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UNIT 2INDUSTRIAL SECTOR Q1) Write a short note on small sector industries.A1) India has huge population and there is continuous pressure of consistent employment generation. India’s small sector enterprises are backbone in this regard, it provides around 80% of total manufacturing sector’s employment. Due to this fact the goverment doubled the limit of loans raised with the aid of small and medium enterprises to 2 crore. One of the biggest problem faced by small sector industries in India has been lack of technological assistance, but due to heavy emphasis given to reduction of digital divide in the country, this problem is becoming a lesser worry for the sector.In order to create just and fair society, flourishing Small sector is very important as Small-scale industries trigger the equitable distribution of wealth and income within societies in ways that are economically positive and without being politically turbulent, which is chiefly categorized by more concentration of income and wealth in the organised sector keeping behind the unorganised sector underdeveloped.Pandemic showed us the negative side of migration, people leave their families, land and home behind in villages and move to big cities in search of employment, which is not free from turbulence. Small sector can use these unskilled and semi skilled labor force. Also the labor cost and then production will reduce as it will not require people to migrate.The small sector industries also play a pivotal role in serving big industries by providing accessories, components, small parts and semi finished goods required by big industries. This way a balance for coexistence is formed where there is no saturation in the sector, migration is reduced, fair distribution and localization of wealth is encouraged and also rural development happens.Q2) Explain problems faced by small sector industries.A2) There are several problems which small scale sector companies are found to be facing. Following are some of them-Shortage of Funds: Small scale sector are generally found to be short on both fixed assets and working capital which limits the efficiency. Lack of access to technology: Due to shortage of funds it becomes very difficult to have access to latest technology. Shortage of Raw material: Due to lack of working capital small scale industries are not able to buy raw material in bulk during season when there are relatively cheaper. Labor issue: Lack of skills in labor is a major concern for small scale sector as neither it has the resources for training nor there is enough financial growth to motivate the labors. Marketing: Competing with large scale industries is very difficult as small-scale industries cannot afford to invest huge sum in advertisement and marketing. They have to depend on middlemen, from where they generally get poor returns. Managerial skills: As individuals or small group of people handle the reigns at small scale sector they do not have the professional competence required in different domains of managing an enterprise. Q3) Explain Disinvestment in detail.A3) It is a process of selling the government shares in the public sector enterprises. In India, following were seen as purpose of Disinvestment-A tool to reform public sector. In initial phase it was used to raise resources for budgetary allocation. It had to be done as part of reforms of 1991 for de-reservation of industries. Disinvestment can be considered to be of following two types-Token disinvestment Strategic disinvestment Token disinvestment: In the initial stage the government was very cautious, hence it was a policy to sell maximum 49% of the shares. But in actual practice only 5-10% of the shares were sold. In as symbolic way it is called Token disinvestment. However as the disinvestment percentage was very less, it could not initiate any new change to increase the efficiency of the company. This led to the criticism and the experts recommended disinvesting so that the ownership could be transferred to private sector. This meant disinvesting more than 50%. Strategic disinvestment: Disinvestment was meant to be a process to increase the efficiency of non performing enterprises and to reduce the burden of government in the sector where the private sector has developed the expertise and to focus on social sector where the private entities were not interested. This required disinvestment to the larger extent. For this government in 1999 classified the PSUs into strategic and non strategic. In non strategic sector the government was ready to sell large number of shares as per requirement but in Strategic sector like defence and atomic energy the government would always retain the ownership. There has been major shift in the disinvestment from selling nominal percentage of shares to transferring the ownership. The intention of government behind disinvestment has also changed. Now the public ownership is promoted as wealth of the nation. Disinvestment as a policy has also seen reforms, now the government follows the ‘Minority stake sale’, policy since November 2009, and ‘Strategic disinvestment’, policy renewed in February 2016. Q4) What do you mean by Public sector enterprise?A4) The enterprises in which the government holds majority shares are called public sector enterprises. The public sector enterprises works for the welfare of people and not for profit. In the initial period after independence the public sector enterprises were contributed immensely to capital generation and at the same time it generated employment. As the public sector works for the welfare of citizen, they were also set up in the backward regions of the country which led to the socio-economic development of that region, hence reducing the inequality in the country.Inspite of numerous achievements, the public sector suffered from many problems. As the public sector works for the welfare and not profit, it hardly ever had the surplus to invest in improving the quality of the service, also due to lack of private sector presence there was not much competition which could push for the development to stay in the field. On top of this, continue increase in cost incurred on salary and pension created problems for government. As appointments were made by the government only, there was also a question on autonomy and transparency. Lack of sector specific skills also was a problem for public sector enterprise.However the reforms like New industrial policy of 1991, Voluntary retirement scheme, and the policy of Navratnas, Maharatnas and Miniratnas helped the public sector take strides in the positive direction. Also Disinvestment and Privatization of less performing public sector enterprises helped them to survive and valuable capital for budgetary allocation. Q5) Highlight the important points of industrial policy of 1991.A5) Following were the highlights of the policy-De-reservation of the industries: The industries reserved for the central government were reduced to 8 and presently only two, Atomic energy and Railways industries are reserved. Now government is taking steps towards privatization of railways. De-Licensing of Industries: The number of industries which required license were greatly reduced. Foreign Investment: Both Foreign Direct Investments and Indirect investments were encouraged. Location of Industries: Location related provisions were very complicated, these were simplified by classifying industries into Polluting and Non-polluting industries. Non-polluting was allowed to be set up anywhere and polluting industries had to be setup at least 25km away from city with a population of million people. Phased production: compulsion of phased production was abolished so that company can operate at their optimum level. Compulsion to convert loans to shares was abolished: The major banks of India were nationalized at the time. The private companies who had borrowed money from these banks could convert the loan into equity shares if the company was unable to pay the loan. The companies who opted for this route of settlement (it was compulsory if loan is not paid) ended up being the government entity. Such compulsion hampered the growth and development of industries in India, hence it was withdrawn. Q6) How was industrial sector at the time of independence?A6) At the time of Independence majority of the industries in India were Consumer goods and there were not many capital goods industries. This fact was clear from the weak industrial infrastructure, which was caused by the lack of state support. At the time of Independence the technical and managerial expertise required were short in supply in India. Also these industries were concentrated in few hands. The First Five Year plan did not put forward any large-scale industrialization program however few public sector companies were set up under it and it was in Second Five Year plan that the industrialization was given its due importance. This plan was based on Mahalanobis Principle. In accordance with this large number of basic goods and capital goods industries was set up to lay a strong foundation for Industrial development. The Third Five Year plan continued the approach of Second five-year plan by establishing basic and capital goods industries. Most of the capital goods industries were public sector.
