Instruments of implementation:- 1



RESOLUTION 1956 (IPR 1956):- 3

Salient features:- 3

Industrial licensing:- 4

Review of the working of the industrial licensing: - 4


The industrial licensing policy of 1970:- 5

Working of the industrial and licensing policies: 6


Highlights:- 7

Industrial licensing policy: - 7

Foreign investment:- 7

Foreign technology:- 8

Public sector:- 8

List of industries reserved for the public sector:- 9

List of Industries for which Industrial Licensing is Compulsory:- 9

MRTP Act:- 9

Industrial Policy Reforms and Major Initiatives are:- 10

Competition Commission of India:- 10


Relevance:- 11

Definition:- 11

Present scenario:- 12

Causes of industrial sickness:- 12

External Factors:- 13


Faults at Planning and construction stage:- 14

Mismanagement: - 14

Diversion of funds:- 14

Financial problems: - 14

Labour problems: - 15

Steps taken by the Government:- 15

Financial restricting:- 16

Business restructuring: - 16

Manpower rationalization: - 17

Board for Reconstruction of Public Sector Enterprises (BRPSE):- 17


Limitations of Goswami report:- 18

Steps to be taken:- 18


Why Exit Policy?. 19

Why is it being opposed?. 20

What steps did the Government so far take in the areas related to the exit policy?. 20

What the Government should do?. 21


How will it be used?. 22

Present Status:- 22


Objectives:- 22

Employment Intensive Industries:- 22

Capital Goods: 23

Industries with Strategic Significance:- 23

Industries where India Enjoys a Competitive Advantage:- 23

Small and Medium Enterprise:- 23

Public Sector Enterprises:- 24

Specific Policy Instruments:- 24

National Investment and Manufacturing Zones:- 24

Land for NIMZs:- 25

Background:- 25


Trade policy:-1. 27

Rationalization of Regulatory Procedures:- 29

Exit Mechanism:- 30

Job Loss Policy:- 30

Sinking Fund:- 30

Combination of the Two Mechanisms:- 31

Asset Redeployment:- 31

Exemption from Capital Gains Tax:- 31

Administrative Structure for NIMZs:- 32

Special Purpose Vehicle (SPV):- 32

Functions of SPV:- 32

Central Government:- 32

Role:- 32

For this Purpose:- 33


·       India is industrial Policy evolved over the years through resolution, plan documents and the statutes. From time to time, changes have been made in the industrial Policy of the government, because of changing needs of Indian economy. The changes in the policy, for that matter the original policies themselves, were worked out to achieve certain broad objectives.


The objectives of the industrial Policies are:-

·       Rapid industrial development to bring about increased industrial production

·       Rapid expansion of employment opportunities to remove poverty

·       Progressive reduction in disparities to bring about egalitarian society

·       Balanced regional development to prevent migration of people and to reduce tensions, and

·       Attainment of self-reliance

To achieve the above mentioned objectives, the Industrial Policy adopted the following methods:-

·       A greater role for Public Sector within the framework of mixed economy to achieve rapid industrialization.

·       Encouragement of small scale and cottage industries to increase employment opportunities.

·       Control of monopolies to prevent concentration of economic power.

·       Ensuring dispersal of industries to bring about balanced regional development, and

·       Increased dependence on indigenous sources and less dependence on foreign sources to achieve self reliance.

Instruments of implementation:-

To implement the industrial policy, Government used:

·       Industrial licensing,

·       Import licensing,

·       Regulation of foreign investment,

·       Price controls,

·       Incentives and disincentives through taxes and supply of inputs,

·       Use of monetary policy through selective credit,

·       Investments by Government in infrastructure and

·       Setting up Public Government Enterprises.


The main features of the 1948 industrial policy were the following:

1.   Due importance was given to both public and private sectors although a progressively active role was given to the public sector. It was felt that the mechanism and the resources were not adequate enough for the state sector to play a big role expected of it. Hence, it was decided to allow the state to functioning and take up certain new areas and to allow the private sector to expand under proper direction and regulation.

2.   The Industries were divided into four categories as follows

I) State Monopoly: - Arms and ammunition, atomic energy, and rail transport were under the exclusive sphere of the state.

II) Mixed Sector:- Six industries Viz. coal, iron and steel, air craft manufacture, ship building, manufacture of telephone, telegraph and wireless apparatus (excluding radio set) and mineral oils, were reserved for this sector. The state had exclusive right (except where state found it necessary to seek private sector’s participation in any of these industries, in the national interest) to setup new industries in this sector. However the existing private sector units in any of these fields were allowed to continue subject to review after ten years.

III) The sector Under Government Control: - The Government had identified eighteen industries requiring its control and direction, although it did not undertake the responsibility of the development of these industries. The examples of such industries were: Automobiles, Heavy Chemicals, Heavy Machinery, Fertilizers, Sugar, Paper, Cement, Cotton and Woolen Textiles.

IV) Private Sector:- All other industries not figuring in any of the above three lists were under the private sector. However, the government had freedom to enter into any of the industries under this sector if its progress was not satisfactory.

3.   Small and Cottage Industry: - Small and cottage industries, owing to their employment potential, were given importance. Hence, solving problems faced by these industries, such as raw material, capital skilled labour, marketing etc., by the central government was emphasized.

4.   Role of Foreign Capital:- Although the need of foreign capital for the industrial development was recognized, equal importance was given to its regulation and control. It was therefore envisaged that the Indians should have major say in the investment and management of the companies which were allowed to have foreign equity.


RESOLUTION 1956 (IPR 1956):-

·       By 1956 the country had completed one plan period (1951-56). The Industrial Development and Regulation Act (IDRA) 1951 gave necessary experience to the Government in regulating and controlling the industry and the government had declared socialistic pattern of society as its goal. All these developments necessitated the revamping of industrial policy. Consequently the second industrial policy Resolution was announced in the year 1956

Salient features:-

·       The industries were reclassified into three sectors as follows.

a)   Monopoly of the State:- Seventeen industries were listed in the schedule a (of the IPR 56). The future development of these industries was the exclusive responsibility of the state. These 17 industries fall under five broad categories viz.

1.   Defense

2.   Heavy industry

3.   Minerals

4.   Transport & communication and

5.   Power

·       Of these industries, four industries viz. arms & ammunition, atomic energy, railways & air transport were the government monopolies, while in the remaining thirteen, all the new units were to be set up by the state alone.

b)   Mixed Sector:- Twelve industries listed in the Schedule B (of IPR 156) fall under this category which would be progressively owned by State. It would increasingly establish units in this sector’s participation. The industries included in this schedule B are: machine tools; Ferro-alloys and steels; basic chemical and intermediates; antibiotics and other essential drugs; fertilizer, synthetic rubber; coal carbonization, chemical pulp; road and sea transport;

c)   Private Sector:-

1.   All the other industries which did not figure in schedule A or B will be in private sector. Although these industries were left to the private sector, the state could start any industry of its interest in this sector.

2.   The private & public sectors were expected to be mutually dependent. Only four industries were left under the exclusive monopoly of the state. Private participation was allowed in rest of the industries. Similarly state was free to start any industry it liked even in those areas left to the private sector.

