UNIVERSITY OF BOMBAY DEPARTMENT OF ECONOMICS

INDUSTRIAL REFORMS IN INDIA: EXPERIENCE AND

PROSPECTS

BY J.C.SANDESARA

WORKING PAPER S6/10 MAY 1996

INDUSTRIAL REFORMS IN INDIA ; EXPERIENCE AND PROSPECTS

By

J.C. SANDESARA University of Bombay

******* I. Meaning

and Scope

The term economic reforms as commonly understood currently

refers to the stabilisaton and structural adjustment policies

which have come in vogue in varying measures in almost all the

countries since mid/late seventies. Stabilisation policies are

the macro-level policies affecting government budgets and

balance-of-payments, and structural adjustment policies are the

micro-level policies affecting the individual sectors

agriculture, industry, infrastructure, finance, insurance and so

on. Broadly speaking, these policies seek to reduce the role of

the state and planning and thereby correspondingly to increase the role of the private sector and the market in economic

activities. This reduction relates to deregulation and

decontrol, and to ownership and management of public sector. The

purpose of these changes is to promote faster economic growth and

eventually a better distribution of income and wealth in the

society than would have been achieved under the previously

followed policies which favoured, generally, increasingly

regulation and control and ownership and management by the State.

The policies followed previously for about three decades

since Independence in India were based on the Socialistic Pattern

°* Society. From about mid/late seventies begin changes in these

Policies called economic reforms. The earlier reforms which

arked the period of over a decade since then were slow and

imited, relative to the reforms which followed in 1991,

‘specially in that year and in 1992, which related to both the1

macro- and micro-levels. In fact these changes of 1991 and

1992 were so rapid and so widespread that economic reforms in

India are widely held to have commenced in 1991, soon" after the

inauguration of the Narasimha Rao gcve>nraent. And this impressim

continues to stick even when reforr have slowed down since

1993.

This paper is concerned specially with industrial reforms.

Since, however, industrial reforms are an integral part of other

reforms elsewhere, and their efficacy is conditioned by the

latter, this paper includes references and brief discussions of

other reforms also at appropriate places. Secondly, in respect

of industrial reforms, the basic text of the paper does not list

the reform steps in details, chronologically or topic-wise, as

the same are readily available elsewhere in official publications

of recent years: Government of India's annual Economic Surveys

and Five Year Plans and Reserve Bank of India's Annual Reports and Reports on Currency and Finance. Instead, attention is

focussed on the broad tendencies illustrating the same with

significant policies/measures and the over-all performance. To

save the reader from the trouble to refer to these publications,

however, details of the major current reforms of the Central

Government on large industry, small enterprises and public

sector, and of some State governments are presented in the

appendices.

This paper attempts to answer two broad sets of questions.

First, what have been the major reform steps? What has been the

growth performance since the initiation of reforms? How does

this performance compare with that of the pre-reform period?

Second, does one expect better performance in future? If so,

what is the basis of this expectation? Will reforms be rolled

back or reversed? If not, what considerations would govern their

speed and spread in future?

These two broad themes of experience and prospects of

reforms are pursued in the following sections. Section II gives

2

the gist of the previous pre-reform socialistic policies and sums

up the experience of their working. Sections III, IV and V deal

with reforms. Section III discusses briefly the early reforms,

and Sections IV and V takn up the rrront roformr: in dotnil

listing major steps and assessing their pertorraance respectively.

The discussion of these sections leads to the following

conclusions. The growth performance of the economy has been

better during the reform period than that during the pre-reform

period. Second, the performance during the early reform period

has been better than that during the recent reform period.

Third, in view of the high fiscal deficit, high inflation and

critical foreign exchange situation that followed the better

performance of the early reform period, the high growth

performance of that period could not have been sustained.

Fourth, the low growth of the recent reform period is at least

partly due to the measures initiated to reduce fiscal deficit and

to lower inflation. Now that considerable progress has been made

on these fronts and also that foreign exchange reserves are

comfortable, growth rate is expected to accelerate and exceed the

past rate in a sustained way.

These conclusions lead us to the second set of questions.

What is the basis of this expectation? This question is answered

in Section VI. The two questions uppermost in the minds of all

concerned are : Will reforms be rolled back or reversed? If not,

what are the considerations that will govern their speed and

spread? Sections VII and VIII deal with these questions in that

order. The answers suggested by these sections are that reforms

will not be rolled back or reversed and that they will be

strengthened and be made widespread. But their speed and spread

will be governed considerably by socio-political considerations.

The path of further reforms will be marked by 'political cycles';

that is to say, rapid and widespread for some time soon after

elections; halting or even backward bending for some time soon

before elections; and slow and limited in between.

3

II.Socialistic Pattern

After Independence, India adopted the path of planned economic development with a distinct predominance of socialist

ideology to subserve economic and social objectives. Economic objective was specified as growth, and ij the social objectives were listed self-reliance, self-sufficiency in foodgrains,

balanced regional development, prevention of concentration of

economic power in private hands, promotion of employment,

egalitarian distribution of income and wealth and so on. And to

subserve these objectives, a number of legislative and other

measures to regulate and control various economic activities in

the fields of industrial relations, licensing, prices, trade,

nonopolies and restrictive practices, foreign exchange, etc. were

adopted. Similarly, expansion of the area of public sector by

starting new enterprises and by nationalisation/take-over of a

lumber of private enterprises in the fields of banking,

Insurance, trade and industry are also the other measures in this

"ramework. The period of the first three decades or so since

.947 is marked by a large number of a variety of policies and

teasures in these directions.

To name some of the more significant policies and measures

n this context: The 1948 and the 1956 Industrial Policy

esolutions; The 1951 Industries (Development and Regulation)

ct; the industry-oriented planning with special emphasis on

asic and key industries to be developed in the public sector

ince 1956; the nationalisations of the Imperial Bank of India

nd the life insurance business in 1955 and 1956; the

Btablishment of the Industrial Development Bank of India and the

nit Trust of India in the public sector in 1948, 1964 and 1964;

le MRTP Act, 1969; directives to financial institutions/banks to

aorient their lending to social sectors and backward areas in

569; nationalisation of non-life business in 1971; and so on.

It would be fruitful to peep into the background of these

Dlicies and measures, to understand their rationale and to probe

4

into the reasons for a basic chang© - a U-turn so to say - from that course.

Early Indian governments and planners were well aware of the

strengths and the weaknesses of the capiti\list system, as it had

worked in several countries for long. On the other hand, at that

time socialist path of development was by and large an untested

ideal. The only country where it was working at that time since

long was the former Soviet Union (China had just emerged as a

socialist State). Since, however, it was a closed country, with

the media under state ownership/management and limited freedom of

speech and expression, all that most of the world knew about the

developments in that country was what was announced officially or

communicated by the faithful, and that was, by and large, all

good.

The idea of adopting planned economic development on a mixed

system in India seems to have stemmed from a desire to steer

clear of the weaknesses of the capitalist system as known from

the long experience of capitalist road of development in several

countries, and to attain the ideals immanent in the socialist path, namely need-based growth with social justice. An

underlying assumption here is that greed of private entrepreneurs could be sufficiently tamed to subserve the larger good and that those who wield State power or influence would do so as trustees,

for the larger good subordinating their private and parochial

interests.

However, as these policies unfolded in practice, it was

noticed that these behaviourist assumptions were fd'und to be out

of line with reality. Thus, for example, the greed of private

enterprise could not be tampered with sufficiently strongly to

bring it to bear on public interest adequatelly. Secondly, those

who controlled the State power and those who wielded influence on

the State to regulate private enterprise and to run public

enterprise were widely believed to subserve largely the narrow,

partisan, parochial interests and only subsidiarily the larger,

general public good. Several of such persons are known to be

living so well, and to have accumulated large fortunes

unaccountable by their known sources of income from business or

professional activities or inheritance. Several businessmen and

professionals also are known to have made fortunes, not so much

through their acumen and efficiency in their basic activities, as

through their contacts with the authorities. Thirdly, public

sector was expected to yield sizeable surpluses to promote growth

elsewhere. Instead, the rate of return on capital employed,

generally speaking, turned out to be poor; a large number of

public sector enterprises yielded losses persistently more or

less throughout and, thus, came to be perceived as anti-growth

enterprises.

