UNIT – II

POLICIES AND PERFORMANCE IN INDUSTRY

Industry refers to an economic activity concerned with the processing of raw materials and
manufacture of goods in factories. Industry includes manufacturing (registered and un
registered), mining, construction and electricity, gas and water supply. But manufacturing
occupies a central role in the industrial sector of a country. Industrial development is
necessary to bring about structural changes in the economy.

Role of industry

(i)Rapid growth of income: Industrialization can provide a base for rapid growth of income.
It is because of the fact that that productivity rates are higher in industry than in agriculture.
Industries mainly depend on man’s effort while agriculture is restricted by the limiting factor
of the nature. It is also seen that the industrialized nations have a high per capita income.
(ii)Employment: With the increasing population, agriculture is unable to provide for
employment. Hence, it is very important to set up industries to absorb this surplus labor.
Hence industries can solve the problem of unemployment.
(iii)Exploitation of resources: Industries are capable of utilizing all the resources present in
the economy. They can even make use of scraps and waste materials. Agriculture cannot
make use of all the resources.
(iv)Foreign exchange: India cannot earn adequate foreign exchange from the exports of its
primary products. It is because of the fact that the demand for such products is very low in
other countries. Industrial exports need to be added to the primary products.
(v)Development of agriculture: The requirements of agriculture are met by the industries in
large. Agriculture requires improved farm machinery, chemical fertilizers and pesticides. It
also requires storage and transport facilities. All these are adequately provided by our own
industries.
(vi)Self-sustained growth: The rapid development of capital goods industries promote the
growth of agriculture, transport and communication. It also enables the country to produce a
variety of consumer goods in large quantities and at low costs. It also eliminates our
dependence on other countries for the supply of essential goods.
Keeping these points in mind, we may say that it is only through rapid industrialization that
the Indian economy can fight against widespread poverty and backwardness, and enhance
growth and productivity.
INDUSTRIAL GROWTH AND PRODUCTIVITY
One can identify four distinct phases of industrial growth in India since the planning era. The
first phase of rapid growth ends from 1956-1965. The second phase of slow growth or
deceleration extends from 1965-66 to 1979-89. The third phase is a phase of recovery and
revival of growth since 1980s and the fourth phase starts with 1991 economic policy reform.

First phase (1951-65)

Phase I laid the basis for industrial development in the future. There occurred a noticeable
acceleration in the compound (annual) growth rate of industrial production over the first three
plan periods up to 1965 from 5.7 percent in the First plan to 8.0 percent in the Third plan.
This period of growth has been named the period of “industrial growth with regulation”
This high rate of industrial growth were due to (a) Emphasis on industrialization (b) Heavy
industry oriented strategy of industrialization, (c) Substantial investment made in the
industrial sector.
Second phase (1966-80)
The period 1966-80 was marked by a sharp deceleration in industrial growth. The growth rate
declined to 5.7 percent in the period 1966-67 to 1979-80. This period was characterized by
structural retrogression. Major reasons for deceleration are as follows:
(a) Slowdown in public investment
(b) Poor management of infrastructure
(c) Slow growth of agricultural income, and
(d) Restrictive industrial and trade policies.
Third phase (1981-1991)
The period of 1980’s can be broadly termed as the period of industrial recovery or revival.
The rate of industrial growth was 6.5 percent per annum during 1981-85; 8.5 percent during
the seventh plan (1985-90); and 8.3 percent in 1990-91. This performance is an improvement
upon the growth rate achieved during the First and Second plan periods. The major factors
that contributed to this turn around are due to the following:
(a)Liberalization of industrial policy, (b) Increase in public investment, (c) Notable
improvement is private sector investment, (d) Improvement in the agricultural production,
(e) Growth of service sector, (f) Better performance of infrastructure industries, (g) A
decline in inter sectoral terms of trade in favour of non- agricultural sector (h) Positive
role of state in stimulating recovery, and (i) Liberal fiscal regime.
Fourth phase (1991-92 on wards)
The 1990’s have certainly been on eventful period for the industrial economy of India. Crisis,
adjustment, recovery, rapid growth and then a downward slide –this decade has seen it all.
The period after reform can be divided into two sub periods.(i) The period of 1990’s (up to
2001-02) and (ii) The period since 2002-03.
(i) The period of 1990’s
The post reform period up to 2001-02 was marked by considerable fluctuation and showed
total lack of consistency in industrial growth performance. The setback in industrial
production occurred during 1991-93 extended right into 1993-94 also. The rate of industrial
growth began to accelerate in the second half of 1993-94. The three years from 1993-94 to
1995-96 saw an average growth of 13 percent per annum. The average annual growth rate of
industrial production was 5 percent during the period 1990-91 to 1999-2000.The rate of
growth of industrial production was just 2.7 percent in 2001-02. The industrial deceleration
was due to (a) demand constraints, (b) supply constraints, and (c) structural and cyclical
reasons.
(ii) The period since 2002-03 ( Revival and strong growth )
The period of the Tenth plan (2002-03-2006-07) has witnessed revival of industrial growth.
The industrial recovery in 2002-03(5.7 percent), which consolidated during 2003-04 (7.0
percent), has gathered momentum since then reaching 8.4 percent in 2004- 05, 8.2 percent in
2005-06 and 11 percent in 2006-07. For the plan as a whole, the average rate of growth of
industrial production comes out to be 8.2 percent per annum. In fact, the rate of growth in
industrial production at 11 percent in the last year of the plan (2006-07) is the highest growth
achieved since 1995-96. Though the growth of industrial sector started to slow down in the
first half of 2007-08, the overall growth during the year remained as high as 8.5 percent. The
year 2008-09 witnessed slow down due to the global financial recession. The pace of slow
down accelerated in the second half of 2008-09. The year 2008-09 thus closed with the
industrial growth at only 2.4 percent. There was, however, a recovery in industrial growth
from 2.4 percent in 2008-09 to 5.3 percent in 2009 and 8.2 percent in 2010-11.

