business environment-regulatory role of govt

Regulatory Role of Government

Module-3

04/08/23 1Surana College PG Centre

Political System

Forms of Political System

Democratic – Power is vested with people

Totalitarian- Power is vested with one or a group of people

Role of Political SystemPolitical system in a country Decides Promotes Encourages Shelters Directs and Controls

the Business Activity


Role of Individual Constituents of Political System

Legislature Government Judiciary

Policy Making Directing Settle Legal Disputes

Law Making Controlling Judicial Review

Budget approval

Implementing

Executive Control

Acts as a mirror of public opinion

• Constituents of Political System

Legislature

Executive/

Government

Judiciary


Impact of Government on BusinessGovernment’s Action Government’s Motive Impact on Business

Labour Laws ( Role – Direct / Control )

Ensure Social security, Improving Standard of Living, Working condition

Cost of production increases, Affects Profitability & Competitiveness

Tax Laws ( Role – Direct / Control )

Generating revenue for re-investment , saving affected people, industry

Cost of production increases, Affects Profitability & Competitiveness

Commercial Laws ( Role – Direct / Control )

To ensure rights of parties Increased business confidence

Tariffs / Subsidies / Import ban / Export ban( Role – Encourage / Shelter )

To protect local industries from global competition

Local industries compete globally

Products reserved for SSIs & Public sectors ( Role – Decides / Promotes )

To promote mixed economy

Limited area of operation , could not be diversified, Vertical Integration not possible ,cost increase04/08/23 4Surana College PG Centre

Industrial Policy

1948, 1956 , 1991

Industrial Policy – 1948 Accepted Importance of both Private &

Public sectors Divided industries into 4 categories

Recognised importance of Foreign Capital Recognised importance of SSIs’

Industrial policy Indicates

the relationship between

Government & Business

It contains guidelines for

govt’s administrative action

it has no quantitative

target

It is not passed as a Law

Violation of Industrial

Policy cannot be challenged

in Court

State Monopoly Arms, ammunitions , Atomic Energy, Rail transport

Mixed Sector Coal, Iron , Steel , aircraft, ship building, Manufacture of Telecom, Aircraft , Wireless, oil, mineral

Government Control Automobile, Chemical, Textile

Private Control All other Industries


Industrial Policy

1956

Industry ClassificationsSchedule-A: ( 17 industries ) – Govt. Arms , Ammunitions , Defence equipments ,

atomic energy , iron & steel , Heavy plant &Machinery, Heavy electrical plant , Coal & lignite, mineral oil, mining ,aircraft , air & rail transport, Telecom cables, electricity generation & distribution , ship building

Schedule- B: ( 12 industries ) Private & Govt.machine tools , Ferro-alloys , drugs ,fertilizers , synthetic rubber , chemical pulp ,road transport , sea transport , carbonisation of coal , mining of aluminum & non-ferrous metals.

Private sectorothers

Objective:Accelerate Economic growth rateExpand public sectorIncrease employment opportunitiesPrevent creation of monopolyExpand Cottage,village,SSIs


Industrial Policy

1991

Policy Initiatives

1. Industrial Licensing Policy

2. Public sector Policy

3. Foreign Investment

4. Foreign Technology Agreements

5. MRTP Act

Objective:Remove regulatory systemIncentives for industries in backward areasTo Run the PSUs on business linesEncourage EntrepreneurshipLink Indian economy to global marketDevelop indigenous technologyPromote productivity & employment generation


Industrial Policy

1991

Industrial Licensing - It is required to establish, to manufacture goods at a specific location before 1991.

In the new policy licensing requirement was abolished except for

1. Distillation & Brewing of alcoholic drinks2. Manufacturing Cigarettes & Tobacco substitutes3. All types of electronic aerospace & Defence equipments4. Industrial Explosives5. Certain Hazardous chemicals

Exempted factories have to furnish a memorandum to Industries department

Location: In the new policy projects can be established at any

location except cities . In a city of 1 million population it has to be established 25kms away from city.

