INDUSTRIAL SECTOR

● Composed of mining, quarrying, manufacturing, construction, (electricity, gas, water supply and other utility services).
● Account for 31% of GDP, among the above manufacturing sector is the major contributor to GDP.

INDUSTRIAL POLICIES IN INDIA -

● IPR 1948 -
○ Based on Harrod-Domar model. Self sufficiency in agriculture was promoted.
○ Emphasis was given to increase the capacity of existing industries rather than setting up new ones.
○ Stress on protecting cottage and small scale industries by giving them priority status. Emphasis on workers getting fair
wages and social security for harmonious industrial relations.
○ Special stress on development of roads, railways, electricity and irrigation.
○ Industries classified into four categories -
■ Central Government monopoly - arms and ammunitions, atomic energy and rail transport.
■ Mixed sector - Both Govt and pvt sector (coal, iron & Steel, aircraft manufacturing, shipbuilding, mineral oil,
telegraph & telephone).
■ Controlled Pvt sector - Govt controlled these industries indirectly through strong regulations. 18 industries.
■ Pvt Sector - Industries not included in the above three categories
○ The Industries (Devlp & Regulation) Act, 1951 - Industrial development through licensing.
■ 3 major controls by Govt - licensing, allocation of raw materials based on sanctioned output and prices.
■ The main objectives of licensing are to direct investment in industries according to plan priorities and to
regulate the location of industrial units to secure a balanced regional development.
● IPR 1956 -
○ Based on PC Mahalanobis model, considered the economic constitution of India or the Bible of state capitalism.
○ Emphasis on heavy industries and industrial development in backward regions of the country.
○ 3 fold classification -
■ Schedule A - strictly under Central Government, 17 industries.
■ Schedule B - open to both private and public sectors, 12 industries.
■ Schedule C - open to the private sector but subject to licensing and regulation, all other industries.
● INDUSTRIAL POLICY STATEMENT 1969 - Introduced the Monopolistic & Restrictive Trade Practices (MRTP) Act, as
recommended by the Dutt committee to ensure that the operation of the economy does not result in concentration of
economic power in hands of a few.
● INDUSTRIAL POLICY STATEMENT 1973 -
○ 6 Core Industries identified - iron & steel, cement, coal, crude oil, oil refinery and electricity. Aka infra industries.
○ PPP was given emphasis
○ The FERA Act was enacted and limited investment by MNCs in the country was allowed.
○ Policy put some sectors under a reserved list in which only MSMEs could be established.
● INDUSTRIAL POLICY STATEMENT 1977 -
○ Inclination towards Gandhian-Socialist ideas, focused on small scale & tiny industries.
○ ‘Tiny Unit’ was defined as a unit with investment upto ₹1 lakh.
○ Public sector was given an important role to encourage the development of ancillary industries and contribute to the
growth of small scale sector and making available its managerial and technological expertise.
○ Imposed restrictions on multinational companies (MNCs).
● IPR 1985-86
○ Restrictions removed from foreign investment and more industrial areas being opened for entry of foreign investment.
○ MNC can hold up to 49% share in Indian companies.
○ MRTP revised up to Rs 100 crore.
○ Process of industrial licence was further simplified (64 Industries only).
○ Focus shifted to sunrise Industries like telecommunication, computerisation, electronics etc.
○ FERA provisions were relaxed and use of forex was permitted so that essential Technology would be assimilated into
Indian industries.
# MAJOR FEATURES OF PRE-1991 POLICIES -
● Protection of local Industries from International competition through high import tariffs and other restrictions.
● Promotion of import substitution by encouraging production of imported goods indigenously.
● High regulation of bigger private companies through MRTP act (MRP companies) and FERA Act (FERA companies).
● Highly regulated bureaucratised and strict licensing system.
● Most important areas of oil, power, heavy equipment, telecom etc were exclusively in the domain of the public sector.
● Private sector had to seek approval for capacity expansion, diversification and other such business decisions from Govt.
● Price regulation for industrial goods with prices of steel, cement and other basic goods control by government
● All policies have stressed the mixed economic character of the economy which is the coexistence of public and private
sectors, but in reality it was heavily tilted towards the public sector.