Hence it is clear that due to the measures taken under First, Second and Third Five Year Plan Indian Industrial Sector showed appreciable growth. Q7) Mention the causes of structural retrogression during 1965-1980.A7) Following can be pointed as causes of Deceleration and Retrogression:War of 1965 and then the Bangladesh Liberation War of 1971. Low agricultural growth meant shortage of raw materials which caused low industrial growth. Inappropriate Industrial Policies along with license raj also contributed to the effect. Q8) Draw a tree diagram showing different phases of industrialization in India.
Q9) Write down difference between token disinvestment and strategic disinvestment.A9) Disinvestment can be defined as process of selling the government shares in the public sector enterprises.Disinvestment can be considered to be of following two types-3. Token disinvestment4. Strategic disinvestment Token disinvestment: In the initial stage the government was very cautious, hence it was a policy to sell maximum 49% of the shares. But in actual practice only 5-10% of the shares were sold. In as symbolic way it is called Token disinvestment. However as the disinvestment percentage was very less, it could not initiate any new change to increase the efficiency of the company. This led to the criticism and the experts recommended disinvesting so that the ownership could be transferred to private sector. This meant disinvesting more than 50%. Strategic disinvestment: Disinvestment was meant to be a process to increase the efficiency of non performing enterprises and to reduce the burden of government in the sector where the private sector has developed the expertise and to focus on social sector where the private entities were not interested. This required disinvestment to the larger extent. For this government in 1999 classified the PSUs into strategic and non strategic. In non strategic sector the government was ready to sell large number of shares as per requirement but in Strategic sector like defence and atomic energy the government would always retain the ownership. There has been major shift in the disinvestment from selling nominal percentage of shares to transferring the ownership. The intention of government behind disinvestment has also changed. Now the public ownership is promoted as wealth of the nation. Disinvestment as a policy has also seen reforms, now the government follows the ‘Minority stake sale’, policy since November 2009, and ‘Strategic disinvestment’, policy renewed in February 2016. Q10) Write a note on prospects on small sector industries in India.A10) India has huge population and there is continuous pressure of consistent employment generation. India’s small sector enterprises are backbone in this regard, it provides around 80% of total manufacturing sector’s employment. Due to this fact the goverment doubled the limit of loans raised with the aid of small and medium enterprises to 2 crore. One of the biggest problem faced by small sector industries in India has been lack of technological assistance, but due to heavy emphasis given to reduction of digital divide in the country, this problem is becoming a lesser worry for the sector.In order to create just and fair society, flourishing Small sector is very important as Small-scale industries trigger the equitable distribution of wealth and income within societies in ways that are economically positive and without being politically turbulent, which is chiefly categorized by more concentration of income and wealth in the organised sector keeping behind the unorganised sector underdeveloped.Pandemic showed us the negative side of migration, people leave their families, land and home behind in villages and move to big cities in search of employment, which is not free from turbulence. Small sector can use these unskilled and semi skilled labor force. Also the labor cost and then production will reduce as it will not require people to migrate.The small sector industries also play a pivotal role in serving big industries by providing accessories, components, small parts and semi finished goods required by big industries. This way a balance for coexistence is formed where there is no saturation in the sector, migration is reduced, fair distribution and localization of wealth is encouraged and also rural development happens. Q11) Write a note on post reform period in India.A11) Numerous steps were taken to improve the performance of Industrial sector. Industrial licensing was abolished, Regulatory requirements to start business were simplified, Sectors reserved exclusively for public sector were reduced, foreign investment was allowed, Income tax and corporate tax were reduced to promote business.In the early reform period the growth rate was above 8% which fell to 6% in 1990s.In eighth and ninth plan the economy grew at the rate of 7.3% and 6% respectively. Then the sector witnessed the worst ever performance when the growth collapsed to just 2%.Exposure to the external competition, reduction in public expenditure by the government, slow growth of exports due to inability of domestic producers to withstand the external competition, slow agricultural growth and collapse of rural demand are the several important reasons slow Industrial performance.The period which ushered in the new millennia during Tenth five year plan brought higher growth rate of more than 8%, which was mainly fueled by manufacturing sector. But again the sector had a severe slowdown in the post 2011 period. Following figure shows plan wise Industrial growth of India.
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