Industrial

Licensing

Policy


Industrial Policy

1991

Number of Industries reserved for public sector reduced to 8 and then to 2 ( Atomic energy & Railway )

Growth of PSUs in the following Priority sectors1.Essential infrastructure Goods & Services2. Exploration & Exploitation of Oil & Mineral resources3. Strategic Defence equipments4. Technology development & building of manufacturing capabilities in areas which are crucial for economic development

Autonomy through MOU – Navaratnas Bringing down government equity to 26 %

in non-Priority sector PSUs Close down PSUs which can not be revived Fully protect the interest of workers

Public

Sector

Policy


Industrial Policy

1991

Foreign Investment allowed up to 51 % of Equity capital in FERA companies

Foreign Investment allowed up to 26 % of Equity capital in Defence productions sector.

Up to 100 % in certain sectors ( real estate )

Stock market opened for foreign investment

EXIM Policy liberalised , tariffs reduced , lifted import restrictions

Foreign exchange rate policy liberalised , Rupee was made fully convertible on current account and then recently partly on capital account.

Foreign

Investment


Industrial Policy

1991 Foreign technology agreement

under automatic route for priority sectorPriority sectors are -Infrastructure , Exploration , Defence products

Foreign

Technology

Agreement


Industrial Policy

1991 The government will not scrutiny the

investment decisions of MRTP companies

Prior approval of MRTP companies for

expansion not required

Restrictions on merger, acquisition and

transfer of shares will be replaced

MRTP commission will be strengthened to

take action against restrictive & unfair

trade practice. MRTP commission will be

empowered to enquire into the complaints

of customers

MRTP Act is replaced by Competition Law

MRTP ActMonopolies and

Restrictive Trade Practices

Act


Public Sector

Public sector enterprise is an undertaking owned & managed by

Government.

244 enterprises are public sector enterprises under the control of

Central Government

Total investment Rs. 4,21,000 Cr.

1100 are State Public sector enterprises with 50,000 Cr. Investment

These PSUs accounts for 25% of GDP & One-third of export

PSUs accounts for 70 % of workers employed in organised sector


Public Sector

Objective:

Help in rapid economic growth

Earn return on investment & generate resources for development

Create employment opportunity

Assist & develop ancillary & small scale industries

Promote redistribution of income & wealth


Public Sector

Organisation of Public sector Units:

Public enterprises are organised in the following forms:

1. Ministry

2. Departmental Undertakings

3. Government Company

4. Public corporation

5. Holding company


Public Sector

Organisation of Public sector Units:

Ministry Management by a ministry, Railways, Budget to be approved by Parliament, Headed by Minister and management board

Departmental Undertaking

It is directly subordinate to ministry, ICF, Ordnance factory, financed by annual appropriation from treasury, revenues are paid into treasury. Employees are civil servents, can be sued by following the procedure to sue the government

Government Company

51% or more of equity owned by government, created under Company Law, Directors are appointed by Govt., fund from government


Public Sector

Navaratnas:

In 1997 govt. granted autonomy to 9 public sector units so as to

support them to become global companies. These 9 companies

are BHEL, BPCL, HPCL, IOC, ONGC, SAIL, VSNL, NTPC, IPCL. Later

GAIL ,MTNL,BEL,HAL were given the navaratna status.

These companies are free to decide upon joint venture, capital

expenditure, set up PSEs, set up subsidiaries / office in foreign

countries, raise funds from capital market, set alliance. They

enjoy substantial managerial & operational autonomy


Privatisation

Privatisation :Privatisation means transfer of ownership and /or management of an

enterprise from the public sector to the private sector.Disinvestment:Disinvestment means sale of shares of public sector enterprises to outsiders.

It is one of the method of privatisation.Purpose of Privatisation 1. To increase efficiency2. To reduce the monopoly of govt.3. To encourage private & foreign investment4. To reduce the state’s administrative work5. To encourage wider ownership of public


Privatisation

Method of Privatisation in India:1. Disinvestment Route

This involves sale of equity shares of public sector units to outsiders. Disinvestment policy was introduced in 1991-92. Up to 20% of

equity in select PSUs sold to Public sector Institutional investors like LIC, UTI .