NEW INDUSTRIAL POLICY (NIP) 1991-

● NEED -
○ Increased fiscal deficit - 8.5% of GDP.
○ BOP Crisis - ₹ 17367 crores.
○ Gulf Crisis of 1991 & Iran-Iraq war - resulted in dramatic increase in petrol prices in the global market.
○ Decline in Forex Reserves - Import cover of only 3 weeks.
○ Rise in prices of essential goods - inflation rate increased to 16.7%.
○ Poor performance of the Public Sector.
● OBJECTIVE - The New Industrial Policy of 1991, introduced by the Indian government, marked a major shift from a heavily
regulated economy to a more market-oriented one.
○ Liberalization: Reduce the role of the government in business and allow for greater freedom in private sector
operations. This included eliminating licensing requirements for most industries, except a few strategic ones.
 ○ Globalization: Integrate the Indian economy with the global economy. This involved opening up the economy to foreign
investments and encouraging exports.
○ Privatization: Reduce the role of the public sector in various industries by selling off or disinvesting in
government-owned enterprises. This aimed to improve efficiency and reduce the financial burden on the government.
○ Encouragement of Foreign Investment: Attract foreign direct investment (FDI) by relaxing restrictions on foreign
ownership and allowing multinational corporations to set up in India. This helped boost capital, technology, and
management practices.
○ Increase Competitiveness: Foster a competitive environment to improve productivity and innovation in Indian
industries. This was done by reducing tariffs and import restrictions, allowing domestic businesses to compete
internationally.
○ Modernization of Technology: Encourage the adoption of new technologies in Indian industries to improve efficiency
and productivity. This included the easing of restrictions on technology imports.
○ Regional Balance: Promote industrial development in less-developed regions of India to reduce regional economic
disparities.
● FEATURES -
○ Industrial De-Licensing: abolition of compulsory industrial licensing for all industries except 18 (presently only 5
Industries require compulsory Industrial Licensing - distillation and brewing of alcoholic drinks, cigar & cigarettes of
tobacco & manufactured tobacco substitutes, electronic aerospace and defence equipments, industrial explosives,
specific hazardous chemicals like hydrocyanic acid isocyanate etc).
○ Encouragement of Foreign Investment: By simplifying regulations, lifting caps on foreign ownership in certain sectors,
and offering incentives for foreign companies. Foreign equity participation was allowed up to 51% in high-priority
industries.
○ Disinvestment in Public Sector Enterprises: The policy promoted privatization by encouraging disinvestment in
non-strategic public sector enterprises, reducing the number of sectors reserved for public ownership, and enhancing
the role of the private sector.
○ Liberalization of Trade and Tariff Policies: Import restrictions were reduced, and tariffs were lowered to encourage free
trade and integration with the global economy. This helped increase competition and availability of imported goods.
○ Deregulation of Small-Scale Industries: Many products previously reserved for small-scale industries were
de-reserved, allowing large enterprises to produce them. This aimed to encourage economies of scale and boost
competitiveness.
○ De-reservation of Public Sector: Key industries such as iron and steel, petroleum, and telecommunications, which
were previously reserved for the public sector, were opened up to private players. 8 were still reserved. Presently only
2 sectors are reserved (Atomic Energy & Railway Operation).
○ Encouragement of Technology and Modernization: The policy encouraged Indian industries to adopt new technologies
and modernize their production processes by easing restrictions on technology imports and promoting technical
collaborations.
○ Greater Emphasis on Industrial Growth in Backward Areas: Incentives were provided to promote industrial growth in
less developed regions to reduce regional disparities.
○ Establishment of the Board for Industrial and Financial Reconstruction (BIFR): BIFR was set up to help revive and
restructure sick public sector units, making them more efficient or preparing them for closure if necessary.
○ Simplification of Procedures: The policy aimed to improve the ease of doing business by reducing bureaucratic red
tape, streamlining approval processes, and simplifying regulations to facilitate faster and smoother operations for
businesses.
● SHORTCOMINGS -
○ Increased Income Inequality: Wealth concentrated in urban areas and among a few business owners, while many rural
and marginalized populations were left behind.
○ Neglect of the Agri Sector: The policy focused heavily on industrial growth but did not prioritize the agricultural sector,
which employed a large portion of India’s population. This led to a widening gap between the growth of agriculture and
industry.
○ Dependency on Foreign Investment: The emphasis on FDI created a reliance on foreign capital. This sometimes
resulted in foreign control over crucial sectors, which raised concerns about economic sovereignty and vulnerability to
global economic fluctuations.
○ Adverse Impact on Small-Scale Industries: With the removal of certain protections, small-scale industries faced
increased competition from larger and multinational companies. This led to many small businesses struggling to
survive or shutting down, resulting in job losses.
○ Privatization Issues: While disinvestment and privatization aimed to improve efficiency, they also led to job insecurity
among public sector employees. Additionally, some privatization processes were criticized for a lack of transparency
and accountability.
○ Environmental Concerns: Rapid industrialization led to environmental degradation, as environmental regulations were
sometimes overlooked or weakened in the push for industrial growth. This has had long-term impacts on India's
natural resources and public health.
○ Regional Imbalance: Although the policy aimed to promote industrial growth in backward areas, the benefits were not
evenly distributed. Industrial development was still concentrated in already-developed states, leading to a lack of
balanced regional development.
○ Limited Employment Generation: Despite high economic growth, job creation did not keep pace with the growing
labour force. The focus on capital-intensive industries sometimes resulted in limited opportunities for employment,
contributing to underemployment and unemployment.
○ Increased External Debt: The policy led to a surge in imports and foreign borrowing. While this facilitated growth in the
short term, it also increased India’s external debt and dependency on foreign markets.
○ Social Displacement: The acquisition of land for industrial projects sometimes led to displacement of local
communities, particularly tribal populations. In some cases, the displacement process did not provide adequate
rehabilitation and compensation, leading to social and economic challenges.
PUBLIC SECTOR UNDERTAKINGS -
● Owned by Union/State Govt (>51% ).
● Classified into -
○ Central Public Sector Enterprises (CPSEs) - administrator by ministry of heavy industries and public enterprises.
○ Public Sector Banks (PSBs) - administered by the ministry of finance (Department of Financial Services).
○ State-level Public Sector Enterprises (SLPEs).
● In order to provide greater financial autonomy to CPSEs, they have been further classified into -

MINIRATNA (Category I & Il) NAVARATNA (Most Prestigious in 1997) MAHARATNA (2010)