INDUSTRIAL POLICY
The pace, pattern and structure of industrialization in a country is highly influenced by its
industrial policy. The industrial policy of a country consists of (i) the philosophy of a
given society to bring about industrial expansion and (ii) the principles, procedures ,
rules and regulations which can give concrete shape to the philosophy. At independence,
India inherited a state of economy with a very weak industrial base. So there was a need for a
strong and effective industrial policy. The first industrial policy resolution was issued by the
Government of India on April 6, 1948. This was followed by industrial policy resolution of
1956,1977,1980 and 1991. The main industrial policies are briefly discussed below.

Industrial policy Resolution – 1948: Industrial policy resolution of 1948 recognised the
principle of mixed economy, which is of historic importance. This policy divided the various
industries into four broad categories .
(i) State Monopolies: The first category included three industries, viz: arms and ammunition,
atomic energy and rail transport . This category would belong to the exclusive monopoly of
the central Government.
(ii) Basic industries: The second category included six industries, viz: coal, iron and steel,
aircraft maintenance, telegraph and wireless apparatus and mineral oils .New undertakings in
this category would be taken only by the Government but the existing private under takings
were allowed to continue for 10 years.
(iii) Regulated industries: The third category included 18 industries of national importance
such as automobiles, heavy chemicals, heavy machinery, machine tools, etc. The Government
of India would regulate these industries because of the importance of these industries.
(iv) Private industries: The last category included all the other industries except the above.
These industries were open to private sector. This industrial policy resolution also stressed
importance of cottage and small – scale industries.

Industrial Policy Resolution - 1956

The formulation of the second five year plan and the acceptance of a “Socialistic pattern of
society” as the objective of social economic policy necessitated a new Industrial Policy
Resolution on April, 1956. The objectives of the new industrial policy were to accelerate the
rate of economic growth and to speed up industrialization.
The 1956 Resolution divided the industries into three schedules:
Schedule A (Public sector): This schedule includes 17 industries, the future development of
which was to be the exclusive responsibility of the state. Of the 17 industries 4 industries-
arms and ammunition, atomic energy, railway and air transport were to be government
monopolies. In the remaining 13 industries, new units were to be established by the state but
the existing private units were allowed to subsist and expand.
Schedule B (Mixed sector): Schedule B contained 12 industries. Such industries would be
progressively state owned. The state was to establish new under takings but the private
enterprise can also supplement the efforts of the state in these fields. Some of the important
industries in this schedule are machine tools, the chemical industry, fertilizer etc.
Schedule C (Private sector): Schedule C includes all the remaining industries, mostly in the
consumer goods sector and their future development, these industries had been left to the
initiative and enterprise of the private sector.
The 1956 Resolution recognized the importance of small-scale and cottage industries and the
interdependence between public and private sector. It also called for the reduction in regional
imbalances and inequalities. This policy has been described as the “economic constitution of
India”, as it not only outlined the basic framework of the future industrial policies (up to
1991), but also of general economic policies.
However, many deficiencies in the policies came to light. The government set-up several
committees for the study of the licensing system and giving suggestions for its improvement.
Such committees included RK Hazari Committee, 1964 and Dr Subimal Dutt Committee,
1967. On the basis of Subimal Dutt Committee recommendation, government enacted the
Monopolies and Restrictive Trade Practices (MRTP) Act, 1969.