3.   The private sector could be given necessary assistance like providing fiscal incentives & equity participation. Also it could be subjected to regulations and controls to ensure the development of the private sector in conformity with the plan objectives of the state.

4.   The IPR 1956 has stressed the importance of small scale industries, reduction of regional inequalities and industrial peace.

Industrial licensing:-

·       This industrial (Development and Regulation) Act, 1951 was enacted to empower Government to regulate the establishment and development of industries particularly in private sector by means of licensing. While licensing Government can lay down conditions regarding location, size, etc. industrial licensing is the mechanism by which industrial policy is implemented, and hence the objectives of industrial licensing are same as that of industrial policy.

Review of the working of the industrial licensing: -

·       However, the licensing system did not work properly as brought out by the Hazari Committee Report of 1967 and the Dutt Committee Report of 1969. These two committees found that there was little impact of the industrial licensing on the dispersal of industries.

·       More licenses were issued to establish industries in industrially advanced states such as Maharashtra, West Bengal, Gujarat, and Tamil Nadu, and metropolitan cities and big town at the cost of backward states and small towns. The licensing system and the credit institutions favored the big industrial houses leading to the concentration of industries in a few hands.

·       The Dutt Committee identified 73 large industrial houses with assets ranging from Rs. 20 to 35 crores. The Dutt Committee also found that the big industrial houses in the private sector usurped the industries reserved for the public sector by utilizing the loopholes.


·       Monopolies and Restrictive Trade Practices Act – 1969

·       This Act was enacted to regulate the activities of the big industrial houses so as to avoid the concentration of economic powers in a few hands. All industrial and business houses with assets exceeding Rs. 20 crores (raised to Rs. 100 crores) were subject to a number of regulations. They are banned from entering into certain areas for establishing certain industrial units.

The industrial licensing policy of 1970:-

·       A comprehensive industrial licensing policy was formulated in 1970 basing on the reports of the Hazari and the Dutt committee Reports. Accordingly, large industrial houses and the foreign companies were allowed to invest in units of the core sector other than those reserved for the public sector. The middle investment sector (between Rs. 1 crore and 5 core) was largely reserved for the middle entrepreneurs. Other areas including consumer goods industries were left to the small class entrepreneurs.

·       The principle of joint sector where the public and private sectors jointly establish industrial units was accepted in principle.

·       The policy of reserving certain items of production to the small scale sector was continued. The co-operative sector is to be preferred in licensing for the establishment of agro-based industries.

·       The scope of the public sector was to be increased substantially beyond what was envisaged in the industrial policy statement 1956 particularly by taking up short gestation projects. This was intended to enable public sector to earn profits.

·       Liberalization of Industrial Policy:- the need for the liberalization of industrial policy was felt after the Indo-Pak war of 1971. Restrictions on Production with respect to 72 priority industries were relaxed. To implement the approved development strategy of the 5th Five Year Plan, industrial licensing policy was further relaxed in 1973.

·       The relaxation includes opening of some of the basic and critical industries to the large industrial houses and promotion of central and state joint ventures in priority areas. In 1975, 21 industries were delicensed and 30 other industries were opened to big business houses and foreign companies.

·       The industrial policy statement of 1980 further liberalized licensing procedure. It raised the investment limits prescribed for small scale and ancillary units Extension of provision for automatic expansion, streamlining of licensing procedures to cut delays, etc., are the other liberalization measures initialed in the statement to achieve rapid industrial growth.

·       A scheme of broad-banding was introduced in 1985, to allow flexibility for better capacity utilization and to reap economies of scale by adjusting the capacities of their product mix according to the market demand. Thirty two groups of industries were delicensed subject to the regulations under MRTP, FERA etc.

·       A new textile policy and a new drug policy were announced in 1985 and 1986-87 respectively. The two policies liberalized the licensing and investment procedures besides a number of incentives for their growth.

·       Liberalization of industrial licensing is a continuous process and relaxations were made every year depending on the prevailing circumstances.

Working of the industrial and licensing policies:

·       There is a large gap between what was professed in the industrial policy and what was done during actual implementation. Though the policy sought to restrain concentration of economic power, large scale private enterprises were favored in licensing, leading to concentration of economic power.

·       It seems that the policy professing have been motivated by the political exigencies to project a socialistic image while its implementation has been governed by economic necessity of faster industrial growth in whatever way it came out. The objective of dispersing the industries to backward areas was also not achieved to the desirable extent.

·       Small scale industries were neglected. The policy also led to the emergence of a high cost economy making the Indian products non-competitive in the international market. Large scale industrial sick-ness is another feature of the Indian industry to which the industrial policy is partly responsible.

·       Nevertheless, the policy contributed to industrial growth. Industrial growth rate has been over 5 percent over the years. The policy of promoting public sector helped in establishment of basis and critical industries which are essential for the development of other industries.



·       Delicensing of all industries excepting 18 industries,

·       Permission for 51% of Foreign investment in high-priority areas,

·       Liberal procedure for foreign technology collaboration,

·       Removal of asset limit for MRTP companies,

·       Permission for private sector to enter even areas reserved for public sector with the approval of the government, and

·       Sale of 20% public sector equity shares to public financial institutions, workers and general public

·       Are the highlights of the industrial policy of 1991, which aims at making Indian industry efficient and competitive in world market by removing unhealthy controls.

Industrial licensing policy: -

·      Compulsory licensing has been abolished for all industries irrespective of the levels of investment, except for 18 specified industries like coal, sugar, motor cars, hazardous chemicals, entertainment electronics (TV, VCR, etc.,) and those related to security, strategic, environmental and social concerns. Later in 1993, licensing was abolished for 3 of these 18 industries – motor cars, leather and white goods like air- conditioners, refrigerators and washing machines.

·      Exemption from licensing will apply to all future expansions of existing units.

·      All existing registration schemes (Delicenced Registration, Exempted industries Registration, GDTD Registration) will be abolished.

·      Entrepreneurs will henceforth only be required to file an information memorandum on new projects and substantial expansions.

·      No industrial approval is required from the central Govt. to locate any industry (other than those requiring compulsory license) in any place of less than 10 lakh population. However zoning and land use Regulation and environmental legislation will continue to regulate locations of industries.

·      New or existing units have been provided with new broad banding facility to produce any article provided no additional investment is needed.

Foreign investment:-

·      Direct foreign investment in 34 high- priority industries is allowed automatically up to 51% provided the foreign equity covers the foreign exchange requirements for import of necessary capital goods. Otherwise, prior clearance is needed. The high-priority industries include commercial vehicles and two wheelers, inorganic fertilizers, chemicals, drugs and pharmaceuticals, paper, tires, hotels, food processing industries, industrial and agricultural machinery etc.

·      Foreign equity proposals need not necessarily be accompanied by foreign technology agreements.

·      Dividend expatriations have to be balanced by export earnings over a period of time by the foreign equity based units.

·      51% foreign equity participation has been extended to trading companies primarily engaged in export business.

·      A special empowered board will be constituted to negotiate with a no. of multinational firms and approve direct foreign investment in select areas.