Category l - Criteria - Criteria - Must have ‘Miniratna-I’ status Criteria - Having Navratna status, listed
Made profits in last 3 years continuously, along with Schedule A listing, at least 3 in Indian stock exchange as per SEBI
pre-tax profit of 30 crore in at least one of ‘excellent’ or ‘very good’ MoUs in last 5 regulations, Avg annual turnover > 25,000
the 3 years and a positive net worth. years, must obtain a 60/100 score based cr during last 3 years, Avg annual net
Fin Autonomy to incur capex without on its performance during the last 3 years. worth > 15,000 cr during last 3 years, Avg
Govt approval upto 300 cr or equal to Fin Autonomy to invest upto 15% of their annual net profit after tax > 5,000 cr
their net worth, whichever is lower. net worth in a single project limited to during last 3 years, company should have
Category ll - Criteria - absolute ceiling of ₹1,000 cr without Govt a significant global presence or
Profit in the last 3 years continuously and approval. Overall ceiling on such international operations.
a positive net worth . investment in all projects put together to Fin Autonomy to invest upto 15% of its
Fin Autonomy to incur capex without not exceed 30% of net worth of CPSE. net worth in a single project limited to
Govt approval upto Rs 150 cr or upto 50% Currently 14 Navratna CPSEs. absolute ceiling of ₹5,000 cr without Govt
of their net worth, whichever is lower. approval. Overall ceiling on such
Currently there are 61 category l investment in all the projects not to
miniratna & 12 category ll miniratna exceed 30% of net worth. (10).
CPSEs.

DISINVESTMENT - Act of selling the equity shares of public enterprises to private sector or Privatization of Public Sector.
● Minority Disinvestment - Govt retains a majority stake in the company & ensures management control stays with the Govt.
It has the following types -
○ Initial Public Offering (IPO) - An offer of shares by the unlisted PSU to public for the first time.
○ Follow On Public Offering (FPO) - An offer of shares by a listed PSU. Issuance of additional shares offered by the
company to the investors after an IPO. AKA Secondary Offering.
○ Offer For Sale (OFS) - The shares of the PSU are auctioned on the platform provided by stock exchange.used
extensively by Govt since 2012.
○ Institutional Placement Programme (IPP) - This method involves selling shares of a PSE to qualified institutional
buyers, such as mutual funds, insurance companies, and foreign institutional investors.
○ Cross-Holdings - One listed PSU takes up the Govt stake in another listed PSU.
○ CPSE Exchange Traded Fund (ETF) - is a type of mutual fund in India that specifically invests in shares of
government-owned companies, known as Central Public Sector Enterprises (CPSEs). Launched by the Government
of India, the CPSE ETF aims to facilitate divestment of the government's equity stakes in these companies, helping
raise funds.
○ Employee Stock Option or Offer to Employees:The Govt may offer a portion of its shares to the employees of the
PSE at a discounted price. This is often used as an incentive and a way to engage employees as stakeholders in the
company.
● Majority Disinvestment - Govt sells off its majority stake. These always include strategic partners (Pvt or other CPSEs).
○ Strategic Sale - Sell majority stakes along with transfer of management control to a strategic investor who has
expertise in the PSE’s sector.
○ Privatisation & Complete Privatisation.
● Purpose/Importance/Benefits of Disinvestment -
○ Improve efficiency- public sector often suffer from inefficiency due to bureaucratic control. Disinvestment allows for
private sector which tends to be more agile, profit driven and result oriented,leading to improved productivity.
○ Fiscal consolidation - By selling shares in PSEs, the Govt generates significant revenue which helps reduce the
fiscal deficit. This money can be used for Infra development, social programs or debt reduction.
○ Reduce the financial burden on the PSUs that are sick and going bankrupt.
○ Enhanced competition government monopolies are broken, leading to better services, competitive pricing and higher
quality for customers.
○ Attracting FDI - disinvestment in larger PSEs often attracts International investors, leading to increased FDI inflow.
○ Reduction in Govt’s administrative burden - this investment transfers responsibilities to the private sector allowing
Govt to focus more on governance and policy making.
○ Depoliticization of essential services.
○ Better Corporate Governance: With private sector participation, corporate governance standards improve as there is
more accountability to shareholders, leading to better decision-making, transparency, and reduced corruption.
○ Encouraging Private Sector: Private sector ownership encourages investment, innovation, and modernization, as
businesses are incentivized to maximize profitability. This can lead to the expansion and development of various
sectors, such as banking, telecom, and power.
○ Employment Generation: While the initial transition might lead to workforce adjustments, in the long term, privatized
enterprises tend to grow and expand, creating new job opportunities. Additionally, competitive companies drive
sectoral growth, which can lead to more employment.
● Criticism -
○ Disinvestment has only become a means for the Govt to raise funds. Little emphasis on PSU reforms.
○ Loss of government control over strategic sectors
○ Job losses - when privatized their is often a push for efficiency, which can result in job cuts.
○ Undervaluation of assets - Assets are sometimes sold at undervalued prices leading to losses for the government.
○ Disinvestment is often used as a tool to bridge fiscal deficits.
 ○ PSEs are often mandated to pursues social objectives whereas once privatized, they focus on profit maximization.
● Way Forward - need to ensure public trust in selling processes, proper valuation of companies, fair & free auction process,
and some protection to the officials after the transaction as many times they face witch-hunting by investigative agencies.

