< Previous | Contents | Next >
As per the Economic Survey 2016-17, investment promotion to industry in general and infrastructure in particular has turned out to be the biggest challenge of the current times70. Since no clear progress is yet visible in tackling the TBS (twin balance sheet) problem, private investment is unlikely
to recover significantly from the levels of the fiscal 2016-17. Some of this weakness could be offset through higher public investment, but that would depend on the fiscal challenges of 2017-18 (government has to balance the short-term requirements of the economy recovering from demonetisation against the medium-term necessity of adhering to fiscal discipline.(p.20)
The Survey further adds that till 2016-17, the financing strategy of India has worked to allow India grow rapidly. But this strategy may now be reaching its limits. After eight years of buying time (since the recession among the western economies, led by the US sub-prime crisis), there is still no sign that the affected companies are regaining their health, or even that the bad debt problem is being contained. Opposite to it, the stress on corporate sector and banks is continuing to intensify, and this in turn is taking a measurable toll on investment and credit. Moreover, efforts to offset these trends by providing macroeconomic stimulus are not proving sufficient—the increase in public investment has been more than offset by the fall in private investment, while until demonetisation monetary easing had not been transmitted to bank borrowers (as banks had been widening their margins instead). In these circumstances, it has become increasingly clear that the underlying debt problem will finally need to be addressed71, lest it derails India’s growth trajectory.
Meanwhile, the government has announced various measures in the Union Budget 2017-18 which are expected to boost the demand and investment sentiments in the economy—tax breaks, higher public investment, higher allocations to agriculture and infrastructure sectors, commitment to implement the GST and disciplined fiscal compliance. Though commodity prices in the international market, high chance of interest rate revision by the US central bank together with an expected inflation pressure (by the mid- 2017-18) are the areas of concerns in this regard.
1. Here this should be noted that India will be a planned economy, was well-decided before this industrial policy which articulated for an active role of the state in the economy. The main objective of planning pointed out at this time was poverty alleviation by a judicious exploitation of the resources of the country. Only a ‘mixed economy’ did fit such a wish (Conference of State Industry Ministers, 1938).
2. The nationalisation of industrial units allowed the government to enter the unreserved areas, which consequently increased its industrial presence. Though the nationalisation was provided a highly rational official reason of greater public benefit, the private sector always doubted it and took it as an insecurity and major unseen future hurdle in the expansion of private industries in the country.
3. The Central government had always the option to set up an industry in any of these 12 industrial areas. This happened in the coming years via two methods— first, through nationalisation and second, through the joint sector.
4. Industrial Policy Resolution, 1956 (30 October).
5. V. M. Dandekar, Forty Years After Independence in Bimal Jalan edited Indian Economy: Problems and Prospects, Penguin Books, New Delhi, 2004, p. 63.
6. This statement we get in the Second Five Year Plan (1956–61), too.
7. Bimal Jalan, India’s Economic Policy (New Delhi: Penguin Books, 1992), p. 23.
8. V.M., Dandekar, ‘Forty years After Independence’, p. 64.
9. These industries which were set up after procuring ‘licences’ from the government had fixed upper limits of their production known as ‘quota’ and they needed to procure timely ‘permit’ (i.e., permission) for the supply of, raw materials—that is why such a name was given to the whole system.
10. Such a commitment went completely against the ‘theory of industrial location’.
11. There were four specific committees set up on this issue, namely Swaminathan Committee (1964), Mahalanobis Committee (1964), R.K. Hazari Committee (1967) and S. Dutt Committee (1969). The Administrative Reform Commission (1969) also pointed out the short comings of the industrial licencing policy perpetuated since 1956.
12. Dutt Committee (New Delhi: Government of India, 1969).
13. The upward revision was logical as it was hindering the organic growth of such companies—neither the capacity addition was possible nor an investment for technological upgrading.
14. Out of the six core industries only the cement and iron & steel industries were open for private investment with the rest fully reserved for the central public sector investment.
15. This is considered a follow up to such suggestions forwarded by the Industrial Licensing Policy Inquiry Committee (S. Dutt, Chairman) (New Delhi: Government of India, 1969).
16. The FERA got executed on 1 January, 1974. The private sector in the country
always complained against this act and doubted its official intentions.
