TYBCOM SEM V – Business Economics V – Macroeconomic Aspects of India (English Version)-munotes

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1 Module I
1
MACRO ECONOMIC OVERVIEW OF
INDIA
Unit Structure
1.0 Objectives
1.1 New Economic policy 1991
1.2 Social Infrastructure with reference to Education, Health and family
welfare
1.3 Sustainable Development goals
1.4 Make in India, Skill Developme nt and training programmes
1.5 Summary
1.6 Questions
1.0 OBJECTIVES
 To study the reforms introduced under the New Economic policy
1991.
 To understand the role of social infrastructure with reference to
education and health
 To understand the sustainable dev elopment goals
 To analyze the Make in India and Skill development programmes of
the Government
1.1 NEW ECONOMIC POLICY 1991
1.1.1 Objectives of New Economic Policy1991
New Economic Policy of India was launched in the year 1991 under the
leadership of P . V. Narasimha Rao. This policy opened the door of the
India Economy for the global exposure for the first time. In this New
Economic Policy P. V. Narasimha Rao government reduced the import
duties, opened reserved sector for the private players, devalued the Indian
currency to increase the export. This is also known as the LPG Model of
growth.

New Economic Policy refers to economic liberalisation or relaxation in the
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2 and foreign pl ayers, and reduction of taxes to expand the economic wings
of the country.

Main Objectives of New Economic Policy – 1991, July 24
1. The main objective was to plunge Indian Economy in to the arena of
‘Globalization and to give it a new thrust on market or ientation.
2. The NEP wanted to bring down the rate of inflation
3. It intended to move towards higher economic growth rate and to build
sufficient foreign exchange reserves.
4. It wanted to achieve economic stabilization and to convert the economy
into a market economy by removing all kinds of unnecessary
restrictions.
5. It wanted to permit the international flow of goods, services, capital,
human resources and technology, without many restrictions.
6. It wanted to increase the participation of private pl ayers in the all
sectors of the economy by reducing number of sectors reserved for the
government.
1.1.2 The various reforms introduced under the New economic policy
Beginning with mid -1991, the Government has made some important
changes in its policies related to foreign trade, Foreign Direct Investment,
exchange rate, industry, fiscal discipline etc. The thrust of the New
Economic Policy has been towards creating a more competitive
environment in the economy as a means to improving the productivity
and efficiency of the system. This was to be achieved by removing the
barriers to entry and the restrictions on the growth of firms.
Following steps were taken under the NEP
Liberaliation :
(i) Free determination of interest rate by the commercial Banks:
Under the policy of liberalisation, interest rate of the banking system will
no longer be determined by RBI, Instead all Commercial Banks are
independent to determine the rate of interest.
(ii) Increase in the investment limit for the Small Scale Industries
(SSIs):
Investment limit of the small scale industries has been raised to Rs. 1
crore. So these companies can upgrade their machinery and improve their
efficiency making them more competitive.

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3 (iii) Freedom to import capital goods:
Indian industries w ill be free to buy machines and raw materials from
foreign countries to enable them to grow and modernise themselves.
(v) Freedom for expansion and production to Industries:
Under the new liberalized era, the Industries were given the freedom to
diversify their production capacities and reduce the cost of production.
Earlier government used to fix the maximum limit of production capacity.
Industries were not permitted to produce beyond that limit. Now the
industries will get freedom to decide their own pr oduction based on the
requirement of the markets.
(vi) Abolition of Restrictive Trade Practices:
According to Monopolies and Restrictive Trade Practices (MRTP) Act
1969 , all those companies having assets worth Rs. 100 crore or more were
called MRTP firms a nd were subjected to several restrictions. Now these
firms do not require to obtain prior approval of the Govt. for taking
investment decision. Now MRTP Act is replaced by the competition Act,
2002.
(vii)Removal of Industrial Licensing and Registration:
Earlier private sector had to obtain license from Government for starting a
new venture. Under the new policy, private sector has been freed from
licensing and other restrictions.
Industries licensing is necessary for following industries:
(i) Liquor
(ii) Cigarette
(iii) Defence equipment
(iv) Industrial explosives
(v) Drugs
(vi) Hazardous chemicals
2. Privatisation :
Privatisation means permitting the private sector to set up industries which
were previously reserved for the public sector. Under this polic y many
PSU’s were sold to private sector. In other words, privatisation is the
process of involving the private sector -in the ownership of Public Sector
Units (PSU’s).
The main reason for privatisation was the current state of PSU’s as most
were running in losses due to political interference. Production capacity
remained underutilized. To increase competition and efficiency,
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4 The following steps are taken for privatisation:
1. Sale of shares of PSUs:
Indian Government started selling shares of PSU’s to public and financial
institution to raise resources for itself. Now the private sector will acquire
ownership of these PSU’s. The share of private sector has increased from
45% to 55%.
2. Disinvestment in PSU’s:
The Gov t. has started the process of disinvestment in those PSU’s which
had been running into loss. It means that Govt. has been selling out these
industries to private sector. Govt. has sold enterprises worth Rs. 30,000
crores to the private sector.
3. Minimisat ion of Public Sector:
Previously Public sector was given the importance with a view to help in
industralisation and development of the country. But these PSU’s were not
able to achieve this objective and policy of contraction of PSU’s was
followed under ne w economic reforms. Number of industries reserved
for public sector was reduces from 17 to 2.
(a) Railway operations
(b) Atomic energy
3. Globalization:
Literally speaking Globalisation means opening the economy to global
competition. Broadly speaking, Gl obalisation means the interaction of the
domestic economy with the rest of the world with regard to foreign
investment, trade, production and financial matters.
Steps taken for Globalisation:
Following steps are taken for Globalisation:
(i) Reduction in ta riffs:
Custom duties and tariffs imposed on imports and exports are reduced
gradually in order to make India economy attractive to the global
investors.
(ii) Long term Trade Policy:
Forcing trade policy was enforced for longer duration so that the economy
could benefit from the policy.
Main features of the policy are:
(a) Liberal policy
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5 (c) Open competition has been encouraged.
(iii) Partial Convertibility of Indian currency:
Partial convertibility can be defined as to convert Indian currency (up to
specific extent) in the currency of other countries. So that the flow of
foreign investment in terms of Foreign Institutional Investment (FII) and
foreign Direct Investment (FDI).
This convertibility was permitt ed for following transaction:
(a) Remittances to meet family expenses
(b) Payment of interest
(c) Import and export of goods and services.
(iv) Increase in Equity Limit of Foreign Investment:
Equity limit of foreign capital investment has been raised from 40% to
100% percent. In 47 high priority industries, foreign direct investment
(FDI) to the extent of 100% will be allowed without any restriction. In this
regard Foreign Exchange Management Act (FEMA) will be enforced.
If the Indian economy is shining at the world map currently, its sole
attribution goes to the implementation of the New Economic Policy in
1991.
1.2 SOCIAL INFRASTRUCTURE WITH REFERENCE
TO EDUCATION, HEALTH AND FAMILY WELFARE
1.2.1 Meaning and importance of social infrastructure
Social inf rastructure are the basic amenities that do not directly influence
the economic activities, but indirectly have an impact on the economy
through achieving certain social objectives. For example, education does
not directly influence economic activities lik e production and distribution
but indirectly helps in the economic development of the country by spill -
over effects. So education, health services and sanitation etc. are the
examples of social infrastructure.
Importance of social infrastructure
Social in frastructure plays an important role in both the economic
development of a country and the development of society’s quality of life.
Social infrastructure enhances social wellbeing and furthers economic
growth by providing basic services and facilities wh ich allow human
development in the economy.
1) Human development : Human development is the process of
widening people ‘s choices and improving their quality of life. Social
infrastructure like education and health care are important to achieve
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6 2) Better standard of living: Accessibility to education is important
for creating employable workforce in the economy. Gainful employment
is necessary for enjoying better standard of living and improve the
community well being.
3) Productiv e efficiency: Availability of adequate basic facilities like
safe drinking water, health care facilities, family planning measures,
education infrastructure increases productive efficiency among the people.
These facilities forms the basis for enhancing e conomic growth in the
country.
4) Better resource utilization: Utilization of resources available in the
community depends on the capability of human resources. Availability of
good educational system enables skill development among the people. It
promotes a culture of research and development in the economy. This is
important in improving resource utilization.
5) Social change: Spread of education plays an important role in
enlightening people’s minds and helps to bring about social changes. For
example , educ ation of girl child will be encouraged in those societies
where people value the role of education. This will also help to reduce
social conflicts in the country.
1.2.2 Government policy measures for the development of education
in India
India is a ver y vast and populated country but is still a developing nation.
Hence, Education is one of the most vital components that will help in
transforming India from a developing nation to a developed nation. The
following are some of the measures adopted by the G overnment for
development of education in India.
1) Sarva Sahiksha Abhiyan (SSA): It was launched in 2001 -02. It is a
part of RTE Act 2009 and free education for all in the age group of 6 -14
years. It aims at reducing gender and social gaps at primary and
elementary levels of education. It also aims at providing basic facilities
like access to clean drinking water, toilets and free text books to children.
2) National program for education of girls at elementary
level(NPEGEL): It was launched in July 2003. The ai m of the programme
is to make education equitable .It supports education for the
underprivileged disadvantaged girls at the elementary level. It also
provides for model school in every cluster with the involvement of girls in
schools.
3) National programme of Mid -Day Meals in schools: National
Programme of Mid -Day-Meal in Schools (MDMS) is a flagship
programme of the Government of India aiming at enhancing enrolment,
retention and attendance and simultaneously improving nutritional levels
among children studyi ng in primary and upper primary schools across the
country. The main objectives of the Mid -Day-Meal scheme is to Improve
the nutritional status of children in classes one to five in Government and munotes.in

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7 Government aided schools and to encourage children from di sadvantaged
background to attend school regularly and help them to concentrate in
school activities.
4) Rashtriya Madhyamik shikha Abhiyan (RMSA): it was launched
in 2009. It is a centrally sponsored scheme for the development of
secondary education throughou t India. It aims to provide universal
education for all children between 15 -16 years of age.
5) Saakshar Bharat/Adult education: It aims at creating a literate
society through a variety of teaching learning programme for non -literate
and neo -literate of 15 ye ars and above. It also aims at continuing
education programme for lifelong education at the community level.
6) Rastriya Uchchatar Shiksha Abhiyan(RUSA) : It was launched
in 2013. It aims at holistic development of higher education in India. The
centrally sponsored scheme aims at providing strategic funding to higher
educational institutions throughout the country.
7) Samagra Shikha Abhiyan: Samagra Shiksha is an overarching
programme for the school education sector extending from pre -school to
class 12. The s cheme has been prepared with the broader goal of
improving school effectiveness measured in terms of equal opportunities
for schooling and equitable learning outcomes. It subsumes the three
Schemes of Sarva Shiksha Abhiyan (SSA), Rashtriya Madhyamik Shiksh a
Abhiyan (RMSA) and Teacher Education (TE) and was launched in 2018.
1.2.3 The role of Health and family welfare in India
Healthcare has become one of India’s largest sector, both in terms of
revenue and employment. Healthcare comprises hospitals, medica l
devices, clinical trials, outsourcing, telemedicine, medical tourism, health
insurance and medical equipment. The Indian healthcare sector is growing
at a brisk pace due to its strengthening coverage, services and increasing
expenditure by public as well private players.
Indian healthcare delivery system is categorised into two major
components public and private. The Government, i.e. public healthcare
system, comprises limited secondary and tertiary care institutions in key
cities and focuses on providi ng basic healthcare facilities in the form of
primary healthcare centres (PHCs) in rural areas. The private sector
provides majority of secondary, tertiary, and quaternary care institutions
with major concentration in metros and tier I and tier II cities.
1) Ayushman Bharat Yojana
Ayushman Bharat or “Healthy India” is a national initiative launched by
the Government as the part of National Health Policy 2017, in order to
achieve the vision of Universal Health Coverage (UHC). This initiative
has been designed o n the lines as to meet SDG and its underlining
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8 .Ayushman Bharat aims to undertake path breaking interventions to
holistically address health at primary, secondary and tertiary level.
Ayushman Bharat consists of two inter -related components, which are -
Establishment of Health and Wellness Centres
Pradhan Mantri Jan Arogya Yojana (PM -JAY)
a) Establishment of Health and Wellness Centres –The first
component, pertains to creation of 1,50,000 Health and Wellness Centres
which will bring health care closer to the homes of the people. These
centres will provide Comprehensive Primary Health Care (CPHC),
covering both maternal and child health services and non -communicable
diseases, including free essential drugs and diagnost ic services.
b) Pradhan Mantri Jan Arogya Yojana (PM -JAY) –PM-JAY is
one significant step towards achievement of Universal Health Coverage
(UHC) and Sustainable Development Goal - 3 (SDG3).It aims to provide
health protection cover to poor and vulnerable fami lies against financial
risk arising out of catastrophic health episodes.
2) Pradhan Mantri Swasthya Suraksha Yojana (PMSSY)
The Pradhan Mantri Swasthya Suraksha Yojana (PMSSY) aims at correcting the
imbalances in the availability of affordable healthcare fac ilities in the different
parts of the country in general, and augmenting facilities for quality medical
education in the under -served States in particular. The scheme was approved in
March 2006. It has been decided to set up 6 AIIMS -like institutions, one each in
the States of Bihar (Patna), Chattisgarh (Raipur), Madhya Pradesh (Bhopal),
Orissa (Bhubaneswar), Rajasthan (Jodhpur) and Uttaranchal (Rishikesh)

3) Integrated Disease Surveillance Program (IDSP)
The Integrated Disease Surveillance Program (IDSP) was initiated in
assistance with World bank, in the year 2004. The scheme aimed to
strengthen disease surveillance for infectious diseases to detect and
respond to outbreaks immediately. The objective of this programme is to
maintain decentralized laboratory -based IT enabled disease surveillance
system for epidemic -prone diseases to monitor disease trends and to detect
and respond to outbreaks in early rising phase through trained Rapid
Response Team (RRTs).

4) Pulse Polio Programme
Pulse Polio Immunization prog ramme was launched in India in 1995.
Children in the age group of 0 -5 years administered polio drops during
immunization rounds (in high risk areas) every year. The Pulse Polio
Initiative was started with an objective of achieving hundred per cent
coverage under Oral Polio Vaccine. It aimed to immunize children
through improved social mobilization, plan mop -up operations in areas
where poliovirus has almost disappeared and maintain high level of
morale among the public. WHO on 24th February 2012 removed Ind ia munotes.in

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9 from the list of countries with active endemic wild polio virus
transmission.

5) National Programme for Health Care of the Elderly (NPHCE)
With a comparatively young population, India is still poised to become
home to the second largest number of older pe rsons in the world.
Projection studies indicate that the number of 60+ in India will increase
from 100 million in 2013 and to 198 million by 2030. To overcome the
medical expenses for elderly whose income decreases post retirement,
Ministry of Health and Family Welfare launched The National Programme
for Health Care for the Elderly (NPHCE). The interventions are designed
to capture the Preventive, Curative and rehabilitative aspects in the
geriatric field.

6) National Health mission
National Health Mission ( NHM) was launched by the government of India
in 2013 subsuming the National Rural Health Mission and National Urban
Health Mission. It was further extended in March 2018, to continue till
March 2020. The main components include Health System Strengthening
in rural and urban areas for - Reproductive -Maternal - Neonatal -Child and
Adolescent Health (RMNCH+A), and Communicable and Non -
Communicable Diseases. The NHM envisages achievement of universal
access to equitable, affordable & quality health care services that are
accountable and responsive to people's needs.
The National Health Mission seeks to ensure the achievement of the
following indicators: -
 Reduce Maternal Mortality Ratio to 1/1000 live births
 Reduce Infant Mortality Rate to 25/1000 live births
 Reduce Total Fertility Rate to 2.1
 Prevention and reduction of anemia in women aged 15 –49 years
 Prevent and reduce mortality & morbidity from communicable, non -
communicable; injuries and emerging diseases
 Reduce household out -of-pocket expenditure on total health care
expenditure
1.3 SUSTAINABLE DEVELOPMENT GOALS
The Sustainable Development Goals (SDGs) are the blueprint for
achieving a better and sustainable future for all. The United Nations (UN)
General Assembly in its 70th Session held on 25th September 201 5, with
the aim of taking forward the success of Millennium Development Goals,
adopted the document titled "Transforming our World: The 2030 Agenda
for Sustainable Development" consisting of 17 Sustainable Development
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10 from 1st January, 2016. The SDGs are a comprehensive list of global
goals integrating social, economic and environmental dimensions of
development.

India has adopted the SDGs and it is the part of national goals of the
country. The NITI(National Institution for Transforming India)Aayog is
responsible for coordinating the SDGs in India. India has made progress in
SDGs by initiating and implementing various policies and programmes.
SDG 1: No Poverty

Government of India ha s launched a multi -pronged strategy to eradicate
poverty in all its form. Due to the multidimensional nature of poverty, the
Government is implementing a number of welfare schemes in the areas of
nutrition, health, education, housing, drinking water, sanit ation, skill
development, social protection etc. The sustained economic growth has
been instrumental in reducing the poverty over the years. In this context, it
is pertinent to note that India has resolved to become the 5 trillion -dollar
economy by 2025.

SDG 2 :Zero Hunger
A number of initiatives have been taken by the Government to ensure food
for all and has launched one of the largest food security programs in the
world owing to the National Food Security Act, 2013. The net area under
the organic farmin g is increasing over the years. India has made a
significant progress in the area of food security despite of having several
challenges.

SDG 3:Good Health and Well -Being
The Government Policies on health sector aim to provide universal health
services at affordable prices. In this direction, the National Health Policy,
the world’s largest health protection programme - Ayushman Bharat
Yojana, Pradhan Mantri Bhartiya Janaushadhi Pariyojana among others,
have been instrumental in achieving significant progres s in this area.
Government interventions have led to reduction in maternal and neonatal
mortality as well as under -five mortality. The pandemic of COVID -19
posed an unprecedented challenge before the health system of the country.
Government health policies and infrastructure have shown remarkable
resilience in exemplary handling of the pandemic.

SDG 4: Quality Education
Affording the opportunity of quality education is basic to improve
people’s lives and their sustainable development. SDG 4 aims to ensure
the completion of primary and secondary education by all boys and girls,
and guarantee opportunities for equal access to quality technical and
vocational education for everyone. India has made significant progress in
improving school infrastructure, incre asing enrollment of students and
improving the level of gender parity. The Right to Education (RTE) Act
makes education a fundamental right of every child between the ages of 6
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11 educati on is constantly increasing across the country. A lot of emphasis
has also been given to the Skill development and vocational education.

SDG 5 :Gender Equality
Ending all forms of discrimination against women and girls is not only a
basic human right but also is crucial for sustainable future of societies.
Providing women and girls with equal access to education, health care,
decent work, and representation in political and economic decision -
making processes will achieve sustainable economies and will ben efit
societies and humanity at large. SDG 5 aims to ensure end to all forms of
discrimination against women and girls everywhere. Government has
initiated several social protection and financial inclusion programs
focusing on women. Such type of initiative s has ensured the increased
women participation. The Beti Bachao Beti Padhao created awareness and
improved the efficiency of welfare services intended for girls. The
Pradhan Mantri Matru Vandana Yojana has been instrumental in
providing the social protect ion through maternity benefits to women.

SDG 6: Clean Water and Sanitation
SDG 6 ensures availability and sustainable management of water and
sanitation for all and reflects its increased attention in the global political
arena. The 2030 Agenda recognizes that social development and economic
prosperity depends on the sustainable management of freshwater resources
and ecosystems. Despite having a huge demand, with limited water
resources, India has committed to provide the population safe and
adequate drink ing water. Jal Jeevan Mission has played a significant role
in ensuring adequate water and sanitation. In addition, all districts in India
have achieved the target of Open Defecation Free (ODF) under the
Swachh Bharat Mission.

SDG 7: Affordable and Clean Energy
SDG 7 aims to improve energy efficiency, increase use of renewable
sources and promotion of sustainable and modern energy for all. Pradhan
Mantri Sahaj Bijli Har Ghar Yojana - Saubhagya was launched to provide
electricity to all households. The sche me has ensured access to power with
a special focus on renewable energy to lower the carbon emissions and
reduce air pollution. Pradhan Mantri Ujjwala Yojana has successfully
taken cooking gas to rural households to meet the energy requirements and
contrib ute towards improvement to women’s health and reduced CO2
emission.

SDG 8:Decent Work and Economic Growth
The goal is to achieve full and productive employment, and decent work,
reduce informal employment and the gender pay gap and promote safe and
secure working environments for all women and men by 2030.The
Government Initiative, Startup India, aims to help Indian entrepreneur and
Micro Units Development and Refinance Agency (MUDRA) ensures
loans at low rates proving helpful in providing credit to MSMEs. Several
structural reforms have been taken for sustainable economic growth and
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12 SDG 9 :Industry, Innovation and Infrastructure
Progression in business regulatory environment has ensured India’s
improved position in Ease of Doing Bus iness rankings. The upgraded
infrastructure and new initiative like Dedicated Freight Corridor,
Dedicated Industrial Corridor etc. have been instrumental in the
sustainable industrialization. The measures taken towards innovations led
significant progress of the country in the Global Innovation index.

SDG 10 Reduced Inequalities
The inequalities in income and wealth are severe and have been widening
globally. SDG 10 aims to reduce income inequality based on age, gender,
disability, religion and economic or other status within the country, as well
as among countries. Government is committed to reduce economic
inequality through various policies and programs. In this direction,
numerous initiatives have been taken. Pradhan Mantri Jan Dhan Yojana,
Pradhan Mant ri Kisan Samman Nidhi are some such interventions.

SDG 11: Sustainable Cities and Communities
Atal Mission for Rejuvenation and Urban Transformation (AMRUT) is
focused to establish infrastructure that could ensure adequate robust
sewage networks and water supply for urban transformation. The
Government launched Pradhan Mantri Awas Yojana (PMAY) to provide
affordable housing to all. National Smart Cities Mission, the urban
renewal and retrofitting program has been launched to develop smart cities
across the country.The Municipal solid waste management is one of the
major environmental problems of Indian cities. Government has taken
several initiatives which has ensured significant progress in the waste
management in Urban areas.

SDG 12:Responsible Consumpti on and Production
India is a part of international initiatives and agreements on sustainable
consumption and production including the 10 Years Framework of
Programmes on sustainable consumption and production (10YFP) process.
Government has given special c onsideration on renewable energy, organic
agriculture, bio fertilizers, reduced emission etc. in order to ensure
responsible consumption and production.

SDG 13:Climate Action
India’s National Action Plan for Climate Change (NAPCC), with 8 sub -
missions is a programme to mitigate and adapt to the adverse impact of
climate change. The plan aims at fulfilling India's developmental
objectives with focus on reducing emission intensity of its economy.
Government strives to make disaster resilient societies and th ese efforts by
Government have considerably reduced the causalities from disastrous
events over the years. India achieved its pre 2020 goal of reduction in
emission intensity and implementing programs for the post 2020 goals.

SDG 14: Life Below Water
The Goal advocates corrective human measures including effectively
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13 ecosystems, increasing scientific knowledge to improve ocean health and
providing access for small -scale artisanal fishers t o marine resources and
markets. Several initiatives have been undertaken to protect the marine
and coastal ecosystems, mangrove and coral reefs.

SDG 15: Life on Land
Goal 15 highlights how these systems contribute to reducing risks of
natural disasters s uch as floods and landslides, maintain productivity of
agricultural systems while also regulating climate. It also highlights that
concerted action is needed to protect, restore and promote terrestrial
ecosystems.

SDG 16: Peace, Justice and Strong Institu tions
The spirit of democracy, justice, liberty and equality has been deeply
embedded in the Indian constitution. Acts like The Right to Information
Act, Lok Pal and Lok Ayukta Act, Whistle Blowers Protection Act etc.,
further reinforced it. The political participation of vulnerable groups has
been ensured in the constitutional framework of the country.

SDG 17: Partnerships for the Goals
The SDG 17 is critical to the achievement of all SDGs. The country is
dedicated to strengthen the means of implementatio n and revitalizing the
Global Partnership for Sustainable Development as provisioned under
SDG 17.The partnership among the different stakeholders like
Government, societies etc. is essential for achieving the sustainable
development. India has introduced several policy improvements and
process simplification over the years. In the endeavor to achieve SDGs,
measuring the progress towards SDGs is important both at national and
sub-national levels.

