AP Inter 2nd Year Economics Important Questions Chapter 5 Industrial Sector

Students must practice these AP Inter 2nd Year Economics Important Questions 5th Lesson Industrial Sector to boost their exam preparation.

AP Inter 2nd Year Economics Important Questions 5th Lesson Industrial Sector

Long Answer Questions

Question 1.
Explain the importance of industrial sector in India.
Answer:
Industrialisation plays a major role in the economic development of India. Industrialisation also helps the development of agriculture and tertiary sectors by supplying equipment and machinery to them at reasonable prices. Industrialisation paves the way for increased incomes of people, thus leading to a higher standard of living which in turn results in further industrialisation.

Importance of industrial sector in India (Advantages of Industrialisation):
1) Raising of income: Industrial development provides a secure basis for growth of income. The per capita income is very high in the industrially advanced countries whereas it is very low in industrially backward countries. In 2012, the per capita income of Germany was $ 44,010, Japan $ 47,870, USA $ 50,120 and India only $ 1,530.

2) Changing the structure of the economy: The economic development of under developed countries need structural changes through industrialisation. History shows that in the process of becoming developed economy, the share of industrial sector in the GDP should rise. This is possible only through industrialisation. The benefits of industrialisation will ‘trickle down’ to the development of agriculture and service sectors leading to the rise in employment, output and income.

3) Meeting high income demand: Developing countries like India need industrialisation to need the high income people’s demand of industrial goods (manufactured goods).

4) Overcoming the deterioration in Terms of Trade: Countries like India need industrialization to free themselves from the adverse effects of deterioration in their terms of trade.

5) Absorption of surplus labour in Industries: Countries like India have growing population and surplus labour. Absorbing the surplus labour, it is essential to industrialise the country rapidly. We can generate more employment opportunities only through industrial development.

6) Bringing Technical Progress: Research and Development is associated with the process of industrialization. Industrialisation helps a country in the production of capital goods, make for technological progress and brings a change in the outlook attitudes of people. This results in bringing about an industrial civilization or environment for rapid progress, necessary for a healthy economy.

7) Strengthening of the economy:

  • Industrialisation makes possible the improvement in the economic infrastructure of the economy, which are necessary for the future growth of the economy.
  • With industrialisation, we can change the ‘comparative advantage’ of the country to suit its resources and potentialities of man power.
  • Through industrialisation the requirements for the development of agriculture can be met.
  • Industrial development imparts to an economy dynamic element in the form of rapid growth and a diversified economic structure which makes it a progressive economy.
  • Industrialisation is needed to provide the economic security to the country. This becomes more important when international crisis develops.

AP Inter 2nd Year Economics Important Questions Chapter 5 Industrial Sector

Question 2.
Briefly review the 1948 industrial policy resolution of India.
Answer:
After Independence, India wanted quick industrial development. Accordingly, on 6th April 1948, the Government of India announced a comprehensive industrial policy.

Objectives:

  1. To establish a social order where justice and equality of opportunities could be assured to all people.
  2. To promote rapid rise in the standard of living of the people through exploitation of latent and available resources in the country.
  3. To accelerate production to meet the needs of growing population.
  4. To provide more employment opportunities.

Main features of 1948 industrial policy:
1) Classification of industries into 4 categories:
a) ‘A’ Schedule: It consists of 3 industries such as arms and ammunition, atomic energy and railways. These are under the absolute monopoly of the central government.

b) ‘B’ Schedule: Coal, iron and steel, aircraft manufacturing, shipbuilding, manufacture of telephone and telegraph and mineral oils. Out of the industries included in schedule-B, some are already owned by private sector would be allowed to continue in the same sector for a period of 10 years more. On the expiry of such period, the government thinks of their take over (Nationalising them).

c) ‘C’ schedule: Industries included in this schedule were automobiles, tractors, electronics, engineering, machine tools, heavy machinery, fertilizers etc. They were subjected to the control and regulation of the central government.

d) ‘D’ schedule: The rest of the industries, not covered by the above A, B & C schedules 46 were included in this category. This category was open to private enterprise, individuals and co-operatives. However, the state was allowed to enter into this category also, if necessary.

2) The 1948 resolution recognized the importance of cottage and small-scale industries for fuller utilisation of local resources and reaching the goal of self-sufficiency in consumer goods. As such, the state has to extend financial help for their expansion.

3) The 1948 industrial policy resolution also recognised the need for securing the participation of foreign capital and enterprise.

4) This policy recognised the importance of industrial peace in industrial development.

The 1948 Industrial Policy Resolution laid the foundation for mixed in India where both the public and private sectors would function together to achieve the goal of rapid industrial development. The 1948 Industrial Policy Resolution reiterated the right of the state to acquire industrial undertakings in public interest but it also reserved an appropriate sphere for the private sector.

Question 3.
Discuss the 1956 Industrial Policy Resolution of India.
Answer:
The Second Five Year Plan gave importane to the development of heavy industries. As per the Directive Principles of State Policy of Indian constitution, the Indian parliament accepted the “Socialistic pattern of society” as the basic aim of social and economic policy. These important developments necessitated fresh statement of industrial policy which was adopted in April, 1956 by the Government of India.

Objectives:
The important objectives of 1956 industrial policy are:

  1. To accelerate the rate of economic growth and to speed up the industrialization of the country.
  2. To develop heavy industries and machine making industries.
  3. To expand public sector and to build up a large and growing cooperative sector.
  4. To reduce disparities in income and wealth.
  5. To reduce regional imbalances.
  6. To establish a socialistic pattern of society.
  7. To prevent private monopolies and the concentration of economic power in the hands of few individuals and families.

Main features of 1956 industrial policy:
I. Classification of industries into 3 categories:
1) Category ‘A’: It includes 17 industries which have been left to the exclusive responsibility of the state for their establishment and development. All industries of basic and strategic importance or in the nature of public utility services were put in the public sector. They are iron and steel,> atomic energy, heavy machinery, coal, mineral oil, railway transport, posts, telephone, telegraph, electricity etc.