Fourthly, while industrial growth during the early period of

planning was quite good it had begun slowing down since mid-

sixties. The trend rate of growth of industrial production

(1980-81 base) was 7.3 per cent during 1951-65 but was only 4.3

per cent during 1966-74. A similar decline was noticed for each

of the subsectors of mining and quarrying (5.9 and 2.6 per cent),

Manufacturing (7.2 and 4 per cent), and Electricity (13.6 and 9.1

per cent).

Finally, one must also consider the influence and the impact

of world-wide changes towards the new set of policies on the

Indian policy makers. Since after mid-seventies, a large number

of countries the world over were having a second thought at the

efficacy of the socialist policies they had adopted earlier, to

deliver economic and social objectives, and a general thought

seemed to be emerging for a change in favour of liberalisation

policies. Mrs. Thatcher's and Mr. Regan's practices of these

policies since late seventies in their countries seem to have

given a special boost to reforms in a large number of other

countries as well. Added to this was the influence of the multi-

lateral agencies which insisted upon the adoption of reforms

while giving assistance. India could not have remained immune

from this global current.

There is no doubt that during the first three decades, India recorded significant achievements, for example, in food and oil production, human resource development, diversification of the Rconnmy, ot.n. But. it nlr.o bornmn p l ; ' i n Hint tho pnliron of t h i n period had reached close to a dead-end. GDP growth rate for this period had stagnated at 3 . 5 per cent and industrial growth rate at 5 . 5 per cent per annum. Also, no perceptible progress was not iced on social object ives , a t any rate as per expectat ions aroused by continuous enchanting of socialist slogans by the leaders. ^A feeling was, thus, growing, and a thought emerging, that our performance was far below our potential , and that a change in policies may help break this deadlock.

III. Early Reforms

So from the mid/late seventies began the process of learning the lessons f rom the exper ience of the working of the past policies. The process involved, not necessarily in that order, appointment of a number of committees to review the working of the previous pol ic ies and to sugges t remedia l measures , abandonment of and modif ica t ions in the o ld pol ic ies and measures, and adoption of new policies and measures following the recommendations of these committees and also otherwise independently of them.

We cite in this connections reports of the Committees on (1) Import-Export Policies and Procedures (Chairman: P .C . Alexander, 3 9 7 8 ) , ( 2 ) Controls and Subsidies (Chairman: Vadilal Dagli, 1979), ( 3 ) Export Strategy (Chairman, Prakash Tandon, 1980), ( 4 ) Trade Policies (Chairman: Abid Hussain, 1 9 8 4 ) , ( 5 ) Public Enterprises Policy (Chairman: Arjun Sengupta), ( 6 ) Principles of a Possible Shift from Physical to Financial Controls (Chairman: M. Narasimhan, 1985) , and ( 7 ) Working of the Monetary System (Chairman: S. Chakravarty, 1985).

As to the policies and measures, government began, first, by

calling a halt to increased State intervention and then by

7

initiating reduction in the areas of controls/ regulations in

licensing, trade, prices, etc., and opening up of the areas

earlier reserved for the public sector for the private sector.

The list of changes effected in specific areas is long. So some

illustrations should do: Raising the income-tax limit, raising successively the limit of investment for licensing, delicensing a

number of industries, broad-banding, stream-lining of licensing

procedures, raising investment limits of MRTP companies and

exemption to such companies from some provisions of the MRTP Act

and so on. Also, the relative importance of the public sector in

total investment in the plans has been successively reduced from

61 per cent in the Fourth Five Year Plan to 58, 53, 48, and 45

per cent in the successive Plans.

That these policies had the stuff to break the deadlock and

accelerate growth is shown by the growth statistics of this

period. GDP grew at 5.5 per cent and industrial production at a

little over 8 per cent per annum during the decade of eighties.

IV. Recent Reforms: Major Steps

The nineties witnessed not merely the continuation, but the

acceleration of reforms. In fact, as noted in Section I, their

speed and spread have been so breath-taking, especially during

1991-92 and 1992-93, that liberalisation in India is widely

believed to have begun in 1991.

To refer to some of the major changes during the nineties:

Depreciation of the rupee, introduction of exim scrip and its

replacement by partial and later full convertibility of rupee on

trade account, and other liberalisations in regard to trade

policies, industrial policies having a bearing on licensing,

foreign investment/technology, MRTP company investments, opening

up of a number of areas for private sector, lending rates by

financial institutions and banks and reduction in statutory

liquidity ratios. Mention must also be made of the freeing of

capital market from government control, abolition of the office

8

of the Controller of Capital issues, operationalisation of the

National Renewal Fund, and a removal or reduction of excise and

import duties from a largo, number of itomn. Although substantial

liberalisation in financial and insuinncc sectors and in tho

area of industrial relations is yet co 'ake place, the agenda

that has already materialised is truly impressive.

In what follows, we highlight specifically the reforms in

industry and related areas. The Central Government's initiatives

begin with the new industrial policy for large industry in July

1991, followed by the new small enterprise policy in August 1991 and the follow-up changes. Later, state governments followed

with changes in their own policies to bring them in line with the

reforms of the Central Government. We present below the

principal reforms in that order, leaving details thereof to

Appendices A, B and C.

Licensing: Industrial licensing was abolished except for a

limited number of 15 items related to security and strategic

concerns, social reasons, harazadons chemicas, environmental

reasons and luxury consumption goods. These industries account

for 15 per cent value added in manufacturing sector.

Piiblic Sector: The number of industries reserved for the public sector is reduced to 6. These include:^defence products^atomic

energy, 'coal and lignite,:? mineral oils, 'railway transport, and

minerals specified in the schedule to the Atomic Energy Order,

1953. This reservation principle, it may be noted, is followed

by the qualification that even there private participation in

some of these sectors is permitted on a case by case basis.

Also, more and more private initiative is encouraged in the

development of infrastructure like power, roadways,

telecommunications, shipping and ports, airports, civil aviation,

etc.

The MRTP Act: The MRTP Act has been amended to remove the

threshold limits of assets in respect of MRTP Companies and

9

dominant undertakings. This eliminates the requirement of the

prior approval by the Central Government for expansion,

establishment of new undertakings, mergers, etc*- and for

appointment of certain directors by thn large companies/houses.

Foreign Investment and Technology: There is now automatic approval of foreign investment up to 51 per cent and permission

for foreign technology agreements for 35 priority industries.

These industries account for about 50 per cent value added of

manufacturing sector.

Small-Scale Enterprises: Small-scale industries are presently

defined as small-scale industrial units with capital investment

in plant and machinery not exceeding Rs. 60 lakh (original value)

and when ancillaries not exceeding Rs. 75 lakh (original value).

The definition has a further subcategory of tiny units in

industry and some related services, bounded by the limit of Rs. 5

lakh (original value). A new policy for this sector announced in

1991 enunciates that the primary objective of the reforms is to

impart "more vitality and growth impetus" to this sector. With

this view, some of the old schemes/measures for this sector have been modified.

State Reforms: Following the initiatives of the Central

Government, almost all of the State Governments appointed task

forces to review their existing policies and measures, and bring

them in line with those of the Central Government.

It would be noticed from the above that the thrust of

reforms has been to remove entry barriers, to open out the

economy to foreign goods, investment and technology and to

facilitate the growth of the small-scale sector. What has been

the performance following these changes?

V. Recent Reforms : An Assessment

To recapitulate the statistics of Sections II and III :

10

In the wake of slow reforms of the eighties, GDP growth picked up to 5.5 per cent and industrial production growth to 8 per cent, from the pre-reform three decades' rates of 3.5 per cent and 5.5 per cent respectively. h£ reforms have accelerated since 1991, on that logic, one wou,;' expect GDP and industrial production growth of nineties to be higher than the same of eighties? Has this happened?

Table I gives the data on growth rates of GDP and industrial

produotlon for the years 1991-92 to 1995-96. GDP growth was

less than 1 per cent in 1991-92,' but picked up to about 5 per

cent each in 1992-93 and 1993-94, and further to about 6 per

cent in 1994-95 and 1995-96. Thus, the annual average for the v*irst five years of accelerated reforms works out to about 4.7

per cent.

industrial production growth rate was also less than 1 per

cent in 1991-92. It increased to 2.3 per cent in 1992-93, 6 per

cent in 1993-94 and 8.6 per cent in 1994-95. The 1995-96

estimate is 10 per cent. Thus, the annual average for the first

five years of accelerated reforms is 5.7 per cent.