1.4 MAKE IN INDIA, SKILL DEVELOPMENT AND
TRAINING PROGRAMMES
1.4.1 Make in India Make in India is an initiative launched by the
Government of India to encourage multinational, as well as national
companies to manufacture their products in India. The aim of launching
this campaign in India is to make India a world le vel manufacturing
powerhouse which will definitely help in solving the biggest issue of
Indian economy.
Objectives of Make in India
 To make India a renowned manufacturing hub.
 Inviting various companies from around the world and encourages
them to set up t heir factories and expand their facilities in India.
 To use the talents and skills of Indian manpower for creating zero
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14 Steps to make ‘Make In India’ successful
 Many programs will be launched specially for people from rural areas,
also for the poor ones living in the cities for developing their skills.
 Under this campaign, twenty five key sectors have been selected, like
telecommunication, automobile, tourism, etc.
 Providing high quality training to the individuals who are between 15 -
35 yea rs of age. The training is provided in key areas like welding,
nursing, masonries, painting, etc.
 After the training, a skill certificate shall be provided.
 Over 1000 training centers would be opened all over India for the next
two years of commencement of this campaign.
Advantages of Make in India
 Creation of Job Opportunities: The primary purpose of Make in India
is to create and provide a job for all, especially for the younger
generation of the country. Jobs are created in sectors such as
telecommunicat ion, pharmaceuticals, tourism, etc. The younger
generation of the country will be encouraged young entrepreneurs to
use their innovative ideas for the development of the nation.
 Improvement in Areas: When a factory or an industry is set up in an
area, it a ttracts labor, markets, and other people. With this, the
financial status of the families which are living nearby to these areas
will also improve. The area, its neighbouring places and the people
living in these places will develop all together.
 Push to G DP: GDP means Gross Domestic Product. The value of its
GDP calculates the development of a country. By the campaign of
Make in India, the industries will develop in India, and this will create
the flow of income. Sectors like exportation, architecture, tex tiles,
communication, etc. will develop, and this, in turn, will make the
economy of India stronger.
 Increasing the Value of Rupees: Make in India will be attracting more
Foreign Direct Investment and which will result in increasing the value
of Indian Rup ee against the American Dollar. This will also reduce the
effect of the hegemony of Dollar over Indian Rupee.
 A Shift From International Brand to Native Brands: Indians are
attracted to international brands and do not pay attention to the
indigenous brands , and this brings loss to indigenous producers. With
Make in India, the indigenous products will get its recognition in the
country, and these producers will start making profits.
 Technological Advancements: Make in India allows Indians to use the
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15 technology. Attention is also given to improving the skills of labor in
the country.
 Simplifying Business: Make in India is an open invitation to
manufacturers present in every corner of the world. Fo r inviting as
many manufacturers as possible, the government has removed many
restrictions.
 Innovative Ideas From Young Generation: The young generation of
India never gets an environment within the boundaries of the country
to develop their skills and imp lement their innovative ideas in the
country, and therefore they leave India for getting better opportunities.
Make in India will provide the needed environment in the country
itself and will take innovative ideas from the talented young generation
of the country.
 Development of Rural India: When a factory is set up, it not only
attracts labor but also attract development in that particular region.
When a factory is set up in rural areas, then such areas are blessed with
schools, healthcare facilities, mark ets, etc.
Disadvantages of Make in India
 Exclusion of Agriculture: India is an agrarian country with 61 percent
of the total land under cultivation. But, Make in India encourages
industrial development and excludes agriculture from it.
 Exploitation of Reso urces: Resources are limited in nature, while the
demands of human beings have no end. Make in India focuses on
developing manufacturing industries that consume many natural
resources. This will endanger the survival of the population soon.
 Loss to Small E ntrepreneurs: Make in India welcomes other countries
in India, and when these countries set up its manufacturing unit in
India, they attract the local people toward them, and this brings loss to
small entrepreneurs who are already struggling to set up thei r position.
 Loss of Cultivable Land: The campaign focus on setting up of
manufacturing unit in India. These manufacturing units can be set up
at any place, and sometimes it also settles on those lands which are
used for cultivation. Therefore, Make in Indi a will destroy the worth of
cultivable land.
 Loss to Other Sectors: The Indian economy has three sectors, named
the Primary sector, Industrial or Secondary sector, and Service sector,
but Make in India is emphasising on Secondary sector leaving all
sectors behind. As the economy cannot develop by developing one
sector only, complete attention on the manufacturing sector will not
bring economic development to the country.
 Pollution: According to the data available, the Pollution Index of India
is 76.50, and this level will surely increase after Make in India
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16 1.4.2 Skill Development and Training Programmes
Skill development and vocational training programmes are conceptualised,
executed and monitored by various organisations, working closely with
the Government of India. There are various plans and schemes that are
dedicated to achieve scalable skilling with quality and higher productivity,
particularly in the unorganised or informal sector which accounts for 83
per cent of India’s workforce. Lets loo k at various schmes that aim at
skilling, upskilling and reskilling in order to provide gainful employment.
1. Deen Dayal Upadhyay Gram Kaushal Yojana (DDU -GKY): The
Deen Dayal Upadhyay Gram Kaushal Yojana (DDU -GKY) is a placement
linked skill development programme for the rural youth. DDU -GKY funds
a variety of skill training programmes all over the country that include
over 250 trades such as Retail, Hospitality, Health, Construction,
Automotive, Leather, Electrical, Plumbing, Gems and Jewellery, to name
a few. DDU -GKY is being adopted throughout India as the scheme is
being implemented on a large -scale basis, in almost all the states and
union territories.
2. Deen Dayal Antyodaya Yojana – National Urban Livelihoods
Mission (DAY -NULM):
The main aim of DAY -NULM mission is to curb poverty of the urban
poor households by providing them access to their skill related
employment opportunities in an organised manner. As a part of this
scheme, regional workshops have also been conducted in support of urban
homeless , urban street vendors, etc. A major objective of the scheme is to
help people earn a sustainable livelihood through skilling and upskilling.
Through this scheme, the Government of India also hopes toeradicate the
threats that a regular worker faces in the unorganised sectors of work. The
belief that poor also have entrepreneurial capability and have an intent
desire to come out of poverty, is what that drives this mission.
3. Directorate General of Training: Modular Employable Skills (DGT -
MES): Government of India and the Ministry of Labour together have
launched Modular Employable Skills (MES) under Skill Development
Initiative (SDI). Under this scheme, school dropouts and existing workers,
specially, in the unorganised sector are to be trained for employa ble skills.
The basic objective of the scheme is to provide vocational training to
school dropouts, ITI graduates, rural and unemployed youth to improve
their employability. Also, priority is given to those above the age of 14
years who have suffered in th e form of child labour to enable them to learn
employable skills in order to get gainful employment.
4. Ministry of Labour and Employment (MoLE): The Ministry of
Labour and Employment (MoLE) is one of the oldest and important
Ministries of the Government o f India. The main responsibility of this
Ministry is to protect the interests of workers in general and also the rural
and urban poor and that section of people who are deprived and
disadvantaged sections of the society. The Ministry majorly focuses on
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17 initiatives. The National Career Services is another scheme under the
Ministry of Labour and Employment which deals with providing job
matching services to youth in an easy manner.
5. Ma hatma Gandhi National Rural Employment Guarantee Act
(MGNREGA): NREGA guarantees right to work in rural areas by
providing wage employment to unskilled manual workers. People are
ensured of at least 100 days of employment in every household to a
member who is willing to do unskilled work. Apart from providing
economic security and creating rural assets, MGNREGA also aims at
protecting the environment, empowering rural women, reducing rural -
urban migration and fostering social equity, among others.
6. Minis try of Skill Development and Entrepreneurship (MSDE): The
Ministry of Skill Development and Entrepreneurship (MSDE) is
responsible for the coordination of overall skill development efforts across
the country, building the vocational and technical training framework,
skill upgradation, building of new skills, and innovative thinking not only
for existing jobs but also jobs that are to be created. The Ministry has
aided and supported several other missions that also focus on skill
development like the Nationa l Skill Development Agency (NSDA),
National Skill Development Corporation (NSDC), National Skill
Development Fund (NSDF) and 33 Sector Skill Councils (SSCs) as well
as 187 training partners registered with NSDC.
7. National Skill Development Corporation ( NSDC): The National Skill
Development Corporation (NSDC) is a unique organisation under PPP
mode, under the Ministry of Skill Development and Entrepreneurship. It
aims to promote skill development by initiating the creation of large and
quality oriented tr aining institutes all over the country. The Government
of India works closely with NSDC to help financing training and thus
contribute to the overall target of skilling 400 million people in India by
2022.
8. National Skill Development Agency (NSDA): NSDA is an
autonomous body of Ministry of Skill Development and Entrepreneurship
(MSDE), which aims to coordinate the skill development efforts of the
Government and the private sector to achieve the skilling targets by 2022.
The NSDA works in partnership with several agencies like the NSDC,
Central Ministry Skill Programmes, Ministry of Skill Development and
Entrepreneurship and Sector Skill Councils. The NSDA works with 26
different kinds of skill sectors. The NSDA aims to be the major agency for
State Skill Development Missions and also ensure that the skilling needs
of the disadvantaged and the marginalised groups like SCs, STs, OBCs,
minorities,women and differently abled persons are taken care of without
any bias
9. Pradhan Mantri Kaushal Vikas Yojana (PMK VY): Pradhan Mantri
Kaushal Vikas Yojana (PMKVY) is a unique initiative by the Government
of India that aims to train about24 lakh Indian youth to be industry
relevant, skill based and to prepare them for the globalmarket. Under this munotes.in

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18 scheme, the trainees w ill also be given financial support and a
certificateon successful completion of training and assessment, which will
help them in securing a jobfor a better future. This scheme mainly focuses
on the upbringing of youth and to prepare them to face the chall enges of
the industrial world. The PMKVY scheme is being implemented
successfully with many skill sectors all over the country.
1.5 SUMMARY
In this unit, we have seen the objectives of New Economic Policy1991.
The main objective was to plunge Indian Econo my in to the arena of
‘Globalization and to give it a new thrust on market orientation. Various
reforms were introduced for liberalisation, privatization and globalization
of the Indian economy. Social infrastructure plays an important role in the
economic development of the country. The two main areas of social
infrastructure are education and health. Important measures have been
taken by the government for development of education and health care in
India. We have also discussed the sustainable developmen t goals adopted
by United Nations. The NITI (National Institution for Transforming
India)Aayog is responsible for coordinating the SDGs in India. India has
made progress in SDGs by initiating and implementing various policies
and programmes. Make in India is an initiative launched by the
Government of India to encourage multinational, as well as national
companies to manufacture their products in India. The aim of launching
this campaign in India is to make India a world level manufacturing hub.
Lastly we also study some of the important skill development programmes
launched by the Government.
1.6 QUESTIONS
Answer in brief:
1) Explain briefly the New Economic policy 1991.
2) What is globalization? What are the different policy measures
undertaken to globalize t he Indian economy since 1991.
3) Discuss the importance of social infrastructure.
4) Explain the role of infrastructure related to education.
5) Examine the various skill development and training programmes.
6) Discuss the measures adopted by India for implementati on of
sustainable development goals.
7) Discuss the Government of India’s Make in India initiative.

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19 2
FOREIGN DIRECT INVESTMENT
Unit Structure
2.0 Objectives
2.1 Foreign Direct Investment
2.2 Multinational Corporation and their role
2.3 Foreign Investment promotion Board
2.4 Summary
2.5 Questions
2.0 OBJECTIVES

 To understand the role of Foreign Direct Investment
 To explore the role of MNCs in India
 To understand the role of Foreign Investment promotion Board
2.1 FOREIGN DIRECT INVESTMENT
2.1.1 Meaning of FDI
A Foreign Direct Investment (FDI) is an investment made by a firm or
individual in one countr y into business interests located in another country.
With FDI, foreign companies are directly involved with day -to-day
operations in the other country. FDIs, apart from being involved in capital
investment , also include the provisions of management or technology . The
key feature of FDI is that it establishes either effective control of or at
leasta substantial influence over the decision -making of the foreign
business. The FDI can be made in various ways, including the opening of a
subsidiary or associate company in a foreign country or ensuring a merger or
joint venture with a foreign company.
2.1.2 Types of FDI
 FDI can be categorised into horizontal, vertical or conglomerate.
 A horizontal direct investment happens when an investor sets up the
same type of business operation in a foreign country as it operates in its
home country.
 A vertical investment is one in which different, but related business
activities from the investor’s main business is established or acquired in a
foreign country. For instance, w hen a manufacturing company acquires
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20 required for the manufacturing its finished goods, it is called vertical
investment.
 A conglomerate type of FDI is the one where a company or an
individual makes foreign investment in a business that is unrelated to its
existing business in its home country.
 Since this type of investment involves entering a new industry where the
investor has no experience, it often takes the form of a joint venture with
a foreign company already operating in the country.
2.1.3 Advantages and disadvantages of FDI
What are the advantages of FDI?
Increase in production: Allowing FDI inflow ensures an increase in
investment in key areas such as infrastructure development, which may lead
to increase in capital goods production. For instance, investment in power
generation can generate more electric power, which would enable the growth
of more industries.
Increase in capital inflow: FDI promotes more capital inflow into the
countries, especially in key sectors like infrastructure .It can address the
shortage of capital and materials, which can rapidly enhance the growth of the
country.
Increase in employment opportunities :FDIs in developing countries have
enhanced the service s ectors.This increased the employment opportunities
within these countries, leading to an increase in economic growth.Educated
unemployment has also been reduced by the FDIs as they can absorb some of
the workforces.
Strengthening of financial services: FDIs can enhance financial services of a
country by not only entering its banking industry but also by extending other
activities like merchant banking, portfolio investment etc.It has also helped
the capital market within the country.
Exchange rate stability: RBI has been maintaining the exchange rate in the
country through its exchange control measures.However, the constant and
continuous supply of foreign exchange is vital for the continuation of
exchange rate stability.FDI inflow plays a crucial role in this aspect by
helping RBI to have comfortable foreign exchange reserve position of more
than 1 billion dollars.
Economic development: FDIs, in the past, have played a crucial role in
developing backward areas by starting industries.This resulted in many of
these areas becoming industrial centres, with improvement in the standard of
living of the people in these areas.
Efficient use of natural resources :The natural resources in the country can
be used efficiently by the FDI, which may otherwise have been unutili sed. munotes.in

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Foreign Direct Investment

21 Improved knowledge and technology: One of the crucial benefits received
by the host countries through the FDIs is access to new technologies and
expertise from foreign companies.This can result in enhancement of the
country’s growth potential.
Maintena nce of Balance of Payments: FDI growth can help maintain the
Balance of Payments.It can also maintain the value of countries’ currencies.
Disadvantages of FDI
 Foreign ownership of strategically important sectors cannot favour the
countries.
 Foreign investo rs might strip the business of its value .
 They could sell unprofitable portions of the company to the local, less
sophisticated investors .
 They can use the company’s collaterals to get low -cost, local loans .
 Instead of reinvesting it, they lend the funds b ack tothe parent
company .
 The MNCs, through FDIs, can get controlling rights within the foreign
countries.
 FDI can also be a convenient way to bypass local environmental laws .
 Developing countries are tempted to reduce environmental regulations to
attract FDI inflows.
 FDI does not always benefit host countries as it enables foreign
multinationals to gain from ownership of raw materials and
even exploit labour force by not distributing its wealth to the backward
society.
 MNCs are often criticised for their p oor working conditions in foreign
countries.
 The entry of large firms can often displace local businesses and may
drive them out, as these small companies cannot compete.
2.1.4 FDI policy in India
New Industrial policy1991 : T h e G o v e r n m e n t i n t r o d u c e d a u t o matic
approval upto 51% of foreign in 34 priority sectors. Government had the
authority to raise FDI limit to 100% without prior approval of Parliament.
There were 2 ways to get FDI approval in India .
Automatic Route
Under the Automatic Route, the non -resident investor or the Indian
company does not require any approval from Government of India for the
investment.
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22 Government Route
Under the Government Route, prior to investment, approval from the
Government of India is required. Proposals for foreign di rect investment
under Government route, are considered by respective Administrative
Ministry/ Department.

FDI policy 2017: On August 28, 2017 ,DI PP announced the revised FDI
policy. The following initiatives were taken.
 Abolition of FI PB and establishmen t of Foreign Investment
Facilitation portal.
 Different departments were appointed to look into sector specific
investments .
 DIPP issued Standard operating Procedures with detailed procedures,
the timelines and list of competent authorities for government
approval.
 Start -ups could issue equity or equity linked debt instruments to
foreign venture capital investors.
Trends of FDI in India
 The Measures taken by the Government on the fronts of FDI policy
reforms, investment facilitation and ease of doing busi ness have
resulted in increased FDI inflows into the country as India has
attracted total FDI inflow of US$ 72.12 billion during April to
January, 2021.
 It is the highest ever for the first ten months of a financial year and
15% higher as compared to the first ten months of 2019 -20 (US$ 62.72
billion).
 The trends show that the FDI equity inflow grew by 28% in the first
ten months of F.Y. 2020 -21 (US$ 54.18 billion) compared to the year
ago period (US$ 42.34 billion).
 In terms of top investor countries, ‘Si ngapore’ is at the apex with
30.28% of the total FDI Equity inflow followed by U.S.A (24.28%)
and UAE (7.31%) for the first ten months of the current financial year
2020 -21.
 Japan has been leading the list of investor countries to invest in India
with 29.0 9% of the total FDI Equity inflows during January, 2021,
followed by Singapore (25.46%) and the U.S.A. (12.06%).
 The Computer Software & Hardware has emerged as the top sector
during the first ten months of F.Y. 2020 -21 with 45.81% of the total
FDI Equity inflow followed by Construction (Infrastructure) Activities
(13.37%) and Services Sector (7.80%) respectively.
 As per the trends shown during the month of January, 2021, the
consultancy services emerged as the top sector with 21.80% of the
total FDI Equity inflow followed by Computer Software & Hardware
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23  These trends in India’s Foreign Direct Investment are an endorsement
of its status as a preferred investment destination amongst global
investors
2.2 MULTINATIONAL CORPO RATION AND THEIR
ROLE
2.2.1Meaning of Multinational Companies (MNCs):
A multinational company is one which is incorporated in one country
(called the home country); but whose operations extend beyond the home
country and which carries on business in othe r countries (called the host
countries) in addition to the home country.
Features of Multinational Corporations (MNCs):
(i) Huge Assets and Turnover:
Because of operations on a global basis, MNCs have huge physical and
financial assets. This also results i n huge turnover (sales) of MNCs. In
fact, in terms of assets and turnover, many MNCs are bigger than national
economies of several countries.
(ii) International Operations Through a Network of Branches:
MNCs have production and marketing operations in seve ral countries;
operating through a network of branches, subsidiaries and affiliates in host
countries.
(iii) Unity of Control:
MNCs are characterized by unity of control. MNCs control business
activities of their branches in foreign countries through head office located
in the home country. Managements of branches operate within the policy
framework of the parent corporation.
(iv) Advanced and Sophisticated Technology:
Generally, a MNC has at its command advanced and sophisticated
technology. It employs ca pital intensive technology in manufacturing and
marketing.
(v) Professional Management:
A MNC employs professionally trained managers to handle huge funds,
advanced technology and international business operations.
(vi) Better Quality of Products:
A MNC h as to compete on the world level. It, therefore, has to pay special
attention to the quality of its products.
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24 2.2.2 Advantages and Limitations of MNCs:
Advantages of MNCs
(i) Employment Generation:
MNCs create large scale employment opportunities in host countries. This
is a big advantage of MNCs for countries; where there is a lot of
unemployment.
(ii) Automatic Inflow of Foreign Capital:
MNCs bring in much needed capital for the rapid development of
developing countries. In fact, with the entry of MNCs, inflow of foreign
capital is automatic. As a result of the entry of MNCs, India e.g. has
attracted foreign investment with several million dollars.
(iii) Proper Use of Idle Resources:
Because of their advanced technical knowledge, MNCs are in a position t o
properly utilise idle physical and human resources of the host country.
This results in an increase in the National Income of the host country.
(iv) Improvement in Balance of Payment Position:
MNCs help the host countries to increase their exports. As su ch, they help
the host country to improve upon its Balance of Payment position.
(vi) Technical Development:
MNCs carry the advantages of technical development In fact, MNCs are a
vehicle for transference of technical development from one country to
anothe r.
(vii) Managerial Development:
MNCs employ latest management techniques. People employed by MNCs
do a lot of research in management. In a way, they help to professionalize
management along latest lines of management theory and practice. This
leads to ma nagerial development in host countries.
(viii) End of Local Monopolies:
The entry of MNCs leads to competition in the host countries. Local
monopolies of host countries either start improving their products or
reduce their prices. MNCs compel domestic comp anies to improve their
efficiency and quality.
(ix) Improvement in Standard of Living:
By providing super quality products and services, MNCs help to improve
the standard of living of people of host countries.
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Foreign Direct Investment

25 (x) Promotion of international brotherhood and culture:
MNCs integrate economies of various nations with the world economy.
Through their international dealings, MNCs promote international
brotherhood and culture; and pave way for world peace and prosperity.
Limitations of MNCs
(i) Danger for Dome stic Industries:
MNCs, because of their vast economic power, pose a danger to domestic
industries; which are still in the process of development. Domestic
industries cannot face challenges posed by MNCs. Many domestic
industries have to wind up, as a resul t of threat from MNCs. Thus MNCs
give a setback to the economic growth of host countries.
(ii) Repatriation of Profits:
MNCs earn huge profits. Repatriation of profits by MNCs adversely
affects the foreign exchange reserves of the host country; which means
that a large amount of foreign exchange goes out of the host country.
(iii) No Benefit to Poor People:
MNCs produce only those things, which are used by the rich. Therefore,
poor people of host countries do not get, generally, any benefit, out of
MNCs.
(iv) Danger to Independence:
Initially MNCs help the Government of the host country, in a number of
ways; and then gradually start interfering in the political affairs of the host
country. There is, then, an implicit danger to the independence of the host
country, in the long -run.
(v) Disregard of the National Interests of the Host Country:
MNCs invest in most profitable sectors; and disregard the national goals
and priorities of the host country. They do not care for the development of
backward regions; and never care to solve chronic problems of the host
country like unemployment and poverty.
(vi) Careless Exploitation of Natural Resources:
MNCs tend to use the natural resources of the host country carelessly.
They cause rapid depletion of some of the non -renewable natural
resources of the host country. In this way, MNCs cause a permanent
damage to the economic development of the host country.
(vii) Exploitation of People, in a Systematic Manner:
MNCs join hands with big business houses of host country and em erge as
powerful monopolies. This leads to concentration of economic power only
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26 exploit poor people and enrich themselves at the cost of the poor working
class.
2.3 FOREIGN INVESTMENT PROMOTION BOARD
The Foreign Investment Promotion Board (FIPB) was an inter -ministerial
body under the Department of Economic Affairs in the Ministry of
Finance. It was set up in the early 1990s for single window clearance of
FDI in India.
Earlier if the Foreign Direct Investment (FDI) amount exceeds Rs3,000
crore then it must be approved by the Finance Minister and subsequently
by the Cabinet Committee on Economic Affairs (CCEA) on the
recommendations of the FIPB. FIPB was chaired by the economic affairs
secretary and other permanent members includes; secretary, Department
of Industrial Policy and Promotion (DIPP), commerce secretary etc.
Various functions of Foreign Investment Promotion Board
 To review the execution of the foreign investment proposals
 To approve quickly the foreign investment proposals
 To communicate with industry bodies, non - government, and
government agencies on issues that help in increasing the flow of
Foreign Direct Investment into the country
 To establish transparent guidelines that help in promoting FDI into the
country
 To take up activities that promote investment into the country such as
establishing contact with leading international companies and to
encourage them to invest in India
 To communicate with the Foreign Investment Pro motion Council
(FIPC)
 To identify the various sectors in the country in which FDI may be
wanted
 To take up various other activities that help in encouraging foreign
direct investment into the country
Ex Finance Minister Arun Jaitley announced in the budget speech in Lok
Sabha that FIPB will be abolished and government issued notification to
abolish the FIPB on 5th June 2017.The FIPB was replaced by the Foreign
Investment Facilitation Portal (FIFP) in May 2017.After the abolition of
the FIPB now individual d epartments of the government have been
empowered to clear FDI proposals in consultation with Department of
policy and Promotion (DIPP) which will also issue the Standard Operating
Procedures (SOPs) for processing applications. Now timeline will be fixed
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Foreign Direct Investment

27 the application is made tougher as it will now mandatorily require
concurrence of DIPP.
2.4 SUMMARY
In this unit, we have studied the foreign Direct Investment. A Foreign
Direct In vestment (FDI) is an investment made by a firm or individual in one
country into business interests located in another country. There are three
types of foreign Direct Investment. The government has adopted two routes
for FDI in India. Automatic and Govern ment Route. Due to the various
policy initiatives taken by the Government, India is one of the top
destinations for attracting FDI. We have also discussed the role of
multinational corporations. MNCs have many advantages like large scale
employment oppor tunities , Inflow of Foreign Capital,Technical and
managerial Development . However MNC also have many disadvantages
like danger for domestic industries, repatriation of profits etc.
2.5 QUESTIONS
Answer in brief:
1) Discuss the Foreign Direct policy adopted by the Government of
India.
2) What are the various advantages of the foreign direct investment
3) What are the costs of FDI to the host country
4) Write a note on Foreign Investment promotion Board (FPIB).
5) Explain the role of MNCs in India.
6) What are the advantag es and disadvantages of MNCs?

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28 Module II
3
AGRICULTURE DURING POST REFORM
PERIOD
Unit Structure
3.0 Objectives
3.1 Introduction
3.2 National Agriculture Policy, 2000
3.3 Agricultural Pricing
3.4. Summary
3.5. Questions
3.0 OBJECTIVES
 To study objectives of National Agricultural Polic y 2000.
 To study features of National Agricultural Policy 2000.
 To study the implication of NAP 2000.
 To study the need for agricultural price policy and the evaluation of
Agricultural pricing.
3.1 INTRODUCTION
Agriculture sector plays an important role i n Indian agriculture as Indian
Indian economy was earlier relied and known as an agrarian economy.
Even today, India’s more than 50 percent of population depend upon
agriculture for its livelihood. The first agricultural reform took place in the
form of Gr een Revolution which contributed tremendously in Indian
economy. In this unit, we will study the post reform agriculture policy.
3.2 NATIONAL AGRICULTURE POLICY 2000
INTRODUCTION
National agricultural policy declared by the Government on July 28, 2000
for raising agricultural production and productivity with raising the level
of income of farmers. It is useful to rising standard of living of farmers
within a definite time frame. This policy is formulated for all round and
comprehensive development of the a gricultural sector.
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Agriculture During Post
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29 3.2.1 OBJECTIVES
The following are some of the important objectives of India’s national
agricultural policy:
1. Attaining a growth rate above 4.0 per cent per annum in the agricultural
sector;
2. Attaining a growth which is based on efficient use of resources and
also makes provision for conservation of our soil, water and bio -
diversity;
3. Attainment of growth with equity, i.e., attaining a growth whose impact
would be widespread across regions and different classes of farmers;
4. Attaining a growth that is demand -driven and cater to the need of
domestic markets and ensuring maximization of benefit from exports
of agricultural products in the face of challenges from economic
liberalization and globalization;
5. Attaining a growth that is sustainable technologically, environmentally
and economically.
3.2.2 The main features of the National Agricultural Policy are:
1. Privatisation of agriculture and price protection of farmers in the post
QR (Quantitative Restrictions) regime would be part of the
government’s strategy to synergise agricultural growth.
2. Private sector participation would be promoted through contract
farming and land leasing arrangements to allow accelerated technology
transfer, capital inflow, assured markets for crop pro duction especially
of oilseeds, cotton and horticultural crops.
3. The policy envisages evolving a ‘National Livestock Breeding
Strategy’ to meet the requirement of milk, meat, egg and livestock
products and to enhance the role of draught animals as a source of
energy for farming operations.
4. High priority would be accorded to evolve new location -specific and
economically viable improved varieties of farm and horticulture crops,
livestock species and aquaculture.
5. The restrictions on the movement of agricultural commodities
throughout the country would be progressively dismantled. The
structure of taxes on food grains and other commercial crops would be
reviewed.
6. The excise duty on materials such as farm machinery and implements
and fertilizers used as inputs in agricultural production, post -harvest
stage and processing would be reviewed.
7. Rural electrification would be given high priority as a prime mover for
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30 8. The use of new and renewable sources of energy for irrigation and
other agricult ural purposes would be encouraged.
9. Progressive institutionalisation of rural and farm credit would be
continued for providing timely and adequate credit to farmers.
10. Endeavour would be made to provide a package insurance policy for
the farmers, right from s owing of crops to post -harvest operations
including market fluctuations in the prices of agricultural produce.
3.2.3 Implications of the New Agricultural Policy:
The New Agricultural Policy (2000) has been considered as a balanced
one considering the prese nt requirement. The new policy has adopted a
coordinated approach for bringing Green Revolution, White Revolution
(related to milk and dairy products) and Blue Revolution (related to
aqua/fish culture). Therefore, the policy has been termed as a policy of
promising Rainbow Revolution.
1. Considering the growing requirement of food for attaining food self -
sufficiency and to attain food security for the millions of people of the
country the policy has faced a great challenge. To fulfil this
requirement attainme nt of 4 per cent growth rate in agricultural output
is a must. But the New Policy has not spelt out any such target in
quantitative terms.
2. The New Policy has also failed to identify those backward states
which are still lagging in utilizing their agricultu ral potential.
Therefore, a balanced approach should be undertaken to remedy these
loopholes.
3. The New Policy argued in favour of encouraging private investment in
agriculture which would help the big farmers, but the large numbers of
small farmers are not going to be supported by such private investment
which needs to be promoted by public investment.
4. The New Policy argued in favour of private sector participation
through contract farming by land leasing arrangements. But
introduction of such a step in a la bour- surplus economy is highly
questionable.
5. Lastly, there is a lack of co -ordination between the Central and State
Governments in implementing various promotional steps for the
development of agricultural sector. Thus, the centre and the states
should co -ordinate in implementing various provisions of new policy
and should develop a monitoring mechanism to evaluate the
implementation of the policy in a most ratio.

