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Module 2
The Strategic Planning Process
In today's highly competitive business environment, budget-oriented planning or forecast-
based planning methods are insufficient for a large corporation to survive and prosper. The firm
must engage in strategic planning that clearly defines objectives and assesses both the internal
and external situation to formulate strategy, implement the strategy, evaluate the progress,
and make adjustments as necessary to stay on track.
A simplified view of the strategic planning process is shown by the following diagram:
The Strategic Planning Process
Mission &
Objectives
Environmental
Scanning
Strategy
Formulation
Strategy
Implementation
Evaluation
& Control
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Mission and Objectives
The mission statement describes the company's business vision, including the unchangingvalues and purpose of the firm and forward-looking visionary goals that guide the pursuit of
future opportunities.
Guided by the business vision, the firm's leaders can define measurable financial and strategic
objectives. Financial objectives involve measures such as sales targets and earnings growth.
Strategic objectives are related to the firm's business position, and may include measures such
as market share and reputation.
Environmental Scan
The environmental scan includes the following components:
Internal analysis of the firm
Analysis of the firm's industry (task environment)
External macroenvironment (PEST analysis)
The internal analysis can identify the firm's strengths and weaknesses and the external analysis
reveals opportunities and threats. A profile of the strengths, weaknesses, opportunities, and
threats is generated by means of a SWOT analysis
An industry analysis can be performed using a framework developed by Michael Porter known
as Porter's five forces. This framework evaluates entry barriers, suppliers, customers, substitute
products, and industry rivalry.
Strategy Formulation
Given the information from the environmental scan, the firm should match its strengths to the
opportunities that it has identified, while addressing its weaknesses and external threats.
To attain superior profitability, the firm seeks to develop a competitive advantage over its
rivals. A competitive advantage can be based on cost or differentiation. Michael Porter
identified three industry-independent generic strategies from which the firm can choose.
http://www.quickmba.com/strategy/vision/http://www.quickmba.com/marketing/market-share/http://www.quickmba.com/strategy/pest/http://www.quickmba.com/strategy/swot/http://www.quickmba.com/strategy/porter.shtmlhttp://www.quickmba.com/strategy/competitive-advantage/http://www.quickmba.com/strategy/generic.shtmlhttp://www.quickmba.com/strategy/generic.shtmlhttp://www.quickmba.com/strategy/competitive-advantage/http://www.quickmba.com/strategy/porter.shtmlhttp://www.quickmba.com/strategy/swot/http://www.quickmba.com/strategy/pest/http://www.quickmba.com/marketing/market-share/http://www.quickmba.com/strategy/vision/ -
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Strategy Implementation
The selected strategy is implemented by means of programs, budgets, and procedures.
Implementation involves organization of the firm's resources and motivation of the staff to
achieve objectives.
The way in which the strategy is implemented can have a significant impact on whether it will
be successful. In a large company, those who implement the strategy likely will be different
people from those who formulated it. For this reason, care must be taken to communicate the
strategy and the reasoning behind it. Otherwise, the implementation might not succeed if the
strategy is misunderstood or if lower-level managers resist its implementation because they do
not understand why the particular strategy was selected.
Evaluation & Control
The implementation of the strategy must be monitored and adjustments made as needed.
Evaluation and control consists of the following steps:
1. Define parameters to be measured2. Define target values for those parameters3. Perform measurements4. Compare measured results to the pre-defined standard5. Make necessary changes
Five year plan
The economy of India is based in part on planning through itsfive-year plans, developed,
executed and monitored by the Planning Commission. With the Prime Minister as theex officio
Chairman, the commission has a nominated Deputy Chairman, who has rank of a Cabinet
minister. Montek Singh Ahluwalia is currently the Deputy Chairman of the Commission. The
tenth plan completed its term in March 2007 and the eleventh plan is currently underway.
Objectives of all the Five Year's Plan:
1st Plan (1951-56)
The first five year plan was presented by Jawaharlal Nehru in 1951. The main objectives of the
first five year plans were agriculture, community development, communications, land
rehabilitation.
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2nd
Plan (1956-61)
The second five year plan mainly focused on hydroelectric projects, steel Mills, production of
coal, railway tracks.
3rd Plan (1961-66)The main objectives of the third five year plan were defense, price stabilization, construction of
dams, cement and fertilizers plants, education etc.
4th
Plan (1969-74)
At this time Indira Gandhi was the prime minister and she nationalized of 19 major banks. The
funds raised for industrialization was used in the Indo-Pak war of 1971. India also conducted
nuclear tests in 1974.
5th
Plan (1974-79)
The major objectives of the fifth five year plan were employment, poverty alleviation, justiceetc
6th
Plan (1980-85)
The sixth five year plan focused on information technology, Indian national highway system,
tourism, economic liberalization, price control, family planning etc.
7th
Plan (1985-89)
The objectives of the seventh five year plan were Improving productivity by upgrading
technology.
8th
Plan (1992-97)
Modernization of industries was the main target of the eight five year plan.
9th
Plan (1997-2002)
The main objectives of the ninth five year plan were agriculture and rural development, food
and nutritional security, empowerment of women, accelerating growth rates, providing the
basic requirements such as health, drinking water, sanitation etc.
10th
Plan (2002-2007)
The tenth plan highlighted the need for reduction of poverty ratio, increase in literacy rates,
reduction in infant mortality rate, economic growth, increase in forest and tree cover etc.
11th
Plan (2007-08)
The major objectives of the eleventh five year plan are income generation, poverty alleviation,
education, health, infrastructure, environment etc.
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First plan (1951-1956)
The first Indian Prime Minister, Jawaharlal Nehru presented the first five-year plan to the
Parliament of India on December 8, 1951. The total plan budget of 206.8 billion INR (23.6 billion
USD in the 1950 exchange rate) was allocated to seven broad areas: irrigation and energy (27.2
percent), agriculture and community development (17.4 percent), transport andcommunications (24 percent), industry (8.4 percent), social services (16.64 percent), land
rehabilitation (4.1 percent), and other (2.5 percent). The plan promoting the idea of a self
reliant closed economy was developed by Prof. P. C. Mahalanobis of Indian Statistical Institute
and borrowed the ideas from USSR's five year plans developed by Domer. The plan is often
referred to as the Domer-Mahalanobis Model.
The target growth rate was 2.1 percent annual gross domestic product (GDP) growth; the
achieved growth rate was 3.6 percent. During the first five-year plan the net domestic product
went up by 15 percent. The monsoons were good and there were relatively high crop yields,
boosting exchange reserves and per capita income, which went up 8 percent. Lower increase of
per capita income as compared to national income was due to rapid population growth. Many
irrigation projects were initiated during this period, including the Bhakra Dam and Hirakud
Dam. The World Health Organization, with the Indian government, addressed children's health
and reduced infant mortality, contributing to population growth.
At the end of the plan period in 1956, five Indian Institutes of Technology (IITs) were started as
major technical institutions. University Grant Commission was set up to take care of funding
and take measures to strengthen the higher education in the country.
Contracts were signed to start five steel plants; however these plants did not come into
existence until the middle of the next five-year plan.
Second plan (1956-1961)
The second five-year plan focused on industry, especially heavy industry. Domestic production
of industrial products was encouraged, particularly in the development of the public sector. The
plan followed the Mahalanobis model, an economic development model developed by the
Indian statistician Prasanta Chandra Mahalanobis in 1953. The plan attempted to determine the
optimal allocation of investment between productive sectors in order to maximise long-run
economic growth . It used the prevalent state of art techniques of operations research and
optimization as well as the novel applications of statistical models developed at the Indian
Statiatical Institute. The plan assumed a closed economy in which the main trading activity
would be centered on importing capital goods.[1][2]
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Hydroelectric power projects and five steel mills at Bhilai, Durgapur, and Rourkela were
established. Coal production was increased. More railway lines were added in the north east.
The Atomic Energy Commission was formed in 1957 with Homi J. Bhabha as the first chairman.