Foreign technology:-

·      Automatic permission for foreign technology agreements in 34 high priority industries up to lump sum payments of Rs. 1 crore. 5% royalty of domestic sales and 8% of exports subject to total payments of 8% of total sales over a 10 year period from the date of agreement for 7 years from date of production.

·      No permission is needed to hire foreign technicians and for foreign testing of indigenously developed technologies.

Public sector:-

·      8 crore sectors have been reserved for public sector for security and strategic concerns like arms and other defense equipment, atomic energy, coal and lignite, mineral oils, mining of ores, like iron and manganese, mining of copper, lead, and zinc, minerals related to atomic energy, and railway transport.

·      Public sector investments are to be reviewed to focus on strategic high-tech & essential infra structure. Private sector can be allowed entry into reserved sectors of public sector. Similarly public sector can enter in any area.

·      A part of government’s shareholding in the public sector will be offered to mutual funds, financial institutions, general public, and workers to raise funds and encourages wider public participation.

·      Chronically sick PSUs will be referred to the Board for Industrial and Financial Reconstruction (BIFR) for its revival/rehabilitation schemes. Workers likely to be affected by such schemes will be protected by a social security mechanism that is proposed to be created.

·      Emphasis will be laid on MOU (Memoranda of Understanding) system for improving the performance of the PSUs (Public Sector Undertakings). MOU provides greater autonomy to the management at the same time. The MOUs will be placed in Parliament to facilities deeper analysis of the performance.

List of industries reserved for the public sector:-

·      Atomic Energy

·      Substances specified by the Department of Atomic Energy

·      Expect the above; all other industries are open to entry by private sector.

List of Industries for which Industrial Licensing is Compulsory:-

·      Distillation and brewing of alcoholic drinks.

·      Cigars and Cigarettes of tobacco and manufactured tobacco substitutes.

·      Electronic Aerospace and Defense Equipment.

·      Industrial explosives including denoting fuses, gun powder, nitro cellulose and matches.

·      Hazardous chemicals.

·      Drugs and Pharmaceuticals is the last item removed from the list requiring compulsory licensing in September 2005, resulting in only the above five industries, mainly on account of environmental safety and strategic considerations.

·      All other industries are exempted from taking approval / license from the Government. Any entrepreneur intending to set up an industry not covered by the above five categories has to just file an industrial Entrepreneurism Memorandum (IEM) with the Department of Industry.

MRTP Act:-

·      MRTP Act was amended providing for removal of asset limit for defining a company a monopoly and its replacement with market share.

·      MRTP companies will be free to implement expansion and other new schemes, apart from mergers and takeovers.

·      However MRTP commission will investigate monopolistic, restrictive and unfair trade practices.

Industrial Policy Reforms and Major Initiatives are:-

·       Reducing the number of industries requiring industrial licenses to 5.

·       Reserving only 2 industries for Public sector.

·       Liberalizing foreign direct investment policy.

·       Constituting Disinvestment Commission for preparing an overall long term disinvestment programme for PSEs referred to it and the modalities for disinvestment.

·       Amending Sick Industrial Companies Act (SICA), 1985 to bring PSEs within the ambit of SICA, 1985 and BIFR.

·       Setting up of National Renewal Fund to protect the interests of workers likely to be affected due to restructuring or closure of industrial unit.

·       Growth Centers Scheme to develop infrastructure in backward areas to promote industrialization.

·       Amending Drugs Price Control Order to give freedom to private sector including fixation of drug prices. Reducing the number of drugs under price control from 143 to 72.

·       New National Minerals Policy which opens mining industry to private sector including 50 percent foreign equity in 13 minerals.

·       Setting up Technology Development Board to facilitate development of new technologies and assimilation of imported technologies.

Competition Commission of India:-

·       This was provided by the Competition Act, 2002 with the following objectives.

·       To prevent practices having adverse effect on competition.

·       To promote and sustain competition in markets.

·       To protect the interests of consumers and

·       To ensure freedom of trade carried on by other participants in markets.

·       The Act was based on Raghavan Committee on Competition Policy, which gave its report in 2000.

·       The Act also seeks to repeal the MRTP Act and to dissolve the MRTP Commission from the date it is notified as such by the Central Government. Such a notification is not yet issued by the Government.

·       The Commission was set up in October 2003. Due to orders of the Supreme Court in 2005 staying the judicial functioning of the Commission and operation of the rules framed for selection of members of the Commission, the Commission is at present functioning only with one member, undertaking only administrative and advocacy functions.

·       Its quasi-judicial activities are not started. The Act is proposed to be amended to overcome these legal restraints.



·       Industrial sickness has been a serious malady affecting our economy leading to wastage of precious resources and stunting growth. It has exposed the weakness of our industrial and management culture and methods. In the light of liberalization of our economy, and in the wake of which, moves are afoot to make our industries globally competitive, it is of paramount importance to study the malaise affecting our industries and take pertinent corrective measures.


·       Though several definitions exist on “Industrial Sickness” the definition of Sick Industrial Companies Act (1985) is the most widely accepted one. According to this definition. Sick Industrial Unit is a medium and large (i.e. non-SSI industry) company (being a company registered for not less than 7 years) which at the end of any financial year has accumulated losses equal to or exceeding its entire net worth and has also suffered cash losses in the financial year and the financial year immediately preceding such financial year.

·       However the following companies are not covered under the act.

·       A financial or leasing company which does not own any industrial undertakings.

·       A trading company which does not own any industrial undertaking.

·       A company which owns an industrial undertaking but which does not employ 50 or more persons, if the unit runs on power or 100 or more persons, if it runs mechanically in the preceding 12 months.

·       A company which owns a small scale industrial undertaking or an ancillary industrial undertaking.

·       Though small-scale industries do not come under the purview of SICA (Sick Industrial Companies Act), it is also important to recognize sickness in small industries. A small scale industrial unit is considered to be sick when it has.

·       Incurred cash loss in the previous accounting year and was likely to continue with losses in the current accounting year and which experienced erosion on account of cumulative cash losses to the extent of 50% or more of its peak net worth during the last 5 years and which

·       Continuously defaulted in meeting four consecutive installments of interest or two-half yearly installments of principal on term loan and there were persistent irregularities in the operation of its credit limits with the bank.

Present scenario:-

·      As the matter stands now, industrial sickness has emerged as a serious problem affecting national economy in general and industrial sector in particular. All types of industries i.e. small, medium, and large are affected by sickness. As at the end of March 2001. The total number of sick units of all categories stood at 2.52 Lakhs. However, between 31 March or 1999 and 2001, the number of sick SSI units decreased from 3.06 lakh units to 2.53 lakh units. It further decreased to 1.18 lakhs in 2007.

·      The incidence of sickness in SSI which was one in eight in 1988 has come down to one in fourteen in 2001. Though it was feared that de reservation, removal of quantitative restrictions on imports could SSI sector, it is the large and medium industries that seem to be bearing the brunt of globalization.

·      State wise analysis of sick units indicates that the largest number of these units is in the state of Maharashtra followed by West Bengal, Gujarat, Tamil Nadu, Andhra Pradesh, Uttar Pradesh and Karnataka. Ironically these states happen to be industrially most advanced states in our country.

