Industry, Labour and Employment

INDUSTRY AN INTRODUCTION #

Industrial sector is one of the crucial sectors of an economy. It converts raw materials into fin- ished products, provides basic infrastructure for the economy, processes agricultural products etc. As an economy grows and develops, industrial sector becomes dominant as can be observed in the case of developed countries. In developed countries most of the population depends on industrial and tertiary sectors rather than on agriculture. Industrialization is thus an important component of a country’s devel- opment process. Being an important component of growth process, the sector has received attention from government through industrial policy. The industrial policy provides guidelines for the for- mulation and implementation of promotional and developmental measures for the growth of indus- trial sector, according to national priorities and socio-economic objectives. The industrial policy mentions the list of industries where private sector can enter and operate and the industries where only government is entitled to operate. It also informs about industrial licensing as to whether a particular industry needs license or not: At present, expect for few categories of industries which are strategically important for the economy, all other industries are open for the private sector to operate. Following are the industries exclusively reserved for public sector: Arms and ammunitions and allied items of defense equipment, defense aircraft and warships; Atomic Energy; Atomic substances as specified by Depart- ment of Atomic Energy; and Railway Transport.

Industrial licensing

The  process  of  industrial  development  and

industrialization was launched under the system of licensing and controls. But with liberalization of the Indian economy since June 1991 which calls for dismantling of controls, licensing system has disappeared except in few strategic areas like:

• Distillation and brewing of alcoholic drinks
• Cigars and Cigarettes of tobacco.
• Electronic Aerospace and Defense Equipment of all types
• Industrial Explosives including detonating fuses, safety fuses and matches.
• Hazardous Chemicals.
• Drugs and Pharmaceuticals

The industrial policy has undergone many changes commensurate with the changing economic policies of India. Department of Industrial Policy and Promotion (DIPP) is responsible for the overall Industrial Policy. DIPP was established in 1995 and has been reconstituted in the year 2000 with the merger of the Department of Industrial Develop- ment. The role and functions of the Department of Industrial Policy and Promotion primarily include:

• Formulation and implementation of industrial policy and strategies for industrial develop- ment in conformity with the development needs and national objectives;
• Monitoring the industrial growth, in general, and performance of industries specifically assigned to it, in particular, including advice on all industrial and technical matters;
• Formulation of Foreign Direct Investment

(FDI) Policy and promotion, approval and facilitation of FDI;

• Encouragement to foreign technology collab- orations at enterprise level and formulating policy parameters for the same;
• Formulation of policies relating to Intellectual Property Rights in the fields of Patents, Trade- marks, Industrial Designs and Geographical Indications of Goods and administration of regulation rule made there under;
• Administration of Industries Development & Regulation Act, 1951;
• It was for Promoting industrial develop- ment of industrially backward areas and the North Eastern Region including International Co-operation for industrial partnerships; and
• Promotion of productivity, quality and tech- nical cooperation.

For new industrial policy, please read economic survey of the year which, you are going to appear in the examination.

Different kinds of industries operate in the economy. Based on the amount of investment on plant and machinery they are classified as Small Scale Industries, Cottage Industries and Large-Scale Industries.

Small Scale Industries (SSIs) are small industrial units. They employ power and small machines and few workers. SSIs include factory type investments whose investment in plant and machinery does not exceed Rs.100 lakhs. They also include Small ancil- lary units whose investment in plant and machinery does not exceed Rs.75 lakhs. Ancillary industries produce parts, components or intermediate products to render services like repairs. Within SSIs, Tiny industries are those where investment in plant and machinery is below Rs.25 Lakhs.

Cottage industries are those industries and crafts which are carried one in the home of the artisans, generally speaking in the cottages. Power is. not used usually and simple tools and equipments are used.

Large-Scale Industries are industries where investment in plant and machinery exceed beyond Rs.100 lakhs. They require huge capital investments.

Eg: Cotton Mill industry, Jute, Iron & steel Industry etc.

PUBLIC SECTOR UNDERTAKINGS (PSUS) #

Industries or enterprises where majority of shares are held by government are called as public sector enterprises. Barring Navaratnas, many of the PSUs are sick enterprises. A sick unit is the one which has been incurring cash losses continuously, with imbal- anced financial structure and depends upon frequent infusion of funds for survival. Due to its inability to generate internal surplus, it depends on external funds. Causes of sickness are: general depression trend in the economy, which reduces demand and an overall slow down of economic activities, high costs of production, non-availability of raw materi- als, deficiencies in project appraisal, infrastructure bottlenecks like transport and power or electricity facilities, lack of employee motivation, wrong location from the point of view of market and raw materials, and marketing problems etc.

Some of the remedies for overcoming industrial sickness have been:

• Cooperation from commercial banks and other financial institutions;
• Good Marketing arrangements;
• Checking over-valuation of machinery which leads to excess borrowing;
• Modernization of machinery;
• Motivating employees and full support from other stake holders like creditors, suppliers etc.; and
• Alert Management.

Apart from these, following remedies are called for, especially in this era of Liberalization, Privati- zation and Globalization:

Mergers #

The sick industrial units are merged with units which are running efficiently in the same field.

Bifurcation

If one of the reasons for sickness is oversize of the firm, then bifurcation is attempted. Bifurcation

is splitting up of large unit into two or more units. This is due to the reason that managing small firms is easier and efficiency could be brought back into the firm by reducing the losses.

Privatization

Privatization of sick public sector enterprises forms one of the important remedies. It is usually believed that the private sector runs and manages firms more efficiently and competitively. So the govern- ment sick units can be handed over to the private sector and efficient use of resources can be ensured.

The Government of India has resorted to stra- tegic sale of Public Sector Enterprises like Bharat Aluminium Company Limited (BALCO), Modern Food Industries (India) Ltd, Laganjute, Computer Maintenance Corporation, Air India etc.

As the acts of Bifurcation, Mergers and Acqui- sitions set into economy, there needs to be a law to control misuse of such practices. Usually such matters are governed by Competition Law. The Competition Act 2002 in India received the assent of the President on 13th Jan 2003. The Act aims at curbing anti-com- petitive arrangements, prohibiting abuse of dominant position by companies or combination of enterprises through acquisition, amalgamation or merger. It deals with the impact of mergers and acquisitions and allegations of companies abusing their dominant position by forming cartels or engaging in predatory pricing. All these activities will be taken up by the Competition Commission an agency provided under the law. An amendment to the competition Act has also provided for an Appellate Tribunal which takes care of the judicial aspects.