Monopolies and Restrictive Trade Practices Act, 1969 (MRTP)

MRTP Act was enacted in 1969 and MRTP Commission was constituted in 1970, to prevent
the concentration of economic power and to prohibit restrictive or unfair trade practices.
Under the act, companies having assets beyond the threshold limit (i.e. 20 crores in 1985)
were placed under the purview of the act. Certain restrictions are imposed on such companies
like prior approval of the MRTP Commission for establishment of new undertakings,
expansion of undertakings, mergers and acquisitions.

Industrial Policy of 1977

In December 1977, the Janata Government announced its New Industrial Policy in the
parliament. Following are the main elements of the new policy .
(a) Development of small –scale sector and large –scale Industry sector: The main thrust of
new policy was the emphasis on the development of small –scale industries. It was classified
into: (i) Cottage and house hold sector, (ii) Tiny industry sector, (iii) Small scale industries.
The 1977 Industrial Policy prescribed the following areas for large scale industries sector :-
(a) Basic industries (b) Capital goods industries (c) High technology industries, and (d) Other
industries outside the list reserved items for the small – scale sector.
(b)Expanding Role of the Public Sector: The new policy expanded the role of the public
sector. It was stated that the public sector industries would produce not only basic and
strategic goods but also essential consumer goods. This sector would be encouraged to
develop ancillary industries.
(c) Promotion of Technological Self- reliance: Govt. recognized the necessity of allowing the
inflow of foreign technology in high priority industries where domestic technology has not
yet adequately developed.

Industrial policy of 1980

The congress Government announced its industrial policy on 23rd July 1980. This policy was
based on the Industrial Policy Resolution of 1956. The policy emphasized on the optimum
utilization of installed capacity, technological upgradation and modernisation. The policy
liberalized the MRTP Act, reduced the scope of licensing and simplified the procedure for
regularization of unauthorized excess capacity etc.

New industrial Policy 1991

The Government of India announced the New Industrial Policy on 24th July, 1991. The main
objective of this policy is to unshackle the Indian industrial economy from administrative and
legal controls. It also aimed to raise the industrial efficiency to the international level through
substantial deregulation of the industrial sector of the country.
Features:
(i) Delicensing: The industrial licensing was abolished irrespective of the level of investment,
except for 18 specified industries like defence, atomic energy etc. Since then, most of these
industries were delicensed and now only three industries fall under the purview of industrial
licensing.
(ii) Foreign Investment: Foreign capital investment limit was raised from 40% to 51% in high
technology and high investment priority industries.

(iii) Foreign Technology: Automatic approval was granted for foreign technology agreements
upto the limit of 200 crore subject to 5% royalty on domestic sales and 8% on exports.

(iv) Foreign Investment Promotion Board (FIPB): It was established to expeditiously clear
foreign investment proposals. It serves as a single window clearing agency for the FDI
proposals.
(v) Industrial Location Policy: Excepting the big cities with population of one million, in
other cities, industrial licensing will not be required, but for those industries, where licensing
is compulsory.

(vi) MRTP Limit Scrapped: The threshold limit 100 worth of assets for classification of a
company as MRTP company was removed, such companies were to be recognised on case-
by-case evaluation basis.

(vii) New Small Enterprise Policy: A separate policy was announced by the government in
August 1991, for the promotion of small-scale industries.