·      The consequences of industrial sickness are loss of production, loss of employment, loss of revenue to the Central and State Governments, and locking up of investible funds of banks and financial institutions, Further, industrial sickness dampens the industrial climate of sickness to other healthy units which have transactions with sick units.

Causes of industrial sickness:-

·       Two sets of factors are responsible for industrial sickness, external and internal. The external factors relate to such factors as government policies pertaining to such factors as government policies pertaining to production, distribution and prices, change in the investment pattern following new priorities in the plans, shortage of power supply, raw materials etc. Internal factors are faults at the planning and construction stage, mismanagement, diversion of funds, financial of capacity, old and obsolete technology, excess man power etc.

External Factors:-

1.   Government Policy: - sudden changes in the government policy relating to import, export, industrial licensing, price controls, etc. can make viable units sick overnight. For instance coal industry faced severe price controls before nationalization and in consequence experienced arrested and in consequence experienced arrested or negative growth.

·       Similarly a liberal import policy for a product which is cheap can inflict serious damage on the domestic units producing similar products. A liberal export policy serve as an incentive for export-oriented industries.

·       Granting of liberal licenses to big industrial houses in the production lines reserved exclusively for the S.S. sector can adversely affect the progress of the latter. Easy approval given to S.S. units without proper screening of project proposals can also result in sickness.

·       Some of the policies of the government like industrial growth vis-a-vis balanced regional development are also responsible for the sad state of industrial progress in our country. Till recently, before initiating liberalization measure in full scale, the considered its responsibility to start several unprofitable but high budget ventures to develop the backward areas. The industries started in this connection failed to make a profitable proposition.

2.   Power cuts: - Power cuts are imposed by the state governments as generation of power is considerably below its actual requirements. Drought situation during some years further aggravate the problem leading to industrial disruption.

3.   Erratic Supply of Inputs: - The supply of raw materials is erratic to some units. This results in disturbing the production schedule in the causing losses to the unit. This often happens in the case of units depending upon the supply of imported inputs. Insufficient availability of transport facilities can also upset the supply schedule of inputs.


Faults at Planning and construction stage:-

·       Fundamentally wrong locations of an industrial unit can starve it from proper infrastructural facilities, steady availability or raw material and market. This would make the unit sick at its inception and nip the progress in the bud. Industries also turn sick if correct machinery is not chosen or defective machinery is chosen or if obsolete and outdated technology is used in the production process.

Mismanagement: -

·       The most important external cause for industrial sickness is mismanagement. Lack of basic technical knowledge and basic business acumen, no wonder would land up newly set up units in sickness. In addition to the above faulty managerial decisions in the fields of production, marketing, finance, personnel management, it can ruin a business. Proper care has to be exercised in avoiding, over estimation of demand, etc. Absence of quality control systems, inadequate attention towards maintenance management, insufficient sales promotion activities improper pricing  policies are some of the other important examples of mismanagement which should be taken care of.

Diversion of funds:-

·       It is found that in some cases the management which is not interested in running a particular unit diverts its funds to some other business house owned by it taking advantage of the legal loopholes and declares it sick. More often than not this misconduct of management is never punished and in majority of the cases, the management emerges successful in obtaining fabulous compensation form the government which enabled it to set up new units.

Financial problems: -

·       A number of units face acute financial problems from the stage of planning and construction to the stage of implementation and beyond. The financial base of several industries especially in the small sector is very weak and slight disturbances in the market put them under acute financial strain often small scale units default in their repayment schedules to banks and financial institutions resulting in accumulation of unpaid debt making them sick. Similarly small scale industries turn sick if the banks refuse to support them insisting on proven performance for extension of credit. Non payment by the medium and large industries to the ancillaries for services is another cause of industrial sickness.

Labour problems: -

·       These problems may emanate from differences with management over the issue of wages, bonus, suspensions, retrenchment, and inter-union rivalry. If not tackled in time satisfactory such problems can cause sickness.

·       Underutilization of capacity leads to high per unit cost of production.

Steps taken by the Government:-

·       Government has taken over management of a number of sick units like textile mills with a view to reviving them by providing management and financial support.

·       Government has offered to give tax benefits to healthy units when they take over the sick units by amalgamation with a view to reviving them.

·       Industrial Reconstruction Corporation of India (IRCI) was established by the Government with a view to reviving and rehabilitating sick units.

·       The IRCI provides :

                     i.     Financial assistance to sick industrial units

                    ii.     Managerial and technical assistance

                   iii.     Merchant banking services for amalgamation, merger etc.

                  iv.     Consultancy services to banks in matters relating to sick industrial units, and

                    v.     Secures assistance of other financial institutions and government agencies for ensuring the revival and rehabilitation of sick industrial units.

·       In 1985 the IRCI was converted into a statutory corporation and given the name of industrial Reconstruction Bank of India(IRBI) by the Government.

·       Government had also setup the Board for Industrial and Financial Reconstruction (BIFR) in 1987, within the terms of Sick Industrial Companies Act (SICA) 1985, for determining the preventive, ameliorative, remedial and other measure which are required to be taken in respect of sick industrial companies. Industrial companies whose net worth has been eroded completely and those which have net worth eroded by 50% or more (called as weak units) are required to make a reference to the BIFR. In case where sickness is confirmed, BIFR will determine the course of action to be followed with regard to the company. The course of action may be

                       i.   Allowing the company time as per schemes already initiated to make its net worth positive within a reasonable period.

                     ii.   Having a scheme prepared through the operating agency which is setup by itself, for reconstruction, revival of unit through change of management, amalgamation measure sale or lease of a part or whole or the sick company, etc.

                    iii.   Deciding on the winding up of the company. (Once the BIFR feels that a sick industrial company is to wind up its operations, it may record and forward its opinion to the concerned high court. The decision of the BIFR in binding on all concerned. Even Public Sector enterprises were brought under its purview from 1992. The Act has an overriding effect over all other laws except FERA and Urban Land (ceiling and regulation) Act. The jurisdiction of civil courts is barred in respect of matters coming under its purview.

·       Setting up of textiles modernization and jute modernization funds to help the revival of revival of sick units in cotton textiles and jute industry as industrial sickness in these industries was due to lack of modernization.

·       The major strategies for restricting of CPSEs including sick units on long term basis are discussed below.

Financial restricting:-

·       Investment is made in CPSEs by the Government in the form of equity participation, providing loan or plan/non-plan assistance /grants or through the revival packages which involve substantial outgo from the Government or write-off of past losses and infusion of fresh capital, etc. Generally the plan assistance is provided for expansion or undertaking new projects by the CPSEs. Penal interest, conversion of loan into equity, conversion of interest including penal interest into loan, moratorium on payment of loan/ interest. Government guarantee, etc. are also taken to improve the financial strength of the company particularly in the case of sick and loss making enterprises.

Business restructuring: -

·       Change of management, organizational restructuring, hiving off viable units from CPSEs for formation of separate company, closure of in viable units, formation of joint ventures by induction of partners capable of providing technical, financial and marketing inputs, change in product mix, improving marketing strategy, etc. are the steps taken under the business restructuring process as per need on case to case basis.