Further, to help sick industries overcome their problems; the Government of India has set up the Board for Industries and Financial Reconstruction (BIFR). BIFR was set up under the Sick Industrial Companies (Special Provisions) Act (SICA) 1985. The Industrial companies which are suffering losses, whose net worth has eroded completely or by 50% or more, are required to make a reference to the BIFR. The BIFR after analyzing the industries condition can recommend for winding up or as non-maintain- able. For industries which can be revived, it can sanction schemes for revival. A unit must be in existence for a minimum period of seven years to

be referred to BIFR for sickness.

NAVARATNAS are the nine Public Sector Enterprises in India which are performing well or earning profits. The PSEs identified as navaratnas are Bharat Heavy Electricals Limited (BHEL), National Thermal Power-Corporation (NTPC), Oil and Natural Gas Corporation Limited (ONGC), GAIL (India) Limited – the erstwhile Gas Author- ity of India Limited, Indian on Corporation (IOC), Bharat Petroleum Corporation Limited (BPCL), Hindustan Petroleum Corporation Limited (HPCL), Videsh Sanchar Nigam Limited (VSNL), and Bharat Sanchar Nigam Limited (BSNL).

The government also helps the industrial sector, by providing finance.

Syndication of loans is the process of distribut- ing the money advanced to a number of companies/ investors, generally in a large loan. The term is also used to explain the process of involving numerous different lenders in providing various portions of a loan to a single borrower.

Important industrial associations in India are Federation of Indian Chamber of Commerce and Industry (FICCI), Confederation of Indian Industry (CII), The Associated Chambers of Commerce and Industry of India (ASSOCHAM), Indian Merchants Chamber, PHD Chambers of commerce and Feder- ation of Indian exports organization (FIEO).

PSUs and Disinvestment #

From now on government was to leave more space for private sector and facilitate creation of a robust free market economy. It decided to keep for itself only those sectors which are of strategic or social importance, which are beyond capacity by private players. For this government had to roll back from most of the areas it was operating in, which ranged from bread making to Heavy Industry. Further, as part of Structural Adjustment Program of IMF, govt. was required to raise Rs. 2500 crores through disinvestment. Given that stakes were high because of safety of government investment and PSUs were biggest employers in those days, withdrawal had to be gradual and planned. Further, government faced stiff opposition from left wing and trade unions. So preference was to get rid of PSUs which had piled up losses and were nonperforming.

Other performing PSUs were to be retained (atleast for the time being), and were to be provided more autonomy in their operations.

Purpose to be served by Disinvestment were many

One was revival of that PSU itself. More pri- vate control more will be the autonomy and in turn, better management. 2nd, it was expected that piled up public debt will be brought down by proceed of disinvestment. Also, by exiting from non-crucial areas government could focus more on core sectors. Shares were to be offered to Mutual Funds, Workers and Public. In beginning policy was to bundle the share of profitable and loss making PSUs and that bundle was offered. Gradually individual shares were being offered. So far, in majority of cases only minority (less than 50%) stakes have been sold. Consequently PSUs remains PSUs despite of disinvestment

In Late 1990’s distinction was (on recommenda- tion of disinvestment commission) made in Strategic and non-strategic PSUs. Government policy was to retain control only in Strategic enterprises by keeping atleast 51% of shares and bringing its stake down to 26% in non-strategic enterprises. It was decided that reduction of the Government’s shareholding to 26 per cent would not be automatic and the manner and pace of doing so would be decided on a case- by-case considering interests of consumers and avoiding concentration of economic power in private hands. Strategic Sectors were those which were completely reserved for government (currently 3 in number).

There are only three instances (other than strate- gic and slump sale) where Government divested itself of a majority shareholding. Those are of Bongain- gaon Refinery & Petrochemicals Limited (BRPL), Chennai Petroleum Corporation Limited (CPCL), and Kochi Refineries Limited (KRL). Comically, these shares were brought by other different PSEs. It was felt that disinvestment by sale of shares to PSEs did not result in any of the advantages nor- mally associated with the block transfer of majority shareholding, since the public sector character of the company did not change.

Strategic Sale (this is different concept from Strategic PSUs) – It refers to sale of a large block

of shares in a PSE (including subsidiary of a CPSE) along with transfer of management control to a strategic partner identified through a process of com- petitive bidding. This was termed as strategic sale. After the strategic sale, these PSEs ceased to be a Government Company as defined under Companies Act.

Maruti Udyog Ltd. was the first Government Company to be privatized. It ceased to be a Gov- ernment company in 1992. However, strategic sale as a policy measure commenced in 1999- 2000 with the sale of 74 per cent of the Government’s equity in Modern Food Industries Ltd (Modern bread). Thereafter, twelve PSEs (including four subsidiaries of CPSEs), and seventeen hotels were sold to private investors along with transfer of management control by the Government.

Currently there are 277 Central Public Sector Enterprises under the administrative control of various ministries/departments. Out of these 149 CPSEs are profits making ones among them top

5 are The Oil and Natural Gas Corporation Ltd, National Thermal Power Corporation Ltd, Fertilizer Corporation of India Ltd, Coal India Ltd, and Bharat Heavy Electricals Ltd.

Disinvestment Commission: It was constituted in 1996 and reconstituted again in in 2001 to rec- ommend on disinvestment in various PSUs. It was dissolved finally in 2004 with change in government.

Present Disinvestment Policy

The salient features of the current Policy are:

• Citizens have every right to own part of the shares of Public Sector Undertakings
• Public Sector Undertakings are the wealth of the Nation and this wealth should rest in the hands of the people
• While pursuing disinvestment, Government has to retain majority shareholding, i.e. at least 51% and management control of the Public Sector Undertaking.

Apart from this there is action plan for disin- vestment in ‘profit making’ government companies – Already listed profitable CPSEs – to be made compliant by ‘Offer for Sale’ (they should have atleast 10% public holding).

