Industrial and Regulatory Perspective of Business

7/30/2019 Industrial and Regulatory Perspective of Business

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M O D U L E 3

INDUSTRIAL AND REGULATORY PERSPECTIVE OF BUSINESS


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ROLE OF GOVERNMENT IN ECONOMICDEVELOPMENT


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Governments Role

State control is inevitable, but the extent of control vary widely from one country to another dependingupon political philosophy, social attitudes, stage of

economic development and behavior of privatesector.Plight of Underdeveloped nations disparity between their economic condition and that of the

advanced countries.Comprehensive measures by Govt., is necessary


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Necessary Measures by Government

1. Provision of Economic & Social OverheadIncludes transport facilities, means of communication, energy infrastructure, irrigation

facilities, education & training, public health,housing &welfare schemesLeads to external economies to other industriesand lowers the capital co-efficient of private players


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2. Provision of Financial FacilitiesFinance is the crux of economic developmentUnderdeveloped countries have very meager

savingsProper Banking system required to channelize thesavingsGovt., plays a important role in setting up financialinstitutions


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3. Institutional ChangesLegal & social structure changesLand reforms

Community development projects RuralSocial security schemesProducers co -operatives

Welfare schemes


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4. Direct participationLevel playing field alongside private playersSets a model for private players

Profits from these undertakings are used foreconomic developmentConfines itself to basic, heavy and key industries steel plants, heavy electrical & engineering, machinetools, fertilizers, oil refineries & antibiotics


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5. Indirect Measures

Monetary policy

Fiscal policy

Commercial policy


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Reasons for Government Intervention

Planned economy wrong priorities will lead to animbalanceOurs is a Socialist society & Govt., is compelled to

enter into industrial & commercial activitiesFailure of markets invites Govt., intervention andavoidance of economic evils like Monopoly compelsGovt., to interfere


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Types of Government Intervention

Formal Vs Informal

Coercive Vs Inducive controls

Direct Vs Indirect controls

Effect on Competition

Promotional controlsRegulatory controls


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Political Environment


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Types of political Systems

Anarchy Dictatorship Autocracy Oligarchy Theocracy Monarchy

Democracy Indirect democracy Plutocracy

Cleptocracy


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Structure of Indian Government

Legislative organDelegated legislationOrdinances

Executive organ

Judicial organSupreme courtHigh court


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Questions.if any???!!!


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Regulatory Role of Government


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Government Regulation

Entry regulation & reservation of industries dominant role of governmentRegulation of the conduct of business ex

promotional activitiesDisposal of surplus & relationshipsIn India regulatory role played by Govt., includes:

1. Control of regulation of prices2. Control of MRTP3. Control of Foreign Exchange Transactions


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1. Control & Regulation of Prices

To fix, control & regulate prices of materials, semi finished &

finished products

Authority given according to the industries development and

regulation act, 1991

Act empowers govt., to order investigation - an unjustifiable

fall in the volume of production, marked deterioration in

quality or increase in prices not justified by proper reasons

Ex Air fare Praful Patels action


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2. Control of MRTP

Monopolies & Restrictive Trade Practices Act, 1969

Aim is to control any monopolistic, restrictive and unfairtrade practices which are prejudicial to public interest

Scope applies to all companies registered under thecompanies act, 1956 except J&K

Monopolistic trade practice : unreasonably preventing orlessening competition in production & supply of any goods or services


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MRTP

Includes,1. Unreasonably increasing the Cost of Prod, supply &

distribution of goods & services2. To unreasonably increase the price of goods or the

profits derived from prod, supply & distribution3. To reduce or limit competition in PS&D4. To prevent or limit unreasonably the supply of

goods & services to consumers5. To result in deterioration in the quality of goods&services


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Competition Act 2002

1. Price fixing:-

If two or more supplier fixes the same price for supply the goods then it will be restricted practice.

2. Bid ragging:-

If two or more supplier exchange sensitive information of bid, then it willalso be restricted practice and against competition.

3. Re-sale price fixation:-

If a producer sells the goods to the distributors on the condition that he willnot sell any other price which is not fixed by producer.

4. Exclusive dealing:-

This is also restricted practice. If a distributor purchases the goods on thecondition that supplier will not supply the goods to any other distributor.


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Competition Commission

Establishment of Competition Commission Under this law

Govt. of India appoints the chairman and other member of competitioncommission. Competition act 2002 gives the rules and regulationregarding establishment and functions of this commission.

Qualification of chairperson of Competition commission:-

He or she should be Judge of high court + 15 years or more experiencein the field of international trade , commerce , economics , law , finance

, business and industry .

Function of Competition commission:-

1. To stop activity and practice which are promoting monopoly.2. To promote the competition.3. To protect the interest of consumers.


