Industries Development and Regulation

Pratima Narayan Faculty in Law

Introduction

Object of industrialisation to attain higher levels of economic well-being GLoalisation, liberalisation and deregulation Adaptability of each country depends largely on ability of each country to cope with the liberalised trade, finance and technology growth.

Industrial Policy initiatives - to provide the stimulus for accelerating growth, industrial efficiency and international competitiveness. Increase in public-private participation Restrictions on expansion of large industrial houses have been removed. Paradigm shift from mere regulation to development

Foreign Trade Policy (FTP) 2004-2009 as a integrated approach for the development of Indias export and import policies
FDI encouraged extensively in the last 20 years Foreign investment brings with it added advantages of technology transfer, marketing expertise, introduction of modern managerial techniques and new possibilities for promotion of exports.

Industrial Policy Resolutions in India An Overview

Industrial Policy Resolution, 1948

a. b.

Post-independence need was felt for a dynamic national policy Objectives continuous increase in production and productivity secure equal distribution of wealth Historic document in terms of identifying the economic problems faced by India - recognizing the importance of increase in production and recognizing the role of state in the development of industries.

Emphasises on 1. Securing a continuous increase in production 2. Equitable distribution 3. State must play progressively active role in the development of Industries 4. Besides arms and ammunition, atomic energy and railway transport, which would be the monopoly of the Central Government, the State would be exclusively responsible for the establishment of new undertakings

5. Industrial field was left open to private enterprise though it was made clear that the State would also progressively participate in this field
6. Resolution emphasized on the role of private sectors in the economy 7. The Resolution also recognized the importance of participation of foreign capital and enterprise, particularly in relation to industrial technology and knowledge, for the rapid industrialization of India.

Industrial Policy Resolution, 1956

Recognized the Directive Principles of State Policy enshrined in the Constitution Recognized the need to increase the rate of economic growth and speed up industrialization.

Highlights
1. Improving living standards and working conditions for the mass of the people. 2. To reduce disparities in income and wealth. 3. To prevent private monopolies and concentration of economic power in different fields in the hands of small numbers of individuals. 4. The State will progressively assume a predominant and direct responsibility for setting up new industrial undertakings and for developing transport facilities. 5. Undertake State trading on an increasing scale. 6. At the same time private sector to have the opportunity to develop and expand. 7.The principle of cooperation should be applied whenever possible and a steadily increasing proportion of the activities of the private sector developed along cooperative lines. 8. The adoption of the socialist pattern of society as the national objective. 9. The need for planned and rapid development. 10. All industries of basic and strategic importance, or in the nature of public utility services, should be in the public sector. 11. It is always open to the State to undertake any type of industrial production.

12. Categorization of industries into three groups: i) The first category to comprise of industries the future development of which will be the exclusive responsibility of the State. ii) The second category to consist of industries, which will be progressively state owned and in which the State will, therefore, generally take the initiative in establishing new undertakings, but in which private enterprise will also be expected to supplement the efforts of the State. iii) The third category to include all the remaining industries, and their future development will, in general, be left to the initiative and enterprise of the private sector. 13.The Government of India stressed the role of cottage and village and small-scale industries in the development of the national economy. 14. Disparities in levels of development between different regions to be progressively reduced.

Industrial Policy Resolution, 1973

1. 2.

3.

The Resolution emphasized on a closer interaction between the agricultural and industrial sectors. Highlights of the Resolution: The Resolution accorded the highest priority to the generation and transmission of power. An exhaustive analysis of industrial products was made to identify products, which are capable of being produced in the small-scale sector. The list of industries exclusively reserved for the small-scale sector was expanded from 180 items to more than 500 items.

4. Within the small scale sector, a tiny sector was also defined with investment in machinery and equipment upto Rs.1 lakh and situated in towns with a population of less than 50,000 according to 1971 census figures, and in villages. 5. Special legislation to protect cottage and household industries was also proposed to be introduced. 6. It was also decided that compulsory export obligations, merely for ensuring the foreign exchange balance of the project, would no longer be insisted upon while approving new industrial capacity. 10. In the areas of price control of agricultural and industrial products, the prices would be regulated to ensure an adequate return to the investor.

Industrial Policy Statement, 1977

De-centralization and role of small scale and cottage industries was the hallmark Highlights: 1. Highlighted on producing inputs needed by a large number of smaller units and making adequate marketing arrangements. 2. The nucleus plant would also work for upgrading the technology of small units. 3. The Government would promote the development of a system of linkages between nucleus large plants and the satellite ancillaries.

4. To boost the development of small-scale industries, the investment limit in the case of tiny units was enhanced to Rs.2 lakh, of small-scale units to Rs.20 lakh and of ancillaries to Rs.25 lakh. 5. A scheme for building buffer stocks of essential raw materials for the Small Scale Industries was introduced for operation through the Small Industries Development Corporations in the States and the National Small Industries Corporation in the Centre. 6. Industrial processes and technologies aimed at optimum utilisation of energy or the exploitation of alternative sources of energy would be given special assistance, including finance on concessional terms.

