Industrial Policy & Regulatory Structure

OBJECTIVE OF STUDY THIS UNIT

State the objectives of industrial policy Assess the industrial policies of India Know about stock exchanges and Securities and

Exchange Board of India (SEBI)

Explain the concepts of Liberalisation, Privatisation and Globalisation

CONCEPT

Industrial

policy

is

one

of

the

important

government documents, which has a lasting impact on a country's industry.

Industrial policy is simply a most important document which shows the relationship between

the government & Business.

Industrial Policy refers to the Government's policy towards industries their establishment,

functioning, growth & Management.

CONCEPT

The SCR (Regulation)

Act and the Rules

Securities Contracts the legal

(1957)constitute

framework for the regulation of stock exchanges and protection of the interest of investors.

The Securities and Exchange Board of India Act,

1992 provides for the establishment of the Securities and Exchange Board of India (SEBI) to

protect the interest of securities and to promote the

development of securities and to regulate the securities market.

OBJECTIVES OF INDUSTRIAL POLICY

It strives for a balanced regional development. To optimize production through the a process of full capacity utilization of scare resources. To maintain the balance between the growth & Development of industries. To create employment opportunities. To promotes entrepreneurship. provides enough power to the government to regulate the industry.

INDUSTRIAL POLICY -1948

The first industrial policy itself paved the path for

mixed economy in the nation. It accepted the existence of both public and private sectors in the

economy..

It also accepted the importance of small and cottage industries in the development of local resources such as capital, labour, raw material, etc. It recognised the role of foreign capital in industrial

development.

INDUSTRIAL POLICY -1948

The 1948 policy divided the industry into four categories:

Industries where the State had a Monopoly :

Arms and Ammunition, Atomic Energy, and Rail Transport.

New Investment by State

coal, iron & steel, aircraft manufacturing, ship building, manufacture of telephone, telegraph, mineral oil.

The Field of Government Control

automobiles,

heavy

chemicals

&

machinery,

fertilisers,

electrical

engineering, sugar, paper, cement, cotton textiles.

Industries open to Private Sector

The remainder of the industrial field was open to the private sector.

INDUSTRIAL POLICY -1956

The 1956 Policy was regarded as the "economic constitution of India".

The draft of the 1956 industrial policy was very

comprehensive.

This

laid

emphasis

on

establishment of a socialist pattern of society.

This

policy

also

emphasised

that

industrial

development of the country should be guided by the Directive Principles of the Constitution.

INDUSTRIAL POLICY -1956

Objectives of the 1956 Industrial Policy :

To accelerate the rate of growth and speed up industrialisation.

To expand public sector. To develop heavy and machine industry. To build a cooperative sector. To expand cottage, village and small-scale industry. To reduce the disequilibrium in the distribution of income and wealth.

INDUSTRIAL POLICY -1956

Features :

Monopoly of State : Mixed Sector of Public and Private Enterprise : Industries Left for the Private Sector :

INDUSTRIAL POLICY 1977

In March 1977 the first non-Congress government was

at the centre.

The Janata Party assumed power and Morarji Desai, a die-hard Gandhian, became the Prime Minister. The new

government declared a new industrial policy

Due to excessive emphasis to heavy industry, and to curb unemployment and poverty small scale industry

should be promoted. As a result, the number of items

reserved for the small scale were increased significantly.

INDUSTRIAL POLICY 1977

Development of the Small Scale Sector Large Scale Industry Large Business Houses Public Sector Approached towards Sick Units

INDUSTRIAL POLICY 1991

The New Industrial Policy was announced on July

24, 1991 by the government, headed by Prime

Minister P.V. Narasimha Rao.

NIP talked about deregulation and delicensing. NIP not only limited the role of PSUs but also talked about disinvestment and enough room to the private sector and foreign capital to develop and invest.

INDUSTRIAL POLICY 1991

Objectives :

rapid industrialisation. increase employment opportunities. Encourage entrepreneurship. deregulate and delicense.

To invite foreign capital.

encourage R&D and to bring new technology. Rapid development of infrastructure, specially roads

and electricity.

Increase competitiveness of the industry.

INDUSTRIAL POLICY 1991

Important Steps :

1. Industrial Licensing

List of Industries for which Industrial Licensing is Compulsory.

(a) alcoholic drinks. (b) Cigars and cigarettes of tobacco and manufactured tobacco substitutes.

(c) Electronic Aerospace and defense equipment. (d) Industrial explosives including detonating fuses, safety

fuses, gun powder,

Hazardous chemicals: Drugs and Pharmaceuticals

2. Foreign Investment

Today, India welcomes foreign equity in almost every sector.

51% foreign equity allows in Hotel & tourism, Indian trading houses, high priority industries.

50% in mining sector.

3. Foreign Technology Agreement

Automatic Approval:
Government Approval:

4. Public Sector Policy

(a) Memorandum of Understanding

(b) BIFR the Board of Industrial and Financial

Reconstruction

(c) Disinvestments and Privatisation:

5. MRTP Act

Control of monopolies
Prohibition of monopolistic, restrictive and unfair trade practices.