In 1993 Disinvestment committee under the chairmanship of C.Rangarajan was set up to advise on the mode of disinvestment.

1996 Disinvestment commission was set up and 58 PSUs were recommended to shift to private management without sale of shares

1999 – PSUs were classified under Strategic & non-Strategic areas for disinvestment purpose.

Strategic Sectors – Defence equipments , arms , ammunitions, air crafts, warships, atomic energy , railways.


Privatisation

Method of Privatisation in India:1. Disinvestment Route….Cont. Rangarajan Committee Report Recommendations:

1. Industries reserved for PSUs – Up to 49% of equity can be sold2. PSUs having dominant market share – Up to 74 % can be sold3. In all other cases equity can be sold up to 100%4. Best disinvestment method is offering equity to public at a fixed price 5. Once shares of PSUs are traded in Stock market ‘Fixed price ‘ method can be used . Untill such time sale can be made through auction

Disinvestment Commission:1. Was set up in 1996 , to determine extent of disinvestment, to select the PSU to be divestd, to recommend route to disinvestment, to supervise overall sale .

As on date 76 PSUs were divested and Rs. 49,000 cr is raised.


Privatisation

National Investment Fund:Set up in 2005 , into which the sale proceeds of PSUs will be

credited. This fund will be used to develop Infrastructure & Education, health, employment generation and in capital projects.


Small & Medium Enterprises ( SMEs)

Micro Industries

Small Industries

Medium Industries

THE MICRO, SMALL AND MEDIUM ENTERPRISES DEVELOPMENT ACT, 2006

Enterprise means an industrial undertaking or a business concern or any other establishment, by whatever name called, engaged in the manufacture or production of goods, in any manner pertaining to any industry specified in the First Schedule to the Industries Development and Regulation Act, 1951.


Small & Medium Enterprises

Type Micro Small Medium

ManufacturingPlant & Machinery

<=Rs.25 LP&M> Rs.25 L <=500

P &M>Rs.500 L< =1000

ServiceEquipment<=Rs.10 L

Equipment>Rs. 10 L<=200

Equipment>Rs. 200 L<=500




Role of SMEs’

Dynamic Economy

Socio-Economic Development

Accounts for 35% – Industrial

Production40% - Export60% - Employment



Importance

Provide – Increased employment

Require Low gestation period

Easy to set up in rural & backward areas

Need Small market

Encourage Local Entrepreneur

Influence standard of living of people



• Government Policy Initiatives

1991

• Protection Promotion1. Aim : Promotion & Strengthening of SMEs’

2. Changes in Investment Limit

3. 24 % Equity Participation by other Companies

4. Integrated Infrastructure development

5. Encouraging Industry associations

6. Common Testing facility

7. Productivity Training



• Government Policy Initiatives

1999

1. Aim : Promotion of SMEs’

2. Changes in Investment Limit

3. De-reservation of items

4. Foreign participation

5. Establishment of Growth centres

6. Export promotion

7. Marketin assistance

8. Incentives for Quality Improvement



• Recent Policy Initiatives

2006

1. THE MICRO, SMALL AND MEDIUM ENTERPRISES

DEVELOPMENT ACT – 2006 ( MSMED Act – 2006 )

2. NATIONAL MANUFACTURING COMPETITIVENESS

PROGRAMME (NMCP)

3. PACKAGE FOR PROMOTION OF MICRO AND SMALL

ENTERPRISES

4 . RESERVATION / DERESERVATION OF PRODUCTS FOR

MANUFACTURE IN THE SMALL SCALE SECTOR


Small & Medium EnterprisesRecent Policy Initiatives


• Objective• PROMOTION

• DEVELOPMENT and

• Enhancement of Competitiveness


Small & Medium EnterprisesTHE MICRO, SMALL AND MEDIUM ENTERPRISES DEVELOPMENT ACT, 2006

• PROMOTION

• DEVELOPMENT

and

• ENHANCEMENT of

Competitiveness

through

• Development of skill• provisioning for technological

upgradation• providing marketing assistance or

infrastructure facilities • Credit Facilities• Measures against Delayed payments



• PROMOTION

• DEVELOPMENT

and

• ENHANCEMENT of

Competitiveness

through

• Development of skill• National Institute for small Industry

Extension & Training - Hyderabad ( NISIET)

