Indian Economy, 5th edition (48 page)

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 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 ‘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 the private industries in the country.

3.
The central government had always the option open to set up an industry in any of these 12 industrial areas. This happened in the coming years via two methods—first, the
nationalisation
and second, the
joint sector
.

4.
Industrial Policy Resolution, 1956 (30 Oct.).

5.
V.M. Dandekar,
Forty Years After Independence
in Bimal Jalan edited
Indian Economy: Problems and Prospects,
Penguin Books, N. Delhi, Revised Edition, 2004, p. 63.

6.
The statement we get in the
Second Five Year Plan (1956–61),
too.

7.
Bimal Jalan,
India’s Economic Policy,
Penguin Books, N. Delhi, 1992, p. 23.

8.
V.M., Dandekar, op.cit, 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 the raw materials—that is why such a name 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) did also point out the short comings of the industrial licencing policy perpetuated since 1956.

12.
Dutt Committee,
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 the 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), Government of India, N. Delhi, 1969.

16.
The FERA got executed on January 1, 1974. The private sector in the country always complained against this act and doubled its official intention.

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 by the MNCs. The MNCs invested via
technology transfer route.
Basically, this was an attempt to make up 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 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 the foreign direct investment in the reform era post-1991.

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 (Rosser & Rosser,
Comparative Economics in A Transforming World,
PHI & MIT Press, N. Delhi, 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 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 the liberalisation.

22.
Vijay Joshi and I.M.D. Little,
India’s Economic Reforms, 1991–2001,
OUP: Clarendon Press, London, 1996, p. 17.

23.
Economic Survey, 1990–91 & 1991–92,
N. Delhi. GOI, MoF.

24.
Sach, Varshney and Bajpai, op.cit., p. 2.

25.
‘Economic Reforms: Two Years After and the Task Ahead’,
Discussion Paper, Ministry of Finance, Department of Economic Affairs, GoI, N. Delhi, 1993, p. 6.

26.
Ibid.

27.
Bimal Jalan,
India’s Economic Crisis: The Way Ahead,
OUP, Delhi, 1991, p. 2–12.

28.
Sach, Varshney and Bajpai, op.cit., p. 2.

29.
Rakesh Mohan,
Industrial Policy and Controls
in the Bimal Jalan edited,
The Indian Economy: Problems & Prospects,
op.cit., p. 92–123.

30.
In 1985–86 there were just 64 industries under the compulsory licencing provision. By the fiscal 1996–97 the number remained six (Economic Survey, 1996–97 GoI, N. Delhi.). Though the numbers are still six, all these six 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.
Economic Survey, 1994–95,
GoI, N. Delhi.

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 S.E. Asian currency crisis when India had almost no shocks
(Economic Survey, 1996–97,
GoI, N. Delhi
).

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 the entrepreneurship of 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
in the
Bimal Jalan
edited
The Indian Economy: Problems & Prospects,
op. cit. 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
(eds.)
India in the Era of Economic Reforms,
OUP, op. cit., 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 the 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 next General Elections—development becoming an issue of real politics! Let’s see what happens.

40.
India 1991,
Pub. Div., GoI, N. Delhi.

41.
The de-reservation of industries had allowed the private sector to enter the areas hitherto reserved for the Central Government. It means in 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, the total governments have been using the disinvestment proceeds to fulfill the fiscal deficits in every budget at least up to 2000–01. From 2000–01 to 2002–03 some of the proceeds went for some social sector works or labourer’s security. After 2003 India has a National Investment Fund to which the proceeds of disinvestment automatically flow and is not supposed as a
capital receipt
of the Union Government. This idea of Indian experiment with disinvestment was articulated by
Sach, Varshney and Bajpai,
op.cit., p. 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 the 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
Samuelson and Nordhaus
in
Economics,
op.cit., 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 the controversies.