Unlisted profitable CPSEs – to be listed in stock exchange #

Follow-on public offers– based on needs of that company and are to be considered on case to case basis.

Government would retain at least 51% equity and the management control.

Keep in mind that this policy is not for loss making PSUs. For loss making PSUs (non-strategic ones) government will fetch very low value and any transfer in private hands will result curtailment of operations and lay off workers. Hence this becomes an even more politically sensitive issue and not much discussed.

National Investment Fund #

The Government constituted fund in 2005, into which the proceeds from disinvestment were to be channelized. The corpus of the fund was to be of permanent nature and the same was to be profession- ally managed in order to provide sustainable returns to the Government, without depleting the corpus. NIF was to be maintained outside the Consolidated Fund of India.

Originally it was decided that – 75% of the annual income of the Fund (not proceeds of dis- investment) will be used to finance selected social sector schemes, which promote education, health and employment.

Residual 25% of the annual income of the Fund will be used to meet the capital investment require- ments of profitable and revivable CPSEs that yield adequate returns, in order to enlarge their capital base to finance expansion/ diversification.

But this scheme was suspended after economic downturn in 2009. Original position was that only Income/return/profit from corpus of fund will be utilized in social sector schemes (upto 75%). So proceeds of disinvestment were invested (other companies) and income from such investment was used as explained. In 2009 government decided to use proceeds of PSUs directly to finance its social sector expenditure. This went on till 2013 when fund was restructured.

Restructuring of the National Investment Fund – In 2013 it was decided that the disinvestment

proceeds with effect from the fiscal year 2013-14 will be credited to the existing ‘Public Account’ under the head NIF and they would remain there until withdrawn/invested for the approved purpose. Now corpus could be utilized for subscribing to the shares being issued by the CPSEs or for investing government companies.

Recent policy is ambiguous one. On one side a PSU sell stake in line with disinvestment, on other hand this fund owned by government subscribe to shares. Only account gets changed, ownership remains with government. So, motive of disinvest- ment policy is not clear.

Recently government disinvested 5% in Steel Authority of India Ltd., and Coal India, ONGC, NHPC, Power Finance Corporation, Rural Electrifi- cation Corp, Hindustan Zinc and Balco, are in line.

Please note that in order to sell stakes to public (as per DIV policy) listing of a company on stock exchange is prerequisite. In 2011 some shares in Coal India Ltd was offered to public through an ‘Initial Public Offer’, this was biggest PSE IPO. Since then stock market was not performing well. Some IPO’s were not even fully subscribed. Even valuations of listed public companies were quite low. Only main investor in PSE offers last year were cash rich government corporations like LIC. In effect, government was unable to carry on with policy as planned. Now that rigour in stock markets is back, Shares of PSUs are reflecting decent prices. That’s why there is so much of talk about disinvestment this year.

Policies for Autonomy of PSEs #

MOUs in Ministries and Their PSUs – Mem- orandum of understandings are signed between management of PSU and respective ministry (in capacity of owner). These MOUs are directed towards strengthening management by results and objectives and effectively government gives up it erstwhile regime of controls and procedures. These MOUs are instrumental in giving autonomy to PSEs. These were first implemented in 1980’s.With New Industrial Policy of 1991 specifically promoting autonomy in PSEs, these received strong impetus. PSEs are also rated depending upon their perfor- mance vis a vis targets set.

To further induce professionalism in enterprises and increase autonomy the can be designated status of Miniratna, Navaratna or Maharatna. Access the list of PSEs so designated here.

Miniratna Status – #

• The Central PSEs that have made profits in the last three years in a row and have positive net worth are eligible to be considered for grant of Miniratna status. There are around 71 Miniratna PSEs.

Navaratna Status – #

• The entity must have Miniratna Category. It should have Schedule ‘A’ listing.
• At least three ‘Excellent’ or ‘Very Good’ Memorandum of Understanding (MoU) ratings during the last five years. A composite score of 60 or above out of possible 100 marks in the six selected performance parameters, namely –
  • Net Profit to Net Worth
  • Manpower cost to cost of production or services
  • Gross margin as capital employed
  • Gross profit as Turnover
  • Earnings per Share
  • Inter-Sectoral comparison based on Net

profit to net worth

Maharatna Status #

• The company already has Navratna status.
• Its listed on Indian stock exchange with min- imum prescribed public shareholding under SEBI regulations.
• Average annual turnover of more than Rs. 25,000 crore, during the last 3 years.
• Average annual net worth of more than Rs. 15,000 crore, during the last 3 years.
• Average annual net profit after tax of more than Rs. 5,000 crore, during the last 3 years.
• The entity should have significant global presence/international operations.

Sick Industrial Companies Act – 1980’s #

Rationale of enacting this was to determine

sickness in the industrial units. It also aimed at expediting the revival of potentially viable units so as to make the investments in such units profitable. At the same time, to ensure the closure of unviable units so as to release the investments locked up in such units for productive use elsewhere. It was not applicable to small scale industry.

It provided for the constitution of two quasi-judi- cial bodies, that is, Board for Industrial and Financial Reconstruction (BIFR) and Appellate Authority for Industrial and Financial Reconstruction (AAIFR). BIFR was entrusted with the work of taking appro- priate measures for revival and rehabilitation of potentially sick undertakings and for liquidation of non-viable companies.

New Manufacturing Policy, 2011 #

The Government of India has announced a national manufacturing policy with the objective of enhancing the share of manufacturing in GDP to 25% within a decade and creating 100 million jobs. It also seeks to empower rural youth by imparting necessary skill sets to make them employable. Sustainable development is integral to the spirit of the policy and technological value addition in manufacturing has received special focus.

The Policy is based on a principle of industrial growth in partnership with the States.

Central Government – will create the enabling policy framework; provide incentives for infrastruc- ture development on a PPP basis through appropriate financing instruments.

State Governments – will identify the suitable land and be equity holders in the NIMZs.