(viii) Like the private enterprises, sick PSUs were also placed under the purview of the Board
for Industrial and Financial Reconstruction (BIER).

(ix) Disinvestment of the shares of PSUs was initiated.

SMALL SCALE INDUSTRIES

Development in any system hinges on the growth of smalls first and bigs next. There is a
growing recognition worldwide that micro, small and medium enterprises (MSMEs) have an
important role to play in terms of resource use efficiency, capacity for generation of
employment, technological innovation, promoting inter-sectoral linkages, raising exports and
developing entrepreneurial skills. This is particularly true in the case of India. It accounts for
45% of total industrial production, 40% of total exports and contributes very significantly to
the GDP. Manufacturing segment within the MSMEs also contribute to 30.50 % of service.
The total contribution of MSMEs to the GDP is 37.54%.

A large number of people work in small establishments like workshops, factories producing
components like bolt and nuts, footwear, garment factories having only few sewing and
knitting machines. They form a large and growing segment of Indian industrial sector. It is
called the small-scale industries sector. It is heterogeneous sector. It has producing units
working from domestic/household premises, rented buildings, industrial estates and own
factories. Some of them use electricity/power, while some do not and their scale of
production, that is in the scale of output that they produce per day or per week, is small. They
use little capital or investment. Their ownership is generally found to be proprietary or
partnership. In many cases it would be a family business passed on from generation to
generation. Owner and the manager would be the same person. Some hire wage labour, while
many of them do not do so and use family members as workers.

There are two types small-scale industries: Traditional or Village and Modern. The traditional
type does not use power in their production process. The village industries, cover a wide
variety of industries. This includes: Khadi (Hand-woven cloth made from hand-spun yarn is
called khadi); specific village industries such as processing of cereals and pulses;
manufacture hand-made paper; bee-keeping; village pottery; handicrafts; spinning and
weaving.

Modern Small-Scale industries are those that use power and machinery: Power driven loom
making cloth, garment making; rice machine-millers; automobile accessories and parts; metal
Castings, scientific instruments, agricultural implements, etc. are products that can be
produced both in small-scale and large-scale industries.

Micro, Small and Medium Enterprises Development (MSMED) Act, 2006 provided a
comprehensive definition of ‘Micro’, ‘Small’, and ‘Medium’ enterprises. Under the Act,
enterprises have been categorized broadly as: (i) Manufacturing Enterprises and (ii) Service
Enterprises. Both categories have been further classified into three groups as micro, small and
medium enterprises based on their investment in plant or in equipment as under.

Contribution of Small-Scale industries in Indian Economy:

a) The small-Scale sector accounts for over 80% of the manufacturing sector's employment.
b) It contributed significantly towards the economic growth of the nation, with over 39% of
the industrial production.
c) Small-scale accounts for over 34% of the total exports and about 45% of the
manufacturing exports. Further, over 90% of exports of the SSIs consists of non-
traditional items like sports goods, readymade garments, processed foods, chemicals etc.
d) SSIs are conducive for the economic development of underdeveloped countries like India.
Such industries are relatively labour intensive, so they make economical use of the scarce
capital.
e) Small-scale industries are instrumental in reducing the inequalities in wealth. In these
industries, capital is widely distributed in small quantities and the surplus of these
industries is distributed among large number of people.
f) Small-scale industries bring about regional dispersal of industries and alleviates regional
imbalances.
g) Small-scale industries, make use of local resources including the capital and
entrepreneurial skills, which would have remained unused for want of such industries.
h) Small industry sector has performed exceedingly well and enabled the country to achieve
a wide measure of industrial growth and diversification.

Problems of Small-Scale Industries:

a) These industries are not able to get raw material of adequate quality. The raw material
they get, is also high in price.
b) They are not able to get regular power supply.
c) They are not able to get loans, since, they cannot offer good security.
d) Due to old methods of production, the goods are many times of poor quality. They lack
marketing support due to lack of funds.
e) Their cost of production is high due to expensive raw material.
f) They have mostly focused on producing artistic goods, whose demand is limited and so
production cannot be increased beyond a point.
g) They have to compete with large-scale industries in many areas. Large industries are able
to achieve low costs of production due to economies of scale.