• Indian istitute of Entrepreneurship ( IIE ) – Guwahati

• National Institute for Entrepreneurship & small Business Development – Newdelhi ( NIESBUD )

• + 12 other Institutes



• PROMOTION

• DEVELOPMENT

and

• ENHANCEMENT of

Competitiveness

through

• provisioning for technological upgradation

• Small Industries Development Organisation ( SIDO )

• National Small Industries Corporation Ltd. ( NSIC

• National science and technology Entrepreneurship Development Board ( NSTEDB

• National Productivity Council ( NPC )



• PROMOTION

• DEVELOPMENT

and

• ENHANCEMENT of

Competitiveness

through

• providing marketing assistance or infrastructure facilities

Director of export Promotion ( DEP)

Director General of Supply & Disposal

( DGSD )

Rural Industrial & Marketing Corporation

( RIMCO )



• PROMOTION

• DEVELOPMENT

and

• ENHANCEMENT of

Competitiveness

through

• Credit Facilities• Commercial Banks• Counsil of Scientific & Industrial

Research• Small industries Service Institute• National Small industry Corporation



• PROMOTION

• DEVELOPMENT

and

• ENHANCEMENT of

Competitiveness

through

• Measures against Delayed payments

• Micro and Small Enterprises Facilitation Council

• Arbitration and Conciliation Act 1996

• Courts


Small & Medium EnterprisesRecent Policy Initiatives - 2006

2. NATIONAL MANUFACTURING COMPETITIVENESSPROGRAMME (NMCP)

Objective : To support manufacturing enterprises to become Competitive

Schemes : 1. Support for Lean manufacturing (Without Waste &

implementing flow )

2. Promotion of ICT in manufacturing ( Information

communication Tech )

3. Setting up Mini Tool Rooms

4. Encouragement for Quality Management Standards &

Tools

5. Campaign for investment in Intellectual property04/08/23 36Surana College PG Centre

Small & Medium EnterprisesRecent Policy Initiatives - 2006

3. PACKAGE FOR PROMOTION OF MICRO AND SMALL ENTERPRISES

Objective : To Enhance Competitiveness

Package : 1. Legislative backup

2. Credit support

3. Tech & Quality up gradation support

4. Marketing support

5. Empowerment of women entrepreneur


Small & Medium EnterprisesIncentives for SMEs’

Export Incentives: Import Replenishment Licenses (REP)Importers are eligible for REP to import

raw materials and spares which are used to produce export items.

Deemed Export BenefitsProducers who supply the inputs to final

exporters are deemed to be exporters and are eligible for REP

Import Export Pass Book SchemeExportes having good track record are eligible to import duty free raw materials.

Excise Concession:Up to 30 Lakhs for Ssis.

Incentives for backwrad areas: Investment Subsidy:Category –’A’ Districts – up to 25 LakhsCategory –’B’ Districts – up to 15 LakhsCategory –’C’ Districts – up to 10 Lakhs Tax Holidy: Tax deduction upto 6% of profit –

80J for 5 years from production date

EOU, EPZ – exempt fro corporate income tax upto 5 yrs.

CST exemption for Khadi & Village industries for 5 yrs.

100% CST exemption for Tiny,small & large scale industries for 3 – 5 yrs. in different zones


Small & Medium EnterprisesIncentives for SMEs’ …….Contd.

Other Incentives: Interest free loans Price preference Allotment of developed shed, raw

material Land & building at concessional ratesSubsidy for Artisans, handlooms Buying test equipments Capital investment Interest Market / Feasibility studies Power generation R&D works Transport Technical consultancy

Incentives for Handicapped NRIs’ Retired defence personnel Women EntrepreneursExemptions from: Income tax Property tax Stamp duty Sales tax


Small & Medium EnterprisesSickness in SMEs’

• Sickness Definition : • The definition of sickness in SME sector has been changing over time.