The following are the key policy instruments for achieving the objective:

• Establishment of National Investment and Manufacturing Zones (NIMZs) – green field (new) integrated Industrial Townships with state of the art infrastructure and land use on the basis of zoning; clean and energy efficient technology and requisite social infrastruc- ture. NIMZ can be proposed with land area of at least 5000 hectares.
  • Industrial Townships are proposed to be self-governing and Autonomous Bodies un-

der Article 243(Q-c) of the Constitution. (This article concerns with local government–74th amendment)

• The trunk infrastructure will be financed ap- propriately by Central Government including through Viability Gap Funding while Special Purpose Vehicle will develop the zone infra- structure in PPP mode.
  • NIMZ will be managed by Special Purpose Vehicle, headed by. Govt. officials and ex- perts, including those of environment.
  • The policy has also come up with proposals to improve access to finance for SMEs in the manufacturing sector.
  • The proposals in the policy are generally sec- tor neutral, location neutral and technology neutral except incentivization of green tech- nology.

While the National Investment & Manufacturing Zones (NIMZs) are an important instrumentality, the proposals contained in the Policy apply to manu- facturing industry throughout the country including where ever industry is able to organize itself into clusters and adopt a model of self-regulation.

INDUSTRIAL CORRIDORS #

Delhi-Mumbai Industrial Corridor #

The Government of India is developing the Delhi Mumbai Industrial Corridor (DMIC), as a global manufacturing and investment destination utilizing the high capacity 1483 km long western dedicated railway Freight Corridor (DFC), as the backbone. In essence, the DMIC project is aimed at the development of futuristic industrial cities. This would involve/attract an estimated investment of around US$ 90-100 billion over the next thirty years. The DMIC project covers 6 States i.e. Haryana, UP, Rajasthan, Madhya Pradesh, Maharashtra and Gujarat, accounting for 43% of the national GDP, 50% of industrial production and exports and 40% of total workforce. It is estimated that the devel- opments under the project will offer employment opportunities for over three million people.

DMIC has 24 nodes covering 11 Investment Regions of more than 200 sq. kms each and 13 Industrial Areas of about 100 sq. kms each. Initially,

7 (Seven) investment nodes are being developed with assistance from Government of India.

The 7 Investment Regions under DMIC will be NIMZs as under: #

• Ahmedabad-Dholera     Investment     Region, Gujarat (900 sq km)
• Shendra-Bidkin Industrial Park city near Aurangabad, Maharashtra (84 sq km)
• Manesar-Bawal Investment Region, Haryana (380 sq km)
• Khushkhera-Bhiwadi-Neemrana    Investment Region, Rajasthan (150 sq km)
• Pithampur-Dhar-Mhow Investment Region, Madhya Pradesh (370 sq km)
• Dadri-Noida-Ghaziabad Investment Region, Uttar Pradesh (250 sq km) and
• Dighi Port Industrial Area, Maharashtra (230 sq km).

Twenty four manufacturing cities are envisaged in the perspective plan of the DMIC project. In the first phase, seven cities are being developed, one each in the states of Uttar Pradesh, Haryana, Rajasthan, Madhya Pradesh and Gujarat and two in Maharashtra. The manufacturing cities will provide international and domestic investors with a diverse set of vast investment opportunities. The initial phase of the new cities is expected to be completed by 2019.

Sectors of focus include general manufacturing; IT/ITES; electronics including high-tech industries; automobiles and auto ancillary; agro and food pro- cessing; heavy engineering; metals and metallurgical products; pharmaceuticals and biotech; and services sector.

Other four corridors which have been conceptualized are – #

• Bengaluru-Mumbai      Economic      Corridor (BMEC);
• Amritsar – Kolkata Industrial Development Corridor (AKIC);
• Chennai-Bengaluru Industrial Corridor (CBIC),
• East Coast Economic Corridor (ECEC) with

Chennai Vizag Industrial Corridor as the first phase of the project (CVIC).

FDI Policy #

A foreign company willing to take part in Indian industry can open up a company in India, they may setup a subsidiary company (of foreign co.), joint venture or they may open a branch in India. This is called foreign Direct Investment. Investment in cur- rent Indian companies can be done in stock markets through ‘Foreign Portfolio Investment’. FDI is long term and more stable investment as compared to FPIs. FDI results into initiation of some Greenfield projects in the country and adds more value to the industry and economy of the country. In contrast, FPI is just change in hands of existing investments, through transfer of shares.

Ministry of Commerce & Industry, Department of Industrial Policy and Promotion, Foreign Invest- ment Promotion board are the bodies involved in framing and changes in the policy. With every change in policy RBI has to amend Forex Manage- ment Regulations.

FDI is completely disallowed in following sectors – #

• Atomic Energy
• Lottery Business
• Gambling and Betting
• Business of Chit Fund
• Nidhi Company

Agricultural (excluding Floriculture, Horticul- ture, Development of seeds, Animal Husbandry, Pisciculture and cultivation of vegetables, mush- rooms, etc. under controlled conditions and services related to agro and allied sectors) and Plantations activities (other than Tea Plantations). Housing and Real Estate business except development of townships, construction of residential/commercial premises, roads or bridges to the extent specified in notification. Trading in Transferable Development Rights (TDRs).

Manufacture of cigars, cheroots, cigarillos and cigarettes, of tobacco or of tobacco substitutes.

FDI is allowed either through ‘Automatic Route’ or after clearance by ‘Foreign Investment Promotion

Board’ (which is under Deptt. Of Economic Affairs, MOF). Route allowed differs with percentage of holding by Foreign Company in the Indian company

MAKE IN INDIA #

Make in India is an international marketing campaigning slogan coined by the Prime Minister. As per website it aims at – facilitating investment to foster innovation, Skill Development, Protecting intellectual property and providing best in class manufacturing infrastructure in India. It involves sector wise initiatives and covers almost all crucial sectors.

EXPORT PROMOTION POLICIES #

Concept of Special Economic Zone #

Special Economic Zone is one or more areas of a country where the tariffs and quotas are elimi- nated and bureaucratic requirements are lowered so that more companies are attracted to the area. The companies establishing in the area also gets extra incentives for doing business.

In India, the policy for setting up SEZ was introduced on April 1, 2000 with a view to pro- vide an internationally competitive and hassle free environment for exports. The policy offered setting up of SEZ in the public, private, joint sector or by State Governments.