The Tata Institute of Fundamental Research was established as a research institute. In 1957 a
talent search and scholarship program was begun to find talented young students to train forwork in nuclear power.
Third plan (1961-1966)
The third plan stressed on agriculture and improving production of rice, but the briefSino-
Indian War in 1962 exposed weaknesses in the economy and shifted the focus towards defense.
In 1965-1966, The war led to inflation and the priority was shifted to price stabilization. The
construction ofdams continued. Many cement and fertilizer plants were also built. Punjab
begun producing an abundance ofwheat.
Many primary schools were started in rural areas. In an effort to bring democracy to the
grassroot level, Panchayat elections were started and the states were given more development
responsibilities.
State electricity boards and state secondary education boards were formed. States were made
responsible for secondary and higher education. State road transportation corporations were
formed and local road building became a state responsibility.Gross Domestic Product rate
during this duration was lower at 2.7% due to 1962 Sino-Indian War and Indo-Pakistani War of
1965.[citation needed]
Fourth plan (1969-1974)
At this time Indira Gandhi was the Prime Minister. The Indira Gandhi government nationalized
14 major Indian banks and the Green Revolution in India advanced agriculture.. In addition, the
situation in East Pakistan (now independent Bangladesh) was becoming dire as the Indo-
Pakistani War of 1971 and Bangladesh Liberation War took place.
Funds earmarked for the industrial development had to be used for the war effort. India also
performed the Smiling Buddha underground nuclear test in 1974, partially in response to the
United States deployment of the Seventh Fleet in the Bay of Bengal to warn India against
attacking West Pakistan and widening the war.
Fifth plan (1974-1979)
Stress was laid on employment, poverty alleviation, and justice. The plan also focused on self-
reliance in agricultural production and defense. In 1978 the newly elected Morarji Desai
government rejected the plan. Electricity Supply Act was enacted in 1975, which enabled the
Central Government to enter into power generation and transmission.[citation needed]
http://en.wikipedia.org/wiki/Hydroelectricityhttp://en.wikipedia.org/wiki/Bhilaihttp://en.wikipedia.org/wiki/Durgapurhttp://en.wikipedia.org/wiki/Rourkelahttp://en.wikipedia.org/wiki/Coalhttp://en.wikipedia.org/wiki/Rail_transporthttp://en.wikipedia.org/wiki/Atomic_Energy_Commission_of_Indiahttp://en.wikipedia.org/wiki/Homi_J._Bhabhahttp://en.wikipedia.org/wiki/Tata_Institute_of_Fundamental_Researchhttp://en.wikipedia.org/wiki/Research_institutehttp://en.wikipedia.org/wiki/Scholarshiphttp://en.wikipedia.org/wiki/Sino-Indian_Warhttp://en.wikipedia.org/wiki/Sino-Indian_Warhttp://en.wikipedia.org/wiki/Defense_industryhttp://en.wikipedia.org/wiki/Price_stabilizationhttp://en.wikipedia.org/wiki/Damhttp://en.wikipedia.org/wiki/Cementhttp://en.wikipedia.org/wiki/Fertilizerhttp://en.wikipedia.org/wiki/Punjab_(India)http://en.wikipedia.org/wiki/Wheathttp://en.wikipedia.org/wiki/Primary_educationhttp://en.wikipedia.org/wiki/Panchayat_Rajhttp://en.wikipedia.org/wiki/States_and_territories_of_Indiahttp://en.wikipedia.org/wiki/Secondary_educationhttp://en.wikipedia.org/wiki/Higher_educationhttp://en.wikipedia.org/wiki/Gross_Domestic_Producthttp://en.wikipedia.org/wiki/Sino-Indian_Warhttp://en.wikipedia.org/wiki/Indo-Pakistani_War_of_1965http://en.wikipedia.org/wiki/Indo-Pakistani_War_of_1965http://en.wikipedia.org/wiki/Wikipedia:Citation_neededhttp://en.wikipedia.org/wiki/Wikipedia:Citation_neededhttp://en.wikipedia.org/wiki/Wikipedia:Citation_neededhttp://en.wikipedia.org/wiki/Indira_Gandhihttp://en.wikipedia.org/wiki/Prime_Minister_of_Indiahttp://en.wikipedia.org/wiki/Nationalizationhttp://en.wikipedia.org/wiki/Green_Revolution_in_Indiahttp://en.wikipedia.org/wiki/East_Pakistanhttp://en.wikipedia.org/wiki/Bangladeshhttp://en.wikipedia.org/wiki/Indo-Pakistani_War_of_1971http://en.wikipedia.org/wiki/Indo-Pakistani_War_of_1971http://en.wikipedia.org/wiki/Bangladesh_Liberation_Warhttp://en.wikipedia.org/wiki/Smiling_Buddhahttp://en.wikipedia.org/wiki/Underground_nuclear_testinghttp://en.wikipedia.org/wiki/United_Stateshttp://en.wikipedia.org/wiki/United_States_Seventh_Fleethttp://en.wikipedia.org/wiki/Bay_of_Bengalhttp://en.wikipedia.org/wiki/West_Pakistanhttp://en.wikipedia.org/wiki/Employmenthttp://en.wikipedia.org/wiki/Povertyhttp://en.wikipedia.org/wiki/Justicehttp://en.wikipedia.org/wiki/Self-reliancehttp://en.wikipedia.org/wiki/Self-reliancehttp://en.wikipedia.org/wiki/Morarji_Desaihttp://en.wikipedia.org/wiki/Wikipedia:Citation_neededhttp://en.wikipedia.org/wiki/Wikipedia:Citation_neededhttp://en.wikipedia.org/wiki/Wikipedia:Citation_neededhttp://en.wikipedia.org/wiki/Wikipedia:Citation_neededhttp://en.wikipedia.org/wiki/Morarji_Desaihttp://en.wikipedia.org/wiki/Self-reliancehttp://en.wikipedia.org/wiki/Self-reliancehttp://en.wikipedia.org/wiki/Justicehttp://en.wikipedia.org/wiki/Povertyhttp://en.wikipedia.org/wiki/Employmenthttp://en.wikipedia.org/wiki/West_Pakistanhttp://en.wikipedia.org/wiki/Bay_of_Bengalhttp://en.wikipedia.org/wiki/United_States_Seventh_Fleethttp://en.wikipedia.org/wiki/United_Stateshttp://en.wikipedia.org/wiki/Underground_nuclear_testinghttp://en.wikipedia.org/wiki/Smiling_Buddhahttp://en.wikipedia.org/wiki/Bangladesh_Liberation_Warhttp://en.wikipedia.org/wiki/Indo-Pakistani_War_of_1971http://en.wikipedia.org/wiki/Indo-Pakistani_War_of_1971http://en.wikipedia.org/wiki/Bangladeshhttp://en.wikipedia.org/wiki/East_Pakistanhttp://en.wikipedia.org/wiki/Green_Revolution_in_Indiahttp://en.wikipedia.org/wiki/Nationalizationhttp://en.wikipedia.org/wiki/Prime_Minister_of_Indiahttp://en.wikipedia.org/wiki/Indira_Gandhihttp://en.wikipedia.org/wiki/Wikipedia:Citation_neededhttp://en.wikipedia.org/wiki/Indo-Pakistani_War_of_1965http://en.wikipedia.org/wiki/Indo-Pakistani_War_of_1965http://en.wikipedia.org/wiki/Sino-Indian_Warhttp://en.wikipedia.org/wiki/Gross_Domestic_Producthttp://en.wikipedia.org/wiki/Higher_educationhttp://en.wikipedia.org/wiki/Secondary_educationhttp://en.wikipedia.org/wiki/States_and_territories_of_Indiahttp://en.wikipedia.org/wiki/Panchayat_Rajhttp://en.wikipedia.org/wiki/Primary_educationhttp://en.wikipedia.org/wiki/Wheathttp://en.wikipedia.org/wiki/Punjab_(India)http://en.wikipedia.org/wiki/Fertilizerhttp://en.wikipedia.org/wiki/Cementhttp://en.wikipedia.org/wiki/Damhttp://en.wikipedia.org/wiki/Price_stabilizationhttp://en.wikipedia.org/wiki/Defense_industryhttp://en.wikipedia.org/wiki/Sino-Indian_Warhttp://en.wikipedia.org/wiki/Sino-Indian_Warhttp://en.wikipedia.org/wiki/Scholarshiphttp://en.wikipedia.org/wiki/Research_institutehttp://en.wikipedia.org/wiki/Tata_Institute_of_Fundamental_Researchhttp://en.wikipedia.org/wiki/Homi_J._Bhabhahttp://en.wikipedia.org/wiki/Atomic_Energy_Commission_of_Indiahttp://en.wikipedia.org/wiki/Rail_transporthttp://en.wikipedia.org/wiki/Coalhttp://en.wikipedia.org/wiki/Rourkelahttp://en.wikipedia.org/wiki/Durgapurhttp://en.wikipedia.org/wiki/Bhilaihttp://en.wikipedia.org/wiki/Hydroelectricity -
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Sixth plan (1980-1985)
Called the Janata government plan, the sixth plan marked a reversal of the Nehruvian model.