2) Category ‘B’: It includes 12 industries which will be progressively state owned and the state will take the initiative to set up the new units. At the same time, private enterprise will also have time, private enterprise will also have an opportunity to develop this field either on its own or with state participation. For e.g.: Alluminium, machine tools, fertilizers, synthetic rubber, sea transport, etc.

3) Category ‘C’: It consists of all the rest which are not included in category A and B.
The development of these industries will be left the initiative and enterprise of the private sector.

II. Public and Private sectors: It is clearly stated that the government has the right to start any industry, not included in A & B categories, where the needs of planning requires. Likewise in appropriate cases privately owned units may be permitted to produce an item falling under category ‘A’.

III. Cottage and small scale units: The government would support the cottage and small scale industrial units by restricting volume of production in the large scale units by differential taxation or by direct subsidies and would also support small scale units by providing modern technology.

IV. Removing Regional disparities: In order to remove regional imbalances, the government develops infrastructure facilities and start public sector units in the backward regions.

V. Role of Labour: To improve the standard of efficiency of labour, their living and working conditions should be improved. To do this, there should be joint consultations of workers and technicians by the management wherever possible.

VI. Foreign capital: Foreign investors were given a clear assurance for the safety of their interests and facilities for investment.

The 1956 industrial policy resolution was described as the economic constitution which induced rapid industrialization in India. No mention was made on the nationalisation of private industries. This policy expects mutual co-operation between the public and private sectors. It also gave much importance to cottage and small scale units which give scope for more employment generation. The public sector is expected to provide the congenial atmosphere and infrastructure which facilitate the development of private sector.

Question 4.
Critically evaluate the 1991 new industrial policy resolution of India. [Mar ’19 (TS); Mar ’18, ’17]
Answer:
The 1991 New Industrial Policy Resolution brought rapid structural changes in the Indian economy. As part of economic reforms i.e. Liberalisation, privatisation and globalisation (LPG), it became inevitable to the government to introduce a New Industrial Policy in 1991.

Objectives:

  1. To build on the gains already made in the industrial sector.
  2. To correct the distortions and weaknesses that may creep in the pattern of industrial growth.
  3. To maintain a sustained growth in productivity and gainful employment, and
  4. To attain technological dynamism and international competitiveness.

Main features of 1991, industrial policy:
1) Delicensing:
a) Industrial licensing will be abolished except for those which are important for security, strategic, social and environmental reasons and items of elite consumption. License is required to establish industries like coal, petroleum, motor cars, alcoholic drums, cigars,industrial explosives, hazardous chemicals.

b) Reservation for the public sector: Establishment of key and strategic industries reserved for the public sector are arms and ammunition, defence equipment atomic energy, mineral oils, railway transport.

c) Automatic clearance of imports of capital goods: The government permits imports of capital goods like machinery, without any conditions if the foreign exchange needed for the imports is met from foreign equity capital.

d) Location policy: In locations, other than cities of more than one million population, there will be no requirement of obtaining industrial approvals from the central government except for industries specified in Annexure II originally. In cities with a population of more than one million, industry other than those of a non-polluting in nature, were required to be located outside 25 kms of the periphery.

e) Abolition of convertibility clause: The mandatory convertibility clause will no longer be applicable for term loans from the financial institutions for new projects. This has provided them an option on converting part of their loans into equity, if felt, necessary by their management.

2) Foreign Investment Policy: According to the New industrial policy, 1991, approval will be given for direct foreign investment upto 51 per cent foreign equity in high priority industries. Special Empowred Board would be constituted to attract substantial investment that would provide access to high technology and world markets. Foreign Direct Investment (FDI) is prohibited only in industries such as retail trading, atomic energy, lottery business, gambling and betting.

3) Foreign Technology Agreements: Automatic approval for foreign technology agreements in high priority industries should be given.

4) Public sector policy: Public sector will not be barred from entering in the areas not specifically reserved for it. Board for Industrial and Financial Reconstruction (BIFR) is constituted to undertake the revival of sick public sector units and to protect the interests of workers affected by rehabilitation.

5) MRTP Act Will concentrate more on controlling unfair and restrictive trade practices. The new industrial policy (1991) statement can be regarded as a realistic economic constitution governing the growth of industrial sector. It certainly gives an impetus to the inflow of foreign investment and technological upgradation in Indian industries. It is expected to act as an instrument to prombte optimal size and pattern of industrial growth.

AP Inter 2nd Year Economics Important Questions Chapter 5 Industrial Sector

Question 5.
Write about National Manufacturing Policy of India.
Answer:
The National Manufacturing policy envisages simplification of business regulations without diluting their purpose. Recognising the importance of small and medium enterprises in the country, the policy contains dedicated interventions for small and medium enterprises in addition to the interventions for manufacturing industries generally. These interventions relate primarily to technological upgradation, adoption of environment friendly technology and equity investments. Skill development, to make young people employable, has been given high priority in the policy through fiscal, incentives for the private sector and government schemes. National Investment and Manufacturing Zones (NIMZS) are also provided for on-lands which are degraded and uncultivable.

Objectives of National Manufacturing Policy (NMP):

  1. Increasing the manufacturing sector growth to 12 to 14 per cent over the medium term.
  2. Increasing the share of manufacturing in GDP from the present level of about 16.0 per cent to 25 per cent by 2022.
  3. Creating 100 million additional jobs in the manufacturing sector by 2012.
  4. Creating appropriate skills among the rural migrant and urban poor for their easy absorption in manufacturing.
  5. Increasing the domestic value addition and technological depth in manufacturing.
  6. Enhancing global competitiveness of Indian manufacturing.

India is a young country with over 60 per cent of its population in the working age group. With over 220 million people estimated to join the work force in the next decade, the manuf acturing sector will have to create gainful employment opportunities for at least half this number.