Industrial Policy Statement, 1980

Focused on the need for promoting competition in the domestic market, technological advancement and modernization. Foundation was laid for an increasingly competitive export base and also encouraged foreign investment in high technology areas.

New Industrial Policy, 1991

Came into effect on 24th July 1991 Thrust on development and utilisation of indigenous capabilities in technology and manufacturing as well as its upgradation to world standards Highlights: 1. Pursue a sound policy framework encompassing encouragement of entrepreneurship, development of indigenous technology through investment in research and development, bringing in new technology, dismantling of the regulatory system, development of the capital markets and increasing competitiveness for the benefit of the common man. 2. The spread of industrialisation to backward areas of the country to be actively promoted through appropriate incentives, institutions and infrastructure investments.

3. Government to provide enhanced support to the small-scale sector so that it flourishes in an environment of economic efficiency and continuous technological up gradation. 4. Foreign investment and technology collaboration encouraged to obtain higher technology, to increase exports and to expand the production base. 5. The Government endeavored to abolish the monopoly of any sector or any individual enterprise in any field of manufacture, except on strategic or military considerations and open all manufacturing activity to competition. 6. To ensure that the public sector plays its rightful role in the evolving socioeconomic scenario of the country. The Government ensured that the public sector would run on business lines as envisaged in the Industrial Policy Resolution of 1956 and would continue to innovate and lead in strategic areas of national importance.

7.The Government also ensured that it would fully protect the interests of labour, enhance their welfare and equip them in all respects to deal with the inevitability of technological change. 8. In order to encourage Workers participation in management, Workers cooperatives were encouraged to participate in packages designed to turn around sick companies. 10. Need was also felt to preserve the environment and ensure the efficient use of available resources. 11. In pursuit of the above objectives, the Government took up a series of initiatives in respect of the policies relating to industrial Licensing, foreign investment, foreign technology agreements, public sector policy, MRTP Act etc. 12. With a view to ensure efficient allocation of resources, banking and capital markets also came in for major economic reforms in terms of substantial interest rate deregulation, liberal licensing of private sector banks, expansion of branch networks of foreign banks, de-linking capital market from direct government controls, transparency and wider investor protection guidelines. 13. Separate policy measures were announced in the form of specific packages aimed at upliftment of small scale and cottage industries as well as 100% export-oriented units, and units located in the Export Processing Zones and Technology parks and Special Economic Zones.

Industries (Development and Regulation) Act, 1951

Preamble to provide for the development and regulation of certain industries. Industries are specified in the first schedule to the Act, known as Scheduled Industries. Act is implemented through the Development of Industrial Policy and Promotion, Ministry of Commerce and Industry on whom the power to develop and regulate scheduled industries in vested by the Central Government

Scheduled Industries

Contains list of 38 industries Include Metallurgical Industries, Fuels, Boilers, Prime Movers, Electrical Equipment, Telecommunications, Transportation Equipment, Industrial Machinery, Machine Tools, Agricultural Machinery, Earth Moving Machinery, Commercial and Office Equipment, Medical and Surgical Appliances, Instruments, Fertilisers, Chemicals, Drugs and Pharmaceuticals, Textiles, Paper, Sugar, Food Processing, Vegetable Oils and Vanaspati, Soaps, Rubber goods, Leather and Leather goods, Glass, Ceramics, Cement, Timber products, defence industry etc.

Highlights

Act is mainly divided into two parts: (i) those dealing with developmental aspects and (ii) those dealing with regulatory aspects of scheduled industries. Introduces the Central Advisory Council and Development Councils and such other facilities to secure developmental activities. Registration aspects include a system of registration of existing undertaking, licensing of new undertakings for producing new articles and for substantial expansion or change of location of existing undertaking.

Envisages balanced industrial growth all over India and optimum use of available resources and infrastructure. IDR Act also sees that the industries do not suffer due to financial mismanagement or technical inefficiency or operational defects. In certain cases Act provides for investigation by Central Government in cases of mismanagement and misadministration. The Act also deals with taking over of direct management and control in appropriate cases. Empowers Central Government to grant exemption to any undertaking or scheduled industries from application of all or any of the provisions of the Act, Rules and orders made thereunder.

Central Advisory Council

a. b. c. d.

For advising the Government on matters concerning development and regulation of Scheduled Industries Comprises of a Chairman and such other members from among persons who are in its opinion capable of representing interests of owners of industrial undertakings in scheduled industries persons employed in industrial undertakings in scheduled industries consumers of goods manufactured or produced by scheduled industries and such other class of persons including primary producers

Development Council
a.

b.

c.

d.

Comprises of such members Persons capable of representing the interests of owners of industrial under-takings in the scheduled industry or group of scheduled industries persons having special knowledge of matters relating to the technical or other aspects of the scheduled industry or group of scheduled industries persons capable of representing the interests of persons employed in industrial undertakings in the scheduled industry or group of scheduled industries and persons not belonging to any of the aforesaid categories, who are capable of representing the interests of consumers of goods manufactured or produced

Functions of Development Council

Recommending targets for producing, Coordinating production programmes and reviewing progress from time to time Promoting standardization of products, etc.