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31 3.3.4 In order to fulfil this strategy, the following measures are
suggested in the new pol icy:
1. To use unutilized barren wastelands for agriculture and afforestation.
2. To contain biotic pressures on land and to control indiscriminate
division of agricultural lands for non -agricultural uses.
3. To enhance cropping intensity through multi -cropping and inter -
cropping.
4. To emphasize rational use of ground and surface water so that over -
exploitation of ground water resources can be checked. To adopt
better technologies such as drip and sprinkler irrigation system so as
to arrange more economic and efficien t use of water.
5. To adopt vigorously a long -term perspective plan for sustainable
rain-fed agriculture by adopting watershed approach and water
harvesting method for development of two -thirds of cropped area of
the country which is dependent on rainfall.
6. Involvement of farmers and landless labourers will be sought in the
development of pastures/ forestry programmes on huge public
wasteland by providing adequate financial incentives and entitlement
of trees and pastures.
3.3 AGRICULTURAL PRICING
3.3.1 INTRO DUCTION
Movement of price is a common feature. But rapid and violent movement
or fluctuations in the prices of agricultural commodities have serious
consequences on the economy of the country. As the sudden steep fall in
the price of a particular crop, re sult in huge loss to the farmers producing
that crop as their income declines. This will force the farmers not to
cultivate the crop next year leading to a serious shortage in the supply of
that food item and that may force the government to import that fo od crop
from foreign countries. Price policy plays a pioneer role in the economic
development of a country. It is an important instrument for providing
incentives to farmer for motivating them to go in for production -oriented
investment and technology. In a developing country like India where
majority of the population is engaged in agricultural sectors, prices affect
both income and consumption of the cultivators.
3.3.2 OBJECTIVES
1. “To protect or insure the producer through guaranteed minimum
support pri ce , which as a stabilization measure, reduces the variability
in product prices and therefore price risk of the farmers. The impact of
the risk reduction is expected to induce farmers to undertake larger
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32 2. To induce farmers to part with a larger proportion of foodgrains
production as a marketed surplus.
3. To induce the desired outputs of different rops according to growth
targets.
4. To revenue maximization seeks to maximize revenue from the sale of
products without regard to profit.
5. To quality of leadership used to signal product quality to the consumer
by placing prices on products that convey their quality.
3.3.3 FEATURES
1. Setting up Institutions:
The Government of India has set up some institutions for the
implementation of agricultural price policy in the country. Accordingly the
agricultural price commission was set up in 1965 which announced the
minimum support prices and procurement prices for the agricultural
products.
2. Minimum Support price:
The government fixes t he minimum support prices of agricultural products
like wheat, rice ,maize,cotton, sugarcane, pulses etc. regularly for
safeguarding the interest of farmers. The FCI also make their purchase of
food grains at the procurement prices so as to maintain a rati onal price of
foodgrains in the interest of farmers.
3. Protecting the Consumers:
In order to safeguard the interest of the consumers, the agricultural price
policy has made provision for buffer stock of foodgrains for its
distribution among the consum ers through public distribution systems.
4. Fixation of Maximum Price:
In order to have a control over the price of the essential commodities the
government usually determines the maximum price of agricultural
products so as to protect the general p eople from exorbitant rise in prices.
3.3.4 SUGGESTIONS FOR RATIONAL ISATION OF
AGRICULTURAL PRICING
1. Establishment of Some More Agencies:
Apart from Food Corporation of India, some more agencies should be set
up for ensuring rational prices of other agricu ltural products . In the
meantime the government has already set up Cotton Corporation and Jute
Corporation, which needs to be further, strengthened.

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33 2. Extension of the Price Policy :
The agricultural price policy should be extended to cover more
commoditi es over and above the 15 commodities covered at present . The
commodities like pulses, potato, onion and other important vegetables and
fruits may also be covered.
3. Rationalisation of Price Fixation:
The price of agricultural commodities should be fixed in the most rational
manner so that it could cover the entire cost of production. While fixing
the price, the increasing cost of agricultural inputs should be taken into
consideration.
4. Protection of Consumers:
The agricultural price should be so determine tha t it can also protect the
interest of the general consumer .
5. Modernisation:
The agricultural price policy should be framed in such a manner so that it
can induced the farmers to go for modernization of their agricultural
practice.
3.3.5 CONCLUSION
The agr icultural price policy has relied too heavily on and price incentives
in the form of assured crop prices for achieving increase in production.
The non -price factors such as efficient technology, financial inputs, land
reforms and improved human resources a re all very significant in
expanding the volume of aggregate output and productivity. The scarce
state’s economic resources should be used in improving social and
economic infrastructure in the rural area rather than providing subsidized
agriculture output to the public at large. The price policy cannot produce
desirable effects of improving agricultural productivity if the agricultural
infrastructure is weak. It is desirable that the agricultural prices are
announced for few commodities as it is commercial ly unsustainable for
government to procure foodgrains at higher price and allow off take at
subsidized price.
3.4 SUMMARY
1. National agricultural policy declared by the Government on July 28,
2000 for raising agricultural production and productivity with raising the
level of income of farmers . This policy is formulated for all round and
comprehensive development of the agricultural sector.
2. The new policy has adopted a coordinated approach for bringing Green
Revolution, White Revolution (related to milk and dairy products) and
Blue Revolution (related to aqua/fish culture). Therefore, the policy has
been termed as a policy of promising Rainbow Revolution . munotes.in

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34 3. Price policy plays a pioneer role in the economic development of a
country. It is an important ins trument for providing incentives to farmer
for motivating them to go in for production -oriented investment and
technology.
3.5 QUESTIONS
1. Explain the main features of the National Agricultural Policy 2000.
2. How does the National Agricultural Policy 2000 im plication at making
Indian agriculture modern and dynamic ?
3. Write short notes on :
a. Objectives of National Agricultural Policy 2000.
4. Explain the objectives and features of agricultural pricing.
5. Explain the importance of agricultural pricing.
6. Discuss the rationalisation of agricultural pricing.

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35 4
AGRICULTURAL FINANCE
Unit Structure
4.0 Objectives
4.1 Introduction
4.2 Agricultural Finance
4.3 Agricultural Marketing Development
4.4 Summary
4.5 Questions
4.0 OBJECTIVES
 To study the need of agricultural finance in Indian agriculture sector.
 To study of s ources of agricultural finance and its advantages and
disadvantages.
 To study the structure and status of agricultural marketing in India.
4.1 INTRODUCTION
In this unit, we will discuss the role of agricultural finance in Indian
agriculture sector in po st reform period. A developed agricultural
marketing plays a crucial role in the development of agricultural sector in
India.
4.2 AGRICULTURAL FINANCE
Agricultural finance generally means studying, examining and analyzing
the financial aspects pertaining to farm business, which is the core sector
of India. The financial aspects include money matters relating to
production of agricultural products and their disposal.
4.2.1 Sources of agricultural finance :
Sources of agricultural finance in India can be bro adly divided in two
categories :
A. Institutional sources
B. Non-institutional sources.
A. Institutional sources: It refers to credit provided by organised
financial institutions like, commercial banks, Land development bank, co -
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36 raise his productivity and maximise his income. Relatively rate of interest
is low and different for different groups of farmers for different purposes.
1) Co-operative Banks : Co-operative Banks play an i mportant role in
agricultural credit. These Banks provide short term & medium term loans.
 Primary Agricultural Co -operative Banks at village levels provide
short term & medium term loans to farmers.
 Central co -operative Banks at district level – to provid e funds to PACs
& supervise there working.
 State cooperative Banks at village level – finance CBs & to monitor
their work.
2. Commercial banks : In Indian agriculture sector commercial banks
provide fund to productive agriculture and allied activities. Aft er banks
nationalisation the commercial banks have play a major role in providing
rural finance. This has enable farmer to purchase agricultural equipments
and inputs with adopt modern agricultural technology.
3. Regional Rural Banks (RRBs) : RRBs set up under the regional rural
bank Act,1976 to extending credit to weaker section of the rural people i.e.
small and marginal farmers, landless labourers, artisans and other rural
self employes. Regional Rural Banks provide cheaper and adequate credit
to farmer s. RRBs in Indian rural area cover 11 percent of total institutional
credit to agriculture. Each RRB is sponsored by a commercial bank.
4. National Bank for Agriculture and Rural Development (NABARD)
:NABARD is now apex bank for rural and agribusiness credit. It took over
from Reserve Bank of India all the functions that the latter performed in
the field of rural finance.
● NABARD was established on July 12, 1982 , by the RBI with an
objective to improve the credit flow concentrated in the urban areas to the
rural and semi -urban areas of India.
● Its major functions are monitoring, policy making, planning the
activities and credit system of the rural banks.
● NABARD also helps rural banks in their development and
supervises their activities on a timely basis.
B. Non institutional Sources: Non- institutional sources refers to
unorganised sources of credit. i.e. money lenders, traders and agents,
relatives and friends.
1. Money lenders: The main financial source in non -institutional sources
is the money lenders. The small and marginal farmers as well as the
farm labour depend upon money lenders for financial needs. Due to
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Agricultural finance
37 2. Treaders or agents: They provide advance to farmers against
agricultural products. Normally the loans are adjusted against th e
supply of crops. This is true in case of agriculture.
3. Relatives and friends: They provide finance to farmers for their short
term needs. The funds may be provided with or without the interest.
4. Landlords: They provide funds to labours or to small & marginal
farmers for their short term needs. Like money lenders they do charge
high interest rate. Over the years the share of agricultural credit had
also increased.
But over the years, the share of institutional finance in agricultural credit
is incre asing and non -institutional sources are declining. i.e. in 1951 -52,
the share of non -institutional source was 93 per cent, it came down to 37
per cent in 2011 -12.
● Advantages of institutional sources :
Ø Supply of inputs: The co -operative banks & other banks provide inputs
like seeds, fertilizers etc. this helps the farmers to obtain quality inputs at
right prices.
Ø Provision of credit & Low Rate: The institutional sources provide
short term & long term finance to the farmers for agricultural activ ities.
These sources provide finance for agricultural activities and provide
finance at the low rate of interest about 9 per annum.
● Disadvantages of Institutional sources :
Ø Many formalities : The institutional sources are many formalities to
obtain loans .
Ø Political interference : In institutional sources there is a lot of political
interference for sanctioning of loans, and therefore, the banks suffer
huge bad debts on account of non -repayment of politically influenced
loans.
● Advantages of Non insti tutional sources :
1. Flexibility in Offering loans: The money lenders are flexible in their
approach of providing loans without security as well.
2. Good Relation: The money lenders do maintain good relation with
local Farmers & it becomes very easy to obtain loans.
● Disadvantages of Non Institutional sources :
1. Manipulation of record: They manipulate the loan accounts taking the
advantages of innocence & illiteracy of farmers.
2. High interest rates: The money lenders charge very interest rates
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38 4.2.2 Importance of Agricultural finance :
Agricultural Finance is playing a catalytic role in strengthening the farm
productivity. Farmers need a finance for various purpose those can be
examine from two different basis -
1. On the basis of time.
2. On the basis of purpose.
Some of major importance of agriculture finance are as Follows :
1. Purchase of equipment and inputs : The farmer needs finance for
purchase of new inputs for seeds, fertilizers , pesticides, irrigation,
water etc
2. Improvement on land : To making some important changes or
improvements in agriculture i.e. long term and short term
3. Management of risk : credit enables the farmers to better manage the
risks of uncertainties pf price , weather etc. They can borrow money
during the sowing perio d & pay back the loans in the post -harvest
period .
4. Meeting farmers consumption needs : Indian farmers require credit
not only for production purposes but also for consumption purposes.
In the case of crop failure, small farmers need credit which they
spend on consumption requirements.
5. Economic Lags in Agriculture: In the agricultural production
process, there is a long interval between the reward and effort
specially during the period when costs are incurred. During this
period, demand for agricultural p roduce may change upsetting the
financial adjustments of the farmers. This becomes an excuse for
credit supplying agencies to refuse credit for farm operations.
4.2.3 PROBLEMS REGARDING AGRICULTURAL CREDIT IN
INDIA
Insufficiency: The volume of rural credi t in India is still insufficient as
compared to its growing requirement arising out of the increase in prices
of agricultural inputs.
Organisational problem : The amount of loan sanctioned to the farmers
by the bank is also very much inadequate for meetin g their different
aspects of agricultural operations. This has contribute to a lack of
uniformity in cooperative banks functioning.
Lesser attention of poor farmers: Rural credit agencies and its schemes
have failed to meet the needs of the small and marg inal farmers. Thus,
lesser attention has been given on the credit needs of the needy farmers
whereas the comparatively well -to-do farmers are getting more attention
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Agricultural finance
39 Inadequate institutional cover age: In India, the institutional credit
arrangement continues to be inadequate as compared to its growing needs.
The development of co -operative credit institutions like Primary
agricultural credit societies, land development banks, commercial banks
and re gional rural banks, have failed to cover the entire rural farmers of
the country.
Problem of recovery : Institutional agricultural -credit is subjected to red -
tapism. Credit institutions are still adopting cumbersome rules and
formalities for advancing loa n to farmers which ultimately force the
farmers to depend more on costly noninstitutional sources of credit.
Conclusion
Finance plays a vital role in agriculture. In India, the majority of farmers
suffer from financial constraints and as a result pro ducti vity is adversely
affected . Besides, productivity, the economic condition of the farmers is
also affected thereby giving rise to a never -ending cycle of povert y, debt
and low productivity. In this backdrop, proper financing facilities
combined with technol ogical innovations will help to improve the
agricultural sector. Institutional investment bodies and their procedures
need to be simplified for better understanding by the farmers and non -
institutional lenders must be strictly monitored so that they are no t able to
harm the poor farmers and bind them in a debt trap.
4.3 AGR ICULTURAL MARKETING DEVELOPMENT
4.3.1 Introduction :
Initially India remained a food deficit country for almost two decades
since independence but with the Green Revolution I ndia become not only
self-sufficient in foodgrain but accumulated a huge food surplus.
Marketing of produce is the most profitable activity of Indian farmer.
There are varies ways by which farmer dispose of surplus produce. About
the marketing of surplus farmers face a nu mber of problems after
independence Indian government adopted a number of measures to
improve the system of agriculture marketing. It is most important to
discuss Indian agriculture marketing with following points -.
1) Agriculture market Development:
Efforts to develop agricultural marketing have, particularly in developing
countries, tended to concentrate on a number of areas, specifically
infrastructure development; information provision; training of farmers and
traders in marketing and post -harvest is sues; and support to the
development of an appropriate policy environment. In the past, efforts
were made to develop government -run marketing bodies but these have
tended to become less prominent over the years.

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40 2) Agricultural Market infrastructure:
Efficient marketing infrastructure such as wholesale, retail and assembly
markets and storage facilities is essential for cost -effective marketing, to
minimize post -harvest losses and to reduce health risks. Markets play an
important role in rural development, income generation, food security, and
developing rural -market linkages. Experience shows that planners need to
be aware of how to design markets that meet a community's social and
economic needs and how to choose a suitable site for a new market. In
many cases sites are chosen that are inappropriate and result in under -use
or even no use of the infrastructure constructed. It is also not sufficient just
to build a market: attention needs to be paid to how that market will be
managed, operated and maintained .
3) Market information :
Efficient market information can be shown to have positive benefits for
farmers and traders. Up -to-date information on prices and other market
factors enables farmers to negotiate with traders and also facilitates spatial
distributi on of products from rural areas to towns and between markets.
Most governments in developing countries have tried to provide market
information services to farmers, but these have tended to experience
problems of sustainability.Modern communications techno logies open up
the possibility for market information services to improve information
delivery through SMS on cell phones and the rapid growth of FM radio
stations in many developing countries offers the possibility of more
localised information services.
4) Marketing training :
Farmers frequently consider marketing as being their major problem.
However, while they are able to identify such problems as poor prices,
lack of transport and high post -harvest losses, they are often poorly
equipped to identify pote ntial solutions. Successful marketing requires
learning new skills, new techniques and new ways of obtaining
information. Extension officers working with ministries of agriculture or
NGOs are often well -trained in agricultural production techniques but
usually lack knowledge of marketing or post -harvest handling.
5) Enabling environments:
Agricultural marketing needs to be conducted within a supportive policy,
legal, institutional, macro -economic, infrastructural and bureaucratic
environment. Traders and other s are generally reluctant to make
investments in an uncertain policy climate, such as those that restrict
imports and exports or internal produce movement. Poor roads increase
the cost of doing business, reduce payments to farmers and increase prices
to co nsumers. Finally, corruption can increase the transaction costs faced
by those in the marketing chain.
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41 6) Recent developments:
On 28th July, 2000, the NDA Government made public a National
Agriculture Policy envisaging over 4 per cent annual growth through
efficient use of resources and technology and increased private investment
while emphasizing on price protection to farmers in the WTO regime.
New marketing linkages between agribusiness, large retailers and farmers
are gradually being developed, e.g. thro ugh contract farming, group
marketing and other forms of collective action. High priority has also been
given on the development of animal husbandry, dairy, poultry and
aquaculture so as to diversify agriculture, increasing animal protein
availability in f ood basket and also for generating exportable surpluses.
More attention is now being paid to the development of regional markets
and to structured trading systems that should facilitate such developments.
The growth of supermarkets, particularly in Latin A merica and East and
South East Asia, is having a significant impact on marketing channels for
horticultural, dairy and livestock products.
Conclusion :
Indian agriculture sector after planning not only subsistence farming it is
accepted a marketing approac h. With facing much defects government of
indian adopt a measures to improve the system of agriculture marketing
i.e. establishment of regulated markets, provision of grading , construction
of warehouses, smart weighting with measurement, provision of
standardisation of produce, daily broadcasting of market prices of
agricult ural product by sms, internet.
4.4 SUMMARY
1. Agricultural finance generally means studying, examining and
analyzing the financial aspects pertaining to farm business, which is
the core s ector of India. The financial aspects include money matters
relating to production of agricultural products and their disposal.
2. Sources of agricultural finance in India can be broadly divided in two
categories :
A. Institutional sources
B. Non-instituti onal sources.
3. Marketing of produce is the most profitable activity of Indian farmer.
There are varies ways by which farmer dispose of surplus produce. About
the marketing of surplus farmers face a number of problems after
independence Indian government adopted a number of measures to
improve the system of agriculture marketing.


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42 4.5 QUESTIONS
1. Discuss the source of agriculture finance.
2. What are the problems of agriculture finance?
3. Discuss about advantages and disadvantages of institutional sourc es.
4. Discuss about advantages and disadvantages of non -institutional
sources.
5 Write a note on NABARD.
6. Discuss the agricultural marketing infrastructure .
7. What are the problems of agricultural marketing ?
8. What are the recent development in agri cultural marketing ?
9. Write a note on agricultural Market information.


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43 Module III
5
INDUSTRY AND THE SERVICE SECTOR
DURING POST REFORM PERIOD
Unit Structure
5.0 Objectives
5.1 Introduction
5.2 Indicator of Industrial Production (Iip)
5.3 Industrial Performance of India
5.4 Phase Four (Post Reform Period)
5.5 New Industrial Policy of 1991
5.6 Competition Act, 2003

5.7 Disinvestment Policy
5.8 MSME Sector
5.9 Industrial Pollution in India
5.10 Questions
5.0 OBJECTIVES
 To study industrial sector in post reform period in India
 To study the Competition Act, 2003
 To understand the meaning, need and effects of disinvestment policy
in India
 To study the development of MSME sector since 2007 in India
 To understand the types, effects and measures to control industrial
pollution in India
5.1 INTRODUCTION
Industrialization offers less er scope for both internal and external
economies as compared to other sectors, especially agriculture. Further, as
industrialization grows, the economies of scale andinter -industrial linkages
get more noticeable. As the sector continues high situations of investment,
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44 employment. This, ultimately, contributes to the achievement of a quality -
sustaining economy. Industrialization is integral to substantial and
sustained profitable development as it's both a consequence of advanced
inflows and a means of advanced productivity.
5.2 INDICATOR OF INDUSTRIAL PRODUCTION (IIP)
The Indicator of Industrial Production (IIP) is an indicator for India which
details out the growth of industrial sectors in an economy similar as
mineral mining, electricity and manufacturing. The all India IIP is a
compound index that measures the short - term changes in the volume of
product of a handbasket of industrial products during a given period with
respect to that i n a chosen base period. It's collected and published yearly
by the National Statistics Office (NSO), Ministry of Statistics and
Programme Implementation six weeks after the reference month ends. The
position of the Indicator of Industrial Production (IIP) is an abstract
number, the magnitude of which represents the status of product in the
artificial sector for a given period of time as compared to a reference
period of time. The base time was at one time fixed at 1993 – 94 so that
time was assigned an inde x level of 100. The current base time is 2011 -
2012. The Eight Core Industry comprise nearly40.27 of the weight of
particulars included in the Indicator of Industrial Production (IIP). These
are Electricity, steel, refinery products, crude oil, coal, cement , natural gas
and fertilisers.
5.3 INDUSTRIAL PERFORMANCE OF INDIA
 The First Phase (1950 -1965) Industrial Sector
At the Time of Independence the main features of the Indian Industrial
sector on the eve of the Independence were
1) There were maturity of co nsumer goods industry vis -à-vis producer
goods/ capital goods industry performing in indirect industrial
development. The rate of consumer goods industry to producer good/
capital goods industry was 6238 during the early 1950s.

2) The Industrial sector was extremely underdeveloped with veritably
weak structure.

3) The lack of government support to the industrial sector was considered
as an important cause of underdevelopment.

4) The structure and attention of power of the diligence were in many
hands.
5) Technic al and Directorial chops were in short force.
As a result of these failings, The First Five Year Plan didn't image any
large -scale programs for industrialisation. The plan rather made an attempt
to give a practical shape to the Indian economy by furnishin g for the
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Industry and the Service Sector
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45 set up in the public sector. Important among those were Hindustan
Shipyard, Hindustan Tools, and Integral Coach Factoryetc.
The Alternate Five Year plan accorded highest pr iority to Industrialisation.
The plan was grounded on famous Mahalanobis Model. Mahalanobis
model set out the task of establishing introductory and capital goods
diligence on a large scale to produce a strong base for the artificial
development. The plan i ncludes substantial investment in the Iron and
Steel, Coal, Heavy engineering, Machine structure, Heavy Chemicals and
Cement Diligence of introductory significance.
The Third Plan followed the strategy of the Alternate plan by establishing
introductory c apital and patron good diligence with the special emphasis
on machine structure diligence. As a result, the alternate and the third plan
placed great emphasis on erecting up the capital goods diligence. Utmost
of the capital good diligence are erected unde r the Public Sector.
As a result, the first Three Plans witnessed a strong acceleration in the
growth rate of the Industrial product. The period witnessed an increase in
growth rate from5.7 to7.2 and eventually9.0 in the first, alternate and third
plans respectively. The most important observation of the period was that
the rate of growth of capital good industry considered as the backbone of
ultramodern industrialisation grew at9.8,13.1 and 19 during the first,
alternate and third plan independently.
 The Second Phase (1965 -1980) The Period of Industrial
Deceleration
The first three five - year plans mostly concentrated on the development of
the Capital Good sector. As a result, the consumer goods sector was left
neglected. The consumer goods sector also known as pay check good
sector is considered to be the backbone of the rural economy and its
complete neglect had redounded in fall in the growth rate of industrial
product as well as of the overall economy. India launched heavy
Industrialisation in the S econd plan without mechanising agriculture. The
result was failure of Mahalanobis Strategy and by 1965 -66 India was hit
by a severe food deficit extremity. Eventually, in the wake of the crisis,
the government adopted Bharamananda strategy of demobilizing
agriculture sector and engineered green revolution.
The period between1965 to 1975 was marked by a sharp fall in the
industrial growth rate. The rate of growth fell from9.0 during the third
plan to a very4.1 during the period of 1965 -75. The growth rate fell to5.3
in 1965 -66,0.6 in 1966 -67, also recovering a little in the succeeding times.
The slowdown it the growth rate is seeming during the fourth and fifth
plan. The industrial growth rate fell from5.6 in the time 1971 -72 to0.8 in
the time 1973 -74. At t he end of the fifth plan in 1979 -80, the industrial
growth rate fell to negative 1.6.

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46 Causes of Deceleration and Regression.
1) The exogenous factor similar as war of 1965 and 1971
2) Structure Backups and First Oil shock of 1973
3) Low growth in agriculture sector contributed to low industrial
growth due to deficit of raw accoutrements
4) The slackening of real investment especially in the public sector.
5) The declining in Public investment is followed by a decline in the
private investment due to which encourag ement for investment is
lost.
6) Wrong artificial programs Combined with complex official System
of licensing and inefficient controls.