Adverse affects of National Manufacturing Policy (NMP):
1) No specific targets are fixed on value added and so the goal is expressed in vague terms which make its monitoring impossible.

2) The target fixed to achieve a 25 per cent in GDP appears to be virtually impossible.

3) Sunil Mani rightly pointed out that it is not correct to assume that firms in a cluster are more innovative than the firms that are not a part of the cluster.

4) As far as the pronouncements on issues such as technology acquisition, skill upgradation, public procurement, trade policies, etc. are connected, NMP does not state anything new.

5) NMP failed to identify a small set of manufacturing industries in which India has a competitive position or is likely to attain one in the near future.

Question 6.
Explain the disinvestment policy of India.
Answer:
In July 1991, the Government of India initiated the disinvestment process in India, while launching New Economic Policy (NEP). The NEP provides that, “In order to raise resources and encourage a wide public participation, a part of the government share holding in the public sector would be offered to mutual funds, financial institutions employees and general public.” This is a process for disinvestment in the public enterprises.

Developments regarding disinvestment:
On 5th November 2009, government approved the following action plan for disinvestment in profit making public sector undertakings.
A) Already listed profitable Central Public Sector Enterprises – CPSEs (not meeting mandatory shareholding of 10 per cent) are to be made compliant by “Offer for Sale” by government or by the CPSEs through issue of fresh shares or a combination of both.

B) Unlisted Public Sector Enterprises with no accumulated losses and having earned net profit in three preceeding consecutive years are to be listed.

C) Follow on public offers would be considered taking into consideration the need for capital investment of CPSE, on a case by case basis and government could simultaneously or independently offer a portion of its equity share holding.

D) In all cases of disinvestment, the government would retain at least 51 per cent of equity and the managment control.

E) All cases of disinvestment are to be decided on case by case basis.

Major disinvestment receipts since 2004- 05 have come from the sale of equity shares of NTPC Limited (Rs. 2,684.07 crores), Power Grid Corporation of India Ltd. (Rs. 994.82 crores), Oil India Limited (Rs. 2247.05 crores), NMDC limited (Rs. 9,930.40 crores), Coal India Limited (Rs. 15,199 crores), Power Finance Corporation (Rs. 1144.55 crores) Upto 30th January, 2015, the Government of India got Rs. 1,79,625.25 crores through the disinvestment process.

Question 7.
Explain the role of Foreign Direct Investment in the economic development of India.
Answer:
Foreign Direct Investment (FDI) is a major source of non-debt financial resource for the economic development of India, apart from a critical driver of economic growth. Foreign companies investing in India to take advantage of low wage rates, special investment previleges like tax concessions etc. Fora country where foreign investments are made it also means achieving technical know-how and generation of employment.
The continuous inflow of FDIs in India, clearly shows the faith that overseas investors have in the country’s economy.

The Indian government’s policy regime and a robust business environment have ensured that foreign capital keep flowing into the country. The government took many initiatives in recent years such as relaxing FDI norms across sectors such as defence, PSU oil refineries, telecom, power, stock exchanges, Automobile industries, Drugs, Pharmaceuticals and Chemicals.

Government initiatives towards FDIs:
The Indian Cabinet approved allowing 100 per cent FDI in railway infrastructure excluding operations. Though the initiative does not allow foreign firms to operate trains, it allows them to do other things such as create the network and supply bullet trains.

The government has notified easier rules for construction sector, where 100 per cent FBI is permitted. It also said that 100 per cent FDI will be permitted under automatic route in completed projects for operation and management of townships, malls and business centres.

With the objective of encouraging foreign firms to transfer state of the art technology in defence production, the government may increase the FDI for the sector to 74 per cent from 49 per cent at present. India is expected to spend $ 40 billion on defene purchases over the next 4-5 years, mostly from abroad.

The Union Cabinet cleared a bill to raise the FDI ceiling in private insurance companies from 26 to 49 per cent with the provision that the management and control of the companies must be with Indians.

The RBI allowed a number of foreign investors to invest in non-convertible/redeemable preference shares, debentures which are issued by Indian companies and are listed on established stock exchanges in India. In an effort to bring in more investments into debt and equity markets, the RBI established a frame work, for investments which allows foreign portfolio investors to take part in open offers, buy back of securities, and disinvestment of shares by the central and state governments.

India requires around $ 1 trillion in the 12th Five Year Plan, to fund infrastructure growth covering the sectors like highways, air ways and ports. This needs the support in terms of FDI. During 2013 foreign investment was dumped into automobiles, computer software and hardware, construction, power, telecommunications etc.

FDI inflows to India: According to a recent report by global credit rating agency Mood’s, FDI inflows increased significantly in India. Net FDI inflows totaled $ 14.1 billion in the first five months of 2014-T5. This is a 35 per cent increase from the same period of 2013-T4. The total FDI inflows reached to $ 350,963 millions, into India during 2000 -T4. Mauritius, Singapore, UK, Japan, USA are the largest sources of FDIs to India.

Question 8.
Critically examine the role of Special Economic Zones in Indian economic development.
Answer:
The government of India announced Special Economic Zones (SEZs) in April, 2000. This policy aims at rapid economic growth supported by quality infrastructure complemented by an attractive fiscal package both at one central and state level with minimum possible regulations. In India, the following objectives are laid down for the SEZs.

  • Generation of additional economic activity.
  • Promotion of exports of goods and services.
  • Promotion of investment from domestic and foreign sources.
  • Creation of employment opportunities, and
  • Development of infrastructure facilities.

Government Incentives to SEZs: The Government of India gives the following fiscal and incentive packages to SEZs.

  1. Exemption from customs duties, central excise duties, central sales tax, service tax and securities transactions tax to both the developers and the units.
  2. Tax holidays for 15 years i.e. 100 per cent tax exemption for 5 years, 50 per cent tax exemption for the next 5 years and 50 per cent plough back export profits for the next 5 years.
  3. 100 per cent income tax exemption for 10 years in block period of 15 years for SEZ developers.
  4. Provision of standard factories at low rents with extended lease period
  5. Provision of infrastructure facilities.
  6. Single window clearance and simplified procedures.