When Rajiv Gandhi was elected as the prime minister, the young prime minister aimed for rapid
industrial development, especially in the area ofinformation technology. Progress was slow,however, partly because of caution on the part of labor and communist leaders.
The Indian national highway system was introduced for the first time and many roads were
widened to accommodate the increasing traffic. Tourism also expanded.
The sixth plan also marked the beginning ofeconomic liberalization. Price controls were
eliminated and ration shops were closed. This led to an increase in food prices and an increased
cost of living.
Family planning also was expanded in order to prevent overpopulation. In contrast to China's
harshly-enforced one-child policy, Indian policy did not rely on the threat of force. More
prosperous areas of India adopted family planning more rapidly than less prosperous areas,
which continued to have a high birth rate.
Seventh plan (1985-1989)
The Seventh Plan marked the comeback of the Congress Party to power. The plan lay stress on
improving the productivity level of industries by upgradation oftechnology.
Period between 1989-91
1989-91 was a period of political instability in India and hence no five year plan was
implemented. Between 1990 and 1992, there were only Annual Plans. In 1991, India faced a
crisis in Foreign Exchange (Forex) reserves, left with reserves of only about $1 billion (US). Thus,
under pressure, the country took the risk of reforming the socialist economy. P.V. Narasimha
Rao)(28 June 1921 23 December 2004) also called Father of Indian Economic Reforms was the
twelfth Prime Minister of the Republic of India and head ofCongress Party, and led one of the
most important administrations in India's modern history overseeing a major economic
transformation and several incidents affecting national security. At that time Dr. Manmohan
Singh (currently, Prime Minister of India) launched India's free market reforms that brought the
nearly bankrupt nation back from the edge. It was the beginning ofprivatization and
liberalization in India.
Eighth plan (1992-1997)
Modernization of industries was a major highlight of the Eighth Plan. Under this plan, the
gradual opening of the Indian economy was undertaken to correct the burgeoning deficit and
foreign debt. Meanwhile India became a member of the World Trade Organization on 1 January
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1995.This plan can be termed as Rao and Manmohan model of Economic development. The
major objectives included, containing population growth,poverty reduction,employment
generation,strengthening the infrastructure,Institutional building, Human Resource
development,Involvement of Panchayat raj,Nagarapalikas,N.G.OSand Decentralisation and
peoples participation. Energy was given prority with 26.6% of the outlay. An average annual
growth rate of 6.7%against the target 5.6% was achieved.
Ninth plan (1997-2002)
During the Ninth Plan period, the growth rate was 5.35 per cent, a percentage point lower than
the target GDP growth of 6.5 per cent.[3]
Tenth plan (2002-2007)
The main objectives of the 10th Five-Year Plan were:
Reduction ofpoverty ratio by 5 percentage points by 2007;
Providing gainful and high-quality employment at least to the addition to the labour
force;
All children in India in school by 2003; all children to complete 5 years of schooling by
2007;
Reduction in gender gaps in literacy and wage rates by at least 50% by 2007;
Reduction in the decadal rate of population growth between 2001 and 2011 to 16.2%;
Increase in Literacy Rates to 75 per cent within the Tenth Plan period (2002 to 2007);
Reduction of Infant mortality rate (IMR) to 45 per 1000 live births by 2007 and to 28 by
2012;
Reduction of Maternal Mortality Ratio (MMR) to 2 per 1000 live births by 2007 and to 1
by 2012;
Increase in forest and tree cover to 25 per cent by 2007 and 33 per cent by 2012;
All villages to have sustained access to potable drinking water within the Plan period;
Cleaning of all major polluted rivers by 2007 and other notified stretches by 2012;
Economic Growth further accelerated during this period and crosses over 8% by 2006.
http://en.wikipedia.org/wiki/Five-year_plans_of_India#cite_note-2#cite_note-2http://en.wikipedia.org/wiki/Five-year_plans_of_India#cite_note-2#cite_note-2http://en.wikipedia.org/wiki/Five-year_plans_of_India#cite_note-2#cite_note-2http://en.wikipedia.org/w/index.php?title=Poverty_ratio&action=edit&redlink=1http://en.wikipedia.org/w/index.php?title=Poverty_ratio&action=edit&redlink=1http://en.wikipedia.org/wiki/Five-year_plans_of_India#cite_note-2#cite_note-2 -
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Eleventh plan (2007-2012)
The eleventh plan has the following objectives:
1. Income & Povertyo Accelerate GDP growth from 8% to 10% and then maintain at 10% in the 12th
Plan in order to double per capita income by 2016-17
o Increase agricultural GDP growth rate to 4% per year to ensure a broader spreadof benefits
o Create 70 million new work opportunities.o Reduce educated unemployment to below 5%.o Raise real wage rate of unskilled workers by 20 percent.o Reduce the headcount ratio of consumption poverty by 10 percentage points.
2. Educationo Reduce dropout rates of children from elementary school from 52.2% in 2003-04
to 20% by 2011-12
o Develop minimum standards of educational attainment in elementary school,and by regular testing monitor effectiveness of education to ensure quality
o Increase literacy rate for persons of age 7 years or more to 85%o Lower gender gap in literacy to 10 percentage pointso Increase the percentage of each cohort going to higher education from the
present 10% to 15% by the end of the plan
3. Healtho Reduce infant mortality rate to 28 and maternal mortality ratio to 1 per 1000 live
births
o Reduce Total Fertility Rate to 2.1o Provide clean drinking water for all by 2009 and ensure that there are no slip-
backs
o Reduce malnutrition among children of age group 0-3 to half its present levelo Reduce anaemia among women and girls by 50% by the end of the plan
4. Women and Childreno Raise the sex ratio for age group 0-6 to 935 by 2011-12 and to 950 by 2016-17o Ensure that at least 33 percent of the direct and indirect beneficiaries of all
government schemes are women and girl children
o Ensure that all children enjoy a safe childhood, without any compulsion to work5. Infrastructure
oEnsure electricity connection to all villages and BPL households by 2009 andround-the-clock power.
o Ensure all-weather road connection to all habitation with population 1000 andabove (500 in hilly and tribal areas) by 2009, and ensure coverage of all
significant habitation by 2015
o Connect every village by telephone by November 2007 and provide broadbandconnectivity to all villages by 2012
http://en.wikipedia.org/wiki/GDPhttp://en.wikipedia.org/wiki/Literacy_ratehttp://en.wikipedia.org/wiki/Infant_mortality_ratehttp://en.wikipedia.org/wiki/Maternal_deathhttp://en.wikipedia.org/wiki/Total_Fertility_Ratehttp://en.wikipedia.org/wiki/Malnutritionhttp://en.wikipedia.org/wiki/Anaemiahttp://en.wikipedia.org/wiki/Poverty_thresholdhttp://en.wikipedia.org/wiki/Poverty_thresholdhttp://en.wikipedia.org/wiki/Anaemiahttp://en.wikipedia.org/wiki/Malnutritionhttp://en.wikipedia.org/wiki/Total_Fertility_Ratehttp://en.wikipedia.org/wiki/Maternal_deathhttp://en.wikipedia.org/wiki/Infant_mortality_ratehttp://en.wikipedia.org/wiki/Literacy_ratehttp://en.wikipedia.org/wiki/GDP -
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o Provide homestead sites to all by 2012 and step up the pace of houseconstruction for rural poor to cover all the poor by 2016-17
6. Environmento Increase forest and tree cover by 5 percentage points.o Attain WHO standards of air quality in all major cities by 2011-12.o Treat all urban waste water by 2011-12 to clean river waters.o Increase energy efficiency by 20 percentage points by 2016-17.
