An industry refers to a group of firms producing the same product or service in an
economy. In India industrial sector referred as prime moving force of the economy and
the logical choice for faster economic growth. To make Indian industry very nature and
reduce the dependency of other country the government announce industrial policies
time to time.
Objectives
The main objectives of the Industrial Policy of the Government in India
are:
1. To maintain a sustained growth in productivity.
2. To enhance gainful employment and achieve optimal utilisation of human
resources.
3. To attain international competitiveness.
4. To transform India into a major partner and player in the global arena.
Industrial Policies
1.Industrial Policy Resolution of 1948-
It defined the broad contours of the policy describe the role of the State in industrial
development both as an entrepreneur and authority. It came in to force 6th august 1948
and it was presented by Shyam Prasad Mukerjee. It made clear that India is going to
have a Mixed Economic Model.
1. It classified industries into four broad areas:
Strategic Industries (Public Sector):
It included three industries in which Central Government had monopoly. These
included Arms and ammunition, Atomic energy and Rail transport.
Basic/Key Industries (Public-cum-Private Sector): 6 industries viz. coal,
iron & steel, aircraft manufacturing, ship-building, manufacture of telephone,
telegraph & wireless apparatus, and mineral oil were designated as “Key
Industries” or “Basic Industries”. These industries were to be set-up by the Central

Government. However, the existing private sector enterprises were allowed to
continue.
Important Industries (Controlled Private Sector): It included 18 industries
including heavy chemicals, sugar, cotton textile & woolen industry, cement, paper,
salt, machine tools, fertiliser, rubber, air and sea transport, motor, tractor,
electricity etc. These industries continue to remain under private sector however,
the central government, in consultation with the state government, had general
control over them.
Other Industries (Private and Cooperative Sector): All other industries
which were not included in the above mentioned three categories were left open for
the private sector. There was a 10year period for review of the policy.
The Industries (Development and Regulation) Act was passed in 1951 to implement
the Industrial Policy Resolution, 1948.
2.Industrial Policy Statement of 1956:
Government revised its first Industrial Policy (i.e. the policy of 1948) through the
Industrial Policy of 1956.formed on the basis of second five-year plan. also aim to build
socialistic pattern of society. It was regarded as the “Economic Constitution of India” or
“The Bible of State Capitalism”.
Objectives:
The 1956 Policy emphasized the need to expand the public sector, to build up a large
and growing cooperative sector and to encourage the separation of ownership and
management in private industries and, above all, prevent the rise of private
monopolies. It provided the basic framework for the government’s policy in regard to
industries till June 1991.
IPR, 1956 classified industries into three categories
1. Schedule A
It consisting of 17 industries was the exclusive responsibility of the central
government. Out of these 17 industries, four industries, namely arms and
ammunition, atomic energy, railways and air transport had Central Government

monopolies; new units in the remaining industries were developed by the State
Governments.
2. Schedule B
It consisting of 12 industries, was open to both the private and public sectors;
however, such industries were progressively State-government owned.
3. Schedule C
All the other industries not included in these two Schedules constituted the third
category which was left open to the private sector. However, the State reserved the
right to undertake any type of industrial production.
3.Industrial Policy 1969
1. The monopolistic and restrictive trade practices act was passed. The Act
intended to regulate the trading and commercial practices of the firms and
checking monopoly and concentration of economic power.
2. The firms with assets of ₹25 crore or more were put under obligation of taking
permission from the government of India before any expansion, greenfield
venture and takeover of other firms. Such firms came to be known as the MRTP
Companies. The upper limit for such companies was revised upward to ₹50
crore in 1980 and ₹100 crore in 1985.
3. For the redressal of the prohibited and restricted practices of trade, the
government did set up an MRTP commission.
4.Industrial Policy 1973
1. A new classificatory term i.e. core industries was created the industries which
were of fundamental importance for the development of industries were put in
this category such as iron, crude oil, oil refining and electricity. In the future
these industries came to be known as basic infrastructure industries in the
economy.
2. some industries were put under the reserved list in which only the small or
medium industries could be set up.
3. the concept of joint sector was developed which allowed partnership among the
centre, state and the private sector while setting up some industries.

4. the private firms eligible to apply for such licenses were supposed to have their
total assets at ₹20 crore or more.
5. A limited permission to foreign investment was given with multinational
corporations being allowed to setup subsidiaries in the country.
5.Industrial Policy 1977
In December 1977, the Janata Government announced its New Industrial Policy
through a statement in the Parliament.
1. Decentralised industrialisation was given more attention. The main thrust of this
policy was the effective promotion of cottage and small industries widely
dispersed in rural areas and small towns. The small sector was classified
into three groups—cottage and household sector, tiny sector and small-scale
industries.
2. The 1977 Industrial Policy prescribed different areas for large scale
industrial sector- Basic industries, Capital goods industries, High technology
industries and Other industries outside the list of reserved items for the smallscale sector.
3. Democratic decentralisation got emphasised and KVIC were restructured. It put
emphasis on reducing the occurrence of labour unrest. The
Government encouraged the worker’s participation in
management from shop floor level to board level.
4. Foreign investment in the unnecessary area was prohibited.
6.Industrial Policy of 1980
It sought to promote the concept of economic federation, to raise the efficiency of
the public sector.
1. Foreign investment via technology transfer route was allowed again.
2. The MRTP route was revised upward ₹50 crore to promote setting of bigger
companies.
3. District industries centre were continued
4. Industrial licensing was simplified.
5. Overall liberal attitude followed towards the expansion of private industries.