STOCK EXCHANGE

STOCK EXCHANGE

Under the SCR Act,

an exchange is defined as any body of individuals, whether incorporated ornot, constituted for the purpose of assisting, regulating or controlling the business of buying,selling or dealing in securities.

The SCR says that a stock exchange must be recognised by the government.

There are 23 stock exchanges in India and their organization varies.

BSE

It was established in 1857 and at that time its

membership fee was just Re. 1.

The BSE introduced Bombay On-Line Trading (BOLT) System on January 19, 1995.

It provides aquote-driven automated trading facility with an order book functioning as an auxiliary

jobber.

Its daily turnover rs.4587 crore in 2000-01.

NSE

The NSE was incorporated in November 1992 with an equity capital of 25 crores.

The International Securities Consultancy (ISC) of

Hong Kong which have helped in setting up of the

NSE.

NSE has a fully automated, electronic, screenbased trading system through which it has

overcome geographical barrier.

NSE OBJECTIVES :

To provide fair, efficient and transparent nationwide

trading facility

To provide access to investor all over the country To enable shorter settlement cycles and book entry settlement systems.

To bring the Indian stock market in line with international markets

OVER THE COUNTER EXCHANGE OF INDIA (OTCEI)

The OTCEI is primarily meant for small sized companies and small investors.

OTCEI was incorporated as a company in 1990

under the Companies Act.

It became operational in 1992 and was the first stock exchange in India to introduce screen based automated ring less trading system.

OTCEI OBJECTIVES

To Help Companies Raise Capital From The Market

To Help Investors To Access Capital Market Safely And

Conveniently

To Cater To The Needs Of The Companies To Eliminatethe Problems Of Illiquid Securities

RECOGNITION OF STOCK EXCHANGE

The Securities Contract Regulation Act, 1956 provides

inter alia for recognition of stock exchanges and

regulation recognition of of their functioning, licensing dealers,

contracts,

controlling

speculation,

restricting rights of equitable holders of shares and

empowering the government to compel any public limited company to get its shares listed.

The rules are statutory and constitute a code of

standardised regulations applicable to all recognised exchanges.

Listing of Securities

Obligation on Listed Companies

Listing of Securities on a recognised stock exchange means that they are admitted on a recognised stock exchange which provides a forum for purchase and sale of securities.

regulatory measures of SEBI and stock exchanges Submit required books, documents and papers and disclose information. Send to all shareholders the notices of AGM, Annual Reports.

STOCK EXCHANGE OPERATION

Bulls and Bear : Order/Customer Driven Driven Trading System Market Maker Margin Trading

and

Quote/

Dealer

BADLA SYSTEM/ CARRY FORWARD

TRANSACTION

The Badla System involves trading for clearing with a facility of carrying forward the transaction from one settlement period to another.

This system was banned by SEBI since December 1993 and later was introduced in a modified manner.

Transfer of Market Position Short Lending/Short Selling Borrowing/Lending in Money Market

REVISED FORWARD TRADING SYSTEM

SEBI introduced modified forward trading system on October 6, 1995 effective from October 9,1995

Now transactions can be carried forward for a maximum of 90 days.

Transactions remaining open at the expiry of this time limit have to be compulsorily settled by delivery or payment as the case may be.

Stock exchanges are allowed to resume forward trading/carry forward transactions only after permission from SEBI.

DERIVATIVES TRADING

Derivatives:

These are financial instruments that are valued according to the expected price movements of an underlying assets, which may be a commodity, currency or a security.

Futures

Options
Swaps

CAPITAL ISSUES (CONTRACT) ACT (CICA), 1992

According to the CICA Act, companies had to obtain prior approval for any new issue, and for pricing or public and rights issue. This act gives powers to Government of India to regulate the timing of new issues by private sector companies

SECURITIES AND EXCHANGE BOARD OF INDIA (SEBI)

A major development in the Indian stock market took place in 1988 when Securities and Exchange Board of India (SEBI) was established through an administrative order, on the lines of the Securities and Investment

Board of the U.K.

The Securities and Exchange Board Act of 1992 provides for the establishment of a board to protect the interest of investors and to promote the development and regulation of the securities market.

SECURITIES AND EXCHANGE BOARD OF INDIA (SEBI)

The Board of SEBI consists of six members comprising the chairman, two members from the amongst the official of the ministries of the central government dealing with finance and law, two members who are professional and have expertise or special knowledge relating to securities market,

and one member for the RBI.

FUNCTIONS OF SEBI

Regulating the business in stock exchanges. Registering and regulating the working of stock brokers, subbrokers, share transfer agents, bankers to an issue, merchant bankers, advisers. underwriters, portfolio managers, investment

Prohibiting fraudulent & unfair trade practices.

Promoting investors' education training of intermediaries.

Prohibiting insider trading. Regulating substantial acquisition of shares and take-overs

and mergers of companies.

Calling for information from, undertaking inspection, conducting inquiries and audits of the stock exchange.