 Phase Three (1980 -1991) Industrial Recovery
The period of the 1980s can be considered as the period of the Industrial
recovery. The period saw a reanimation in the industrial growth rates. The
period witnessed an industrial growth rate of further than 6 percent during
the sixth plan and8.5 percent during the seventh plan. The period was also
marked by a significant recove ry in the manufacturing and capital good
sector. The most important observation from the revival of industrial
sector was that the revival is nearly associated with the increase in the
productivity of Indian Industries.
Causes of Industrial Recovery
1) New Industrial Policy – Government of India has been initiated
new industrial policy since 1991. In which they've been liberalised
Industrial and Trade Policy, Reduction the domestics barriers and
expansion of competition and easy access to advanced technology and
other imported raw outfit.

2) Liberal financial governance – Under this Government had
maintained high popular failure to promote growth, Massive borrowing by
the Government, boost of investment, and Liberal interest rate for
diligence to adopt.

3) Othe r reason – During that period, there were improvement in
agricultural sector mainly due to Green Revolution increased rural demand
for industrial goods. Growth of service sector along with increase in the
consumption of durable consumers goods. Revival of investment in the
structure sector.
5.4 PHASE FOUR (POST REFORM PERIOD)
The time 1991 guided for post reform period of liberalisation. India took
major liberalisation decision to better the performance of the industrial
sector.
1) Abolishment of the Ind ustrial Licensing.
2) Simplification of the procedures and regulatory demand to start a
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47 3) Reduction in the sector simply reserved for the Public sector.
4) Disinvestment of the named Public - sector undertakings.
5) Foreign investors were allowed to inve st in the Indian enterprises.
6) Liberalisation of the trade and exchange rate programs.
7) Rationalisation and massive reduction in the structure of Customs
Duties.
8) Reduction in the excise duties.
9) Reduction in the Income and Commercial levies to promote Bus iness.
To analyse the impact of these reforms measures on the industrial growth,
it's better to divide the period into two.
The period of the 1990s
1) The average periodic growth rate of the industry which was close to 8
in thepost -reform period fell to 6 in the 1990s.
2) The growth rate in the Eighth Plan was7.3 percent which was same as
the targeted growth rate.
3) The growth rate in the Ninth Plan was6.0 percent which was
significantly lower than the targeted rate of8.2 percent.
4) Further, the sector witnesse d its worst ever performance in the last
many times of the Ninth plan with growth collapsing to just 2 percent.
Causes of Slow Industrial Performance.
1) Exposure to the external competition
2) Massive cut down of public expenditure by the Government
3) Defici t of structure facility
4) Slow and lack of development of Indian capital request
5) Slow growth of import sector
6) Lower agricultural growth and collapsed of rural demand
The Period since 2002 -03
The period since the new bloom witnessed a sharp recovery and revival of
the artificial sector. The tenth and eleventh plan witnessed a high growth
rate of industrial product.
The rate of growth of the industrial sector was 5 percent during the
original times of the Tenth Plan. The growth picked in the following ti mes
and reached 7 in 2003 -04, 8 in 2004 -05 and 11 in 2006 -07. For the plan as
a whole, the growth rate was8.2 percent.
The growth in the Tenth plan was mainly driven by the manufacturing
sector. The significant acceleration in the capital good sector was the
significant contributor to the overall profitable growth.
During the Eleventh Plan, the industrial growth witnessed a considerable
degree of changes. After growing at further than 8 percent, the growth
collapsed to2.8 percent in the time 2008 -09. Th e main reason for the
collapse was the Global Financial crisis that hit the World in the time
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48 The industrial growth started recovering in the time 2009 -10 and touched
a high of 10 percent. The industrial growth after some setbacks again
recovered i n the time 2010 -11 to reach8.2 percent.
The industrial performance 2011 till now.
The period starting from 2011 -12 saw a severe slowdown in the industrial
growth and product. The slowdown during the period is due too.
1) Weak Demand for exports from the D eveloped Western Countries due
to Global Financial Crisis.
2) The slowdown in the Domestic Demand.
3) High Interest in India maintained by the RBI, due to persistently high
Affectation.
4) The slowdown in the Private Investment by the private sector due to
weak returns on the investments.
5) Rising NPAs of the Public -Sector banks has led to weak credit and
lending offered by them.
6) Failure of once systems of the private sector.
7) Government reluctance to increase Public investment due to the stage
of maintaining a l ow financial deficiency.
8) Uncertain Global Recovery.
9) European Debt Crisis.
10) The slowdown in the prices of goods in International Commodity
requests mainly due to weak Chinese growth.

5.1.4 Industrial policy resolution 1948 to 1991
Industrial policy re fers to the conduct and programs of the government
which affects the industrial development of a country. The government
can impact the industrial development through affecting the power,
structure, and performance of the industry through programs, regulat ion,
finance, allocations, motivation, and discipline etc. Industrial policy is
formulated as an instrument of industrial growth and development of the
nation. The first industrial policy resolution was declared on 6th April
1948, and was presented in the Indian Parliament by industry ministerDr.
Shyama Prasad Mukherjee
Industrial Policy Resolution 1948
Industry with Monopoly of state included the strategic industriesviz. the
manufacture of arms and security, product and control of atomic energy
industry , and the road transport. These industries had an exclusive
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49 wasn't allowed. Mixed Industries includes six sectorsviz. coal, iron and
sword industry, shipbuilding industry, aircraft manufa cturing, telephone,
telegraph and wireless (banning radio) and mineral canvases. Regulated
diligence included 18 Diligence categorised as important diligence and
were allowed to remain under the private sector. The Industrial policy
resolution 1948 aimed t o cover the Cabin and small scale diligence by
giving them precedence status. The Industrial policy resolution 1948 had
conceded the significance of foreign capital for the industrialization of the
frugality, but it was decided that the control of these in dustries would
remain with Indian hands. With the Industrial policy resolution 1948,
India entered into a mixed economy through a socialistic pattern. The
main Idea was that the introductory and strategic diligence should be
under the exclusive power and c ontrol of the government.
Industrial policy resolution 1956 (IPR 1956)
The industrial policy resolution 1956 was grounded on the Mahalanobis
model of profitable growth which put emphasis on the development of
heavy industries, which can put the Indian e conomy to a long term high
growth line. It set the foundations for the state directed Investments which
created the system of license Raj through an elaborate input affair model.
The industrial policy of 1956 was nearly related to the trade policy of
India . The first seven five time plans concentrated on import negotiation
aiming to replace the significances with domestic product. The
government defended the domestic industries from foreign competition
through tariffs and proportions. The significance of in frastructural
development to insure private investment. It prioritised the development of
power, transport, and fiscal sectors. The policy prioritised the industrial
development in the backward areas of the country to insure balanced
profitable growth. It ate foreign investment as reciprocal to the domestic
investment, handed that the major share in control and operation was in
the Indian hands.
Industrial policy 1973
There were some structural distortions in the economy which called for
changes in the i ndustrial policy resolution 1956. It promoted the
commerce between the agricultural sector and industrial sectors. It
expanded the list of diligence which were reserved for small scale sector
from 180 particulars to above 500 particulars. The price control of
agricultural and industrial products were to be regulated by ensuring a
proper return to the investor.
Industrial policy of 1977
Up gradation of the technology of small units, and furnishing necessary
inputs needed by them along with proper marketin g strategies. The
investment limit for bits units was increased to Rs 2 lakhs and for small
scale units to Rs 20 lakhs and that of ancillaries to Rs 25 lakhs. It handed
for erecting the buffer stock of essential raw materials for small scale
industries thr ough small industries development pots in countries and the
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50  Liberalisation measures taken by the government in the 1980s
Exemption of certain sectors from the demand of licensing and the
delicensing of several industries. Relaxation in the monopolistic and
restrictive trade practice under MRTP act, 1969 and foreign exchange
Regulation Act (FERA) guidelines. The government allowed expansion of
enterprises to insure economics of scale in product processes to reduce
cost. Government allowed the creation of small scale diligence by adding
the limits of investment. Government handed impulses to the diligence to
increase the import of industrial goods. It also gave emphasis on
employment generation a nd correction of indigenous imbalances through
the development of backward areas.
5.5 NEW INDUSTRIAL POLICY OF 1991
Major Objects of India’s New Industrial Policy 1991
The new government by Shri Narasimha Rao, which took office in June
1991, blazoned a package of liberalisation measures under its Industrial
Policy on July 24, 1991.
Objectives:
1) Liberalising the assiduity from the regulatory bias similar as licenses
and controls.
2) Enhancing support to the small scale sector.
3) Adding competitiveness of d iligence for the benefit of the common
man.
4) Ensuring handling of public enterprises on business lines and
therefore cutting their losses.
5) Furnishing further impulses for industrialisation of the backward
areas, and
6) Ensuring rapid -fire artificial developme nt in a competitive terrain.
The New Industrial Policy 1991 has made veritably significant changes in
four main areasviz., industrial licensing part of public sector, foreign
investment and technology and the MRTP act. The major provisions of
this policy a re discussed below.
1) Invalidation of Industrial Licensing
The new industrial policy abolishes the system of industrial licensing for
utmost of the diligence under this policy no licenses are needed for setting
up new artificial units or for substantial e xpansion in the capacity of the
being units, except for a short list of industries relating to country’s
security and strategic enterprises, dangerous diligence and industries
causing environmental degradation. To begin with, 18 industries were
placed in t his list of diligence that bear licenses. Through later correction
to the policy, this list was reduced. It now covers only five diligence
relating to health security and strategic enterprises that bear mandatory
licensing. Therefore the assiduity has been nearly fully made free of the
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51 2) De-reservation of Industries for Public Sector
The public sector which was conceived as a vehicle for rapid -fire
industrial development, largely failed to do the jo b assigned to it. Utmost
public sector enterprises came symbols of inefficiency and imposed heavy
burden on the government through their perpetual losses. Since a large
field of assiduity was reserved simply for public sector where it remained
a virtual no n performer (except for a many units like the ONGC). The
artificial development was therefore the biggest casualty. The new
artificial policy seeks to limit the part of public sector and encourage
private sector’s participation over a wider field of indust ry. With this
view, the following changes were made in the policy regarding public
sector diligence
3) Reduced reservation for public sector
Out of the 17 industries reserved for the public sector under the 1956
industrial policy, the new policyde -reserved 9 industries and therefore
limited the compass of public sector to only 8 industries. Latterly, a many
further industries werede -reserved and now the exclusive area of the
public sector remains confined to only 4 industrial sectors which are (i)
defence p roduct, (ii) bits energy, (iii) railroads and (iv) minerals used in
generation of bits energy. Still, if need be indeed some of these areas can
be opened up for the private sector. The public sector can also be allowed
to set up units in areas that have no w been thrown open for private sector,
if the public interest so demands.
4) Revive loss making enterprise
Those public enterprises which are chronically sick and making patient
losses would be returned to the Board of Industrial and Financial
Reconstructio n (BIFR) or similar other high position institutions created
for this purpose. The BIFR or other similar institutions will formulate
schemes for recuperation and reanimation of similar industrial units.
5) Disinvestment of public sector industrial units
As a measure to raise large resources and introduce wider private
participation in public sector units, the government would vend a part of
its shareholding of these industries to Collective Finances, fiscal
institutions, general public and workers. For this purposes, the
Government of India set up a ‘DisinvestmentCommission ‘in August 1996
which works out the modalities of disinvestment. On the base of
recommendations of the ‘DisinvestmentCommission ‘the government sells
the shares of public enterprise.
6) Greater autonomy to public enterprises
The New Industrial Policy seeks to give lesser autonomy to the public
enterprises in their day -to- day working. The trust would be on
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52 7) Liberalised Policy Towards Foreign Capital and Technology
The inflow of foreign capital and import of technology was tightly
regulated under the before Industrial policy. Each offer of foreign
investment was to be cleared by the Government in advance. Wherever
foreign investment was allowed, the share of foreign equity was kept
veritably low so that maturity of power control remains with Indians. But
such a policy kept the flux of foreign capital veritably small and industrial
development suffered for want of capital coffers and technology. The July,
1991 Industrial policy made several concessions to encourage inflow of
foreign capital and technology into India, which are follows
8) Relaxation in Upper Limit of Foreign Investment
In some industries the rate of foreign equity was raised to 74 percent.
Foreign Direct Investments (FDI) was further liberalised and now 100 per
cent foreign equity is permitted the case of mining, including coal and
lignite, pollution control related outfit , systems for electricity generation,
transmission and distribution, ports, harboured.
9) Changes in the MRTP Act
According to the Monopolies and Restrictive Trade Practices (MRTP)
Act, 1969, all big companies and large business houses (which had means
ofRs. 100 crores or further, according to the 1985 correction to the Act)
were needed to gain concurrence from the MRTP Commission for setting
up any new artificial unit, because similar companies (called MRTP
companies) were allowed to invest only in some na med diligence. The
Industrial Policy, 1991 has put these diligence on par with others by
abolishing those provisions of the MRTP Act. Under the amended Act, the
MRTP Commission will concern itself only with the control of
Monopolies and Restrictive Trade P ractices that are illegal and restrict
competition to the detriment of consumer s interests. No previous blessing
of or concurrence from the MRTP Commission is now needed for setting
up industrial units by the large business houses.
10) Greater Support to Sma ll-Scale Industries
The New Industrial Policy seeks to give lesser government support to the
small -scale industries so that they may grow rapidly under environment of
profitable effectiveness and technological up gradation. A package of
measures announced in this environment provides for setting up of an
agency to insure that credit requirements of these industries are completely
met. It also allows for equity participation by the large industries in the
small scale sector not exceeding 24 per cent of thei r total shareholding.
This has been done with a view to give small scale sector an access to the
capital request and to encourage their upgradation and modernisation the
government would also encourage the product of corridor and factors
needed by the publ ic sector industries in the small -scale sector.
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53 5.6 COMPETITION ACT, 2003
The Competition Act, 2003 provides for the setting up of a Competition
Commission of India (CCI) with a view to
Principal Features of the Competition Act, 2003
i. Prevent practic es having adverse goods on competition,
ii. Curtail abuse of dominance,
iii promote and sustain competition in request,
iv. Insure quality of products and services,
v. cover the interest of consumers and
vi. Insure freedom of trade carried on by other actors in domestic requests.
A later Competition Correction Bill (2007) seeks to make the CCI
function as a controller and give motivation to factors like
i. Quality of products and services,
ii. Healthy competition,
iii. Faster combinations and acce ssions of companies,
iv. Regulation of accessions and combinations coming within the
threshold limits,
v. Allowing dominance with prevention of its abuse to give effect to the
alternate generation profitable reforms on the pattern of the global
norms set by the more advanced countriesetc.
Objects of CCI (2003)
1) Anti -Competitive Agreements
This covers both the vertical and perpendicular agreements. It states that
four types of vertical agreements between enterprises involved in the same
assiduity would be applied.
These agreements are those that
(i) lead to price fixing;
(ii) Limit or control amounts;
(iii) Share or divide requests; and
(iv)Result in shot - apparel.
It also identifies a number of perpendicular agreements subject to review
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54 2) Abuse of Dominance
The Act lists five orders of abuse
(i) Assessing illegal/ discriminative conditions in purchase of trade of
goods or services (including raptorial pricing);
(ii) Limiting or restricting product, or specialized or scientific
development;
(iii) Denial of request access;
(iv) Making any contract subject to scores unconnected to the subject of
the contract; and
(v) Using a dominant position in one request to enter or cover another.
3) Combinations Regulation (Merger and Amalgamation)
The Act states that any combination that exceeds the threshold limits in
terms of value of means or development can be scrutinised by the
scrutinised by the CCI to determine whether it'll cause or is likely to cause
an appreciable advers e effect on competition within the applicable request
in India.
4) Enforcement
The CCI, the authority entrusted with the power to apply the provisions of
the Act, can enquire into possibly anti ¬ competitive agreements or abuse
of dominance either on its o wn action or on damage of a complaint or
information from any person, consumer, consumer’s association, a trade
association or on a reference by any statutory authority. It can issue‘ cease
and desist’ orders and put penalties. The CCI can also order the b reak-up
of a dominant establishment.
The new competition law in India, despite some enterprises expressed in
certain quarters, is much further consistent with the currentanti -trust
thinking than the outgoing MRTP Act. Although the success of the new
Indian model will now turn on its implementation, India would appear to
have taken a very substantial step towards the acceptance of a modem
competition policy.
5.7 DISINVESTMENT POLICY

5.7.1 Role of public sector in India
Public sector occupied a good pla ce for achieving methodical and planned
development in a developing country like India. In a country like India
suffering from multi -dimensional problems, private sector isn't in a
position to make necessary trouble for the development of its various
secto rs simultaneously. Therefore, in order to give the necessary support
to the development strategy of the country, the public sector offers the
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55 sustained growth. Therefore it's now well reco gnised that public sector
plays a positive part in the industrial development of the country by laying
down a sound foundation of industrial structure in the unique stage of its
development.
Following are some of the important relative places of the publ ic sector in
the profitable development of a country like India
1) Promoting profitable development at a rapid -fire pace by filling gaps
in the industrial structure;
2) Promoting acceptable infrastructural installations for the growth of the
economy;
3) Undertaki ng profitable exertion in those strategically significant
development areas, where private sector may distort the spirit of public
ideal;
4) Checking monopolies and attention of power in the hands of many;
5) Promoting balanced regional development and diversi fying natural
resources and other infrastructural facilities in those less advanced
areas of the country;
6) Reducing the difference in the distribution of income and wealth by
bridging the gap between the rich and the poor;
7) Creating and enhancing sufficien t employment openings in different
sectors by making heavy investments;
8) Attaining self - reliance in different technologies as per demand.
9) Barring dependence on foreign aid and foreign technology.
10) Exercising social control and regulation through various p ublic finance
institutions.
11) Reducing the pressure of balance of payments by promoting import
and reducing meanings.

5.7.2 Problems of the Public Sector Enterprises in India

1) Endowment Constraints
Some of the public sector enterprises, particularly some of the loss -
incurring enterprises are suffering from talent constraints as the selection
of sites of these enterprises were done on political considerations rather
than on rational considerations.
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56 2) Under -Utilisation of Capacity
Under -utilisation of the product capacities are one of the common
constraints from which nearly all public sector enterprises are suffering. In
1986 -87, out of the 175 public sector units 90 units had been suitable to
use over 75 per cent of its capacities, 56 units achieved utili sation of
capacities between 50 and 75 per cent and the rest 29 units could ever
managed to use under 50 per cent of its capacities. This had been
substantially due to the reasons similar as long family way ages, huge in -
erected capacities, ambitious scal es of planning grounded on shy
profitable ( particularly request) data, shy provocation, lack of enterprise
and age of the product mix.
3) Absence of Rational Pricing
Public sector enterprises in India are suffering from absent of rational
pricing as the p rices of their products are determined by such a price
policy which has three considerations like
(a) Profit as the basis of price obsession,
(b) No - profit basis of public utility approach, and
(c) Import - equality price.
Therefore, formal and inform al regulations of prices by the Government
in the interest of the economy and consumers, in general, and of price
stabilization are also responsible for huge losses incurred by some of these
enterprises of our country. Also, subsidization of the prices of some of the
produce by these public enterprises had added a new dimension to the
problems.
4) Technological Gap
Some of the public sector enterprises in India are suffering from
technological gap as these enterprises couldn't borrow over -to- date
technologi es in their product system leading to high unit cost and lower
yield. Enterprises like I.I.S.C.O.,E.C.L. etc. are suffering from this
constraint.
5) Government chain
Important government interference in the day to day conditioning of the
public sector ente rprises has reduced the degree of autonomy of the super
intendancies in respect of employment, pricing, purchase etc.
6) Heavy Social Cost
Public sector enterprises are suffering from heavy social costs similar as
the expenses on townships and allied provi sion of amenities to its workers.

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57 7) Functional and Directorial Crunches
The public sector enterprises in India are also suffering from functional
and directorial inadequacies and inefficiencies leading to huge extinctions
and leakages of finances in the ir day -to- day conditioning.
8) Evil Competition and Sabotage
Between the public sector and private sector units within the same
industry occasionally there exists evil competition which leads to
sabotaging of public sector units at a large scale.
9) Marketin g Constraint
Some public sector units are indeed faced with marketing constraints
where due to repetitious type of product blend they couldn't collect a good
request for some of their products where the request is formerly captured
by some big private ar tificial houses leading to a constant increase in
supplies.
10) Supernumerary Manpower
In some of the public sector units there's the problem of fat force which is
creating drainage of coffers unnecessarily leading to increase in the unit
cost of product. Po litical considerations have also contributed towards
overstaffing of unskilled workers in these units.
11) External Factors
Workers engaged in the public sector enterprises are lacking sincerity and
devotion to their job leading to destruction of working ho urs which
eventually affects productive capacities of these enterprises. Also, external
factors like too important trade unionism, union battles and labour troubles
are also breaking the smooth functioning of the product system of these
public sector enter prises in the country.
Other problems similar as allocation of resources, detainments in filling
up top - position posts, tight regulations and procedures for investment and
restrictions on functional autonomy of the enterprises, e.g., in respect of
labou r and pay check policy etc. have been creating serious constraints on
the functional effectiveness of public sector enterprises of the country.
5.7.3 The disinvestment program in India -
Disinvestment means trade or liquidation of means by the government,
generally Central and state public sector enterprises, systems, or other
fixed means. The government undertakes disinvestment to reduce the
financial burden on the fund, or to raise money for meeting specific
requirements, similar as to ground the profit space from other regular
sources.

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58 Disinvestments - A hard Perspective
For the first four decades after Independence, India pursued a path of
development in which the public sector was anticipated to be the machine
of growth. Still, the public sector o vergrew itself and its failings started
manifesting in low capacity utilisation and low effectiveness due to over
manning, low work ethics, over capitalisation due to substantial time and
cost overruns, incapability to introduce, take quick and timely opin ions,
large chain in decision timber process etc. Hence, a decision was taken in
1991 to follow the path of Disinvestment. The change process in India
began in the time 1991 -92, when 31 named PSUs were disinvested for Rs.
crore.
In August 1996, the Disinv estment Commission, chaired by G V
Ramakrishna was set up to advise, supervise, cover and publicize
gradational disinvestment of Indian PSUs. The Department of
Disinvestment was set up as a separate department in December, 1999 and
was later renamed as Min istry of Disinvestment in September, 2001. From
27th May, 2004, the Department of Disinvestment was brought under the
Ministry of Finance.
The Department of Disinvestment has been renamed as Department of
Investment and Public Asset Management (DIPAM) fr om 14th April,
2016 which has been made the nodal department for the strategic stake
trade in the Public Sector Undertakings (PSUs).
National Investment Fund (NIF) was constituted in November, 2005, into
which the proceeds from disinvestment of Central P ublic Sector
Enterprises were to be channelized. Strategic disinvestment is the transfer
of the power and control of a public sector reality to some other reality (
substantially to a private sector reality). The disinvestment commission
defines strategic trade as the trade of a substantial portion of the
Government shareholding of a central public sector enterprises (CPSE) of
upto 50, or similar advanced chance as the competent authority may
determine, along with transfer of operation control.
Main objec ts of Disinvestment in India
• To meet the popular needs
• To reduce financial deficit
• To improve public finances and overall profitable effectiveness
• To diversify the power of PSU for enhancing effectiveness of individual
enterprise
• To raise finances for technological up gradation, modernization and
expansion of PSUs
. • To raise finances for golden handshake (VRS)
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59 . • To fund growth and development programmes
• To encourage wider share of power
• To depoliticise unnecessary services
• Transfer of Marketable Pitfalls
Importance of Disinvestment -
Disinvestment allows for the redirection of huge quantities of public
finances fromnon -strategic public sector services to fields with a f ar
advanced societal priority, similar as health, family, and philanthropy.
Disinvestments also contribute to the reduction of the large public sector
debt burden in the transnational arena.
1) In the short run, it's helpful in financing the adding financial deficit.

2) Disinvestment finances can be utilised for long - terms pretensions
similar as
o Financing large -scale structure development.
o Investing in the economy to encourage spending
o Expansion and Diversification of the establishment.
o Prepayment of Government Debts Nearly 40 -45 of the Centre’s profit
bills go towards repaying public debt/ interest
o Investing in social programs like health and education
3) It can help in generating a better environment for investment.

4) Disinvestment also assumes significance due to the frequency of an
decreasingly competitive terrain, which makes it delicate for numerous
PSUs to operate profitably. This leads to a rapid -fire corrosion of the
value of the public means making it critical to disinvest beforehand to
realize a high value.

5) It's anticipated that the strategic buyer/ acquirer may bring in new
operation/ technology/ investment for the growth of these companies
and may use innovative styles for their development.

6) While government presence may be a necess ary wrong in strategic
sectors similar as defence or canvas disquisition, there’s really no call
for it to be running energy merchandising outlets, building ships or
running holder freight operations. Government presence in similar
non-strategic sectors no t only distorts competitive dynamics for private
players, it also results in consumers and taxpayers bearing the mass of
inefficient PSU operations.
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60 7) Privatization would help to reduce the outflow of scarce public
resources, thereby supporting" non -strate gic public sector realities."
• The process of privatization facilitates the transfer of marketable risks,
in which taxpayer money locked up in the public sector is left
vulnerable to the private sector anytime a pot way in.
• The release of tangible and intangible means, similar as large force
locked in PSU administration, would be assured during the
privatization process, and similar means would be reallocated to areas
of lesser precedence.
• When private enterprises are subordinated to a variety of request
procedures as part of the Disinvestment process, they come more tone -
sufficient.
 Disinvestment policy
The government in keeping with its Reform program took several step in
the direction of privatisation through disinvestment. This policy meas ures
can be discussed as follows
1) New industrial policy 1991 – The advertisement of new industrial
policy 1991 can be considered as the starting point of policy action taken
by the government in the direction of disinvestment. In order to give lesser
auton omy to public Enterprises and make them more responsible the
government introduced the conception of memorandum of understanding.
MOU define the relationship between the government and public
Enterprises and make similar relationship more contractual and
responsible

2) Navratna and Miniratna in (1997 -1998) – A lesser autonomy was
granted to 9 public sector enterprise referred as Navratnas. GAIL and
MTNL have also been given the same status lesser functional and active
autonomy has been granted to 97 other Pu blic Sector Unit referred as
Miniratnas

3) The Department of Investment and public Asset Management – The
department of the disinvestment was set up in 1999. From 2004 the
department has been under the Ministry of Finance. The department of
disinvestment has been remained the department of investment and public
Asset Management from 14 April 2016 it deals with all matters relating to
operation of Central Government investment in equity relating to trade of
Central Government equity through offer for trade or private placement or
any other mode of mode in the late Central Public Sector undertakings.