TOOLS TO MEASURE THE PERFORMANCE OF INDUSTRIES -

● Index of Industrial Production (IIP) - A statistical measure of industrial performance.Base year 2011-12.
○ Monthly Index compiled and published by NSO under MoSPI on the basis of data collected from 14 ministries. It
measures the short term changes in the volume of production of a basket of Industrial products.
○ While computing IIP weightage to the three sub sectors are -
■ Mining sector 14.4% Manufacturing sector 77.6%. Electricity sector 8%.
○ In terms of use-based classification primary goods carry the highest weightage in measurement of IIP.
● Index of Eight Core Industries - Refinery Products ,Electricity, Steel, Coal, Crude Oil, Natural gas, Cement, Fertilizers.
○ These 8 core Industries comprise 40% of weight in IIP
● Annual Survey of Industries - Principle source of industrial statistics to organise the manufacturing sector in the country.
○ Published annually by NSO and covers factories employing 10 or more workers using power and those employing 20
or more without using power, unit with hundred or more employees registered under any of the seven acts under
factories Act, registered bidi and cigarette manufacturing establishment, and all electricity undertakings (not registered
with Central electricity authority
● Purchasing Managers’ index (PMI) - published by S&P Global but compiled by Market Economics.
○ Two separate PMI are published monthly - manufacturing PMI and services PMI.
○ Based on 5 major indicators: new orders, inventory level, production, supplier deliveries, and employment
environment.
○ A PMI number greater than 50 indicates expansion in business whereas less than 50 indicates contraction.

SPECIAL ECONOMIC ZONE (SEZs) -

● SEZ is a territory of country that is usually duty free (Fiscal Concession) and has its own set of Business and Commercial
rules Chiefly to encourage investment and create employment. Created also to better administer these areas thereby
increasing Ease of Business.
● Background -
○ Asia's first EPZ (Export Processing Zone) was established in 1965, at Kandla Gujarat.
○ In India SEZ Policy was first announced in 2000, and SEZ Act was passed in 2005. During 2000 to 2006 SEZ
functioned as per foreign trade policy. India's SEZs were structured closely to China's successful model. There were 7
Central Government SEZs and 12 State/Private sector SEZs prior to enactment of the SEZ Act.
○ Presently 378 SEZs are notified, out of which 265 are operational. About 64% are located in five states - Tamilnadu,
Telangana, Karnataka, Andhra Pradesh and Maharashtra.
● Objectives of the SEZ Act -
○ Boosting extra economic activity.
○ Promotion of exports.
○ Create more employment opportunities.
○ Increase both domestic and international investment.
○ Infrastructure development
● Incentives & Facilities available to SEZs -
○ Income Tax Exemptions - 100% exemption on export income for first 5 years, 50% for next 5 years, and up to 50% of
the ploughed back (reinvested) export profit for another 5 years.
○ Exemption from Customs Duty - Goods for SEZs units can be imported duty free or purchased domestically.
○ Exemption from MAT, Sales Tax and IGST.
○ Single Window Clearance System for all State and Central Government approvals.
○ 100% FDI in manufacturing and most service sectors within SEZs without prior government approval.
○ World class infrastructure and enhanced connectivity to the world for exports and imports.
○ ECBs by SEZs units up to 500 million dollars per year through recognised banking channels, with no maturity
restrictions.
● Challenges -
○ Unutilised land in SEZs - There are more than 25000 hectares of land unutilised due to lack of demand, change in
fiscal incentive regime and disruptions caused by pandemic.
○ Land Acquisition Issues - land availability & high land prices.
○ Existence of Multiple Models - Multiple models of economic zones like SEZ, Coastal Economic Zones, Delhi Mumbai
Industrial Corridor, NIMZ, Food Park and Textile Park which pose challenges in integrating the various models.
○ Slow Implementation & Delays - administrative delays (Red tape, slow decision making, length approval processes)
cause significant delay in setting up and operating SEZs. Many SEZs face delay in construction of necessary infra,
which limit their ability to attract and retain investors.
○ Competition from ASEAN countries - South East Asian countries offer more competitive incentives, better Infra, and a
more stable policy environment making them more attractive to investors. Whereas India's SEZ sometimes struggle to
keep up with international standards in terms of efficiency and costs.
○ Challenges with Labours - labour law variability (some SEZs have benefit from relaxed labour regulations, other face
labour law restrictions that affect flexibility and productivity) and Worker Unrest (issues related to wages, working
conditions, and labour rights have led to strike and unrest).
○ Environmental Concerns - without proper planning SEZs can lead to over exploitation of natural resources, which can
damage local ecosystems and harm the surrounding community.
● Way Forward -
○ Policy Reforms -
■ Simplify regulations: Streamlining regulations, reducing bureaucratic hurdles, simplifying approval process and
ensuring transparency can attract more investment.
■ Tax Incentives and Stability: Offer consistent tax incentives and ensure policy stability. Frequent changes in
policies and tax benefits can discourage investors.
 ■ Revise Land Acquisition Policies: Modify policies to make land acquisition more transparent and fair to prevent
conflicts with local communities.
○ Improve Infra -
■ Upgrade Infra: Ensure world-class infra, including transportation, power, water, and logistics. This can enhance
the competitiveness of SEZs.
■ Connectivity to Major Hubs: Improve connectivity of SEZs with ports, highways, and airports to facilitate
efficient movement of goods.
○ Labor Law Flexibility -
■ Flexible Labor Laws: Provide a more flexible labour framework within SEZs to boost productivity while ensuring
workers' rights are protected.
■ Skill Development Programs: Establish training centres in SEZ areas to address the shortage of skilled labour
and provide jobs to local communities.
○ Attracting Investment -
■ Enhance Ease of Doing Business: Implement initiatives that make it easier to set up businesses in SEZs by
reducing paperwork and ensuring time-bound clearances.
■ Encourage Foreign Investment: Facilitate FDI through liberalized policies, creating an attractive environment
for international companies.
○ Diversify SEZ Industries -
■ Focus on Emerging Sectors: Move beyond traditional industries and encourage investments in sectors like
technology, renewable energy, and biotechnology.
■ Promote Export-Oriented Manufacturing: Emphasise the production of goods that have high export potential,
helping SEZs contribute more to the country’s foreign exchange earnings.
○ Environmental and Social Responsibility -
■ Implement Environmental Safeguards: Enforce environmental regulations within SEZs to minimize ecological
impact, ensuring that economic growth is sustainable.
■ Community Development Initiatives: Create programs that benefit local communities, including healthcare,
education, and skill training, to gain local support and reduce opposition.
○ Monitor and Evaluate SEZ Performance -
■ Regular Audits and Assessments: Conduct regular audits to ensure SEZs are meeting their objectives and
address any issues hindering their progress.
■ Performance-Based Incentives: Link incentives to performance, rewarding SEZs that contribute significantly to
exports, job creation, and regional development.
○ Implementation of recommendations of Baba Kalyani Commission.

