Page 56 - DMGT401Business Environment

Unit 2: Industrial Policy and Regulatory Structure

All areas of industrial activity excluding of areas listed in Annexure I were opened for the Notes
private sector. Six items were included in this list: Arms and ammunition and allied items,
defence aircraft and warships, Atomic Energy, Coal and Lignite, Mineral Oils, Minerals
specified in Schedule to the Atomic Energy (Control of Production and Use) Order, 1953
and Railway Transport. But today only Railway Transport and Atomic Energy and its
minerals are reserved for the public sector. In others, private equity and even FDI are
allowed though proper procedures.
Entrepreneurs are required to submit an Industrial Entrepreneurs Memorandum (IEM) to
the Secretariat for Industrial Approvals (SIA) which acknowledges receipt.

Phased Manufacturing Programmes (PMP), have been abolished for all new industries
and subsequently for all existing projects. Under PMP a concerned enterprise has to
progressively replace imported material, parts and components with materials parts and
components produced in-house or by other Indian firms.
An Investment Promotion and Project Monitoring Cell is set up in the Department of
Industrial Policy and Promotion, Ministry of Industrial to provide information to
entrepreneurs and to monitor progress of implementation of various projects.

Delicensing has been the key feature of Industrial Policy of 1991. This provided a big
impetus to investment and employment creation in the coming years.
2. Foreign Investment: This was a revolutionary step taken by the Rao government. In the
first 50 years of India's economic planning nobody ever imagined that one day a socialist
economy like India would provide free access to foreign equity. Though the 1956 Industrial
Policy accepted the role of foreign equity, since independence we have always looked at
foreign equity as some sort of economic slavery. But in last 50 years, the enormous
underutilisation of resources, unemployment, poor infrastructure and pervasive poverty
compelled the government to open the doors for foreign equity. Today, India welcomes
foreign equity in almost every sector. In 1991 it allowed:
(a) Automatic approval for foreign equity participation upto 51% granted in high
priority industries listed in Annexure IV of Industrial Policy, 1991.
(b) Foreign trading companies are allowed to invest upto 51% in Indian trading houses
engaged in export activity.

(c) In hotel and tourism related industry upto 51% foreign equity is allowed.
(d) Even in the mining sector foreign investment upto 50% was allowed.

!

Caution In fields where foreign investment was not allowed through the automatic route,
either because it doesn't cover the foreign exchange requirement for import of capital
goods, or if it requires more than 51% equity, or if it is not a high priority area, proposals
have to be submitted to the Secretariat of Industrial Approvals (SIA) or Foreign Investment
Promotion Board or to Indian Embassies or Consulates abroad.

Use of foreign brands names/trade marks for sale of goods in India is permitted. Initially
all projects involving foreign equity upto 51% in high priority industries were required to
adhere to dividend balancing conditions. Earlier, outflow of foreign exchange on account
of dividend payments had to be balanced by export earning for a period of seven years
from the date of commencement of production. Now the dividend balancing condition
has been withdrawn.

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