Prior to Special economic zones, Expert process- ing Zones (EPZ) were in vogue. With a view to overcome the shortcomings experienced on account of the multiplicity of controls and clearances(SEZ provides ‘single window clearance’), absence of world-class infrastructure, an unstable fiscal regime and with a view to attract larger foreign investments in India, the Special Economic Zones (SEZs) Pol- icy was announced in April 2000. For all specified procedural purposes Special Economic Zones are considered foreign territory within the country. Domestic trade with SEZ is generally eligible for export concessions.

For IT industry there are similar Software Technology Parks. Benefits are available to Export Oriented Units under separate Scheme.

Export Promotion Capital Goods Scheme – Scheme allows import capital goods at zero or

concessional custom duty, provided importer exports specified goods of value not less than 6 times duty saved.

Micro Small and Medium Enterprise #

The small scale industry sector output contrib- utes almost 40% of the gross Industrial value-added 45% of the total exports from India (direct as well as indirect exports) and is the second largest employer of human resources after agriculture. The devel- opment of Small Scale Sector has therefore been assigned an important role in India’s national plans.

In order to protect, support and promote small enterprises as also to help them become self-support- ing, a number of protective and promotional meas- ures have been undertaken by the Government. This job is taken up by both center and state governments. There is separate ministry for MSMEs which helps in following way.

Reservation – Reservation of products for exclusive manufacture in the small scale sector was introduced for the first time in 1967 with the reservation of 47 items. As of July 2010, 20 items are reserved for exclusive manufacture in the small scale sector.

Government has ‘procurement policy’ which prefers SSI – 358 items are also reserved for exclu- sive purchase from MSE sector.

Interest Subvention schemes are started from time to time.

Technology Upgradation Fund Scheme – under this subsidy is available to small and medium scale industry to adopt new technology. Subsidy is avail- able either on Capital Expenditure, or as interest Subvention.

Export Assistance & Facilities – In certain cases duty free or with concessional rate of Custom Duty, so as to ensure higher production for exports. There were less restriction for exports by this sector and overall various supporting facilities such as remis- sion of duties paid on input materials were available.

Exporters are recognized as Export House, Trading Houses, Star Trading Houses and Super Star Trading Houses on the basis of certain criteria as laid down in the Export-Import Policy 1997-2002. Criteria are quantitative targets, such as turnover or

FOREX earned. For Small Scale Sector their respec- tive figures are considered 3 times the actual. By this they are granted special import license, which gives them rebate on import duty.

They get government support for participation and exhibition in International Fairs

Technical & Managerial Consultancy Services to the MSME manufacturers/exporters is provided through a network of field offices.

The National Small Industries Corporation through its ‘export development program’ is play- ing a vital role to promote the MSME sector in exporting their products/projects in international, markets by providing following assistance to the small enterprises.

These schemes are Small Scale Industry specific and are available in addition to the general schemes.

Defense production & procurement policy #

It is designed for encouraging the formation of joint ventures with 26 per cent foreign direct invest- ment (FDI). This is expected to go up to 49 per cent (100 percent subject to clearance by CCEA), gradually resulting in an increase in arms exports as MNCs will begin to use their Indian joint ventures as hubs for sourcing weapons and equipment com- ponents for their factories abroad.

The DPP stipulates an offsets commitment of 30 per cent of the total value of a contract if it exceeds $ 66 million (around Rs 300.00 crore). Under the sys- tem of offset commitment, supplier will be obliged to procure from India materials worth atleast 30% of total contract value. (Provided contract exceeds $ 66 m). This policy is precisely aimed at indigenization of defense industry.

Assessment #

These are few important industrial policies (among many) which were pursued in post liber- alization era. Assessment of Industry in current situation, despite so many of policies, gives bleak picture. Industrial growth plummeted badly in recent years after strong performance in 2010’s. There are few structural problems in economy which makes high growth unsustainable. There is wage- prices spiral. There’s constant upward pressure for wages, which results in high prices. This in turn affects

demand in economy negatively. Situation become worse considering majority of industry is informal and labor intensive.

We also have dilemma in choosing between technology backed or Labor backed industry. Labor intensive industry provides employment but at same time makes products uncompetitive.

Overall, current policy regime aims to strike bal- ance between both by providing protection to small scale industry. Further, Globalization and modern- ization goes hand in hand. Recent IT and telecom revolution were also feared in beginning, but they now employ millions of Indians. Apart from this, policies aim at improvement of Infrastructure. Good policy on Foreign Direct Investment is instrumental for technology transfer and better Infrastructure in India.

LABOUR AN INTRODUCTION #

Labour is one of the most important inputs in the process of production. For any raw material to turn out into a finished product, labour input is inevitable. Labour is the ability of a person to take up a task requiring physical or mental capacities or both. A person sells his/her labour to earn income which can take the form of wages or salaries. A person who sells his labour is called as labourer. For better utilisation of the available labour, proper attention should be given to the working conditions and the level of wages. These are assured through labour laws, wage policy and’ social security meas- ures. It is desirable that the labourers should get at least a certain amount of wage, by which they can maintain or sustain a minimum standard of living. The amount required to sustain minimum standard of life is known as Minimum Wages. The minimum rate of wages may consist of:

• a basic rate of wages and a cost of living al- lowance, or
• a basic rate of wages with or without the cost of living allowance and the cash value of concession in respect of supplies of essential commodities at concessional rates, or
• an all inclusion rate (a+b).

Minimum rate of wages can be ensured legally through Minimum wages etc.

LABOUR LAWS #

The factory legislation in India has tried to pro- tect the interest of labourers in India. It has fixed maximum working hours for labourers, both adult (men and women) and children, [Factories Act 1881, 1891, 1911,1922, 1934,1948] provision of leisure, holidays, safe working conditions, cleanliness etc., and welfare provisions provided include washing facilities, canteen, creches, restrooms etc.

SOCIAL SECURITY MEASURES #

Providing unemployment allowance, compensa- tion to workers who are met with accident and die at workplace, maternity benefits to women, insurance coverage of employees, employees provident fund, compensation for retrenchment (laid off from job), social security for old and disabled through allow- ances etc form the social security measures.