INDUSTRIAL CORRIDORS -
● Industrial corridors are geographically integrated economic regions with a specific industry mix, comprising industrial clusters
and associated infrastructure. They aim to boost industrial growth, create jobs, and improve infrastructure. They often involve
the development of transport networks, logistics hubs, and other supporting infrastructure to facilitate industrial activity
● The National Industrial Corridor Development Programme (NICDP) is the umbrella program in India for the development
of industrial corridors. It was established to create a network of industrial corridors across the country, aiming to promote
balanced regional development, boost manufacturing, and improve the country's industrial infrastructure. This program falls
under the National Industrial Corridor Development and Implementation Trust (NICDIT), which is the nodal agency
responsible for planning, coordinating, and implementing these projects.
● Delhi Mumbai Industrial Corridor (DMIC) -
○ This is a flagship project covering six states: Delhi, Uttar Pradesh, Haryana, Rajasthan, Gujarat, and Maharashtra.
○ It aims to develop industrial zones, logistics parks, and new smart cities along the Western Dedicated Freight Corridor
(WDFC).
○ The DMIC includes major nodes, Dadri-Noida-Ghaziabad in Uttar Pradesh, Manesar-Bawal in Haryana,
Khushkhera-Bhiwadi-Neemrana in Rajasthan, Pitampura-Dhar-Mhow in Madhya Pradesh, Dholera in Gujarat,
Shendra-Bidkin in Maharashtra.
● Amritsar Kolkata Industrial Corridor (AKIC) -
○ Spans across seven states: Punjab, Haryana, Uttar Pradesh, Uttarakhand, Bihar, Jharkhand, and West Bengal.
○ It aims to boost industrial development in the eastern part of India and improve connectivity with the eastern ports.
○ There are ongoing discussions about extending the corridor to key international trade points, like the Attari border,
which would enhance trade routes to Central Asia through Pakistan and Afghanistan. This extension could transform
the AKIC into a critical gateway for Indian exports to international markets, promoting agricultural exports and
contributing significantly to regional development.
● Chennai Bangalore Industrial Corridor (CBIC) -
○ Focuses on promoting manufacturing and attracting investments in Karnataka, Andhra Pradesh, and Tamil Nadu.
○ Key Nodes of the CBIC includes -
■ Krishnapatnam (AP) - This note focuses on port development petrochemicals and power industries.
■ Tumakuru (Karnataka) - being developed as a hub for aerospace, IT, and biotechnology industries.
■ Ponneri (TN) - focus on engineering components, logistics and warehousing.
○ It is being founded by the Japan International Cooperation Agency (JICA).
● Bangalore Mumbai Industrial Corridor (BMIC) -
○ In the states of Karnataka and Maharashtra it is being developed with the help of Britain (UK).
● East Coast Economic Corridor (ECEC) -
○ West Bengal, Odisha, Andhra Pradesh, and Tamilnadu.
○ To enhance connectivity, boost industrial devlp, and promote trade between India and South East Asia. It is designed
to integrate with the Indian government’s “Act East Policy” which focuses on strengthening economic and cultural ties
with East and South East Asia countries.
○ Components / key Sub Corridors -
■ Vizag Chennai Industrial Corridor - the first phase of ECEC, focussed on developing industrial clusters,
enhancing port connectivity, and promoting investment in Andhra Pradesh.
 ■ Chennai Kanyakumari Industrial Corridor - focuses on connecting Chennai with Southern Tamilnadu,
enhancing instal activity and improving Infra in the region
■ Other segments may also be developed in phases as the project expands.
○ The Asian Development Bank approved loans and grants worth 631 million dollars for infra devlp.