Table I GDP and Industrial Production Grwoth Rates,

Per Cent

Year GDP Industrial Production (1980-81 Prices) (1980-81 base)

U) (2) (3)

1991-92 1992-93 1993-94 1994-95 1995-96

0.9 0.6 5.1 2.3 5.0 6.0 6.3 (QE) 8.6 6.2 (E) 12.0 (AS)

QE - Quick Estimates; E - Advance Estimates; AS - April to September, 1995.

Source; Figures for 1991-92 are from Government of India, New Delhi; Economic Burvey, 1994-95, p.2, Table 1.1; and for the later years from Economic Survey, 1995-96, p.2, Table 1.1.

11

Both of these rates are low relative to the eighties. hat

of the logic referred to above?

The rates of the first one/two ars are particularly low,

but the picture has been improving since then. The low rates of

the early years have to be seen against the background that

during 1991-92, government was trying to correct the macro-

economic imbalances of the late eighties - of large fiscal

deficit, of critical foreign exchange situation and high

inflation by a variety of demand-supply restraining measures, and

these had their inevitable deflationary impact on the economy.

To some extent, we have succeeded on these fronts, as would be

seen from the data of Table II. Thus, for example, the fiscal

deficit which formed 8.3 per cent of GDP in 8.3 per cent in 1990-

91 is estimated to be 6.5 per cent in 1994-95 and budgeted to be

5.5 per cent in 1995-96. Foreign exchange reserves which were

about $ 2 billion in March 1991 (and just $ 1 billion in May-

June 1991) were $ 16 billion in January 1996. Inflation which

was 12 per cent in 1990-91 was 5 per cent in 1995-96.

12

Table II Some Macro-Level

Statistics, 1990-91 - 1995-96

A. Fiscal Deficit as a Percentage of Gross Domestic Product

Year Percentage

(1) (2)

1990-91 8.3 1991-92 5.0 1992-93 5.7 1993-94 7.5 1994-95 (RE) ' 6.5 1995-95 (BE) 5.5

RE - Revised Estimate; BE - Budget Estimate

B. Foreign Exchange Reserves

Figures for 1995-96 are as on 5.1.96, and other figures are as of March end.

contd....

Year u.s.$, million

(1) (2)

1990-91 1991-92 1992-93 1993-94 1994-95 1995-96

2,236 5,631 6,434 15,068 20,809 16,317

C. Percentage Increase in Wholesale Price laden over the Previous

Year

Year Percentage Increase

CD (2)

1990-91 1991-92 1992-93 1993-94 1994-95 1995-96

12.0 13.6 7.0 10.8 10.4 5.0

Figures for 1995-96 are as on 27.1.96, and other figures are as of last week of March.

Source: Government of India, Economic Survey, (ES) 1994-95 and 1995-96.

For A: ES, 1995-96,, p.18, Table 2.1.

For B: Figures for 1990-91 and 1991-92 are from ES, 1994-95, p.S.76, Table 6.1 (B) , and for later years from ES, 1995-96, p.2, Table 1.1.

For C: Figures for 1990-91 are worked out fro 6, m ES, 1995-9p.S.62, Table 5.1, for 1991-92 from ES, 1994-95, p.2, Table 1.1, and for 1992-93 onwards from ES, 1995-96, p.2, Table 1.1.

With these corrections, GDP and industrial production growth

rates as noted above, have improved. Considering the fact that

during the early years of economic reforms, a number of other

countries registered declines or lower rates of GDP growth for

saveral years than India's, the performance of the first five

years of accelerated reforms since 1991-92, while low relative to

that of the eighties, is not bad,

We now examine the industrial statistics closely. Table III

gives the data on growth rates of industrial production by major

sectors as well as aggregately for the years 1981-82 to 1995-96

and Table IV of industrial production by use-based clarification

for the years 1991-92 to 1995-96.

Two features stand out prominently from Table III. First,

relative to the average growth rates of the decade of 1981-82 -

14

1990-91 growth rates of Mining and Electricity are low for each

of the four years of the nineties for which full-year data are

available, and of Manufacturing and General for each of the first

three years; in the latter two cases, they are high for 1994-95.

Secon.1, generally, the rates for the last two of the four years

for which full-year data are available, are higher than those of

the first two years for Mining, Manufacturing and aggregately,

and they promise to be still higher during 1995-96. As for

Electricity, hiqh rate of 8.5 per cent in 1991-92 is followed by

low rate ot 5 per cent in 1992-93. But this is followed by

higher rates of 7.5 per cent and 8.5 per cent in 1993-94 and

1994-9S. 1995-96 promises a still higher rate.

Table III

Annual Growth Rates in Major Industry sectors, 1991-92 - 1995-96

Period/ Percent Sector

Mining Manufacturing Electri -city General

(Weight) (11.46) (77.11) (11.43) (100)

(1) (2) (3) (4) (5) 1991-92 0.6 -0.8 8.5 0.6 1992-93 0.6 2.2 5.0 2.3 1993-94 3.5 6.1 7.5 6.0 1994-95 6.2 9.0 8.5 8.6 1995-96 12.5 12.0 10.9 12.0

1981-82-1990 8.4 7.6 9.0 8.0

(Average):

Source: Government of India, New Delhi, Economic Survey, 1995-96, p.115, Table 7.1.

The four-full year data on industrial production by use-

based classification presented in Table IV show considerable

year-wise fluctuations. The only clear unidirectional change is

found in Consumer Goods where growth rates moved up to 1.9, 3.9

and 8.5 per cent in 1992-93, 1993-94 and 1994-95 from a decline

of -1.8 per cent in 1991-92. Second, of the groups of Table IM 1

Basic Goods and Consumer Non-durables had positive growth rates in 1991-92, whereas the others had negative growth rates in that year. Table IV

Growth Rates in Industrial Production by Use-based Classification, 1991~y2 - 1995-96

Sector (Weight

) 1991-92 1992-93 1993-94 1994-95 1995-96 (April to September 1995)

(1) (2) (3) (4) (5) (6)

Basic Goods Capital Goods Intermedi-Goods Consumer Goods - Durable - Non-Durable

Basic Goods include: Mining, coal, fertilisers, chemicals, cement, iron and steel, electricity, etc. Capital Goods include: Tools, equipment, machinery, electric motors, heavy vehicles, railroad equipment, etc. Intermediate Goods include: Cotton, shinning, jute, textiles, tyres and tubes, dyestuffs, petroleum and related products, etc Consumer Durables include: Electric fans, motorcycles, biycles, etc. Consumer Non-durable include: Food, beverages, cloth, foodwear, drugs and Pharmaceuticals, etc. Source: Government of India, New Delhi, Economic Survey 1995-96, p.118, Table 7.2. .Ihl2

It is difficult to read much in the statistics on small-scale industry presented in Table V for at least two reasons. First, the growth in number of units cannot be much meaningful as the sizes of the units vary. Second, output and export data are in current prices, and so they may mislead unless properly corrected for inflation. (When corrected with inflation rates given in Table II-C, output and export growth rates suggest wide fluctuations indicated by 1.4, 10.1, 4.7 and 11.3 per cent in 1991-92, 1992-93, 1993-94 and 1994-95 respectively in output and

16

(39.4^ (16.4)

(20.5)

(23.6) (2.6)

(21.0)

6.2 -12 .8

- 0.7

- 1.8 -12.5 1.2

2.6 -0. 1

5.3

1. 9 -0.7 2.5

9.5 -4 .2

11.8

3 .9 16.1 1.3

3.8 25. 0

12.5 14.3

6.3

13.5

3.9

8. 5 9.8 8.2

28.1 9.8

21.1, 31.5 and 0.2 per cent in 1992-93, 1993-94 and 1994-95 respectively in exports.) On the other hand, employment data are free from these two pitfalls. These statistics show an increase in employment successively : from 3.3 per cent to 4 per cent to 5.2 per cent in 1992-93, 1993-94 and 1994-95 respectively.