Manpower rationalization: -

·       In order to shed excess manpower, the Voluntary retirement Scheme (VRS) is introduced by the CPSEs from time to time. In case of CPEs found unviable and decided to be closed, the Voluntary Separation Scheme is introduced in such units. Retrenchment is adopted as the last resort in exceptional circumstances.

·       Out of 74 CPSEs registered during 1992-2006 with BIFR, 57 were in operation during 2005-06, establishments of 16 were closed and one company Limited was merged with the parent company SAIL. Out of these 57 CPSEs the BIFR has already disposed of 40 cases of CPSEs either through sanctioning revival schemes (17 cases), or recommending winding up (13 cases) or declaring no longer sick (4 cases) or dropping due to net worth becoming positive (3 cases) or dismissing the cases as non-maintainable (3 cases).

Board for Reconstruction of Public Sector Enterprises (BRPSE):-

·       The Government set up a board for reconstruction of Public sector enterprises (BRPSE) in December, 2004 to advice the Government inter alia on the measure to be taken to restructure/revive CPSEs.

·       For the purpose of making reference to BRPSE, a company is considered sick if it has accumulated losses in any financial year equal to 50% or more or its average net worth during 4 years and / or a company which is a sick company within the meaning of sick industrial companies (special provisions) Act. 1985 (SICA). The concerned administrative ministers / Departments are required to send proposals of their CPSEs identified as sick for consideration of the BRPSE. The board is accepted to make its recommendations within 2 months of the date of making reference to it.

·       The BRPSE has made recommendations in 47 cases including two for closure till October 31, 2007. The proposals for revival of 26 CPSEs and closure of two have been approved. The total assistance approved by the Government up to December 2007 in this regard is Rs. 8,285 crore.


·       The Goswami Committee headed by Onkar Goswami examined in detail the malady of sickness and submitted its report in July 1993. It laid the onus of responsibility mainly on the promoters and suggested steps to identify sick units at an early stage. In addition it addressed the rather difficult problem of closure of sick units and disposal of its assets.

·       In its view, the BIFR has turned out to be a toothless body because of its very quasi-judicial nature, whose accent is only on rehabilitation of the unit and not on speedily disposing the assets of the closed unit before the consequences of and effects of sickness affect the financial institutions, works and creditors. It suggested five east-racking bodies based in the main industrial centers with powers to either rehabilitate or dispose all pending cases quickly through summary procedure.

·       Further it called for amendment of certain clauses in the industrial Disputed Act, (IDA) since they virtually rule out closure of winding up of a sick unit. In its view, the workers and financial institutions any be better served, in most cases, by winding up only.

·       In the effort to identify sick units at an early stage it suggested suitably amending SICA by labeling all units which have defaulted payments to financial institutions for two consecutive quarters (or six months) as sick. At that stage they would be required to sit with the financial institutions to draw up rehabilitation plans or they can voluntarily approach BIFR.

·       The basic emphasis of the Goswami report has been that the promoter’s mismanagement more than anything is responsible for industrial sickness. Its preamble clearly states that there are sick companies; sick financial institutions and unemployed workers but these are no sick promoters.

Limitations of Goswami report:-

·       The emphasis of Goswami report has been mainly on to the internal causes which lead to sickness. The emphasis on promoter’s mismanagement shows that units which become sic due to external factors are not properly dealt with. IT mentioned no safeguards to ensure responsible management by the promoters of the unit.

Steps to be taken:-

       I.      The government should also take a number of steps to improve the lot of sick S.S.I units like

a.    Making professional management expertise readily available for the guidance of small enterprises.

b.    According top priority in allocation of scarce resources.

c.    Taking penal action on S.S.I units for non-payments for delivered goods by small units.

d.   Proper screening or project proposals before giving approval to small units.

     II.      The SICA, 1985 leaves out small scale units and critical sectors of mining, shipping service, tourism and marketing, finance and leasing companies from the purview of its definition of sickness. Because of the increasingly important role of these sectors in the general economic development of the country and in terms of employment potential these are to be included under the definition the SICA 1985 along with small scale industries so that they get benefits on par with other big industries.

   III.      Unscrupulous entrepreneurs who divert funds and make the units sick or their personal advantages should be subjected to severe penalties. If convicted in such cases, the government should recover all dues form them from their personal or their corporate assists. The government should extend concessions, exemptions and assistance only to genuinely sick units.


·       The term exit gives a meaning opposite to entry.

·       The exit policy provides rules and guidelines allowing the sick industrial units to exit from the field, i.e. it allows the closure of terminally sick industries (meaning, such of the industrial units which could not be revived and economically made viable with all the rehabilitation measures.)

Why Exit Policy?

·      The maintenance of sick units by providing external assistance and subsidy simply for supporting the workers is not a permanent solution. On the contrary it amounts to wastage of scare resources.

·      The amount of subsidy and the external assistance if used in new units, instead of sick units, will provide scope for fresh employment and production which is beneficial to society.

·      It is not worthwhile to invest just to maintain the labour where the returns are less than such investment (Relief employment) instead, it is good to spend in new areas which bring more returns than invested (normal employment).

·      The loss of employment on account of withdrawing the support to relief employment in the short term is no loss at all, compared to the long term gains in the shape of increased employment that will via generated by diverting this support to the viable new units. So it will be a short term pain for a long term gain.

·      The exit policy will encourage foreign investment by providing assurance to the investors that they will be free to close the unit if it turns out to be an economically unviable unit. The increased foreign investment will expand the employment opportunities.

·      The labour laws in the country which were enacted to protect the workers interest have made the closure of industry very difficult. There has therefore been a demand of liberalizing the policies to make the exit easy, form the representatives of industry and commerce. This demand became more intense with the declaration of new economic policy which made the government work out a suitable policy.

Why is it being opposed?

·      The policy will add up to the already bad unemployment situation in the country. According to one estimate four to eight million public and private sector workers (out of a total organized work force of 26 million) will be thrown out of employment over the next there years if this policy is implemented.

·      The foreign investment will bring with it foreign technology which will in all likelihood be capital intensive. It is also feared that all the components and machinery will be imported together with the foreign investment. The expansion of employment opportunity on this count (foreign investment) will therefore be not tangible.

·      Fears are also expressed that the exit policy will be misused by the unscrupulous industrialists.

·      It is further argued that the workers are not responsible for the industrial sickness; but the entrepreneurs their bad management policies and certain other external condition including Bureaucratic controls, delays and the government policies themselves are responsible for it. (This view was held to be true by the Board for Industrial and Financial Reconstruction (BIFR). The exit Policy is therefore for no fault of theirs.

·      The   large scale unemployment on account of the Exit Policy will lead to social tensions.

What steps did the Government so far take in the areas related to the exit policy?

·       The Government has established a National Renewal Fund (NRF) to help the workers that are likely to be affected by the new policies (details of NRF are discussed in a separate write up).