7.Industrial policy resolution 1985 and 1986
1. The MRTP limit was revised upward to ₹100 crore promoting the idea of bigger
companies.
2. The provision of industrial licensing was simplified. Compulsory licensing now
remained for 64 industries.
3. High level attention on the sunrise industries such as telecommunications,
computerisation and electronics.
4. Industries based on imported raw materials got a boost.
5. The agriculture sector was attended with a new scientific approach with many
technology missions being launched by the government.
6. Modernisation and profitability aspects of public sector undertakings were
emphasised.
7. Foreign investment was further simplified with more industrial areas being open
for their entries.
8.New Industrial Policy During Economic Reforms of 1991
The long-awaited liberalised industrial policy was announced by the Government of
India in 1991 in the midst of severe economic instability in the country. The objective of
the policy was to raise efficiency and accelerate economic growth.
Reason for this policy:
1. Due to gulf war 1990-1991 the oil prices were fastly depleting India foreign
reserves.
2. Inflation peak at 17%
3. The gross fiscal deficit had declined to just two weeks of import coverage.
4. Sharp decline of private remittances from overseas Indian workers in the wake
of gulf war.
Features of New Industrial Policy:
1. De-reservation of Public sector: Sectors that were earlier exclusively reserved
for public sector were reduced. However, Presently, only two sectors- Atomic
Energy and Railway operations- are reserved exclusively for the public sector.
pre-eminent place of public sector in 5 core areas like arms and ammunition, atomic
energy, mineral oils, rail transport and mining were continued.

2. De-licensing: Abolition of Industrial Licensing for all projects except for a short
list of industries. There are only 4 industries at present related to security, strategic
and environmental concerns, where an industrial license is currently required1. Electronic aerospace and defence equipment
2. Specified hazardous chemicals
3. Industrial explosives
4. Cigars and cigarettes of tobacco and manufactured tobacco substitutes
3. Disinvestment of Public Sector:
Government stakes in Public Sector Enterprises were reduced to enhance their
efficiency and competitiveness.
4.Liberalisation of Foreign Investment:
This was the first Industrial policy in which foreign companies were allowed to have
majority stake in India. In 47 high priority industries, upto 51% FDI was allowed.
For export trading houses, FDI up to 74% was allowed. Today, there are numerous
sectors in the economy where government allows 100% FDI.
5. Foreign Technology Agreement:
Automatic approvals for technology related agreements.
6. MRTP Act was amended to remove the threshold limits of assets in respect of
MRTP companies and dominant undertakings. MRTP Act was replaced by the
Competition Act 2002.
7. The FERA replaced by FEMA.
8. Location of industries:
1. Non-polluting industries might be setup anywhere.
2. Polluting industries setup 25 kms away from the cities.
Outcomes of New Industrial Policies
1. The 1991 policy made ‘Licence, Permit and Quota Raj’ a thing of the
past. It attempted to liberalise the economy by removing bureaucratic
hurdles in industrial growth.
2. Limited role of Public sector reduced the burden of the Government.

3. The policy provided easier entry of multinational
companies, privatisation, removal of asset limit on MRTP companies, liberal
licensing.
4. All this resulted in increased competition, that led to lower prices in many goods
such as electronics prices. This brought domestic as well as foreign investment in
almost every sector opened to private sector.
5. The policy was followed by special efforts to increase exports. Concepts like
Export Oriented Units, Export Processing Zones, Agri-Export Zones, Special
Economic Zones and lately National Investment and Manufacturing Zones
emerged. All these have benefitted the export sector of the country.
Limitations of Industrial Policies in India
1. Stagnation of Manufacturing Sector:
Industrial policies in India have failed to push manufacturing sector whose
contribution to GDP is stagnated at about 16% since 1991.
2. Distortions in industrial pattern owing to selective inflow of
investments:
In the current phase of investment following liberalisation, while substantial
investments have been flowing into a few industries, there is concern over the slow
pace of investments in many basic and strategic industries such as engineering,
power, machine tools, etc.
3. Displacement of labour:
Restructuring and modernisation of industries as a sequel to the new industrial
policy led to displacement of labour.
4. Absence of incentives for raising efficiency:
Focusing attention on internal liberalisation without adequate emphasis on trade
policy reforms resulted in ‘consumption-led growth’ rather than ‘investment’ or
‘export-led growth’.

5. Vaguely defined industrial location policy:
The New Industrial Policy, while emphasised the detrimental effects of damage to
the environment, failed to define a proper industrial location policy, which could
ensure a pollution free development of industrial climate.
Types of industry
1. Large scale industry
2. Small scale industry
1. Large scale industries
The term “Large scale industries” refers to those industries which require huge
infrastructure, man-power and a have influx of capital assets. All the heavy
industries of India like the iron and steel industry, textile industry, automobile
manufacturing industry fall under the large-scale industrial arena.
Iron and steel industry
First steel industry at Kulti, Near Jharia, West Bengal – Bengal iron works company in
1870.First large scale steal plant TISCO at Jamshedpur in 1907 followed by IISCO at
Burnpur in 1919. Both belonged to private sector. The first public sector unit was
“Vishveshvaraya Iron and Steel works” at Bhadrawati. All these are managed by SAIL
at present all important steel plants except TISCO, are under public sector. Steel
Authority of India Ltd (SAIL) was established in 1974 and was made responsible for the
development of the steel industry. Presently India is the eighth largest steel producing
country in the world.
Public sector steel plants
Location Assistance
Rourkela (Odissa) Germany
Bhilai (MP) Russia
Durgapur (WB) UK
Bokaro (Jharkhand) Russia
Burnpur (WB) Acquired from private sector in 1976
Vishakhapattnam (AP) Russia
Salem (Tamil Nadu) Government of India (No external assistance)
Vijai Nagar
(Karnataka) Government of India