● Significance of Industrial Corridor in India -

○ Economic Growth - stimulates industrial growth, Employment generation and directly contributes to National GDP.
○ Infra Devlp - enhanced connectivity (corridors improve transport Infra, including roads, railways, and ports, facilitating
efficient movement of goods and people). Integrated urban Development - (they promote the establishment of smart
cities and industrial hubs improving overall urban infrastructure).
○ Attracting Investment -
■ FDI - Corridors attract both domestic and foreign investors by offering dedicated industrial zones, tax incentives
and better Infrastructure.
■ PPP - Encourage collaboration between Govt and private sector leading to increased investment in infra.
○ Regional Development -
■ Balanced Growth - Aims to promote balanced regional development, reducing economic disparities between
different parts of the country.
■ Support for peripheral areas - They help develop peripheral regions by linking them to major economic
centres, fostering growth in less developed areas.
○ Encouraging Industrial Clusters - Industrial corridors create specialised industrial clusters, such as manufacturing
hubs, IT parks, and logistics centres. This clustering helps improve economies of scale and efficiency in prodn.They
also foster a supportive ecosystem for industries, including suppliers, service providers, and a skilled labour pool.
○ Manufacturing & Export Growth -
■ Make in India Initiative - industrial corridors align with the national policy of ‘Make In India’ promoting
domestic manufacturing and enhancing export competitiveness.
■ SEZs - they often include SEZs that provide favourable conditions for manufacturing and export oriented units.
■ By improving logistics, they enable faster and more reliable delivery of goods, which is crucial for industries
dependent on global supply chains.
● Challenges associated with Industrial Corridor
○ Land Acquisition - disputes over compensation and rehabilitation. Resistance from local communities.The
displacement of local populations and communities due to land acquisition can lead to social tensions and conflicts.
○ Infra Gaps - insufficient Infra and coordination challenges (coordination among different government agencies for Infra
development can be complex and slow).
○ Funding & Investment -
■ Financing Issues - securing adequate funding from public and private sources can be challenging.
■ Economic Viability - investors may have concern about long term viability of certain Corridors.
○ Regulatory & Policy Hurdles -
■ Bureaucratic delays in project approval and implementation due to cumbersome regulatory processes.
■ Policy Consistency - frequent changes in policies or regulatory frameworks can create uncertainty for
investors and stakeholders.
○ Environmental Concerns - Industrial Development can lead to environmental degradation, impacting local
ecosystem and communities.
○ Skill Mismatch - there is a gap between skills required by industries and those possessed by local workers.
○ May increase Regional Disparities if not all areas benefit equally or if peripheral regions are neglected

NATIONAL INVESTMENT AND MANUFACTURING ZONE (NIMZ) -

● NIMZs are large industrial regions developed by the Government of India to promote manufacturing and attract investment in
key sectors. These zones are part of India’s National Manufacturing Policy (NMP), aiming to increase the manufacturing
sector’s contribution to GDP, create jobs, and drive sustainable growth.
● Features -
○ State Govt to provide suitable land of 5000 hectares. These zones provide space for both large-scale manufacturing
units and ancillary industries, creating an integrated industrial ecosystem.
○ Infra Devlp: Each NIMZ is equipped with state-of-the-art infra, including transport links, power, water supply, and
waste management systems. There is also an emphasis on sustainable development, with green manufacturing
practices and environmental management plans.
○ Special Incentives: Companies operating within NIMZs benefit from various incentives, including tax breaks, easier
compliance procedures, reduced red tape, streamlined environmental clearance processes and simplified land
acquisition norms.
○ Focus on Skill Development: To ensure a steady supply of skilled labour, NIMZs include skill development centres
and vocational training programs to support local communities and prepare workers for the needs of the
manufacturing sector.
● Objectives - increase manufacturing output, job creation, promotion of investment and to boost export.
● 3 NIMZs have been accorded final approval - Prakasan (AP), Sangareddy (Telangana), Kalinganagar (Odisha).