Table V Growth of Small-scale Industry, 1991-92 - 1994-95

Year Percentage Increase over the Previous Year

Number of Units

Output Exports Employment

(1) (2) (3) (4) (5)

1991-92 1992-93 1993-94 1994-95(P)

6.9 7.9 6.1 7.8

15.0 17.1 15.5 21.7

(N.A.) 28.1 42.3 10.6(QE)

(N.A.) 3.3 4.0 5.2

Number of Output Exports Employment Units (1) (2) (3) (4) (5) 1991-92 6.9 15.0 (N.A.) (N.A.) 1992-93 7.9 17.1 28.1 3.3 1993-94 6.1 15.5 42.3 4.0 1994-95(P) 7.8 21.7 10.6(QE) 5.2 1. (N.A.) - Not available; (P) and QE - based on Provisional and Quick Estimates. 2. Output and Export at Current Prices. Source: Government of India, New Delhi, Economic Survey, 1995-96, p.125, Table 7.12. Finally, we refer to the statistics on disinvestment in public

sector undertakings of central government. The details are

given in Appendix D and summary of which is presented in

Table VI. In 1991-92, the Central Government Holding in 34 of the

40 undertakings was 100 per cent. In 1995-96, the holding was

reduced to between 55 to less than 75 per cent in 9

undertakings, between 75 to less than 90 per cent in another 9,

and between 90 to less than 100 per cent in 16. In 6

undertakings the holding was less than 100 per cent, varying

from 61.16 per cent to 99.88 per cent in 1991-92. In each,

disinvestment took place in 1995-96, but the reduction of holding

was substantial only in the two, namely Indian Telephone

Industries Ltd. and Madras Refineries Ltd., from 99.65 to 77.02

per cent in the former and from 84.62 to 51.80 per cent in the

latter. 17

Table VI Disinvestment in Public

Sector Undertakings, 1991-92 - 1995-96

A. Number of Public Sector Undertakings, having Contral Qovornmont Holdings (coil) as on 31.3.95 as shown below, but had as on 1.7.91 CGH 100 par cent

50 (55.04) to less than 75% 9 75 to less than 90% 9 90 to less than 100 % 16 All 34

B. Public Sector Undertakings having Central Government Holdings as on 1-7-91 and 31-3-95 as shown below:

Name . Percentage

1-7-91 31-12-95

Name . Percentage

1-7-91 31-12-95

1. Andrew Yule 71.30 62.80 2. Cochin Refineries Ltd. 61.16 55.04 3. Fertilisers and Chemicals 98.69 97.35

(Travancore) Ltd. 4. Indian Teephone Industries Ltd. 99.65 77.02 5. Madras Refineries Ltd. 84.62 51.80 6. Indian Oil Corporation 99.88 96.08

Source : Appendix D

[The principal points may be now summed up: The growth rates of G D P a n d I n d u s t r i a l P r o d u c t i o n d u r i n g t h e f i v e y e a r s o f accelerated reforms since 1991 are low relat ive to those of the decade of eighties of slow reforms, but high relat ive to those of the pre-reform previous three decades. The former have however to be appreciated in a proper contextual f ramework. Firs t , the decade of e ight ies , especial ly the la t ter per iod was also marked

1. Andrew Yule 2. Cochin Refineries Ltd. 3. Fertilisers and Chemicals (Travancore) Ltd. 4. Indian Teephone Industries Ltd. 5. Madras Refineries Ltd. 6. Indian Oil Corporation

71.30 61.16 98.69

62.80 55.04 97.35

99.65 84.62 99.88

77.02 51.80 96.08

by high fiscal deficits, high inflation and low foreign exchange reserves, and unless these macro-problems were attended to high r a t e s c o u l d n o t h a v e b e e n s u s t a i n e d . S e c o n d , t h e p o l i c i e s fo l l owed s ince 1991 to cu r t a i l f i s ca l de f i c i t and to r educe in f l a t ion had the inev i t ab le de f la t ionary impac t , seen in low rates of GDP and industrial production growth rates. Third, the

18

duration of very low growth rates in India has been remarkably short - two years - relative to other countries during their initial years of reform. Fourth, growth rates began picking up from the third and the fourth years, and this tempo is expected to continue in the fifth year. Fifth , almost all major reforms were carried out during the first two/three years of 1991-92, 1992-93 and 93-94, but since then for a variety of reasons reforms have slowed down.

Thus, all-in-all, it seems that with the passage of time the reforms which have been carried, and further reforms which may follow, may be expected to yield higher rates of growth in future in a sustained manner - of say 7-8 per cent in GDP and of 10-12 per cent in industry. This hope is based on the logic of ' economic reforms and the experience of its working to which we now turn.

Vic Logic and Experience

To begin with the logics Consider, for example, the new industrial policy of July 1991. First, a number of changes in industrial, foreign investment, foreign technology agreements, the MRTP Act. etc. have done away with the prior clearance of government. In such cases, project time and, therefore, project cost will be reduced. This will free material and human resources for more productive uses: from cultivating contacts with persons with power and influence to get such clearances. Thus, the input cost per unit of output in the proposals which are freed from prior clearance requirements will go down.

Second, the changes in respect of foreign investment, foreign technology agreements and rupee convertibility are designed to attract capital, technology, and marketing and managerial experience and expertise from abroad. These measures, together with reduction in import duties, will give a boost to exports in particular. They will lead to additions of scarce

19

resources of technology and capital from abroad. Inasmuch as these resources are also more efficient, industrial production will increase both through their higher productivity as well as through their additionality.

Third, some changes such as the opening up of some areas eserved earlier for public sector for private enterprises,

privatisation of public sector, delicensing and reduction in import duties would make Indian enterprises more competitive

among themselves and vis-a-vis imports.

Fourth, some measures thought of for the public sector such as purposeful formulation and the implementation of Memorandum of Understanding and its monitoring, professionalisation and greater autonomy may be expected to improve the performance of the enterprises that will remain in the public sector.

Fifth, amendments in the MRTP Act regarding large houses and dominant undertaking may be expected to promote large and efficient scales of production and greater emphasis on controlling and regulating monopolistic, restrictive and unfair trade practices will curb the anti-competitive behaviour of the firms in the monopolistic, oligopolistic and ineffectively competitive markets and thus, promote competition and through it efficiency.

Thus, additionality of resources and improvements in technological, allocative and x-efficiencies that will follow pro-competition policies coupled with increased support from investment in physical and social infrastructures and their supplies may be expected to yield respectable growths of GDP and industrial production in a sustained manner, of say 7-8 per cent and 10-12 per cent per annum respectively.

That this logic is not an empty box is vouchsafed by the

experience of a number of countries during the eighties following/during their reform periods.

20

And here, attention is invited to Table VII which gives

average annual growth rates of GDP, industry and manufacturing

for the decade 1980-90 for eleven reform based countries. In GDP

growth, Korea is first with 9.7 per cent, followed closely by

Chine with 9.5 per cent. In industry and manufacturing growth,

China is first with 12.5 and 14.4 per cent, followed closely by

Korea with 12.2 and 12.7 per cent. With growth of 5.3 per cent in

GDP, 6.6 per cent in industry and 7.1 per cent in manufacturing,

India ranks 8th, 6th and 8th in this list. True, relative to

India some of these countries which have higher GDP growth, are

very small (e.g. Hong Kong and Singapore); but some others which

also have higher growth in GDP, industry and manufacturing are

not that small (e.g. Korea, Pakistan and Thailand), and China

which has nearly double the GDP, industry and manufacturing

growth rates than India's, is, indeed, big.

Table VII

Growth of Production in Select Countries, Per Cent 1980-81

Average Annual Growth

Country GDP Industry Manufacturing

(1) (2) (3) (4)

1 China 9 . 5 (.2) 12.5(1) 14.4(1)2 Hong Kong 7.1(4) N.A. N.A.3 India 5.3(8) 6.6(6) 7.1(8)4 Indonesia 5.6(7) 5.6(8) 12.5(3)5 Korea (Rep.) 9.7(1) 12.2(2) 12.7(2)6 Malaysia 5.2(9) 7.1(5) 8.8(5)7 Pakistan 6.3(6) 7.3(4) 7.7(6)8 Singapore 6.4(5) 5.4(9) 6.6(9)9 Shri Lanka 6.4(11) 4.6(10) 6.3(10)1 .Thailand 7.6(3) 9.0(3) 8.9 (4)11.Turkey 5.1(10) 6.2(7) 7.2(7)

1. Figures in brackets give ranks, beginning with the highest figure.

2. N.A. - Not Available

Source: World Bank, Washington: World Development Report, 1992, pp.220-21, Table 2.

