Module –III INDUSTRIAL AND REGULATORY PERSPECTIVE

1. Module –III INDUSTRIAL AND REGULATORY PERSPECTIVE • An Entrepreneur, in order to successfully expand and grow his/her business on a sustained basis, must take into account the basic regulatory requirements of the country. • These requirements are necessary for the functioning of his/her enterprise in the statutory framework of the country and help him/her to know about his/her rights and responsibilities as well as the challenges that he/she may have to face.

4. The need to have a proper regulatory environment which can ensure a healthy competition in the economy so that all business enterprises can grow and expand and stimulate economic development of a country. • Business to grow on a sustainable basis, there has to be a healthy and fair competition in the market economy.

5. The Ministry of Commerce and Industry is the most important organ concerned with the promotion and regulation of the Domestic /Foreign trade in India. • The Ministry has an elaborate organizational set up to look after the various aspects of trade. Within the Ministry, The Department of Commerce is responsible for formulating and implementing the foreign trade policy.

6. Regulatory policy framework had four major objectives : • 1. The promotion of heavy industry with an emphasis on the public sector. • 2. Economic self-reliance, which translated into broad efforts at import substitution and restrictions on technology imports to promote indigenous innovation. • 3. Protection to small industry sector • 4. Balanced regional development

7. To achieve these objectives, the regulatory policy framework comprised a variety of policy instruments : • Reservation of vast areas of industrial activities for the public sector • Industrial licensing to regulate and control investments in industry and locations • Legislation to control large and dominant firms • Legislation to control foreign investment and technology inflow

8. Comprehensive policies and incentives to protect small scale industry • Restriction on location of industrial units and incentives to move into backward regions • Price administration of infrastructural inputs and • Taxation

9. INDUSTRIAL LICENSING • To regulate the flow of investment in desired channels of industries and locations and to match supply of industrial commodities with demand on the lines of national priorities • A license is a written permission from the Government to an industrial undertaking to manufacture specific articles..

10. It includes particulars of the industrial undertaking, its location, the articles to be manufactured, their capacity on the basis of maximum utilization of plant and machinery and other appropriate conditions which are enforceable under the Act. • It is also subject to a validity period within which the licensed capacity should be established.

11. Industrial licensing was introduced under the Industries Development and Regulation(IDR) Act. • The IDR Act was passed in October 1951 and the Act came into force on 8thMay, 1952. • The Act applies to all the industries specified in the first schedule of the Act. • Originally this schedule listed 37 industries but the scope of the Act had been enlarged from time to time to include more industries.

12. The salient features of the IDR Act 1951 • Existing undertakings need to be registered with the Government within the prescribed time limit • New units are permitted only through an industrial license • Government has the power to conduct an investigation, assume management control provide relief or control supply and distribution of products of certain industrial undertakings. • To change the location of the unit.

13. Competition Policy • Refers to the government policy designed to ensure contestability and fair competition in the market by removing or preventing those factors and forces which tend to distort such competition. • It promotes the creation of a healthy business environment which improves static and dynamic efficiencies and leads to maximization of consumer and producer welfare.

14. The main objectives of competition policy • To create and promote active competitive environment so as to ensure efficient allocation of resources in an economy. • To promote efficiency in the market economy and maximize both consumers' and producers' welfare. • To control the concentration of economic power and encourage innovation. • To support small and medium sized enterprises and encourage regional integration. • To aid the process of creating globally competitive firms with enhanced investment and technical capabilities.

15. Monopolies and Restrictive Trade Practices (MRTP) • prevent the emergence of private monopolies and the concentration of economic power in the hands of a small number of individuals. • The Monopolies and Restrictive Trade Practices(MRTP) Bill was enacted in 1969 and came into force in 1970.

16. MRTP Commission • To review periodically the trends in ownership of industries and advise the Government on measures to prevent the concentration of economic power • To investigate into monopolistic trade practices and to report to the Central Government its findings for necessary action. • To inquire into any restrictive trade practices prejudicial to public interest and order for its discontinuance.

17. Monopolies and Restrictive Trade Practices (MRTP) Act, 1969 The main objectives of the Act are:- • To provide for the establishment of a commission to prevent practices having adverse effect on competition • To promote and sustain competition in markets in India • To protect the interests of consumers • To ensure freedom of trade carried on by the participants in the markets in India and for related matters.

18. Foreign Exchange Regulation Act (FERA) • The Foreign Exchange Regulation Act (FERA) was enacted in 1973 by the Indian Parliament to consolidate and amend the FERA Act of 1947. • Regulating certain payments, foreign exchange and securities transactions, and transactions that affect India's currency trade. • FERA Violation--A Criminal Offense • Dealings that were not mentioned in the act were not permitted. • FERA was replaced by the Foreign Exchange Management Act (FEMA) in 1999, which eased restrictions on foreign exchange and overseas investment in India.