Bhadrawati
(Karnataka)
Nationalisation of Vishveshvarayya Iron and
Steel Ltd (owned by Centre and State
government)
2. Jute industry
Jute industry is an important industry for a country like India, because not only it
earns foreign exchange but also provides substantial employment opportunities in
agriculture and industrial sectors. Its first modernised industrial unit was
established at Reshra in West Bengal in 1855.The jute industry in the country is
traditionally export oriented. India ranks number one in the raw jute and jute
goods production and number two in export of jute goods in the world.
3. Cotton and textile industry
Oldest industry of India, and employs largest number of workers. It is the largest
organised and broad-based industry which accounts for 4% of GDP, 20% of
manufacturing value-added and one third of total export earnings. The first Indian
modernised cotton cloth mill was established in 1818 at Fort Gloaster near
Calcutta. But this mill was not successful. The second mill named “Mumbai’s
Spinning and Weaving Co.” Was established in 1854 at Bombay by KGN Daber.
4. Sugar industry
Sugar industry is the second largest industry among agriculture-based industries in
India. India is now the largest producer and consumer of sugar in the world.
Maharashtra contributes over one third of the Indian total sugar output, followed
closely by Uttar Pradesh.
5. Fertiliser industry
India is the third largest producer of nitrogenous fertilisers in the world.
6. Paper industry
The first mechanised paper mill was set up in 1812 at Serampur in West Bengal.
The paper industry in India is ranked among the 15 top global paper industries.
7. Silk industry
India is the second-largest country in the world in producing natural silk. At
present, India produces about 16% silk of the world. India enjoys the distinction of
being the only country producing all the five known commercial varieties of silk viz
Mulberry, Tropical Tussar, Oak Tussar, Eri and Muga.

8. Petroleum and natural gas
First successful Oilwell was dug in India in 1889 at Digboi, Assam. At present a
number of regions with oil reserves have been identified and oil is being extracted
in these regions for exploration purpose, Oil and Natural Gas Commission (ONGC)
was established in 1956 at Dehradun, Uttarakhand.
SMALL SCALE INDUSTRIES
Small scale industries play an important role for the development of Indian economy in
many ways. About 60 to 70 percent of the total innovations in India comes from the
SSIs. Many of the big businesses today were all started small and then nurtured into
big businesses.
Role of SSIs in Economic Development
1. Provide Employment
SSIs use labour intensive techniques. Hence, they provide employment
opportunities to a large number of people. Thus, they reduce the unemployment
problem to a great extent. SSIs provide employment to artisans, technically qualified
persons and professionals, people engaged in traditional arts, people in villages and
unorganized sectors. The employment-capital ratio is high for the SSIs.
2. Bring Balanced Regional Development
SSIs promote decentralized development of industries as most of the SSIs are set up
in backward and rural areas. They remove regional disparities by industrializing
rural and backward areas and bring balanced regional development. They help to
reduce the problems of congestion, slums, sanitation and pollution in cities. They are
mostly found in outside city limits. They help in improving the standard of living of
people residing in suburban and rural areas in India. The entrepreneurial talent is
tapped in different regions and the income is also distributed instead of being
concentrated in the hands of a few individuals or business families.
3. Help in Mobilization of Local Resources
SSIs help to mobilize and utilize local resources like small savings, entrepreneurial
talent etc., of the entrepreneurs, which might otherwise remain idle and unutilized.
They pave way for promoting traditional family skills and handicrafts. There is a
great demand for handicraft goods in developed countries. They help to improve the

growth of local entrepreneurs and self-employed professionals in small towns and
villages in India.
4. Pave for Optimisation of Capital
SSIs require less capital per unit of output. They provide quick return on investment
due to shorter gestation period. The payback period is quite short in SSIs. SSIs
function as a stabilizing force by providing high output-capital ratio as well as high
employment capital ratio. They encourage the people living in rural areas and small
towns to mobilize savings and channelize them into industrial activities.
5. Promote Exports
SSIs do not require sophisticated machinery. Hence, import the machines from
abroad is not necessary. On the other hand, there is a great demand for goods
produced by SSIs. Thus, they reduce the pressure on the country’s balance of
payments. However, with recent past large-scale industries are able to borrow large
funds with low interest rate and spend large sums on advertisements. Hence SSSs
are gradually vanishing. SSIs earn valuable foreign exchange through exports from
India.
6. Complement Large Scale Industries
SSIs play a complementary role to large scale sector and support the large-scale
industries. SSIs provide parts, components, accessories to large scale industries and
meet the requirements of large-scale industries through setting up units near the
large-scale units. SSIs serve as ancillaries to large scale units.
7. Meet Consumer Demands
SSIs produce wide range of products required by consumers in India. Hence, they
serve as an anti-inflationary force by providing goods of daily use.
8.Develop Entrepreneurship
SSIs help to develop a class of entrepreneurs in the society. They help the job seekers
to become job givers. They promote self-employment and spirit of self-reliance in
the society. SSIs help to increase the per capita income of India in various ways.
They facilitate development of backward areas and weaker sections of the society.