17. This limited permission was restricted to the areas where there was a need of foreign capital. Such MNCs entered the Indian economy with the help of a partner from India—the partner being the major one with 74 per cent shares in the subsidiaries set up for by the MNCs. The MNCs invested via technology transfer route. Basically, this was an attempt to make up for the loss being incurred by the FERA. This was the period when most of the MNCs had the chances to enter India. Once economic reforms started by 1991, many of them increased their holdings in the Indian subsidiaries with the Indian partner getting the minority shares or a total exit.
18. The permission of working was withdrawn in the case of the already functioning soft drink MNC the Coca Cola. The ongoing process of entry to the computer giant IBM and automobile major Chrysller was soon called off. These instances played a highly negative role when India invited FDI in the post-1991 reform era.
19. A total number of 95 industries had the compulsions of licencing till then. These industries belonged to Schedules B and C of the Industrial Policy Resolution, 1956.
20. This was similar to the policy being followed by Gorbachev in the USSR with the similar fiscal results—a severe balance of payment (BoP) crisis by end 1980s and the early 1990s (J. Barkley Rosser Jin and Marina V. Rosser, Comparative Economics in A Transforming World, (New Delhi: PHI & MIT Press, 2004), pp. 469–75)).
21. The Seventh Five Year Plan (1985–90) as well as the Sixth Five Year Plan (1980–
85) had already suggested the government to re-define the role of the state in the economy and permit the private sector into those areas of industries where the presence of the government was non-essential, etc. But such a radical approach might not be digested by the country as it was like ‘rolling back’ the state. This is why the government of the time looks not going for full-scale economic reforms or vocal moves of liberalisation.
22. Vijay Joshi and I.M.D. Little, India’s Economic Reforms, 1991–2001, (Oxford: Clarendon Press, 1996), p. 17.
23. Ministry of Finance, Economic Survey 1990–91 (New Delhi: Government of India, 1991); Ministry of Finance, Economic Survey 1991–92 (New Delhi: Government of India, 1992).
24. Jeffrey D. Sachs, Ashutosh Varsheny and Nirupam Bajpai, India in the Era of Economic Reform (New Delhi: Oxford University Press, 1999), p. 1.
25. Department of Economic Affairs, ‘Economic Reforms: Two Years After and the Task Ahead’, Discussion Paper (New Delhi: Government of India, 1993), p. 6.
26. Ibid.
27. Bimal Jalan, India’s Economic Crisis: The Way Ahead, (New Delhi: Oxford University Press, 1991), pp. 2–12.
28. Sach, Varseny and Bajpai, India in the Era of Economic Reforms, p. 2.
29. Rakesh Mohan, ‘Industrial Policy and Control’s, in Bimal Jalan (ed.), The Indian Economy: Problems and Prospects (New Delhi: Penguin Books, 1992), pp. 92– 123.
30. In 1985–86 there were just 64 industries under the compulsory licencing provision. By the fiscal 2015–16 the number remained five Publications Division, India 2016 (New Delhi: Government of India, 2016)). Though the numbers are still five, all these five industries have many internal areas which today carry no obligation of licencing. As for example, the electronic industry was under this provision and entrepreneurs needed licences to produce radio, tv, tape-recorder, etc., what to ask of mobile phones, computers, DVDs and i-pods. Now only those electronic goods carry licencing provision which are related to either the aero- space or the defence sectors—thus we see a great number of electronic industries freed from the licencing provision the item ‘electronics’ still remains under it. Similarly while ‘drug & pharma’ still belong to the licenced industries, dozens of drugs and pharmaceuticals have been made free of it. The six industries have gone for high-level internal de-licencing since the reforms started.
31. Ministry of Finance, Economic Survey, 1994–95, (New Delhi: Government of India, 1995).
32. It becomes very complex and tough to regulate the individual foreign investment in the share market though it is an easier way of attracting foreign exchange. It should be noted that the South East Asian economies which faced financial crisis in 1996–97 all had allowed individual foreign investment in their share market. As the Indian security market was learning the art of regulation in its nascent phase, the government decided not to allow such foreign investment. The logic was vindicated after the South East Asian currency crisis when India had almost no shocks (Ministry of Finance, Economic Survey 1996–97 (New Delhi: Government of India, 1997).