·       The Sick Industrial Companies Act (SICA) has been amended so as to enable the sick public sector units to be referred to the Board for Industrial and Financial Reconstruction (BIFR). Before this amendment, only private sector units were required to be referred to this agency. As on October 2002, BIFR received 5,675 references under SICA including 273 from Central and state PSUs. It sanctioned rehabilitation scheme for 42 PSUs. (22 Central and 20 State) and recommended winding up of 55 PSUs (22 Central, 33 State).

·       Companies (Second Amendment) Act 2002 was passed providing for national company Law Tribunal (NCLT) which will handle the functions of following three agencies.

a.  Companies Law Board (CLB) – (dispute resolution and compliance with certain provision of the 1956 companies act).

b.  Board of Industrial Finance and Reconstruction (BIFR) 0 (revival and rehabilitation of sick companies).

c.  High Court – (winding up of companies)

·       A scheme likes Voluntary Retirement and Golden Hand Shake (a scheme to remove employees by paying good compensation) by the public sector concerns.

·       The contentious issue of the policy is the retrenchment of the work force likely to result from the closure of sick units to receive them. However, the Government has assured that it would take all the steps necessary to protect the interests of workers.

What the Government should do?

·      BIFR must be professionalized

·      The definition of sickness should be changed in true with Goswami recommendation

·      The National Renewal Fund must be made statutory

·      The Urban Land ceiling Act must be abolished

·      More autonomy should be given to managements under the Industrial Disputes Act.

·      The stake of promoters in projects must increases and incentive to declare a company sick must be abolished.

·      Workers cooperatives must be given financial assistance to transform the industrial land scope, improve productivity and give labour a better deal.


·       NRF is a fund meant for helping the workers affected by retaining them and by closure or revival or modernization of sick industries. This fund, first proposed in the budget 1991-92, was established by 1992-93 budgets.

How will it be used?

·       The fund was used to rehabilitate the workers retrenched by retraining them and by redeploying them in other units or any alternative business or economic activity and by playing compensation for retrenchment.

Present Status:-

·       National Renewal Fund has been abolished in year 2000.

·       However, the budgetary support for implementation of VRS in Central PSUs has been made available directly to the administrative ministries by Finance Ministry from the financial year 2001-02 and funds required for retaining / rehabilitation of employees availing VRS have been place with Department of Public Enterprises.



·       On October 25, 2011, Government of India release the National Manufacturing  Policy to

·       Increasing manufacturing sector growth to 12 -14% over the medium to make it the engine of growth for the economy.

·       Increasing the share of manufacturing in GDP from 16 per cent to 25 per cent by 2022.

·       Increasing the rate of job creation in manufacturing to create 100 million additional jobs by 2022.

·       Create of appropriate skill sets among the rural migrant and urban to make growth inclusive,

·       Increasing domestic value addition and technological depth in manufacturing.

·       Enhancing global competitiveness of Indian manufacturing through appropriate policy support, and

·       Ensure sustainability of growth, particularly with regard to the environment including energy efficiency, optimal utilization resources.

·       The following industry verticals will be given special attention:

Employment Intensive Industries:-

·       Adequate support will be given to promote and strengthen employment intensive Industries to ensure job creation. Special attention will be given in suspect of textiles and garments; leather and footwear; gems and jeweler; and food processing industries.

Capital Goods:

·       A robust economic growth would necessitate a strong demand for capital goods. Such growth would create a strong and consulting demand for capital goods. As in the capital goods industry, which is the mother industry for manufacturing has not grown at the desire pace, a special focus will be given to machine tools; heavy electrical equipments; heavy transport, earth moving and mining equipments.

·       Time bound programmers will be initiated for building strong capacities with R&D facilities and also encourage growth and development of these capacities in the private while strategically strengthening the public sector to complement the private initiatives where essential.

Industries with Strategic Significance:-

·       A strategic requirement of the country would warrant the launch of programmers to build national capabilities to make India a major force in sectors like aerospace; shipping; IT hardware and electronics; telecommunication equipment; defense equipment; and solar energy. Mission mode projects will be conceptualized in each of this sector, recognizing the fact that a mission on solar energy has already been launched under the National Action Plan on Climate Change.

Industries where India Enjoys a Competitive Advantage:-

·       Indies large domestic market coupled with a strong engineering base has created indigenous expertise and cost effective manufacturing in automobiles; pharmaceuticals; and medical equipment. The concerned ministries will be formulating special programmers to consolidate strong industry base to retain the global leadership position.

Small and Medium Enterprise:-

·       The SME sector contributes about 45% to the manufacturing output, 40% of the total exports, and offers employment opportunities both for self-employment and jobs, across diverse geographies. A healthy rate of growth shall be ensured for the overall growth of the manufacturing sector as also the national economy by policy interventions in areas like manufacturing management, including accelerated adoption of Information technology; skill development; access to capital; marketing; procedural simplification and governance reform.

·       The National Manufacturing Competitiveness Programmer, being implemented by Ministry of small and Medium Enterprises (MSMEs) will be strengthened, and the recommendations of Task Force on MSME for creation of a separate fund with SIDBI, strengthening of NSIC, modification of leading norms and inclusion of lending to MSMEs under priority sector lending will be given due regard I taking appropriate measures.

Public Sector Enterprises:-

·       Public Sector Undertaking, especially those in Defense and Energy sectors, continue to play a major role in the growth of manufacturing as well as of the national economy. A suitable policy framework will be formulated in this regard to make PSUs competitive while ensuring functional autonomy.

Specific Policy Instruments:-

·       Rationalization and simplification of business regulations;

·       Simple and expeditious exit mechanism for closure of sick units while protecting labour interests;

·       Financial and institutional mechanisms for technology development, including green technologies;

·       Industrial training and skill up graduation measures;

·       Incentives for SMEs;

·       Leveraging infrastructure deficit and government procurement including defense;

·       Clustering and aggregation : National Investment and manufacturing Zones (NIMZs);

National Investment and Manufacturing Zones:-

·       The National Investment and manufacturing Zones (NIMXs) will be developed as integrated industrial townships with state-of-the art infrastructure and land use on the of zoning; clean and engrave efficient

·       Technology; necessary social infrastructure; skill development facilities, etc., to provide a productive environment. These NIMZs would be managed by SPVs which would ensure master planning of be Zone; pre-clearances for settings up the industrial units to be located within the zone and undertake such other functions. The enable the NIMZ to function as a self governing and autonomous body, it will be declared by the State Government as an industrial Township under Art 243 Q(c) of the Constitution. in sum, the NIMZs would be large areas of developed land, with the requisite eco-system for promoting world class manufacturing activity.

Land for NIMZs:-

·      An NIMZ would have an area of at least 5000 hectares in size.

·      The State Government will be responsible for selection of land suitable for development of the NIMZ including land acquisition if necessary.

·      Following guiding principles will be applied by the State Government for -the purpose:

·      Preferably in waste lands; infertile and dry lands not suitable for cultivation ;

·      Use of agricultural land to the minimum;

·      All acquisition proceedings to specify a viable resettlement and rehabilitation plan;

·      Reasonable access to basic resources like water;

·      It should not be within any ecologically sensitive area or closer than the minimum distance specified for such area.