21

So it seems that size of the country may not be that Important in accounting for growth as it was thought earlier.

True, there are a number of other well-known differences between

these high growth countries and I : in regards to culture,

wrk ethics, form of government etc, 1 : Instead of continuously

i&rping upon these differences with iinpli Mfc suggestions such as

hat they can do, but India cannot do or that their achievements

ire transitory and not sustainable, why not hammer upon the

elevant positive lessons taught by their experience of

ccelerated growth, and translate them in practice in India?

VII. The Question of Reversibility

We now attempt to answer the two questions posed earlier.

fill reforms to reversed? If not, what are the factors that will nfluence their speed and spread?

Such questions are difficult to answer at any time.

lowever, there are special difficulties in answering the above

[uestions at the time of writing this paper (early April 1996) .

rst, elections to the new Lok Sabha and six assemblies are

xed for late April/early May 1996, and the election manifestos

f all the parties are not yet available. Second, even if the

nifestos are available, it is difficult to answer the above

uestions unambiguously, as such manifestos are marked by

eneralities, vaguenesses and tall promises which are intended to

onvey something palatable to almost, or mostly, everybody.

hird, there is generally a fairly wide difference between what

le party promises at the time of elections and what the

lovernment of that party does in practice later. Fourth, the

general prediction for the Lok Sabha election is that no single

•arty is likely to get an absolute majority, and further that two 1 three parties/combines may get roughly an equal number of

*ats. If this is the outcome, the policies of the government

111 be decided by the compulsions of the coalition to stay

together, the nature of which can be known only later, some time

22

after the new government is in office.

In view of the above, it may be best to attempt these

questions avoiding the discussion on the current political

development, focussing on the fundamentals of the past. The

limitations of such an exercise are clear and obvious, but it is

defended on the dictum : let better not be the enemy of the good.

To begin with the less difficult, first question: It seems

to us that the process of economic reforms is not likely to be

reversed. We support this view with the following submissions.

First, the perception that the behaviourist assumptions of

the pre-reform policies followed during the first three decades

since Independence still continue to be out of line with reality

still persists widely among various sections of the society.

These assumptions, as elaborated in Section II, relate to the

integrity and competence of the individuals who wield State power

over economic activities in various ways.

Second, it is well to remember that reforms in India did not

commence in 1991. As discussed in Section III, they have a

longer history, traceable to at least mid/late seventies. During

the two decades since then, India has been governed at the Centre

by different political parties, and governments of these parties

have been headed by a number of prime ministers. This period

witnessed the Congress (I) government thrice, and the Janata

Party, the National Front and the Samajwadi Party governments

once each, and these governments have been headed by seven prime

ministers. Which perhaps underline the diminished role of the

ideologies of parties and governments and of the personal

inclinations of the prime ministers to these ideologies. One is

inclined to guess that these changes were designed on pragmatic

considerations : the adjust to or to accelerate the developments

of scale, technology and taste that have been taking place all

over the world from which India could not have remained immune.

The collapse of faith in the communist system of thought and the

23

adoption of the market-oriented policies in almost all communist countries of the world and the desire of these countries to break

away from the earlier autarkical policies and to integrate

their economies with the economies of the rest of the world,

especially with the advanced capitalist countries, is also a

movement of the s

I ame kind as the one seen in the Indian context.

It would seem that, one cannot prevent an idea whose time has

come. Socialism

ad its time for long after World War II. The time for

reforms arae in around mid/late seventies and almost

everywhere policies ave been moulded in that frame since

then.

Third, the logic of reforms and the responses of the

various economie

I s to the follow-up policies, as elaborated in

action VI, point to the capacity of reforms to

subserve the asic objective, of growth and

eventually a measure of qalitarianism. Fourth, it is

true that during the earlier years of 1991 and 1992,

there was considerable opposition to reforms at various

levels. Some sections of the Congress party and of the Council

t>f Ministers of the Central Government of that

party, the leftist arties, the Bharatiya Janata

Party, Trade Unions, some sections I

industrialists, etc. were then known to oppose

these changes enerally. Of late, such general and

open opposition has by and prqe died down and

almost everybody has now come to terms with

eforms. Changes in State policies on the path of reforms and

rips abroad of almost all Chief Ministers of non-congress as

sll as Congress parties to woo foreign investors for investment

in their states are clear pointers to this change. Selective

Dp* isition to specific changes is of course there, and it will

lerhaps continue.

[

To conclude our submission on this point: Disillusionment

ith the socialist policies of the past, adoption of reforms by

he Central and State Governments since mid/late seventies but

specially since 1991, general acceptance of these policies by

ill sections of the society, and great potential of these

24

policies to subserve the objective of faster growth and eventually betterment of economic and social well-being of people

at large in India as indicated by the logic of reforms and the

experience of such policies in a number of countries - all point

to the irreversibility of reforms in India.

VII. Factors Influencing the Future Course

It is more difficult to answer specifically the second

question on the speed and spread of reforms. What we shall do,

therefore, is to consider this question only generally with

reference to economic, social and political factors that may

influence its future course. These considerations are, of

course, interrelated.

Economic Considerations

The immediate objective of reforms is to promote faster

growth. This growth is expected eventually to percolate widely

and promote better economic and social well-being of the masses.

This, of course, does not mean that in the short run there is no

place at all for the measures promoting directly such well-being.

All it means is that in the short run, they could be there only

in a limited way.

The success of reforms, in the short run, will, therefore,

be judged in terms of economic growth. If they promote faster

growth, they will be widely perceived as successful, leading

hopefully, sooner or later to better economic and social well-

being of the general population. And this will strengthen the

hands of reformers to move with greater speed on that track. If,

on the other hand, the gains in terms of growth are limited,

reforms may slow-down.

On that criterion, reforms in India may be said to have

25

fielded so far moderate results. As summed up in Section V, the

arlier limited reforms produced high growth rates to the

irevious policies. But the later rapid and widespread reforms

ielded decelerated growth rates. However, as ^argued in

lection VI, reforms have the potential of higher growth of 7-8

ler cent of GDP and 10-12 per cent of industrial production in a

lustained manner in the medium term.

However, for these growth rates to fructify, we need to step

up our saving and investment relative to GDP. Our gross domestic

saving and investment as percentage of GDP have averaged 22.5 and

1.3 per cent and during 1991-92 - 1994-95. In fact, they both

Seolined in 1992-93 and 1993-94 from their 1991-92 levels, though

the quick estimates for 1994-95 show same improvement.

These low and fluctuating rates are a matter of serious

concern. They cannot be depended upon to promote and sustain

liqh rates of growth of GDP and industrial production of the

order of 7-8 and 10-12 per cent. It needs to be remembered that

high growth rates of East Asian Countries and China were

propelled largely by high rates of saving and investment, of 3 0

per cent or more, in a sustained manner for a number of years.

The incremental capital output ratio projected for the

Eighth Five Year Plan (1992-97) is 4.10 per cent. In view of

increased emphasis on capital-intensive projects since the plan

»as adopted especially in infrastructure and related sectors, it

»ay be higher than 4.10. But even on the basis of 4.10,

Investment other things being the same needed to support 7-8 per

cent GDP growth would be 28.7-32.8 per cent of GDP, and domestic

saving a little less.

Foreign saving and investment can help, but here while the

promises are plentiful, the actual flows have been very limited.

Ihus, for example, the total foreign investment in 1990-91 was $

154 million, in 1992-93 $ 585 million, in 1993-94 $ 4,144

lillion, and in 1994-95 $ 4,895 million. Of these, however,

26

except in 1992-93, direct foreign investment has been relatively small - practically nil in 1990-91 and 1991-92, 60 per cent in 1992-93, 15 per cent in 1993-94 and 27 per cent in 1994-95. These inflows compare poorly with the inflows in other countries, especially China which gets high inflows, going up to $ 30 billion or more in some years.

The success of reforms in terms of growth therefore very

much depends upon our ability to raise the rate of domestic

saving and investment and to attract more foreign investment,

especially direct investment and technology. What is

particularly needed is the stepping up of investment, foreign as

well as local, in physical and social infrastructure and in

improving the productivity of the resources invested therein - in

roads, transportation, communication, education, health, etc. We

also need to strengthen the existing measures and institutions

and to establish the new ones in tune with the requirements of

reforms to enhance their efficacy. A classic case of dithering

on reforms is the Industrial Relations Bill which has been under

discussion since last four years. Privatisation of public

enterprises has also been limited and half-hearted, and it is not

likely to move faster in the near future.