33. The delayed action by the government in the foreign exchange liberalisation was due to the delayed comfort the economy felt regarding the availability of foreign exchange.
34. This was another hurdle which the private sector industries have been
complaining about. As the industrial products were completely new to the Indian market and its consumers alike, the government followed this policy with the logic to provide enough time so that the products become domesticised i.e.,development of awareness about the product and its servicing, maintenance, etc. As for example, the MNC subsidiary Phillips India was allowed to produce a highly simple radio Commandar and Jawan models for comparatively longer periods of time then they were allowed to come up with the smaller fashionable radio sets or two-in-ones and three-in-ones. Such provisions hampered their full capacity utilisation as well as achieving the economy of scale had also been tougher. The new industrial policy of 1991 did away with such impediments. By that time, the Indian consumer as well as the market was fully aware of the modern industrial goods.
35. Combined with nationalisation, this indirect route to nationalisation failed to provide the confidence among the entrepreneurs that the industrial units they are intending to set up will be owned by them. This discouraged entrepreneurship in India while taking risk. The abolition of this compulsion was an indirect indication by the government of no more direct or indirect nationalisation in future. This has served the purpose, there is no doubt in it.
36. This nexus of the interests of the vested groups to the control regime of the economy has been beautifully elaborated by Rakesh Mohan in ‘Industrial Policy and Controls’ pp. 92–123. He also points out that the control system perpetuating the academic and intellectual ideological leanings negated the very need for re-examination of the system. The ‘planners’ and the ‘bureaucrats’ were able to preserve their powers via the control regime did everything to maintain the status quo, Rakesh Mohan further adds.
37. First of the series of such suggestions came from Sach, Varshney and Bajpai,
India in the Era of Economic Reforms, p. 24).
38. It should be noted that ‘reform with the human face’ was not a new slogan or call given by the UPA Government but this was the same slogan with which the reform programme was launched by the Rao-Manmohan Government in 1991— it has only been ‘re-called back’ by the new government with a new committment to live it up.
39. Point should be noted that Bharat Niraman has been the only time-bound programme of infrastructure building in rural areas which is supposed to be completed within four years (the time left out of the total term of the Government when the programme was launched). The UPA naturally, tries to make it a political statement and a point for the next General Elections— development becoming an issue of real politics.
40. Publication Division, India 1991 (New Delhi: Government of India, 1992).
41. The de-reservation of industries had allowed the private sector to enter the areas hitherto reserved for the Central Government. It means in the coming times in the unreserved areas the PSUs were going to face the international class competitiveness posed by the new private companies. To face up the challenges the existing PSUs needed new kind of technological, managerial and marketing strategies (similar to the private companies). For all such preparations there was a requirement of huge capital. The government thought to partly fund the required capital out of the proceeds of disinvestment of the PSUs. In this way disinvestment should be viewed in India as a way of increasing investment in the divested PSUs (which we see taking place in the cases of BALCO, VSNL, etc.).
42. Right since 1991 when disinvestment began, governments have been using the disinvestment proceeds to manage fiscal deficits in the budget at least up to 2000–01. From 2000–01 to 2002–03 some of the proceeds went for some social sector reforms or for labour security. After 2003 India established National Investment Fund to which the proceeds of disinvestment automatically flow and is not regarded as a capital receipt of the Union Government. This idea of Indian experiment with disinvestment was articulated by Sach, Varshney and Bajpai, India in the Era of Economic Reforms, pp. 62–63.
43. As was done by Margaret Thatcher in the UK in the mid-1980s. Her brand of privatisation was driven by the conviction that government control makes PSUs inherently less efficient and privatisation therefore improves its economic efficiency and is good for the consumers. However, this idea has been rejected around the world on the empirical bases. A PSUs could also have comparable economic efficiency even being under full government control. This was followed by Mrs. Thatcher (1979–90) forcefully in Great Britain conjoined with the supply-side economics as was done by Ronald Reagan (1981–89) in the United States as discussed by P.A. Samuelson and W.D. Nordhaus, Economics (New DelhI; Tata McGraw Hill, 2005), p. 703.