4) Disinvestment – Presently the following types of disinvestment are
being pursued by the government
a. Original public offering (IPO) – Offer of shares for the f irst time to the
public by an unrecorded CPSE or the government out of its shareholding
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61 b. To further public offering (FPO) – Offer of shares by a listed CPSE or
the government out of its shareholding of combination of both to the
public for subscription
c. Offer for trade – This is done by promoters through the stock exchange
medium this system allows option of shares on the platform handed by the
stock exchange. It has been considerably used by the government since
2012.
d. Str ategic trade -This involves the trade of a large portion of the
Government shareholding of a CPSE of over to 50 or similar advanced
chance as the competent authority may determine along with transfer of
Operation control
5) Interest of Workers – One of the ma jor concern with respect to
privatization is that changes in operation from the government to private
sector will lead to retrenchment of workers. The government has included
certain provisions in the shareholder agreements of strategic trade to
insure int erest of workers. This provisions are that workers cannot get it
reached at least for a period of one time after privatisation indeed there
after retrenchment will be possible only under the VRS scheme for the
voluntary separation scheme that was prevailin g in the company prior to
privatization.

6) Current Disinvestment Policy – The following are the features of
current disinvestment policy being followed by the government

a. PSU are the wealth of the nation and to insure this wealth rest in the
hands of peop le the government will promote public power of CPSE

b. While pursuing the disinvestment through minority stake trade is listed
CPSE the government will retain maturity shareholding of at least 51
and retain operation control of the CPSE.
Progress and evalua tion
Disinvestment Targets and Achieved Proceeds (In RsCrores)
YEAR TARGET ACHIEVED
1991 -92 2,500 3.038
2003 -04 14,500 15,547
2009 -10 25,000 23,553
2015 -16 25,312 32,210
2017 -18 100,000 99,411


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62 5.7.4 Disadvantages of Disinvestment
• From 1990 to 2004, the amount collected by disinvestment was 2056
crore per time, which is low given the Indian government's debt rate.
Likewise, the disinvestment process lacks clarity because the use of the
money generated from disinvestment is no way bared.
• Only the Government can ensure that the market system is sufficiently
regulated and that private enterprises aren't solely motivated by profit
and are concerned about the interests of their guests.
• Monopolies will noway produce anything salutary; only a fair and
healthy competition can profit guests. From this perspective,
disinvestment may not be the most effective pick.
Recent Developments of Disinvestment
In 2015, the Government reinitiated the policy of strategic disinvestment
in order to open up secto rs for private enterprise to bring effectiveness in
operation that would contribute to general profitable development
The Government had set a disinvestment target of1.05 lakh crore rupees
for the financial time 2019 -20.
Recently press has cleared the p lan to sell53.3 of its stake in BPCL,63.8
of SCI and30.8 of CONCOR to strategic buyers.74.2 of its stake with
THDCIL and 100 of NEEPCO is to be sold to NTPC.
 Conclusion
As we discussed, it can be perceived that there are racing goods to
disinvestment. T he updated disinvestment policy of the Indian government
is better left to time for ascertaining its effectiveness. Still, it's apparent
that with the upcoming policy, there's soon going to be a plethora of
openings for the investors.
5.8 MSME SECTOR
In In dia, Micro, Small, and Medium Enterprises (MSMEs) are an
important sector for the Indian economy and have contributed immensely
to the country’s socio -profitable development. It not only generates
employment openings but also works hand -in- hand towards th e
development of the nation’s backward and rural areas. Micro, Small, and
Medium Enterprises contribute nearly 8 of the country’s GDP, around 45
of the manufacturing affair, and roughly 40 of the country’s exports. It
won’t be wrong to relate them as the ‘ Backbone of the country. The
Government of India has introduced MSME or Micro, Small, and Medium
Enterprises in agreement with Micro, Small and Medium Enterprises
Development (MSMED) Act of 2006. These enterprises primarily
engaged in the product, manufact uring, processing, or preservation of
goods and goods. According to the periodic report by the Government
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63 A offer was made to review MSMEs by the Micro, Small and Medium
Enterprises Development (Amendment) Bill, 2018, to classify them as
manufacturing or service - furnishing enterprises, grounded on their
periodic development
Classification of enterprises into micro, small and medium
enterprises (in Rs)
Kind of
enterprise Act of 2006 Bill of 2018
Manufacturing Services All enterprises
Investment
towards plant &
machinery Investment
towards
equipment Annual
Turnover
Micro 25 lacs 10 lacs 5 Cr
Small 25 lacs to 5 Cr 10 lacs to 2 Cr 5 Cr to 75 Cr
Medium 5 Cr to 10 Cr 2 Cr to 5 Cr 75 Cr to 250 Cr

Features of MSMEs
Following are some of the essential elements of MSMEs –
1) MSMEs work for the welfare of the workers and tradesmen. They
help them by giving employment and by furnishing loans and other
services.
2) MSMEs give credit limit or backing support to banks.
3) They promote the development of entrepreneurship as well as over -
gradation of chops by launching technical training centers for the
same.
4) They support the over - grading of experimental technology, structure
development, and the modernization of the secto r as a whole
5) MSMEs are known to give reasonable backing for bettered access to
the domestic as well as import requests.
6) They also offer modern testing installations and quality instrument
services.
7) Following the recent trends, MSMEs now support product
development, design invention, intervention, and packaging.
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64  Role and performance of MSME ’S in India.
The part or significance and performance of Micro, Small, and Medium
Enterprises (MSMEs) in India can easily be explained with the help of
following po ints
1) Employment generation
A) The labour is abandoned in Indian economy an capital is scarce hence
small scale diligence in India can play a veritably important part in
employment generation and in working the problem of massive
unemployment in the count ry. The small scale diligence requires lower
capital and has the capacity to generate maximum employment openings.
B) According to profitable check 2002 -2004 the small scale enterprises
employed129.8 Lac person in 1991 -92 which has increased to261.3 Lac
persons in 2002 -2003.
2) Regional dispersion of industries
The large scale industries have shown a tendency of massive attention in
many large metropolises of Maharashtra, Gujarat and Tamil Nadu. This
has created enormous profitable social and environmental problems. the
small scale industries in India can play veritably important part in
reducing the attention of diligence as they're spread throughout the state
and are established in rural areas satisfy the original demand. The most
striking illustration is the economy of Punjab which has maximum number
of small scale industrial units spread throughout the state and has
advanced per capita income in the country than other countries.
3) Equitable distribution of public income
The small scale diligence can pla y a veritably important part in the
indifferent distribution of public income in India as they give maximum
employment and bear minimal capital. Help to help the growth of
monopolies and attention of profitable power in hands of many big
business houses.
4) Effective mobilization of capital and entrepreneur skill
The small scale industries in India can play an effective part in mobilizing
capital from pastoral areas and developing an Entrepreneurial skill. the
small scale diligence are largely established i n rural areas which helps to
mobilizing the rural savings and original bents.
5) Expansion of export
The small scale industries in India play a very important part in adding the
import earnings. the chance share of exports of small scale industries in
total exports of the country during1971 -72 was 10 which increase to 34 in
2002 -2003.
The most striking factor in exports of small scale diligence in India is that
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65 sports goods, readymad e garments, woolen garments, spare parts of
engineering goods etc
6) Less dispute -
The small scale industries in India can play a veritably important part in
maintaining industrial peace in the country. The relationship between
workers and employers are more cordial in small scale industries and thus
they're less artificial disputing in the
It's clear from the below analysis that the small scale diligence has played
a significant part in Indian economy by adding volume of affair,
employment and import earnin gs of the country. Though the Government
of India has paid some attention to development of small scale industries
during 1980s and 1990s a lot of effort on the part of government is
demanded to encourage small scale enterprises to reduce regional
imbalanc es rally savings and produce entrepreneurs from rural areas to
achieve indifferent distribution of income in the country.
Major problems faced by small scale industries in India
The major problems faced by small scale industries in India are as follows
1) Lack of finance and credit
The capital base of small scale industries is very weak since they generally
have cooperation or single power. The fiscal conditions of small scale
units aren't met by the organized sector. The only clearly of profit and
lower pr epayment of capacity of small scale diligence in India prevents
the banks and other fiscal institution to give finances to this sector on
priority base. The small scale industries are left with no alternative and
they've to make their fiscal demand from un organized sector at a very high
rate of interest therefore lack of finance and credit is one of the main
problem faced by small scale industries in India.
2) Lack of at all material availability
The major problem faced by small scale industries in India is the failure of
raw material. The small scale industries face enormous problems in
getting domestic raw materials as the suppliers of raw material preferred
the last kill industries due to the bulk purchase. The small scale industries
also faces the problem in getting the imported raw material which isn't
available due to foreign exchange crisis. It has been typically observed
that imported raw material are also allocated more positively to last care
unit as compared to small scale unit.
3) Small scale units f requently face the problem of securing professed
and effective labour. The labour prefers to work with large scale units due
to better hires, stability, good working condition and long term benefits.

4) Backward or outdated technology that’s why still indus tries are
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66 in high cost of product and inferior quality of goods in comparison to the
large scale units.

5) Marketing problems one of the main problems faced by small scale
industries in the field of marketing. The small scale units frequently don't
poses any marketing organization and thus face difficulty in dealing this
product Bristol the small scale unit also don't have acceptable financial
coffers and staying capacity. Does they're frequently posed to vend the
product at a veritably low prices. The small scale units also cannot go to
incur large scale announcement charges. These results in lack of brand
image of their products in the mind of guests.

6) Underutilization of capacity th e major problem faced by small scale
industrial unit is that they suffer from serious underutilization of capacity
each has reached 50 in the large number of units. The underutilization of
capacity increases cost of product which results in competitive
disadvantage in comparison to the large scale units.

7) A large number of small scale units are bogus and pick shears units.
They live only in a man in the register of government agencies and not in
reality. The unconscionable businessmen find it veritably re adily to float
small scale units and take advantage of indigenous and liberalize
allocation of import license of scarce raw material and finance the genuine
small scale artificial unit does suffer because of this major problem faced
by them.

8) Problem of s ickness – The major problem faced by small scale
industries are the sickness among small scale units. There are one Lac sick
small scale units up to the end of March 2002.

9) Lack of information – Another major problem faced by small scale
enterprise is the lack of information on the small scale sector was done the
information on small scale industries collected by small industries
development Association and central statistical association is less and the
information isn't collected by these associations on regular base. Therefore
pointed out that there's a critical need for evolving a regular system for
over gradation and collection of data or small scale diligence. The record
of latest information is necessary for important policy opinions of the
governmen t.

10) Adverse effect of profitable reforms and Globalization – There has
been considerable liberalization in India through the licensing and the
reservation of industries an opening up of economy. This has redounded in
severe competition to small scale indu stries both domestic large scale
industries and transnational or foreign countries. The lowering of custom
duties and junking of quantitative restriction on import has made further
worst for small scale sector. The small scale sector has formerly started
feeling adverse effect of globalization through a large scale entry to
cheaper Chinese reports into Indian request
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67  Government policies and measures
In India, there are about 6.3 crore MSMEs which involve in public and
international trades, contributing ab out 29 towards GDP. MSMEs
contribute to the profitable and social growth of the nation and are a great
way to drop unemployment issues and promote original products. Our
government understands the difficulties that every micro, small and
medium business ow ners face in various stages of their business
development process and the significance of MSMEs for the development
of the country. Hence has structured various schemes to give maximum
support for each and every budding entrepreneur and MSMEs in every
possible way to ease out every phase of their business.
1) Prime Minister Employment Generation Programme and Other
Credit Support Schemes
With the education rate adding time by time, severance problems are also
soaring high. This scheme is structured with the truth of eradicating the
unemployment issue and motivating arising new businesses by furnishing
necessary fiscal support.
 Prime Minister Employment Generation Programme (PMEGP)
Implemented by Khadi and Village Industries Commission (KVIC) at the
public position and through State KVIC Directorates, State Khadi and
Village Industries Boards (KVIBs), District Industries Centres (DICs) and
banks at the state position, the truth of this scheme is to make every
eligible thriving entrepreneur get a subsidy in their bank account for
developing a new business. Under this scheme, any new design in the
manufacturing sector worth over to Rs. 25 lakhs and a new business/
service sector worth over to Rs. 10 lakhs gets covered.
2) Development of Khadi, Village and Coir I ndustries
To make way for the rural crafts and products to advance their part in the
profitable development of the nation and to up the rural population,
several schemes have been introduced by the Ministry of MSME.
 Market Promotion & Development Scheme (MPDA)
Like any other business, Khadi and village crafts too need some
marketing strategy to reach the potential guests. With the motive of
promoting Khadi crafts and adding the income of crafters, this MPDA
scheme is developed. With the truth to regener ate traditional industries,
emphasizing traditional skills and to insure long - term sustainable income
for rural artisans, the Ministry of MSME has designed this scheme. Under
this scheme, crafters will be clustered and significance is given to
enhancing p roduct development, productivity, competitiveness, product
intervention and indeed packaging and marketing. Original artisans and
entrepreneurs are handed with sufficient training and bettered tools to face
the forthcoming challenges to optimize their inco me.
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68  Domestic Market Promotion (DMP)
This scheme is a milestone of Coir Board in popularizing coir products
within the country to help workmen and entrepreneurs in the coir
assiduity. As part of this scheme, high - end showrooms are established,
maintain ed and repaired. To showcase the products to the original guests,
colorful expositions and exhibitions are conducted, simply for coir
products, and are publicized by journals, TV, radio and other media. Apart
from that, the board takes way in perfecting th e quality of the products by
fixing quality norms and regularizing examination and instrument
processes.
 Welfare Measures -Pradhan Mantri Suraksha Bima Yojana
(PMSBY)
Accidents and unexpected incidents are part of every business. To make
sure the workers an d their family are defended against accidental death,
endless total disability and endless partial disability, the Coir Board has
been enforcing Coir Board Coir Workers Group Personal Accident
Insurance Scheme from 1998 which provides insurance content und er
similar circumstances.
3) Technology Upgradation and Quality Certification
Quality and nonstop enhancement have a major impact on the
development of any business/ assiduity. While there should be a proper
channel for quality instrument to insure dependab le issues each time and
every time, over -gradation in terms of technology, marketing and coffers
make the assiduity bloom to its loftiest eventuality. Hence, certain
schemes are established to pave the right path in technology and
upgradation.
 A Scheme fo r promoting Innovation, Rural Industry &
Entrepreneurship (ASPIRE)
To grease invention in the MSME sector, especially promoting new
business forun -met social requirements and give employment to fresh
minds is the aphorism of ASPIRE.
 National Manufacturin g Competitiveness Programme (NMCP)
This scheme aims at enhancing the competitiveness of the manufacturing
units in the MSME sector.
 Credit Linked Capital Subsidy for Technology Upgradation
(CLCSS)
To let every entrepreneur in the MSME sector upgrade the ir technology
sect, this scheme is a great boon.

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69  Technology and Quality Upgradation Support to MSMEs
Making advancements is an necessary part of a successful business. Hence
to motivate MSME entrepreneurs to take necessary way towards
specialized announc ement quality enhancement, this scheme is
formulated. The scheme aims substantially towards using energy -effective
technologies (EETs) in manufacturing which will drastically drop the cost
of product.
 Entrepreneurial and Directorial Development of SMEs th rough
Incubators
This scheme is a welcome note for new ideas in the MSME sector in terms
of technology, process, product,etc. that can be enforced within a time
time span.
 Enabling Manufacturing Sector to be Competitive through
QMS&QTT
Be it a product o r a service quality matters. That's why these schemes are
established to motivate manufacturing sector to borrow rearmost Quality
Management Norms (QMS) and Quality Technology Tools (QTT).
 Building Awareness on Intellectual Property Rights (IPR)
Innovati ve business ideas and strategies need to be defended as they're
what going to add oneness to your business. This scheme concentrates on
creating mindfulness among MSMEs about Intellectual Property Rights
and the need of guarding it.
4) Marketing Promotion Sc hemes
To enhance the marketing strategies for the betterment of MSMEs, many
schemes are established by the ministry of MSME.
 International Cooperation Scheme
Though hitting the transnational request is a bit tricky, it's worth the
investment of plutocra t, time and energy. The same is applicable in the
development of MSMEs too. The government has cooked this scheme to
enhance transnational marketing by furnishing support for MSMEs to
share in transnational exhibitions/ trade expositions, conferences/
summ its/ shops etc. To explore further about the assiduity and to vend the
products abroad.
 Marketing Backing Scheme
Organizing exhibitions, buyer - dealer meets, intensive campaigns and
marketing creation conditioning are the major emphasize of this scheme
apart fromco -sponsoring exhibitions and sharing in exhibitions abroad as
part of selling the products of MSMEs.
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70  Procurement and Marketing Support Scheme ( P&MS)
This scheme is an action to encourage Micro and Small Enterprises
(MSEs) to develop domestic r equests and to educate MSMEs about the
possibilities of business development, trade fairs, latest request ways.
 Entrepreneurship Skill Development Programme (ESDP)
Skill development is an important aspect which helps you stay in track
with the rearmost t rend and competition. This scheme nurtures the natural
gift and educate youthful entrepreneurs about rearmost strategies to help
them produce a successful business.
 20 of the ESDPs are conducted simply for weaker sections of the
society i.e. (SC/ ST/ wome n and PH).
 A paycheck ofRs. 500/ -per month per seeker is handed.
 Campaigners aren't charged for fees.

 Micro & Small Enterprises Cluster Development (MSE -CDP)
While working as a cluster productivity and competitiveness is sure to
boost up a notch. Henc e this scheme provides financial support for the
establishment of Common Facility Centres (CFCs) for testing, training
centres, R&D, Effluent Treatment, raw material depot, completing product
processes etc. and perfecting being industrial areas/ clusters.
5.9 INDUSTRIAL POLLUTION IN INDIA
5.9.1 What is Pollution?
Pollution, we probably hear of this term every other day at academy,
council, and services. We also come across the term in journals, online
journals, and media in general. So what's it and why is it supposed
dangerous? Pollution occurs when pollutants poison the natural
surroundings; bringing about changes that affect our normal cultures
negatively. Adulterants are the crucial elements or factors of pollution
which are generally waste materials of different forms. Pollution disturbs
our ecosystem and the balance in the environment. With modernization
and development in our lives, pollution has reached its peak; giving rise to
global warming and human illness.
What's Industrial Pollution?
With the coming of the Industrial Revolution, humans were suitable to
advance further into the 21st century. Technology developed fleetly,
wisdom came advanced, and the manufacturing age came into view. With
all of these came one further effect, artificial pollutio n. Before, industries
were small manufactories that produced bank as the primary contaminant.
Still, since the number of manufactories were limited and worked only a
certain number of hours a day, the situations of pollution didn't grow
significantly. But when these manufactories came full -scale diligence and
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71 further significance. Any form of pollution that can trace its immediate
source to industrial practices is known as industrial pollution. Utmost of
the pollution on the earth can be traced back to diligence of some kind.
In fact, the issue of artificial pollution has taken on grave significance for
agencies trying to fight against environmental declination. Countries
facing sudd en and rapid -fire growth of similar diligence are chancing it to
be a serious problem that has to be brought under control incontinently.
Industrial pollution takes on numerous faces. It contaminates several
sources of drinking water, releases unwanted poi sons into the air and
reduces the quality of soil each over the World. Major environmental
disasters have been caused due to artificial mishaps, which have yet to be
brought under control. Below are a many of the causes of artificial
pollution that have re sulted in environmental decline.
Different Forms of Pollution
Pollution occurs in different forms; air, water, soil, radioactive, noise,
heat/ thermal, and light. Every form of pollution has two sources of
circumstance; the point and thenon -point sources . The point sources are
easy to identify, cover, and control, whereas thenon -point sources are hard
to control. To understand this circumstance more, let us now bandy the
different types of pollution and their goods on humanity and the terrain in
general.
5.9.2 Major Types of Pollution -
Following is a list of the different types of Pollution that putatively
destroy us and our earth.
1) Air Pollution
While there are numerous types of pollution, Air Pollution is probably the
most prominent and dangerous form of it. Pollution may do due to
numerous reasons. Then’s a brief list.
 Burning of Energy
Inordinate burning of energy which is a necessity of our diurnal lives for
cuisine, driving, and other artificial conditioning; releases a huge quantum
of chemical substances in the air every day. Over time, these substances
contaminate the air.
 Flue Bank
Another common cause of air pollution may be attributed to the bank from
chimneys, manufactories, vehicles, or the burning of wood. These
conditioning, collective ly and inclusively release sulphur dioxide into the
air thereby making it poisonous. The goods of air pollution are apparent
too. The release of sulphur dioxide and other dangerous feasts into the air
causes global warming and acid rain; which in turn lead to increased
temperatures, erratic rains, and famines worldwide. These goods do n’t
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72 the creatures tosurvive.As humans, we breathe by every defiled flyspeck
from the air which res ults in the implicit chances of asthma and lung
cancer. Either way, unless we address this issue, it may take a bigger and
worse shape.
2) Water Pollution
Water Pollution has taken a risk on all the surviving species of the earth.
Nearly 60 of the species live in water bodies and when the water is
defiled, it oppressively impacts their lives and hinders their health in
general. But what are the specific causes of water pollution? Let’s take a
near look.
3) Industrial Waste
Water pollution may do due to mul tiple factors. One of the biggest cases
may be industrial water pollution where the industrial wastes are left into
the gutters and other water bodies thereby causing an imbalance in the
water. Over time, it leads to severe impurity thereby performing in t he
death of submarinespecies.If you suspect that near water sources have
been tainted by a pot also it might be a good idea to hire an expert to see
your options.
4) Groundwater Pollution
Water pollution may also be caused when germicides and fungicides li ke
DDT are scattered on shops. While this may not feel much, over time, this
simple exertion pollutes the groundwater system which utmost of
ususe.However, the same groundwater will turn out to be dangerous,
leading to a range of health issues in the long run, If left unbounded
forlong.Note that in addition to the spraying of fungicides, groundwater
may also be defiled from the poisonous chemical tumbles being from
artificial operations.
5) Canvas Spills
Canvas tumbles in the abysses too have caused irrecove rable damage to
the water bodies. Canvas tumbles are generally caused due to accidents
from large vessels, tankers, or any other form of an canvas channel.
6) Eutrophication
Eutrophication is another big source of water pollution, it occurs due to
daily con ditioning like washing clothes, implements near lakes, ponds, or
gutters; this forces cleansers to go into the water which blocks sun from
piercing, therefore reducing oxygen and making itinhabitable.Water
pollution not only harms the submarine beings but it also contaminates the
entire food chain by severely affecting humans dependent on these. Water -
borne conditions like cholera, diarrhea have also increased in all places.

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73 7) Soil Pollution
Soil pollution occurs due to the objectification of unwanted che micals in
the soil due to mortal conditioning. The use of germicides and fungicides
absorbs the nitrogen composites from the soil making it unfit for shops to
decide nutrition from. The release of artificial waste, mining, and
deforestation also exploits t he soil. Since shops can’t grow duly, they can’t
hold the soil which in turn leads to soil corrosion.
8) Noise Pollution
Noise pollution is caused when noise which is an unwelcome sound
affects our cognizance and leads to cerebral problems like stress,
hypertension, hearing impairment, etc. It's caused by machines in
diligence, loud music, and noise from business, noise from construction
conditioning, and soon. As with the other forms of pollution, noise
pollution is extremely dangerous and can lead to mult iple losses in both
humans and creatures.
In humans, it affects our overall well - being, sleep, and total hours of rest.
It may also negatively impact the development of kiddies and produce an
imbalance in the blood pressure and heart rate of senior indiv idualities.
9) Radioactive Pollution
Radioactive pollution is largely dangerous when it occurs. It can do due to
nuclear factory malfunctions, indecorous nuclear waste disposal,
accidents, etc. It causes cancer, gravidity, blindness, and blights at the tim e
of birth; it can emasculate soil and affect air and water.
10) Thermal/ Heat Pollution
Thermal/ heat pollution is due to the redundant heat in the terrain creating
unwanted changes over long time ages; due to the huge number of
artificial shops, deforestat ion, civic sprawl, and air pollution. It increases
the earth’s temperature, causing drastic climatic changes and
extermination of wildlife. Thermal pollution can affect in an increase in
temperature and can prove to be disastrous for humans and wildlife. T he
increase in temperature can make wildlife populations vulnerable and they
may no way be suitable to recover.
11) Light Pollution
Light pollution occurs due to prominent redundant illumination of an
area. It's largely visible in big metropolises, on adver tising boards and
billboards, in sports or entertainment events at the night. In domestic
areas, the lives of the occupants are greatly affected by this. It also affects
astronomical compliances and conditioning by making the stars nearly
unnoticeable.

