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ECONOMY CRUX COLOR CODED NOTES FOR UPSC PRELIMS| IAS MAIN

INDUSTRY

Industrial Policies since independence-
Industrial Policy Resolution (IPR) of 1948-
  • Mixed economy and socialist pattern
  • Protection→ cottage and small-scale industries
  • Industrial classification- four categories
      • Industries with exclusive central govt monopoly
      • Mixed sector
      • Controlled private sector
      • Industries under private sector
Industries (Development & Regulation) Act, 1951-
  • The advent of ‘license raj’
  • Three major controls– Licensing, allocation of raw materials to undertakings based on sanctioned output and control over the prices
Industrial Policy Resolution (IPR), 1956-
  • Based on the Mahalanobis model; emphasis→ heavy industries; focus on the backward region
  • Establishment of ITIs; recognized→ significance→ foreign capital
  • 3-fold classification
      • Schedule A (strictly under Centre)
      • Schedule B (both public & private sector)
      • Schedule C (open to private sector with licensing)
Industrial Policy Statement of 1973-
  • Identified six core industries– iron & steel industry, cement, coal, crude oil, oil refinery and electricity; emphasis on joint sector
  • Foreign Exchange Regulation Act (FERA), 1973 enacted; allowed limited investment by MNCs
Industrial Policy Statement of 1977-
  • Focused → small-scale and tiny industries
  • Interaction between the industrial and agricultural sector
  • Emphasis→ village industries, the resurrection of khadi etc.
Industrial Policy Statement of 1980-
  • Public sector→ entrusted→ task to raise pillar of economic infrastructure→ reasons→ greater reliability, the requirement of large investments and longer gestation period of projects
  • Many industriesrelaxation from licensing
  • Focus shift→ competition in the domestic market, technological upgradation
  • Foundation for export-based industry
Major features of pre-1991 policies-
  • Protection to local industries
  • Promotion of import substitution policy
  • Control over industries through licensing and regulations
  • Restrictions on foreign capital
  • Encouragement to cottage and small-scale industries
  • More emphasis on public sector industries and control
New Industrial Policy, 1991-
  • Emphasis shifts from regulation to development
  • Industrial De-licensing; industries reserved for public sector reduced
  • Foreign investment promoted; Foreign Technology Agreements
  • Amendment in MRTP Act; Dilution of protections of small-scale industries
  • Closure of sick public sector enterprises
  • Reforms through LPG- Liberalisation, Privatisation and Globalisation
Government licensing required at present for-
  • Distillation & brewing of alcoholic drinks
  • Cigars & cigarettes of tobacco and manufactured tobacco substitutes
  • Electronics & aerospace and defense equipment
  • Industrial explosives including matchboxes
  • Specific hazardous chemicals such as Hydrocyanic acid, Phosgene, Isocyanates etc.
Sectors reserved for the Public sector at present-
  • Atomic energy
  • Railway operations
National Investment and Manufacturing Zones (NIMZ)-
  • An important instrument of National Manufacturing Policy, 2011
  • Large areas of developed land with the requisite ecosystem for promoting world-class manufacturing activity; Integrated Industrial Township; different from SEZs
  • Land- 5000 Ha; at least 30% area of land→ manufacturing units
  • Special Purpose Vehicles; Centre’s support→ max. 20%
  • External infrastructural linkages by Central govt like roads etc.
  • 3 NIMZ finally approved– Prakasam (Andhra Pradesh), Sangareddy (Telangana) and Kalinganagar (Odisha).
Make in India-
  • Launched in 2014
  • Four pillars to boost entrepreneurship- New process, New infrastructure (industrial corridors, smart cities etc.), New sectors (identified 25 sectors), and New mindset.
  • Measures taken so far-
      • India Aspiration Fund– under SIDBI for Venture Capital Financing
      • SIDBI Make in India Loan for Small Enterprises (SMILE)
      • Micro Units Development and Refinance Agency (MUDRA
Industrial Revolutions-
  1. (1800 onwards)-
  • Powered by coal, iron machines and factories, railways steamships and telegraph
  1. (1900 onwards)-
  • Powered by electricity, oil, motor vehicles, planes, telephone, TV, Cinema and Radio
  1. (1980 onwards)-
  • Electric and hydrogen-powered vehicles, drones, flexible robots, 3D printers and nanotechnology
  1. (from 2016 WEF’s- Davos Summit onwards)-
  • Computerization of Industrial revolution 3.0 using AI, IoT, cloud computing; automation of manufacturing processes