Business policy and reforms
INDIA'S ECONOMIC REFORMS
The reform process in India was initiated with the aim of accelerating the pace of economic
growth and eradication of poverty. The process of economic liberalization in India can be traced
back to the late 1970s. However, the reform process began in earnest only in July 1991. It was
only in 1991 that the Government signaled a systemic shift to a more open economy with
greater reliance upon market forces, a larger role for the private sector including foreign
investment, and a restructuring of the role of Government.
The reforms of the last decade and a half have gone a long way in freeing the domestic
economy from the control regime. An important feature of India's reform programme is that it
has emphasized gradualism and evolutionary transition rather than rapid restructuring or
"shock therapy". This approach was adopted since the reforms were introduced in June 1991 in
the wake a balance of payments crisis that was certainly severe. However, it was not a
prolonged crisis with a long period of non-performance.
The economic reforms initiated in 1991 introduced far-reaching measures, which changed the
working and machinery of the economy. These changes were pertinent to the following:
Dominance of the public sector in the industrial activity
Discretionary controls on industrial investment and capacity expansion
Trade and exchange controls
Limited access to foreign investment
Public ownership and regulation of the financial sector
The reforms have unlocked India's enormous growth potential and unleashed powerful
entrepreneurial forces. Since 1991, successive governments, across political parties, have
successfully carried forward the country's economic reform agenda.
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Reforms in Industrial Policy
Industrial policy was restructured to a great extent and most of the central government
industrial controls were dismantled. Massive deregulation of the industrial sector was done in
order to bring in the element of competition and increase efficiency. Industrial licensing by the
central government was almost abolished except for a few hazardous and environmentallysensitive industries. The list of industries reserved solely for the public sector -- which used to
cover 18 industries, including iron and steel, heavy plant and machinery, telecommunications
and telecom equipment, minerals, oil, mining, air transport services and electricity generation
and distribution was drastically reduced to three: defense aircrafts and warships, atomic energy
generation, and railway transport. Further, restrictions that existed on the import of foreign
technology were withdrawn.
Reforms in Trade Policy
It was realized that the import substituting inward looking development policy was no longer
suitable in the modern globalising world.
Before the reforms, trade policy was characterized by high tariffs and pervasive import
restrictions. Imports of manufactured consumer goods were completely banned. For capital
goods, raw materials and intermediates, certain lists of goods were freely importable, but for
most items where domestic substitutes were being produced, imports were only possible with
import licenses. The criteria for issue of licenses were non-transparent, delays were endemic
and corruption unavoidable. The economic reforms sought to phase out import licensing and
also to reduce import duties.
Import licensing was abolished relatively early for capital goods and intermediates whichbecame freely importable in 1993, simultaneously with the switch to a flexible exchange rate
regime. Quantitative restrictions on imports of manufactured consumer goods and agricultural
products were finally removed on April 1, 2001, almost exactly ten years after the reforms
began, and that in part because of a ruling by a World Trade Organization dispute panel on a
complaint brought by the United States.
Financial sector reforms
Financial sector reforms have long been regarded as an integral part of the overall policy
reforms in India. India has recognized that these reforms are imperative for increasing the
efficiency of resource mobilization and allocation in the real economy and for the overall
macroeconomic stability. The reforms have been driven by a thrust towards liberalization and
several initiatives such as liberalization in the interest rate and reserve requirements have been
taken on this front. At the same time, the government has emphasized on stronger regulation
aimed at strengthening prudential norms, transparency and supervision to mitigate the
prospects of systemic risks. Today the Indian financial structure is inherently strong,
functionally diverse, efficient and globally competitive. During the last fifteen years, the Indian
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financial system has been incrementally deregulated and exposed to international financial
markets along with the introduction of new instruments and products.
Fiscal Policy and Monetary Policy
Fiscal PolicyThe most important instrument of government intervention in the country is that of Fiscal or
Budgetary policy. Fiscal policy refers to the taxation, expenditure and borrowing by the
government. The economists now hold the government intervention through Fiscal policy is
essential in the matter of overcoming recession or inflation as well as of promoting and
accelerating economic growth, which monetary policy will not hold alone. In short we can say
that, it is a part of government policy, which is concerned with raising revenue through taxation
and other means and deciding on the level and pattern of expenditure.
Objectives of Fiscal Policy in Developing Countries
In developing countries, taxation, the government expenditure, taxation and borrowing have to
play a very important role in accelerating economic development. Fiscal policy is a powerful
instrument in the hands of the government by means of which it can achieve the objectives of
development.
The principal objectives of fiscal policy in a developing economy are.
To mobilize resources for economic growth, especially for the public sector. To promote economic growth in the private sector by providing incentives to save and
invest.
To restrain inflationary forces in the economic in order to ensure price stability. To ensure equitable distribution of income and wealth so that fruits of economic growth
are fairly dist.
INSTRUMENTS OF FISCAL POLICY1. BUDGET
Keeping budget in balance, in surplus or deficit, is in itself a fiscal instrument. When the
government keeps its total expenditure equal to its revenue, as a matter of policy, it means it
has adopted a balanced budget policy. When the government spends more than its expected
revenue, as a matter of policy, it is pursuing a deficit-budget policy. And when the government
follows a policy of keeping its expenditure substantially below its current revenue, it is
following a surplus budget policy.
2. TAXATIONTaxation takes many forms in the developed countries including taxation of personal and
corporate income, so-called value added taxation and the collection of royalties or taxes on
specific sets of goods. Government may want to smooth out the nation's income in order to
minimize the pejorative effects of the business cycle or they may want to take steps designed
to increase the national income
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3. GOVERNMENT BORROWING:Government borrowing is another fiscal Method by which savings of the community may be
mobilized for economic development. In developing economies, the government resort to
borrowing in order to finances schemes of economic development. Government or what is also
called public borrowing becomes necessary because taxation alone cannot provide sufficientfunds for economic development. Besides, too heavy taxation has an adverse effect on private
saving and investment.
Monetary Policy
Today, the Reserve Bank uses monetary policy to control inflation and keep it within a specific
target band. Monetary policy is encountered in several ways. Monetary policy helps prevent
large swings in economic growth and employment. Monetary policy is the management of
monetary supply and interest rates by central bank to influence prices and employment.
Monetary policy works through expansion and contraction of investment and consumption
expenditure. Monetary policy refers the central banks policy to control of the availability, cost
and use of money and credit with the help of monetary measures in order to achieve the
specific goals.
Objectives of monetary policy in developing countries:
1. Price stabilityInflation distorts economic calculation and expectations while deflation creates depression in
the economy. So both inflation and deflation are harmful for the economy. Thus, price stability
should be main aim of monetary policy. Prices stability promotes business confidence, makes
economic calculations possible, control business cycle and introduces certainty in the economiclife.
2. Exchange stabilityMaintenance of stable exchange rates is an essential condition for the creation of international
confidence and promotion of smooth international trade on the largest scale possible.
3. Full employmentIn under develop countries the full employment objective is more crucial, because such
economies have both un-employment and under-employment open and disguised. In less
develop countries though full employment can not be achieved within a short period, the
monetary policy should try to achieve at least a near full employment situation.
4. Economic growth This is comparatively a recent objective of monetary policy. It refersto the growth of real income or output per capita. Monetary policy can contribute to
economic growth in a efficient way.