DEPARTMENTS IN SEBI
1.

The Primary Market Policy, Intermediaries, SelfRegulatory The The Issue Organizations Management Market (SROs), and and Investor grievances and Guidance Department.

2.

Intermediaries Operation and

Department.
3.

Secondary

Policy,

Exchange Administration, New Investment Products and Insider Trading Department.

4.

The Secondary Market Exchange Administration, Inspection Department and Non-member Intermediaries

DEPARTMENTS IN SEBI
1.

2.

3.

Institutional Investment, Mergers and Acquisition, Research and Publication, and International Relations and IOSCO Department. Legal Department Investigation Department
SEBI has its regional offices at Kolkata, Chennai and Delhi. SEBI has also formed two non statutory advisory committees, the Primary Market Advisory Committee and Secondary Market. SEBI is also a member of International Organization of Securities Commissions (IOSCO).

POWERS AND SCOPE OF SEBI

The functional area of SEBI is very wide. It is the rule maker, a

custodian, and a watch dog of the security market.

it has the full power to regulate :

Depositors And Participants, Custodians, Debentures Trustees And Trust Deeds, Inside Traders, Mutual Fund, Portfolio Manager, Investment Advisers,
Merchant Bankers,

Registrars To Issueand Share Transfer Agents , Stock Brokers And Sub - Brokers, Underwriters, Venturecapital Funds, Bankers To Issue.

SEBIS GUIDELINE

Information disclosure, operational transparency, and investor protection.

Development of financial institutions. Priding of issues Bonus issues. Preferential Issues Financial Instruments Firm allotment and transfer of shares among promoters.

SEBIS GUIDELINE

Primary market :

SEBI raised the standards of disclosure in public issues and

enhanced the transparency. The offer document is now made public even at the draft stage. Companies without track record making first issue can price the issue at par only. Not less than 20% of equity (issued) should be offered to public. For issues above 100 crore, book building requirement has been introduced. Draft prospectus will be vetted by the SEBI to ensure adequacy of disclosure. Bankers to an issue and portfolio managers have to be registered

with the SEBI.

SEBIS GUIDELINE

Secondary Market and Various Intermediaries

The governing body and various committees of Stock Exchanges (SEs) have been recognised, restructured and broad based.

Inspection of all 23 SEs has been carried out to determine, inter alia, the extent of compliance with the directives of the SEBI.

All the SEs have been asked to established with a clearing house or
a clearing corporation.

Brokers are required to segregate the client and its own account. It has been mandatory for stockbrokers to disclose the transaction price and brokerage separately in the contract notes issued by them to their clients.

Compulsory audit of the brokers' books and filling of the audit reports with the SEBI has now been made mandatory.

Investment Protection Measures

The SEBI has introduced an automated complaints handling

system to deal with investor complaints.

To create awareness, SEBI issues fortnightly press releases, disclosing names to the companies against whom maximum number of complaints have been received.

A representative of SEBI now supervises the allotment of shares process.

Underwriting

Underwriters make a commitment to get the underwritten issue subscribed either by others orby themselves.

They agree to take unsubscribed portions of the issue.

Only such person (an individual, firm or a company) who has

obtained certificate of registration from SEBI can act as an underwriter.

INSIDER TRAINING

Insider training in securities is prohibited by SEBI under Insider Trading Regulations 1992.

Insider training can be defined as the sale or purchase of securities by persons who possess price sensitive information about the company, on account of their fiduciary capacity involving confidence or trust.

Broadly, insiders can be of two types:

(a) Primary Insider e.g. Directors, stock exchanges, merchant bankers, registrars, brokers of the company, top

executives, auditors, banks, etc.

(b)

Secondary

insider

e.g.

dealers,

agents,

other

employees, etc.

LPG POLICY

Liberalisation

The ongoing reforms in India are referred to as economic liberalisation of India.

The extensive regulation was sarcastically dubbed as the "Licence Raj"; the slow growth rate was named the "Hindu

rate of growth".

In the 1980s, the Prime Minister Rajiv Gandhi initiated some reforms.

In 1991, after the International Monetary Fund (IMF) had bailed out the bankrupt state, the government of P. V. Narasimha Rao and his Finance Minister Manmohan Singh started breakthrough reforms.

LPG POLICY

Privatization

Privatisation is the process of involving the rivate sector in the ownership or operation of a state-owned or public sector undertaking.

In a broader sense, it connotes private ownership (or even without change of ownership) the induction of private control and management in the PSUs.

Thus the term refers to private purchase of all or part of a company. It covers the contracting out and privatisation of management through management contract, leases or franchise arrangement."

LPG POLICY

Globalization

The formation of systems of interaction between the global and the local has been a central driving force in world history and has led to the phenomenon called globalisation.

Corporations are today changing their strategies and are reorganizing their functions to copeup with the changed

scenario. Whether it is their production process or location,

Product strategy, Marketing, Finance, HR policies etc. Organizations have incorporated the following changes:

Designing in Global Environment Production Location Selection Rationalised Production