ROLE OF PUBLIC SECTOR AND DISINVESTMENT:
PUBLIC SECTOR:
Public Sector Enterprises often referred to as government owned
undertakings/enterprises or state-owned enterprises are wholly or partly owned by and
controlled by the government and produce marketable goods and services i.e. PSEs
includes industrial and commercial enterprises which are managed and controlled by
government. Public sector and PSEs are different from each other.
The objectives of the PSUs are:
1. To build self-reliant economy
2. To prevent/ reduce concentration of private economic power
3. Establish sound economic infrastructure
4. Set up industries in the backward regions and thus help bring about balanced
regional development
5. Assist in ancillarisation and thus spread the benefits of industrialisation
List of industries reserved for:
1. Atomic energy
2. Minerals specified in the schedule to the atomic energy (control of production
and use) order 1953.
3. Railway passenger transport
Public sector companies/emterprises:
1. Criteria for grant of Maharatna status: –
The CPSEs fulfilling the following criteria are eligible to be considered for grant of
Maharatna status.
1. Having Navratna status.
2. Listed on Indian stock exchange with minimum prescribed public shareholding
under SEBI regulations.
3. Average annual turnover of more than ₹25,000 crore, during the last 3 years.
4. Average annual net worth of more than ₹15,000 crore, during the last 3 years.
5. Average annual net profit after tax of more than ₹5,000 crore, during the last 3
years.
6. Should have significant global presence/international operations.

Maharatna CPSEs
1. Bharat Heavy Electricals Limited
2. Bharat Petroleum Corporation Limited
3. Coal India Limited
4. GAIL (India) Limited
5. Indian Oil Corporation Limited
6. NTPC Limited
7. Oil & Natural Gas Corporation Limited
8. Steel Authority of India Limited
2. Criteria for grant of Navratna status :-
The Miniratna Category – I and Schedule ‘A’ CPSEs, which have obtained ‘excellent’ or
‘very good’ rating under the Memorandum of Understanding system in three of the last
five years, and have composite score of 60 or above in the six selected performance
parameters, namely,
1. Net profit to net worth,
2. Manpower cost to total cost of production/services,
3. Profit before depreciation, interest and taxes to capital employed,
4. Profit before interest and taxes to turnover,
5. Earnings per share and
6. Inter-sectoral performance.
Navratna CPSEs
1. Bharat Electronics Limited
2. Container Corporation of India Limited
3. Engineers India Limited
4. Hindustan Aeronautics Limited
5. Hindustan Petroleum Corporation Limited
6. Mahanagar Telephone Nigam Limited
7. National Aluminium Company Limited
8. NBCC (India) Limited
9. NMDC Limited
10. NLC India Limited
11. Oil India Limited

12. Power Finance Corporation Limited
13. Power Grid Corporation of India Limited
14. Rashtriya Ispat Nigam Limited
15. Rural Electrification Corporation Limited
16. Shipping Corporation of India Limited
3. Criteria for grant of Miniratna status:
The CPSEs which have made profits in the last three years continuously and have
positive net worth are eligible to be considered for grant of Miniratna status.
DISINVESTMENT
Disinvestment means selling of government securities of Public Sector Undertakings
(PSUs) to other PSUs or private sectors or banks mutual funds or FIIs. This process has
not been fully implemented. Disinvestment in India is seen connected to three major
interrelated areas, namely
1. A tool of public sector reforms
2. A part of the economic reforms started in mid-1991. It has to be done as a
complementary part of the ‘de-reservation of industries.
3. Initially motivated by the need to raise resources for budgetary allocations.
Objectives and its importance
1. Improving the structure of incentives and accountability of PSUs in India.
2. Financing the increasing fiscal deficit, also to fund growth and social sector
welfare.
3. Financing large-scale infrastructure development, defence, education,
healthcare etc.
4. For investing in the economy to encourage spending, improve public finances.
5. Brings about greater efficiencies for the economy and markets as a whole.
6. Bring relief to consumers by way of more choices and better quality of products
and services, e.g. Telecom sector.
7. Depoliticise non-essential services.
8. To introduce competition and market discipline and financing large scale
infrastructure development.

Types
Since the process of disinvestment was started in India (1991), its consisted of two
official types.
1. Token Disinvestment
Disinvestment started in India with a high political caution—in a symbolic way known
as the ‘token’ disinvestment (presently being called as ‘minority stake sale’). The
general policy was to sell the shares of the PSUs maximum up to the 49 per cent i.e.,
maintaining government ownership of the companies. But in practice, shares were sold
to the tune of 5–10 per cent only. This phase of disinvestment though brought some
extra funds to the government it could not initiate any new element to the PSUs, which
could enhance their efficiency. It remained the major criticism of this type of
disinvestment, and experts around the world started suggesting the government to go
for it in the way that the ownership could be transferred from the government to the
private sector. The other hot issue raised by the experts was related to the question of
using the proceeds of disinvestment.
2. Strategic Disinvestment
1. In order to make disinvestment a process by which efficiency of the PSUs could be
enhanced and the government could de-burden itself of the activities in which the
private sector has developed better efficiency so that the government could
concentrate on the areas which have no attraction
2. for the private sector such as social sector support for the poor masses, the
government initiated the process of strategic disinvestment. The government
classifying the PSUs into ‘strategic’ and ‘non-strategic’ announced in March 1999
that it will generally reduce its stake (shareholding) in the ‘non-strategic’ public
sector enterprises (PSEs) to 26 per cent or below if necessary and in the ‘strategic’
PSEs (i.e., arms and ammunition; atomic energy and related activities; and
railways) it will retain its majority holding. There was a major shift in the
disinvestment policy from selling small lots of share in the profit-making PSUs
(i.e., token disinvestment) to the strategic sale with change in management
control both in profit and loss-making enterprises.