Government Measures to Promote Small-Scale Industries:

Government initiated several measures for the promotion of small-scale and cottage
industries immediately after independence. The importance of these industries was
recognised in the very first Industrial Policy Resolution of 1948 and reiterated in all future
industrial policy statements. Steps taken by the government for the development of these
industries can be categorized as organizational, financial, fiscal, technical etc.

Organizational Measures

a) Small Industries Development Organisation (SIDO) was set up in 1954. It functions as an

apex body in the formulation of policies and co-ordination of institutional activities for
sustained and organized growth of small-scale industries. SIDO has now been renamed as
the Micro, Small and Medium Enterprises Development Organisation.
b) Regional Small Industries Service Institutes (4) with a number of branches (30),
extension centres (38), field testing centres (18) were set up to provide technical
assistance to the small scale industries.
c) National Small Industries Corporation Ltd. (NSIC) was set up in 1955 to provide
machinery to small-scale units on hire purchase basis and to assist these units in procuring
orders from government departments and offices.
d) Small Industries Development Bank of India (SIDBI): It is an apex all India financial
institution set up in 1989. SIDBI is to function as the principal financial institution for the
promotion, financing and development of industry in the small-scale sector. At the same
time, it has to co-ordinate the functions of institutions engaged in promoting the small-
scale units.
e) National Institute of Entrepreneurship and Small Business Development (NIESBUD): It
was established in 1983 to assist the small-scale industries. It co-ordinates
Entrepreneurship Development Programme (EDP) organized by various EDP institutions
in the country.

Financial Measures

a) Small Industries Development Fund (SIDE): It was set-up in 1986, to provide refinance
(i.e. finance to the financial institutions in lieu of their-lending to SSIs) assistance for
development, expansion, modernisation, rehabilitation of SSIs.
b) National Equity Fund (NEF): It was set-up in 1987, to provide initial capital for setting-
up of new projects in small-scale sector in the form of equity (i.e. shares).
c) Single Window Scheme (SWS): It was introduced in 1988, to provide short-term as well as
long-term financial assistance to SSIs.
d) Small Industries Development Bank of India (SIDBI): It was established in October 1989,
by amalgamation of Small Industries Development Fund (SIDF) and Natural Equity Fund
 (NEF). SIDBI is the apex financial institution for small enterprises sector. It provides
finance to SSI, refinance assistance and coordinates the activities of other financial
institutions for the provision of credit to SSIs.

Technical Measures

a) Small-Scale Industries Development Organisation (SIDO): It was established in 1954.

SIDO provides technical, managerial, economic and marketing assistance to SSIs through
its network of extension centres and service institutes.
b) Council for Advancement of Rural Technology (CART): It was established in 1982, to
provide technical assistance to rural industries.
c) Technology Development and Modernisation Fund (TDMF): It was set-up for the
technological upgradation and modernisation of the export oriented units.

PUBLIC SECTOR

At the time of independence, the country was predominantly agrarian and lacked basic
industries and infrastructure facilities. The economy needed a big push. The push could not
come from the Indian private sector, which was starved of funds and lacked technical and
managerial abilities. Further, it was incapable of taking risk involved in long gestation
investments. So, the development in the public sector became imperative. The expansion of
public sector in the field of industries took place in a big way with the launching of the Second
Plan (1956-61), which gave top priority to the industrial growth of the country. In 1951, there
were just 5 enterprises in the public sector in India, but in March 2019 this had increased to
348. CPSEs (Central Public Sector Enterprises) have earned revenue of about ₹25.43 lakh crore
during the financial year 2018–19. They are administered by the Ministry of Heavy Industries
and Public Enterprises.

Objectives of the Public Sector:

a) To capture commanding heights of the economy i.e. to take up strategic role in the
industrialisation of the country.
b) To accelerate the rate of economic growth through creation of basic infrastructure.
c) To generate employment.
d) To promote balanced regional development.
e) To generate surplus resources for development.
f) To promote exports and to develop import substitution industries.
g) To check concentration of economic power.

Contribution of Public Sector

a) The public sector was instrumental in the creation of infrastructure and the development
of basic industrial structure of the country.
b) PSUs did a commendable job in the promotion of strategic and key industries like atomic
energy, armaments and ammunition, aircrafts, heavy machinery, iron and steel, coal,
drugs, fertilizers etc.
c) The public sector provided employment to about 70% of the workers employed in the
organized sector. Presently, public sector contributes about 24% to the GDP and accounts
for over 20% of the Gross Domestic Capital Formation (investment).