WAGE POLICY #

A good or suitable wage policy should link wage increases to increases in labour productivity. Labour productivity is the contribution of labour towards total output. Wage policy should aim at controlling inflation through suitable monetary and fiscal policy. Because, disproportionate increase in wages can lead to the vicious circle of “Cost Push” and “Demand Pull” inflation. Under Cost Push inflation, rise in the general price level is caused due to increase in the cost of production of goods and services. For eg: If wage levels increase, the total production costs also increase. When the price levels increase because of the increased demand levels in the economy it is called as Demand Pull Inflation. The total demand in the economy might have increased due to increased money supply.

Classification    of    labour    based    on institutional structure #

Organised sector labour

Organised or formal sector employment mostly originates in the industrial and service sectors. Pub- lic sector constitutes about 2/3rd of the organised employment. Organised sector consists of public sector, private corporate sector and cooperatives, manufacturing units registered under Factories Act, 1948 or Bidi or Cigar worker’ Act 1966 and

recognised educational institutions. Labourers in rural areas working on agricultural land, domestic workers etc, who do not belong to organised sector are categorised as informal or unorganised sector labourers.

Trade Unions are organizations where workers or labourers come together to protect their interests. The voice of the workers will be stronger when they form unions. To put the trade unions on a legal basis and to grant protection to the workers is the pursuit of bonafide trade union activities. The major All India trade unions are affiliated to different political parties. The major all India trade unions are: Indian National Trade Union Congress (INTUC); Hind Mazdoor Sabha (HMS); Bhartiya Majdoor Sangh (BMS); All India Trade Union Congress (AITUC); and Centre of Indian Trade Unions (CITU).

Economic inequality #

Economic inequality is the fundamental disparity that permits one individual certain material choices, while denying another individual those very same choices.

There are various ways to measure inequality. The most commonly used methods are as follows:

Measures of Economic inequality #

Lorenz Curve: A graphical representation of wealth distribution developed by American econo- mist Max Lorenz in 1905. The degree of inequality in income distribution can be measured using a Lorenz curve, which plots the cumulative percentage of the population (ranked in increasing size of share) against the cumulative percentage of total income. The 45° line represents perfect equality; such as the ‘poorest’ 10% of the population receive 10% of the income. The extent to which the curve sags below the 45° straight diagonal line indicates the degree of inequality of distribution.

The farther is a country’s Lorenz curve from the line of perfect equality higher is the income inequality. The Lorenz curve represents an unequal distribution of income. Lorenz curve provides a pictorial representation of the degree of inequality in a society. There are two problems with such a representation. First, policy makers and researchers are often interested in summarizing inequality by

a number, something that is more concrete and quantifiable than a picture. Second, when Lorenz curves cross, they cannot provide useful inequality rankings.

Gini coefficient #

This is a measure of the degree of inequality in a country. The Gini coefficient will have values between 0 and 1, with 0 representing absolute equal- ity and 1 absolute inequality.

POVERTY #

There is no more visible characteristic of eco- nomic underdevelopment than poverty. It is also the most shocking characteristic as it results in the outgrowth of layer upon layer of inequality among individuals around the world. There is first the ine- quality of world income distribution. Then, there is inequality of income within a country. If that was not enough there is inequality within the household as well: women; elderly, or female infants’ maybe systematically denied equal access to resources. The outcome for many millions of people is destitution, squalor and lack of hope.

Poverty line #

At the heart of all discourses of poverty is the notion of a poverty line a critical threshold of income, consumption, or more generally access to goods and services below which individuals are declared to be poor. The poverty line represents a minimum level of “acceptable” economic participation in a given society at a given point in time.

Absolute or relative #

Absolute poverty is a concept based on absolute needs of the people and people are defined as poor when some absolute needs are not sufficiently sat- isfied. It is also defined in terms of insufficiency of basic needs. In India, these basic needs are measured in terms of calorie intake of 2400 in rural areas per person per day and 2100 in urban areas. The cor- responding monetary yardstick for calorie intake is based on per capita monthly household expenditure.

Relative poverty is a concept related to the gen- eral standard of living in a society. Thus, according to this concept, people are poor because they are deprived of the opportunities comforts and self-re-

spect regarded as normal in the community to which at they belong. In relative poverty, poor are defined as a person or family whose incomes or are less than the average income of the community. Thus, relative poverty relates to for inequalities in a society. India is characterized by both in extreme measures i.e. absolute and relative poverty.

These considerations quite naturally, give rise to the need for poverty lines that share certain common components, but vary from country to country.

Temporary or chronic #

People, who live in a state of poverty, however that state is measured, often experience significant fluctuations in their income and consumption. This is especially true for the poor or near-poor in developing countries, where a large fraction of the population may depend on whether dependent agriculture (as ¡n India). Expressed as fractions of their average earned income, these fluctuations are large. So during the crop season a farmer is out of poverty but once the season ends, he is again plunged into poverty as the income dwindles. This is the temporary nature of poverty.

Chronic poverty is extreme poverty that persists over years or a lifetime. Notions of structural or chronic poverty must be complemented by a study of temporary poverty. The latter occurs when, because of bad economic shocks, ¡individuals temporarily enter the poverty sample. The distinction is not just for the sake of a distinction: the policies required to combat temporary as opposed to chronic poverty may be very different.

Measures of Poverty #

Head count ratio: The Head count ratio (HCR) is the proportion of population that exists, or lives, below poverty line.

HCR = HC/n #

Where, HC (head count) = total population below poverty line.

n = total population of the country

An obvious problem with head count ratio is that it fails to capture the extent to which individual income falls below the poverty line. Anyone below the poverty line is treated at par, one way to partially

offset the bias that arises due to HCR, and more fundamentally take account of the extent of poverty, is to use a measure of the average income shortfall from the poverty line.

An example is the poverty gap ratio, defined as the ratio of the average of income (or extra consumption) needed to get all poor people to the poverty line, divided by the mean income (or con- sumption) of the society. The reason for dividing by the average for society as a whole is that this gives an idea of how large the gap is relative to resources that potentially maybe used to close the gap. In this sense, the poverty gap ratio is not really a measure of poverty itself, but a measure of resources required to eradicate it.