The Third Census on SSI SectorKohli Committee:

"A small scale industrial unit is considered as sick when if any of the borrowal accounts of the unit remains substandard for more than six months, i.e., principal or interest, in respect of any of its borrowal accounts has remained overdue for a period exceeding 6 months

ORThere is erosion in the net worth due to accumulated losses to the extent of 50 per cent of its net worth during the previous accounting year,

and The unit has been in commercial production for at least two years."


Small & Medium EnterprisesSickness in SMEs’

• Criteria to identify sickness

In the Third Census, the following criteria were adapted to identify sick/

1. Continuous decline in gross output compared to the previous two financial years;

2. Delay in repayment of loan from institutional sources, for more than 12 months; and

3. Erosion in the net worth to the extent of 50 per cent of the net worth during the previous accounting year.

• Units satisfying one or more of the above criteria have to be treated as Sick unit


Small & Medium EnterprisesSickness in SMEs’- Causes

• Internal

• Anatomical causes

1. Underestimation of Project cost2. Old Technology3. Wrong Site4. Unwanted investment in Fixed

assets5. Defective Plant & Machinery• Operational causes

1. Defective Financial planning2. No R&D planning3. Incapable Management

• External

1. Shortage of supply in inputs

2. Rise in raw material cost3. Radical change in govt.

policy4. Recession in Industry5. Foreign exchange

fluctuations


Small & Medium EnterprisesSickness in SMEs’ - Symptoms

At Implementation Stage Undue delay in implementation Lack of coordination with various agencies

When the project has started operation Increase in level of inventories Increase in rejection rate of finished goods Irregularity in payment of loan Industrial relations Problem

Position of cash credit account Cash credit or overdraft account has been overdrawn or frequently

drawn Returned unpaid cheques Long pending unpaid bills Pledged stocks are overvalued to obtain fund from government Uninsured stocks


Small & Medium EnterprisesSickness in SMEs’ - Cures

• Discover new Products & Markets

• Enhance accessibility to market Information

• More thrust on R & D

• More Professionalism

• Planned training

• Modernising Operation

• More attention to Marketing

• Frequent use of advertisement

• Efforts to collect dues from buyers


Small & Medium EnterprisesSickness in SMEs’ – Role of BIFR

• Under Sick Industries Companies Act -1985 , Board for Industrial and

Financial Reconstruction ( BIFR ) was setup to make the sick companies

viable.

The BIFR can direct a financial institution to prepare a scheme for revival of

sick companies.

The scheme could provide for

1. Financial reconstruction of the company

2. Proper management of sick company by change or takeover the

management

3. Amalgamation of sick company with other company

4. Sale or lease of the sick company

Based on the scheme provided by financial institution BIFR will take action

in line with the High court proceedings.04/08/23 45Surana College PG Centre

Entrepreneur

• A person who creates something new with value and assuming the risk & Reward

• Something New + Value + Risk + Reward


Some Entrepreneurs

Entrepreneur Something New Value Risk Reward

‘Speedee Service System ‘

Demand side Innovation

Mr. Ray Kroc American Way of Life

J. McDonald

‘Pay from future earnings ‘

Demand side Innovation

Credit risk Global productivity

Cyrus McCromick

Pace University

‘Evening College’ Demand side innovation

Perception High –Middle class Education


http://upload.wikimedia.org/wikipedia/commons/9/97/Cyrus_McCormick_engraving.jpg

Types of EntrepreneursType of BusinessBusinessTradingIndustrialCorporateAgriculturalRetailServiceFranchise

OthersImitatingForcedNational/InternationalIntrapreneurImmigrant

MotivationPureInducedMotivatedSpontaneous

GrowthGrowthSuper Growth

Stage of DevelopmentFirst generationModern Classical

Use of TechnologyTechnicalNon-TechnicalProfessionalHigh/Low Tech.

GenderMale, Female

Scale of OperationSmall, Large

AreaRural , Urban


Role of entrepreneurs in Economic Development

• Promotion of capital formation.• Immediate large-scale employment.• Promotion of balanced regional

development.• Reduced concentration of economic power.• Encourages effective resource mobilization.• Promotes export trade.


business environment-regulatory role of govt

Documents