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.

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.

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.

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

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

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

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..

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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;

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

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

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.

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

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.

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

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.

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..,

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.

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.

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

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)

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

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.

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.

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.

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

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.

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.

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

Assistance for better access to domestic and export markets and

Cluster-wide measures to promote capacity-building and empowerment of the units

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).

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.

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.

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)

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

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

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

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

HUMAN RESOURCE

Ineffective leadership Bad labour Industrial relations Inadequate human resources Overstaffing Poor commitment of  employees