·      State Government will ensure that the land can be mortgaged by the prospective allotted for securing financial assistance from banks/Financial institutions.

·      After identification of the land, it will be the responsibility of the state government to get the environmental impact study conducted for a prospective NIMZ.

·      At least 30% of the total land area proposed for a NIMZ will be utilized for location of manufacturing units. The states may reserve a certain percentage of the land as appropriate, in a zone, for MSMEs.

·      The State Government will bear the cost of the resettlement & rehabilitation package for the owners of acquired land, if any. An arrangement to recover the costs could be put in place in collaboration with the SPV.


·      The concern about the stagnant and low share of the manufacturing sector in India’s GDP necessitated a dedicated policy for the sector with view to accelerated development. Inclusive growth and provision of gainful employment.

·                In the last two decades, Indian economy has witnessed a transformational change and has emerged as one of the fastest growing economies of the world. Industrial development in independent India was catalyzed by three major industrial policy resolution of Government of India in 1948, 1956 and 1991, which provided a strong industrial base. Economic reforms unveiled in 1991, have brought about a structural shift enabling the private sector to assume a much larger role in all sector of economy. However, the growth of GDP in India has largely been enabled by a dynamic growth in the services sector.

·      Though in the recent past, the growth of the manufacturing sector has generally outpaced the overall growth rate of the economy, at just over 16 percent of GDP, the contribution of the manufacturing sector in India is much below its potential.

·      This situation is a cause of concern especially when seen in the context of transformation registered in this sector by other Asian countries in similar stages of development. The increasing gap in the sectoral share and the productivity of the manufacturing sector, between India and these economies, indicates that we have not been able to fully leverage the opportunities provided by the dynamics of globalization.

·      This also has attendant socio economic manifestations in terms of over dependence of a large section of the population on agriculture for its livelihood, disguised unemployment and urban unemployment.  India has a favourable demographic profile with over 60% of population in the working age group of 15-59 years. For a country with the largest young population in the world, this creates a challenge of significant magnitude. Over the next decade, India has to create gainful employment opportunities for a large section of its population, with varying degrees of skills and qualifications. This will entail creation of 220 million jobs by 2025 in order to reap the demographic dividend. The manufacturing sector would have to be the bulwark of this employment creation initiative. Every job created in manufacturing has a  multiplier effect of creating two to three additional jobs in related activities. Therefore, a thrust on manufacturing is integral to the inclusive growth agenda of the government.

·      Besides the employment imperative, the development of the manufacturing sector is critical from the point view of ensuring that the growth model of India is sustainable by providing value addition to our natural and agricultural resources, addressing our strategic needs, and developing new technologies for the welfare of our citizens.

·      The relatively low level of ‘value-addition’ in the products manufactured in the country, and the growing imports of capital equipment n the building blocks of countries manufacturing competitiveness also needs to be addressed urgently. Acquiring depth in manufacturing is crucial from the stand point of long-term competitiveness in strategic areas of economy such as defense and tele-communication. It is important to have a strong indigenous value chain addition element from the stand point of national security.

·      Finally, the growth of the manufacturing sector has to be made sustainable, particularly ensuring environmental sustainability through green technologies, energy efficiency, and optimal utilization of natural resources.


Trade policy:-1

·      Global experience of manufacturing has shown the advantages of clustering and agglomeration as it advantages of clustering and agglomeration as it enhance  supply chain responsiveness, provides easier access to market, talent and substantiality lowers logistic costs. Through the government has been executing multiple schemes for promoting industrial clusters, full benefits of agglomeration are yet to be realized. One of the key instruments to catalyze the growth of manufacturing will be the establishment of national investment and manufacturing Zones (NIMZs) which will be developed in the nature of green field industrial townships. Benchmarked with the best manufacturing hubs in the world. These will also help us to meet the increasing demand for creating world class-urban centers in India, while will also absorb surplus labour by providing them gainful employment opportunities. These NIMZs will seek to address the infrastructural bottleneck which has been cited as a constraining factor for the growth of manufacturing 

·      A comprehensive exit policy will be put in place which will promote productivity while providing flexibility by removing rigidity in the labour market and ensuring protection of workers’ rights as laid down in the statute.

·      The growth of manufacturing has to come hand in hand with the concerned thrust on skill development programme. The National Skill Development initiative launched by the Government of India has provided a renewed thrust to build productive capacities. This Policy seeks to make skill development integral to productive enterprise in the country which would be supported by robust government institution.

·      The thrust with regard to labour management will be to encourage unions and employers to develop better institutional arrangements in the states, and within production units through dialogue and consultation. The stress will be on rationalization in employment laws in shop floor practices.

·      Manufacturing management will be given a focused attention as it will facilitate improvement of productivity, quality and competitiveness of manufacturing enterprise. Industry will be encouraged to collaborate with higher educational institutions to develop curricula for grooming graduate engineers and supervisory managers for various facets of manufacturing.

·      In the context of sustainable development and in order to drive the greening of manufacturing operations and to explore the emerging technologies in this area, which offer opportunities to build local and global leadership, the government will take resources to both regulatory as well as market based policy interventions. Government would prescribe emission and discharge standards, excluding green house gas emissions, and the choice of technologies to meet the standards would be decided by the project promoters. The Government will provide continuous incentives, monetary and otherwise, to encourage polluting entities to reduce releases of harmful pollutants to ensure that the standards are complied with.

·      Land has emerged as a major constraint for industrial growth in recent years. The Government will take measures to make industrial land available, which is critical for sustained industrial growth through creation of land banks by states; digitization of land and resources maps; and programmers for utilization of lands locked under non productive uses, including defunct or sick industries.

·      Manufacturing and technology development are closely inter-connected as technologies become useful when are converted into products through manufacturing fosters continuing technology development.

·      B leveraging the strength of our large market policies and measures will be taken to ensure access for Indian companies to foreign technologies as well as development of advanced indigenous technologies. These would include.

·      Incentives, in the form of tax concessions and government subsidies, for indigenous development of technology;

·      Partnership between industries and government laboratories;

·      Preferential purchases by government agencies of indigenously developed products and technologies;

·      Judicious development of an Intellectual Property regime to enable more collaborative innovation, as well as more indigenous innovative and improved access to environmentally friendly technologies. India will be very cautious about further expansions beyond the present TRIPS regime which could have implication on development and ownership of technologies within the country and

·      Joint ventures between foreign companies and Indian partners.

·      The government will also consider use of public procurement in specified sectors with stipulation of local value addition in areas of critical technologies and whenever necessary such as solar energy equipment, electronic hardware, fuel efficient transport equipment and IT based security systems.

Rationalization of Regulatory Procedures:-

·      On an average, a manufacturing unit needs to comply with nearly 70 laws and regulations. Apart from facing multiple inspections, these units have to file sometime as many as 100 returns in a year. This kind of compliance burden puts-off young entrepreneurs and they are not willing to take up an entrepreneurial role. As a result , a large number of people who could have been self employed and would contribute to further employment and enhance economic activity, and up accepting jobs much below their potential.

