Consumer Protection Act

Consumer protection is practices in India since ancient time but it is accelerated recently due to
various issues. In India, different Acts have been implemented to protect the consumers against
different forms of mistreatment that include the Indian Penal Code, 1860; Indian Contract Act, 1872;
Drugs Control Act, 1950; Industries (Development and Regulation) Act, 1951; Indian Standards
Institution (certification marks) Act, 1952; Drug and Magic Remedies (Objectional Advertisement)
Acts, 1954; Prevention of Food Adulteration Act, 1954; Essential commodities Act, 1955; Trade and
Merchandise Marks Act, 1958; Hire purchase Act, 1972; Cigarettes (Regulation of Production,
Supply and Distribution) Act, 1975; Prevention of Black-marketing and Maintenance of Supplies of
Essential Commodities Act, 1980; Essential commodities (Special Provisions) Act, 1981; Multi-StateCo-operative Societies Act, 1984; Standard of Weights and Measures (Enforcement) Act, 1985; and
Narcotic Drugs and Psychotropic Substances Act, 1985. Some significant consumer protection
enactments of pre-independence time are the Sale of Goods Act, 1930; Agriculture Produce
(Grading and Marketing) Act, 1837, and Drugs and Cosmetics Act, 1940.
One of the most important legal actions taken by government in the area of consumer
protection/consumer movement has been the endorsement of the Consumer Protection Act, 1986.
This Act was needed because the well-organized sectors of manufacturers, traders and service
providers with the acquaintance of market and controlling skills often try to cheat the consumers.
The Consumer Protection Act, 1986 was enacted to protect the interests of consumers. It is one of
the most comprehensive parts of legislation and covers all goods and services. The purpose of the
Act is to provide for the establishment of the Commission that prevent practices having adverse
effect on competition, promote and sustain competition in markets, protect the interests of
consumers and ensure freedom of trade carried on by other participants in the markets, in India. The
major focus of the Act is on the prohibition of anti-competitive agreements, prohibition against abuse
of dominant position, regulation of combinations, and advocacy of competition policy. Consumer in
India is considered as important. According to Mahatma Gandhi, "A Consumer is the most important
visitor on our premises. He is not dependent on us we are on him. He is not an interruption to our
work; he is the purpose of it. We are not doing a favour to a consumer by giving him an opportunity.
He is doing us a favour by giving an opportunity to serve him." Though these views are quite
encouraging but in India, there is still need to reform consumer acts to protect their rights.
In a world of information irregularity, the government has the responsibility to equalize this
imbalance. In the Government of India, the Department of Consumer Affairs is the central point for
different Departments and organizations which is responsible to generate awareness among
consumers of market realities as well as the rights of the consumers and the manner in which they
can educate themselves and also enforce their rights. In India, the Jago Grahak Jago campaign is
very popular and it created awareness among consumers. Mostly, consumers are not aware of the
rights and this drive pushed manufacturers and traders to ensure quality service to consumers.
According to consumer act law in India, everybody, including individuals, a firm, a Hindu undivided

family and a company, have the right to use their consumer rights for the purchase of goods and
services made by them. It is important that, as consumer, everyone must have good information
about the basic rights as well as about the courts and procedures that follow with the infringement of
one's rights. Generally, the consumer rights in India include the right to be protected from all kind of
hazardous goods and services, the right to be fully informed about the performance and quality of all
goods and services, the right to free choice of goods and services, the right to be heard in all
decision-making processes related to consumer interests, the right to seek redressal, whenever
consumer rights have been infringed and the right to complete consumer education.
There are numerous significant features of the Act. The Act provides for establishing three-tier
consumer dispute redressed machinery at the national, state and district levels. It applies to all
goods and services. It covers all sectors, whether private, public or any person. The Act provides for
relief of a specific nature and also for compensation to the consumer as appropriate. The Act also
provides for setting up of Consumer Protection Councils at the Central, State and District levels,
which are advisory bodies to promote and protect the rights of the consumers. The provisions of the
Act are in addition to and not in derogation of the provisions of any other law for the time being in
force. Consumer Protection Act has been implemented since many decades in India. A number of
deficiencies and shortcoming in its operation have been observed thus requiring Amendments on
three occasions and still leaving scope for more improvements.
Consumer Protection Act, 1986 gives benefit to normal consumers by securing less expensive and
often quick redressal of their complaints. The Act commands establishment of Consumer Protection
Council at the Centre as well as in each States and District in order to support the consumers and
generate awareness about their rights. It also provides for a three-tier structure of the National and
State Commissions and District Forums for speedy resolution of consumer disputes. Records show
that there are 632 District Forums, 35 State Commissions with the National Consumer Disputes
Redressal Commission at the apex. The terms of this Act cover goods as well as services. The
products covered in consumers act are those which are manufactured or produced or sold to
consumers through whole sellers and retailers. The services include transport, telephone, electricity,
housing, banking, insurance, medical treatment etc. In the process of consumer forum, if, the
consumer is not convinced by the decision of the District Forum, he can request to the State
Commission and against the order of State Commission a consumer can appeal in the National
Commission. To guarantee quick clearance of cases, State Governments are advised to avoid any
hindrance in appointment of President and Members in Consumer Fora. In order to dispose of the
pending cases, Circuit Benches from National Commission regularly visits the State. National
Commission has held Circuit Bench sitting at Hyderabad, Bengaluru, Chennai, Pune, Kolkata,
Ernakulam, Ahmadabad and Bhopal. Some of the State Commissions also held Lok Adalats for
immediate disposal of the cases. Under the proposal of "Strengthening Consumer Fora" (SCF),
States/Union Territories get monetary assistance to strengthen infrastructure of building as well as
non-building assets. Scheme of Computerization and Computer Networking of Consumer Fora
(CONFONET) was initiated in March 2005. Under this proposal, the Consumer Fora at all the threetiers all through the nation were fully computerised so that there is access of information and faster

clearance of disputed cases. The project is being implemented by the National Information centre
(NIC) on a turnkey basis.
Consumer Protection Act was modified from time to time by Act no.34 of 1991, Act no.50 of 1993
and Act no.62 of 2002 to serve better to consumers. In 1991, modification was made to incorporate
provisions for the quorum of District Forum, appointing persons to control over State
Commissions/District Forums, in case of absence of President to allow the court function
successively. In 1993, the Act was again improved to deal with the insufficiency in the reporting of
the main Act. The major objective of amendment to amend loopholes and increase the scope of
areas covered and interest more power to the redressal agencies under the Act. In 2002, consumer
Act underwent modification to assist authorities to quickly resolve disputed cases, increase the
capability of redressal agencies, strengthening them with more powers, streamlining the procedure
and broaden the scope of the Act to make it more functional.
In 2004, Working Group was established to inspect the provision of the Act and consider relevant
modification to make the Act effective and functional. A number of proposed amendments were
circulated to all State Governments, concerned Central Ministries and NCDRC in July 2006. Revised
proposed amendments were distributed in 2009 and with the feedback received on the draft
application, the Department of Consumer Affairs in consultation with the Ministry of Law and Justice
devised "Consumer Protection (Amendment) Bill, 2010. In meantime some fresh additional
comments of the Department of Financial Services were received on the proposed sections
regarding unfair trade practice and unfair contract. These changes were got approved by the
Ministry of Law and Justice and formed part of the draft proposal of Consumer Protection
(Amemdment) Bill, 2011. The Bill was introduced in Lok Sabha on 16.12.2011. The Bill was referred
to Standing Committee on Food, Consumer Affairs and Public Distribution on 26.12.2011. The
Committee Report was presented in Lok Sabha on 19.12.2012.the major intent of the proposed Bill
are broadening the scope and strengthen the provisions of the Act, facilitating faster disposal of
complaints, rationalising the qualifications and procedure of selection of the Presidents and
Members of Consumer Fora, strengthening penal provisions/enforcement orders of Consumer.
The vision of amended consumer act is to defend the rights and interests of consumers, to create
awareness about consumer rights, duties and responsibilities and to encourage consumer welfare
by strengthening consumer movement in the country. It is necessary that State Governments,
academic and research institutions, schools and voluntary organizations must involve themselves
actively to create lively consumer movement in the nation. Strict parameters regarding consumer
products will be developed and enforced along with regular monitoring of prices to make certain the
autonomy of consumers.
Under 12th Plan strategy and implementation plan, consumers need a low-cost and quick grievance
redressal method to guarantee that manufacturers and service providers are accountable for the
price and quality that the consumers are entitled to. Accordingly, it is essential to provide several
methods of grievance redressal including those which are available in agreement with the provisions
of the Consumer Protection Act. Thus, mediation or in-house grievance redressal should be tried,

but without giving up the right of the consumer to obtain legal redress. Another objective of 12th Plan
strategy is amendment of Consumer Protection Act to make it more successful and tuned to
reducing the accumulation of cases. It has been observed that there has been derogation or
poaching on the jurisdiction of Consumer Protection Act in some of the areas due to the orders
passed by the Courts. Such ambiguities in the Act should be plugged through proper amendments to
the Act and Rules. It is proposed that computerisation and Networking of consumer fora across the
nation must be installed so that consumers can file complaints and access their case status online.
The plan include to offer counselling and a mediation mechanism at pre-litigation stage and so as to
reduce the burden of consumer courts and resolve disputes through out of court settlements. In this
plan, there is a provision of adequate infrastructure to Consumer fora in order to make them function
effectively. 12th Plan strategy also proposes amendment to changeover from manual system to
computer based system to bring in more competence and transparency. There is provision for
monitoring the performance of functioning of District Fora by developing dynamic MIS Reports on
the performances related to total no. of cases filed/ disposed and other related performance
indicators. 12th Plan strategy also offer provision of funds for the annual maintenance of confonet
hardware items like computers, UPS, replacement of UPS batteries etc. under the Scheme on
Strengthening Consumer.

The Role of Voluntary Organizations in Protecting

Consumers' Rights
There is a significant contribution of such organization for the welfare of consumers. Consumer
organizations are support groups that seek to protect people from corporate abuse. Unsafe
products, predatory lending, false advertising, and pollution are types of corporate abuse. Consumer
organizations may operate via remonstration, campaigning or lobbying. Voluntary organizations
have major contribution for implementation of consumer rights and serve the consumer better. It has
been estimated that there are now more than 800 such organisations in India. They conduct various
activities as part of the consumer movement. They perform several functions such as create
awareness about consumer, rights and teach the general public about consumer difficulties and
remedies through seminars, workshops and training programmes. These voluntary organizations
provide legal help to consumers by way, of assistance in seeking legal solution, undertake advocacy
of consumers' point of view as representative members of consumer protection councils and others
official boards. In India, government encourage voluntary organizations to promote healthy and
mass based consumer movement in urban and rural areas.
Voluntary organizations organize comparative testing of consumer products through their own
testing tools or accredited laboratories in order to evaluate their qualities of competing brands and
publish the test results for the benefit of consumers to become informed buyers. These
organizations publish periodicals and journals to distribute information among readers about
consumer problems, legal reporting and other emerging matters of interest. Most of these periodicals
do not accept advertisements from business firms. Organizations also offer suggestions and
recommend steps which government authorities should consider in policy making and administrative
measures adopted in the interest of consumers. Some voluntary organizations have successfully
used Public Interest Litigation (PIL) to enforce consumer rights in several cases. It can be said that

voluntary organizations have filed cases in law courts in the interest of the general public and not for
any individual. To summarize, the Consumer Protection Act, 1986 is a generous social legislation
that takes care of the rights of the consumers and provides for promotion. The successful
implementation of Consumer Protection is important to protect the rights of consumers and make
healthy and happy society. It must be known that manufacturer or provider of a service is also a
consumer of some other goods or services. If both the producers/ providers and consumers
understand the need for co-existence, adulterated products, false goods and other insufficiency in
services, there will be less dispute. The outlook of the consumer justice system in India seems to be
hopeful as there is continual amendment of consumer act to protect consumer's rights and resolve
pending cases. The Government has also adopted the practical policy, schemes / programmes. In
present Indian situation, there is desperate need for the State Governments to give priority to
Consumer welfare and get ready themselves to meet the challenges of market economy. In India,
government and voluntary organizations have attempted to resolve problems of consumers such as
price rise, inflation, adulteration of food through implementing legislative and administrative
measures. As society is aware of the protection of the consumers, consumer movement has been
modified and number of voluntary organizations is established by different groups of citizens in
various part of India to promote and protect the disadvantaged group of society. These organizations
have different ideologies, objectives, working styles, social composition and operations.