Advantages of SEZs: Special Economic Zones – SEZs are expected to give big push to exports, employment and investment. The Indian government is systematically projecting the SEZs as “Carriers of Economic Prosperity”. The advantages of SEZs are:

  1. To give boost to economic growth at an extremely fast rate.
  2. Usher in affluence in rural areas.
  3. Provide large number of jobs in manufacturing and other services.
  4. Attract global manufacturing and technological skills.
  5. Bring in public and private sector investment from both home and abroad.
  6. Making Indian firms more competitive.
  7. Help to slow down rural-urban migration.

Special Economic Zones in India: Upto 2013, number of formal approval SEZs were 577. Number of SEZs notified and functioning are 389 and 170 respectively. The total units approved are 3589 and these units provide employment to 10,74,904 persons as on 31 March, 2013. The SEZs exports are Rs. 4,76,159 crores during 2012-T3. As per the provision of the SEZ Act, 2005, 100 per cent FDI is allowed.

AP Inter 2nd Year Economics Important Questions Chapter 5 Industrial Sector

Question 9.
Mention the various causes for industrial backwardness in India.
Answer:
India could not achieve the desired rate of growth in the industrial sector even though it is rich in natural resources and has huge working population. Even after of completion of 65 years of economic planning, there is a wide gap between targets fixed and targets achieved.

Causes of industrial backwardness in India:
The important reasons for the industrial backwardness of India are:
1) Under utilisation of productive capacities:
Many industrial units failed to utilise their productive capacity fully. Scarcity of raw materials, low technology, power shortage etc. are the main reasons for this.

2) Poor performance of Public Sector Units: Prior to the implementation of “New Economic Reforms”, there was a phenomenal growth of public sector in India. Many of the public sector units were under losses. Though the number of loss making units declined from 105 in 1999-2000 to 63 in 2011, the losses increased from Rs. 10,302 crores in 1999-2000 to Rs. 27,602 crores in 2011.

3) Political factors: In many situations, political factors influence decision about location of projects not considering the feasibility. This approach led to a considerable wastage of capital and other resources.

4) Infrastructural constraints: Poor quality and high cost of infrastructure, particularly power and transport etc. are important constraints for our industrial development.

5) Gap between targets and achievements: In the earlier period of planning, achievement were much below the targets. According to Rakesh Mohan, “The average industrial growth rate achieved over 35 to 40 years has been about 6.2 per cent rate to the average of about 8 per cent projected.”

6) Emergency challenges: As a founder member of World Trade Organisation (WTO), India has withdrawn all quantitative restrictions on imports. This resulted into the closure of a number of industrial units.

Thus, the industrial sector in India is facing so many problems.

Question 10.
What are the merits and demerits of small scale enterprises in Indian economy? [Mar ’19 (AP); Mar ’18, ’17]
Answer:
In India micro, small and medium enterprises (MSMES) have been accepted as the engine of economic growth and for promoting equitable development. The major advantage of the sector is its employment potential at low capital cost. The labour intensity of the MSME sector is much higher than that of the large enterprises. In India, the MSMEs play a key role in the overall industrial economy of the country. In recent years, the MSME sector has consistently registering a higher growth rate compared to the overall industrial sector.

With effect from 2nd October 2006, not only micro, small and medium enterprises have been clearly defined, but a comprehensive act called, “Micro, small and Medium Enterprise Development Act” came into force. According to it, micro or tiny enterprise covers all enterprises with investment in plant and machinery of less than Rs. 25 lakhs, for small enterprises with investment between Rs. 25 lakhs and Rs. 5 crores and for medium enterprises with an investment between Rs. 5 and Rs. 10 crores. Further MSME sector in India constitutes enterprises with investment in plant and machinery less than Rs. 10 crores in manufacturing and less than Rs. 5 crores in case of service sector. Importance of Micro, Small and Medium Enterprises (MSMEs) in India: The following points explain the importance of small scale enterprises (MSMEs) in the Indian economy.

1) Share in Industrial Production: The rapid growth of small scale units from 2006¬’07 onwards contributing much to the GDP of India. The toteil output of MSME units increased to Rs. 18,34,332 crores (about 8% of our GDP) in 2011-12 and about 38 per cent of manufactured output.

2) Employment potential: Small scale industries are labour intensive. The capital labour ratio is low. So the small enterprises generated employment opportunities to the time of 1012.6 lakh persons in 2011-12.

3) Low capital: Small scale industries are capital light. As capital is scarce in India, priority should be given to small scale enterprises.

4) Capital formation: The spreading of these industries over the country side would encourage the habit of thrift and investment in the rural areas.

5) Skill formation: The small scale enterprises do not require sophisticated skills. But they serve as a training ground for a large number of small scale managers, at least some of them may develop the capacity for managing the large scale industrial units.

6) Low import intensity: Low import intensity is the capital structure of small scale units reduces the need for foreign capital.

7) Decentralisation of industrial development: The development of small scale industries help decentralisation of industries and thus promote balanced regional development. Locally available raw materials, man power and capital can be utilised to the maximum extent.

8) They help equitable distribution of income and wealth.

9) Earning Foreign Exchange: By exporting the products of small enterprises, India earned foreign exchange worth of Rs. 1,77,600 crores in 2006-07.

10) The development of small enterprises prevent migration of people from rural to urban areas. Problems of over-crowdedness, housing problems, traffic jams, shortage of drink water, etc. problems can be prevented in urban areas.

Problems (demerits) of small scale industries: The small scale enterprises in India are facing the following problems.
1) Inefficient Human Factor: The human factor i.e., the rural labourers are inefficient since most of them are illiterates and lack technical knowledge.

2) Lack of credit facilities: The small industrialists are mostly poor and have no cheap credit facilities.