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74 Industrial Pollution Data
Artificial pollution is wreaking annihilation on Earth. Every nation is
affected, and there are people who are working lifelessly to increase
mindfulness and advocate for change. The conditioning causing pollution
include
• Burni ng coal
• Burning fossil energies like canvas, natural gas, and petroleum
• Chemical detergents used in dyeing and tanning diligence
• Undressed gas and liquid waste being released into the terrain
• Indecorous disposal of radioactive material
5.9.3 Causes of Industrial Pollution
1) Lack of Programs to Control Pollution
Lack of effective programs and poor enforcement drive allowed
numerous diligence to bypass laws made by the pollution control board,
which redounded in mass -scale pollution that affecte d the lives of
numerous people.
2) Unplanned Industrial Growth
In utmost artificial townships, unplanned growth took place wherein those
companies scorned rules and morals and defiled the terrain with both air
and water pollution.
3) Use of Outdated Technolo gies
Utmost diligence still calculate on old technologies to produce products
that induce a large quantum of waste. To avoid high cost and expenditure,
numerous companies still make use of traditional technologies to produce
high- end products.
4) Presence of a Large Number of Small Scale Diligence
Numerous small scale diligence and manufactories that do n’t have
enough capital and calculate on government subventions to run their day -
to- day businesses frequently escape terrain regulations and release a l arge
number of poisonous feasts in the atmosphere.
5) Inefficient Waste Disposal
Water pollution and soil pollution are frequently caused directly due to
inefficiency in the disposal of waste. Long term exposure to weakened air
and water causes habitual hea lth problems, making the issue of artificial
pollution into a severe bone. It also lowers the air quality in girding areas,
which causes numerous respiratory diseases.
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75 6) Filtering of Coffers From Our Natural World
Diligence do bear a large quantum of raw material to make them into
finished products. This requires the birth of minerals from beneath the
earth. The uprooted minerals can beget soil pollution when revealed on the
earth. Leaks from vessels can beget canvas tumbles that may prove
dangerous to mar ine life.
7) Natural Resource Use
Raw material is a must -have for diligence, which frequently requires them
indeed pulling out underground rudiments. One of the most common
forms of filtering from natural coffers is fracking for canvas.
When diligence pr ize minerals, the process causes soil pollution and also
causes canvas leaks and tumbles that are dangerous and indeed deadly to
people and creatures.
5.9.4 Effects of pollution:
1) Water Pollution
The goods of artificial pollution are far - reaching and li able to affect the
ecosystem for numerous times to come. Utmost diligence bear large
quantities of water for their work. When involved in a series of processes,
the water comes into contact with heavy essence, dangerous chemicals,
radioactive waste, and in deed organic sludge. These are moreover ditched
into open abysses or gutters. As a result, numerous of our water sources
have a high quantum of artificial waste in them, which seriously impacts
the health of our ecosystem. The same water is also used by gr owers for
irrigation purposes, which affects the quality of food that's produced.
Water pollution has formerly rendered numerous groundwater coffers
useless for humans and wildlife. It can at best be reclaimed for farther
operation in diligence.
2) Soil Poll ution
Soil pollution is creating problems in husbandry and destroying original
foliage. It also causes habitual health issues to the people that come in
contact with similar soil on a diurnal base.
3) Air Pollution
Air pollution has led to a steep increas e in colorful ails, and it continues to
affect us on a diurnal base. With so numerous small, medial and large
scale diligence coming over, air pollution has taken a risk on the health of
the people and the terrain.
4) Wildlife Extermination
By and large, t he issue of artificial pollution shows us that it causes
natural measures and patterns to fail, meaning that the wildlife is getting
affected in a severe manner. Territories are being lost, species are getting
defunct, and it's harder for the terrain to re cover from each natural disaster. munotes.in

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76 Major artificial accidents like canvas tumbles, fires, the leakage of
radioactive accoutrements and damage to property are harder to clean -up
as they've a advanced impact in a shorter timeframe.
5) Global Warming
With the r ise in artificial pollution, global warming has been adding at a
steady pace. Bank and hothouse feasts are being released by diligence into
the air, which causes an increase in global warming. Melting of glaciers,
extermination of polar bears, cataracts, s urfs, hurricanes are many of the
goods of global warming.
6) Biodiversity Loss
Artificial pollution continues to beget significant damage to the earth and
all of its occupants due to chemical wastes, fungicides, radioactive
accoutrements etc. It affects w ildlife and ecosystems and disrupts natural
territories. Creatures are getting defunct, and territories are being
destroyed. The adding liquid, solid and dangerous wastes undermine
ecosystem health and impact on food, water and health security. Artificial
pollution disasters, including canvas tumbles and radioactive leakage, take
times to decades to clean up.
7) Atmospheric Deposition
Cadmium enrichment of soil can also be associated with artificial
pollution. Top soils defiled by mine spoil showed a wide ra nge of Cd
attention. Industrial backwaters are generally discharged to face water
drainage systems after explanation in trailing ponds. Recent examinations
have bared veritably high attention of Cd in the overbank and bottom
sediments of the gutters.
5.9.5 Ways to Control or Reduce Industrial Pollution
The issue of industrial pollution is critical to every nation on the earth.
With the increase of the dangerous goods of industrial pollution, there are
numerous agencies and individualities who are working t o reduce carbon
vestiges and live and work in aneco -friendly way. Still, industrial pollution
is still rampant and will take numerous times for proper control and
regulation. Numerous way can be taken to seek endless results to the
problem.
1) Source Control
Espousing new technology, effective training of workers for safe use and
development of better technology for disposal of waste, and being more
conscientious about the use of raw accoutrements can help control
industrial pollution at the source.
2) Recycli ng
Recycling as important weakened water in the diligence as possible by
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77 3) Drawing of Coffers
Organic styles should be espoused to clean the water and soil, similar as
using microbes that use hea vy essence and waste as feed naturally.
Cooling apartments or lockers need to be developed that allow diligence to
reclaim the water they need rather of pushing it back into the natural water
source it came from.
4) Assiduity Point Selection
Consideration o f position of the spots and the implicit impact on the
girding terrain can help reduce dangerous consequences.
5) Proper Treatment of Industrial Waste
By developing and enforcing acceptable treatment installations for
handling artificial waste and proper h abits can reduce pollution.
6) Rebuilding Territories and Afforestation
Rebuilding territories by planting further trees and shops can help give
wildlife back their homes, and the trees can help purify the air with
enough oxygen, and act as a buffer against the terrain.
7) Stricter Laws and Enforcement
The Environmental Protection Agency (EPA) works to correct the damage
from artificial pollution. There should be more strict rules to take action
against the companies who don't follow proper protocol and more
significant prices for the companies who operate duly. It requires creating
programs that help abuse of land.
8) Regular Environmental Impact Assessments
Being a responsible company or assiduity should bear regular
environmental impact assessments that are reported forevaluation.
However, necessary conduct to correct the negative consequences should
be developed and executed, If there are dangerous impacts discovered
during the review.
Operation control of artificial pollution control measures in India
According to the World Health Organisation data 14 Indian metropolises
are among the world 20 most weakened metropolises in the world Kanpur
tops the list among Indian metropolises this is commodity that Indian
government should take extremely seriously one of the major contributors
to pollution in India is unplanned artificial conditioning. Following are the
sweats made by the government of India in the direction of for control of
artificial pollution
1) Indigenous Correction India's environmental protection p rograms
are grounded on the views expressed at United Nations Conference on
mortal environmental held at shock long in 1972 four times after that in
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78 allowing the government to cover and ameliorate the environmental for for
securing public health timber and wildlife.

2) The Water Preservation and control of pollution act 1974 this was
the first major pollution control legislation. That provides both general and
artificial specific norm s for discharge of colorful adulterants into water
bodies. It also laid down penalties fornon -compliance.

3) The Air act 1982 this act was passed to help and control air pollution
it's a comprehensive at that makes vittles for setting up Central and state
board define authority of the board to limit in nation of air adulterants give
power of entry examination taking samples and analysis set penalties
power to declare Air Pollution Control areas set restriction on certain
artificial unit according to the act noise in an air contaminant and it
contaminates the terrain.

4) The Environment protection Act 1986 -This Act was legislated as a
consequences of a Bhopal gas tragedy of 1984. The act has given was
power to the central government to take measures with respec t of planning
and prosecution of a civil program for forestallment control and abatement
of terrain pollution for dangerous waste operation regulation dangerous
waste are by product of artificial conditioning handling of similar waste
can beget damage to h ealth and can indeed prove to be fatal. There are
several legislations that deals with dangerous waste operation.
Despite all legislative sweats of the Government of India has a large
number of its major metropolises among the most weakened metropolises
of the world swash and ocean pollution are major problem in India. Still
artificial pollution control will remain a major challenge to the policy
maker as we move on the path of expansion of artificial conditioning to
achieve advanced profitable growth.
5.10 QUESTIONS
1) Discuss the Industrial Performance in pre reform period?
2) Discuss the composition of industries in India.
3) Discuss the objectives of New industrial policy 1991.
4) Explain the features of Competition Act, 2003.
5) Write explanatory notes on:
a. IIP
b. Compos ition of industries
c. Trends of industrial performance
d. Impact NIP 1991 on industrial growth
e. Industrial policy resolution
6. Explain the role perform by Public sector in India? munotes.in

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79 7. Discuss the problems faced by the public sector in India.
8. What is meant by disinvestment? What are its objectives?

9. What policy measures have been adopted by the government in the area
of disinvestment?

10. Critically evaluate the progress made in the disinvestment progress in
Investment in India.

11. WRITE SHORT NOTES ON:
(i) Problems of public sector
(ii) Objectives of disinvestment
(iii) Disinvestment Program in India
(iv) Disadvantages of Disinvestment
12. Discuss the role of MSMEs in India’s economic development?
13. Discuss the problem faced by of MSMEs in India?
14. Discuss the significance of MSME sector.
15. Discuss the recent policies and measures taken by the government for
the development of the MSME sector.
16. Write short notes on:
(i) Features of MSME
(ii) Recent policy initiatives in the MSME sector
(iii) Welfare measures for MSME
(iii) Classification of MSME
17. Discuss the different causes of industrial pollution.
18. What are the types of industrial pollution?
19. Explain the effects of industrial pollution?
20. Discuss the measures to control industr ial pollution in India.
21. Write explanatory notes on:
(i) Types of industrial pollution
(ii) Causes of industrial pollution
(iii) Effects of industrial pollution
(iv) Government measures to control Industrial pollution
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80 6
SERVICE SECTOR: TRENDS IN
HEALTHCARE AND TOURISM INDIA
Unit Structure
6.0 Objectives
6.1 Introduction to Services Sector
6.2 Significance of Service Sector in India
6.3 Healthcare Industry
6.4 Tourism & Hospitality Industry in India
6.5 Questions
6.0 OBJECTIVES
 To study the meaning and nature of service sector in India
 To understand the role of service sector in India
 To study the importance, problems and opportunity of Health Industry
in India
 To study importance and measures for development of Torism
industry in India
6.1 INTRODUCTION TO SERVICES SECTOR:
Services sector is composed of varied spectrum of service furnishing
realities spread throughout the Country. “The services sector has been a
main and vital force gradually driving growth in the India n economy for
further than a decade. In a country like India, having a enormous size of
population, services sector has its huge eventuality. Development of
services sector can transform this burden of large size of force into an
asset by its proper alloca tion and applications and thereby can produce a
huge size of income for the nation as a whole.
The services sector generally covers a wide range conditioning from the
most sophisticated information technology (IT) to simple services handed
by the unorgan ized sector like the services of the plumber, mansion,
hairstylist etc. National Accounts bracket of the services sector
incorporates trade, hospices, and restaurants; transport, storehouse and
communication; backing, insurance, real estate, and business s ervices; and
community, social and particular services. In World Trade Organization
(WTO) and Reserve Bank of India (RBI) bracket, construction is also
included in services sector. Among the three important sector (viz.,
agriculture and allied, secondary s ector and services sector), contributing munotes.in

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81 to the development of the economy of a country, the donation of services
sector is adding steadily over the once many times.
In utmost of the developed countries of the world, the services sector is
contributing t he major portion of its Gross Domestic Product and
generates three times further employment than manufacturing sector.
6.2 SIGNIFICANCE OF SERVICE SECTOR IN INDIA
In India, the significance of services sector has been adding continuously
decade after dec ade. With the nonstop expansion of services sector, both
in terms of volume and diversity, the significance of services sector has
been adding at a high speed.
1) Responsible for GDP grow
The share of total services sector in India’s GDP (at constant prices ),
which is constituted by trade, hotels, transport, storehouse and dispatches,
banking, insurance, real estate, community particular services and
construction is also included, also the share of services sector increased
from56.8 per cent in 2000 -01 to59. 6 per cent in 2013 -14. The share of
community and particular services to GDP (at constant prices) hardly
increased from8.5 per cent in 1950 -51 to12.9 per cent in 2013 -14. The
share of finance insurance, real estate and business services increased
from9.0 p er cent in 1950 -51 to19.8 per cent in 2013 -14. Therefore it has
been observed that the donation of services sector into GDP of India has
been adding at considerable proportion and thereby it has proved to be a
major sector among all the three sectors of th e economy.
2) Advanced CAGR and Rapid Growth of Services Sector
The significance of services sector to Indian economy can also be traced
from its attainment of advanced compound periodic growth rate (CAGR).
The CAGR of the services sector attained at10.0 pe r cent for the period
2004 -05 to 2011 -12 has been plant to be advanced than the8.6 per cent of
CAGR of Gross Domestic Product (GDP) of India during the same period,
which easily indicates that the services sector has outgrown both the
industry and agricult ure sectors, showing its supremacy among all three
sectors of the economy in recent times. Similar rapid -fire growth of the
service sector has resulted considerable changes in the GDP of the
country. The country didn't follow the traditional growth models and
thereby skipped the manufacturing growth stage to directly jump from
agricultural growth stage to services growth stage.
3) Support other sector
The growth in services sector will surely support growth process in
agriculture and industrial sector in re asonable proportion and thereby help
the economy in generating employment and raising overall productivity.
The services sector growth was significantly faster than the6.6 per cent for
the combined agriculture and industry sectors periodic affair growth
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82 player originally, but of late the share of services sector has also been
adding over the times, which has been challenging the dominance of
primary sector or husbandry in the after st age of development.
4) Horizontally Advanced Share of Services in GSDP
The service sector has been contributing towards the gross state domestic
product (GSDP) of different countries and union homes (UTs)
satisfactorily in recent times. A comparison of the shares of services in the
GSDP of different countries and union homes in 2011 -12 shows that the
services sector is the dominant sector in utmost countries of India. States
and UTs similar as Tripura, Nagaland, West Bengal, Mizoram,
Maharashtra, Bihar, Tami l Nadu, Kerala, Delhi and Chandigarh have
recorded a advanced share of services sector to its GSDP which are again
advanced than all India shares (55.7 per cent) of its servicessector.
Chandigarh with an 85 per cent share and Delhi with81.8 per cent share
top the list. This has resulted a vertical spread of advanced share of
services sector in GSDP of a number of countries.
5) Employment Generation of Services Sector
The important of services sector can also be realised from its donation
towards generation of employment in India. Although the primary sector (
substantially husbandry) is the dominant employer followed by the
services sector, the share of services sector has been adding over the times
and that of the primary sector has been decreasing. Between 1993 -94 to
2009 -10, there has been a sharp fall in the share of primary sector in
employment from64.75 per cent in 1993 -94 to53.2 per cent in 2009 -10.
6) Benefit to India’s Services Trade
The services sector is also playing an important part sector in rai sing the
volume of exports in the country. Therefore India is moving towards a
services - led import growth in recent times. During 2004 -05 to 2008 -09 as
per the Balance of Payment (BoP) data, wares and services exports grew
by22.2 and25.3 per cent independ ently. Again India’s share of services
exports in the world import of services, which increased from0.6 per cent
in 1990 to1.0 per cent in 2000 and further to3.3 per cent in 2011, has been
adding faster than the share of wares exports in world exports. Ser vices
growth slowed in 2009 -10 as a result of the global recession, but the
decline was less pronounced than the slowdown in wares import growth
and has recovered fleetly in 2010 -11. In terms of size, software is a major
services import order, counting for 41.7 per cent of total services exports in
2010 -11. Also, the overall openness of the economy reflected by total
trade including services as a chance of GDP showed a advanced degree of
openness at55.0 per cent in 2011 -12 compared to25.4 per cent in 1997 -98
and38.1 per cent in 2004 -05.
7) Contribute towards Human Development
Services sector has a lot of donation towards mortal development in our
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83 services,viz., health services, educationa l installations, IT and IT enabled
services (ITes), skill development, health tourism, sports, artistic
servicesetc. which are largely responsible for mortal commission and
enhancement of quality of life of the people in general.
8) Services Sector Growth an d FDI Inflows
Modest growth of services sector has made ample compass for the smooth
flux of FDI into the country. FDI also plays a major part in the dynamic
growth of the services sector. On the positive side, at global position,
medium term prospects f or services are generally better than those
manufacturing sector with transnational investment in the services sector
anticipated to grow fairly briskly.
9) Help to Develop Structure and Communication Services
Services sector has also been playing an impo rtant part in developing
expanding and operation of structure with a special emphasis on
development of transportation and communication services. In a
developing country like India the significance of development of
infrastructural installations is relati velyhigh.The donation of transport,
storehouse and communication to the GDP at factor cost (at current prices)
in India ranges from8.2 per cent in 2006 -07 to7.1 per cent in 2011 -12.
10) Responsible towards Growth of IT and ITeS
The services sector has also pa ved the way for a nonstop growth of its IT
and IT enabled services (ITeS) sector and thereby helping the frugality of
the country to attain advanced growth both in terms of GDP share,
employment, exportsetc. which has put India on the global chart. The IT
and ITeS sector of the country has developed an image of a youthful and
flexible global knowledge power and has earned a brand identity in this
sector. The IT and ITeS assiduity has four majorsub -components IT
services, business process outsourcing (BPO), engineering services and
exploration and development ( R&D), and software products. This IT and
ITeS sector has been generating considerable quantum of earnings and
employment in the frugality. As per NASSCOM estimates, India’s IT and
BPM sector ( banning tackle) earnings were to the tune of US$95.2 billion
in 2012 -13 and has been suitable to induce direct employment for
nearly2.8 million persons and circular employment of around8.9 million
persons in the country.
11) Development of Some Social Services
Serv ices sector is also playing an important part in the development and
expansion of some social services like sports, artistic services etc. Sports
promotes physical fitness and develops mortal personality which also
played an important part in public identi ty, community cling and
transnational cling. Also, artistic conditioning, or services include
recreation and entertainment and radio and Television broadcasting
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84 promoting all form s of art and culture, a variety of conditioning are being
accepted by the Government of India.
Therefore services sector has been playing an important part in promoting
some precious social services for overall enrichment of the society.
Therefore servic es sector has attained a considerable size and dimension in
its forms of conditioning and has been playing an important part in a
largely vibrant country like India.
Still, the challenge faced by this sector will be to retain India’s
competitiveness in th ose areas where the country has made a markviz.
telecommunications, IT and ITeS etc. Either, India has to face another
challenge to access into some traditional areas similar as tourism, shipping
where other countries have already established its mark.
Still, India’s possibility for success in the sector is very high. Therefore
these challenges faced by India need to be addressed if the country wants
to realize its pipe dream of attaining double number growth and generating
large number of employment open ings for its growing population in the
days to come. Eventually, in a country like India, having a large size of
population and presently enjoying the merit of population tip in the form
of growing proportion of working age population, the prospect and
possibility of the services sector in generating income and employment for
its people is relatively bright.
6.3 HEALTHCARE INDUSTRY
Introduction
Healthcare has come one of India’s largest sector, both in terms of profit
and employment. Healthcare comprises hospitals, medical bias, clinical
trials, outsourcing, telemedicine, medical tourism, health insurance and
medical outfit. The Indian healthcare sector is growing at a brisk pace due
to its strengthening content, services and adding expenditure by public as
well private players. Indian healthcare delivery system is categorised into
two major factors public and private. The Government, i.e. public
healthcare system, comprises limited secondary and tertiary care
institutions in key cities and focuses on furn ishing introductory healthcare
installations in the form of primary healthcare centres (PHCs) in pastoral
areas. The private sector provides maturity of secondary, tertiary, and
quaternary care institutions with major attention in metros and group I and
group II cities.
India's competitive advantage lies in its large pool of well - trained
medical professionals. India is also bring competitive compared to its
peers in Asia and Western countries. The cost of surgery in India is about
one-tenth of that in th e US or Western Europe.

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85 Market Size
The healthcare request can increase triple toRs.8.6 trillion (US$133.44
billion) by 2022. In Budget 2021, India’s public expenditure on healthcare
stood at1.2 as a chance of the GDP.
A growing middle - class, coupl ed with rising burden of new conditions,
are boosting the demand for health insurance content. With adding
demand for affordable and quality healthcare, penetration of health
insurance is poised to expand in the coming times. In FY21, gross direct
decorati on income capitalized by health insurance companies grew13.3
YoYtoRs. crore (US$7.9 billion). The health member has a29.5 share in
the total gross written decorations earned in the country. Recent
developments. Indian medical tourism request was valued atU S$2.89
billion in 2020 and is expected to reachUS$13.42 billion by 2026.
According to India Tourism Statistics at a Regard 2020 report, foreign
tourists came for medical treatment in India in FY19. India has been
ranked 10th in the Medical Tourism Index (MTI) for 2020 -21 out of 46
destinations by the Medical Tourism Association.
Some of the recent enterprise in the Indian healthcare industry are as
follows
• As of November 18, 2021, Ayushman Bharat -Health and Wellness
Centres (AB -HWCs) are functional i n India.
• As of November 18, 2021, 638e -Hospitals were established across India
as part of the central government's‘Digital India’ action.
• In November 2021, Aster DM Healthcare announced that it's planning
Rs. 900 crore (US$120.97 million) capital exp enditure over the coming
three times to expand presence in India, as it looks at adding the share
of profit from the country to 40 of the total by 2025.
• By September 21, 2021, the Health Ministry’s eSanjeevani telemedicine
service crossed 12 million te leconsultations since its launch, enabling
case-to- doctor consultations, from the confines of their homes, and
doctor -to- doctor consultations.
After Independence there has been a significant enhancement, in the
health status of people. But the situatio n isn't much better as per study of
WHO. It has placed India in 112th position among 191 countries of the
world.
 The following are the major problems of health services
1) Neglect of Rural Population
A serious debit of India’s health service is the neglec t of rural millions.
It's largely a service grounded on civic hospitals. Although, there are large
no. of PHC’s and rural hospitals yet the civic bias is visible. According to
health information31.5 of hospitals and 16 hospital beds are positioned in munotes.in

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86 rural areas where 75 of total population resides. Also the doctors are
unintentional to serve in pastoral areas. Rather of evolving a health system
dependent on paramedical (like bare -footed doctors in China) to
strengthen the fringe. India has evolved one depe ndent on doctors giving it
a top -heavy character.
2) Emphasis on Culture Method
The health system of India depends nearly on imported western models. It
has no roots in the culture and tradition of the people. It's substantially
service grounded on civic ho spitals. This has been at the cost of furnishing
comprehensive primary health care to all. Else speaking, it has fully
neglected preventative,pro -motive, rehabilitative and public health
measures.
3) low cost for Health
According to the National Health Pol icy 2002, the Govt. donation to
health sector constitutes only0.9 percent of the GDP. This is relatively
low. In India, public expenditure on health is17.3 of the total health
expenditure while in China, the same is24.9 and in Sri Lanka and USA,
the same i s45.4 and44.1 independently. This is the main cause of low
health norms in the country.
4) Social Inequality
The growth of health facilities has been largely imbalanced in India.
Rural, hilly and remote areas of the country are under served while in
urban a reas and cities, health facility is well developed. The SC/ ST and
the poor people are far down from modern health service.
The table shows social inequality in provision of health in India.

5) Shortage of Medical Personnel
In India deficit of medical help like doctors, a nannyetc. isa introductory
problem in the health sector. In 1999 -2000, while there were only5.5
croakers per population in India, the sa me is 25 in the USA and 20 in
China. Also the number of hospitals and drugstores is inadequate in
comparison to our vast population.