# FDI Policy Pertaining To Industrial Sector -

● 100% FDI under automatic route in manufacturing, oil and gas, Greenfield Airports, Construction, Railway Infra etc.
● In other sectors , FDI is allowed under automatic route upto a certain threshold (26%,49% etc).
● Top 5 FDI Sourcing Nations - Singapore, USA, Mauritius, Netherland, Switzerland.
● Top Sectors receiving highest FDI - Computer Software & Hardware, Services Sector, Automobile Industry, Trading,
Construction (Infra) Activities.
● Top Destination States - Karnataka, Maharashtra, Delhi, Tamil Nadu, Haryana.
# EASE OF DOING BUSINESS -
● A ranking system established by the World Bank Group. A higher ranking indicates better, usually simpler, regulations for
businesses and stronger protections of property rights.
● Sub Indices - Starting a Business, Dealing with Construction Permits, Obtaining Electricity, Registering Property, Obtaining
Credit, Protecting Investors, Paying Taxes, Trading Across Borders, Enforcing Contracts and Resolving Insolvency.
● India's rank improved from 142 in 2014 to 63 in 2019.
● Steps taken so far to improve the Ease of Doing Business -
○ Simplifying Business Registration & Permits
■ Digital Platforms - The MAC21 portal of Min of Corp Affairs allow online registration of companies easingthe
process of starting a new business.
■ Single Window System - Govt introduced Single Window System for Business Approvals, helping
entrepreneurs get clearance from different agencies through one platform.
■ Decriminalization of Minor Offences - various laws were amended to remove criminal penalties for minor
offences reducing legal risk for businesses.
○ Improving Access to Credit -
■ Credit Guarantee Scheme - Programs like Credit Guarantee Fund Trust for MSE (CGTMSE) provide
collateral free credit to small businesses, boosting financial access.
■ Insolvency & Bankruptcy Code (IBC) - This code offers a quicker & more efficient process for resolving
insolvency, enhancing the recovery rate for creditors & reassures lenders.
○ Tax Reforms -
■ GST - GST simplifies the text structure by replacing multiple indirect taxes with a single tax.
■ Faceless Tax Assessments - to reduce tax rated harassment faceless tax assessments have been
introduced making the process more transparent and less susceptible to corruption.
○ Streamlining Construction Permits and Property Registration
■ Automated Building Permit Approvals: In several cities, building permits are now automated, reducing
approval times and easing compliance for construction-related businesses.
■ Digitization of Land Records: The government has digitized land records under initiatives like Digital India
Land Records Modernization Programme (DILRMP), simplifying property registration.
○ Ease in Cross-Border Trade
■ Reduction in Customs Clearance Time: The implementation of SWIFT (Single Window Interface for
Facilitating Trade) and other digital systems has expedited customs procedures and minimized delays.
■ Customs Duty Exemptions and Reductions: To support manufacturers and exporters, various exemptions
and duty reductions have been introduced for raw materials and essential components.
○ Labor Law Reforms
■ Codification of Labor Laws: The government consolidated 29 labour laws into four labour codes, simplifying
compliance for businesses and offering more flexibility in labour practices.
■ E-Shram Portal: This portal provides a platform for registering unorganized workers, helping companies
ensure compliance with labor regulations more easily.
○ Infrastructure and Digital Initiatives
■ National Infrastructure Pipeline (NIP): The NIP aims to invest in projects that will improve logistics and
connectivity, lowering operational costs for businesses.
■ BharatNet: This initiative is expanding broadband connectivity to rural areas, encouraging digital business
growth in remote regions.Startup India Initiative: Special benefits and support are provided to startups,
including tax exemptions and simplified procedures.
○ Strengthening Contract Enforcement
■ Dedicated Commercial Courts: To ensure quicker dispute resolutions, dedicated commercial courts have
been set up in major cities.
■ Arbitration and Mediation: The Arbitration and Conciliation (Amendment) Act supports alternate dispute
resolution mechanisms, speeding up contract enforcement.
○ Supporting Foreign Investment
■ Relaxation of FDI Norms: India has relaxed foreign direct investment rules in sectors like defense, retail, and
insurance, making it easier for foreign companies to invest.
■ Investment Facilitation Cell: The government has established facilitation cells to guide and assist foreign
investors, providing a smoother entry into the Indian market.
 INDIAN ECONOMY: NITIN SINGHANIA SUMMARY

CHAPTER 16: MSME SECTOR

 Definition: MSMEs are defined under the Micro, Small and Medium Enterprises Development Act, 2006.
 The Act classifies them as Micro, Small and Medium Enterprises based on:
o Investment in plant and machinery for enterprises engaged in manufacturing or production of goods, and
o Investment in equipment for enterprises providing services.
 Revised Definition of MSME has removed distinction between manufacturing and service MSMEs.

Type Investment in plant and machinery or equipment Annual Turnover

Micro <Rs. 1 Crore <Rs. 5 Crore
Small <Rs. 10 Crore <Rs. 50 Crore
Medium <Rs. 50 Crore <Rs. 250 Crore

VARIOUS ORGANS UNDER MINISTRY OF MSME

Office of
Development
Commissioner
(MSME)

MGIRI (Wardha Coir Board

Maharastra) (HO in Kochi)

Ministry
of
MSME
Khadi and
National Village
Institute for Industries
MSME Commission
(NI.MSME) (KVIC)(HQ in
Mumbai)
National Small
Industries
Corporation Ltd
(NSIC)

MSME SECTOR

DATA RELATED TO MSME SECTOR

Employment  Approx 111 million People

 Second largest employment generator after Agriculture
GDP Contribution  30 % of India’s GDP (Source: Economic Survey)
Export  More than 45% of exports
Contribution
Women in MSME  20.37% MSME operated by Women
Sector
 Balanced regional growth.
Contribution in  Inclusive Growth
Growth  Financial Inclusion
 Can be used to tackle jobless growth

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 INDIAN ECONOMY: NITIN SINGHANIA SUMMARY

ISSUES OF MSME SECTOR

 Facing issue of Regulatory Cholesterol.
 Lack of Skilled Workforce: Only about 4% people of India are skilled.
 Poor Technology: Majority of the firms in MSMEs are micro-enterprises.
 International Threat: Cheap Chinese Products.
 Dwarf MSME: More than 10 years old but still less than 100 employees.
 Increasing NPAs: as per Financial study report, bad loans in MSME sector stood at 9.3% at end of March 2022.
 Multiplicity of labour laws.
 Delayed payments from client and vendors.
 Information asymmetry, delayed receivables.
 Reservation of sectors for small scale industries.
STEPS TAKEN BY GOVERNMENT