The essence of the strategic disinvestment was1. The minimum shares to be divested will be 51 per cent, and
2. the wholesale sale of shares will be done to a ‘strategic partner’ having
international class experience and expertise in the sector.
CURRENT DISINVESTMENT POLICY
India’s disinvestment policy has evolved over time since it commenced in 1991. It has
two major features – ‘ideology’ behind the policy and the ‘policy’ itself.
The ideology behind the policy is:
1. Public ownership of PSUs to be promoted as they are wealth of nation;
2. Government to hold minimum 51 percent shares in case of ‘minority stake sale’;
3. Upto 50 per cent or more shares might be sold off under ‘strategic
disinvestment’.
The current policy of disinvestment followed by the government is as given below:
1. Minority stake sale (the policy of November 2009 continues):
Listed PSUs to be taken first to comply to minimum 25 per cent norm; New PSUs to
be listed which have earned net profit in three preceding consecutive years; ‘Followon’ public offers on case by case basis once capital investment needed; and
Department of Investment and Public Asset Management to identify PSUs and
suggest disinvestment in consultation with respective ministries.
2. Strategic Disinvestment i.e., selling 50 per cent or more shares of the PSUs
announced in February 2016: To be done through consultation among
Ministries/Departments and NITI Aayog; NITI Aayog to identify PSUs and advice on
its different aspects; and Core Group of Secretaries on Disinvestment to consider the
recommendations of NITI Aayog to facilitate a decision by the CCEA and to
supervise/monitor the implementation process.
Proceeds of Disinvestment:
In the very next year of disinvestment, there started a debate in the country concerning
the suitable use of the proceeds of disinvestment (i.e., accruing to the government out
of the sale of the shares in the PSUs).

1. National Investment Fund:
1. In January 2005, the Government of India decided to constitute a ‘National
Investment Fund’ which has the following Started in 2005
2. Proceeds from disinvestment of Central Public Sector Enterprises were to be
channelized in NIF
3. The corpus of the fund was to be of permanent nature and the same was to be
professionally managed in order to provide sustainable returns to the
Government, without depleting the corpus.
4. NIF was to be maintained outside the Consolidated Fund of India
5. Selected Public Sector Mutual Funds will be entrusted with the management of
the corpus of the Fund
6. Earlier, 75% of the annual income of the Fund will be used to finance selected
social sector schemes, which promote education, health and employment. The
residual 25% of the annual income of the Fund will be used to meet the capital
investment requirements of profitable and revivable CPSEs that yield adequate
returns, in order to enlarge their capital base to finance expansion/
diversification
7. In 2013, these restrictions were relaxed as follows:
Disinvestment proceeds would go into “Public Account”
NIF now could be used for following purposes:
1. Purchasing shares of CPSE to maintain 51% ownership
2. Recapitalisation of PSBs
3. Investment by Government in RRBs/IIFCL/NABARD/Exim Bank
4. Equity infusion in Metro projects
5. Investment in Bhartiya Nabhikiya Vidyut Nigam Limited and Uranium
Corporation of India Ltd
6. Investment in Railways towards capital expenditure.
DIPAM
Union Government on 20 April 2016 notified that the Department of Disinvestment is
renamed as Department of Investment and Public Asset Management. DIPAM will
work under Union Finance Ministry. It has been mandated to advise the Union

Government in the matters of financial restructuring of PSUs and also for attracting
investment through capital markets. It will deal with all matters relating to sale of
Union Government’s equity through private placement or offer for sale or any other
mode in the erstwhile Central PSUs. Hence forth all other post disinvestment matters
will continue to be handle by the Union Finance Ministry or concerned department in
consultation with DIPAM on necessity.
Advantages of Disinvestment
1. IT raises finances for the government that can be spent for restructuring the
PSE’s
2. Make Additional finances available for the social sector priorities.
3. Exposes the enterprises to market discipline there by forcing them to become
more efficient and survive on their own financial and economic strength.
4. When units become more professionalised and profitable
5. Reducing the public debt, opening up the public sector to appropriate private
investment would increase the economic activities and benefits the economy.
Criticism:
1. The exercise is essentially meant to garner the resources for filling the revenue
deficit
2. PSEs contribute by way of dividends and profits and thus importance source of
public finance
3. PSE check the private sector in wider market place and so are crucial to
economy. For example, if PSEs are not there, the private enterprise may cartelise
etc
PRIVATISATION AND LIBERALISATION
PRIVATIZATION:
Privatization means transfer of ownership and management of enterprises from public
sector to private sector. Denationalization, disinvestment and opening exclusive public
sector enterprises to private sector are the gateways to privatization.