Cyber Laws
In technology driven society, internet has huge contribution for the growth of humans. Many
investigators explained that cyberspace is a physical space but actually were a computer-generated
construction representing abstract data. It is a virtual medium. It has no boundaries, no geographical
mass, or gravity. Numerous advancements are done due to cyber activities but the major question is
that whether it should be regulated or not. Cyber Law is the law that controls cyber space. Cyber
space is a very broad term and includes computers, networks, software, and data storage devices
such as hard disks, USB disks, the Internet, websites, emails and even electronic devices such as
cell phones, ATM machines. The increased dependence of individuals and organizations on
cyberspace has resulted in many cybercrimes.
Cyber crimes are illegal acts where the computer is used either as a tool or a target or both. The
massive growth in electronic commerce (e-commerce) and online share trading has led to an
unusual erupt in incidents of cybercrime. Although, there is system to protect devices from infected
with computer virus to the data and computer networks such as firewalls, antivirus software, and
other technological solutions, but in India efforts must be done towards effective use of these
technologies to protect the valuable data and to combat cyber-crime. Even expert users of IT tools
may not be aware of cyber victimization. Along with the progression in technology it is similarly
important to be aware of cyber-crime and other related issues thereof. The cyber safety depends on
the knowledge of the technology and the care taken while using internet and that of the defensive
measures adopted by user and servers systems. Cyber law portrays the legal issues associated with
the use of communications technology, mainly "cyberspace", i.e. the Internet. It is a junction of
numerous legal fields, including intellectual property, privacy, freedom of expression, and
jurisdiction. It is established that cyber law applies to regulations designed for the physical world, to
human activity on the Internet. Cyber law basically deals with almost all aspects of transaction and
activities concerning Internet, World Wide Web and Cyberspace in India.
The law for cyberspace is to control the man and the machine. The fundamental goal of cyber laws
is to legalize human behaviour and not technology. Cyber laws are technology intensive laws,
advocating the use but not the mishandling of technology. Cyber law comprises of all the cases,
statutes and legal provisions that affect persons and institutions who control the entry to cyberspace,
provide access to cyberspace, create the hardware and software which enable people to access
cyberspace or use their own devices to go 'online' and enter cyberspace. Law covers the rules of
conduct that have been accepted by the government, and which are in force over a certain region,
and which must be followed by all people on that region. Breach of these rules could lead to
government action such as captivity or fine or an order to pay compensation. Cyber law
encompasses laws relating to Cyber Crimes, Electronic and Digital Signatures, Intellectual Property,
and Data Protection and Privacy.

Requirement of Cyber Law

There are many grounds why it is difficult for conventional law to manage with cyberspace. The first
reason is that Cyberspace is an intangible dimension that is unfeasible to govern and regulate using
conventional law. Secondly, cyberspace has complete disregard for jurisdictional boundaries.
Another reason is that cyberspace handles huge traffic volumes every second. Billions of emails are
crisscrossing the globe even as we read this, millions of websites are being accessed every minute
and billions of dollars are electronically transferred around the world by banks every day.
Cyberspace is absolutely open to sharing by all. Cyberspace offers enormous potential for secrecy
to its members. Readily available encryption software and steganographic tools that flawlessly hide
information within image and sound files ensure the confidentiality of information exchanged
between cyber-citizens. Electronic information has become the main aim of cyber-crime. It is
considered by extreme mobility, which exceeds by far the mobility of persons, goods or other
services. International computer networks can transfer huge amounts of data around the globe
within seconds. A software source code worth crores of rupees or a movie can be pirated across the
globe within hours of their release. Theft of corporeal information such as books, papers, CD ROMs,
floppy disks is easily covered by conventional penal provisions. Nevertheless, the difficulty begins
when electronic records are copied quickly, inconspicuously and often via telecommunication
facilities.
In digital world, most of the areas are affected by cyber law. Approximately all transactions in shares
are in demat form. All companies comprehensively depend upon their computer networks and keep
their valuable data in electronic form. Government forms including income tax returns, company law
forms are filled in electronic form. Consumers are progressively more using credit cards for
shopping. Most people are using email, cell phones and SMS messages for communication. Even in
"non-cyber crime" cases, important evidence is found in computers / cell. Cyber crime cases such as
online banking frauds, online share trading fraud, source code theft, credit card fraud, tax evasion,
virus attacks, cyber sabotage, phishing attacks, email hijacking, denial of service, hacking,
pornography are very common. Digital signatures and e-contracts have reinstated usual methods of
transacting business.
To control cyber-crime, Electronic signatures are used to validate electronic records. Digital
signatures are one type of electronic signature. Digital signatures satisfy three major legal
requirements signer authentication, message authentication and message integrity. The
technology and efficiency of digital signatures makes them more trustworthy than hand written
signatures. Intellectual property refers to the creations of the human mind e.g. a story, a song, a
painting, a design etc. The facets of intellectual property that relate to cyber space are covered by
cyber law. These include copyright law in relation to computer software, computer source code,
websites, cell phone content, software and source code licences, trademark law with relation to
domain names, meta tags, mirroring, framing, linking, semiconductor law which relates to the guard
of semiconductor integrated circuits design and layouts, patent law in relation to computer hardware

and software. Data protection and privacy laws intend to accomplish a fair balance between the
privacy rights of the individual and the interests of data controllers such as banks, hospitals, and
email service providers. These laws try to address the challenges to privacy caused by collecting,
storing and transmitting data using new technologies.
Cyber law is new stream for study of law and is increasing at rapid rate. It is vital that user must be
aware of basic building blocks of cyber laws, namely Netizens, Cyberspace, and Technology.
Netizens: Cyber law has initiated notion of netizens. A Netizen is an occupant of the worldwide
world. He is the one, who inhabits the Net and uses it as an extension of his day-to-day physical
world. He reproduces his physical world actions, such as socializing, buying, and selling through
online medium. He goes beyond geographical space and time by a click. He identifies no man-made
or geographical boundaries. Netizen could be nameless, nameless and faceless person, if he wants
to and yet can indulge in various internet activities.
Cyberspace: Cyber laws are made for cyberspace. Cyberspace incorporates the activities, which
have occurred in the physical space just prior to entry into cyberspace. Cyberspace is the significant
aspect of cyber law which serves as a link between the physical space and the cyberspace, in order
to control interface between man and machine. The presence of cyber laws are an expansion of
physical laws in cyberspace. These are 'analogy-seeking' laws.
Technology: Cyber laws are devised according to technology used. They turn around technology
and its applications. Cyber laws set up norms of acknowledged human behaviour in cyberspace.
Currently, there are two-technology school of laws which include technology Specific School and
Technology Neutral School. Technology Specific School states that the law should identify only one
given set of technology or technology standard. That is, law treats other standards as unlawful, nonbinding and thus not allowable. This School offers a single technology platform for the whole
community but it disrupts the process of technological innovations and helps in creating monopolistic
business. In Indian condition, people follow a technology specific rule. Under the law (The
Information Technology Act, 2000), digital signatures using prescribed asymmetric cryptosystem
standard is considered legally valid. Use of any other standards would be digital signature
unacceptable. When this Act is introduced, the technology procedure was quite low, but with time
technology maturity has increased in India and the new Information Technology (Amendment) Bill,
2006 advocate migration towards the technology neutral rule.
The following Act, Rules and Regulations are included under cyber laws:
1.
2.
3.
4.

Information Technology Act, 2000

Information Technology (Certifying Authorities) Rules, 2000
Information Technology (Security Procedure) Rules, 2004
Information Technology (Certifying Authority) Regulations, 2001

Major objectives of the Information Technology Act, 2000 are to provide legal recognition for
transactions carried out by means of electronic communication, which is termed as "electronic
commerce" and involve the use of alternatives to paper-based methods of communication and
storage of information, to facilitate electronic filing of documents with the Government agencies. The
aims of the Act make it facilitating Act, an enabling Act, and a regulating Act. The Information
Technology Act, 2000 is a facilitating Act because it allows both e-commerce and e-governance. The
Information Technology Act, 2000 also considered as enabling Act which allows legal system of
electronic records and digital signatures.
Though Internet does not have any geographical limits of a country, one of the United Nations
agencies 'United Nations Commission on International Trade Law' (UNCITRAL) recommended a
certain level of consistency of laws in all member nations. For this, the Model Law on Electronic
Commerce was adopted by the United Nations Commission on International Trade Law
(UNCITRAL) to control cyber-crime around the world.

Scope of Cyber Laws

Cyber laws have broad scope in current complex situation and eruption of cyber-crime. These laws
cover other areas of law having a technology component. Laws related to ecommerce, online
contracts, copyright, trademark, business software patenting, e-taxation, e-governance and cybercrimes fall within the meaning and scope of cyber laws.
To, summarize, cyber laws offers the vital mechanism to impeach any person, who is realistically
suspected of having committed or of committing or of being about to carry out any offence using any
computer, computer system or computer network. Cyber law is an important field of law which
represents all the legal issues linked with the internet, and governs all the aspects of the internet and
cyberspace, along with dealing in legal cases regarding software patents, net banking and others.
Cyber legal representatives perform regular investigations on the major cyber-crimes that are
widespread across the internet. With the growing increase in cyber-crimes against individuals,
organizations and the government via the internet today, there is a need for strict cyber laws in the
global society. Cyber laws which battles cyber-crimes have a dominant effect on any other laws for
the time being in force. In India, it was observed that there is drastic increase in the number of cybercrimes therefore the field of cyber law in India is gaining huge recognition.

Public Distribution System

Public distribution system is a structure that is sponsored by a government and includes chain of
shops trusted with the work of distributing basic food and non-food commodities to the
disadvantaged group of the society at very low prices. The central and state governments shared the
accountability of regulating the Public distribution system. While the central government is
responsible for procurement, storage, transportation, and bulk allocation of food grains, state
governments hold the responsibility for distributing the same to the consumers through the
established system of Fair Price Shops. State governments are also responsible for operational
responsibilities including allocation and identification of families below poverty line, issue of ration
cards, supervision and monitoring the functioning of FPSs system (PDS) is an Indian food security
system. Established by the Government of India under Ministry of Consumer Affairs, Food, and
Public Distribution and managed cooperatively with state governments in India, it distributes
sponsored food and non-food stuffs to poor community of India. Some of the commodities distributed
by food department include staple food grains, such as wheat, rice, sugar, and kerosene, through as
ration shops established in several states across the nation. Food Corporation of India, a
Government-owned corporation, acquires and maintains the Public distribution system.
It is whispered that Public distribution system can be differentiated from private distribution in terms
of control exercised by public authority and the intention primarily being social welfare in contrast to
private gain. In broad sense, the system includes all the agencies that are involved from
procurement stage to the final delivery of goods to the customer. The agency that is involved in the
process of procurement, transportation, storage and distribution are Food Corporation of India. At
the state level, it is the civil supply departments/ corporations and fair price shops, which are the
agencies, involved in provision of Public distribution system. The fair price shops are the last linkage
in this process, which are generally owned by private individuals. Therefore, significant aspect that
differentiates Public distribution system is the involvement of government agencies and government
control over the whole distribution structure.