Poverty Line and India #

Poverty line is the minimum to fulfil some requirements of households in terms of nutrition, education, health services etc. In India, the Govern- ment compares the poverty line with the household consumption expenditure data collected by NSSO every 5years.

Tendulkar Committee: This committee was set up by Planning Commission in the backdrop of crit- icism that official poverty line underestimated actual poverty. The report submitted in 2009 includes following important recommendations:

1. New poverty line should move away from strict calorie norm and also includes a mini- mum expenditure on education and health.
2. It should be uniform for rural and urban areas correcting for differences in cost of living.
3. Poverty line should be calculated at MRP only to make comparison easier.
4. Price difference between urban and rural In- dia should be adjusted using Fissure’s Price index.

Dr. C. Rangarajan Committee on poverty #

Expert group submitted its report in 2014 giving ‘per capita monthly expenditure’ as Rs. 972 in rural areas and Rs. 1407 in urban areas as poverty line. It preferred to use ‘Monthly expenditure of Household of five’ for the poverty line purpose which came out to be Rs 4860 in rural areas and Rs. 7035 in urban areas. It argued that considering expenditure

of household is more appropriate than that of indi- viduals. Living together brings down expenditure and as expenses such as house rent, electricity etc. gets divided into 5 members.

Other major recommendations were – #

• It reverted to old system of separate poverty line baskets for Rural and urban areas, which was unified by Tendulkar group.
  • Instead of ‘Mixed reference Period’ it recom- mended ‘Modified Mixed reference period’ in which reference periods for different items were taken as –
    • 365-days for clothing, footwear, educa- tion, institutional medical care, and dura- ble goods,
    • 7-days for edible oil, egg, fish and meat, vegetables, fruits, spices, beverages, re- freshments, processed food, pan, tobacco and intoxicants, and
    • 30-days for the remaining food items, fuel and light, miscellaneous goods and ser- vices including non-institutional medical; rents and taxes.
  • Report says that poverty line should be based on
  • Certain normative levels of ‘adequate nourish- ment’ plus clothing, house rent, conveyance, education and
  • A behaviorally determined level of other non- food expenses.

Normative means – what is ideal and desirable? Behavioral Means – What people use or con-

sume as per general behavior

For normative levels of adequate nutrition – average requirements of calories, proteins and fats based on ICMR norms, differentiated by age, gender and activity for all-India rural and urban regions is considered.

• Calories requirement – 2090 kcal in urban areas and 2155 Kcal in rural areas.
  • Proteins – for rural areas 48 gm and for urban areas 50 gm.
  • Fat – for urban areas 28 gm and for rural areas 26 gm.

Normative levels for fat and protein have been introduced for the first time and those for calories are reduces from earlier standards of 2100 kcal and 2400 kcal for urban and rural areas respectively. This was in lines with recommendations of Indian Council of medical research. It was found by council that due to change in lifestyle, more automation in industries, growing use of automobiles etc. minimum calorific consumptions required has fallen.

Poverty line by the group is also based on Independent survey conducted by ‘Center for monitoring Indian Economy’ (CMIE). The results under this survey are remarkably close to those we get through NSSO survey. Confirming adequacy of NSSO data and group’s methodologies. CMIE considers maximum income required to meet consumption expenses of a household. If Income is above consumption expenses then household is above poverty line otherwise (if not able to save anything) it is below poverty line. CMIE conducted survey on 150000 households.

Again National Urban and Rural poverty lines were converted to State specific poverty lines by using Fisher Index. This gave us poverty ‘ratios’ in states and state’s poverty ratios was weighted average of rural and urban state poverty ratios.

As per these estimates the 30.9% of the rural population and 26.4% of the urban population was below the poverty line in 2011-12. The all-India ratio was 29.5%. In rural India, 260.5 million individuals were below poverty and in urban India 102.5 million were under poverty. Totally, 363 million were below poverty in 2011-12. It also noted that there was substantial drop in poverty ratio from 2009 levels.

Amartya Sen’s Capability Deprivation #

Amartya Sen, the 1998 Nobel Laureate in eco- nomics, argues that the “capability to function” is what really matters for status as a poor or non-poor person. .As Sen put it Economic growth cannot be sensibly treated as an end in itself. Development has to be more concerned with enhancing the lives we lead and the freedoms we enjoy.

In effect, Sen argues that poverty cannot be properly measured by income, what matters is not the things a person has but what a person is, or can be or does or can do. For example, a book is

of little value to an illiterate person (except perhaps as cooking fuel or as a status symbol). Or a person with parasitic diseases will be less able to extract nourishment from a given quantity of food than someone without parasites.

To make any sense of the concept of human wellbeing in general and poverty in particular, one has to look at ‘functioning’s’ that is what the person does (or can do) with the commodities of given characteristics that they come to possess or control.

An example will make it easy to understand this concept. A person possesses a book. Instead of using this book to study, this person uses it as a pillow to sleep on, the reason for this, maybe that the person is not capable to read the book as he/ she is unlettered. The fact this person is illiterate snatches away the freedom from him to utilize the book to its maximum potential and leaves him with no option but to use this book as a pillow.

Sen defines capabilities as “the freedom that a person has in terms of the choice of functioning’s, given his person features (conversion of charac- teristics into functioning’s) and his command over commodities.”

Current Status #

The latest poverty line defined was by Rangarajan Formula. However, this report also did not assuage the critics. The new NDA Government turned down this report also. To define the poverty line, The NDA Government had constituted a 14-member task force under NITI Aayog’s vice-chairman Arvind Panagariya to come out with recommendations for a realistic poverty line. After one and half years work, this task force also failed to reach a consensus on poverty line. In September 2016, it suggested to the government that another panel of specialists should be asked to do this job {if defining poverty line}. Informally, this committee supported the poverty line as suggested by Tendulkar Committee.

Why defining poverty line is a controversial issue?

Most of the governments have mothballed the reports of commmittees and panels because this issue is not only politically sensitive but also has deeper fiscal ramifications. If the poverty threshhold

is high, it may leave out many needed people; while if it is low, then it would be bad for fiscal health of the government. Third, there is a lack of consensus among states too. We note that some states such as Odisha and West Bengal supported the Tendulkar Poverty Line while others such as Delhi, Jharkhand, and Mizoram etc. supported Rangrajan Line. Thus, no one, including NITI aayog wants to bell the cat when it comes to count number of poor in the country.