3) Problem of raw materials: The quantity, quality and regularity in the supply of raw materials are highly unsatisfactory. They purchase raw materials in small quantities at high prices.

4) Absence of organised marketing: Small scale industries do not have organised marketing facility. They mostly depend on middlemen. Sometimes, they face competition from large scale units in marketing their products. The small scale units cannot spend more money or advertisement and publicity.

5) Small Scale units do not have modem machinery and equipment: Apart from the above problems small scale units are also facing problem like power cuts, lack of technology upgradation and heavy taxes. These affect the efficiency and performance of small scale units in India.

Question 11.
Briefly explain the Indian industrial growth rate during the Five Year Plans.
Answer:
After Independence, India is implementing Five Year Plans to achieve quick economic development.

The industrial growth rate during the Five Year Plans is explained below.
1) First Five Year Plan (1951-’56): The First Five Year Plan did not make any big provision for industrial development. However, the overall industrial production increased 39 per cent i.e., about 8 per cent per year.

2) Second Five Year Plan (1956-’61): In this plan, the index number of industrial production rose from 139 per cent in 1955-56 to 194 in 1960-61 i.e. with an average annual growth rate of 11 per cent.

3) Third Five Year Plan (1961-’66): During the 3rd plan, a vast base for future industrialization emerged as a result of the completion of markets in the areas of heavy machines, heavy chemicals, heavy electricals and steel.

4) Fourth Five Year Plan (1969 – 74): The performance of industrial sector during the 4th plan was very disappointing. Its annual growth rate was hardly 5 per cent as against the plan target of 8 per cent.

5) Fifth Five Year Plan (1974-79): The average rate of industrial growth during this plan was targeted at 8.1 per cent per annum. However, the actual growth rate was only 5.2 per cent per annum.

6) Sixth Five Year Plan (1980-’85): A review of the industrial progress during the 6th plan reveals that a growth rate of 5.45 per cent as against 7 per cent achieved.

7) Seventh Five Year Plan (1985 -’90): The 7th plan achieved the targeted industrial growth rate of 8.5 per cent. It has been made possible because of adequate infrastructure and liberalisation policy of the government.

8) Eighth Five Year Plan (1992-’97): The overall growth rate of industrial production witnessed an average growth rate of 7.3 per cent against the target of 7.4 per cent.

9) Ninth Five Year Plan (1997-’02): The 9th Five Year Plan targeted a growth rate of 8 per cent for industry, but it achieved only 5 per cent due to slow growth rate of the world economy.

10) Tenth Five Year Plan (2002-’07): Industrial performance in the 10th plan improved to a respectable level of 8.9 per cent from the very low level of growth rate of 4.3 per cent in the ninth Five Year Plan.

11) Eleventh Five Year Plan (2007-’12): The target rate of growth 10 to 11 per cent was more or less achieved.

12) Twelfth Five Year Plan (2012-T7): The 12th plan aims at achieving a growth rate of 9.5 per cent by the industrial sector. This would require a much faster growth in the manufacturing as well as in electricity, gas and water supply sectors.

Question 12.
Discuss the major sources of industrial finance in India.
Answer:
Soon after Independence, the Government of India setup a number of institutions to be of a special help to the private sector industries in matters of finance. Industry requires capital for the purchase of land, construction of buildings, installation of machinery etc. Besides this funds are also needed for the purchase of raw materials, for stores, for marketing, for payment of wages, salaries and for meeting day to day expenditures.

The following are the main sources from which the Indian industry raises finance. They are:

  1. Shares
  2. Debentures
  3. Public deposits
  4. Commercial banks
  5. Industrial financial institutions

Rapid industrial development needs adequate medium and long term credit. The process of industrialization requires a lot of funds to establish new units and to modernize the existing units. The following are some of the industrial financial institutions providing finance to them. They are:

  1. Industrial Finance Corporation of India (IFCI)
  2. State Financial Corporations (SFCs)
  3. Industrial Credit and Investment Corporation of India (ICICI).
  4. The Industrial Development Bank of India (IDBI)
  5. Small Industries Development Bank of India (SIDBI)
  6. Industrial Investment Bank of India (IIBI)
  7. Venture Capital Funds (VCFs)
  8. LIC and GIC

Short Answer Questions

Question 1.
Industrial Finance Corporation of India.
Answer:
The Government of India established the Industrial Finance Corporation of India (IFCI) in July 1948 under a special Act. The corporation was authorised to issue bonds and debentures in the open market, accept deposits from the public and also borrow from the Reserve Bank of India.

Functions of IFCI:

  1. Grants, loans and advances to industrial concerns and subscribes to the debentures floated by them.
  2. It guarantees loans raised by the industrial concerns in the capital market.
  3. It underwrites the issues of stocks, shares, bonds and debentures of industrial concerns.

The loans sanctioned by IFCI increased from Rs. 210 crores in 1980-’81 to Rs. 1860 crores in 2000-2001.

AP Inter 2nd Year Economics Important Questions Chapter 5 Industrial Sector

Question 2.
Industrial Credit and Investment Corporation of India (ICICI).
Answer:
The ICICI played a facilitating role in consolidation in various sectors of the Indian Industry, by financing, mergers and acquisition. The ICICI, combines financing and banking operations both wholesale and retail have been integrated into a single company effective from May, 2002.

Functions of ICICI:

  1. It offers medium and long term loans, both rupee loans and foreign currency loans.
  2. Participate in the equity capital and debentures and underwrote new issues of shares and debentures.
  3. Guaranteed loans from other private and government sources.
  4. Provide financial services such as deferred credit, leasing credit, installment sale, asset credit and venture capital.

Loans distributed by the ICICI increased from Rs. 180 crores in 1981 to Rs. 31,660 crores in 2001.

Question 3.
Industrial Estates [Mar ’19 (AP); May ’18, ’17; Mar ’17]
Answer:
Industrial estates were established by the Small Scale Industries Board in 1955 for the development of small scale industries in India.