·      A number of efforts have been made in the past to bring down this compliance burden. There have been attempts at single window systems and track approvals. In certain cases technology has been leveraged to enable electronic approvals. These efforts have been only partially successful, because different Government departments are not willing to shed or reinvent their roles. The Government has to recognize the need to reinvent itself and allow the industry to self regulate itself to the extent possible. The objective of an act or regulation should be achieved without being intrusive and giving rise to complaints of corruption.

·      The entire process of clearances by central and State authorities will  be progressively made web-enabled.

·      Timelines will be defined in respect of all clearances. In case the decision is not taken in the specified timeline, the clearance will be edeemede to have been given on expiry of timeline.

·      A combined application Form and a Common Register will be developed as far practicable.

·      Submission of multiple returns to different departments will be replaced by one simplified Monthly/Quarterly return wherever feasible.

Exit Mechanism:-

·      Continuation of non-viable businesses leads to locking of funds and capital assets, which can be more productively deployed for generation of higher output, incomes and employment. An expeditious exit mechanism is therefore essential for investments locked up in businesses. The national Manufacturing Policy seeks to introduce policy measures of facilities the expeditious redeployment of assets belonging to non viable units, while giving full protection to the interests of the employees.

Job Loss Policy:-

·      Under Section 25 FFF of the Industrial Disputes Act, there is a mandatory requirement to pay compensation equivalent to fifteen days average pay for every completed year of continuous service, or any part thereof in excess of six months. Under the job Loss Policy, it is firms operating in the NIMZs to insure workers against loss of employment in the event of a unit requiring to close down, or to reduce the workforce, due to financial constraints. This policy will be utilized for payment of compensation to workers at the time of closure of right sizing of the company if circumstances require them to do so.

·      The job loss policy will enable units to pay suitable worker compensation in the eventuality of business losses/closure through insurance and thereby eliminate the charge on the assets. This compensation may be equivalent to twenty dayse average pay for every completed year of continuous service or any part thereof in excess of six months SPV will facilitate companies to buy this insurance to meet the statutory requirement compensation, at the stage of land allotment at a premium determined by the SPV on the basis of competitive bidding. The insurance policy will be purchased before start of operations. The premium for the insurance will be paid to create a safety net for the workers in the event of job loss. The SPV will be responsible for monitoring this.

Sinking Fund:-

·      As an alternative to job loss policy, the SPV can opt for a sinking fund mechanism to be funded by contributions as decided by the SPV. The terms and conditions for the creation and operation of the fund will be notified by the Central Government /State Governments. A certain minimum level of money commensurate with the expected liabilities will at all times be maintained in the sinking fund. The fund shall be continuously recouped in case money is drawn from the same. In case of the sinking fund route also, the worker compensation may be equivalent year of twenty days average pay for every completed year of continuous service or any part thereof in excess of six months.

Combination of the Two Mechanisms:-

·      The SPV may opt either for a job loss policy or a sinking fund or a combination of the two examples the SPV may but a policy out of the sinking fund. The SPV can evolve any other suitable option/arrangement also. The SPV will be responsible to ensure that other statutory payments like EPF contribution and ESI are kept up to date. Subject to such arrangements being in place, to the satisfaction of Government, the assets of any sick unit could be allowed to be redeployed by freeing from the charge of the labour dues.

Asset Redeployment:-

·      The transfer of assets belonging to a firm which has been declared sick will be facilitated by the SPV of the concerned NIMZ. Such facilitation will be part of the contractual agreement between the SPV and the firm at the of allotment of land and shall be initiated by the SPV provided the concerned firm is able to provided a eNon-Encumbrance Certificate after clearing all the dues, to its creditors and to its employees. The mediation undertaken by the SPV will be aimed at realizing the best value for the assets which can then be re-deployed for other productive purposes.

·      Similarly, the SPV will undertaken the role of redeploying the labour of such units to others in the NIMZ which have a shortage. This redeployment shall be from the date of closure at the same remuneration and on the same terms and conditions of service as applicable to him immediately before the closure.

Exemption from Capital Gains Tax:-

·      Relief from Capital Gains Tax in sale of plant machinery of a unit located in a NIMZ will be granted in case of re-investment of sale consideration within a period of three years for purchase of new plant & machinery in any other unit located in the same NIMZ or another NIMZ. This measure is proposed to encourage re-investment of income generated from the disposal of assets (other than land) owned by a company operating within the NIMZ, in the manufacturing sector.

Administrative Structure for NIMZs:-

·      The administrative structure of NIMZ will comprise of a Special Purpose Vehicle, a developer, State Government and the Central Government.

Special Purpose Vehicle (SPV):-

·      The Central Government shall, by notification in the Official Gazette, notify an NIMZ. An SPV will be constituted to exercise the powers conferred on, and discharge the functions assigned to it under this Policy to manage the affairs of the NIMZ. Every SPV shall be a entity by the name of the NIMZ.

Functions of SPV:-

·      Each SPV will undertake such tasks/measures as it thinks fit for the development, growth, operation and management of the NIMZ. These tasks/measures will include:

·      Master planning of the Zone.

·      Preparation of a strategy for development of the zone and an action plan for self regulation to serve the purpose of the policy. These shall be submitted to the Board of Approval.

·      Selection of Developer/Co-developers for the development and maintenance of infrastructure internal to the NIMZ;

·      Formulation of rules and procedures for development, operation, regulation and management of the NIMZ;

Central Government:-

·      The Department of industrial policy and Promotion will act as the nodal agency for the central government in matters pertaining to the NIMZs.

·      The application for setting-up of NIMZ will be forwarded by the state to the DIPP for approval. DIPP will constitute a Board of Approval, which will consider all applications for the establishment of NIMZs and approve such proposals as are found feasible. Each NIMZ will be notified separately by DIPP.


·      The Central Government will bear the cost of master planning for the NIMZ;

·      The Central Government will improve/provide external physics infrastructure linkages to the NIMZs including Rail, Road (National Highways), Ports, Airports, and Telecom, in a time bound manner. This infrastructure will be created/upgraded through Public Private Partnership to the extent possible. Viability Gap Funding through existing schemes will be provided. Whenever necessary, requisite budgeting provisions for creation of these linkage will also be made

·      The central Government through its institutions and schemes will provide institutional infrastructure for productivity, quality (testing facilities etc.,) and design capabilities, encouraging innovation and skill development within the NIMZ.

·      The Central Government will undertake, along with the state Government concerned, the promotion of domestic as well as global investment in NIMZs;

For this Purpose:-

·      Viability Gap Funding (VGF): Under the Ministry of Finance scheme for Support to Public Private Partnership in infrastructure in the form of capital grant at the stage project construction will be given as per the VGF guidelines . The total Viability Gap Funding under this scheme shall not exceed twenty percent of the total project cost. Additionally, the state Government or its agencies may also provide funding out of their budget as may be feasible.

·      Long-term soft Loans from Multilateral Financial Institutions: Soft loans from multilateral institutions will be explored for funding infrastructure development in NIMZ. Assistants would be provided for negotiating non-sovereign multilateral loans by providing back-back support, if necessary.

·      External Commercial Borrowings: The developers of NIMZs will be allowed to raise ECBs for developing the internal infrastructure of the NIMZs.