5. Neutrality of moneyNeutrality of money indicates a situation in which changes in the quantity of money in such a
way as to cause a proportionate change in the equilibrium prices of commodities and the
equilibrium rate of interest remain unchanged. If money is neutral, an increase or decrease in
the quantity of money will not produce any disturbing effect in the economy.
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6. Balance of payment equilibriumBalance of payment equilibrium condition is a position at which a country repaid its debt and
has attained an adequate reserve at zero balance over time. This objective on monetary policy
has become significance in the post war period.
Instrument of monetary policy
Instrument of monetary policy generally mean the different means of controlling credit in theeconomy. The instruments are as follows:
1. Qualitative instruments Variable reserve ratio Bank rate Open market operation2. Quantitative instruments
These instruments influence the credit creating capacity of the commercial banks by affecting
directly or indirectly the excess of the banks. Different forms of quantitative instrument are:
Variable reserve ratioBanks are legally required to maintain a certain percentage of their deposits in the
form of cash. It determines the capacity of banks to make loans or purchase
securities. The central bank can influence the credit creation capacity of the
commercial banks by controlling the volume of cash reserve and the minimum legal
reserve ratio.
Bank rateIt is the rate at which central bank lends money to the commercial banks. If bank
rate is increased it will increases the cost of borrowing of commercial banks, which
in turn reduces the capacity of credit creation of the commercial banks. In theopposite way, a reduction in bank rate will increase the amount of credit created by
commercial banks.
Open market operation - Open market purchase of securities by the central bank will
give more power and money in the hands of commercial banks to expand credit
creation. The opposite will happen if there are sales of securities by the central bank.
TRADE POLICY
Trade Policy is a government's policy controlling foreign trade
CONTEXT
For India to become a major player in world trade, an all encompassing, comprehensive view
needs to be taken for the overall development of the countrys foreign trade. While increase
in
exports is of vital importance, we have also to facilitate those imports which are required to
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stimulate our economy. Coherence and consistency among trade and other economic policies
is
important for maximizing the contribution of such policies to development. Thus, while
incorporating the existing practice of enunciating an annual Exim Policy, it is necessary to go
much beyond and take an integrated approach to the developmental requirements of Indias Foreign trade.
OBJECTIVES
Trade is not an end in itself, but a means to economic growth and national development. The
primary purpose is not the mere earning of foreign exchange, but the stimulation of greater
economic activity. The Foreign Trade Policy is rooted in this belief and built around two major
objectives. These are:
(i) To double our percentage share of global merchandise trade within the next five
years; and
(ii) To act as an effective instrument of economic growth by giving a thrust to employment
generation.
STRATEGY
These objectives are proposed to be achieved by adopting, among others, the following
strategies:
(i) Unshackling of controls and creating an atmosphere of trust and transparency to
unleash the innate entrepreneurship of our businessmen, industrialists and traders.(ii) Simplifying procedures and bringing down transaction costs.
(iii) Neutralizing incidence of all levies and duties on inputs used in export products,
based on the fundamental principle that duties and levies should not be exported.
(iv) Facilitating development of India as a global hub for manufacturing, trading and
services.
(v) Identifying and nurturing special focus areas which would generate additional
employment opportunities, particularly in semi-urban and rural areas, and developing
a series of Initiatives for each of these.(vi) Facilitating technological and infrastructural up gradation of all the sectors of the
Indian economy, especially through import of capital goods and equipment, thereby
increasing value addition and productivity, while attaining internationally accepted
standards of quality.
(vii) Avoiding inverted duty structures and ensuring that our domestic sectors are not
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disadvantaged in the Free Trade Agreements/Regional Trade Agreements/Preferential
Trade Agreements that we enter into in order to enhance our exports.
(viii) Upgrading our infrastructural network, both physical and virtual, related to the entire
Foreign Trade chain, to international standards.
(ix) Revitalising the Board of Trade by redefining its role, giving it due recognition andinducting experts on Trade Policy.
(x) Activating our Embassies as key players in our export strategy and linking our
Commercial Wings abroad through an electronic platform for real time trade
intelligence and enquiry dissemination.
Background of Export Promotion
Exports from the small scale sector over a period of time have acquired great significance in
India's foreign trade. The MSME Sector today constitutes a very important segment of India's
economy and it accounts for nearly 40 of the gross value of output in the manufacturing sector
and about 50% of the total exports from the country. Direct exports from the MSME Sector
accounts for 35% of the total exports.
Export Promotion from the small scale sector has been accorded a high priority in the India's
export promotion strategy. The small industries due to their inherent strengths of low capital
investment, high employment generation, maximum utilisation of capacity, flexibility in
operation, etc. are highly conducive for rapid industrialization and generation of export
surpluses.
An idea about the contribution of small scale sector in country's total exports can be had fromthe table given below:
Year Total Exports Share of MSME Exports % share
1990-91 32,553,34 9664.15 29.7
1991-92 44,041.81 13883.40 31.5
1992-93 53,350.54 17784.82 33.3
1993-94 69,546.97 25307.09 36.4
1994-95 82,674.11 29068.15 35.1
1995-96 106,464.86 36470.22 34.2
1996-97 117,524.98 39248.54 33.4
1997-98 126,286.00 44442.18 35.2
1998-99 141,604.00 48979.00 34.6
1999-2000 159,561.00 54200.00 33.9
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Export Assistance & Facilities
Export Promotion from Small Scale Sector has received utmost priority of the Government.
Every Policy formulated for achieving growth in exports have a number of incentives to small
scale exporters so as to maximise export earnings. Such incentives include :
1. Free import of capital goods/raw material and other essential inputs, and incertain cases duty free or with concessional rate of Custom Duty, so as to ensure higher
production for exports.
2. With a view to make Indian products competitive in the world markets, a largenumber of incentives were provided to the exporters from time to time. Such incentives
include refund of duties paid on the raw material used in export production by a system
of Duty-Draw-Back, Pre and Post shipment Credit to the exporters at concessional rate
of interest, etc.
3. Export Policy of the Government has remained liberal as there were hardly anyrestrictions on export of items from small scale sector. Export Procedures have been
simplified from time to time so as to promote exports from the small scale sector. The
efforts of the Government have always been to regulate and simplify procedures so as
to create a congenial environment for the exporting community.
Export Strategies for Small Scale Sector
Broadly, exports strategy for small sector includes simplification of export Procedures and to
provide incentives to the small sector for higher production and to maximise export earnings.
With a view to formulate trade policy with simplified procedures which are conducive forexport promotion. Export-Import policy is formulated after consulting various trade bodies like
Federation of Indian Export Organisation, Federation of Indian Chambers of Commerce &
Industry and different Export Promotion Councils, etc.
Export-Import Policy for Small Scale Sector
1. Recognition of Export Houses/ Trading Houses, etc.With a view to recognise established exporters so that they may build marketing
infrastructure and expertise required for export production, merchant as well as
manufacturer exporters, EOU etc. are recognised as Export House, Trading Houses, Star
Trading Houses and Super Star Trading Houses on the basis of certain criteria as laid
down in the Export-Import Policy 1997-2002. The eligibility criteria for such recognition
is based either on the basis of FOB or Net Foreign Exchange value of exports of goods
and services made directly by the exporters during the preceding three licensing years
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or the preceding licensing year. In an attempt to encourage exports from the small scale
sector, the exports made by small scale sector manufacturer-exporters are given triple
weightage for the purpose of recognition as EH/TH/STH/SSTH. Accordingly, in terms of
provisions contained at para 12.7(a) of the Exim Policy 1997-2002 (amended upto
31/3/99), triple weightage on FOB or net foreign exchange on the export o f products
manufactured and exported by units in the small scale industry (MSME)/ Tiny sector/Cottage sector and double weightage on FOB or net foreign exchange to merchant
exporter exporting products reserved for MSME units and manufactured by units in the
MSME/Tiny Sector is give. These Export Houses, Trading Houses, etc. are entitled to
certain benefits under the current Export-Import Policy.