Tools to measure the performance of Industries-

Index of Industrial Production (IIP)-
  • Published by NSO every month; base year– 2011-12
  • Statistical measure of industrial performance
  • Measures short-term changes in the volume of production of a basket of industrial products;
  • IIP General– Mining (14.2%), Manufacturing (75.5%) and Electricity (10.3%)
  • IIP Use-basedPrimary Goods (34.1%), Intermediate Goods (17.2%), Capital Goods (8.2%), Infrastructure Goods (12.3%), Consumer Goods (12.8%), Consumer non-durables (15.3%)
Index of Eight Core Industries-
  • By Office of Economic Advisor; base year– 2011-12; eight core industries have combined weight of 40.3% in IIP
  • Sectors– Coal (10.3%), Crude Oil (8.9%), Natural Gas (6.8%), Refinery Products (28%), Fertilizers (2.6%), Steel (17.9%), Cement (5.4%), Electricity (19.9%) 
Annual Survey of Industries-
  • Related to organised manufacturing sector; published by CSO; data collected as per Collection of Statistics Act, 2008
  • ASI covers– All the factories registered under Section 2(m)(i) and 2(m)(ii) of Factories Act 1948, Units with 100+ employees, Registered Bidi and Cigar manufacturing units and all electricity undertakings
  • Does not cover– defence establishment, oil storage & distribution depots, departmental units (railway workshops, government mints, sanitary, water supply etc.)
  • Important indicators generated on ASI are- number of factories, production, employment, wages, invested capital, capital formation, input/ output and value added on annual basis
Purchasing Managers Index (PMI)-
  • Published by Japanese firm Nikkei but compiled and constructed by Market Economics, HSBC
  • Indicator of economic health, business momentum and investor sentiments
  • A reading above 50 points indicate expansion while below 50 points indicate contraction of economic activities
  • 5 major indicators used– new orders, inventory levels, production, supplier deliveries and the employment environment

External Sector:

  1. Static
External SectorIt deals with export and import of goods and services, and financial capital between nations. 
Balance of PaymentA systematic record of all economic transactions with the outside world in a given year. 

Current Accounttransactions are single time and one way transactions

Capital account transactions are two way and multiple transactions. 

Errors and Omission– the difference between debit and credit entries of all transactions.

Balance of Payment = Current Account Balance + Capital Account Balance + Errors and Omission. 

Reserves It means foreign exchange reserve. It consists of Foreign Currency Assets, Gold Stock of RBI, SDR (Special Drawing Rights), Reserve Trance

Accommodative Transactionstransactions that take place to cover deficit (or surplus) arising from autonomous transactions. 

Autonomous Transactionstransactions that take place for economic motives like earning income and profit maximization. 

Import cover–  reserves is a traditional trade-based indicator of reserve adequacy. 

Foreign ExchangeExchange Rate rate at which home currency is exchanged for one unit of foreign currency.

Depreciationfall in the external value of domestic currency because of additional demand for foreign currency or excess supply of domestic currency

Appreciationincrease in the external value of domestic currency because of additional demand for home currency or excess supply of foreign currency 

DevaluationReduction in the external value of home currency. 

RevaluationIncrease in the external value of home currency.