19. REGULATIONS ON BANKING ANDFINANCING SERVICES • The role of RBI is to frame regulations that help the orderly functioning of the institutions that raise and lend the capital. • Commercial banks and non-banking financial institutions are two major set of institutions that come under the regulation of RBI. • It is the licensing authority to sanction the establishment of new bank or new branch • b) It prescribes the minimum capital, reserves and use of profits and reserves, distribution of dividends, • It has the authority to inspect or conduct investigation on the working of the banks.

20. REGULATIONS ON INSURANCE SERVICES • Insurance Regulatory Authority (interim) was set up in 1996 based on the recommendations of the Malhotra Committee primarily • To regulate, promote and ensure orderly growth of the insurance business in a free market economy. • To protect the interest of the policyholders in matters concerning assigning of policy, nomination by policyholders, insurable interest, settlement of insurance claims • To promote efficiency in the conduct of insurance business; • To promote and regulate professional organizations connected with the insurance business;

21. The Securities and Exchange Board of India (SEBI) • Government of India has set up the Securities and Exchange Board of India on 12th April, 1988. The Board initially functioned as advisory agency but in 1992, the SEBI has been given the legal status by the Securities and Exchange Board of India Ordinance 1992. • Entrusts the responsibility of protecting the interest of investors in securities • To promote the development of, and to regulate securities market • promoting and regulating self-regulatory organizations • prohibiting fraudulent and unfair trade practices relating to securities markets • promoting investors education and training of intermediaries of securities markets

22. SMALL SCALE INDUSTRY • Encouragement to Small Scale Industry (SSI) through exclusive policy measures of protection formed another face of the regulatory framework Principal measures of protection for SSI comprised • Reservation of products for exclusive manufacturing in SSI sector. • Restrictions on the growth of output and capacity in the large scale industry sector producing items reserved for SSI sector • Concessional credit from the banks • Excise and sales tax exemptions/concessions • Exemption from many labour legislations • Exemption from licensing

23. Public Sector company • Its owned and controlled by the Government – Either Central or State Objectives • To provide quality service and social concern • Not for profit motive but for service motive • Brings about economic growth and development of the nation • Set up to prevent the monopoly • Public Sector would correct the regional imbalances • Create employment.

24. These included the Railways, the Posts and Telegraphs, the Port Trusts, the Ordinance Factories, All India Radio, few enterprises like the Government Salt Factories which were departmentally managed. • Industrial policy has seen a sea change with most Central Government industrial controls being liquidated. • The Central Public Sector Enterprises (CPSEs) were classified into ‘strategic’ and ‘non-strategic’. Strategic CPSEs were identified in • The areas of (a) Arms & Ammunition and the allied items of defence equipments, • Defence air-crafts and warships; (b) Atomic Energy (except in the areas related to

25. the operation of nuclear power and applications of radiation and radio-isotopes to agriculture, medicine and non-strategic industries); and (c) Railway transport. • All other CPSEs were considered as non-strategic. Further, Industrial licensing by the Central Government has been almost abolished except for a few hazardous and environmentally sensitive industries. • Number of CPSUs has increased spectacularly to 247enterprises with a total investment of about 130 billion euros. • Out of these 247 enterprises, as many as 197 public enterprises are profitable. Only fifty public enterprises out of this large group of 247 enterprises are loss-making.

26. The main elements of the present Government policy towards Public Sector enterprises as contained in the National Common Minimum Programme (NCMP) are: • To devolve full managerial and commercial autonomy to successful, profit making companies operating in a competitive environment • Generally , profit-making companies will not be privatized • Every effort will be made to modernize and restructure sick public sector companies and revive sick industry • Chronically loss making companies will either be sold off, or closed, after all workers have got their legitimate dues and compensation

27. Private industry will be inducted to turn-around companies that have potential for revival • Privatization revenues will be used for designated social sector schemes • Public sector companies and nationalized banks will be encouraged to enter the capital market to raise resources and offer new investment avenues to retail investors.

28. ERP AND PUBLIC SECTOR • Enterprise Resource Planning software systems (ERP) encompass a wide range of software products supporting day-to-day business operations and decision-making. • ERP serves many industries and numerous functional areas in an integrated fashion, attempting to automate operations from supply chain management, inventory control, manufacturing scheduling and production, sales support, customer relationship management, financial and cost accounting, human resources etc..,

29. ERP systems are designed to enhance organization’s competitiveness by upgrading an organization’s ability to generate timely and accurate information throughout the enterprise and its supply chain. • A successful ERP system implementation can shorten production cycles, increases accuracy of demand for materials management & sourcing and leads to inventory reduction because of material management, etc.

30. Three main factors that can be held responsible for failure of ERP system are: • Poor planning or poor management • Change in business goals during project and • Lack of business management support.