Argument in favour of privatisation
Privatization was necessitated because of the belief that the private sector was not
given enough opportunities to earn more money.
Arguments not favour of privatisation
Privatization measures favour the continuance of the monopoly power. Only the
powerful people can sustain in business markets. Social justice cannot be easily
established and maintained. As a result, the disparities tend to widen among people
and among regions.
LIBERALISATION
Liberalization refers to removal of relaxation of governmental restrictions in all stages
in industry. Delicensing, decontrol, deregulation, subsidies (incentives) and greater
role for financial institutions are the various facets of liberalization.
1. Arguments in favour of liberalisation
Liberalization was necessitated because various licensing policies were said to be
deterring the growth of the economy.
2. Arguments Against Liberalisation
Liberalization measures, when effectively enforced, favour an unrestricted entry of
foreign companies in the domestic economy. Such an entry prevents the growth of
the local manufacturers.
PUBLIC PRIVATE PARTNERSHIPS
Public Private Partnership means an arrangement between a government or
government owned entity on one side and a private sector entity on the other. That can
be used to finance, build, and operate projects, such as public transportation networks,
parks, and convention centers. Financing a project through a public-private
partnership can allow a project to be completed sooner or make it a possibility in the
first place.
Types of public private partnership models
1. Bot Toll:
The ‘Build-Operate-Transfer-Toll’ was one of the earliest models of PPP.

Feature:
Other than sharing the project cost with the Government the private bidder was to
build, maintain, operate the road and collect toll on the vehicular traffic. The bid was
given to the private company offering to share maximum toll revenue to the
government. The private party used to cover “all risks” related to—land acquisition,
construction (damage), inflation, cost over-runs caused by delays and commercial. The
government was responsible for only regulatory clearances.
Drawbacks
This model proved to be unsustainable for the private bidder—undue delay in land
acquisition due to litigation, cost over-runs and uncertainties in traffic movement
(commercial risk)—made the road projects economically unviable.
2. Bot-Annuity:
This was an improvement over the BOT-TOLL model aimed at reversing the
declining interest of the private companies towards road projects by manly reducing
the risk for the private players.
Features:
1. Other than sharing the project cost the private player was to build, maintain and
operate the road projects without any responsibility of collecting toll on the traffic.
The private players were offered a fixed amount of money annually (called
‘annuity’) as compensation—the party bidding for the minimum ‘annuity’ used to
get the project. Toll collection was the responsibility of the Government.
2. This was different from the previous model (BOT-TOLL) in one sense—private
players were not having any commercial risk (traffic)—but they remained very
much exposed to other risks land acquisition delays, inflation, cost over-runs,
construction.
Drawbacks
Even this model, over the time proved to be unviable for the private sector due to the
leftover risks they were exposed to.

3. EPC MODEL:
The PPP model which was seen to be a better way out to promote the infra projects
were visibly failing by the year 2010 and Government was unable to attract the
private players towards the road sector. It was in this backdrop that the EngineeringProcurement-Construction (EPC) Model was announced.
Features
1. In this model, project cost was fully covered by the Government it means, it was
not a PPP model and was like normal contracts given to the bidders together
with majority of the risks—land acquisition, cost over-runs due to delay, inflation
and commercial.
2. The private developers were supposed to design, construct and hand over the
road projects to the government—maintenance, operation and toll collection
being the government’s responsibilities.
3. Contract was given to the private player who offered to construct roads at the
lowest cost/price guaranteeing the desired quality levels. It means, the private
player in this model was only exposed to the construction-related risks which is a
normal risk involved in any contract
4. given by the government to the private party.
Drawbacks
EPC Model could have been a temporary way out to develop road projects as it was
fully funded by the government—reform era had aimed to attract investment from the
private players by evolving a ‘business model’ for the road sector—need was to develop
a new PPP model. In this backdrop we see the government coming up with a new PPP
model for the road projects—the Hybrid Annuity Model.
4. HAM: Hybrid Annuity Model
Ham is a mix of EPC and BOT-ANNUITY models.
Features:
1. In this model the project cost is shared by the government and the private player
in ratio of 40:60, respectively.
2. The private player is responsible to construct and hand over the roads to the
government which will collect toll (if wishes)—maintenance remaining the
responsibility of the private player till the annuity period.

3. Private player is paid a fixed sum of economic compensation called ‘annuity’,
similar to the BOTANNUITY model by the government for a fixed tenure
normally 15 years, though it is flexible.
4. The private player which demands lowest annuity in bidding gets the contract.
5. In this model, most of the major risks are covered by the government—land
acquisition, clearances, operation, toll collection and commercial while the risks
related to inflation and cost over-runs are shared in ratio of the project cost
sharing.
6. But the private sector is still exposed to the construction and maintenance risks.
But overall, this is the best PPP model for the time devoid of most of the flaws of
past. Private sector has shown good response to this model. By early 2018, this
model was notified by the Government for other infra sectors too.
5. Swiss Challenge Model:
1. In this model, one bidder is asked by the government to submit the proposal for
the project which is put in public domain. Afterwards, several other bidders
submit their proposals aimed at improving and beating the original (first)
bidder— finally an improved bid is selected (called counter proposal). If the
original bidder is not able to match the counter proposal, the project is awarded
to the counter bidder. Government has made it an online method. Government
of India, for the first time, announced the use of this model for redevelopment of
railway stations in the country (by late 2015). This is a very flexible method of
giving contracts (i.e., public procurement) which can be used in PPP as well as
non- PPP projects.
2. Though, the Government of India used this model for the first time, this has
already been used by several states by now—Karnataka, Andhra Pradesh,
Rajasthan, Madhya Pradesh, Bihar, Punjab and Gujarat—for roads and housing
projects. In 2009, the Supreme Court approved the method for award of
contracts.
6. PPP Model for other sectors:
Though, the idea of PPP model was originally evolved for the infrastructure sector, in
recent times, there have been proposals for its uses in other areas, too—such as

