

been dispensed with. Now, the companies are free to determine the price of the shares.

(v) Private sector has been permitted to establish Mutual Fund.& the registration of the sub broker has been

made mandatory.

(6) Phasing out Subsidies

Cash Compensatory Support (CCS) which was earlier given as export subsidy has been stopped. CCS can be

understood with the help of an example.

If an exporter wants to import some raw material which is available abroad for 100, but the same material is

available in India for 120 and the governments wants the raw material to be purchased by the exporter from India

itself for the protection of indigenous industries, the government is ready to pay the difference of 20 to the

exporter in the form of subsidy.

The payment of 20 will be considered as CCS. In addition to this, the CCS has been reduced in case of fertilizers

and petro products.

(7) Dismantling Price Control

The government has taken steps to remove price control in case of many products. (Price Control means that the

companies will sell goods at the prices determined by the government.) The efforts to remove price control were

mostly in respect of fertilizers, steel and iron and petro products. Restrictions on the import of these products

have also been removed.