Contents
Instruments of implementation:-
INDUSTRIAL POLICY
RESOLUTION 1948:-
Review of the working of
the industrial licensing: -
The industrial licensing
policy of 1970:-
Working of the industrial
and licensing policies:
Industrial licensing
policy: -
List of industries
reserved for the public sector:-
List of Industries for
which Industrial Licensing is Compulsory:-
Industrial Policy Reforms
and Major Initiatives are:-
Competition Commission of
India:-
Causes of industrial
sickness:-
Faults at Planning and
construction stage:-
Steps taken by the
Government:-
Board for Reconstruction
of Public Sector Enterprises (BRPSE):-
Limitations of Goswami
report:-
What steps did the
Government so far take in the areas related to the exit policy?
What the Government
should do?
NATIONAL MANUFACTURING
POLICY:-
Employment Intensive
Industries:-
Industries with Strategic
Significance:-
Industries where India
Enjoys a Competitive Advantage:-
National Investment and
Manufacturing Zones:-
Rationalization of
Regulatory Procedures:-
Combination of the Two
Mechanisms:-
Exemption from Capital
Gains Tax:-
Administrative Structure
for NIMZs:-
Special Purpose Vehicle
(SPV):-
·
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.
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.
·
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
·
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.
·
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.
·
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.
·
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.
·
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.
·
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.
·
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.
·
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.
·
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.
·
Atomic Energy
·
Substances specified by
the Department of Atomic Energy
·
Expect the above; all
other industries are open to entry by private sector.
·
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 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.
·
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.
·
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.
·
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.
·
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.
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.
·
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.
·
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.
·
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.
·
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.
·
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.
·
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.
·
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.
·
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.
·
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).
·
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.
·
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.
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.)
·
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.
·
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.
·
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.
·
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.
·
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.
·
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:
·
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.
·
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.
·
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.
·
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.
·
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 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.
·
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);
·
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.
·
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.
·
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.
·
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.
·
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.
·
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.
·
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.
·
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.
·
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.
·
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.
·
The administrative
structure of NIMZ will comprise of a Special Purpose Vehicle, a developer,
State Government and the Central Government.
·
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.
·
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;
·
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;
·
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.