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87 6) Medical Research
Medical exploration in the country needs to be concentrated on medicines
and vaccines for tropical co nditions which are typically neglected by
transnational pharmaceutical companies on account of their limited
profitability eventuality. The National Health Policy 2002 suggests to
allocate further finances to boost medical exploration in this direction.
7) Expensive Health Service
In India, health services especially allopathic are relatively precious. It hits
hard the common man. Prices of colorful essential medicines have gone
up. Thus further emphasis should be given to the choice systems of drug.
Ayurved a, Unani and Homeopathy systems are less expensive and will
serve the common man in better way. Concluding the health system has
numerous problems. These problems can be overcome by effective
planning and allocating further finances.
Openings in the Heal th Industry
 India is a land full of openings for players in the medical bias
industry. The country has also come one of the leading destinations for
high- end individual services with tremendous capital investment for
advanced individual installations, th erefore feeding to a lesser proportion
of population. Either, Indian medical service consumers have come more
conscious towards their healthcare keep.
 Indian healthcare sector is important diversified and is full of
openings in every member, which include s providers, payers, and medical
technology. With the increase in the competition, businesses are looking to
explore for the latest dynamics and trends which will have positive impact
on their business. The hospital industry in India is read to increase
toRs.8.6 trillion (US$132.84 billion) by FY22 fromRs. 4 trillion
(US$61.79 billion) in FY17 at a CAGR of 16 – 17.
 The Government of India is planning to increase public health
spending to2.5 of the country's GDP by 2025.
 India's competitive advantage also lies in the increased success rate
of Indian companies in getting Shortened New Drug Application (ANDA)
blessings. India also offers vast openings in R&D as well as medical
tourism. To add up, there are vast openings for investment in healthcare
structure in both urban and pastoral India.
6.4 TOURISM & HOSPITALITY INDUSTRY IN INDIA
Introduction
The Indian tourism and hospitality industry have surfaced as one of the
key motorists of growth among the services sector in India. Tourism in
India has signifi cant implicit considering the rich artistic and literal
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88 across the country. Tourism is an important source of foreign exchange in
India analogous to numerous other countries. In FY2 0, tourism sector in
India accounted for 39 million jobs, which was8.0 of the total employment
in the country. By 2029, it's expected to regard for about 53 million jobs.
According to WTTC, India ranked 10th among 185 countries in terms of
trip & tourism’s total donation to GDP in 2019.
Tourism is considered as one of the important element of services sector.
It's considered as both growth machine and import - growth machine. It's
also considered as an effective medium of employment creator as it has
the c apacity to produce large scale employment both directly and laterally
for different sections of the society and also for different orders of pool
both specialized as well as professed and unskilled. In 2011, transnational
tourism bills grew by 11 per cent (3.9 per cent in real terms) to an
estimated US$ 1030 billion, which set a new records in utmost
destinations despite profitable challenges in numerous source requests.
• Part of Tourism & Hospitality Industry in India
India is the most digitally advanc ed rubberneck nation in terms of digital
tools being used for planning, booking, and passing a trip. India’s rising
middle class and adding disposable income has supported the growth of
domestic and outbound tourism. By 2028, Indian tourism and hospitality is
anticipated to earnUS$50.9 billion as caller exports compared
withUS$28.9 billion in 2018. The trip request in India is projected to
reachUS$ 125 billion by FY27 from an estimatedUS$ 75 billion
inFY20.The Indian airline trip request was estimated at US $ 20 billion and
is projected to double in size by FY27 due to perfecting field structure and
growing access to passports
Domestic tourism has also surfaced as an important force to the sector
furnishing important demanded adaptability. Domestic tourism is thus, an
important contributor to the growth of this sector attaining14.34 per cent
CAGR of domestic sightseer visits during the period 1991 to 2011. During
2011, there were 851 million domestic excursionists recording a growth
of14.9 per cent over the former time. Again the top five countries, Uttar
Pradesh, Andhra Pradesh, Tamil Nadu, Karnataka and Maharashtra
cumulatively counting 69 per cent of the total domestic excursionists visits
in the country.
The share of hostel and eatery sector in overall frugality increased
from1.46 per cent 2004 -05 to1.53 per cent in 2008 -09 and also declined
to1.46 per cent in 2010 -11. Still, within the service sector, the share of
hostel and eaterysub -sector declined from2.75 per cent in 2004 -05 to2.64
per cent in 2010 -11 as other service sectorsub -groups grew briskly than
this sector.
In respect of health tourism, India is in a better position. Several features
like cost -effective health - care results, vacuity of professed health care
professionals, character for treat ment in advanced health care parts, adding
fashionability of India’s traditional heartiness systems, and strengths in IT
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89 While strengthening its capabilities in ultramodern health care systems,
India is also using its essential strengths in traditional health - care systems
similar as Ayurveda, siddha, Yoga, naturopathy, and faith mending/
spiritualism. India has also hold an edge over contender countries with its
mastery over ways of attention and mind control and also in the face of its
natural coffers and remarkable artistic diversity.
In order to promote tourism, the government has taken numerous policy
enterprise including a five time duty vacation for 2, 3 and 4 star order
hospices located a round UNESCO World Heritage spots (except Delhi
and Mumbai) for hospices which starts operatingw.e.f. 1 April 2008 to 31
March, 2013; an investment linked income duty deduction for 2 and 3 star
order of hospices located outside metropolises. A commission h as also
been formulated to support golf, polo and heartiness tourism.
The government has also formulated a set of guidelines on safety and
quality morals of adventure tourism. To attract foreign excursionists
visiting India for medical treatment, a new‘m edical visa’ order has also
been introduced. The government has also formulated guidelines for
addressing colorful issues governing heartiness centres, covering the entire
diapason of Indian systems of drug.
Still, the tourism sector is facing certain ch allenges. Some of the
challenges still remain as hindrances to the growth of this sector. One of
similar challenges is the multiple levies on hospitality and tourism - related
conditioning which make the tourism product precious in the form of high
hostel r ates and high fares; another similar challenge in the luxury duty
which is assessed by the state governments leading high tariffs and low
residency in hospices.
Tourism assiduity in India is on a great smash at the moment. Tourism in
India is important f or the country's profitable growth. India has
tremendous eventuality to come a major global sightseer destination and
Indian tourism assiduity is exploiting this eventuality to the bow. Trip and
tourism assiduity is the alternate loftiest foreign exchange earner for India
and the government has given trip and tourism associations export house
state
TOURISM DEVELOPMENT IN THE 1990S
In 1997 the department of tourism published a (new) National Tourism
Action Plan. Piecemeal from relating a many areas for' in tertwined
tourism development', along the lines of the forenamed (thematic) tourism
circuits, the end of the plan was to achieve an overall growth and advance
of the tourism sector in India, by stepping up marketing, structure
structure and mortal resource development. According to some, the plan
did not present anything new. It just was stated in a more fashionable
development sector slang (Singh, 2001). Others maintained that the plan
wasover -ambitious and unrealistic. Backing by no means matched the
taxing quantitative targets (Raguraman, 1998). In fact, from independence
onwards the budget expenses for tourism have always been very small (
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90 The significance of domestic tourism was honored by public policy
makers in the 1990s. They includ ed it as an important issue in the Tourism
Action Plan of 1997 and decided that it was a state government ( policy)
issue. The central government was to take care of transnational tourists.
Traditionally, domestic tourism substantially concerned passage an d work -
related trip. From the 1990s onwards there has been a steep rise in modern
forms of domestic tourism. This new miracle is related to the booming
Indian frugality and the new vulnerability of the Indian middle and
advanced classes to rather alien, W estern ideas of Holiday making. At
present, an ever growing group of Indian excursionists travels around the
country for rather prosaic, rest and sightseeing - related reasons. This new
trend is underlined by the emergence of Indian trip magazines and the
growing explicit attention for domestic tourist destinations in leading
journals.
The New Tourism Policy (2002)
In 2002 when the action plan was eventually restated into a tourism
policy. Tourism policy officially came a common central - state
government concern. The new policy itself, still, was designed by the
central government. To a large extent, it concerns old wine in new bottles.
It holds the kind of pretensions and prospects exemplary for the first
policy. To start with, the policy document attempt s to establish tourism's
great donation to public development and its part as an machine of growth.
It suggests that tourism not only generates government profit, foreign
currency, but also provides an optimal use of India's scarce coffers,
sustainable dev elopment, high quality employment ( especially to youths,
women and impaired people), and eventually, peace, understanding, public
concinnity and stability (GOI, 2002). The policy starts from the idea that
tourism can be used as a development tool,e.g. tha t it can induce high
quality, mass employment and substance among vulnerable groups in
backwardareas.In more practical terms, the policy aims at adding the
number of domestic and transnational excursionists. In order to do this, the
government proposes to diversify the Indian tourism product and mainly
improve the quality of tourism structure, marketing, visa arrangements and
air trip. The forenamed tourism as a development toollargely concerns
domestic tourism, which in this capacity is conceptually linked to'
sustainable' pastoral development. As far as transnational tourismis
concerned the Indian Government substantially wants to target the' high -
yielding variety'of excursionists.
These major policy points are deduced from three main sources. The idea
of tourism as a development tool leading to sustainable pastoral
development is embedded in traditional socialist style Indian Government
thinking. An inversely important source still, is the testament of the
transnational development community, represente d by associations similar
as the UNDP. The idea to specifically target the long haul, high yielding
variety of transnational excursionists, on the other hand, is part and parcel
of the worldview of lobby associations representing transnational airline
and hostel companies. The WTTC in particular has played an important
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91 suggestions form an integral part of the policy. While it's accessible that
associations similar as the WTTC and the UNDP h ave told the Indian
Tourism Policy, it's surprising to see how supposedly fluently and without
important adaption their recommendations have come sanctioned policy.
This implies that the policy is innovated upon rather differing ideas
(Baken and Bhagavatul a).
Combined sweats are being made to promote new forms of tourism similar
as pastoral, medical, voyage, filmandeco -tourism.
Pastoral Tourism
The scheme of Pastoral Tourism was started by the Ministry in 2002 -03
with the ideal of showcasing pastoral lif e, art, culture and heritage at
pastoral locales and in townlets, which have core capability in art and
craft, handloom, and fabrics as also an asset base in the natural terrain. It
aimed to profit the original community economically and socially, as well
as to
Medical Tourism
It's also called medical trip, health tourism or global healthcare and is a
term used to describe the fleetly growing practice of travelling across
transnational borders to gain health care. India offering Medical care
installations and promoting Medical Tourism that excels among them.
Film Tourism
In July, 2012 the Ministry of Tourism developed guidelines for extending
fiscal support to State Governments/ Union Territory Administrations for
creation of film tourism, as a primary s tep, Central Finance Backing of
INR. 2 lakh per film will be handed to State Governments and Union
Territory Administrations, during each fiscal time for a outside of five
flicks. The flicks will be chosen/ named taking inputs from their Film
Development P ots, grounded on the exposure handed by them to the
tourism destinations and locales in the separate States/ UTs. The CFA
would cover Feature Flicks, Pictures, Telefilms and Television Diurnals,
including Reality TV.
Promotion of Ecotourism
Ecotourism ( also known as ecological tourism) is responsible trip to
fragile, pristine, and generally defended areas that strives to be low impact
and ( frequently) small scale. It purports to educate the rubberneck, give
finances for ecological conservation, directly profit the profitable
development and political commission of original communities, and foster
respect
For different societies and for mortal rights. The Ministry has been laying
a lot of stress on conservation of terrain integrity, considering the
signi ficance of developing tourism in an ecologically sustainable manner.
The Ministry also maintains the Inconceivable India International crusade,
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92 Elevations
Inconceivable India International Juggernauts -The Ministry of Tour ism
commenced its Global TV Crusade 2011 -12 in the month of August 2011,
A Global Publish Crusade 2011 -12 was also released in September 2011
and A Global Online Media Campaign was launched on leading websites
in January 2012 up to May 2012.
Road Ahead
India’s trip and tourism assiduity has huge growth eventuality. The
assiduity is also looking forward to the expansion ofe -Visa scheme, which
is anticipated to double the sightseer flux in India. India's trip and tourism
assiduity has the implicit to expand by2.5 on the reverse of advanced
popular allocation and low - cost healthcare installation.
6.5 QUESTIONS
1) Explain the role and importance of service sector in India?
2) Discuss the importance of health industry in India?
3) Discuss the significance of Tourism in dustry in India?
4) What are the measures taken by government to develop the health
industry in India?
5) What are the measures taken by government to develop the tourism
industry in India?


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93 Module IV
7
BANKING AND FINANCIAL MARKET

Unit Structure
7.0 Objectives
7.1 Bank –the term defined
7.2 Changing role of banks
7.2.1 Progress of Indian Banking Since -1969
7.3 Innovations in banking
7.4 Diversification in banking - Concerns and Challenges
7.5 Reforms in the Indian insurance industry
7.6 Growing importance of insurance business in India
7.7 Summary
7.8 Questions
7.0 OBJECTIVES
 To understand the nature of banking system in India.
 To understand the rationale and nature of banking sector reforms
undertaken since 1991.
 Understand the impact of reforms on the Indian banking sector.
 Understand the impact of new technologies on the working of
commercial banks in India.
7.1 BANK –THE TERM DEFINED
The definition of a bank varies from country to country . Under English
common law, a banker is defined as a person who carries on the business
of banking, which is specified as:
1. Conducting current accounts for his customers
2. Paying cheques drawn on him, and
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94 Banking busines s means the business of receiving money on current or
deposit account, paying and collecting cheques drawn by or paid in by
customers, the making of advances to customers, and includes such other
business as the authority may prescribe for the purpose of t his Act.
Banking business means the business of either or both of the following:
Receiving from the general public money on current, deposit, savings or
other similar account repayable on demand or within less than (3
months)... or notice of less than that period.Paying or collecting cheques
drawn by or paid in by customers.
Banking is defined in the Indian Banking Companies Act, 1949 as
accepting for the purposes of lending or investments, repayable on
demand or otherwise as withdrawal by cheques, draf t order or otherwise.
And a bank is one, which does the banking business.
A banker is one who, in the ordinary course of his business honours
cheques, drawn upon himself by persons from and for whom he receives
money in current account.
The business of the banks can be mainly divided as under:
1. Borrowing
2. Lending
3. Agency services
4. General utility services
The development of banking services needs the quality human resource,
which plays a decisive role. The use of sophisticated technologies by the
banking organi zation has made possible a major change in the quality of
services. The customers using the services of foreign banks have different
perceptions regarding the quality of banking services as the foreign banks
which provide outstanding service.
Innovative ef forts become essential, the moment we find a change in the
level of expectation. Earlier, the users did not expect fast decent services
and the Industrial users did not expect credit facilities on liberal terms and
conditions but today the banks appearto t hink about the same in priority
basis.
The first bank in India, called The General Bank on India was established
in the year 1786. The East India Company established The Bank of
Bengal/Calcutta (1809), Bank of Bombay (1840) and Bank of Madras
(1843). The n ext bank was Bank of Hindustan which was established in
1870. These three individual units (Bank of Calcutta, Bank of Bombay,
and Bank of Madras) were called as Presidency Banks, Allahabad Bank
which was established in 1865, was for the first time complete ly run by
Indians. Punjab National Bank Ltd. Was set up in 1894 with headquarters
at Lahore. Between 1906 and 1913, Bank of India, Central Bank of India,
Bank of Baroda, Canara Bank, Indian Bank, and Bank of Mysore were set
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95 Bank of India which was run by European Shareholders. After that the
Reserve Bank of India was established in April 1935.
The following are the major steps taken by the Government of India to
Regulate Banking institut ion in the country:
Year Phase
1949
1955
1959
1961
1969
1971
1975
1980 Enactment of Banking Regulation Act.
Nationalization of State Bank of India.
Nationalization of SBI subsidiaries.
Insurance cover extended to deposits.
Nationalizations of 14 major Ba nks.
Creation of credit guarantee corporation.
Creation of regional rural banks.
Nationalization of seven banks with deposits over 200 Crores.

The entire organized banking system comprises of scheduled and non -
scheduled banks, largely, this segment comp rises of the scheduled banks,
with the unscheduled ones forming a very small component. Banking
needs of the financially excluded population is catered to by other
unorganized entities distinct from banks, such as, moneylenders,
pawnbrokers and indigenous bankers.
Commercial Banks in India may broadly be classified on the basis of two
criteria: (i) statutory, and (ii) ownership.
On the statutory basis, the banks are of two types; (i) Schedule banks; and
(ii) Non -scheduled banks.
On the ownership basis, the banks may be classified into two groups: (i)
Public sector commercial banks, and (ii) Private sector commercial banks.
In the category of scheduled banks, there are private sector banks and
public sector banks. In fact, all the public sector banks are sche duled
banks, whereas in the private sector it is not so.
The Reserve Bank of India (RBI): The RBI is the supreme monetary and
banking authority in the country and has the responsibility to control the
banking system in the country. It keeps the reserves o f all scheduled banks
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96

1. Public Sector Banks
State Bank of India and its Associates
Nationalized Banks
Regional Rural Banks Sponsored by Public Sector Banks
2. Private Sector Banks
Old Generation Private Banks
Foreign New Generation Private Banks
Banks in India
3. Co -operative Sector Banks
State Co -operative Banks
Central Co -operative Banks
Primary Agricultural Credit Societies
Land Development Banks
State Land Developme nt Banks
4. Development Banks
Development Banks mostly provide long term fin ance for setting up
industries. They also provide short -term finance (for export and import
activities)
Industrial Finance Co -operation of India (IFCI)
Industrial Development of India (IDBI)
Industrial Investment Bank of India (IIBI)
Small Industries Development of Bank of India (SIDBI)
National Bank for Agriculture and Rural Development (NABARD)
Export -Import Bank of India


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97 A. Scheduled Banks
A schedule bank is a bank that is listed under the second schedule of the
RBI Act, 1934. In order to be included under this schedule of the RBI Act,
banks have to fulfill certain conditions such as having a paid up capital
and reserves of at least 0.5 mill ion and satisfying the Reserve Bank that its
affairs are not being conducted in a manner prejudicial to the interests of
its depositors. Scheduled banks are further classified into commercial and
cooperative banks.
B. Regional Rural Banks (RRBs)
Regional Rural Banks have been set up in the country on the sponsorship
of individual nationalized commercial banks.The objective was to provide
credit to small and marginal farmers, agricultural labourers, artisans and
small entrepreneurs so as to develop producti ve activities in the rural
areas. They have been conceived as institutions that combine the features
of both the co -operatives and commercial banks.
C. Foreign Banks
Foreign Banks like Citibank, HSBC, Standard Chartered Bank, etc. are the
branches of tho se banks which are incorporated in foreign countries. Most
of them perform essentially the same range of services as local banks,
except that their focus in terms of product and customers may be different
due to their limited branch network. They bring in new technology and
facilitate in the introduction as well as assimilation of international
products into the domestic markets.In keeping with the general trend
towards liberalization, the Government has introduced several measures
for widening the scope fo r foreign banks to enter and operate in India.
D. The State Co -operative Banks (SCBs)
The State Co -operative Banks constitute the apex of the three tier co -
operative credit structure, organised at the level of individual States.
While, Urban Co -operative B anks (UCBs), refers to the primary
cooperative banks located in urban and semi -urban areas. Initially, these
banks were allowed to lend money only for non -agricultural purposes and
essentially to small borrowers and businesses.
E. Non -Scheduled Banks
Non-scheduled banks also function in the Indian banking space, in the
form of Local Area Banks (LAB). The banks which are not registered in
the list of central bank under its charter are known as non -scheduled
banks. They are not bound to perform banking serv ices accordingly to the
policies and instructions of central bank e.g. Bank of Punjab was a non -
scheduled bank. These banks do not fulfill the required qualifications of a
scheduled bank as prescribed by the central bank. They also do not enjoy
the public confidence. In many countries, many non -scheduled banks are
also working.
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98 7.2 CHANGING ROLE OF BANKS
Now concept of –sellers’ market has been replaced with the concept of –
the right product in the right place at the right time. Again it is replaced by
–quality product should be available at anytime and anywhere. On this
basis of new vision, the following changes are worthy to note:
1. Customer’s awareness has increased a lot and the customers are
increasingly accustomed to interact and get maximum i nformation from
the bank employees.
2. There is a drastic change on the technological process, like personal
computers and telephones, which have already entered the markets, are
extended to all the areas of activities.
Technology has entered the global b anking arena in the early 1960’s. The
initial applications were batch accounting systems for back office, which
were handled, on the mainframe electronic data processing environment.
In the early 1970’s cash dispensers, enquiry systems and on line networks
were installed. In the late 70’s online counter terminals and ATMS were
introduced, as were electronic fund transfer mechanisms like SWIFT
machine.
The 80’s was introduced of home banking corporate cash management
systems, automated clearing house system etc. In the year 2000 non -
branch based electronic delivery systems, including videos smart phones
and internet banking etc. became popular.
One can trace five distinct phases of information Technology
implementation in banking.
1. Bank office c omputerization
2. Elementary front office computerization
3. Online real time systems
4. Self -services systems
5. Virtual banks of the future
The computing tools and technologies available for computing on the
internet has forced industry leaders to quickly adapt to the changing
technology and its business benefits.
In India after 1990 the banking sector were influenced by the winds of
liberalization. Private banks were set up by reputed business with the help
of World Bank or Asian Development bank. Reserve Bank of India freed
up interest on advanced and deposits. It governed the interest rates for the
period of one year, while each bank set their own rates for the other
periods. This gave banks some freedom of operation.
Today technology help banks to offer various services. Cash withdrawals,
fast cash, deposits, balance enquiry, funds transfer, statement request,
cheque book request, mini statement, Pin change and even the payment of
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99 Thus, technology is changing very fast and we must prepare our
manpower to face the challenges. Behavioral study has to be made in
order to make our manpower capable of handling challenges.
7.2.1 PROGRESS OF INDIAN BAN KING SINCE 1969
Indian banking has progressed rapidly after independence and especially
after Nationalisation of banks in July 1969. It has progressed in terms of:
1. Branch Expansion
Since Nationalisation, there was 800% increase in number of branches.
The m ost spectacular progress was in rural branches which increased from
1860 to 30600 branches. As against 22.2% bank offices located in rural
areas in June 1969, there were 36.9% bank offices in these areas in June
2012.
2. Deposit Mobilisation
Planned economic development, deficit financing and increase in currency
issue have led to increase in bank deposits. Growth of deposits in India of
all scheduled commercial banks was as follows:
1951 -71 – 700%
1971 -91 – 3260%
1991 -2010 – 2296%
In absolute terms, bank depo sits rose from Rs. 43.4 billion in 1969 to Rs.
71,967 billion at the end of March 2013. Out of th ese, time deposits
amounted to Rs. 64,546 billion w hile demand deposits were only Rs. 7,420
billion
3. Expansion of Bank Credit
Bank credit too has expanded tremend ously particularly since July 1969
from abou t Rs.1,16,300 crores in 1990 -91 to Rs. 27,70,012 crores during
2008 -09. It further rose to Rs.50,74,600 crores at the end of March
2012.Bank System Credit growth will almost double to 10 percent in
2021 -22.
4. Priority Sector Lending by Banks
Before 1969, commercial banks neglected rural credit considering it to be
the responsibility of cooperative societies and banks. At the same time,
since banks were owned and managed by big industrialists they ignored
small indu strial concerns and business units. Soon after nationalisation the
commercial banks were asked to be specially concerned with financing of
priority sector. With the issue of directives by RBI in 1980 regarding
priority sector lending total credit extended by public sector banks to
agriculture, small scale industries and othe r priority sectors went up from
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100 7.3 INNOVATIONS IN BANKING
The world over banking has been undergoing rapid transformation through
the process of innovation. Japan’s Post office, Securitization and Venture
Capital funds, The Euro, common currency of the European Union,
Bangladesh Grameen Bank are some of such innovations. In India also
banking industry has been progressing wi th many innovative products,
processes and services. Some of them are:
RBI has permitted the usage of hybrid innovative financial instruments by
the banks to procure the required additional capital
Indian banks have been extensively using information techn ology in
innovative ways to provide services like e -banking, tele -banking, ATMs,
credit cards etc. seamlessly and cost -efficiently.
A nationalised bank has proposed to utilize the services of dabbawallahs
of Mumbai as delivery channels for its products and services.
RBI, engaged in the task of financial inclusion, has designed two delivery
models, namely, business correspondents model and business facilitators
model to enhance the outreach of the banks in extending banking services
to the poor. These attemp ts are considered to be very innovative ideas
The development of payment and settlement system by RBI, consisting of
Real Time Gross Settlement (RTGS), National Electronic Fund Transfer
(NEFT), Centralised Funds Management System, Cheque Truncation
System are innovative ways in fund transfer mechanism
Sharing of ATMs by different banks is a good example innovative
delivery channel.
The strategic alliance among Corporation Bank, Oriental Bank of
Commerce and Indian Bank, all three being nationalised banks, i s a very
unique and innovative tie -up.
7.4 DIVERSIFICATION IN BANKING -CONCERNS AND
CHALLENGES
The government of India has issued guidelines to the banks under Section
6 of Banking Regulation Act, 1949 permitting and encouraging them to
diversify their func tions. Banks have been diversifying their activities into
a host of financial services by setting up subsidiaries/mutual funds or
contributing to equity of companies offering financial services.
Merchant Banking and underwriting - Commercial banks have now set up
merchant banking divisions and underwriting new issues especially
preference shares and debentures. Formerly, banks provided merchant
banking services only to a few known companies but now they have
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101 Mutual funds – Some banks were permitted to float subsidiaries as mutual
funds. In all, seven public sector banks have set up mutual funds.
Retail banking –Retail banking has been facilitated by growth in banking
technology and automation of banking processes.
Automated Teller Machines (ATMs) – ATMs have emerged as an
alternative banking channel which facilitates low cost banking
transactions. The use of ATMs by foreign banks and private sector banks
has helped these banks to exp and their reach and compete effectively with
public sector banks. PSBs in their turn are also rapidly introducing ATMs.
Anywhere Banking – Under this system, a customer having an account
with any select branch can operate it from other designated branches of the
bank throughout the country.
Internet banking – Growth of internet and wireless communication
technologies, advances in telecommunication etc. have increased the
number of users of internet banking. Many branch transactions can be
performed with int ernet banking.
Venture Capital Fund – Some banks have launched venture capital funds
to provide equity capital to new or existing business where risk and return
are high.
Factoring – Banks are permitted to take up factoring by floating
subsidiaries. It is a device by which book debts are quickly realized
through outright sale of account receivables to a financial intermediary.
SBI and Canara Bank are the only two banks which have set up separate
subsidiaries exclusively for undertaking factoring services
CONCERNS AND CHALLENGES
The decades of 1980s, 1990s and first decade of the present century
have witnessedseveral financial crises around the world. It is
noteworthy that while other countriesand regions went through
banking crises the Indian banking remaine d safe. However, certain
concerns need to be addressed:
(1) Ensuring financial inclusion – Despite the impressive progress
commercialbanking in India has not penetrated sufficiently to serve the
rural, illiterate andpoor people in a meaningful way. The RBI has taken
several steps like ‘nofrill’ accounts, the use of mobile phones etc.
However, much more need to bedoneinthe fieldoffinancialinclusion.
(2) Improving credit flow to rural areas – At presentrural areas
accountforonly small proportion of credit. Further, N orth, Eastern, Eastern
and Central Regions continue to remain back ward duetoun availability of
banking services there. Thus efforts need to be taken to improve credit
flow to theseareas.
(3) Conforming to priority sector lending target – A number of banks
havefailed to meet the target of credit set for priority sectors as a whole
and also foragriculturalcredit.
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102 (4) Financinginfrastructure –infrastructurerequireslong -termfinancing.
However for banks, their main source of funds, are relatively short -term.
In advance d countries insurance companies, pension and provident funds
contribute tolongterm financing of infrastructure. However,in India
theentire burdenison the banks it self.
(5) Improvingefficiency –
Indianbankingindustryhasrecordedimpressiveimprovement in productivi ty
during last one & half decades. Though there isimprovement resources are
not being utilized in the most efficient manner.There is also a degree of
stickiness and non -transparency in the bank lendingrates.
(6) Monitoring high credit to a few sensitive sector s – In recent times,
there hasbeen growth of creditto a few sensitive sectors like NBFCs,
personal loansand real estate. This trend raises risk to the banking sector
as these loans mayincrease theasset -liabilitymismatches.
7.5 REFORMS IN THE INDIAN INSURAN CE
INDUSTRY
The financial reforms paving way to liberalization of the Indian economy
in the early 1990s resulted in the recognition of the insurance sector as an
important part of the overall financial system. Thus, it was found
necessary to bring out app ropriate reforms in the insurance sector as well.
In the, Malhotra Committee, led by the former finance secretary and RBI
governor, R.N. Malhotra was formed to assess the state of the insurance
industry India and submit its recommendations.
The Malhotra Co mmittee was formed with the following purposes:
1. To propose the structure of the insurance industry, to evaluate its
strengths and weaknesses with the intention of creating an efficient
and feasible insurance industry that would offer wide -raging insuran ce
services, covering a variety of insurance products with a high quality
of services to the public and operating as an efficient means for
mobilization of financial resources for the development of the
economy.
2. To formulate recommendations for modifyi ng structure of insurance
industry, for amending the general policy -framework, etc.
3. To make precise proposals regarding life insurance corporation of India
and general insurance corporation of India with a view to improve
their functioning.
4. To mak e suggestions on regulation and supervision of the insurance
sector in India.
5. To give advice on role and working of surveyors, intermediaries like
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103 6. To make proposals or any other matter relevant to the developm ent of
the insurance in India.
The committee submitted its report in 1994, recommending the following,
in respect of:
Structure
a) Government stake in the insurance companies should be brought down
to 50 percent.
b) Government should take over the holdings of g eneral Insurance
Corporation of India and its subsidiaries in order that these subsidiaries
can act as independent corporations.
c) All insurance companies to be given greater autonomy to operate.
Competition
a) Private companies with a minimum paid -up capital o f Rs. 100 crore
should be allowed to enter the industry.
b) No company should deal in both life and general insurance through a
single entity.
c) Foreign companies may be allowed to enter the industry in
collaboration with domestic companies.
d) Postal life insuran ce should be allowed to operate in the rural market.
e) Only one state level life insurance company should be allowed to
operate in each state.
f) The insurance Act should be suitably changed.
g) An insurance regulatory body should set up.
h) Controller of insurance ( currently a part of the Finance Ministry)
should be made independent.
Investments
a) Mandatory investments of LIC life fund in government securities to be
reduced from 75 per cent to 50 per cent.
b) GIC and its subsidiaries are not to hold more than 5 per cent in any
company (there current holdings to be brought down to this level over
a period of time.
Customer services
a) LIC should pay interest on delays in payments beyond 30 days.
b) Insurance companies must be encouraged to set up unit -linked pension
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104 c) Computerization of operations and updating of technology to be
carried out in the insurance industry.
The business of life insurance in India in its existing form started in India
in the year 1818 with the establishment of the Oriental Life Insurance
Company in Calcutta.
Some of the important milestones in the life insurance business in India
are:
1912: The Indian Life Assurance Companies Act enacted as the first
statute to regulate the life insurance business.
1928: The Indian Insurance Companies Act enacted to enable the
government to collect statistical information about both life and non -life
insurance businesses.
1938: Earlier legislation consolidated and amended to by the Insurance
Act with the objective of protecting the interests of the insurin g public.
1956: 245 Indian and foreign insurers and provident societies taken over
by the central government and nationalized. LIC formed by an Act of
Parliament, viz., LIC Act, 1956, with a capital contribution of Rs. 5 crore
from the Government of India .
The General Insurance business in India, on the other hand, can trace its
roots to the Triton Insurance Company Ltd., the first general insurance
company established in the year 1850 in Calcutta by the British.
Some of the important milestones in the gen eral insurance business in
India are:
1907: The Indian Mercantile Insurance Ltd. Set up, the first company to
transact all classes of general insurance business.
1957: General Insurance Council, a wing of the Insurance Association of
India, Frames a code o f conduct for ensuring fair conduct and sound
business practices.
1968: The Insurance Act amended to regulate investments and set
minimum solvency margins and the Tariff Advisory Committee set up.
1972: The General Insurance Business (Nationalization) Act, 1972
nationalized the general Insurance business in India with effect from 1st
January 1973.
107 insurers amalgamated and grouped into four companies viz. the
National Insurance Company Ltd., the New India Assurance Company
Ltd., the Oriental Insurance Co mpany Ltd. And the United India Insurance
Company Ltd. GIC incorporated as a company.
7.6 GROWING IMPORTANCE OF INSURANCE
BUSINESS IN INDIA
In a dynamic world that we are all living in today, economics are changing
at a very fast pace. Future is extremely uncertain, unpredictable and
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105 most important method of handling various kinds of risks and are
indispensable in the following respects:
1. Insurance provides protection against the poss ible occurrence of
uncertain events like losses due to fire, floods, lightning, etc. the
insur er compensates the insured for the loss arising from the risk
insured against.
2. Insurance is a device for eliminating risks and sh aring the losses. All the
policy holders who regularly pay for the loss, which may or may not
happen, share the burden of the loss. Thus, the loss suffered by a
person is spread over the whole on insured community.
3. Insurance is a cooperative method of spreading risks, Insura nce cann ot
prevent occurrence of contingencies that are insured, but surely reduce
the impact of the loss by spreading it over to a large number of policy
holders.
4. Insurance makes for uninterrupted business operations and facilitates
international trade. A busi nessman is free of worries associated with
the risks that the insured.
5. Insurance serves as an agency of capital formation. As instructional
investors, insurance companies provide funds to the government and
public, and contribute in the economic develop ment of the country.
7.7 SUMMARY
In this unit we understand the nature of banking system in India. It will
help us to understand the rationale and nature of banking sector reforms
undertaken since 1991. Students will also help us understand the impact of
reforms on the Indian banking sector. This unit also help us to know the
impact of new technologies on the working of commercial banks in India.
7.8 QUESTIONS
1. Define the tem Bank
2. State the changing role of banks
3. Explain the new Innovations in banking sector
4. Evaluate the various reforms in the Indian insurance industry
5. State the growing importance of insurance business in India