Problems of the Public Sector

a) The return on capital invested in PSUs has been deplorably low due to low profitability
and losses of some PSUs.
b) Problems related with the Price Policy i.e., Administered Prices of the products of PSUs
were deliberately kept lower than the market prices.
c) Lack of autonomy to the management of the PSUs due to excessive political interference.
d) Low efficiency due to lack of incentives.
e) Excessive overheads especially in providing housing and other amenities to the
employees e.g. townships.
f) Over staffing inflated the wage bills.
g) Inappropriate investment decisions like inappropriate location, technology, product mix
etc.,
h) Indiscriminate expansion of the public sector in almost all areas.

Public Sector Reforms

To improve the performance of the PSUs, the government has adopted the following
measures, especially in the post reform (1991 onwards) era.

a) Memorandum of Understanding: The concept of Memorandum of Understanding

(MOU) was introduced in 1987, on the recommendation of the 'Committee to Review the
Policy for the Public Enterprises headed by Mr Arjun Sengupta. MOU refers to the
agreement between the concerned ministry and the management of a PSUs in which the
 latter is provided a reasonable degree of autonomy and simultaneously held accountable
for the performance of the PSUs.
b) New Industrial Policy, 1991: The policy contained the following reformative measures
for PSUs: industrial delicensing; deregulation of the industrial sector; public sector policy
(dereservation and reform of Public Sector Enterprises); abolition of MRTP Act; foreign
investment policy and foreign technology policy.
c) Voluntary Retirement Scheme (VRS): The VRS (or Golden Handshake Scheme) was
launched in 1988, for the rationalization of manpower in the central PSUs. The scheme
enabled the PSUs to shed their excess staff by offering attractive compensation package
to the workers, who seek voluntary retirement.
d) Dismantling of Administered Price Mechanism (APM): The government has initiated
steps for dismantling of price controls in respect of a number of products of PSUs, e.g. it
removed the price and distribution controls on iron, steel and cement. The government
also decontrolled the prices of most of the fertilizers and petro-products.

COMPETITION POLICY

Competition policy generally aims to prevent growth of monopoly power, prevent abuse of
monopoly power and restrictive trading practices and reduce barriers to entry and keep
markets stable.

Competition Act, 2002: The Competition Act was enacted by the government in 2002, on the
recommendation of the SVS Raghavan Committee. It repealed the MRTP (Monopolies and
Restrictive Trade Practices) Act and the MRTP Commission was replaced by the
Competition Commission of India (CCI). The objectives of the act are to encourage
competition, prevent abuse of dominance (rather than dominance as such) and to ensure a
level playing field for all the enterprises in the Indian economy.
(Note: MRTP Act 1969 was enacted to prevent the concentration of economic power in hands
of few. Prohibit monopolistic and restrictive trade practices.)

Companies Act, 2013: This act introduces significant changes in the provisions related to
governance, e-management, compliance and enforcement, disclosure norms, auditors and
mergers and acquisitions. Also, new concepts such as one-person company, small companies,
dormant company, class action suits, registered values and corporate social responsibility
have been included. The changes in the Act 2013 has far reaching implications that are set to
significantly change the manner in which corporates operate in India. The Act 2013 has
introduced several new concepts and has also tried to streamline many of the requirements by
introducing new definitions.
One Person Company: The Act 2013 introduces a new type of entity to the existing list i.e.
apart from forming a public or private limited company, the Act 2013 enables the formation
of a new entity a 'One Person company' (OPC).
Small Company: A small company has been defined as a company, other than a public
company.
Dormant Company: The Act 2013 states that a company can be classified as dormant when it
is formed and registered under this Act 2013 for a future project or to hold an asset or
intellectual property and has no significant accounting transaction.

National Financial Reporting Authority (NFRA): The Act 2013 requires the Constitution of
NFRA, which has been bestowed with significant powers not only in issuing the authoritative
pronouncements, but also in regulating the audit profession.
Serious Fraud Investigation Office (SFIO): The Act 2013 has bestowed legal status to SFIO.
Corporate Social Responsibility: The Act 2013 makes an effort to introduce the culture of
Corporate Social Responsibility (CSR) in Indian corporates by requiring companies to
formulate a corporate social responsibility policy and at least incur a given minimum
expenditure on social activities.