An industrial estate is a place where a group of small scale units are constructed on an economic scale in suitable sizes with facilities of water, transport, electricity, banks, post offices, watch and ward, first aid and is provided with special arrangements for technical guidance and common service facilities. The industries set up in these estates are also entitled to various incentive guaranteed by government for small scale units through the small scale departments and State Financial Corporations.

Objectives:

  1. To promote the development of small scale industries.
  2. To relieve congestion in the industrial areas of metropolitan towns.
  3. To bring about a balanced dispersal of industries in semi-urban and rural areas.
  4. To remove unemployment and under employment in rural areas.
  5. To encourage the growth of ancillary industries is the large s.cale industries sector. By March, 1979, there were 662 industrial estates where in 13,467 small scale units were functioning. The production from these units amounts to Rs. 636 crores and the units are providing employment to about 2.2 lakh persons.

Question 4.
Special Economic Zones (SEZs).
Answer:
The Government of India announced Special Economic Zones (SEZs) in April, 2000. This policy aims at rapid economic growth supported by quality inf rastructure complemented by an attractive fiscal package both at one central and state level with minimum possible regulations. In India, the following objectives are laid down for the SEZs.

  1. Generation of additional economic activity.
  2. Promotion of exports of goods and services.
  3. Promotion of investment from domestic and foreign sources.
  4. Creation of employment opportunities, and
  5. Development of infrastructure facilities.

Government Incentives to SEZs: The Government of India gives the following fiscal and incentive packages to SEZs.

  1. Exemption from customs duties, central excise duties, central sales tax, service tax and securities transactions tax to both the developers and the units.
  2. Tax holidays for 15 years i.e., 100 per cent tax exemption for 5 years, 50 per cent tax exemption for the next 5 years and 50 per cent plough back export profits for the next 5 years.
  3. 100 per cent income tax exemption for 10 years in block period of 15 years for SEZ developers.
  4. Provision of standard factories at low rents with extended lease period.
  5. Provision of infrastructure facilities
  6. Single window clearance and simplified procedures.

Advantages of SEZs: Special Economic Zones – SEZs are expected to give big push to exports, employment and investment. The Indian government is systematically projecting the SEZs as “Carriers of Economic Prosperity”. The advantages of SEZs are:

  1. To give boost to economic growth at an extremely fast rate.
  2. Usher in affluence in rural areas.
  3. Provide large number of jobs in the manufacturing and other services.
  4. Attract global manufacturing and technological skills.
  5. Bring in public and private sector investment from both home and abroad.
  6. Making Indian firms more competitive.
  7. Help to slow down rural urban migration.

Special Economic Zones in India: Upto 2013, number of formal approval SEZs were 577. Number of SEZs notified and functioning are 389 and 170 respectively. The total units approved are 3589 and these units provide employment to 10,74,904 persons as on 31 March, 2013. The SEZs exports are Rs. 4,76,159 crores during 2012-T3. As per the provision of the SEZ Act, 2005, 100 percent FDI is allowed.

Question 5.
Explain the need for Foreign Direct Investment (FDI) in India.
Answer:
Foreign Direct Investment (FDI) is a major source of non-debt financial resource for the economic development of India, apart from a critical driver of economic growth. Foreign companies investing in India to take advantage of low wage rates, special investment previleges like tax concessions, etc. Fora country where foreign investments are made it also means achieving technical know-how and generation of employment.

The continuous inflow of FDIs in India, clearly shows the faith that overseas investors have in the country’s economy.

The Indian government’s policy regime and a robust business environment have ensured that foreign capital keep flowing into the country. The government took many initiatives in recent years such as relaxing FDI norms across sectors such as defence, PSU oil refineries, telecom,power, stock exchanges, Automobile industries, Drugs, Pharmaceuticals and Chemicals.

Government initiatives towards FDIs:
The Indian Cabinet approved allowing 100 percent FDI in railway infrastructure excluding operations. Though the initiative does not allow foreign firms to operate trains, it allows them to do other things such as create the network and supply bullet trains.

The government has notified easier rules for construction sector, where 100 per cent FDI is permitted. It also said that 100 per cent FDI will be permitted under automatic route in completed projects for operation and management of townships, malls and business centres.

With the objective of encouraging foreign firms to transfer state of the art technology in defence production, the government may increase the FDI for the sector to 74 per cent from 49 per cent at present. India is expected to spend $ 40 billion on defene . purchases over the next 4-5 years, mostly from abroad.

The Union Cabinet cleared a bill to raise the FDI ceiling in private insurance companies from 26 to 49 per cent with the provision that the management and control of the companies must be with Indians.

The RBI allowed a number of foreign investors to invest in non-convertible / redeemable preference shares, debentures which are issued by Indian companies and are listed on established stock exchanges in India. In an effort to bring in more investments into debt and equity markets, the RBI established a frame work, for investments which allows foreign portfolio investors to take part in open offers, buy back of securities, and disinvestment of shares by the centred and state governments.

India requires around $ 1 trillion in the 12th Five Year Plan, to fund infrastructure growth covering the sectors like highways, air ways and ports. This needs the support in terms of FDI. During 2013 foreign investment was dumped into automobiles, computer software and hardware, construction, power, telecommunications, etc.

FDI inflows to India: According to a recent report by global credit rating agency Mood’s,FDI inflows increased significantly in India. Net FDI inflows totaled $ 14.1 billion in the first five months of 2014-T5. This is a 35 per cent increase from the same period of 2013-T4. The total FDI inflows reached to $ 350,963 millions, into India during 2000-14. Mauritius, Singapore, UK, Japan, USA are the largest sources of FDIs to India.