2. Special Import Licence (SIL)Exporters recognised as Export Houses, Star Trading House, Trading Houses, etc. Are
eligible for grant of special Import Licence (SIL) @ certain percentage of their FOB value
of exports/NFE. However, 2 percent additional SIL is granted for exports of Products
manufactured by units registered as MSME, provided the exports of these products is
more than 50% of the exports during the period (provisions contained in para 12.7(b) of
Hand Book of Procedure 1997-2000 refers).
3. Eligibility condition for Small Scale Exporters for SILIn case of small scale exporters holding ISO 9000 (Series) or IS/ISO 9000 Series of quality
certification, the FOB value (excluding deemed exports) of exports for becoming eligible
for Special Import Licence (SIL) @4% of the FOB value of exports is Rs. 30 million and
above in the preceding licensing year or on an average FOB value of Rs. 10 million or
above during the preceding three licensing years instead of the limit of Rs. 50 millionand Rs. 20 million respectively prescribed for others (Para 11.11 (a) & (b) of Hand Book
of Procedures 1997-2002 refers in this context).
Salient Features of the Exim Policy
Export Promotion Programmers / Measures
Participation in International Fairs/Exhibitions
With a view to ensure that exporters from small scale sector exhibit their products in
the International Exhibitions, required assistance & support is provided. Expenditure onaccount of space rent, handling and clearing charges, insurance and shipment charges
etc. are met by the office of the Development Commissioner (Small Scale Industries)
under one of the plan schemes.
During 2000-2001, the DC (MSME) participated in 7 International Trade Fairs/
Exhibitions. Participation in the named fairs/exhibitions generated large number of
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Trade enquiries besides certain export orders. It also provided an opportunity to MSME
units to display their products in the world market. During the current financial year, it is
proposed to participate in 8-9 International fairs/ exhibitions. The basic objective behind
this scheme is that MSME units which otherwise are not in a position to display their
products may participate in foreign exhibition/fairs so as to promote their exports.
Enquiries generated during such exhibitions abroad are disseminated to all MSME unitsthrough a net work of field offices of this organisation. This strategy has been found to
be successful for exporters from small scale sector in identifying new foreign
buyers/market
Packaging for Exports
Role of packaging for exports has gained much significance in view of trends in the
world markets. The need for better and scientific packaging for exports from small
sector was recognised long back. With a view to acquaint MSME Exporters of the latest
Packaging standards, techniques etc. training programmes on packaging for exports are
organised in various parts of the country. These programmes are organised in
association with Indian Institute of Packaging which has requisite expertise on the
subject. Basic objective of these programmes is to generate the much needed
consciousness in the industry and to educate the entrepreneurs about the scientific
techniques of Packaging.
Bar-coding for Exports
A new program has been drawn up with the assistance of EAN India to sensitise Indian
exporters about barcoding. 7 training sessions were conducted in 2000-01 at different
locations across the country. More sessions are planned this year.
Technical & Managerial Consultancy Services
Technical & Managerial Consultancy Services to the MSME manufacturers/exporters is
provided through a net work of field offices of this office so as to ensure higher level of
production and generation of higher exports.
National Awards for Quality Products
With a view to encourage the small scale units for producing Quality goods, National
Awards for Quality Products are given to the outstanding small scale units, who have
made significant contribution for improving quality of their products. The scheme is
being operated since 1986. Winners of National Awards get a Trophy, a Certificate and a
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Cash Prize of Rs.25,000/- National Awards encourage Small Scale Industries units to
produce quality goods which further enables them to enter into export market.
MSME MDA Scheme
The scheme offers funding upto 90% in respect of to and fro air fare for participation byMSME Entrepreneurs in overseas fairs/trade delegations. The scheme also provide for
funding for producing publicity material (upto 25% of costs) Sector specific studies (upto
Rs. 2 lakhs) and for contesting anti-dumping cases (50% upto Rs. 1 lakh) - for individual
MSMEs & Associations.
Marketing Development Assistance (Ministry of Commerce)
Marketing Development Scheme (MDA) is also being operated by Ministry of Commerce
under which MDA is given to exporters through FIEO and Export Promotion Councils/
Commodity Boards to plan their marketing strategy for export growth. Guidelines in
respect of single person sale-cum-study tours abroad and participation in fairs/
exhibition abroad have been revised with effect from 1st May, 1999. The revised
scheme, is as under :-
i.Eligible activities:-
- One person sale-cum-study tour(s) abroad
- Participation in fairs/ exhibitions abroad.
ii.Eligible exporters :-
- Status Holder exporters namely Export Houses, Trading Houses etc.
They would be eligible to get MDA through FIEO.
- Small Exporters who are not status holders but are eligible to get the SpecialImport
License (SIL) under Para 11.11 (a&b) of the Hand Book of Procedures 1997-2002.
Such exporters would be eligible to get MDA through their respective
EPCs/Commodity Boards.
iii.Quantum of Assistance:-
Sales-cum-Study Tour(s) abroad:-
MDA would be limited to 90% of the actual fare for MSME Exporters and 75% for
other than MSME exporters with upper ceiling of Rs. 60,000/- in all cases for
travel in
economy class.
Participation in Fairs/Exhibitions abroad:-
MDA would be available on actual fair in economy class and space rent including
decoration, electricity, water etc. only and would be limited to 90% of the total
expenditure on above mentioned items for MSME exporters and 75% for other
than
MSME exporters with combined upper ceiling of Rs.90,000/- in all cases.
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iv.Number of activities permissible :-
MDA would be provided for a maximum of 3 activities in a financial year,
combined both for sale-cum-study tour abroad and participation in
fairs/exhibitions abroad subject to the condition that not more than two
activities would be allowed in a financial year either in sales-cum-study tour or in
participation in fairs/exhibition abroad.Second activity in a financial year of either of the activities indicated at sub-para
(I) above would be permissible only to those exporters who have achieved a
minimum 5% export growth in their global exports during the preceding financial
year. One additional sale-cum-study tour or participation fairs/ Exhibition in Latin
American Countries (LAC) Region would be permissible without any minimum
export growth restriction in a financial year to Status Holder's exporters only.
NOTE : Ministry of Commerce, MDA Section may be approached for other
conditions/guidelines, payment terms, documents to be submitted etc. Their Circular
No. 1(3)/99-MDA dated 28/4/1999 refers.
Awards to Exporters
Ministry of Commerce gives awards to exporters for their outstanding export
performance, under the scheme of National Export Award for export performance.
Earlier, a total of 17 Awards including 5 Awards for Small Scale Sector in the form of
Trophy were given every year. However, from the year 1997-98 and onwards, the
number of awards have been increased to 20, out of which the number of Awards
(Trophy) earmarked for small scale sector have been increased from 5 to 8. Upto 8
awards will be given to the exporters in the small scale and cottage sector subject to
achievement of normative level of performance by the concerned MSMEs and cottagesector units. Out of 8 Awards., one will be given for Khadi & Village Industry.
Promotional Schemes
To meet the challenges of international competition and to promote exports of MSME
products, following promotional schemes are also being implemented.
v.Technology Development and Modernization Fund Scheme
Small Industries Development Bank of India (SIDBI) has been implementing a
scheme of technology development and modernisation of MSME units with
effect from April, 1995. Under this scheme assistance is available for meeting the
expenditure on purchase of capital equipment, acquisition of technical know-
how, upgradation of process technology and products with thrust on quality
improvement, improvement of packaging and cost of TQM and acquisition of
ISO-9000 series certification. The coverage of the scheme has been enlarged
from export oriented units to non-exporting units also in September, 1997.