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106 8
MONEY AND CAPITAL MARKET
Unit Structure:
8.0 Objectives
8.1 Structure of Indian Money Market
8.2 Money Market Instruments and Reforms in India since 1991
8.3 Capital Market - Structure and Growth
8.4 Reforms in Capital Market
8.5 Summary
8.6 Questions
8.0 OBJECTIVES
 Understand the concept and importance of money and capital market.
 Understand the features of money market and capital market in India.
 Understand the reforms in Indian money and capital market since 1991
8.1 INDIAN MONEY MARKET
Mea ning
The Money Market is a market where short term funds are borrowed and
lend is termed as Money Market. It deals in funds and financial
instruments having a maturity period of less than one year. It covers
money and financial assets that are close substi tutes for money. The
instruments in the money market are of short term nature and highly liquid
securities are traded.
Structure of Indian Money Market.
The Indian money market consists of two segments, termed as organized
sector and unorganized sector. Th e RBI is the crucial constituents of
Indian money market. The organized sectors are within the direct in abide
of RBI regulation. The unorganized sectors consist of indigenous bankers,
money lenders and unregulated non -banking financial institutions.


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107









 Call and Notice Money Market
 Treasury Bill Market
 Commercial Bill Market
 Market for Certificates of Deposits (CDs)
 Market for Commercial Papers (CPs)
 Repos Market
 Money Market Mutual Funds (MMMFs)
 Discount & Finance House of India (DFHI)
 Indigenous Bankers
 Money Lenders
 Unregulated Non -Bank Financial
 Intermediaries (Chit Funds, Nidhis and Loan Companies)
 Finance Brokers

(A) Organized Money Market Instruments and Features

1. Call and Notice Money Market:
It is a submarket of Indian Mone y market. It is known as money at call,
and money at short notice. It is also called as inter -bank loan market.
Under call money market, funds are transacted on overnight basis. Under
notice money market funds are transacted for the period between 2 days
and 14 days. The funds lent in the notice money market do not have a
specified repayment date when the deal is made.It is specially located in STRUCTURE
OF INDIAN
MONEY MARKET ORGANISED
SECTOR S UNORGANI
SED
SECTORS
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108 Mumbai, Delhi, Calcutta, etc. The lender issues a notice to the borrower 2 -
3 days.On receipt of this notice, the b orrower will have to repay the funds
within the given time. Generally, banks rely on the call money market
where they raise funds for a single day.The main participants in the call
money market are Scheduled commercial banks (excluding RRBs), Non
Scheduled Commercial banks, co -operative banks and primary dealers.
Discount and Finance House of India (DFHI), Non -banking financial
institutionssuch as LIC, GIC, UTI, NABARD etc. are allowed to
participate in the call money market as lenders.

2. Repos: A repo or reverse repo are transactions or short term loans
which two parties agree to sell and repurchase the same security. Under
repo, the seller gets immediate funds by selling specified securities they
are usually used for overnight borrowing. Transactions can be done two
parties with RBI approved securities such as Central or State Government
securities, treasury bills, PSU Bonds, FI Bonds, Corporate Bonds an
agreement to repurchase the same at a mutually decided mutual date and
price.Similarly, the buyer purchases the securities with an agreement to
resell the same to the seller at an agreed date and price. The repos in
government securities were first introduced in India since December
1992.Since November 1996, RBI has introduced “Reverse Repos” i.e. t o
sell government securities through auction.

3. Discount and Finance House of India (DFHI): It was set up by RBI
in April 1988 based on therecommendations of the Vaghul Committeewith
the objective of deepening and activating money market. It is joint ly
owned by RBI, public sector banks and all Indiafinancial institutions
which have contributed to its paid up capital. It is jointly owned by the
RBI, public sector banks and financial institutions to impart liquidity to
the money market instruments.The D FHI deals in treasury bills,
commercial bills, CDs, CPs, short -term deposits, call money market and
government securities. The presence of DFHI as an intermediary in the
money market has supported the corporateentities, banks, and financial
institutions to invest their short -term surpluses in money market
instruments.

4. Money Market Mutual Funds (MMMFs): RBI introduced MMMFs
in April 1992 to allow the individual investors to take part in the money
market which was introduced by Banks and Financial Inst itutions.
MMMFs mobilize savings from individual investors and invest them in
short -term debt andmoney market instruments such as call
money, repos, treasury bills, CDs and CPs. These instruments are forms
of debt that mature in less than a year.

(B) UNORGANIZED SECTOR OF INDIAN MONEY MARKET
The unorganized Indian money market is acombination of
indigenousbankers, money lenders and unregulated non -bank financial
intermediaries. They do works in urban centers but their activities are
largely confined t o the rural sector. This market is unorganized because
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109 The main components of unorganized money market are:
1. Indigenous Bankers: They are financial intermediaries which operate
similar toban ks, receive deposits and provide loans and deals in hundies.
The hundi is a short -term credit instrument. It is the indigenous bill of
exchange. The rate of interest differs from one market to another and
from one bank to another. They do not depend on d eposits entirely; they
may utilize their own funds.They are acrucial source of funds in unbanked
areas and provide loans directlyto agriculture, trade and industry.

2. Money Lenders: Their intentionally business is money lending.
Money lenders occupie d in rural. However, they are also found in urban
areas.Money lenders usually charge a high rate of interest. Large amount
of loans are given for productive as well as unproductive purposes. The
borrowers are particularlyagricultural laborers, marginal and small
farmers, artisans, factory workers, small traders, etc. At present, the
activities of the money lenders have beenrestricted by RBI due to their
exploitativetendencies.

3. Unregulated non -bank Financial Intermediaries: These consist of
Chit Funds, Nidhis, Loan companies and others.

(a) Chit funds: They are saving institutions. The members make regular
come together to contribution their fund. The Collected funds are given to
some member based on previously agreed criterion (by bids or by draws).
Chit Fund is more famous in South (Kerala and TamilNadu) also
somewhere in Maharashtra.

(b) Nidhis: They deal with members and act as mutual benefit funds. The
deposits from the members are the major source of funds and they make
loans to members at rea sonable rate of interest for the purposes like house
construction or repairs. They are highly localized and peculiar to South
India. Both Chit Funds and Nidhis are unregulated.

4. Finance Brokers: They are found in all major urban markets
especially i n cloth, markets, grain markets and commodity markets. They
are middlemen between lenders and borrowers.
8.2 MONEY MARKET INSTRUMENTS AND REFORMS
IN INDIA SINCE 1991
The Committee to Review the Working of Monetary System chaired by
S. Chakravarty made se veral recommendations in 1985 to develop Indian
money market. As a follow -up, the RBI set up a Working Group on
money market under the chairmanship of N Vaghul, in 1987. Based on
the recommendations of Vaghul Committee, RBI intiated a number of
measures to widen and deepen the money market. The main measures are
as follows.
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110 1. Deregulation of Interest Rates: From May 1989, the regulatory on
interest rates on the call money, inter -bank short -term deposits, bills
rediscounting an d inter -bank participation was removed and the rates
were permitted to be determined by the market forces. Thus, the system
of administered interest rates is being gradually dismantled.

2. Introduction of New Money Market Instruments: In order to g row
and diversity the Indian money market RBI has introduced many new
money market instruments such as 182 days treasury bills, 364 day
treasury bills, CDs & CPs. Through these instruments the government,
financial institutionscommercial banks, and corpor ate can raise funds
through the money market. They also provide investors additional
instruments for investments. In order to expand the investor base for CDs
and CPs the minimum amount of investment and the minimize maturity
periods are reduced by gui delines of RBI.

3. Repurchase Agreements (Repos): RBI introduced repos in
government securities in December 1992 and reverse repos in November
1996. Repos and reverse repos help to even out short -term fluctuations in
liquidity in the money market. T hey also provide a short -term avenue to
banks to utilize their surplus funds. Through changes in repo and reverse
repo rates RBI transmits policy objectives to entire money market.

4. Liquidity Adjustment Facility (LAF): RBI has introduced LAF since
June 2000 as acrucial tool for balancing liquidity through repos and
reverse repos. Thus, in the recent years RBI is using repos and reverse
repos as a policy to adjust liquidity in the money market and therefore, to
stabilize the short -term interest rates or call rates. LAF has, therefore,
considered as a major instrument of monetary policy.

5. Money Market Mutual Funds (MMMF): RBI introduced MMMFs
in April 1992 to enable the individual investors to participate in money
market. To make the scheme adjusta ble, flexible and attractive, RBI has
brought about many modifications. The important features of this scheme
as of now are:
(i) It can be set up by commercial banks, financial institutions and private
sector.
(ii) Individual investors, corporates and others can invest in MMMFs.
(iii) Resources mobilized through this scheme can be invested in money
market instruments as well as rated corporate bonds and debentures
with a maturity period up to one year.

6. Discount and Finance House of India (DFHI): In order to impart
liquidity to money market instruments and help the development of
secondary market in such instruments. DFHI was set up in 1988 jointly
by RBI, Public sector banks and financial institutions.

7. Development of Inter -bank Call and No tice Money Market : The call
and notice money market is an inter -bank market the world over and
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Money and Capital Market
111 same in India. However RBI had given permission to non -banking
institutions to participate in the call money market as lenders. As per the
advisory of Narsimham Committee by RBI in 2001 -02 hashigh -lighted the
necessity for transforming the call money market into a pure inter -bank
money market.

8. Regulation of NBFCs : The RBI Act was amended in 1997 to provide
for a comprehensive regulation of NBFC sector. According to the
amendment, NFBC not permissible to carry on any business of a financial
institution, including acceptance of public deposit, without obtaining a
Certificate of Registratio n (CoR) from RBI.

9. The Clearing Corporation of India Limited (CCIL): The CCIL was
registered on April 30, 2001 under the Companies Act, 1956, with the
State Bank of India as the chief promoter. The CCIL clears all
transactions in government securit ies and repos reported on the
Negotiated Dealing System (NDS) of RBI.
8.3 CAPITAL MARKET - STRUCTURE AND GROWTH
Capital market is the market for medium and long term funds for both
equity and debt raised within and outside the Country. It refers to all the
facilities and the institutional arrangements for borrowing and lending
term funds (medium -term and long -term funds). Effective capital market
is necessary for enhancing more investment for economic growth. The
demand for long -term funds comes mainly from industry, trade,
agriculture and government. The central and state governments invest not
only on economic overheads such as transport, irrigation, and power
supply but also a basic and consumer goods industries and hence require
large sums from capital m arket. The supply of funds comes largely from
individual savers, corporate savings, banks, insurance companies,
specialized financial institutions and government.

Importance of Capital Market in economic development

Capital market has a crucial significa nce to capital formation. Sufficient
capital formation is indispensable for a speedy economic development.
The main function of capital market is the collection of savings and their
distribution for industrial development. This stimulates capital formation
and hence, accelerates the process of economic development.A sound and
efficient capital market facilitates the process of capital formation and thus
contributes to economic development. The significance of capital market
in economic development is explai ned below.

1. Mobilization of Savings: Capital market is an organized institutional
network of financial organizations, which not only mobilizes savings
through various instruments but also utilize them into productive purpose.
By making available variou s types of financial assets, the capital market
promote savings. By providing liquidity to these financial assets through
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112 savings from various sections of the people such as individua ls, families
and associations. Thus, capital market mobilizes these savings and make
the same available for fulfilling the large capital needs of industry, trade
and business.

2. Channelization of Funds into Investments: Capital Market plays a
crucial ro le in the economic development by channelizing funds in
accordance with development priorities. The financial intermediaries in
the capital market are better placed than individuals to channelize the
funds into investments which are more beneficial for eco nomic
development.

3. Industrial Development: Capital market contributes to industrial
development in the following ways:

(a) It provides adequate, cheap and diversified finance to the industrial
sector for various reasons.

(b) It provides funds for d iversified purposes such as for expansion,
modernization, upgradation of technology, establishment of new units etc.

(c) It provides a variety of services to entrepreneurs such as provision of
underwriting facilities, participating in equity capital, cred it rating, and
consultancy services etc. This helps to stimulate industrial entrepreneurs
such as provision of underwriting facilities, participating in equity capital,
credit rating, consultancy services, etc.

4. Modernization and Rehabilitation of Indu stries: Capital market can
contribute towards modernization, rationalization and rehabilitation of
industries. As given, the setting up of development financial institutions in
India such as IFCI, ICICI, IDBI and so on has helped the existing
industries in the country to adopt modernization and replacement of
obsolete machinery.

5. Technical Assistance: An important bottleneck faced by entrepreneurs
in developing countries is technical assistance. By offering advisory
services relating to the preparation of feasibility reports, identifying
growth potential and training entrepreneurs in project management, the
financial intermediaries in the capital market play an important role in
stimulating industrial entrepreneurship. This helps to enhance industrial
investment and thus promotes economic development.

6. Encourage Investors to invest in Industrial Securities: Secondary
market in securities motivates investors to invest in industrial securities by
making them liquid. It provides facilities for continuous , regular and ready
buying and selling of securities. Thus, industries are able to raise
considerable amount of funds from various segments of the economy.

7. Reliable Guide to Performance: The capital market serves as a
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Money and Capital Market
113 promotes efficiency. It values companies accurately and boost up manager
compensation to stock values. This gives benefits to managers to
maximize the value of companies. This stimulates efficient resource
allocation an d growth.

Structure of capitalmarket in India .

In the financial market all those institutions and organizations which
provide medium term and long -term funds to business enterprises and
public authorities, constitute the capital market. In simple words, the
market which lends long -term funds is called the capital market.
The capital market brings both those who demand funds and those who
supply funds. Thus, the borrowers and lenders in the financial market for
medium -term and long -term funds constitute th e capital market.

The Indian Capital Market is broadly divided into two categories:
1. The securities market consisting of (a) The gilt -edged market and (b)
The industrial securities market; and 2. The financial institutions
(Development Financial Instit utions) (DFIs). Thus, the Indian capital
market is composed of (a) The gilt -edged market or the market for
government securities and industrial securities or corporate securities
market.

(b) Capital market includes Development Financial Institution (DFIs )
such as IFCI, SFC, LIC, IDBI, UTI, ICICI, etc. They provide medium -
term funds for business enterprises and public authorities.

(c) Apart from the above, there are financial intermediates in the capital
market such as merchant bankers, mutual funds, lea sing companies,
venture capital companies etc. They help in channelize savings and
supplying funds to investors.


















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114 THE CAPITAL MARKET IN INDIA IS SHOWN BY CHART


(1) Gilt-Edged Market:
Gilt-edged market is also known as the government securities market. As
the securities are safe and secure, they are known as gilt -edged i.e the best
quality securities.The Investors in the gilt -edged market are predominantly
institutions. They are required by regulation to invest a certain portion of
their funds in these securities. These institutions include commercial
banks, LIC, GIC, and the provident funds.The transactions in the
government securities market are very huge. Since June 1 992, government
securities have been mostly issued sealed bid auctions.RBI plays a major
role in the gilt -edged market through its open market operations.Thus,
government securities are considered the most liquid debt instruments.

(2) The Industrial Secu rities Market:
It is a market of shares, debentures and bonds which can be bought and
sold freely.

(A) Primary Market:
The new issue market called the primary market and (b) old issue market,
commonly known as stock exchange or stock market. It is called the
secondary market.

The new issue market is concerned with the raising of new capital in the
form of shares, debentures andbonds. Many public limited companies
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115 business. It may be noted that the new issue market is important because
of its impact on economic growth of the country.

(B) Secondary Market:
The stock exchange market or the secondary market is a market of the
purchase and sale of quoted or listed securities. It is a highly organized
secondhand market for regulating and controlling business in buying,
selling and dealing in secondhand securities.

(3) Financial Institutions: We have specified that there are special
financial institutions which offers long -term capital to the private sector in
the capital market. These institutions are called Development Financial
Institutions.

(4) Financial Intermediaries: The Indian capital market has shown
steady improvement after 1951. During the Five -Year Plans, Capital
market has witne ssed tremendous growth. Both the volume of saving and
investment has shown phenomenal improvement. In fact, in the last two
decades, the volume of capital market transactions has increased
substantially. Besides, its functioning has been diversified indica ting the
growth of the Indian economy.
8.4 REFORMS IN CAPITAL MARKET
The reforms in the capital market are explained below with respect to
primary and capital markets in India.

PRIMARY MARKET REFORMS IN INDIA
A number of measures have been taken in India especially since 1991 to
develop primary market in India. These measures are discussed below.

1. Abolition of Controller of Capital Issues: The Capital Issues
(Control) Act, 1947 governed capital issues in India. The capital issues
control was administere d by the Controller of Capital Issues (CCI). The
Narasimham Committee (1991) had recommended the abolition of CCI
and wanted SEBI to protect investors and take over the regulatory function
of CCI. Thus, government replaced the Capital Issues (Control) Act and
abolished the post of CCI. Companies are allowed to approach the capital
market without prior government permission subject to getting their offer
documents cleared by SEBI.

2. Securities and Exchange Board of India (SEBI): SEBI was set up as
a non -statutory body in 1988 and was made a statutory body in January
1992. SEBI has introduced various guidelines for capital issues in the
primary market.

3. Disclosure Standards : Companies are required to disclose all material
facts and specific risk factors associated with their projects. SEBI has also
introduced a code of advertisement for public issues for ensuring fair and
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116
4. Freedom of Determine the Par Value of Shares: The requirement to
issue shares at a par value of Rs.10 and Rs .100 was withdrawn. SEBI has
allowed the companies to determine the par value of shares issued by
them. SEBI has allowed issues of IPOs through “book building” process.

5. Underwriting Optional: To reduce the cost of issue, underwriting by
the issuer is made optional. It is subject to the condition that if an issue
was not underwritten and was not able to collect 90% of the amount
offered to the public, the entire amount collected would be refunded to the
investors.

6. FIIs Permitted to Operate in the In dian Market: Foreign
institutional investors such as mutual funds and pension funds are allowed
to invest in equity shares as well as in debt market, including dated
government securities and treasury bills.

7. Accessing Global Funds Market: Indiancompan ies are allowed to
access global finance market and benefit from the lower cost of funds.
They have been permitted to raise resources through issue of American
Depository Receipts (ADRs), Global Depository Receipts (GDRs),
Foreign Currency Convertible Bond s (FCCBs) and External Commercial
Borrowings (ECBs). Indian companies can list their securities on foreign
stock exchanges through ADR/GDR issues.

8. Intermediaries under the Purview of SEBI: Merchant bankers, and
other intermediaries such as mutual fund s including UTI, portfolio
managers, registrars to an issue, share transfer agents, underwriters,
debenture trustees, bankers to an issue, custodian of securities and venture
capital funds have been brought under the purview of SEBI.

9. Credit Rating Age ncies: Various credit rating agencies such as Credit
Rating Information Services of India Ltd.(CRISIL – 1988), Investment
Information and Credit Rating Agency of India Ltd. (ICRA – 1991). Cost
Analysis and Research Ltd. (CARE – 1993) and so on were set up to meet
the emerging needs of capital market.

SECONDARY MARKET REFORMS

A number of measures have been taken by the government and SEBI for
the growth of secondary capital market in India. The important reforms or
measures are explained below.

1. Setting up of National Stock Exchange (NSE): NSE was set up in
November 1992 and started its operations in 1994. It is sponsored by the
IDBI and co -sponsored by other development finance institutions, LIC,
GIC, Commercial banks and other financial institutions.

2. Over the Counter Exchange of India (OTCEI ): It was set in 1992. It
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Money and Capital Market
117 including UTI, ICICI, IDBI, IFCI, LIC and others. It is an electronic
national stock exchange listing an entirely new set of companies which
will not be listed on other stock exchanges.

3. Disclosure and Investor Protection (DIP) Guidelines for New
Issues: In order to remove inadequate and systematic deficiencies, to
protect the investors and for the orderly growth and development of the
securities market, the SEBI has put in place DIP guidelines to govern the
new issue activities. Companies issuing capital in the primary market are
now required to disclose all material facts and specify risk factors with
their proj ects.

4. Screen Based Trading: The Indian stock exchanges were modernized
in the 90s, with Computerized Screen Based Trading System (SBTS). It
electronically matches orders on a strict price / time priority. It cuts down
time, cost, risk of error and fra ud, and therefore leads to improved
operational efficiency.

5. Depository System: A major reform in the Indian Stock Market has
been the introduction of depository system and scripless trading
mechanism since 1996. Before this, the trading system was base d on
physical transfer of securities. A depository is an organization which holds
the securities of shareholders in electronic form, transfers securities
between account holders, facilities transfer of ownership without handling
securities and facilitates their safekeeping.

6. Rolling Settlement: Rolling settlement is an important measure to
enhance the efficiency and integrity of the securities market. Under rolling
settlement all trades executed on a trading day are settled after certain
days.

7. The National Securities Clearing Corporation Ltd. (NSCL): The
NSCL was set up in 1996. It has started guaranteeing all trades in NSE
since July 1996. The NSCL is responsible for post -trade activities of the
NSE.Clearing and settlement of trades and risk manage ment are its core
functions.

8. Trading in Central Government Securities : In order to encourage
wider participation of investors, including retail investors, across the
country, trading in government securities has been introduced since
January 2003. Tra ding in government securities can be carried out through
a nationwide, anonymous, order -driver, screen -based trading system of
stock exchanges in the same way in which trading takes place in equities.

9. Mutual Funds: Emergency of diversified mutual fun ds is one of the
most important development of Indian capital market. Their main function
is to mobilize the savings of general public and invest them in stock
market securities. Mutual funds are an important avenue through which
households participate in the securities market.
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Page 118

Macro Economic Aspects
of India

118 8.5 SUMMARY
In this unit we understand the concept and importance of money and
capital market. Students will also learn the features of money market and
capital market in India. A number of measures have been taken in India
especial ly since 1991 to develop primary market in India, these reforms in
Indian money and capital market since 1991 is thoroughly explained in
this unit.
8.6 QUESTIONS
1. Explain the structure of Indian Money Market.
2. State the Money Market Instruments and Reforms i n India since 1991.
3. Explain the Structure and growth of Capital Market.
4. State the various reforms in Capital Market.

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