Social Considerations

In the short and the immediate medium terms, social objectives are unlikely to be directly promoted by the State in as great as a measure under reforms as earlier. It is, therefore, possible that the groups which may not fare better or may become worse off now may unite to slow down the pace of reforms.

To illustrate this point with reference to two examples:

The eighties saw a decline in the rate of growth of employment

even when the output was rising. It is feared that during the

nineties the rate of growth may have become lower. This fear is

27

based on a variety of grounds: slower growth of output, Increasing capital-Intensify in Indian industry, and retreat of the State in the pursuit of social objectives.

It in claimed that such a tear may be largely misplaced.

fius, for example, in his 1995-96 budget speech, the Finance

Minister has stated: "In 1991-92, total employment grew by only 3

lillion. In each of the two years thereafter, employment

increased twice as fast, with about 6 million jobs added each

year. The Increase is expected to be even higher in 1994-95.

The drawing room Cassandras, who predicted massive unemployment

SB a consequence of reforms have conclusively proved wrong" (Para

3).

The problem of employment growth must, however, be seen in

ths perspective. The Eight Five Year Plan expected an employment

growth of about 40-45 million for five years - 1992-93 to 1996-

97. The first two years of the plan have created, as pointed

out by the Finance Minister, 12 million additional jobs. Even if

we assume optimistically that the number of additional jobs in

the remaining three years, 1994-95, 1995-96 and 1996-97 will be

fiuout 23 million, the achievement of 35 million will fall

considerably short of the Plan target of 40-45 million.

The other example relates to regional imbalances. While all

states are competing for additional investment, in view of their

better infrastructural facilities, faster reforms and more

responsive administrations, states like Maharashtra, Gujarat,

Tamil Nadu, Karnataka, Haryana, Andhra Pradesh and the like will

attract more investment - Indian and foreign - than other

states. This tendency would lead only to further regional

concentration of industrial and related activities. The other

statas may feel let down and pressurise the Central Government to

enunciate restrictive policies for developed states and

supportive policies for them, marking a retreat/halt/slowdown of

reforms.

28

Political considerations

While reforms in general have met with a measure of approval, such as approval may not deter governments from adopting populist policies or the opposition parties from opposing reforms occasionally and on specific issues. Thus, the parties in power may slow down reforms and strengthen social schemes off and on. One may recall several instances with such bearing: renegotiation of the already negotiated projects (Enron), application of the local hygenic law discriminately (Kentucky Fired Chicken), restricted liberalisation as regards imports, or investment/technology especially by multi-nationals for the production, of frivolous goods especially those which complete with locally produced goods (potato chips), relief-like employment schemes, etc. The fear that if the government goes ahead on the reform road the opposition may capitalise on the public's strong sentiments, and it may lose support at various fora. Democratic governments all over the world suffer from such a fear and all concerned may have to learn to live with such irritants off and on.

Such irritants will, however, be like a temporary halt or

one step backward from the path of reforms. They should not be

mistaken as a sustained reversal of reforms. But their speed and spread will be governed considerably by socio-political

considerations. The path of further reforms will ,thus, be

marked by 'political cycles'; that is to say, rapid and

widespread for some time after elections; halting or even

backward bending for some time soon before elections; and slow

and limited in between.

*******************

29

Appendix A Extent of permissible foreign equity by NRIs/OCDs/PIOs/FIs/FIIs

Ureas of Investment NIRs/OCBs/PIOs FIs/FLLs

la) 35 High priority industries

100% equity,repartiable, automatic approval by RBI

51% equity,, repartiable, approval by RBI

b) Export/Trading/ Star trading House

Investment upto 4 0% Scheme

c) Hotels & Tourism related industry

Non Residents of Indian Nationality or origin are allowed to invest in New Issues of new and existing companies, raising capital through a public issue, with prospects, upto 40% of the New Capital issue, with full repatriation benefits of capital investeed and income earned on it, provided it is a manufacturing activity. Investment ma also be made in the capital raised by a private limited company other than through a new public issue.

y

2. 100% EOUs and units in.FTZ and EPZ 1

100% equity, automatic approval by SIA/DC(EPZ)

100% equity, automatic approval SIA/DC(EPZ)

3. Sick Industries 100% private placement prior approval by RBI

4. Mining 50% automatic approval

5 0% automatic approval

5. Telecommunications upto 49% with approval

49% with approval

6. Power upto 100% with approval

100% with approval

7. Medical clinics, Hospitals,

upto 100% equity, repatriable,

case by case prior approval

Ureas of Investment NIRs/OCBs/PIOs FIs/FLLs

la) 35 High priority 100% equity, repartiable, 51% equity,, industries automatic approval by repartiable,

RBI approval by RBI

b) Export/Trading/ Investment upto Star trading 40% Scheme House

c) Hotels & Tourism Non Residents of related industry Indian Nationality

or origin are allowed to invest in New Issues of new and existing companies, raising capital through a public issue, with prospects, upto 40% of the New Capital issue, with full repatriation benefits of capital investeed and income earned on it, provided it is a manufacturing activity. Investment may also be made in the capital raised by a private limited company other than through a new public issue.

2. 100% EOUs and 100% equity, automatic 100% equity, units iniFTZ approval by SIA/DC(EPZ) automatic and EPZ approval -

SIA/DC(EPZ)

3. Sick Industries 100% private placement prior approval by RBI

4. Mining ! 50% automatic 50% automatic I approval approval

5. Telecommunications upto 49% with 49% with approval approval

6. Power upto 100% with 100% with approval approval

7. Medical clinics, upto 100% equity, case by case Hospitals, repatriable, prior approval

30

Shipping, Oil exploration, Deepsea fishing, Ind. with licenses

prior approval by SIA by SIA even upto 51%

S]. Trulunt-r 1 on reserved for SSI

I If > t < > 24% , i n ; »n •" 8- I - able prior approval by SIA, export obligations

uj>» <» ?A% nqul i y prior SIA approva1,export obligations

9. Housing, real estate, business centres, infrastru-ctural facilities

100% equity on repatriation basis, automatic automatic approval

Ownership of company property allowed

10.Portfolio Investment (Inv. in shares & debentures,

Individual ceiling 1%, collective ceiling 5%, relax-able to 24% by General Body Resolution

Foreign Insti-tutional Inves-tors are permitted to invest subject to the ceiling of 5% for individual FIIs and 24% collec-tive investment ceiling appli-cable to FIIs, NRIs including OCBs.

12a) Govt. securities b) Units in UTI c) Public sector mutual funds d) Private sector mutual funds

NRIS/OCBS and PIOs are permitted to invest now on a repatriable basis either in the Units of UTI or in Mutual Funds floated either by public sector or private sector financial insti-tutions and both through primary and secondary market.

Investment in units of UTI, Mutual Funds floated by public sector or private sector financial institutions is permitted only to FIIs.

HRI «= Non-resident Indians, PIOs = Persons of Indian Origin OCBs = Overseas Corporate Bodies, FIs = Foreign Investors FLLs = Foreign Institutional Investors SIA = Secretariat of Industrial approvals EOU = Export Oriented Unit EPZ « Export Processing Zone FTZ «■' Free Trade Zone

Source: Reproduced, Government of India, New Delhi: Economic Survey, 1995-96, p.114, Box 7.2. 31

Appendix B ' ■

Industrial Policy Reforms: ealaeted State Governments I

Andhrs* frr̂ desh

* Various measures taken to simplity procedures and encourage private participation in infrastructure development.

* Several steps taken to induce foreign investment, especially in high priority areas.

* Power Purchase Agreements have been signed with private developers for setting up Power Projects.

Gujarat

* Committees appointed to review laws relating to various aspects of liberalisation.

* Private participation in development of ports, power stations and desalination of water supplies, etc.

* Walk-iii-system for financial assistance by Gujarat Industries* Investment Corporation (GIIC) and Gujarat State Finance Corporation (GSFC).

Haryana

* Several steps taken to simplify procedures and ensure time bound clearances.

* Industrial Assistance Group as a single window agency set up. Single window services further extended to district level to ensure effective coordination among various Government organisations.