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Under this Scheme a sum of Rs. 152 crores has been sanctioned for 245 units by
April, 1999.
vi.Quality Awareness Scheme
Small Industries Service Institutes organising Workshop on ISO-9000 certificationand awareness about quality.
vii.Subsidy for obtaining ISO-9000 quality Certification
Under the scheme of promoting ISO-9000 certification MSMEs are given financial
support by way of reimbursing 75% of their expenditure to obtain ISO-9000
certification subject to a maximum of Rs.75,000/-. The scheme is being
continued during Tenth Plan.
viii.Other Schemes for technology improvement
Tool Rooms:
Tool Rooms provide toolings, dies, moulds and fixtures to small scale units at a
very low price to enable them to produce quality goods to meet the
requirements of supplies of components to large units as well as produce quality
goods for direct sale. This enhances their competitiveness and export potentials.
There are 10 Tool Rooms established in various parts of the country.
Process-cum-Product Development Centres :
There are 6 Process-cum-Product Development Centres. These Centres take upjobs from MSMEs for specific product development as well process development
to improve the quality of products, reduce cost of product and enhance
marketability of goods.
These Centers deal with specific product groups.
Small Industry Cluster Development Program:
A new scheme for technology upgradation for industrial clusters has been
started recently. 10 clusters of industries producing different groups in various
parts of country have been selected. The scheme aims at diagnostic study of the
clusters, identification of technological needs, technological intervention andwider dissemination of information and technology within the clusters. The
expenditure involved on pilot plants etc. Is to be met on 50:50 cost sharing basis
by the Government and the concerned Industry Association of the clusters. The
scheme is flexible and provides for smooth sourcing of technology even from
abroad.
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Other links
National Small Industries Corporation
The National Small Industries Corporation (NSIC) through its export development
programme is playing a vital role to promote the MSME sector in exporting theirproducts/projects in international, markets by providing following assistance to
the small enterprises.
Marketing and Promotion
- Organising International Exhibitions
- Organising and participation in Buyers-Sellers meet
- Sponsoring delegation from different MSME sectors to various countries
- Providing information related to sales opportunities available in international
market
- Product specific catalogue preparation
- Advertising and publicity in various countries through Indian High
- Commissions, Offices abroad and Internet
- Publication of Exporters Directory
- Participating in Global Tenders
- Providing assistance in deemed exports
- Organisation of Seminars and Workshops to upgrade and update MSME with
regard to international developments.
Financial Assistance
- Pre and Post Shipment finance at concessional rate of interest
- Financial assistance for procurement of indigenous and imported raw material
- Financial assistance for upgradition and modernisation of MSME unit
- Assisting in the process of claiming exports incentives
Technical Assistance
- Laboratory and Testing assistance for improving quality of products
- Providing assistance in packaging
- Providing assistance for obtaining, inspection documents
- Conducting various programmes related to technology upgradation
- Assisting MSME Sector in Technology assimilation
- Imparting technical training
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Effecting product improvements
NSIC has been instrumental in developing a large number of small scale units to
export high quality products such as builders hardware, locks, light engineering
products, giftware and novelties, readymade garments and textile products.
Following activities are also undertaken by NSIC for Export Promotion through
MSME
- Study visit to various developed countries to identify the product range and
their market demand.
- Arrange visits of delegations consisting of representatives of small scale
industries/Associations to different specialises exhibitions and buyers-sellers
meets.
- Collect samples during the above export promotion visits and to identify
suitable small scale suppliers to develop counter samples.
- NSIC has already opened two offices abroad at South Africa and Dubai, U.A.E.
These offices will be utilised for generation of business for the small scale sector.
- Publication of a directory of identified products and possible buyers for
circulation to the small scale industries.
Forign exchange policy
Companies planning to operate in the global marketplace should prepare for the inevitable risks
associated with foreign currency exchange. A variety of solutions forwards, options, non-deliverable forwards and foreign currency accounts can help reduce the surprises that
foreign exchange rates create in your companys 10K or 10Q financial statements. However,
before you outline a foreign exchange (FX) risk management plan, you should create a formal
policy for the management of foreign exchange exposure. This process will help you examine
accounting and cash flow implications, but will take into consideration your risk tolerance and
corporate goals.
An FX policy should be a streamlined document that is easy to read and provides practical
guidance. FX policies are generally tailored to the specific needs of the company, although all
policies should provide a framework for corporate decision making, while providing specific
guidelines for implementing FX risk management. Upon completion, the companys board
should approve the policy. It is important to remember that a policy is a living document and
should be reviewed on an annual basis to ensure that it meets current corporate objectives.
Most policies should include these four common components:
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1. Objectives.
Objectives should be clear, concise and relevant. They should include the financial goals,
exposures to be hedged, managements tolerance for risk and may even specify dollar amounts
to be hedged. Certain questions should be addressed, such as whether to hedge cash flow,
balance sheet or earnings.
2. Responsibilities.
This section should specify which individual(s) in the organization have authorization to hedge
on behalf of the company. The latest trend has been to keep most of FX risk management
functions in one central office. You also should identify: 1) who are the members of the foreign
exchange committee and how often the committee meets, 2) who reviews derivatives and
when derivatives are reviewed, and 3) what levels of management approval are needed for
various exposures (i.e., short-term versus long-term risk) and trades.
3. Control.
This is an operational issue that typically should define operational aspects such as reporting
responsibilities, mark-to-market results, when and who should inform management of FX
activity, how trades are confirmed and by whom, and whether the FX manager is within
counterparty credit limits. You may also include documentation requirements for FAS133 and
FAS52 accounting purposes.
4. Strategies.
This section typically includes the types of derivative products that can be used. Can you only
use forwards? Do you want to buy options or sell options? Can you use a combination of
options to reduce premiums? All of these parameters must be defined and explicitly approved.Specify whether you will use a passive approach or whether your authorized individual(s) may
use some discretion in a more active style.
Foreign Investment Policy:
The Ministry of Industry has expanded the list of industries eligible for automatic approval of
foreign investments and, in certain cases, raised the upper level of foreign ownership from 51
percent to 74 percent and further in certain cases to 100 percent. In January 1998, the RBI
announced simplified procedures for automatic FDI approvals. The announcement further
provided that Indian companies will no longer require prior clearances from the RBI for inward
remittances of foreign exchange or for the issuance of shares to foreign investors.
Facilitating foreign investment
In the recent budget, the finance minister announced the government's commitment to a 90-
day period for approving all foreign investments. Government officers will be assigned to larger
foreign investment proposals and will facilitate Central and State clearances in a time-bound
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manner. Unlisted companies with a good 3 year track record, have been permitted to raise
funds in international markets through the issue of Global Depository Receipts (GDRs) and
American Depository Receipts (ADRs).
A number of recent policy changes have reduced the discriminatory bias against foreign firms.
The government has amended exchange control regulations previously applicable to
companies with significant foreign participation.
The ban against using foreign brand names/trademarks has been lifted.
The FY 1994/95 budget reduced the corporate tax rate for foreign companies from 65
percent to 55 percent. The tax rate for domestic companies was lowered to 40 percent.
The long-term capital gains rate for foreign companies was lowered to 20 percent; a 30
percent rate applies to domestic companies.
The Indian Income Tax Act exempts export earnings from corporate income tax for both
Indian and foreign firms.
Other policy changes have been introduced to encourage foreign direct and foreign institutional
investment.
For instance, the Securities and Exchange Board of India (SEBI) recently formulated guidelines
to facilitate the operations of foreign brokers in India on behalf of registered Foreign
Institutional Investors (FII's). These brokers can now open foreign currency-denominated or
rupee accounts for crediting inward remittances, commissions and brokerage fees.
Relaxation
The condition of dividend balancing (offsetting the outflow of foreign exchange for dividend
payments against export earnings) has been eliminated for all but 22 consumer goodsindustries. A 5-year tax holiday is extended to enterprises engaged in development of
infrastructural facilities. Even without a registered office in India, foreign companies are
allowed to start multimodal transport services in India.
The Reserve Bank of India (RBI) now permits 100 percent foreign investment in the construction
of roads/bridges. The peak custom duty rate was reduced to 50 percent from 65 percent in the
March 1995 budget. Import regime changes included enhancement of the scope of Special
Import License (SIL) programs, and the expansion of freely importable items on the Open
General License (OGL) list to include some consumer goods.