AP Inter 2nd Year Economics Important Questions Chapter 5 Industrial Sector

Question 6.
National Investment Fund (NIF).
Answer:
The Government of India established the National Investment Fund (NIF) on 3rd November, 2005, into which the proceeds from disinvestment of Central Public Sector Enterprises (CPSEs) were to be channelised. The fund is to be maintained outside the Consolidated Fund of India. The NIF is began with the disinvestment process of Power Grid Corporation of India Limited and Rural Electrification Corporation amounting to Rs. 1814.45 crores.

Salient Features of NIF:
1) The proceeds from the disinvestment of CPSEs are channelised into the NIF which is maintained outside the consolidated Fund of India.

2) The corpus of the NIF will be of a permanent nature.

3) The Fund will be professionally managed to provide sustainable returns to the government, without depleting the corpus. Selected Public Sector Mutual Funds will be entrusted with the management of the corpus of the fund 4.75 per cent of the annual income of the Fund will be used to finance selected social sector schemes which promote education, health and employment. The remaining 25 per cen.t will be used to meet the capital investment requirement of profitable and revivable CPSEs that yield adequate returns in order to enlarge their capital base to finance expansion/ diversification.

The income from the NIF corpus investments are utilised on selected social sector schemes like JNNURM, AIBP, RGGVY, IAY, NREGS etc.
The allocations from the NIF is decided in the Government Budget.

Question 7.
Objectives of National Manufacturing Policy. [March 2018]
Answer:
The National Manufacturing policy envisages simplification of business regulations without diluting their purpose. Recognising the importance of small and medium enterprises in the country, the policy contains dedicated interventions for small and medium enterprises in addition to the interventions for manufacturing industries generally. These interventions relate primarily to technological upgradation, adoption of environment friendly technology and equity investments. Skill development, to make young people employable, has been given high priority in the policy through fiscal, incentives for the private sector and government schemes. National Investment and Manufacturing Zones (NIMZS) are also provided for on-lands which are degraded and uncultivable.

Objectives of National Manufacturing Policy (NMP):

  1. Increasing the manufacturing sector growth to 12 to 14 per cent over the medium term.
  2. Increasing the share of manufacturing in GDP from the present level of about 16.0 per cent to 25 percent by 2022.
  3. Creating 100 million additional jobs in the manufacturing sector by 2012.
  4. Creating appropriate skills among the rural migrant and urban poor for their easy absorption in manufacturing.
  5. Increasing the domestic value addition and technological depth in manufacturing.
  6. Enhancing globed competitiveness of Indian manufacturing.

India is a young country with over 60 percent of its population in the working age group. With over 220 million people estimated to join the workforce in the next decade, the manufacturing sector will have to create gainful employment opportunities for at least half this number.

Adverse affects of National Manufacturing Policy (NMP):
1) No specific targets are fixed on value added and so the goal is expressed in vague terms which make its monitoring impossible.

2) The target fixed to achieve a 25 percent in GDP appears to be virtually impossible.

3) Sunil Mani rightly pointed out that it is not correct to assume that firms in a cluster are more innovative than firms that are not a part of the cluster.

4) As far as the pronouncements on issues such as technology acquisition, skill upgradation, public procurement, trade policies etc. are connected, NMP does not state anything new.

5) NMP failed to identify a small set of manufacturing industries in which India has a competitive position or is likely to attain one in the near future.

Question 8.
National Investment and Manufacturing Zones.
Answer:
The following are the important features of National Investment and Manufacturing Zones (NIMZs). They are
1) The state government would be responsible for the selection of suitable land having an area of 5000 hectares in size.

2) At least 30 per cent of the total area proposed under NIMZs will be utilised for the location of manufacturing units.

3) A special purpose Vehicle (SPV) will be constituted to discharge the affairs of NIMZs.

4) The state government would facilitate the provision for water, power connectivity and other infrastructure and utilities linkages.

5) The Central Government bears the cost of master planning and will improve/provide external physical infrastructure linkages to NIMZs including rail, road, airports and telecommunications in a time bound manner.

6) The Central Government will provide financial support in the form of viability gap finding (VGF) not exceeding 20 per cent of project costs.

7) Soft loans from multilateral financial institutions will be explored and the developers of NIMZs will be allowed to raise external commercial borrowings (ECBs) for developing internal infrastructure of NIMZs.

Question 9.
Write briefly about MSMEs.
Answer:
In India the micro, small and medium enterprises (MSMES) have been accepted as the engine of economic growth and for promoting equitable development. The major advantage of the sector is its employment potential at low capital cost. The labour intensity of the MSME sector is much higher than that of the large enterprises. In India, the MSMEs play a key role in the overall industrial economy of the country. In recent years, the MSME sector has consistently registering a higher growth rate compared to the overall industrial sector.

With effect from 2nd October 2006, not only micro, small and medium enterprises have been clearly defined, but a comprehensive act called, “Micro, Small and Medium Enterprise Development Act” came into force. According to it, micro or tiny enterprise covers all enterprises with investment in plant and machinery of less than Rs. 25 lakhs, for small enterprises with investment between Rs. 25 lakhs and Rs. 5 crores and for medium enterprises with an investment between Rs. 5 and Rs. 10 crores. Further MSME sector in India constitutes enterprises with investment in plant and machinery less than Rs. 10 crores in manufacturing and less than Rs. 5 crores in case of service sector. Importance of Micro, Small and Medium Enterprises (MSMEs) in India: The following points explain the importance of small scale enterprises (MSMEs) in the Indian economy.

1) Share in Industrial Production: The rapid growth of small scale units from 2006¬07 onwards contributing much to the GDP of India. The total output of MSME units increased to Rs. 18,34,332 crores (about 8% of our GDP) in 2011-12 and about 38 per cent of manufactured output.

2) Employment potential: Small scale industries are labour intensive. The capital labour ratio is low. So the small enterprises generated employment opportunities to the time of 1012.6 lakh persons in 2011-12.

3) Low capital: Small scale industries are capital light. As capital is scarce in India, priority should be given to small scale enterprises.

4) Capital formation: The spreading of these industries over the country side would encourage the habit of thrift and investment in the rural areas.