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Remedies under CA

Temporary Injunction during enquiry the commission

may restrain an undertaking or person from carrying on

such practice until the conclusion of inquiry or until

further orders

Compensation compensation for any damages toGovernment, traders or consumer as per the

recommendations of the Commission


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Unfair Trade Practices

Misleading advertising

Bait advertising

Offering of pseudo gifts or prizes and conducting of promotional events

Supplying of unsafe & hazardous products

Hoarding or destroying of goods or refusing to sell

goods resulting in a price rise


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Case Study

Emergency Contraceptive pill iPill

Rcom Claiming fastest mobile broadband service

Idea cellular walk while you talk

Elder Pharma Fuel deo


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3. FEMA

The Foreign Exchange Management Act (1999) or in short FEMA has been introduced as a replacement for earlier Foreign ExchangeRegulation Act (FERA).FEMA became an act on the 1st day of June, 2000. FEMA was introduced because the FERA didnt fit the post lib era - alloffenses regarding foreign exchange civil offenses, as opposed tocriminal offenses as dictated by FERA.

The main objective behind the Foreign Exchange Management Act(1999) is to consolidate and amend the law relating to foreign exchange with the objective of facilitating external trade and payments. It wasalso formulated to promote the orderly development and maintenanceof foreign exchange market in India.


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FEMA

FEMA is applicable to all parts of India. The act is alsoapplicable to all branches, offices and agencies outsideIndia owned or controlled by a person who is a resident of India.

The FEMA head-office, also known as EnforcementDirectorate is situated in New Delhi and is headed by aDirector. The Directorate is further divided into 5 zonaloffices in Delhi, Mumbai, Kolkata, Chennai and Jalandharand each office is headed by a Deputy Director. Each zone isfurther divided into 7 sub-zonal offices headed by the Assistant Directors and 5 field units headed by Chief Enforcement Officers.


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Provisions of FEMA

Dealing in Foreign Exchange

Holding of Foreign Exchange

Current Account Transaction

Capital Account Transaction

Export of Goods & Services

Repatriation of Foreign Accruals


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Questionsif any???!!!


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Public Sector


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PSUs

Wide coverage of Activities

Purpose : public interest & social aspects supersedes

business considerationsPublic accountability through parliament

Politicians have the final say, since decisions of

PSUs regarding establishment & continuance of

enterprise involves political dimension


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Objectives

Help in rapid economic growthEarn ROI and generate resources for developmentPromote redistribution of income & wealth

Create employment opportunitiesPromote balanced regional development Assist the development of SSI & ancillary industriesPut up an effective competition to undertaking in the

private sectorGain control over the commanding heights of theeconomy


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Performance of Public Sector

Growth of PSU 246 cos

Area and Range of operations

Economic contribution 30% of GDP

Foreign Trade 1/4 th revenue to exchequer

Development of Ancillary Industries

Reduction of Regional Disparities in IndustrialDevelopment

Profit Generation


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LIST OF NAVRATNA COs

Maharatna CPSEs Indian Oil Corporation LimitedNTPC LimitedOil & Natural Gas CorporationLimited

Steel Authority of India Limited

Navratna CPSEs Bharat Electronics LimitedBharat Heavy Electricals LimitedBharat Petroleum Corporation LimitedCoal India LimitedGAIL (India) Limited

Hindustan Aeronautics LimitedHindustan Petroleum Corporation LtdMahanagar Telephone Nigam LimitedNational Aluminium Company LimitedNMDC LimitedOil India LimitedPower Finance Corporation LimitedPower Grid Corporation of India LtdRashtriya Ispat Nigam LimitedRural Electrification Corporation LtdShipping Corporation of India Limited


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Problems of Public Sector

Unremunerative Pricing

Dilution of commercial considerations

High losses

Poor project planning & control

Sick unit BurdenOver staffing


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Problems of Public Sector

Management Gap

Over capitalization

Under utilization of capacity

Inadequate Autonomy

Bureaucratic culturePermissive atmosphere


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BRPSE

To address problems relating to strengthening, modernizing, reviving, and

restructuring PSEs.

A company is referred to the BRPSE if it is considered sick and has accumulated

losses in any financial XX year up to 50% or more of its average net worth during

the four years immediately preceding such financial year /or a company that is a

sick company as per the meaning of Sick Industrial Companies (Special Provisions)

Act, 1985.

The proposals for revival of 26 CPSEs and closure of two have been approved. The

total assistance approved by the government up to Dec 2007 in this regard is Rs

82.8 bn including Rs 19.5 bn cash assistance and Rs 63.3 bn non-cash assistance


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Key Highlights of PSUs

In FY07, the public sector, comprising administrativedepartments, departmental enterprises and non-departmental enterprises, constituted 21.4% of the GDP.In domestic savings, on the other hand, the public sector hada share of 9.3%.