The objectives of the Public Distribution System are as follows:

1. To protect the low income groups by guaranteeing the supply of certain minimum quantities
of food grains at affordable price.
2. Ensuring equitable distribution.
3. Controlling the price rise of Essential Commodities in the open market.
The Public Distribution System has been premeditated and implemented by both the central and
state governments. Central government primarily deals with the buffer stock operations (though FCI)
and also controls the external and internal trade of food grains. The Central government through its
procurement activity tries to even out the differences of surplus and deficit food grain producing
states.
Public distribution system flow

Evolution of Public Distribution System

Public distribution system in India has developed since many decades. In Indian scenario, there is
numerous natural disasters occurring and it results in famines and droughts that cause acute
scarcity conditions. Government of India took various measures to help the victims in which the food
security system was initiated. Such effort was taken up for the first time in 1939 under the British
regime when the Second World War started. The government thought of distributing the food grains
to the poor of some selected cities in which there was scarcity and also a situation where private,
failed to provide commodities affordable by the poor.
In 1943, after the great Bengal Famine, this distribution system was stretched to some more cities
and towns. Continued periods of economic stress and disturbance like wars and deprivations gave
rise to a form of food security system. Originally, it concerned itself mainly with management of
scarce food supplies, and afterwards it was found necessary to use a more organised and
institutionalised approach including measures suspending normal activities of markets and trade.
Such type of food security service existed in India for many years, in the shape of constitutional
rationing in particular urban areas and continues to be present even today in a few metropolitan
centres.
Reports signified that the development of Public Distribution System in India can be grouped into
three time periods that include;
1. From 1939 to 1965
2. From 1965 to 1975
3. From 1975 onwards.
In the first period, the Public Distribution System was basically visualized as rationing system to
distribute the scarce commodities and later it was seen as a Fair price system in contrast with the
private trade. Rice and wheat occupied a very high share in the food grains distribution. Government
was aware of extending the Public Distribution System to rural areas but it was not implemented.
The operation of Public Distribution System was unbalanced and dependent on imports of PL 480
food grains with little internal procurement. In operation, imports constituted major proportion in the
supplies for Public Distribution System during this period. Procurement prices offered were not
remunerative.
In the middle period of 1960's it was decided to look much beyond management of scarce supplies
in critical situations. Stoppage of PL 480 imports forced the government to obtain grains internally. In
effect, India took a significant leap in the direction of providing a more sustainable institutional
framework for providing food security. FCI and Agricultural Prices Commission (APC) were
established at that time which are now known as Bureau of Agricultural Costs and Prices (BACP)
Commission in 1965 marked the commencement of this phase. On the basis of BACP's
recommended prices, the FCI procures the food grains to distribute through Public Distribution
System and a part of the procured quantity is kept as "buffer stocks" to meet any unanticipated
catastrophe situation. Major components of this system were traditional arrangements and

procedures for procurement, stocking and distribution of food grains. The food security system
during this period, progressed as a vital part of a development strategy to bring about a prominent
technological change in selected food crops, especially rice and wheat. It delivered effective price
and market support for farmers and organised range of measures to create employment and income
for the rural poor in order to improve their level of happiness including better physical and economic
access to food grains.
In the third period, there was an increase in the food grains production in the country. The buffer
stock accumulation too increased greatly. With this, the initial stress on buffer stock maintenance
and price stabilisation shifted to increase in Public Distribution System supplies. In the 4th plan 6974, it states that "in so far as food grains are concerned the basic objective is to provide an effective
Public Distribution System. The procured quantities were in excess as compared to the requirement
of Public Distribution System needs and minimum reserve was maintained". In fifth five year plan,
programmes such as Food for work, Antyodaya were started with a view to lessen poverty as well as
to reduce the overstocking of FCI godowns. The imports slowly degenerated in this period and
during the year 1975, there was a net export of food grains though it was a small quantity. Imports
were continuous with relatively very less quantities to maintain level of buffer stocks. The
government strengthened the Public Distribution System in this period, so that it remained a "stable
and permanent feature of strategy to control prices, reduce fluctuations in them and achieve an
equitable distribution of essential consumer goods".
In the end of seventies, the Public Distribution System was basically confined to urban population
and did not promise adequate food to the rural poor in crisis period. During the late 1970's, and in
the beginning of eighties, some state governments extended the coverage of Public Distribution
System to rural areas and also introduced the target grouping approach. These states are Kerala,
Gujarat, Tamilnadu, and Andhra Pradesh. This was also because there was an obvious change in
the food situation particularly in the later years, during 80's and early 90's. Thus the net availability of
food grains which had increased from 74 million tons in 1968 to 99 million tons in 1977, witnessed a
rapid rise in later years reaching 158 million tonnes in 1991 (Government of India, 1994).

Features of the Public Distribution System

Public Distribution System of food supplies began to relief victims affected by the famine and
drought in 1939, and has increased its range of work to include a larger areas of operations for
procurement, and distribution of food grains and other civil supplies, pricing policies. The
indispensable features of the Public Distribution System are mentioned below:
1. Public Distribution System is a system of distribution of selected essential goods through the
fair price shops (ration shops or co-operatives owned by the government) which are
operated by private dealers under the government's control and direction.
2. Rice, wheat and sugar are main food grains throughout the period. The other important items
are kerosene, edible oil which are distributed to disadvantaged group of society.

3. The working of the Public Distribution System did not hamper the functioning of the free
market mechanism except in the limited statutory rationing areas but works along with it.
Therefore, this could be observed as a "dual economy" in the vital commodities. Customers
have liberty to either purchase through Fair Price Shops or from the open market.
4. The required amounts of food grains and other items are acquired by the government
through internal procurement and or through imports and a buffer stock is maintained with
meet the demand of shortage period. The government feeds the Public Distribution System
with supplies, bears the cost of subsidy, and decides as to which goods to supply, at what
rates, what amount to be sold per head or per family.
5. The purpose of Public Distribution System is to offer basic minimum quantity of essential
commodities at lowest prices especially to poorer sections of society and also to stabilise
their open market prices or at least to stop an unwarranted rise in such prices under crisis
period. The prices charged are usually lower than open market prices and also lower than
the procurement and other costs incurred by the government.
6. It has been principally an urban oriented system. Its origin as well as development has been
in sensitive urban areas where a scarcity of food grains and other essential commodities
could become political obligations of administration.
In exposure and public expenditure, it is reflected as significant food security network. However, the
food grains supplied by the ration shops are not enough to fulfil the consumption necessities of the
poor or inferior quality. The PDS has been condemned for its urban unfairness and its failure to
serve the poorer sections of the population successfully.

Reforming the Public Distribution System

It has been observed that huge program was made by the ministry to modernise Public Distribution
System. Government used advanced technology such as computerisation of Public Distribution
System to accelerate the Project. All the ration shops across the country are to be automated.
Government of Odisha and Gujarat took initiative to perform these activities. The draft food security
Bill talks of local distribution of grains. Some states have implemented advanced ways to make sure
that distribution of food grains must be in a transparent manner, involving panchayat leaders, village
elders and gram sabha in monitoring.
The Indian government and the Department of Food and Public Distribution have identified critical
facets of the public distribution system that need improvement, for the program to function more
successfully. These domain include:
1. Beneficiary identification, and addressing inclusion/exclusion errors
2. Addressing diversions and leakages
3. Managing food grain storage and ensuring timely distribution
4. Effective accountability and monitoring, and enabling community monitoring
5. Mechanisms for grievance redressal

6. Ensuring food security

When evaluating this system in Chhattisgarh, there is a Chawal Utsav on the 7th of every month
when distribution of food grains takes place. In Nasik, a system of periodic distribution of grains
through the village community has been implemented. The Centre is constantly involved to advise
the states to approve decentralised procurement system, which ensures local preference for grains
are met more economically. On local supply of food grains for government-sponsored programmes,
it is said that under the Integrated Child Development Services Scheme, states have the choice to
source the food-grain requirement from either the central pool or purchase it nearby. Statistical data
indicated that more than 10 states and union territories are buying the grains locally. The draft
National Food Security Bill also contains provision for support to local distribution models. After
introduction of the food Bill in the Lok Sabha on December 22, 2011, it was referred to the Standing
Committee on Food. It is difficult to fix a time frame for the Standing Committee. But there is no plan
to include vegetables, milk and eggs in the domain of procurement and distribution.

Leveraging Aadhar
Aadhar card is one of the major element to modernize the public distribution system. The Unique
Identification number Aadhaar was considered by the Indian government for residents of India to
clearly and exclusively verify their identity anywhere in the country. The mandate for the UIDAI
includes defining the usage of the number across critical applications and services. The Public
Distribution System is one application, and the UIDAI has accordingly laid out the vital role Aadhaar
can play within the PDS. The recipients of public distribution system can be enrolled into the
Aadhaar system. The use of the Aadhaar number in public distribution system will reduce duplicates,
bogus and ghost beneficiaries in PDS databases which will result in reducing wastage and diversion
in the system. An Aadhaar enabled system makes access to public distribution system benefits
portable across a State and also the country. This would allow the PDS beneficiary due to portability
of benefits and choice of the PDS shop. The bargaining power will move from the supplier to the
recipient which will support empowerment and bring about improved responsibility. Applying
Aadhaar authentication at every exchange point would enable governments to track the movement
of food entitlements across the public distribution system chain, and identify blockages and
diversions in real-time. In the case of centralized procurement, such authentication would begin at
the FCI point.
Figure: Adhar card authentication at every stage:

Strengthening of public distribution system not only requires computerisation of operations but also
an active involvement of Panchayati Raj Institutions and local community through transparent and
open processes. An automated computerised system will monitor the movement of the grains as
well as also ensure that there is no human interference in the maintenance of records. The
objectives of computerisation are many, such are as follows:
1. To ensure that the lifting, and transport of the food grains to FPS and its delivery to the
beneficiary is transparent and monitored at each stage
2. To eradicate diversion and leakages of the food grains
3. To ensure that the right kind of ration cards are issued to the public without delay
4. To eliminate bogus ration cards, and
5. To make the supervisory staff more accountable to the consumers and to the objectives of
the public distribution system.
Modernization of Targeted Public Distribution System (TPDS) is the primary importance of
Government of India. TPDS intends to provide subsidised food and fuel to the poor through a
network of ration shops. Food grains such as rice and wheat that are provided under TPDS are
procured from farmers, allocated to states and delivered to the ration shop where the beneficiary
buys his entitlement. It is a multifaceted and challenging task as public distribution system operates
in 35 States and UTs through more than 5 lakh Fair Price Shops across diverse operating
environments. In order to make TPDS more focused and targeted towards population, the
Antyodaya Anna Yojana (AAY) was initiated in December, 2000 for one crore poorest of the poor
families. AAY anticipates providing them food grains at a highly subsidized rate of Rs 2/ per kg for
wheat and Rs 3/ per kg for rice. The States/UTs are required to bear the distribution cost, including
margin to dealers and retailers as well as the transportation cost. Therefore the whole food subsidy
is being passed on to the customers under the scheme.

A strong community proprietorship would require the establishment of a responsive complaint

redressal mechanism. While, the use of information and communication technology will assist this
system. All States should assume transformation of public distribution system with in time frame.

Challenges before Public Distribution System

It was seen that since many decades, nation is hit by many natural disaster. The great "Bengal
famine" in India is lively example. Nation have increased production significantly to ensure that they
have enough food for all people. But still there is difficulty in exchanging this availability into effective
accessibility to food in every corner of the country, and particularly in the region where food grain is
most needed. Besides ensuring access to food for all people, it is must to ensure that Indian citizens
get basic nourishment to become more dynamic and be able to take benefit of the opportunities that
come from rapid economic growth. The consciousness of food security for all has to be the basic
building block in efforts to navigate the economy in order to fulfil its development goals. Food and
nutrition is certainly the most basic need without which education, work opportunities and wealth
creation cannot achieved.
In India, the growth was fastest in Andhra Pradesh, 42 per cent and Odhisa, 33 per cent. Even in
States like Bihar and UP, the real farm earnings went up by 19 and 20 per cent. This has augmented
demand for certain goods and services, which has translated into persistent high inflationary
pressures for those goods in the economy. The supply response has been insufficient and along
with weather induced shortages in the food economy, have resulted in important challenges for
inflation management. A country with growing population and a sustained growth impetus, food
security challenge is also a challenge of improving agriculture efficiency. India has huge population
therefore, it is necessary to build certain self-sufficiency in meeting basic needs of populace. It has
been designated that government must concentrate in increasing production in the regions where
land and productivity have lagged behind so far. The Government has introduced a programme to
take the green revolution to the eastern part of the country. But, more investment in agricultural
infrastructure is required.
Presently, major challenge before the Public Distribution System is reaching of the food grains to the
actual recipients without leakages and diversion on the route to grass-root level. For this a huge
modernization drive is required. There is also a need of digitizing the data base of beneficiaries and
computerization of the entire food supply chain so that government can make the public distribution
system more successful. These efforts would make the schemes clear, help eradicate leakages and
dishonesty and authorize the beneficiaries to get products as per their right and requirement.
It can be established after assessing the public distribution system, that this process faces numerous
challenges such as leakages and diversion of food-grains, inclusion/exclusion errors, bogus ration
cards, lack of transparency; weak grievance redressed and social audit mechanisms, and practicality
of Fair Price Shops.
To summarize, The Public Distribution System in the nation expedites the supply of food grains and
delivery of necessary merchandises to poor people through a network of Fair Price Shops at a
subsidized price on a regular basis. It is an important part of Governments policy for management of

food economy in the country. This scheme was introduced with an intent to control the rising food
subsidy bill borne by the Government as well as to confirm a more pointed targeting of the poor and
disadvantaged group. PDS is functioned under the joint responsibility of the Central and the State
Governments. The Central Government, through Food Corporation of India (FCI), has presumed the
responsibility for procurement, storage, transportation and bulk allocation of food grains to the State
Governments. The functioning responsibility including allocation within State, identification of
suitable families, issue of Ration Cards and supervision of the functioning of Fair Price Shops
(FPSs), rest with the State Governments. Under the PDS, the commodities namely wheat, rice,
sugar and kerosene are being allocated to the States/UTs for distribution.