31. Tangible Benefits after ERP Implementation • Inventory Reduction • Personal reduction • Productivity improvement • Order management improvement • Technology cost reduction • Cash management improvement • Revenue/profit improvement • Transportation/ logistics cost reduction • Maintenance reduction • On time delivery improvement

32. Intangible benefits after ERP implementation • New/improved business processes • Customer responsiveness • Integration • Standardization • Flexibility • Business performance • Supply/ demand chain • Information/visibility • Economic Performance of firm (Internal coordination cost)

33. Business Performance factor • Reduced organizations business risks • Enhanced organizations regulatory compliance • Makes MIS more accurate and accessible. • Facilitate improved services to customer and suppliers • Allows new services to customer and suppliers • Enhanced primary users knowledge and skills • Increased institutional accountability • Increased shareholders confidence in organization • Enhanced support to organizational activities • Enhanced organization business performance • Decreased work load in various departments

34. PRIVATE COMPANY • Under Section 3(1) (iii) of the Companies Act of 1956, B private limited company has been defined as a company which, by its Articles of Association • Restricts the right to transfer its share if any • Limits the number of its members to fifty, and • Prohibits any invitations to the public to subscribe for any shares in, or debentures of, the company.

35. The private sector refers to all types of individual and corporate enterprises, domestic and foreign, in any field of productive activity with the intention of making a profit. The characteristic of the private sector enterprises is that their ownership and management lies in private hands.

36. The capital market institutions developed rapidly and have been playing an important part in the private sector expansion. • The Institutions such as • Industrial Finance Corporation of India (IFCI), Industrial • Development Bank of India (IDBI), • National Bank for Agriculture and Rural • Development (NABARD) and • State Financial Corporations (SFCs) have been • playing significant promotional and financing role to help the private sector growth- In the provision of infrastructure, raw materials, technology development etc.

37. The private sector plays the following dominant role in Indian economy • It has an extensive modern industrial sector • It has become the powerful driver of development • It has led to the growth of Small scale industries • It has huge employment and investment potential • It plays significant role in health and education sector

38. SSIs - small scale industries (SSIs) • The small scale industries (SSI)constitute an important segment of the Indian economy in terms of their contribution to the country’s industrial production, exports, employment and creation of an entrepreneurial base. • The Government established the Ministry of Small Scale Industries and Agro and Rural Industries(SSI & ARI) in October, 1999 as the nodal Ministry for formulation of policies and Central sector programmes/schemes, their implementation and related co-ordination, to supplement the efforts of the States for promotion and development of these industries in India. • The Ministry of SSI &ARI was bifurcated into two separate Ministries, namely, Ministry of Small Scale Industries and Ministry of Agro and Rural Industries in September, 2001.

39. Role of the ministry of small scale industries • The role of the Ministry of Small-scale Industries is thus to mainly assist the States in their efforts to promote growth and • Development of the SSI, enhance their competitiveness in an increasingly market led economy and • Generating additional employment opportunities.

40. Adequate credit from financial institutions/banks • Funds for technology up gradation and modernization • Integrated infrastructural facilities • Modern testing facilities and quality certification laboratories • Access to modern management practices, entrepreneurship • Development and skill upgradationthrough appropriate training facilities

41. Assistance for better access to domestic and export markets and • Cluster-wide measures to promote capacity-building and empowerment of the units

42. Small Industry Development Organization (SIDO) • The Office of the Development Commissioner (Small Scale Industries) [DC(SSI)] is also known as the Small Industry Development Organization (SIDO). • Established in 1954, it is the apex body for assisting the Government in formulating and overseeing the implementation of its policies and programmes/projects/schemes. • The SIDO is headed by the Additional Secretary & Development Commissioner (SSI).

43. MAJOR ACTIVITIES OF SIDO • Advising the Government in formulation of policies and programmes/projects/schemes for the promotion and development of the MSME. • Providing techno-economic and managerial consultancy, common facility and extension services to the MSME. • Providing support for technology upgradation, modernization, quality improvement and infrastructure facilities. • Assisting the MSME in human resource development through training and skill upgradation.

44. Providing economic information services to the MSME. • Maintaining a close liaison with the Central Ministries, Planning Commission, State Governments, Financial Institutions and other organizations concerned with the development of the MSME. • Evolving, implementing and coordinating policies andprogrammes for development of theMSME. • Providing testing and calibration services to the MSME.

45. INDUSTRIAL SICKNESS • sick unit may mean a unit which is not healthy in terms of yielding profits and fetching return on investment • It incurred cash losses for the current and the preceding year One which operates below 20 Percentage of its production (Installed Capacity)

46. CAUSES -EXTERNAL FACTORS • Shortage of key inputs • Changes in Govt Policies – Customs, Excise, Licensing • Overcapity of the plant • Technological Obsolescence • Changes in consumer Preference • Natural Calamities • Development in International Trade

47. Internal Causes Function Wise • Production • Marketing • Finance • Human Resources • Production • Imprpoer location of Plant • Bad/Wrong Technology in process • Unfesible Plant size • Inadquate R&D • Less Maintenance

48. Marketing • Inaccurate demand Projection • Improper product mix • Inadequate sales promotion • High distributi o n costs • Poor customer service

49. Finance • Wrong capital structure • Bad investment decisions • Weak budgetary control • Inadequate MIS • Bad cash planning & control • Improper tax planning

50. HUMAN RESOURCE • Ineffective leadership • Bad labour Industrial relations • Inadequate human resources • Overstaffing • Poor commitment of  employees