CPSEs account for more than 1/3rd of total revenue receiptsof the Central government.The net worth of all enterprises stood at Rs 4,530 bn (FY07)The public sector accounted for 11% of the total merchandiseexports.

Net profits rose from Rs 695 bn in FY06 to Rs 816 bn in FY07.Number of loss-making institutions decreased from 89 inFY04 to 59 in FY07.


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Status Quo

Category No. of CPSEsNavratna 16Miniratna, Category I 41Miniratna, Category II 13Profit making 156Loss making 59Listed Companies 55Non-listed Companies 192Section 25 & Under Construction 32


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Questionsif any???!!


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PRIVATIZATION


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Definition

According to Stuart Butler : Privatization is thetransfer of govt., assets or functions to the privatesector According to Pendse : Any process which reducesthe involvement of the state or the govt., sector in thenations economic affairs is a privatization process

Objectives : improved efficiency, adequatecompetition to the state-run enterprise, for cashgeneration to fund govt., expenses & broad basingownership of economic assets


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Forms of Privatization

DivestitureManagerial PrivatizationCold Privatization

DenationalizationFranchisingLeasing

Contracting outLiquidation


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Forms of Privatization Divestiture

Divestiture : the reduction of some kind of asset foreither financial or ethical objectives or sale of an existing business by a firm. A divestment is the opposite of aninvestment.First, a firm may divest (sell) businesses that are not partof its core operations so that it can focus on what it does best A second motive for divestitures is to obtain funds A third motive to divest a part of a firm may be to createstability A fourth reason to divest could be forced on to the firm by the regulatory authorities, example in order to createcompetition


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Forms of Privatization contd.,

Managerial Privatization while the ownershipremains with the Govt.,

Cold Privatization ownership remains with Govt., -enterprises distance themselves from Govt., -activities attuned to market conditions

Denationalization ownership transferred to Privatesector


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Forms of Privatization contd.,

Franchising to avoid investing in productionfacilities

Leasing ownership rests with Govt., - idle & underutilized assets transferred to private sector

Contracting out many specialized services arecontracted out due to heavy order books

Liquidation


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Arguments in Favor

Improvement in efficiency & performance - decisions

Fixing responsibility is easier

Private units are subject to capital market discipline

Political interference is unavoidable in PSEs

Succession Planning

Remedial measures taken early in private sector

Better service to customers

Profit motive


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Arguments against

Maximizing short term revenue aim of private sector

Exploitation Monopoly possible

Other Macro Environmental factors determine the success no

matter whether its PVT or PSEFinancing the budget deficit motive of divestment but future is

bleak

Crowding in the Financial Markets FIIs role

May lead to rise in unemployment

Social Responsibility


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Case Study


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Questions.if any??!!


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GOVERNMENT & BUSINESS INTERFACE


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Areas for Growth

Agriculture

Infrastructure

Disinvestment

Informatics

Human Resources & Labor Management Relations

Social Responsibility & Consumer Interfacing


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SMEs


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Meaning & Definition

According to GOI 2000 : An undertaking havingan investment in plant & machinery of not more thanRs 1 crore

Scale of Business : Investment in plant & machinery,employment generation, volume & value of production, volume & value of sales

Qualitative aspects : ownership in the hands of few,technology adopted here is normally labor intensiveand SSIs are carried in a limited or local area


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Characteristics of SMEs

Financial AspectsHuman Resource AspectsGeneral Management Aspects :

1. Negligent about safety & pollution aspects2. Infant mortality rate of SSIs 3. Rural SSIs vs Urban SSIs

4. Perennial problems of marketing, loans, paymentsto clients & partnership tussles5. Many SSIs suffer due to lack of work load


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Problems of SMEs

More importance to Luxuries

Lack of able entrepreneurs

Problem of Raw Material & power

Problem of credit

Outdated Technology

Marketing constraints

Competition with Large scale industries

Sick Units


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SME Policy & Development

Definition of Industry includes industry related

service & business enterprise

Equity Participation by Large Scale Industries

Exports SIDO

Modernization

Simplification of Rules

Reservation of Items


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Incentives for SSIs

Establishment of Boards Ex handloom boardFinancial Help state govt., & state finance corp, RBI credit guarantee scheme, co-op & commercial banks &National small industries corp machines on installmentSIDBIMarketing Facilities LSI, Private & Public sectorCommon Production Program

Industrial EstatesDifferential TaxationTechnical Assistance


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Questionsif any???!!!

Documents

Industrial and Regulatory Perspective of Business