1. Education,
2. Healthcare and
3. Agriculture.
The model is getting popular support from the urban local bodies in the country and it
is believed that in the Smart Cities scheme it could play a very lucrative role. The
Economic Survey 2016-17 Suggested the government to create a new institution as a
PPP to compete with and complement existing institutions to procure stock and
dispose pulses.
7. PPPP Model:
Public private people partnership (PPPP) model, suggested too for certain sector in the
country. Though such a model has been in use since 2000-01 itself by in agriculture
sector to promote participatory irrigation development— in the Command Area
Development Programme of 1974 (renamed as Command Area Development and
Watershed Management Programme in 2004)—in which individual financial
contributions come from the farmers (around 15 per cent of the total cost) to develop
field channels and drains. It is believed that in the area of developing, maintaining and
protecting local public assets this model could be highly effective. In future, the local
bodies— urban as well as rural—may be using this model to develop social and
economic infrastructure.
SPECIAL ECONOMIC ZONES
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. As per the Special Economic Zones
Act of 2005, the government has so far notified about 400 such zones in the country.
Since the SEZ deprives the farmers of their land and livelihood, it is harmful to
agriculture. In order to promote export and industrial growth in line with globalisation
the SEZ was introduced in many countries. 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. The broad range of SEZ covers
free trade zones, export processing zones, industrial parks, economic and technology

development zones, high-tech zones, science and innovation parks, free ports,
enterprise zones, and others.
Major Objectives of SEZs
1. To enhance foreign investment, especially to attract foreign direct investment
(FDI) and thereby increasing GDP.
2. To increase shares in Global Export (International Business).
3. To generate additional economic activity.
4. To create employment opportunities.
5. To develop infrastructure facilities.
6. To exchange technology in the global market.
Main Characteristics of SEZ
1. Geographically demarked area with physical security.
2. Administrated by single body/ authority.
3. Streamlined procedures.
4. Having separate custom area.
5. Governed by more liberal economic laws.
6. Greater freedom to the firms located in SEZs.
The advantages in SEZs:
1. Duty free import/domestic procurement of goods for development, operation
and maintenance of SEZ units
2. 100% Income Tax exemption on export income for SEZ units under Section
10AA of the Income Tax Act for first 5 years, 50% for next 5 years thereafter
and 50% of the ploughed back export profit for next 5 years.
3. Exemption from minimum alternate tax under section 115JB of the Income Tax
Act.
4. External commercial borrowing by SEZ units upto US $ 500 million in a year
without any maturity restriction through recognized banking channels.
5. Exemption from Central Sales Tax.
6. Exemption from Service Tax.
7. Single window clearance for Central and State level approvals.
8. Exemption from State sales tax and other levies as extended by the respective
State Governments.

DISADVANTAGES
1. Land grabbing and Loss of agricultural land
2. Deindustrialisation
3. Regional disparity
4. Loss of revenue to government
5. Compensatory problems
RECENT AMENDMENTS
The Special Economic Zones (Amendment) Bill, 2019 was introduced in Lok Sabha by
Mr. Piyush Goyal, Minister of Commerce and Industry on June 24, 2019. It amends
the Special Economic Zones Act, 2005 and replaces an Ordinance that was
promulgated on March 2, 2019. The Act provides for the establishment, development
and management of Special Economic Zones for the promotion of exports.
Definition of person: Under the Act, the definition of a person includes an
individual, a Hindu undivided family, a company, a co-operative society, a firm, or an
association of persons. The Bill adds two more categories to this definition by
including a trust, or any other entity which may be notified by the central government.
MICRO, SMALL AND MEDIUM ENTERPRISES (MSMEs)
The Micro, Small and Medium Enterprises are defined under the MSMED Act 2006.
The enterprises are classified as Manufacturing and Service enterprises based on the
investment in plant and machinery and equipment (excluding land and building).
Micro, Small and Medium Enterprises (MSME) sector has emerged as a highly vibrant
and dynamic sector of the Indian economy over the last five decades. MSMEs not only
play crucial role in providing large employment opportunities at comparatively lower
capital cost than large industries but also help in industrialization of rural & backward
areas, thereby, reducing regional imbalances, assuring more equitable distribution of
national income and wealth. MSMEs are complementary to large industries as ancillary
units and this sector contributes enormously to the socio-economic development of the
country.