 Any person who intends to establish a micro, small or medium enterprise may file
Udyam Registration Udyam Registration online in the Udyam Registration portal, based on self-declaration
with no requirement to upload documents, papers, certificates or proof.
 It is free of cost.
 The aim is to make the country and its citizens independent and self-reliant in all
Atma Nirbhar Bharat senses.
 Five pillars of Aatma Nirbhar Bharat – Economy, Infrastructure, System, Vibrant
Demography and Demand.
 The Emergency Credit Line Guarantee Scheme (ECLGS) was launched in May, 2020 as
part of Aatmanirbhar Bharat Abhiyan to support eligible Micro, Small and Medium
The Emergency Credit Enterprises (MSMEs) and business enterprises in meeting their operational liabilities
Line Guarantee Scheme and restarting their businesses in the context of the disruption caused by the COVID-
(ECLGS) 19 pandemic.
 This scheme covers all the sectors of the economy.
 This was stated by the Union Minister of State for Finance Dr Bhagwat Kisanrao Karad
in a written reply to a question in Lok Sabha today.
 The government has allocated an approximate budget of INR 22,140 crores for the
Budget Allocation for MSME sector, which is a 42 per cent increase from previous years.
MSME sector  This allocation will go towards implementing various schemes to provide easy and
affordable access to credit, technology upgrades and infrastructure development
 The scheme envisages promotion of Zero Defect and Zero Effect (ZED) manufacturing
amongst MSMEs.
Zero Effect Zero Defect  The scheme is an extensive drive to create proper awareness in MSMEs about Zero
Defect Zero Effect manufacturing and motivate and incentivise them for ZED
certification.
 Priority sector lending include only those sectors, as part of the priority sector that
Priority Sector Lending impact large sections of the population, the weaker sections and the sectors which are
employment-intensive such as agriculture, and Micro and Small enterprises.
 Launched on April 8, 2015 for providing loans up to 10 lakh to the non-corporate, non-
Pradhan Mantri Mudra farm small/micro enterprises. These loans are classified as MUDRA loans under PMMY.
Yojana  These loans are given by Commercial Banks, RRBs, Small Finance Banks, MFIs and
NBFCs.
 Interest Subvention under Mudra Scheme.
 MSME SAMADHAAN is an online Delayed Payment Monitoring System, governed by
Samadhan Portal the Micro and Small Enterprise Facilitation Council (MSEFC) for settlement of disputes
on getting references/filing on Delayed payments by aggrieved MSMEs (Micro, Small
and Medium Enterprises)
 The CHAMPIONS stands here for Creation and Harmonious Application of Modern
Champions Portal Processes for Increasing the Output and National Strength.
 It is a technology driven Control Room-Cum-Management Information System which
utilises modern Information and Communication Technology (ICT) tools.
Fund of Funds Scheme  This scheme was announced by Nirmala Sithmaran, the Finance Minister of India, on
13th May 2020.

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 INDIAN ECONOMY: NITIN SINGHANIA SUMMARY

 As per the announcement, the aim of the FoF scheme is to infuse ₹50,000 equity into
MSMEs.
 The Fund of Funds scheme is intended to primarily approach the issue of shortage in
equity (growth capital) as well as revenue for MSMEs.
 Government e-Marketplace (GeM), the public procurement platform of the
Govt-e-market place Government of India, and the Udyam platform, the government's MSME registration
portal, have signed a Memorandum of Understanding to share the data of MSMEs
registered on Udyam with GeM.
 Ministry of MSME has been implementing Credit Linked Capital Subsidy and
Technology Upgradation Scheme (CLCS-TUS) for promoting competitiveness
amongst Micro, Small and Medium Enterprises (MSMEs) by the way of wastage
Technology Upgradation reduction through Lean Manufacturing, support for Design improvement, building
Fund awareness on Intellectual Property Rights, Zero Defect Zero Effect (ZED) Scheme,
digitally empowerment of MSME through Digital MSME and to promote & support
untapped creativity of individual and to promote adoption of latest technologies in
manufacturing as well as knowledge based innovation MSMEs through Incubation
across India.
 SFURTI is Scheme of Fund for Regeneration of Traditional Industries. Ministry of
Micro Small and Medium Enterprises (MSME), Govt. of India has launched this
SFURTI scheme in the year 2005 with the view to promote Cluster development.
 This scheme will support MSMEs in provisioning of Infrastructure for their
development.
 The scheme is implemented by Khadi and Village Industries Commission (KVIC)
functioning as the nodal agency at the national level.
 At the state level, the scheme is implemented through State KVIC Directorates, State
PMEGP Khadi and Village Industries Boards (KVIBs), District Industries Centres (DICs) and
banks.
 In such cases KVIC routes government subsidy through designated banks for eventual
disbursal to the beneficiaries / entrepreneurs directly into their bank accounts.
 Global tenders only after 200 crores.
 Special Credit Linked Capital subsidy scheme for service industry.
Other  59 min loan.
 Udyog Aadhar to ease laws.
 Ease in Labour Laws.
WAY FORWARD
 Easy access to credit facilities
 Rule Simplification
 Skill Development and Capacity Building
 Ease of Doing Business
 Sunset Clause for schemes
 Market Linkage
 Digitalization
 Ensure Economics of Scale
 Grandfathering clause
INTERNATIONAL PRACTICE
 TURQUALITY is an ambitious project associated with bringing “Turkey” and “Quality” concepts together.
 The project is initiated by the Turkish Government, Ministry of Economy, Turkish Exporters’ Assembly (TIM), and
Istanbul Textile and Apparel Exporters’ Association (ITKIB).
 The initial legal framework was laid out publicly on January 12th, 2004.
 TURQUALITY is basically an accreditation system, which is designed not only for elevating the beneficiary companies
to the level of international benchmarks, but also creating awareness on the internationally accepted values like quality
and novelty that are actually carried by these brands.
 As a “national brand-building program”, TURQUALITY’s goal is to facilitate and support the success of Turkish brands
on international arena.

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