Levy and Collection of Cess

a. b. c.

d.

IDR Act empowers Central Government to levy and collect cess on goods manufactured and produced in any specified scheduled industry and hand over the proceeds to the Development Council established for that industry. Development Council utilises the proceeds for Promotion of scientific and industrial research To promote improvements in design and quality with reference to the products To provide for the training of technicians and labour in such industry or group of industries and To meet such expenses in the exercise of its functions and its administrative expenses as may be prescribed.

Regulation of Scheduled Industries

Achieved by registration of existing industrial undertakings, licensing of new industrial undertakings and licensing for producing or manufacturing new articles. Purpose of regulation is to channelise the resources of the country in a manner condusive to the overall industrial development of the country.

Circumstances Where Registration is not necessary

If the undertaking is a small-scale industrial undertaking If the undertaking is otherwise exempt from licensing/registration provision of the Act Where the undertaking concerned is not satisfying the definition of the term factory under the Act.

Small Scale and Ancillary Industries

Section 11B The Central Government may, with a view to ascertaining which ancillary and small scale industrial undertakings need supportive measures, exemptions or other favourable treatment under this Act to enable to maintain their viability and strength so as to be effective ini. promoting in a harmonious manner the industrial economy of the country and easing the problem of unemployment, and ii. securing that the ownership and control of the material resources of the community are so distributed as best to subserve the common good.

At present 797 items are reserved for exclusive manufacture in the small scale sector. Section 29B of the Industries Development and Regulation Act, 1951, deals with policy of reservation in the small scale sector.

Ancillary Industry
engaged in i. manufacture of parts, components sub assemblies, tooling or intermediates; or ii. rendering of services, of supplying or rendering, not less than fifty per cent of its production of its total services, as the case may be, to other units for production of other articles.

Factors Relevant in Ascertaining Small Scale or Ancillary Industry

the investment by the industrial undertaking in
i. plant and machinery, or ii. land, buildings, plant and machinery;

the nature of ownership of the industrial undertaking the smallness of the number of workers employed in the industrial undertaking; the nature, cost and quality of the product of the industrial undertaking; foreign exchange, if any, required for the import of any plant or machinery by the industrial undertaking; and such other relevant factors as may be prescribed..

Sub-sectors under Small Scale Sectors

Tiny enterprises. Export Oriented Units. Small Scale Service and Business Enterprises(SSSBE) Women Enterprises.

Investment Ceiling

Small scale industry - investment in fixed assets in plant and machinery whether held on ownership terms or on lease or by hire purchase does not exceed Rs. 1 crore. Ancillary industry Rs. 1 crore In calculating the value of plant and machinery, the original price paid by the owner, irrespective of whether the plant and machinery are new second hand, will be taken into account.

Exclusion from Valuation

Cost of equipment such as tools, jigs, dies, moulds and spare parts for maintenance etc. Cost of R&D equipment and pollution control equipment In the case of imported machinery, import duty will be included, but not the miscellaneous expenses like transportation from the port to the site the factory Cost of generation sets, if any, installed Charges paid for technical know-how for erection of plant and machinery Cost of fire fighting equipment etc.

Situations in which medium of large units can manufacture items reserved for exclusive production in the small scale sector

Medium/large industry to obtain COB (Carry-on-Business) license When existing small scale units manufacturing a reserved item graduate by their process of growth, into medium or large scale undertaking, then they have also to obtain a COB license to enable them to continue manufacturing of such reserved items. Medium of large industrial units are allowed to take up manufacture of items reserved for the SSI, provided they undertake to export a minimum of 50% of their production. Such units can manufacture the reserved item up to the capacity endorsed on the license.

There are only few industries that require licence. Industrial undertakings exempt from obtaining an industrial licensing are however required to file the Industrial Entrepreneur Memorandum (IEM) in Part A with the Secretariat of Industrial Assistance (SIA).

Locational Policy and Environmental Clearance

Free to select the location of a project Proposed location should be atleast 25 KM away from the Standard Urban Area limits To obtain statutory clearances relating to Pollution Control and Environment for setting up an industrial project and expansion/modernization of existing projects. Environmental Protection Act, 1986 identifies 32 projects in which environmental clearance is mandatory.

Take-over of Management of industries - empowers in the Central Government to assume management or control of an industrial undertaking in certain cases.

Power to Control Supply, Distribution, Price etc.

Penalties
1. Failure to get an existing industrial undertaking registered - Section 10(1) 2. Failure to produce certificate of registration issued prior to the commencement of the IDR Act for entering therein the productive capacity _ Section 10(4) 3. Failure to obtain industrial license for setting up a new industrial undertaking Section 11(1) 4. Failure to get a license for manufacture of a new article Section 11(A) 5. Failure to obtain a COB license, permission for changing location, effecting substantial expansion etc. Section 13(1) 6. Failure to comply with directions issued under Section 16 of the Act after investigation 7. Failure to comply with directions issued under Section 18B(3) by the person or body authorized to take over the management of an industrial undertaking. 8. Any order made under Section 18G in order to control supply, distribution, price etc. of certain articles.