* Powers to allot, transfer, lease, and rent industrial plots/ sheds; sanction/disbursement of loans by Haryana Financial Corporation, sanction of electric load upto a certain limit-delegated to district level.

< All sales tax barriers through the State removed.

High Powered Committee set up to take spot decisions on foreign investment. NRI projects and 100 per cent export oriented projects.

* Visits of inspectors has been streamlined and rationalised.

Jammu & Kashmir

* A scheme of capital investment incentive at 30 per cent of fixed capital investment subject to a maximum ceilling of Rs.30 lakh introduced.

32

* A special cell created to study the sick units on a case by case basis.

* Production linked 5 per cent rebate on interest on working capital to all units subject to a maximum of Rs.10 lakh per year.

* Market support to Small Scale Units includes 12.5 per cent

purchase preference.

KarnataKa

* A high level Committee for expeditious clearance of mega projects constituted.

; * A state level single agency set, up for clearingg projects.

j* An information Technology Park with the association of Singaporean investors and Tatas set up.

* An airp[ort of international standards coining up in Bangalore.

* Industrial Policy of 1993 being reviewed to make it more attractive for entreprenuers.

Kerala

* Tax and Duty concessions include no taxes for new units for first seven years, sales tax benefits to medium and large scale sectors, captive power exempted from electricity duty.

« An increase in investment subsidy to 15 per cent with an investment limit.

' Green Channel Scheme providing entreprenuers, all required clearances from a single window to be introduced.

* An authority for infrastructure development with statutory powers will be established.

I* Technology bank established under the State Industrial Development Corporation.

Maharashtra

* District Collectors' permission to convert agricultural land into industrial use no longer required.

* Industrial location policy revised to permit setting up of non- polluting, non-hazardous and high-tech industries within the municipal zone of Greater Bombay.

* Private participation encouraged in power projects and establishment of industrial estates.

3 3

* Committee set up under State Chief Secretary for expeditious decision on NIR and Foreign Direct Investment.

Orissa

* A Nodal Committee constituted ar. th State Government level for clearance of proposals for providi* ^ Anfrastructural facilities anti Government assistance, and t recommend measures for rehabilitation of sick industrial units,

* The Foreign Investment Division in the Industrial Promotion and Investment Corporation of Orissa will act as a single window for investments by Non-Resident Indians and foreign investors.

* Nodal Committees constituted at the district level to resolve local problems faced by entrepreneurs.

Punjab

* A new package of incentives to attract investments, avoid multiplicity of incentives and procedures, and speedy clearance of new enterprises announced and made applicable from October, 1992.

* Udyog Sahayaka acting as a Siongle Window Service for clearing projects.

* State Government signed MOUs with selected industrial units to upgrade Industrial Training Institutes.

* Privatisation of Public Sector Units to be undertaken.

* Develop selected industrial corridors as part of infrastructural development. Use private initiative for infrastructure development, specially power.

* The state is formulating a policy to ensure granting of clearances for setting up industries within 24 hours of receipt of request.

Raj as than

* Several steps taken for expanding/strengthening infrastructure, simplifying rules and procedures, ensuring speedy availability of inputs/clearances, increasing role of private sector, enhancing employment and investment.

* Power generation, telecom services, tourism and hotelling in the private sector encouraged.

* Enabling legislation put in place to allow private parties to collect tolls from roads/bridges constructed by them.

34

* Amendments made In rules relating to conversion and allotment of land for industrial purposes.

* 155 SSI industries exempted from obntaining No Objection Certificate from State Pollution ontrol Boards. Power grant NOCs decentralised.

* Industries to be inspected under Factories Act reduced from 15 to 3 Common inspection in accordance with a check list prepared for the purpose. Even simpler procedure for SSIs.

Tamil Nadu

* Capital investment subsidy at various rates in the range of 5 per cent to 20 per cent depending on the location, size and type of industries and subject to a maximum value of Rs.100 lakh for mega projects and Rs.2 0 lakh for others.

* Power tariff concessions at the rates of 40%, 30% and 20% respectively during the first three years.

* Salee tax waiver/deferrols for a number of years depending on the location, size and type of industries including mega projects.

attar Pradesh

* Economic development of the state based on the harmonized growth of agriculture and industry.

* Ensuring availability of top class physical and social infrastructural facilities.

* Positive change in the attitude of the administration.

* A Software Technology Park has come up at Kanpur.

* An Electronics City is being developed at Noida.

* "UPSIDC" is coming up with an Industial Development Park at Massuri-Guawati Road.

* "U.P. Credit Capital Fund" created in association with Credit capital Venture Fund (India) Limited.

■

* "U.P. Trade Promotion Authority" is effective in action for organising and participating in Domestic and International Trade Fairs.

I

35

West Bengal

* State,, where ever appropriate, welcomes foreign technology and investment.

* State recognises the importance and ■ key rolo of tho privnto sector in accelarating growth.

An Empowered Committee at the Star Level, under the Chairmanship of the Chief Secretary, formed to take quick decisions on investment proposals,

* The Single Window Agency of the West Bengal Industrial Development Corporation Ltd., strengthened to provide effective 'Escort Service' to new projects.

* Committees in each district formed under the Chairmanship of District Magistrates to ensure quick decisions on land, employment, and other related matters.

* Private sector investment in power generation encouraged to meet increased demand.

Source : Reproduced, Government of India, New Delhi : Economics Survey 1995-96, p. 114, Box 7.2

36

Appendix C

Incentives and Facilities for Small-scale Industries

Fiscal Incentives

* Excise concessions avilable for both registered and unregistered units on a graded scale depending on turnover upto Rs.3 00 lakh.

* h scheme of Integrated Infrastructure Development was launched in March, 1994 to strengthen infrastructural facilities in rural and backward areas. 15 projects have been sanctioned sc far.

* Quality Certification Scheme launched to improve SSI product quality. Financial support to acquire ISO 9000. Till date, 46 units approved for reimbursement".

* Seven Point Action Plan has been initiated to improve credit flow to SSI sector. 51 specialised SSI branches have been opened up to October, 1995.

* Scope of National Equity Fund scheme enlarged to cover the whole country except metropolitan areas to support expansion, modernisation & technology upgradation. Under the Scheme Rs. 187 lakh released during April-December 1995.

* Technology Development & Modernisation Fund scheme launched for modernisation and adoption of improved and updated technology. During first 7 months of 1995-96, SIDBI has assisted 43 units and sanctioned Rs.1549.47 lakh under this scheme.

* A scheme for creation of Technology Development Fund in the States launched with the involvement of State Government and Industry Associations.

Credit Policies

* Priority sector lending.

* 40% of advances to SSI sector reserved for tiny sector and village & cottage industries.

* Refinance facilities and special schemes of SIDBI.

* Concessional/fixed rates of interest for loans up to Rs. 2 lakhs (2 slabs).

* Single Window Scheme of SIDBI for project outlays up to Rs.50 lakh.

* Under Prime Minister's Rozgar Yozana, loans in respect of 31971 micro enterprises were sanctioned in 1993-94, 196,133 enterprises in 1994-95 and 101,321 enterprises in April-November, 1995.

37

Other incentives

* Reservation of products for exclusive manufacture (836 products at present).

* Purchase and price preference.

* Infrastructural support to Entroprenourship Development Institutes to augment their training capacities.

* Entrepreneurship Development Institute set up in Guwahati, Assam for improving the entrepreneurial base for the North Eastern Region.

* Joint programme with the State Bank of India and Small Industries Development Bank of India (SIDBI) for modernisation and technology upgradation of industry clusters.

* Assistance to industrial associations/voluntary agencies to set up testing centres.

* Special programmes on vendor development, quality awareness and pollution control.

Source: Reproduced, Government of India, New Delhi'' Economic Survey, 1995-96, p.126, Box 7.5.