Government Policies for Development

and Promotion of Small-Scale Industries
in India
In India, Small-scale enterprises have been given an important place for both ideological and
economic reasons. It is well documented that the small scale industries have an important role in the
development of the country. It contributes almost 40% of the gross industrial value added in the
Indian economy. Government's approach and intention towards industries in general and SSIs in
particular are revealed in Industrial policy Resolutions. There are many Government Policies for
development and promotion of Small-Scale Industries in India. These are mentioned as below:
1. Industrial Policy Resolution (IPR) 1948
2. Industrial Policy Resolution (IPR) 1956
3. Industrial Policy Resolution (IPR) 1977
4. Industrial Policy Resolution (IPR) 1980
5. Industrial Policy Resolution (IPR) 1990
1. Industrial Policy Resolution (IPR) 1948: The IPR, 1948 acknowledged the importance of smallscale industries in the overall industrial development of the country. It was well understood that
small-scale industries are mainly suited for the utilization of local resources and for creation of
employment opportunities. However, they have to face severe problems of raw materials, capital,
skilled labour, marketing since a long period of time (B.narayan, 1999). Therefore, government put
more emphasis on the IPR, 1948 so that these problems of small-scale enterprises should be solved
by the Central Government with the cooperation of the State Governments. It can be established
that the main drive of IPR 1948, as far as small-scale enterprises were concerned, was 'safeguard'.
The IPR of 1948 indicated that "Cottage and small scale industries have a very important role in the
national economy. Offering as they do scope for individual, village or cooperative enterprise, and
means for the rehabilitation of displaced persons. These industries are particularly suited for the
better utilization of local resources and for the achievement of the local self-sufficiency in respect of
certain types of essential consumer goods like food, cloth and agricultural implements" (Industrial
Policy Resolution, 1948).
The IPR of 1948 revealed the emergence of a dualistic approach in government policy i.e. emphasis
on both traditional and modern small scale sector. This approach has continued to form the basis of
industrial policy towards the small scale sector ever since. The industrial Development and
Regulation Act, 1951 which was transmitted in order to provide the organizational support to IPR of

1948 provide scope for a synchronized development of cottage and small scale industries within the
general framework of large scale development programmes.
2. Industrial Policy Resolution (IPR) 1956: This policy was first comprehensive statement on
industrial development of India. The 1956 policy continued to constitute the basic economic policy
for a long time. This fact has been confirmed in all the Five-Year Plans of India (B.narayan, 1999).
According to this Resolution, the objective of the social and economic policy in India was the
establishment of a socialistic pattern of civilization. It provided more powers to the governmental
mechanism. It laid down three categories of industries which are mentioned below:
I. Schedule A - Those industries which were to be an exclusive responsibility of the state.
II. Schedule B - Those which were to be progressively state-owned and in which the state would
generally set up new enterprises, but in which private enterprise would be expected only to
supplement
the
effort
of
the
state.
III. Schedule C - All the remaining industries and their future development would, in general be left to
the
initiative
and
enterprise
of
the
private
sector.
The main contribution of the IPR 1948 was that it set in the nature and pattern of industrial
development in the country. The post-IPR 1948 period was marked by substantial developments
taken place in the country. For example, planning has proceeded on an organised manner and the
First Five Year Plan 1951-56 had been completed. Industries (Development and Regulation) Act,
1951 was also announced to legalise and control industries in the country. The parliament had also
acknowledged 'the socialist pattern of society' as the basic objective of social and economic policy
during this period. It was this background that the declaration of a new industrial policy resolution
appeared essential. This came in the form of IPR 1956. The IPR has aim to guarantee that
decentralised sector acquires sufficient vitality to self-supporting and its development is incorporated
with
that
of
largescale
industry
in
the
country.
Besides, the Small-Scale Industries Board (SSIB) established a working group in 1959 to scrutinize
and formulate a development plan for small-scale industries during the, Third Five Year Plan, 196166. In the Third Five Year Plan period, specific developmental projects like 'Rural Industries Projects'
and 'Industrial Estates Projects' were started to support the small-scale sector in the nation. The IPR
1956 for small-scale industries intended at 'Protection plus Development.' In a way, the IPR 1956
started the modern SSI in India.
It was documented that in 1955, Planning Commission setup a Committee on village and small scale
industries popularly known as Karve Committee. The Committee suggested some important
measures
I. Reservation of certain
II.
Restriction
of
III.
Management

items only for village and small scale

capacity
expansion
of
large
of
supply
of
raw

like:
industries.
industry.
materials.

IV.
A
scheme
of
concessions
and
benefits
to
small
producers.
The IPR of 1956 advocated the policy of protection as endorsed by Karve Committee to improve
economic feasibility and competitive power of small scale industries. This policy stated that "The

State has been following a policy of supporting cottage and village and small scale industries by
restricting the volume of production in the large scale sector by differential taxation or by direct
subsidies. While such measures will continue to be taken, whenever necessary, the aim of the State
Policy is to ensure that the decentralised sector acquires sufficient vitality to be self-supporting and
its development is integrated with that of large-scale industry. The State, therefore, concentrates on
measures designed to improve the competitive strength of the small scale producer. For this it is
essential that the technique of production should be constantly improved and the pace of
transformation being regulated so as to avoid as far as possible, technological unemployment. Lack
of technical and financial assistance, of suitable working accommodation and inadequacy of facilities
for repair and maintenance are among the serious handicaps of small scale producers. A start has
been made with the establishment of industrial estates and rural community workshops to make
good to these deficiencies. The extension of rural electrification, and the availability of power at
prices, which the workers can afford, will also be of considerable help. Many of the activities relating
to small scale production will be greatly helped by the organisation of industrial cooperatives. Such
cooperatives should be encouraged in every way and the State should give constant attention to the
development of cottage and village and small scale industry" (Industrial Policy Resolution, 1956).
Main emphasis of this policy is to support to cottage, village and small industries by differential
taxation or direct grants in the form of financial assistance to improve and modernize the techniques
of production and competitive strength of SSIs.
3. Industrial Policy Resolution (IPR) 1977: This policy was announced by Janata Dal in 1977. During
the two decades after the IPR 1956, the economy countersigned uneven industrial development
skewed in favour of large and medium sector, on the one hand, and increase in joblessness, on the
other. This situation led to a transformed emphasis on industrial policy. This gave advent to IPR
1977. This policy supported the development of small scale and cottage industries as a remedy to
common problem of unemployment and regional dissimilarities in industrial development (B.narayan,
1999). This policy proclaimed that "The main thrust of the new Industrial Policy will be on effective
promotion of cottage and small industries widely dispersed in rural areas and small towns. It is the
policy of the Government that whatever can be produced by small and cottage industries must only
be
so
produced"
(Industrial
Policy
Resolution,
1977).
The
important
attributes
of
the
IPR
were:
1. 504 items were reserved for exclusive production in the small-scale industries.
2. The concept of District Industries Centres (DICs) was introduced so that in each district a single
agency
could
meet
all
the
requirements
of
SSIs
under
one
roof.
3. Technological up gradation was emphasized in traditional sector. 4. Special marketing
arrangements through the provision of services, such as, product standardization, quality control,
market survey, were laid down.
The
IPR
1977
grouped
small
sector
into
three
broad
categories:
1. Cottage and Household Industries which provide self-employment on a large scale.
2. Tiny sector incorporating investment in industrial units in plant and machinery up to Rs.one lakh
and situated in towns with a population of less than 50,000 according to 1971 Census.

3. Small-scale industries comprising of industrial units with an investment of up to Rs.10 lakhs and in
case of ancillary units with an investment up to Rs.15 lakhs. The measures suggested for the
promotion
of
small-scale
and
cottage
I. Reservation of 504 items for exclusive production
II. Proposal to set up in each district an agency called "District Industry
focal point of development for small-scale and cottage industries.

industries
included:
in small-scale sector.
Centre" (DIC) to serve as a
The scheme of DIC was

introduced in May 1978. The main goal of setting up DICs was to promote under a single roof all the
services and support required by small and village businesspersons.
4. Industrial Policy Resolution (IPR) 1980: The Industrial Policy of 1980 marked a major
breakthrough in the policy of development of small scale industries in India. The Government of
India accepted a new Industrial Policy Resolution (IPR) on July 23, 1980. The IPR wanted to
synchronise the development in small scale industries with the large and medium scale industries.
Industrially backward districts were identified for faster growth of existing network of SSIs. The main
purpose of IPR 1980 was defined as assisting an increase in industrial production through optimum
utilization of installed capacity and expansion of industries. This policy statement focused on the
need for promoting competition in domestic market, technological up gradation and modernization
(Sangram
Keshari
Mohanty,
2005).
As
to
the
small
sector,
the
resolution
visualised
following
measures:
I. Increase in investment ceilings from Rs.1 lakh to Rs.2 lakhs in case of tiny units, from Rs.10 lakhs
to Rs.20 lakhs in case of small-scale units and from Rs.15 lakhs to Rs.25 lakhs in case of ancillaries.
II. Introduction of the concept of nucleus plants to replace the earlier scheme of the District Industry
Centres in each industrially backward district to promote the maximum small-scale industries there.
III. Promotion of village and rural industries to generate economic feasibility in the villages well
compatible
with
the
environment.
IV. Reservation of items and marketing support for small industries was to continue.
V.
Availability
of
credit
to
growing
SSI
units
was
continued.
VI.
Buffer
stocks
of
critical
inputs
were
to
continue.
VII. Agricultural base was to strengthen by providing preferential treatment to agro based industries.
VIII. An early warning system was to establish to avoid sickness and take appropriate remedial
measures.
Thus, the IPR 1980 reemphasised the spirit of the IPR 1956. The small-scale sector still continued
the best sector to create employment and self-employment based opportunities in the country.
5. Industrial Policy Resolution (IPR) 1990: The IPR 1990 was declared during June 1990. As to the
small-scale sector, the resolution continued to give significance to small-scale enterprises to serve
the objective of employment generation. This policy emphasized on the need of modernization and
technology up gradation to meet the objectives of employment generation and dispersal of industry
in rural areas, and to enhance the contribution of small scale industries to exports.
The important elements included in the resolution to increase the development of small-scale sector
were
as
follows:

I. The investment ceiling in plant and machinery for small-scale industries (fixed in 1985) was raised
from Rs.35 lakhs to Rs.60 lakhs and correspondingly, for ancillary units from Rs.45 lakhs to Rs.75
lakhs.
II. Investment ceiling for small units had been increased from Rs.2 lakhs to Rs.5 lakhs provided the
unit is located in an area having a population of 50,000 as per 1981 Census.
III. As many as 836 items were reserved for exclusive manufacture in small- scale sector.
IV. A new scheme of Central Investment Subsidy entirely for small-scale sector in rural and
backward areas capable of generating more employment at lower cost of capital had been mooted
and
implemented.
IV. In order to improve the competitiveness of the products manufactured in the small-scale sector;
programmes of technology up gradation will be executed under the umbrella of an apex Technology
Development
Centre
in
Small
Industries
Development
Organisation
(SIDO).
V. To guarantee both satisfactory and timely flow of credit services for the small- scale industries, a
new apex bank known as "Small Industries Development Bank of India (SIDBI)" was established in
1990.
VI. There is more emphasis on training of women and youth under Entrepreneurship Development
Programme (EDP) and to establish a special cell in SIDO for this purpose.
Other industrial policies: Industrial Policy Resolution of 1991: In the year of 1991, the Government
lunched "Structural Adjustment Programme" which has resulted in radical change in the policies
governing the different facets of Indian economy. In order to impart more vitality and growth to small
scale sector, the Government of India declared a separate policy statement for small, tiny and village
enterprises. The basic drive of this resolution was to make simpler regulations and procedures by
delicensing, deregulating, and decontrolling.
Important
features
of
this
policy
are
as
under:
I.
SSIs
were
exempted
from
licensing
for
all
articles
of
manufacture.
II. The investment limit for tiny enterprises was raised to Rs.5 lakh irrespective of location.
III. Equity participation by other industrial undertakings was permitted up to a limit of 24 percent of
shareholding
in
SSIs.
IV. Factoring services were to launch to solve the problem of delayed payments to SSIs.
V. Priority was accorded to small and tiny units in allocation of indigenous and raw materials.
VI. Market promotion of products was highlighted through co-operatives, public institutions and other
marketing
agencies
and
corporations.
Basically, the Industrial Policy Resolution of 1991 delineated developmental, deregulatory and debureaucratic measures and underscored the need to shift from subsidized and cheap credit to a
system which would ensure acceptable flow of credit on timely and normative basis to the small
scale industrial sector.
Contemporary
policy
measures
for
small
scale
and
cottage
Industries:
1. Comprehensive Policy Package for small scale and tiny sector, 2000: This policy was declared by
the Government of India for the development and promotion of small scale and tiny sector which has

major
The

objective
main

to
increase
focus
of

the

competitiveness
the
policy

of
the
package

sector.
was:

I. The exemption for excise duty limit raised from Rs.50 lakh to Rs.1 crore.
II. The limit of investment was increased in industry related service and business enterprises from
Rs.5
lakh
to
Rs.10
lakh.
III. The coverage of ongoing Integrated Infrastructure Development (IID) was enhanced to cover all
areas in the country with 50 percent reservation for rural areas and 50 percent earmarking of plots
for
tiny
sector.
IV. The family income eligibility limit of Rs.24000 was enhanced to Rs.40000 per annum under the
Prime
Minister
Rozgar
Yojana
(PMRY).
V. The scheme of granting Rs.75000 to each small scale enterprise for obtaining ISO 9000
certification was continued till the end of 10th plan.
2. Industrial Policy Packages for small scale industries, 2001-02: This policy underlines the following
measures:
I. The investment limit was enhanced from Rs.1 crore to Rs.5 crore for units in hosiery and hand tool
sub
sectors.
II. The corpus fund set up under the Credit Guarantee Fund Scheme was increased from Rs.125
crore
to
Rs.200
crore.
III. Credit Guarantee cover was provided against an aggregate credit of Rs.23 crore till December
2001.
IV. Fourteen items were de-reserved in June 2001 related to leather goods, shoes and toys.
V. Market Development Assistant Scheme was launched exclusively for SSI sector.
VI. Four UNIDO assisted projects were commissioned during the year under the Cluster
Development Programme.
3.
Policy
Package
for
small
and
medium
enterprises,
2005-06:
In 2005-06, the Government declared a policy package for small and medium enterprises. The main
attributes
of
this
policy
package
were:
I. The Ministry of Small Scale Industries has identified 180 items for de-reservation.
II. Small and Medium Enterprises were recognized in the services sector, and were treated at par
with
SSIs
in
the
manufacturing
sector.
III. Insurance cover was extended to approximately 30,000 borrowers, identified as chief promoters
in
the
small
scale
sector.
VI. Emphasis was placed on Cluster Development model not only to promote manufacturing but also
to renew industrial towns and build new industrial townships. The model is currently being
implemented, in nine sectors including khadi and village industries, handlooms, handicrafts, textiles,
agricultural products and medicinal plants.
4. Enactment of Micro, Small and Medium Enterprises Development Act, 2006:
In May' 2006, the President has modified the Government of India (Allocation of Business) Rules,
1961; Ministry of Agro and Rural Industries and Ministry of Small Scale Industries have been merged

into a single Ministry, namely, "Ministry of Micro, Small and Medium Enterprises. As a result, the
Micro, Small and Medium enterprises Development (MSMED) Act was endorsed, which offers the
first ever legal framework for recognition of the concept 'enterprises' against 'industries' and
integrating the three tiers of these enterprises viz. micro, small and medium and clearly fixed the
investment limits for both manufacturing and service enterprises. It also provides for a statutory
consultative tool at the national level with wide representation of all sections of stakeholders,
particularly the three classes of enterprises.
5. North east industrial and investment promotion policy (NEIIPP), 2007: Due to backwardness of
the North Eastern region, the Government of India broadcasted a new industrial policy for the NER
including Sikkim. The policy termed as 'North East Industrial and Investment Promotion Policy
(NEIIPP), 2007'. Its major objective is to encourage investment in the industrial sector by announcing
fiscal and other incentives for the purpose of overall economic growth of this region. The policy with
its package of incentives is intended to encourage development of industries so that the region
overcomes its continuous backwardness. To summarize, Small scale and cottage industrial sector
has developed rapidly in several developing and industrialised economies of the world. In India, they
have emerged as a dynamic sector of Indian economy through their important contribution to GDP,
industrial production and export. The advancement of small scale industries has been one of the
major objectives of economic planning in India. The policies have undergone change from time to
time. The six Industrial Policy Resolutions and eleven Five Year Plans sustained a continuous flow
of incentives, both protective and promotional in nature, as an element of development strategy to
meet socioeconomic objectives such as employment generation, removal of poverty and regional
disparities, and optimum utilization of local resources.

New Industrial Policy of the

Government: liberalization, deregulation
and privatisation

The Industrial Policy specifies the relevant roles of the public, private, joint and co-operative sectors;
small, medium and large scale industries. It emphasises the national significances and the financial
development strategy. It also explains the Governments policy towards industries, their
establishment, functioning, progress and management; foreign capital and technology, labour policy,
and tariff policy. The Industrial Policy of India has determined the pattern of financial and industrial
development of the economy. The Industrial Policy revealed the socio-economic and political
philosophy of development (Gupta, 1995).
Main

objectives

of

New

Economic

Policy

-1991

The main objectives to launch new economic policy (NEP) in 1991 are as follows:
The main objective was to plunge Indian economy in to the field of Globalization and to give it a new
drive
on
market
orientation.
The new economic policy intended to reduce the rate of inflation and to remove imbalances in
payment.
It intended to move towards higher economic growth rate and to build sufficient foreign exchange
reserves.
New economic policy aimed to accomplish economic stabilization and to convert the economic
policies in to a market economy by removing all kinds of unnecessary restrictions.
New economic policy wanted to permit the international flow of goods, services, capital, human
resources
and
technology,
without
many
restrictions.
In the mid-1991, the government has made some drastic changes in its policies bearing on trade,
foreign investment exchange rate, and industry, fiscal of fairs. The various elements constitute an
economic policy. It has been documented in literature that economic development ultimately
depends on industrialization. Industrial policy is meant for all those principles, rules, regulations and
procedures concerning the rate of growth, ownership, location pattern, and function of industrial
undertakings in the country in a way to industrialization. Before independence, India had no policy
for industrialization. In 1947, after independence, India has changed the scenario. The industrial
policy was announced by government of India in 1948 and Industries act 1951 was passed to give a
material shape to this policy. This policy was changed in 1956 to give a concrete policy. It was
further altered to give shape to the mixed economy and ideology of socialist pattern of society. The
political party, Janta Dal had modified the policy in 1977 (Pathak, 2007). Due to change in
government, policy was again revised in 1980. The national front government brought some
changes in its industrial policy in 1990. In the decade of 1990s, the government of India decided to
deviate from its previous economic policies and learn towards privatization in order to come out from
the economic crisis. In July 1991 when the devaluation of Indian currency took place and the
government started announcing its new economic polices one after another (Gupta, 1995). Though
these polices pertained to different aspects of the economic field, they had common some factors.
The economic element was to orient the Indian system towards the world market. Government
launched its new economic policy which has three important features such as Liberalization,
Privatization and Globalization. Liberalization of the economy means to free if from direct or physical

control imposed by the government. Economic changes were based on the assumption that market
forces could guide the economy in a more effective manner than government (Pathak, 2007).
New
Economic
Policies:
Liberalization,
deregulation,
Privatization
In 20th century, there has been a wave of economic policy transformations in the developing world,
with one country after another taking the liberalization cure, often imposed by the international
financial institutions. This wave of reform had been preceded by a quarter century of state directed
effort at economic development, during which time the goals of economic self-reliance and import
substitution industrialization were the trademarks of development strategies in developing countries.
These goals seemed particularly justified, given the long experience of these countries with
colonialism and the agricultural nature of their economies. However, all this seemed to be overtaken
by
the
successive
flow
of
liberalization
(Gupta,
1995).
Liberalization:
Liberalization is vital element of contemporary economic policies in India and other part of world,
based upon the idea that removing restrictions on domestic economic activity as well as on the trade
relations with other countries that has a beneficial impact on the economy. Liberalisation is the
procedure of release the economy from the dominion of excessive bureaucratic and other
restrictions imposed by the State. The phrase liberalization infers economic liberalization.
Economic liberalization constitutes one of the basic elements of the new Economic policy (NEP)
which the Indian Government launched in the middle of the year 1991. Other significant aspects of
the policy are Privatization of the public sector, Globalization and market friendly state. The main
trust of the new economic policy is liberalization. The principle of this policy is that greater freedom
is to be given to the businessperson of any industry, trade or business and that governmental control
on
the
same
be
reduced
to
the
minimum
(Gupta,
1995).
The purpose of the liberalisation was to dismantle the excessive control framework that reduced the
freedom of enterprise over the years, the country had developed a system of licence permit raj. The
aim of the new economic policy was to save the businesspersons from unnecessary harassment of
seeking permission from Babudom (the bureaucracy of the country) to start an undertaking. The
main drive of the process to economic liberalization is to set business free and to run on commercial
lines. The underlying conviction is that commerce and business are not matter to contain to fixed
national boundaries. Unnecessary government restrictions which hamper economic and commercial
activities and flow of goods and services must be removed. The liberalization aims to liberalize
commerce and business and trade from the clutches of controls and difficulties.
The concept of Liberalization: There is acceleration economic policy reform in the developing world
in current period which is visualized as significant consequence of a changed world economic
system. Main feature of the changed world economy is the moderate of the heightened economic
Globalization which provides new external challenges as well as opportunities for growth (Gupta,
1995). In management literature, to Liberalize' means remove or loosen restrictions on an economic
or political system. Generally, Liberalization) refers to removal or relaxation of restrictions imposed
by the previous government usually in areas of economic or social/Industrial policy. The economic
liberalization in India refers to the current reforms in India. Liberalization is implemented for

encouraging growth of private sector, simplification of policy, regulation, tax structure, facilitating
Foreign Direct Investment, restructuring public sector for efficiencies, providing incentives for exports
and allowing more imports, put emphasis on modernization of plants and equipment through
liberalized imports of capital goods and technology, expose the Indian industry to competition by
gradually reducing the import restrictions and tariffs, moving away from protection of small scale
industries (Sivadasan, 2007).
Main features of the policy of liberalisation:There are numerous features of liberalization.
1. Lessened Government control and freelance to private Enterprises.
2.
3.
4.
5.

Capital Markets opened for private Entrepreneurs.

Simplification of licensing policy.
Opportunity to purchase foreign exchange at market prices.
Right to take independent decisions regarding the market.