5) Skill formation: The small scale enterprises do not require sophisticated skills. But they serve as a training ground for a large number of small scale managers, at least some of them may develop the capacity for managing the large scale industrial units.

6) Low import intensity: Low import intensity in the capital structure of small scale units reduces the need for foreign capital.

7) Decentralisation of industrial development: The development of small scale industries help decentralisation of industries and thus promote balanced regional development. Locally available raw materials, man power and capital can be utilised to the maximum extent.

8) They help equitable distribution of income and wealth.

9) Earning Foreign Exchange: By exporting the products of small enterprises, India earned foreign exchange worth of Rs. 1,77,600 crores in 2006-’07.

10) The development of small enterprises prevent migration of people from rural to urban areas. Problems of over crowdedness, housing problems, traffic jams, shortage of drink water etc. problems can be prevented in urban areas.

Problems (demerits) of small scale industries: The small scale enterprises in India are facing the following problems.
1) Inefficient Human Factor: The human factor i.e., the rural labourers are inefficient since most of them are illiterates and lack technical knowledge.

2) Lack of credit facilities: The small industrialists are mostly poor and have no cheap credit facilities.

3) Problem of raw materials: The quantity, quality and regularity in the supply of raw materials are highly unsatisfactory. They purchase raw materials in small quantities at high prices.

4) Absence of organised marketing: Small scale industries do not have organised marketing facility. They mostly depend on middlemen. Sometimes, they face competition from large scale units in marketing their products. The small scale units cannot spend more nnoney or advertisement and publicity.

5) Small Scale units do not have modem machinery and equipment: Apart from the above problems small scale units are also facing problem like power cuts, lack of technology upgrada.tion and heavy taxes. These af feet the efficiency and performance of small scale units, in India.

AP Inter 2nd Year Economics Important Questions Chapter 5 Industrial Sector

Question 10.
The Industrial Investment Bank of India.
Answer:
The Government of India did not want the sick industrial units to shut down because this leads to retrenchment of employees and large scale unemployment of industrial workers. To provide financial, technical and managerial assistance to sick units, Industrial Reconstruction corporation of India (IRC.I) was set up in 1971. Later, the Government of India Converted the IRCI into Industrial Reconstruction Bank of India (IRBI) on 20th March 1985. The IRBI was reconstituted into a full fledged new financial institution called the Industrial Investment Bank of India (IIBI) in March 1997.

The cumulative financial assistance sanctioned and distributed by IIBI upto March 2004 was Rs. 14,050 crores and Rs. 13,390 crores respectively. The financial assistance sanctioned by IIBI in 2003-’04 was Rs. 2,412 crores while the assistance disbursed was Rs. 2,252 crores. As the IIBI is suffering with operating losses and also with poor financial position, IIBI is in the process of voluntary winding up.

Very Short Answer Questions

Question 1.
SIDBI [March 2018]
Answer:
Small Industries Development Bank of India (SIDBI) is the principal financial institution for promotion, financing and development of small scale industries in India. SIDBI was set up the Government of India in April 1990 as a subsidiary of IDBI.

Question 2.
IDBI
Answer:
IDBI means Industrial Development Bank of India. It was set up in July, 1964 to provide long term finance to industries. It was made an autonomus institution in February 1976. It provides finance for modernisation, expansion and diversification of industries.

Question 3.
State Finance Corporations
Answer:
The Government of India passed the State Financial Corporation Act in 1951 and made it applicate to all the states. The SFCs help to develop industries in their respective states by guaranteeing the loans, under writing the issues of shares, bonds, etc. granting loans and advances to the industries etc.

Question 4.
Disinvestment [May 2017]
Answer:
Withdrawing the government investment from the Public Sector under takings is called disinvestment.

Question 5.
MRTPAct
Answer:
MRTP Act means the monopolies and Restrictive Trade Practices Act. According to it, monopolies should get prior approval of the government for expansion, establishing new undertakings, merger, take over etc.,

Question 6.
Special Economic Zones. [Mar ’19 (AP&TS)]
Answer:
The Government of India announced Special Economic Zones (SEZs) policy in April 2000. This policy aims at rapid economic growth supported by quality infrastructure complemented by an attractive fiscal package both at the Central and State Level with minimum possible regulations.

Question 7.
Foreign Direct Investment
Answer:
Foreign Direct Investment (FDI) is a maj or source of non-debt financial resource for the economic development of India. For a country where FDI are made, it also means achieving technical know-how and generation of employment.

Question 8.
Industrial Estates
Answer:
Industrial estates were established in 1955 by Small Scale Industries Board for the development of small scale industries in India. An industrial estate is a group of small scale units constructed as an economic scale with facilities of water, transport, electricity, banks, post office, technical guidance and common service facilities.

Question 9.
MSMEs
Answer:
Micro, small scale and Medium Enterprises are briefly called as MSMEs.
They play an important role in the Indian economy.

Question 10.
ICICI
Answer:
ICICI means the ‘Industrial credit and Investment corporation of India. It plays a facilitating role in consolidation in the various sectors of the Indian industry by financing mergers and acquisition.

Question 11.
IFCI
Answer:
IFCI means the Industrial Finance Corporation of India. The Government of India set up the IFCI in July 1948.

Question 12.
Globalisation
Answer:
Expansion of economic activities across the political boundaries of all the Nations in the World is called “Globalisation”.

Question 13.
Micro Industry
Answer:
An industry where the investment in pJant and machinery does not exceed Rs. 25 lakhs is called micro industry.

AP Inter 2nd Year Economics Important Questions Chapter 5 Industrial Sector

Question 14.
Small Scale Industry
Answer:
A small scale industry is one in which the investment in plant and machinery is more than Rs. 25 lakhs but does not exceed Rs. 5 crores.

Question 15.
Mixed Economy
Answer:
An economic system in which both public: and private sectors coexist is called mixed economy. India is an example.

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