38

Appendix D Ycor-wise/PSU-wfB© Details of Shares Disinvested Since 1991-92

Sr.No. Name of the PSE % of Central Govt. Holding

1.7.91 31.3.92 313,91 31,3.9431.3.95 31.12*95

1. Andrew Yule 71.3062.80 62.80 62 80 62.80 62.80 2. Bhnrat Earthmovers ltd. 100.0080.00 80.00 B0.00 60.08 60.08* 3* Bharat Electronics ltd. 100.0080.00 80.00 80.00 75.86 75.86 4. Bharat Heavy Electricals Ltd. 100.0080.00 79.54 79.46 67,72 67.72

Sr. No. Name of the PSE % of Cent ral Govt. Holding

1.7.91 31.3.92 31.3.9* 31,3,94 31.3.95 31.12,95

1. 2. 3* 4. 5. 6. 7.

a. 9.

m. 1!. 12, 13. 14. 15 16. 17. 18. 20. 2*. 22.

a. 24. 25. 16. *7.

m. 29. SO. 31. 32. S3, 34. 35. 16« 37.

■

58.

39. 40.

Andrew Yule Bharat Earthmovers Ltd. Bharat Electronics Ltd. Bharat Heavy Electricals Ltd. Bharat Petroleum Corpn. Ltd. Bongaigaon Refineries & Petro.Ltd. CMC Ltd. Cochin Refineries Ltd. Oredging Corpn. Ltd. Fert. & Chem. (Travancore) Ltd. MMT Ltd. Hindustan Cables Ltd. Hindustan Copper Ltd. Hindustan Organic Chemicals Ltd. Industan Petroleum Corpn. Ltd. Hindustan Phot.o?Urns Mfg. Co. Ltd. Hindustan Zinc Ltd. Indian Petrochemicals Corpn. Ltd. • ndian Railway Const. Co. Ltd. Indian Telephone Industries Ltd. Madras Refineries Ltd. Mahanagar Telephone Nigam Ltd. Minerals & Metals Trading Corpn. National Aluminium Co. Ltd. National Fertilizers Ltd. National Mineral Oev. Corpn. Ltd. Neyveli Lignite Corporation Rashtriya Chemicals & Fertilisers Shipping Corporation of India State Trading Corpn. SteeUuthority of India Ltd. Videsh Sanchar Nigam Ltd. Container Corporation of India ndlanOil Corporation Oil & Natural Gas Corporation Engineers India Ltd. Gas Authority of India Ltd. Indian Tourism & Dev. Corn. ICudermukh Iron & Ore Company Ltd. industrial Oev. Bank of India

71.30 100.00 100.00 100.00 100..00 100.00 100.00 61.16 100.00 98.69 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 99.65 84.62 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 99.88 100.00 100.00 100.00 100.00 100.00 100.00

62.80 80.00 80.00 80.00 80.00 80.00 83.31 55.04 98.56 97.46 95.14 96.36 100.00 80.00 80.00 87.47 80.04 80.00 99.74 79.72 67.70 80.00 99.33 97.28 97.72 100.00 95.42 94.36 81.49 92.02 95.01 85.00 100.00 99.88 100.00 100.00 100.00 100.00 100.00 100.00

62.80 80.00 80.00 79.54 70.00 74.60 83.31 55.04 98.56

97.35 • 90.32 97.97 98.88 80.00 70.00 87.47 75.93 80.97 99.74 77.79 67.70 80.00 99.33 87.20 97.66 98.38 93.86 92.50 81.49 91.02 89.49 85.00 100.00 99.88 100.00 100.00 100.00 100.00 100.00 100.00

62.80 BO .00

80.00 79.46 69.62 74.59 83.31 55.04 98.56 97.35 90.32 97.97 98.88 80.00 69.72 87.47 75.93 62.40 99.74 77.67 51.80 80.00 99.33 87.19 97.66 98.38 94.19 92.50 81.49 91.02 89.49 85.00 100.00 99.88 100.00 100.00 100.00 100.00 100.00 100.00

62.80 60.08 75.86 67,72 66.20 74.47 83.31 55.04 98.56 97.35 90.32 97.97 98.88 56.90 60.25 87.47 75.92 62.40 99.74 77.02 51.80 67.18 99.33 87.15 97.65 98.38 94.19 92.50 80.12 91.02 89.04 85.00 80.00 96.08 98.00 94.01 96.63 90.00 99.03 100.00

62.80 60.08* 75.86 67.72 66.20 74.47 83.31 55.04 98.56 97.35 90.32 97.97 98.88 56.90* 60.25* 87.47 75.92 62.40 99.74 77.02 51.80 65.73# 99.33 87.15 97.65 98.38 94.19 92.50 80.12 91.02 88.93* 85.00 76.92 96.08 97.94# 94.01 96.63 90.00 99.03 72.14

5. Bharat Petroleum Corpn. Ltd.100..00 80.00 70.00 69.62 66.20 66.20 6. Bongeigaon Refineries & Petro.Ltd. 100.0080.00 74.60 74.59 74.47 74.47 7. CMC Ltd. 100.0083.31 83.31 83.31 83.31 83.31 8. Cochin Refineries Ltd. 61.1655.04 55.04 55.04 55.04 55.04 9. Dredging Corpn. Ltd. 100.0098.56 98.56 98.56 98.56 98.56 m. Fert. & Chem. (Travancore) Ltd. 98.6997.46 97.35 97.35 97.35 97.35 11. NNT Ltd. 100.00 95.14 • 90.32 90.32 90.32 90.32 12. Hindustan Cables Ltd. 100.0096.36 97.97 97.97 97.97 97.97 13. Hindustan Copper Ltd. 100.00100.00 98.88 98.88 98.88 98.88 14. Hindustan Organic Chemicals Ltd. 100.0080.00 80.00 80.00 56.90 56.90* 15 Hnduatan Petroleum Corpn. Ltd. 100.0080.00 70.00 69.72 60.25 60.25* 16. Hindustan Photof Urns Mfg. Co. Ltd. 100.0087.47 87.47 87.47 87.47 87.47 17. Hindustan Zinc Ltd. 100.0080.04 75.93 75.93 75.92 75.92 15. Indian Petrochemicals Corpn. Ltd. 100.0080.00 80.97 62.40 62.40 62.40 W, 2ndian Railway Const. Co. Ltd. 100.0099.74 99.74 99.74 99.74 99.74 n. Indian Telephone Industries Ltd. 99.6579.72 77.79 77.67 77.02 77.02 Z\. Madras Refineries Ltd. 84.6267.70 67.70 51.80 51.80 51.80 22. Mahanagar Telephone Nigam Ltd. 100.0080.00 80.00 80.00 67.18 65.73# 23. Minerals & Metals Trading Corpn. 100.0099.33 99.33 99.33 99.33 99.33 Zk. National Aluminium Co. Ltd. 100.0097.28 87.20 87.19 87.15 87.15 3*. National Fertilizers Ltd. 100.0097.72 97.66 97.66 97.65 97.65 16. National Mineral Oev. Corpn. Ltd. 100.00100.00 98.38 98.38 98.38 98.38 £7. Neyveli Lignite Corporation 100.0095.42 93.86 94.19 94.19 94.19 m. Rashtriya Chemicals & Fertilisers 100.0094.36 92.50 92.50 92.50 92.50 29. Shipping Corporation of India 100.0081.49 81.49 81.49 80.12 80.12 30. State Trading Corpn. 100.0092.02 91.02 91.02 91.02 91.02 31. SteeUuthority of India Ltd. 100.0095.01 89.49 89.49 89.04 88.93* 32. Videsh Sanchar Nigam Ltd. 100.0085.00 85.00 85.00 85.00 85.00 S3. Container Corporation of India 100.00100.00 100.00 100.00 80.00 76.92 M. ndfan Oil Corporation 99.8899.88 99.88 99.88 96.08 96.08 35. Oil & Natural Gas Corporation 100.00100.00 100.00 100.00 98.00 97.94* 16« Engineers India Ltd. 100.00100.00 100.00 100.00 94.01 94.01 Wf\ Gas Authority of India Ltd. 100.00100.00 100.00 100.00 96.63 96.63 S. Indian Tourism & Dev. Corn. 100.00100.00 100.00 100.00 90.00 90.00

39. fCudermukh Iron & Ore Company Ltd. 100.00100.00 100.00 100.00 99.03 99.03 40. Industrial Oev. Bank of India 100.00100.00 100.00 100.00 100.00 72.14

# Figures are provisional, as theshares sold In October 1995 are yet tobe transferred in favour of successful bidders.

• These companies-had floated publicissues. Percentage of Govt. holding after proposed public Issue Is not known.

Source: Reproduced, Government of India,, New Delhi: Economic Survey, 1995-96, p. 121, Box 7.4.