6. Better opportunity for completion

7. Widened liberty in the field of business and trade
Evaluation
of
Liberalization:
In Indian viewpoint, it is very difficult to establish that the process of economic liberalization taken up
by the government of India in 1990s has really brought huge economic gains to India. The process
has
brought
some
benefits
through
suffers
from
some
deficiencies.
The Gains: The liberalization process has aided the free movement of goods and services that has
led to better industrial performances. Industrial organizations have now become more effective and
market responsive. Countrys exports are on the increase. Sectors such as information technology
and
computer
software
registered
incredible
advancement.
The Deficiencies: Liberalization process has its insufficiencies also. The economic reforms including
liberalization were introduced all of a sudden and proper background was not created to take their
full
advantage
and
to
face
their
consequences.
Liberalization in India: The Government of India began the economic liberalization policy in 1991.
Even though the power at the centre has changed, the speed of the reforms has never loosened till
date. The sector accounted for just one-fifth of the total economic activity within the country. The
sectorial structure of the industry has changed, although gradually. Most of the industrial sector was
dominated by a select band of family-based conglomerates that had been dominant historically. Post
1991, a major restructuring took place with the emergence of more technologically advanced
segments among industrial companies. Currently, more small and medium scale enterprises
contribute considerably to the economy. The important characteristics of the new policy may be
explained under the four categories such as liberalization; Privatization of the public sector,
Globalization and market friendly state. Liberalization is the freedom for the entrepreneur. The new
policy permits foreign direct investment to a large extent and in huge number of industries than
earlier.
In the middle of 1990, the private capital had surpassed the public capital. The management system
had moved from the traditional family based system to a system of qualified and professional

managers. One of the most significant effects of the liberalization period has been the emergence of
a strong, wealthy and flexible middle class with significant purchasing powers and this has been the
instrument that has driven the economy since. Another major advantage of the liberalization period
has been the shift in the pattern of exports from traditional items such as clothes, tea and spices to
automobiles, steel, IT. The made in India brand, which did not evoke any sort of loyalty has now
become a brand name by itself and is now recognised around the world for its quality. The reforms
have transformed the education sector with a huge talent group of qualified specialists which are
available
to
share
their
knowledge
and
competence.
With the New Industrial Policy 1991, the Indian Government intended to integrate the countrys
economy with the world economy, improving the efficiency and productivity of the public sector. To
accomplish this objective, existing government regulations and restrictions on industry were
removed. The major aspects of liberalization in India were as follows.
1. Abolition of licensing: New Industrial Policy1991 abolished licensing for most industries except 6
industries of strategic significance. They include alcohol, cigarettes, industrial explosives, defence
products, drugs and pharmaceuticals, hazardous chemicals and certain others reserved for the
public sector. This would boost to setup of new industries and shift focus to productive activities.
2. Liberalization of Foreign Investment: Earlier prior approval was essential by foreign companies,
but in present, situation automatic approvals were given for Foreign Direct Investment to flow into
the country. A list of high-priority and investment-intensive industries were delicensed and could
invite up to 100% FDI including sectors such as hotel and tourism, infrastructure, software
development etc. Use of foreign brand name or trade mark was permitted for sale of goods.
3. Relaxation of Locational Restrictions: There was no requirement to get approval from the Central
Government for setting up industries anywhere in the country except those specified under
compulsory licensing or in cities with population exceeding1 million. Polluting industries were
required to be located 25 kms away from the city peripheries if the city population was greater than 1
million.
4. Liberalization of Foreign Technology imports: For business projects in which imported capital
goods are required, automatic license would be given for foreign technology imports up to 2 million
US dollars. No permissions would be required for hiring foreign technicians and foreign testing of
indigenously
developed
technologies.
5. Phased Manufacturing Programmes: Under PMP, any enterprise had to progressively substitute
imported inputs, components with domestically produced inputs under local content policy. However
new industrial policy1991 abolished PMP for all industrial enterprises. Foreign Investment
Promotion Board (FIPB) was set up to speed up approval for foreign investment proposals.
6. Public Sector Reforms: There was more autonomy to the Public Sector Units through the
Memorandum of Understanding restricting interference of the government officials and allowing their
managements
greater
freedom
in
decision-making.
7. MRTP Act: The Industrial Policy 1991 modernised the Monopolies and Restrictive Trade Practises
Act. Regulations relating to concentration of economic power, pre-entry restrictions for setting up
new enterprises, expansion of existing businesses, mergers and acquisitions have been abolished.

It has been observed that India, in the period of economic reforms, is at the intersection. On one
side, India is gaining economic wealth and credit, but on other side, social inequality is developed.
Currently, as India is one of the fastest growing economies in the world, the social aspects have
been ridden roughshod by the economic benefits. What has been conveniently forgotten or
suppressed till date have been the disparities, mainly the socio-economic issues. This has led to
growing dissatisfaction among the population. The rift between the rich and the poor has increased
so enormously that the rich are just getting richer and the poor are just becoming poorer. The actual
benefits of the economic reforms have infrequently infiltrated to the lowest sections of society.
In the agricultural, there is also unequal growth, as it is a field that has been left high and dry in the
chase of agricultural reforms. The sector has been opened up to the multi-nationals, without having
evolved a comprehensive shelter for farmers, most of who are poor and own very little land of their
own. Small scale industries have been virtually overlooked. Most of the industries have closed down
in the last few years due to tough competition from multi nationals who have unparalleled financial
and political power. Various schemes must be systematically scrutinized and efforts must be made
to understand that the rewards must reach everyone.
Impact of Liberalization on Indian Economy:
1. Increase in Employment.
2. Arrival of New Technology or Development of Technology.
3. Development of Infrastructure.
4. Identity at World Level.
5.
6.
7.
8.
9.

Increase Our Currency Value (INR).

GDP Growth.
Increase Consumption and Adaptation of New Lifestyle.
Increment in Competition.
Increment in Foreign Investor.

It is well recognised in management literature that liberalization entails elimination of state control
over economic activities. It implies greater sovereignty to the business enterprises in decisionmaking and removal of government interference. It was believed that the market forces of demand
and supply would automatically operate to bring about greater efficiency and the economy would
recover. This was to be done internally by introducing reforms in the real and financial sectors of the
economy and externally by relaxing state control on foreign investments and trade.
Deregulation: Deregulation is heated issue for many government bureaucrats and giant businesses.
Since last many decades, huge number of economies, both in developed and developing countries
have
deregulated
their
banking
systems.
Concept of deregulation: Management studies have demonstrated that Deregulation is the
procedure to eliminate or reduce state regulations. Every industry has definite rules and regulations
that must follow. These rules are created by industry associations and regulators, as well as the
government. Adekanye (2002) stated that the deregulation policy was adopted in 1987 against a
crash in the international oil market and the reactant deteriorating economic condition in the country

due to stringent policies in the financial sector. Adekanye indicated that the policy was adopted to
achieve fiscal balance and balance of payment availability as well as liberation of the financial
system by altering and restructuring the production and consumption pattern of the economy,
eliminating price distortions, reducing the heavy dependency on crude oil export and consumer
goods importation, enhancing the non-exports base and achieving sustainable growth.
Deregulation occurs when the government pulls back from the industry a bit, therefore loosening its
grip on particular rules and regulations. Many research reports envisages that deregulation will lead
to more firms and less obligatory power (Alesina et al. 2005), increases in average firm size and
profits through reductions in capacity restrictions (Campbell and Hopenhayn 2005), increased
dispersion in sales, assets, and profits (Syverson 2004), and increased turnover and firm-age
distributions
tilting
toward
younger
firms
(Asplund
and
Nocke
2006).
It has been explained in several management reports that deregulation is a fact where governments
leave the market economy to the market forces and not stifle it and constrain it with numerous laws,
rules, and regulations. Deregulation entails managing and supervising the economy in a manner that
would largely be a hands off approach combined with oversight over its functioning related to legal
and compliance aspects alone. Alternatively, deregulation means that the governments do not
obstruct with the businesses in a day-to-day manner and act only when specific objections against
businesses are brought before them. Most models of deregulation undertake that firms are able to
proficiently assign resources within the firm and that factor markets are frictionless. Panagariya
(2008) recorded that remnants of industrial regulation still impact the operation of Indian firms and
may restrain their flexibility in adjusting to new economic circumstances. Deregulation also means
that governments do not fix prices or put in motion price controls leaving the process of determining
the optimal pricing to the market forces of demand and supply. Deregulation is a trend in emerging
markets or the developing countries ever since the 1990s when these markets began to globalize
their economies and open them up to foreign competition as well as liberalize their economies
internally so that domestic firms are able to compete freely without the heavy hand of the state.
The purpose of deregulation is to permit a particular industry to raise greater competition, create a
freer marketplace and expectantly enhance economic growth both within that marketplace and in
general. When industries become deregulated, it gives industry's actors greater scope in which to
improve their products, craft their brand and, ultimately, appeal more to customers.
Financial deregulation in India began in 1992, following the Indian economic crunch of 1991, and it is
a vital element of the ongoing process of economic and structural transformation. In the Indian
context, two forces can affect firm profits and determine the total impact of deregulation on firm size
and profitability. First, free entry can lead to a rearrangement of factor resources from less efficient
domestic firms to more efficient firms, such that revenue and size distributions become left
truncated. Second, fast economic development can lead to an increase in market size, precipitating
a rightward shift in the revenue distribution for the surviving domestic firms.
Advantages: When
deregulation
works,
there
are
several
advantages:
Deregulation offers the consumer in the form of lower prices, more providers and better products. A
company that was not performing well and maintained only a small market share before deregulation

would also be likely to benefit from this act. When the company faces fewer restrictions, it might be
able to explore opportunities that the government had previously not allowed or severely restricted.
The businesses are left to themselves to determine their operational processes and strategic
imperatives without the government interfering in their working. This means that they can launch
new products, fix prices according to demand and supply, expand into newer regions, acquire land
and other fixed assets without having to take a thousand permissions, and finally, the businesses
interact and interface with the customers directly without the state setting the agenda or the action
plan. Deregulation in an emergent market economy also means that the state is at last giving full
play to market forces as opposed to centralized planning those results in greater efficiencies for the
businesses and more profits as well. This is the reason why many businesses welcome deregulation
with open supports and encourage the governments to deregulate more sectors so that the private
companies would have the chance to bring in efficacies and actualize synergies leading to a win-win
situation for both the businesses and the consumers. Another benefit of deregulation is that
businesses can focus on their core competencies without having to submit themselves to constant
scrutiny
and
constant
pressure
from
the
government.
Disadvantages: It has been stated in management reports that when firms perform well on its own
despite government regulations, it would definitely realise deregulation as an obstacle, as it will
make the rules negligent for its competitors. It can be said that a successful company might view
deregulation as a way to allow the competition to play by fewer rules in order to give it a fairer shot.
This easing of rules can also lead to a breakdown within the entire industry as different companies
use this flexibility to their advantage though it can ultimately end up being to their drawback.
Deregulation impacts those at the bottom of the economic ladder most as without the protective
hand of the state; they might left at the mercy of the profits first businesses, who care more for their
profits
rather
than
social
and
environmental
responsibility.
It is said that Deregulation is a procedure in which the government reduces industry restrictions for
smooth operation of business. The government removes a regulation when businesses complain it
interferes too much with their ability to compete, especially with foreign companies. Deregulation to
the economy will bring about a high level of competitiveness, therefore higher productivity, more
efficiency and lower price of overall goods and services. Deregulation policy was designed to
restructure and diversify the productivity of the economy in order to reduce dependency on the oil
sector and also to achieve fiscal and balance of payment viability. Additionally, it lays basis for
sustainable non-inflationary or minimal inflationary growth rate.
Privatization: Privatization is strongly related with the phenomena of globalization and liberalization.
Management scholars described Privatization as the transfer of control of ownership of economic
resources from the public sector to the private sector. It means a decline in the role of the public
sector as there is a shift in the property rights from the state to private ownership. Privatization is a
managerial approach that has fascinated the interest of many groups of people, academicians,
politicians, government employee companies of the private sector and public. It is observed that the
public sector has several issues, since planning, such as low efficiency and profitability, mounting
losses, excessive political interference, lack of autonomy, labour problems and delays in completion

of projects. In order to overcome these issues, new industrial policy1991, initiated the process of
privatization
into
the
Indian
economy.
Another term for privatization is Disinvestment. The objectives of disinvestment were to raise
resources through sale of PSUs to be directed towards social welfare expenditures, raising efficiency
of PSUs through increased competition, increasing consumer satisfaction with better quality of
goods and services, upgrading technology and most importantly removing political intervention.
Concept of privatization: According to Steve H. Hanke, Privatization is the process whereby the
public operations are transferred to the private sector. Barbara Lee and John Nellis define the notion
of privatization as the general process of involving the private sector in the ownership or operation of
a state-owned enterprise. There this phrase to private purchase of all or part of a company. It cover
contractedly out and the privatization of management through management contracts leases or
franchise arrangements. Privatization refers to any process that reduces the involvement of the
state,
public
sector
in
economic
activities
of
a
nation.
Main
objective
of
privatization:
The process of Privatization has been generated with the main intention of improving industrial
efficiency
and
to
assist
the
inflow
of
foreign
investments.
It also wants to make the public sector undertakings strong, able efficient companies. It recommends
a change in the role of the government from that of the owner manager to that of a mere
controller
or
regular'
It also has aim to ensure proficient utilization of all types of resources including human resources.
Privatization insists on the government to concentrate on the area such as education administration
and infrastructure and to give up the responsibility of looking after business and running industries. It
is expected to strengthen the capital market by following appropriate trade policies.
Privatization
can
be
of
three
prominent
types:
1. Delegation: Government keeps hold of responsibility and private enterprise handles fully or partly
the
delivery
of
product
and
services.
2.
Divestment:
Government
surrenders
the
responsibility.
3. Displacement: The private enterprise expands and gradually displaces the government entity.
Privatization
in
India:
In India, Privatization has been acknowledged with a lot of confrontation and has been dormant
initially during the initiation of economic Liberalization in the country. Privatization is also one of the
aspects of the new economic policy which came to take shape in the decade 1990. In India, massive
Privatization was done in the decade of 1980s when Rajiv Gandhi assumed office as the Prime
minister of India. The issue of Privatization in India has to be understood in the context of the relative
incompetence of the public sector industries, lack of financial resources, defective competition
system,
and
continuous
labour
problem.
When India became independent, it embarked upon planned economic development. In order to
increase the economic development, it gave more importance to the public-sector on which the
Government had its control. The Industrial Policy Resolution of 1956 also gave importance to the