Manufacturing Enterprises
1. Micro Manufacturing Enterprises:
The investment in plant and machinery does not exceed ₹25 lakhs.
2. Small Manufacturing Enterprises:
The investment in plant and machinery is more than twenty-five lakh rupees but
does not exceed ₹5 crores.
3. Medium Manufacturing Enterprises:
The investment in plant and machinery is more than ₹5 crores but not exceeding
₹10 crores.
Service Enterprises
1. Micro Service Enterprises:
The investment in equipment does not exceed ₹.10 lakhs.
2. Small Service Industries:
The investment in equipment is more than ₹.10 lakhs but does not exceed ₹.2
crores.
3. Medium Service Enterprises:
The investment in equipment is more than ₹.2 crores but does not exceed ₹.5
crores. The primary responsibility of promotion and development of MSMEs is of the
State Governments. However, the Government of India, supplements the efforts of the
State Governments through various initiatives.
The schemes/programmes undertaken by the Ministry and its organizations seek to
facilitate/provide:
1. Adequate flow of credit from financial institutions/banks.
2. Support for technology upgradation and modernization.
3. Integrated infrastructural facilities.
4. Modern testing facilities and quality certification.
5. Access to modern management practices.
6. Entrepreneurship development and skill upgradation through appropriate
training facilities.
7. Support for product development, design intervention and packaging.
8. Welfare of artisans and workers.
9. Assistance for better access to domestic and export markets.

10. Cluster-wise measures to promote capacity-building and empowerment of the
units and their collectives.
Importance
1. Employment:
It is the second largest employment generating sector after agriculture. It provides
employment to around 120 million persons in India.
2. Exports:
It contributes around 45% of the overall exports from India.
3. Inclusive growth:
MSMEs promote inclusive growth by providing employment opportunities in rural
areas especially to people belonging to weaker sections of the society. For example:
Khadi and Village industries require low per capita investment and employs a large
number of women in rural areas.
4.Financial inclusion:
Small industries and retail businesses in tier-II and tier-III cities create
opportunities for people to use banking services and products.
5. Promote innovation:
It provides opportunity for budding entrepreneurs to build creative products
boosting business competition and fuels growth.
6. Contribution to GDP:
With around 36.1 million units throughout the geographical expanse of the country,
MSMEs contribute around 6.11% of the manufacturing GDP and 24.63% of the GDP
from service activities. MSME ministry has set a target to up its contribution to GDP
to 50% by 2025 as India becomes a $5 trillion economy.
MAKE IN INDIA
Make in India was launched in September 2014 by GOI to encourage multinational as
well as domestic companies to manufacture their products in India. This initiative is set
to boost entrepreneurship, not only in manufacturing but also in infrastructure and
service sector as well.
Vision:

“Come make in India. Sell anywhere, but make in India.” To attract both capital and
technological investment in India enabling it to become the top global FDI, also
surpassing even china and united states.
Objectives
The focus of Make in India programme is on creating jobs and skill enhancement in 25
sectors. These include:
1. Automobiles.
2. Aviation.
3. Chemicals.
4. IT & BPM.
5. Pharmaceuticals.
6. Construction.
7. Defence manufacturing.
8. Electrical machinery.
9. Food processing.
10.Textiles and garments.
11. Ports.
12. Leather.
13. Media and entertainment.
14. Wellness.
15. Mining.
16. Tourism and hospitality.
17. Railways.
18.Automobile components.
19. Renewable energy.
20. Mining.
21. Bio-technology.
22.Space.
23.Thermal power.
24.Roads and highways.
25.Electronics systems.

Logo
Inspired from Ashoka chakra is striding lion made of cogs, symbolizing manufacturing,
strength and national pride.
The initiative is built on four pillars which are as follows:
New Processes:
The government is introducing several reforms to create possibilities for getting
Foreign Direct Investment (FDI) and foster business partnerships. Some initiatives
have already been undertaken to alleviate the business environment from outdated
policies and regulations. This reform is also aligned with parameters of World Bank’s
‘Ease of Doing Business’ index to improve India’s ranking on it.
New Infrastructure:
Infrastructure is integral to the growth of any industry. The government intends to
develop industrial corridors and build smart cities with state-of-the-art technology and
high-speed communication. Innovation and research activities are supported by a fastpaced registration system and improved infrastructure for Intellectual Property Rights
(IPR) registrations. Along with the development of infrastructure, the training for the
skilled workforce for the sectors is also being addressed.
New Sectors:
‘Make in India’ has identified 25 sectors to promote with the detailed information being
shared through an interactive web-portal. The Government has allowed 100% FDI in
Railway and removed restrictions in Construction. It has also recently increased the
cap of FDI to 100% in Defence and Pharmaceutical.
New Mindset:
Government in India has always been seen as a regulator and not a facilitator. This
initiative intends to change this by bringing a paradigm shift in the way Government
interacts with various industries. It will focus on acting as a partner in the economic
development of the country alongside the corporate sector.
Major concerns
1. Allegation of siphoning of funds
2. Higher pricing

3. More profits to MNCs for setting up plants in India.
4. Land grabbing
5. Re-entry of black money
6. Lack of financing
Advantages
1. Employment creation
2. Improved gdp
3. Upgradation of technology
4. Development of rural and urban areas
5. Flow of capital
6. Improvement in ease of doing business.
Disadvantages
1. Land fragmentation
2. Disruption of agriculture
3. Depletion of natural resources
4. Loss of small entrepreneurs
5. Pollution.
Questions:
1. Explain briefly about New industrial policy 1991.
2. Write about Objectives of Public sector and Types of Disinvestment and current
Disinvestment policy.
3. What is public private partnership? Explain The types of public private
partnership models.
4. Give short notes on SEZ and its Advantages and Disadvantages.