Purchasing Power ParityRefers to the equality of buying capacity. Based on the buying capacity, the exchange rate is determined
ConvertibilityFacility of exchanging domestic currency for foreign currency at market-determined exchange rate without restriction on either rate or quantum of money exchange

Liberalized Remittance Scheme facility provided by the RBI for all resident individuals to freely remit up to a certain amount in terms of US Dollar for current and capital account purposes or a combination of both.

Barriers to TradeTariff Barriersduty on import and export of goods. 

Non-Tariff Barriersinstruments and executive operations that obstruct free flow of trade other than tariff. Various forms are Quota, Production Subsidies, Export Subsidies, Health, Sanitary and Safety Regulations, Packaging Requirements

Economic IntegrationRefers to the cooperation that exists between countries in the trade and other economic fronts such as investment, monetary policy etc. Various forms are Preferential Trade Agreement (PTA), Free Trade Agreement/ Area (FTA), Customs Union (CU), Common Market (CM), Economic and Monetary Union (EMU)
Related TermsComparative AdvantageA country has to produce and export the goods in which it has a comparative advantage.
Rule of Origindetermined by two criteria namely, i) value addition or local content requirement and ii) change of tariff heading at four digit level.

Debt Service RatioThe amount of a country’s debt service as a ratio of its total export earning.

 

WTOThe international organization established to promote multilateral trade. It is the successor to the erstwhile GATT (General Agreement on Tariffs and Trade).
From GATT to WTOUnder the aegis of GATT, eight rounds of negotiations were held between 1986 and 1994 among members. The last one was Uruguay round as a result of which WTO has been established.
Principles of WTOMost Favoured Nation and National Treatment 
Structure of WTOMinisterial Conference, General Conference, General Council acts as Dispute Settlement Body (DSB) and Trade Policy Review Body, Council for Trade in Goods called Goods Council, Council for Trade in Service called Service Council, TRIPS Council
AgreementsWTO Agreement, Agreement on Agriculture, Trade-Related Aspects of Intellectual Property Rights (TRIPS), Trade-Related Aspects of Investment Measures (TRIMS), General on Trade in Services (GATS), Agreement on the Application of Sanitary and Phytosanitary Measures, Trade Facilitation Agreement, Uruguay round 
WTO RoundsUruguay round, Doha Round
Related TermsPeace Clauseclause restraints other countries from taking countermeasures against some of the subsidies given like Green Box Subsidies. 
Swiss Formulacalls for higher rate of reduction for countries which have higher initial tariff and lower rate for countries which have lower initial tariff.
  1. CURRENT
JTax HavenOffshore country that offers foreign individuals and businesses little or no tax liability.
ProtectionismEconomic policy of restraining trade between nations through qualitative and quantitative methods.
Safeguard dutyUsed when imports of a particular product increases unexpectedly to a point that they cause or threaten to cause serious injury to domestic producers
Non-violation ComplaintIn some situations a government can go to the Dispute Settlement Body even when an agreement has not been violated
Sunset clausemeasure within a law, regulation or statute that provides that the law shall cease to have effect after a specific date
Double Taxation Avoidance AgreementTax treaty signed between two or more countries so that tax-payers in these countries can avoid being taxed twice for the same income.
Shell companyCompanies without active business operations or significant assets
Delisting of SharesStock is removed from exchange when it fails to meet the requirements.
Inward Remittances, RDA and MTSSTransfer of money from a foreign worker to their individuals in their home countries.

Channel to receive cross-border remittances from overseas jurisdictions.
Way of transferring personal remittances from abroad to beneficiaries in India. 

Export Import Bank of India (Exim Bank)Established in 1982 under an Act of Parliament for financing, facilitating and promoting India’s international trade. Regulated by RBI
Export Credit Guarantee Corporation (ECGC)Company wholly owned by the Government of India that provides export credit insurance support to Indian exporters. Controlled by the Ministry of Commerce.
World Customs OrganizationEstablished in 1952 as Customs Co-operation Council (CCC). Independent intergovernmental body to enhance effectiveness and efficiency of Customs administrations.

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