public sector industries. The growth of the public sector assume importance in the Indian economy.
It contributed to employment opportunities, capital formation, development of infrastructure, and
increase in exports over the years, and many other areas. But it failed in certain respects such as to
generate adequate surpluses to support sustained growth. The public sector was also a failure in
obtaining consistent revenues, fulfilling labour demands and interests, encouraging industrial
researches, reducing the cost of the production, achieving technical expertise, and in successfully
facing the competition at the hand of the private sector. Gradually, a new industrial policy started
taking its shape. The principle of this policy is marketed forces must be allowed to play their role in
shaping
the
economy.
The
main
aspects
of
privatization
in
India
are
as
follows:
1. Autonomy to Public sector: There was more sovereignty to selected PSUs referred to as
Maharatnas(CIL, ONGC, NTPC, SAIL & IOL) and Navaratnas(BEL, HPCL, BPCL, BHEL, GAIL
etc.)
to
take
their
own
decisions.
2. De-reservation of Public Sector: The number of industries reserved for the public sector were
reduced in a phased manner from 17 to 8 and then to only 3 including Railways, Atomic energy,
Specified minerals. This offers opportunities for more areas of investment for the private sector and
increased competition for the public sector forcing greater accountability and efficiency.
3. Disinvestment Policies: Till 1999-2000 disinvestment was done basically through sale of minority
shares but since then the government has undertaken strategic sale of its equity to the private sector
handing over complete management control such as in the case of VSNL and BALCO.
Advantages of privatization: 1. Efficiency, Absences of political interference, Quality service,
Systematic
2.
3.

marketing

4.
5.
Arguments
1.
Privatization
2.
3.
4.
5.

Privatization
Privatization is
Helpful
Recognition

Use

of

Research

is

in
necessary

freedom

and
favour
to
revitalize

the

of
state

technology.
Accountability.
Innovation.

development.
Infrastructure.
privatization:
owned
enterprises.

is
necessary
to
face
global
competition.
needed to create more employment opportunities in future.
for
mobilizing
and
investing
resources.
of
talents
and
good
performance
of
work.

Argument
against
privatization:
1. Profitability alone should not become the sole yardstick to measure efficiency
2. Role of public sector undertaking from the socio-economic angle also cannot be overlooked.
3.
Protection
of
the
interests
of
the
weaker
section.
4.
Price
fixing
policy
here
is
not
profit
5. Argument that the private sector is more efficient than the public sector is not right.

oriented.

Though privatization offers some advantages to companies such as increased efficiency, it has an
adverse impact on the employee morale and creates fear of dislocation or termination.

Private sector focuses more on profit maximization and less on social objectives unlike public sector
that initiates socially viable adjustments in case of emergencies and criticalities (Lokyo, S., 2012).
There is lack of transparency in private sector and stakeholders do not get the complete information
about the functionality of the enterprise (Ahmad, 2011). Privatization has provided the excessive
support to the corruption and illegitimate ways of accomplishments of licenses and business deals
amongst the government and private bidders. Lobbying and corruption are the common issues
tarnishing
the
practical
applicability
of
privatization
(Ahmad,
2011).
Privatization loses the task with which the enterprise was established and profit maximization
agenda boosts misconducts like production of lower quality products, elevating the hidden indirect
costs,
price
escalation
etc.
(Lokyo,
S.,
2012).
Privatization results in high employee turnover and a lot of investment is required to train the lesserqualified staff and even making the existing manpower of PSU abreast with the latest business
practices
(Lokyo,
S.,
2012).
There can be a clash of interest amongst stakeholders and the management of the buyer private
company and initial confrontation to change can impede the performance of the enterprise (Ahmad,
2011).
Privatization heightens price rise in general as privatized enterprises do not enjoy government
subsidies after the deal and the burden of this inflation affects the common man.
To summarize, it can be reviewed that economy of country depends on industrialization. Industrial
policy is meant for all those principles, rules, regulations, and procedures concerning the rate of
growth, the ownership, location pattern, and functions of industrial undertaking in the country in way
to

industrialization.

Deregulation, competitive efficiency and globalization are three major factors of new industrial policy.
It is well established that Indian economy is a vibrant economy that exhibit remarkable potential of
growth. Globalization, liberalization and privatization are major strategic mandates for economic
policies. Market oriented reforms are sustainable and are gaining acceptance with resistance to
privatization going down due to the benefits like improved efficiency through target oriented
management and disposition of public funds into social and physical infrastructure of the nation.

Government Control Over Price and

Distribution
Government has significant role in regulating price and distribution to maintain smooth economy in
nation. It has been established that if there is good production, but it has no value when the goods
produced are not delivered to the end-users at the right time in the right quantity and at the
reasonable price.
In order to shield the interest of customers, the government has to set the price of the products
which is usually lower than the equilibrium price. Similarly, when there is plenteous crop of food
grains, the price of food grains is determined at a lower level. At this price the farmers are incapable
to meet their cost of production even. Therefore, the agriculturalists are seriously affected due very
low rate. In such cases, the government fixes the price of food grains which is higher than the
equilibrium price to support the interest of producers specially growers. Government can fix the price
of the commodity either below the equilibrium price or above the equilibrium price (Sengupta, 2009).
It has been revealed in management studies that government may interfere in competitive market
due to various reasons Such as equilibrium market price may be too low or too high, the government
may wish to mobilize some tax revenue. Price intervention may be of two types: Price ceiling and
price floors (Mukherjee, 2004).
The price factor in a free enterprise economy brings about best allocation of resources given certain
assumptions. These are perfect competition in both the product and factor markets, perfect
divisibility of all resources and products, absence of direct interdependence among producers and
customers. In India, price control has been one of the mechanisms in the functions of the
Government to accomplish economic objectives and to execute the Five Year Plans. Previously,
price controls have often been imposed as part of a high incomes policy package also employing
wage controls and other regulatory elements. Although price controls are used by governments,
economists usually decide that price controls do not accomplish what they are proposed to do and
are generally to be avoided (Rockoff, Hugh (2008).
Precisely, there are four objectives which price controls which are described below:
1. To protect the interests of the susceptible sections of the customers given the income distribution.
2. To enable investment in priority industries which are essential for laying the foundation for speedy
economic
growth
of
the
country.
3. To avoid monopolistic exploitation by a few firms belonging to a single industry.
4. To ensure a reasonable degree of price stability.
In current scenario, private sector trade channels in India cannot be solely relied upon due to their
malpractices and their general tendency to exploit the shortage period. Adulteration, hoarding,
cornering, profiteering, black marketing and other anti-social and unethical practices are worst
practices for public distribution system and people has to suffer a lot due to such malpractices.

Rationing of food grains was initiated during the Second World War period. It was inhibited after the
Independence but it was again introduced on a statutory basis in 1954. The basic lawful frame for
product control is provided by the Essential Commodities Act, 1955. The Essential Commodities Act,
1955 was passed to ensure the easy availability of essential commodities to customers and to shield
them from mistreatment by dishonest traders. The Act provides for the regulation and control of
production, distribution and pricing of commodities which are declared as essential for maintaining or
increasing supplies or for securing their impartial distribution and availability at fair prices. Exercising
powers under the Act, various Ministries/Departments of the Central Government and under the
delegated powers, the State Governments/UT Administrations have issued orders for regulating
production, distribution, pricing and other aspects of trading in respect of the commodities declared
as essential. The enforcement/ implementation of the provisions of the Essential Commodities Act,
1955
lies
with
the
State
Governments
and
UT
Administrations.
This Act provides, in the interest of the general public, for government control over the production,
supply and distribution of essential commodities which are listed. These commodities fall into three
classes
(Sengupta,
1.
Food
2.
Raw
materials
3. Products of the centrally-controlled industries.

2009):
items
industries

for

The Central Government is authorised to declare any commodity as a vital commodity for the
purpose of the Act. The Government has now itemized over sixty commodities as essential
commodities. In this Act, essential commodity means any of the following classes of commodities:
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.

Cattle
fodder
Coal
including
Component
Cotton

coke
parts

including
and

oil
other
of

and

Foodstuffs

woollen

including
Iron

Paper
Petroleum

edible
and
and

and
Raw
Raw

petroleum

cakes,
derivatives
automobiles
textiles
Drugs
oils
steel,
newsprint
products
cotton
jute

12. Any other class of commodity which the Central Government may declare to be an essential
commodity for the purpose of this Act.
Under essential commodity act, all power emanates from the central government and state
government or the authorities subordinates to it acts as the delegate of the centre within the scope of
the authority assigned to it and subject to any condition imposed or directions given by central
government regarding the exercise of the delegated powers. This enables the government to keep
an overall control over various state governments and also create uniformity of practice all over the
country
(Sengupta,
2009).

With reference to unparalleled rise in prices of some essential commodities in the mid-2006, it is
necessary to take immediate steps to alleviate the rising trend of prices of essential commodities.
Representations from the Chief Ministers of Punjab and Delhi and also from the Governments of
Andhra Pradesh, Rajasthan and Maharashtra were received for restoration of powers under the
Essential Commodities Act, 1955 for undertaking dishoarding operations in view of the supposition
that there is speculative holding back of stocks specifically of wheat and pulses in expectation of
more
increase
in
cost.
Central Government has already taken numerous steps to control the price rise in essential
commodities by trying to increase supply including through imports by reducing the duty level on
import of both wheat and pulses to zero. The situation of price control was re-evaluated by the
Government and it was decided with the consent of the Cabinet to keep in abeyance some
provisions in the Central Order dated 15.2.2002 for a period of six months with respect to wheat and
pulses so as to tackle the crises on availability and prices of these commodities.
In order to facilitate the State Governments/UT Administrations to continue to take effective action
for undertaking de-hoarding operations under the Essential Commodities Act, 1955, the price
situation was further revised by the Government and it has been decided with the approval of the
Cabinet to further enforce similar restrictions by keeping in abeyance some provisions of the Central
Order dated 15.02.2002 for a period of one year with respect to edible oils, oilseeds and rice, so as
to tackle the rising trend of prices as well as to ensure availability of these commodities to the
common people. Though, it has also been decided that there shall not be any restriction on the interstate movement of these items and that imports of these items would also be kept out of the purview
of any controls by the State Governments. To summarize, it is responsibility of Government in any
country to ensure impartial supply of essential commodities to people at reasonable prices.
Government has to fix prices of commodities when there is huge production or if there is scarcity of
products. It will help to distribute the commodities in appropriate time to right person.

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Home Subject Management Notes Corporate governance

Corporate governance
Corporate governance is the structure and the associations which govern corporate direction and
performance. The board of directors have dominant role in corporate governance. Its relationship to
the other primary participants, typically shareholders and management, is critical. Other members
include employees, customers, suppliers, and creditors. The corporate governance framework also
depends on the legal, regulatory, institutional and ethical environment of the community. Usually,
corporate governance is described as the host of legal and non-legal principles and practices
affecting control of publicly held business firms. Broadly speaking, corporate governance affects not
only who controls publicly traded corporations but also the allocation of risks and returns from the
firm's activities among the various contributors in the firm, including stockholders and managers as
well as creditors, employees, customers, and even societies.