Dispute Settlement
Currently, there are no investment disputes over expropriation or nationalization. Government
demands for penalty payments for alleged overcharging by pharmaceutical companies during
the 1980's could lead to de-facto expropriation of some foreign drug companies' assets in India.
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In pharmaceutical sector
A committee has been named to study these longstanding disputes, but the failure of
successive governments to produce a swift and transparent resolution has led to a virtual
standstill in foreign investment in India's pharmaceutical sector. Indian courts provide adequatesafeguards for the enforcement of property and contractual rights.
Case backlogs
However, case backlogs frequently lead to long procedural delays. India is not a member of the
International Center for the Settlement of Investment Disputes, nor of the New York
Convention of 1958. Commercial arbitration or other alternative dispute resolution (ADR)
methods are not yet popular ways of commercial dispute settlement in India. The recent
introduction in Parliament of a new Arbitration Bill signals the importance now accorded to this
matter by the GOI.
Technology Policy Statement, 1983
Preamble
Aims and Objectives
Priorities
Indigenous Technology
Technology Acquisition
Technology Transfer
Implementation
1. Preamble
Political freedom must lead to economic independence and the alleviation of the burden of
poverty. We have regarded science and technology as the basis of economic progress. As a
result of three decades of planning, and the Scientific Policy Resolution of 1958, we now have a
strong agricultural and industrial base and a scientific manpower impressive in quality, numbers
and range of skills. Given clear-cut objectives and the necessary support, our science has shown
its capacity to solve problems.
The frontiers of knowledge are being extended at incredible speed, opening up wholly new
areas and introducing new concepts. Technological advances are influencing life-styles as well
as societal expectations.
The use and development of technology must relate to the peoples aspirations. Our own
immediate needs in India are the attainment of technological self-reliance, a swift and tangible
improvement in the conditions of the weakest sections of the population and the speedy
development of backward regions. India is known for its diversity. Technology must suit local
needs and to make an impact on the lives of ordinary citizens, must give constant thought to
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even small improvements which could make better and more cost-effective use of existing
materials and methods of work. Our development must be based on our own culture and
personality. Our future depends on our ability to resist the imposition of technology which is
obsolete or unrelated to our specific requirements and of policies which tie us to systems which
serve the purposes of others rather than our own, and on our success in dealing with vested
interests in our organizations: governmental, economic, social and even intellectual, which bindus to outmoded systems and institutions.
Technology must be viewed in the broadest sense, covering the agricultural and the services
sectors along with the obvious manufacturing sector. The latter stretches over a wide spectrum
ranging from village, small-scale and cottage industries (often based on traditional skills) to
medium, heavy and sophisticated industries. Our philosophy of a mixed economy involves the
operation of the private, public and joint sectors, including those with foreign equity
participation.
Our directives must clearly define systems for the choice of technology, taking into account
economic, social and cultural factors along with technical considerations; indigenous
development and support to technology, and utilization of such technology; acquisition of
technology through import and its subsequent absorption, adaptation and upgradation;
ensuring competitiveness at international levels in all necessary areas; and establishing links
between the various elements concerned with generation of technology, its transformation
into economically utilizable form, the sector responsible for production (which is the user of
such technology), financial institutions concerned with the resources needed for these
activities, and the promotional and regulating arms of the Government.
This Technology Policy Statement is in response to the need for guidelines to cover this wide-
ranging and complex set of inter-related areas. Keeping in mind the capital-scarce character ofa developing economy it aims at ensuring that our available natural endowments, especially
human resources, are optimally utilized for a continuing increase in the well-being of all
sections of our people.
We seek technological advancement not for prestige or aggrandisement but to solve our
multifarious problems and to be able to safeguard our independence and our unity. Our
modernization, far from diminishing the enormous diversity of our regional traditions should
help to enrich them and to make the ancient wisdom of our nation more meaningful to our
people.
Our task is gigantic and calls for close co-ordination between the different departments of the
Central and State Governments and also of those concerned, at all levels, with any sector of
economic, scientific or technological activity, and, not least, the understanding and involvement
of the entire Indian people. We look particularly to young people to bring a scientific attitude of
mind to bear on all our problems.
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2. Aims and Objectives
Aims
The basic objectives of the Technology Policy will be the development of indigenous technology
and efficient absorption and adaptation of imported technology appropriate to nationalpriorities and resources. Its aims are to:
a) attain technological competence and self-reliance, to reduce vulnerability,
particularly in strategic and critical areas, making the maximum use of indigenous
resources;
b) provide the maximum gainful and satisfying employment to all strata of society, with
emphasis on the employment of women and weaker sections of society;
c) use traditional skills and capabilities, making them commercially competitive;
d) ensure the correct mix between mass production technologies and production by the
masses;
e) ensure maximum development with minimum capital outlay;
f) identify obsolescence of technology in use and arrange for modernization of both
equipment and technology;
g) develop technologies which are internationally competitive, particularly those with
export potential;
h) improve production speedily through greater efficiency and fuller utilization of
existing capabilities, and enhance the quality and reliability of performance and output;
i) reduce demands on energy, particularly energy from non-renewable sources;
j) ensure harmony with the environment, preserve the ecological balance and improve
the quality of the habitat; and
k) recycle waste material and make full utilization of by-products.
Self-Reliance
In a country of Indias size and endowments, self-reliance is inescapable and must be at the
very heart of technological development. We must aim at major technological break-throughs
in the shortest possible time for the development of indigenous technology appropriate to
national priorities and resources. For this, the role of different agencies will be identified,
responsibilities assigned and the necessary linkages established.
Strengthening the Technology Base
Research and Development, together with science and technology education and training of a
high order, will be accorded pride of place. The base of science and technology consists of
trained and skilled manpower at various levels, covering a wide range of disciplines, and an
appropriate institutional, legal and fiscal infrastructure. Consolidation of the existing scientific
base and selective strengthening of thrust areas in it are essential. Special attention will be
given to the promotion and strengthening of the technology base in newly emerging and
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frontier areas such as information and materials sciences, electronics and bio-technology.
Education and training to upgrade skills are also of utmost importance. Basic research and the
building of centres of excellence will be encouraged.
Skills and skilled workers will be accorded special recognition. The quality and efficiency of the
technology generation and delivery systems will be continuously monitored and upgraded. Allof this calls for substantial financial investments and also strengthening of the linkages between
various sectors (educational institutions, R&D establishments, industry and governmental
machinery).
3. Priorities
Need for Perspective Planning
The time scales involved in the generation of technology are long, even with imported
elements. Therefore, relevant technologies in all areas of priority, particularly where large
investments are to be made, should be clearly identified well in advance. The cost and time
element involved in the import of technology and indigenous development will be given
consideration. Components which could be assigned to the various institutions which are
capable of developing them or which could be built up for such activities will be identified.
Ministries concerned with large investments and production activities in areas such as food,
health and energy will be provided with appropriate technical support through suitably
structured S&T groups.
Employment
Human resources constitute our richest endowment. Conditions will be created for the fullest
expression and utilization of scientific talent. Measures will be taken for the identification and
diffusion of technologies that can progressively reduce the incidence of poverty and
unemployment, and of regional inequalities. The application of science and technology for the
improvement of standards of living of those engaged in traditional activities will be promoted,
particularly household technologies. Technologies relevant to the cottage, village and small
industries sector will be upgraded. In the decentralized sector labour must be diversified and all
steps taken to reduce drudgery. In all sectors, the potential impact on employment will be an
important criterion in the choice of technology.
Energy
Energy constitutes an expensive and sometimes scarce input. Therefore, the energy
requirements both of a direct and indirect nature for each product and each production activity
and the associated technology employed will be analysed. Measures will be devised to avoid
wastage or non-optimal use of energy. Fiscal measures as necessary will be introduced to
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ensure these. Research and Development in the energy sector will aim at improving the
efficiency of its production, distribution and utilization, as well as improvement of efficiency in
processes and equipment.
Efficiency and Productivity
Technologies already employed will be evaluated on a continuing basis to realise maximum
benefits in terms of increased production and lowe