How   poverty   is    measured   in    other countries?

In most of European countries, a family with net income of less than 60% of a median net disposable income is counted as poor. In United States, poverty line represents the basic cost of food for a family multiplied by three. A family is counted as poor if its pre-tax income is below this threshold.

UNEMPLOYMENT #

Simply put, unemployment is a situation in which an individual in an economy is looking for a job and can’t find one. Economists divide unemployment into a number of different categories, since defining types of unemployment more precisely sheds some light on why unemployment occurs and what can be done about it.

Voluntary vs. Involuntary Unemployment #

At a very basic level, unemployment can be broken down into the following two types:

Voluntary unemployment – unemployment due to people willingly leaving previous jobs and looking for new ones and

Involuntary unemployment – unemployment due to people losing previous jobs and needing to find work elsewhere

Involuntary unemployment is a larger problem than voluntary unemployment since voluntary unem- ployment is a personal choice.

Frictional Unemployment #

Frictional unemployment is unemployment that occurs because it takes workers some time to move from one job to another. While it may be the case that some workers find new jobs before they leave

their old ones, a lot of workers leave or lose their jobs before they find other work. During this time, the individual is considered to be unemployed, but unemployment due to frictional unemployment lasts only for short periods of time and not is specifically problematic from an economic standpoint.

Frictional unemployment can also occur when students move into the work force for the first time, when an individual moves to a new city and needs to find work and when women reenter the work force after having children.

Cyclical Unemployment #

Unemployment is higher during recession and depression and lower during periods of high economic growth. Because of the term cyclical unemployment has been coined to describe the unemployment associated with business cycles occurring in the economy.

Cyclical unemployment occurs during recessions because, when demand for goods and services in an economy falls, some companies respond by cutting production and laying off workers rather than by reducing wages and prices. When this happens, there are more workers in an economy than there are available jobs, and unemployment arises.

As an economy recovers from a recession or depression, cyclical unemployment tends to natu- rally disappear.

Structural Unemployment #

There are two ways to think about structural unemployment. One way is that structural unem- ployment occurs because some labor markets have more workers than the jobs available, and for some reason wages don’t decrease to bring the markets into equilibrium.

Another way to think about structural unem- ployment is that it occurs when workers possess skills that aren’t in high demand in the marketplace and lack skills that are in high demand. In other words, structural unemployment results when there is a mismatch with workers’ skills and employers’ needs. Structural unemployment is thought to be a pretty significant problem, mainly because structural unemployment tends to be largely of the long-term variety.

Seasonal Unemployment #

Seasonal Unemployment is unemployment that occurs because the demand for some workers varies widely over the course of the year. For example: agricultural labour in India. Seasonal unemployment can be thought of as a form of structural unem- ployment, mainly because the skills of the seasonal employees are not needed in certain labour markets for at least some part of the year. That said, seasonal unemployment is viewed as less problematic than regular structural unemployment, mainly because the demand for seasonal skills hasn’t gone away forever and resurfaces in a fairly predictable pattern.

Disguised Unemployment #

Disguised Unemployment occurs when more people are working than are necessary, the overall productivity of each individual drops. Disguised unemployment is characterized by low productivity and frequently accompanies informal labour markets and agricultural labour markets, which can absorb substantial quantities of labour.

Disguised Unemployment does not affect aggregate output. It exists where part of the labour force is either left without work or is working in a redundant manner where worker productivity is essentially zero.

Other Concepts Related To Unemployment #

Full Employment: A situation in which all-available labour resources are being used in the most economically efficient way. Full employment embodies the highest amount of skilled and unskilled labour that could be employed within an economy at any given time. The remaining unemployment is frictional. This is a situation where anyone who is willing to work and able to work, gets work at wages according to the skill set. However, it is too idealis- tic, a concept and does not exist in the real-world.

Under Employment: It is a divergence from the full employment level. It ¡s a measure of employment and labour utilization in the economy that looks at how well the labour force is being utilized in terms of skills, experience and availability to work. Labour that falls under the underemployment classification includes those workers that are highly skilled but working in low paying jobs and part-time workers

that would prefer to be full-time. This is different from unemployment in that the individual is working but isn’t working at their full capability.

Unemployment: This is a situation where one is willing and able to work but not getting work. Under employment and Unemployment differ more in terms of degree rather than concept.

Labour force Participation rate (LFPR): A measure of the active portion of an economy’s labour force. The LFPR refers to the number of peo- ple who are either employed or are actively looking for work the number of people who are no longer actively searching for work would not be included in the participation rate. During an economic reces- sion, many workers often get discouraged and stop looking for employment, as a result, the participation rate decreases.

Unemployment in India #

Unemployment in India is structural in nature. This implies that the demand for labour more often falls short of the supply of labour due to rapid growth of population as well as immobility of the population. Structural Unemployment also exists in India due to high skill mismatch as service sector is the growing sector which requires highly skilled labour force has poor quality of skill-set. Structural rigidities like caste, joint family system, low pro- ductivity of agriculture, poor absorption capacities of industries etc. manifest themselves to create sit- uation of unemployment and under employment and

make the problem of unemployment a chronic one.

The extent of unemployment in India is generally measured on the basis of three different concepts used by the National Sample Survey Organization which are, as follows:

1. Usual Status or chronic unemployment (in terms of number of persons) which means number of persons who remain unemployed for a major part of the reference period in this case a year. It classifies a person unemployed if he was not working for even 30 days but was available for work during Last 1 year.
2. Current Weekly Status unemployment (in terms of numbers of persons) which is mea- sured in terms of the number of persons who did not find even an hour of work during the reference period- in this case a week.
3. Current Daily Status (CDS) Unemployment (measured in terms of number of days or per- son years), which means the number of per- sons who did not find work on a day or some days during the Survey week. Unlike, usual status or current weekly status which is a per- son rate, CDS is a time rate. A person work- ing for 1- 4 hours during a day denotes half person day of employment while one working for 4 or more hours denotes one-person day. In this way total person days of employment is estimated during 7 days preceding the sur- vey, which is then aggregated for the village and the country as a whole.