Concept of governance:

Many management scholars have recognized that strong corporate governance is vital to resilient
and vibrant capital markets and is an important tool of investor protection. According to The Institute
of Company Secretaries of India, Corporate Governance is the application of best management
practices, compliance or jaw in true letter and spirit and adherence to ethical standards for effective
management and distribution of wealth and discharge of social responsibility for sustainable
development of all stakeholders. Cadbury Committee (U.K.), 1992 has defined corporate
governance as Corporate governance is the system by which companies are directed and
controlled. It encompasses the entire mechanics of the functioning of a company and attempts to put
in place a system of checks and balances between the shareholders, directors, employees, auditor
and the management." Other group of scholars explained the term corporate governance as
process and structure by which the business and affairs of the company are directed and managed
in order to enhance long term shareholder value through enhancing corporate performance and
accountability, whilst taking into account the interests of other stakeholders".
Firms at global level recognising that better corporate governance adds substantial value to their
operational performance in the following ways:

1. It improves strategic thinking at the top by inducting independent directors who bring a wealth
of experience, and a host of new ideas.
2. It justifies the management and monitoring of risk that a firm faces globally.
3. It limits the responsibility of senior management and directors, by carefully articulating the
decision making process
4. It assures the integrity of financial reports.
5. It has long term reputational effects among main stakeholders, both internally and externally.

Objective of corporate governance:

The fundamental objective of corporate governance is to boost and maximize shareholder value and
protect the interest of other stake holders. World Bank described Corporate Governance as blend of
law, regulation and appropriate voluntary private sector practices which enables the firm to attract
financial and human capital to perform efficiently, prepare itself by generating long term economic
value for its shareholders, while respecting the interests of stakeholders and society as a whole.
Corporate governance has various objectives to strengthen investor's confidence and intern leads to
fast growth and profits of companies. These are mentioned below:

1. A properly structured Board proficient of taking independent and objective decisions is in place
at the helm of affairs.
2. The Board is balanced as regards the representation of suitable number of non-executive and
independent directors who will take care of the interests and well-being of all the stakeholders.
3. The Board accepts transparent procedures and practices and arrives at decisions on the
strength of adequate information.

4. The Board has an effective mechanism to understand the concerns of stakeholders.

5. The Board keeps the shareholders informed of relevant developments impacting the company.
6. The Board effectively and regularly monitors the functioning of the management team.
7. The Board remains in effective control of the affairs of the company at all times.

Elements of good Corporate Governance:

It has been established in various management reports that aspects of good corporate governance
comprise of transparency of corporate structures and operations, the accountability of managers and
the boards to shareholders, and corporate responsibility towards stakeholders. While corporate
governance basically lays down the framework for creating long-term confidence between
companies and the external providers of capital.
There are numerous elements of corporate governance which are mentioned below:

i.

Transparency in Board's processes and independence in the functioning of Boards. The Board

ii.

should provide effective leadership to the company and management to realize sustained
prosperity for all stakeholders. It should provide independent judgment for achieving company's
objectives.
Accountability to stakeholders with a view to serve the stakeholders and account to them at

iii.

regular intervals for actions taken, through strong and sustained communication processes.
Impartiality to all stakeholders.

iv.
v.

Social, regulatory and environmental concerns.

Clear and explicit legislation and regulations are fundamentals to effective corporate

vi.

vii.

viii.

ix.

x.

governance.
Good management environment that includes setting up of clear objectives and suitable ethical
framework, establishing due processes, clear enunciation of responsibility and accountability,
sound business planning, establishing clear boundaries for acceptable behaviour, establishing
performance evaluation measures.
Explicitly approved norms of ethical practices and code of conduct are communicated to all the
stakeholders, which should be clearly understood and followed by each member of the
organization.
The objectives of the corporation must be clearly recognized in a long-term corporate strategy
including an annual business plan along with achievable and measurable performance targets
and milestones.
A well composed Audit Committee to work as liaison with the management, internal and
statutory auditors, reviewing the adequacy of internal control and compliance with significant
policies and procedures, reporting to the Board on the key issues.
Risk is an important component of corporate functioning and governance, which should be
clearly acknowledged, analysed for taking appropriate corrective measures. In order to deal

with such situation, Board should formulate a mechanism for periodic reviews of internal and
external risks.
xi.

A clear Whistle Blower Policy whereby the employees may without fear report to the
management about unprincipled behaviour, actual or suspected frauds or violation of
company's code of conduct. There should be some mechanism for adequate safeguard to
personnel against victimization that serves as whistle-blowers.

USA Corporate Governance legislation/regulation:

The Sarbanes-Oxley Act of 2002 is generally reflected the first major Corporate Governance
legislative measure in the USA. It is also known as the Public Company Accounting Reform and
Investor Protection Act' and Corporate and Auditing Accountability and Responsibility Act' the
legislation is also known informally as Sarbanes-Oxley, Sarbox or SOX. The act is named after its
instigators: Senator Paul Sarbanes and Representative Michael G Oxley. As in the UK, legislative
pressures developed from the uproar by media, public and politicians in response to corporate
outrages, specifically and particularly the criminal and vast failures in the late 1900s and early 2000s
of Enron, Tyco, and WorldCom, which caused losses of $billions for investors, and severely
undermined US economic stability, and in other major markets too. The significant Sarbanes-Oxley
Act became federal law aimed to set standards for public company boards of directors,
management, and the accounting firms responsible for auditing public companies.
The act primarily:
Increased the responsibility of management to certify accuracy of financial information.
Increased penalties for corporate fraud.
Increased necessary independence of auditors.
Increased the formal legal responsibility of corporate boards of directors for the oversight of their
corporations' activities, decision-making and accounting.
EU

Corporate

Governance

legislation/regulation:

In the late 1900s and early 2000s, The European Union specialists tended to encourage member
states to develop their own Corporate Governance standards and regulatory instruments, rather than
intercede directly or produce mandatory standards. Differences in national corporate laws especially concerning company incorporation and investors are naturally difficulties to the
development
of
Europe-wide
Corporate
Governance
rules.
Various laws, codes, and institutional bodies became established across Europe on an individual
nation basis to address Corporate Governance. These instruments continued to be refined through
the 2010s and will extend to 2020s, until standards of Corporate Governance, and mechanisms for
compliance/monitoring/remedial action, are established effectively in response to the challenging
dynamics of globalized commerce. The inability through the 2010s of international governments to
counter large-scale corporate tax avoidance accounting schemes is a prime example of how
globalized business is several steps ahead of globalized regulatory control. During the early 2000s
and 2010s, EU commissioners began to produce reports, codes, and guidelines aimed at influencing

and coordinating Corporate Governance regulations and instruments at national level.

EU interest and (non-enforceable) guidance during this period focused primarily on:
i.
ii.

Directors' remuneration
Non-executive director's selection and appointment

iii.
iv.

Auditing
Corporations' commitment and adherence to transparent published statements of Corporate
Governance

Review of corporate governance in India:

The notion of corporate governance has been incepted with major objective of significant disclosure
of information to the shareholders. Since then, corporate governance has steered the Indian
companies. As the time changed, there was also need for greater accountability of companies to
their shareholders and customers. The report of Cadbury Committee on the financial aspects of
corporate Governance in the U.K. has given rise to the discussion of Corporate Governance in India.
Corporate governance has been since olden times but it was in different form. During Vedic times,
kings used to have their ministers and used to have ethics, values, principles and laws to run their
state but today it is in the form corporate governance having same rules, laws, ethics, values, and
morals which helps in running corporate bodies in the more effective ways so that they in the age of
globalization become global giants.
There have been numerous corporate governance initiatives launched in India since the mid-1990s.
The first was by the Confederation of Indian Industry (CII), India's major industry and business
association, which emerged with the first voluntary code of corporate governance in 1998. The
second was by the SEBI, now enshrined as Clause 49 of the listing agreement. SEBI in 2000
introduced unparalleled corporate governance reforms via Clause 49 of the Listing Agreement of
Stock Exchanges. Clause 49, a seminal event in Indian corporate governance, established a number
of governance requirements for listed companies with a focus on the role and structure of corporate
boards, internal controls and disclosure to shareholders. The third was the Naresh Chandra
Committee, which submitted its report in 2002. The fourth was again by SEBI the Narayana Murthy
Committee, which also submitted its report in 2002.

Corporate

Governance

Development

in

India:

Timeline

India's corporate governance reform efforts did not stop after implementation of Clause 49. In
January 2009, the Indian corporate community was astounded by enormous accounting scandal
involving Satyam Computer Services (Satyam), one of India's largest information technology
companies. As a result of the scandal, Indian regulators and industry groups have promoted for a
number of corporate governance reforms to address some of the concerns raised by the Satyam
scandal. Some of these responses have moved forward, mainly through introduction of voluntary
guidelines by both public and private institutions.
Generally, India's corporate governance transformation efforts reflect the following:
1. Significant industry involvement in assisting the government with crafting corporate governance
measures.
2. Substantial focus to enhance the function and structure of company boards, including (i)
emphasis on the independence of the board of directors, and (ii) an increased role for audit
committees.
3. Noteworthy increase in disclosure to public shareholders.
Several Indian Companies such as PepsiCo, Infuses, Tata, Wipro, TCS, and Reliance are some of
the global giants which have their flag of success flying high in the sky due to good corporate
governance.

Importance of corporate governance:

The Organisation for Economic Cooperation and Development (OECD) highlights the significance of
good corporate governance in the global and domestic economic environment. According to OECD,
if countries are to reap the full benefits of the global capital market, and if they are to attract long-

term patient capital, corporate governance arrangements must be credible and well understood
across borders. Even if companies do not rely primarily on foreign sources of capital, adherence to
good corporate governance practices will help to improve the confidence of domestic investors, may
reduce the cost of capital, and ultimately induce more stable sources of financing (Principles of
Corporate Governance, 1990).

Important issues in corporate governance:

There are number of important issues in corporate governance. All the issues are inter related and
interdependent to deal with each other. Each issues linked with corporate governance have different
priorities in each of the corporate bodies.
The issues are mentioned below:

1. Value based corporate culture

2.
3.
4.
5.

Holistic view
Compliance with laws
Disclosure, transparency, & accountability
Corporate governance and human resource management

6. Innovation
7. Necessity of judicial reforms
8. Globalization helping Indian companies to become global giants based on good corporate
governance.
9. Lessons from Corporate failure
1. Value based corporate culture: For smooth operation of any firm, it is necessary to develop
certain ethics, values. Long run business needs to have value based corporate culture. Value
based corporate culture is good practice for corporate governance. It is a set of ethics,
principles which are inviolable.
2. Holistic view: This holistic view is religious outlook which helps for effective operation of
organization. It is not easier to adopt it, it needs special efforts and once adopted it leads to
developing qualities of nobility, tolerance and empathy.
3. Compliance with laws: Those companies which really need advancement, have high ethical
values and need to run long run business they abide and comply with laws of Securities
Exchange Board Of India (SEBI), Foreign Exchange Regulation Act, Competition Act 2002,
Cyber Laws, Banking Laws.
4. Disclosure, transparency, and accountability: Disclosure, transparency and accountability are
important feature for good governance. Timely and accurate information should be disclosed
on the matters like the financial position, performance. Transparency is needed in order that
government has faith in corporate bodies. Transparency is needed towards corporate bodies

so that due to tremendous competition in the market place the customers having choices don't
shift to other corporate bodies.
5. Corporate Governance and Human Resource Management: In corporate culture, employees
are vital for success of firms. Every individual should be treated with individual respect, his
achievements should be recognized. Each individual staff and employee should be given best
opportunities to prove their worth and these can be done by Human Resource Department.
Thus in Corporate Governance, Human Resource has a great role.
6. Innovation: Every corporate body must involve in innovation practices i.e. innovation in
products, in services and it plays a critical role in corporate governance.
7. Necessity of Judicial Reform: There is requirement of judicial reform for a good economy and
also in today's varying time of globalization and liberalization. Judicial system of India though
having performed salutary role all these years, certainly are becoming obsolete and outdated
over the years. The delay in judiciary is due to several interests involved in it. But then with
changing scenario and fast growing competition, the judiciary needs to bring improvements
accordingly. It needs to promptly resolve disputes in cost effective manner.
8. Globalization helping Indian Companies to become global giants based on good governance:
In today's competitive environment and due to globalization, several Indian Corporate bodies
are becoming global companies which are possible only due to good corporate governance.
9. Lessons from Corporate Failure: Corporate body have certain policies which if goes as a failure
they need to learn from it. Failure can be both internal as well as external whatever it may be,
in good governance, corporate bodies need to learn from their failures and need to move to the
path of success.
To summarize, corporate governance encompasses systems and procedures designed to
structure authority, balance responsibility and provide accountability to stakeholders at all
levels. Fundamentally, corporate governance is about harmonising success with sustainability.
Management literature have shown that corporate Governance is a set of ideas, innovation,
creativity, thinking having certain ethics, values, principles which gives direction and shape to
its people, personnel and possessors of companies and help them to succeed in global market.