Companies (Amendment) Act, 2015: Important point related to Companies Act, 2015 are as
follows:

a) Omitting requirement for minimum paid-up share capital requirement of INR 1,00,000 (in
case of private company) and INR 5,00,000 (in case of a public company) has been done
away with.
b) Making common seal optional and consequential changes for authorization and for
execution of documents. (Companies Act, 2013 required common seal to be affixed on
certain documents.)
c) Doing away with the requirement for filling a declaration by company before
commencement of business or exercising its borrowing powers.
d) Prohibiting public inspection of board resolutions field in the registry. (CA, 2013: certain
resolutions filed by a company with the Registrar of Companies were open for inspection
by any person or to obtain copies.)
e) Reporting by Auditors in respect of Fraud: CA 2013 introduced the reporting obligations
on auditors of companies to the Central Government if the auditor has reason to believe
that a fraud has been committed by officers or employees of the company, irrespective of
the amounts involved. The CA Amendment 2015 has provided that thresholds will be
prescribed for reporting of frauds to the Central Government, or the audit committee or
the board of directors. All such instances of frauds falling below prescribed thresholds
will be reported to the board or the audit committee and will need to be disclosed in the
annual report of the company, instead of mandatory reporting to the Central Government.
f) Special Courts: Section 435 read with Section 436 provides the Central Government the
power to set up special courts to try offences under CA 2013.

FOREIGN INVESTMENT
Apart from being a critical driver of economic growth, Foreign Direct Investment (FDI) has
been a major non-debt financial resource for the economic development of India. Foreign
companies invest in India to take advantage of relatively lower wages, special investment
privileges like tax exemptions, etc. For a country where foreign investment is being made, it
also means achieving technical know-how and generating employment.
The Indian Government’s favourable policy regime and robust business environment has
ensured that foreign capital keeps flowing into the country. The Government has taken many
initiatives in recent years such as relaxing FDI norms across sectors such as defence, PSU oil
refineries, telecom, power exchanges, and stock exchanges, among others.

The overall growth of FDI in India is thanks to its many assets, especially its high degree of
specialisation in services, with a skilled, English-speaking and inexpensive labour force and a
potential market of one billion inhabitants. Singapore, Mauritius, the Netherlands, Japan, the
U.S., the U.K., France and Germany are the main investing countries in India. Investments
were mainly oriented towards services, computer software and hardware, telecommunications,
trade, the automobile industry, construction, chemicals.
India ranked 63rd out of 190 countries in the 2020 Doing Business report published by the
World Bank, a significant improvement from the previous year's spot, when it ranked 77th. As
such, India joined the list of 10 most improved economies for the third year in a row. Global
investors typically focus on India mainly because of its demographics, but also for its stable
barometers, whether it be inflation, fiscal deficit or growth. However, the country still has
several restrictive laws on foreign investment, excessive bureaucracy, and high levels of
corruption. Still, given India’s growing demographics, and huge e-commerce and technological
markets, activity in both areas are expected to grow in the following years. India is the largest
FDI recipient in South Asia, and the country witnessed a 13% rise in FDI in 2020 - to USD 57

billion - as investment in India's digital economy continued. In April 2020, Facebook bought
10% of Jio Platforms, an Indian technology company, for USD 5.7 billion. Furthermore, in
November 2020 Amazon Web Services announced it would invest USD 2.77 billion to set up
multiple data centres in the Indian state of Telangana - making it the largest FDI the state has
ever attracted.

Road ahead
India is expected to attract foreign direct investments (FDI) of US$ 120-160 billion per year
by 2025, according to CII (Confederation of Indian Industry) report. Over the past 10 years,
the country witnessed a 6.8% rise in GDP with FDI increasing to GDP at 1.8%.
In terms of attractiveness, investors ranked India #3; 80% investors have plans to invest in
India in the next 2-3 years, while 25% reported investments worth >US$ 500 million, the
Economic Times reported.

Note: Conversion rate used for December 2020 is Rs. 1 = US$ 0.01