44. A highly experienced person from the media world, Arun Shourie remained the Minister for the whole term of the NDA government. Some highly accelerated and successful disinvestments were done during this period but not without controversies.
45. Concept Classification of the PSEs, Government of India, 1999.
46. Publications Division, India 2003 (New Delhi: Government of India, 2004).
47. Ministry of Finance, Department of Investment and Public Asset Management, Government of India, N. Delhi, March 2017.
48. Ministry of Finance, Various issue of the Economic Survey (New Delhi: Government of India).
49. It was proposed by Yashwant Sinha and thus got popularity as the ‘Yashwant Formula’ of using disinvestment proceeds. Being his personal proposal, the Government of the time was not officially bound to it. However, the idea got support inside and outside of the Parliament and looked having an impact on the government’s thinking about the issue.
50. Ministry of Finance, Disinvestment Policy Announcement, Department of Disinvestment (New Delhi: Government of India, 2005).
51. The Prime Minister’s Office has been monitoring the CAPEX (Capital Expenditure) programme and investment plans of selected Central Public Sector Enterprises (CPSEs) since 2012-13. The purpose of this exercise was to enhance investment in the economy, utilizing the substantial cash surpluses that are available with some of the CPSEs to drive economic growth.
52. As per the SMSE Act, 2006, the classification is – for Micro enterprises investment up to Rs. 25 lakh in manufacturing & Rs. 10 lakh in services; for Small enterprises between Rs. 25 lakh to Rs. 5 crore in manufacturing & between Rs. 10 lakh to Rs. 2 crore in services; and for Medium enterprises between Rs. 5 to Rs. 10 crore in manufacturing & Rs. 2 to Rs. 5 crore in services.
53. Ministry of Finance, Economic Survey 2015–16, Vol. 2, (New Delhi: Government of India, 2016), pp. 127–29.
54. Economics Survey 2016-17, Vol. 1, Ministry of Finance, Government of India, N. Delhi, pp. 128-138.
55. Doing Business 2017, World Bank, Washington DC, 2017 and Ministry of Commerce and Industry, Government of India, N. Delhi, Press Release, October 28, 2016.
56. Government of India launch of the initiative, Make in India, N. Delhi, 25 September, 2014.
57. Ministry of Finance, Economic Survey 2015-16, p. 135.
58. Oxford Dictionary of Business, (New Delhi: Oxford University Press, 2004).
59. India Infrastructure Report 1994. (New Delhi: Government of India, 1994).
60. One of such major suggestion was forwarded by Sachs, Varsheny and Bajpai, India in the Era of Economic Reforms, p. 79.
61. Ministry of Finance, Economic Survey, 2006–07, (New Delhi: Government of India, 2007).
62. India Infrastructure Report 2007 (New Delhi: Government of India, 2011).
63. Planning Commission, Mid Term Appraisal of the 11th Pan (New Delhi:
Government of India, 2011).
64. Planning Commission, while announcing the Approach for the 12th Plan.
65. Planning Commission, Approach to the 12th Plan (New Delhi: Government of India,).
66. Ministry of Finance, Economic Survey 2015–16, pp. 137–138.
67. Economic Survey 2016-17 (Vol. 1, p. 313) cites the studies of S. Rajagopalan & A. Tabarrok, Lessons from Gurgaon, India’s Private City, in D. Anderson & S. Moroni (Ed.), Cities and Private Planning, Cheltenham, UK: Edward Elgar, 2014.
68. Basically, the Economic Survey 2016-17 (Vol. 1, pp. 156 & 170) has supported the advice of the Committee on Incentivising Pulses Production Through Minimum Support Price (MSP) and Related Policies headed by Arvind Subramanian, Chief Economic Adviser (report submitted in September, 2016)—the expert committee was set up by the government on account of the price volatility of pulses seen during 2015-16.
69. Planning Commission, 12th Plan (2012-17), (New Delhi: Government of India, 2012); Ministry of Finance, Economic Survey 2015–16 & Economic Survey 2016– 17.
70. Economic Survey 2016-17, Government of India, Ministry of Finance, N. Delhi, Vol. 1, pp. 20-22.
71. Economic Survey 2016-17, Government of India, Ministry of Finance, N. Delhi, Vol. 1, pp.90-94.