Business & Legal Environment MS - 113

UNIT - I

By Madhavendra N Jha TIAS

Business Environment
Business.. Busynessor the state of being busy. Business is an economic activity aimed at earning an income, i.e. profit and thereby accumulating wealth is to create customers and ensure repeated purchases by them. Environment. Environment refers to all external forces which have a bearing on the functioning of business.

Business Environment
.means the surroundings, external objects, influences, or circumstances under which someone or something exists. the aggregate of all conditions, events, and influences that surround and affect itKeith Davis Business Environment.. Environment in which Business exists. Is increasingly complex, unstable & unpredictable. Is the resultant of number of interacting & constantly changing. Usually differs from country to the country.

 Market & non-market, controllable & noncontrollable, economic & non-economic, micro environment & macro environment, internal & external environment..

 Goldman-Sachs Report. India will be superpower by 2050

 ECONOMIC ENVIRONMENT: Economic (macroeconomic) environment envelops all business firms and provides them a framework within which they have to operate and adapt themselves. The environment provides national level economic conditions & circumstances affecting the level of aggregate economic activity in which individual firms derive or seek their own business opportunities.

 ECONOMIC SYSTEM: It is a way in which a society is organized to decide the following three basic questions of any economic organisation: 1. What products should be produced and in what quantities? 2. How should the products be produced? And 3. For whom the products be produced? an economic system provides the framework within which an economy operates and various economic units and agents mould themselves to fit into the system

 Major economic systems the world over can be broadly classified as: Capitalist(Market economy), Communism (Command economy), Mixed economy & Socialist market economy It is also called economic model Economic Model-- Communism: where the state owns all the factors of production and distribution. Cuba is an example of the last remaining predominantly communist country,

 Capitalism: believes in private ownership of production & distribution facilities.USA.UK.JAPAN, Mixed: .is one where the major factors of production & distribution are owned, managed controlled by the state France..Holland.India Socialism: .productive resources are owned by the state but resource allocation, production & distribution decisions are based on the principle of the market.Yugoslavia in 1950s..some east European countriesCzechoslovakia & Hungry. These have vital bearing on firms capacity to exploit its opportunities.

 ECONOMIC POLICY: Designed, determined & changed from time to time . The basic objectives of this policy is to stimulate or maintain growth, achieve economic stability, increase employment, stabilize BOP, correct regional imbalances & make the economy more competitive. Govt. plays a regulatory & supervisory role in the economic system, & it much depends upon the wisdom and philosophy of the ruling govt. & the quality of policy implementation and economic administration.

Main components of the Economic Policy: a) Annual Budget b) Economic planning c) Industrial policy d) Industrial Law & Statutory regulation e) Export-Import policy

f) Wage & price control g) PDS h) Agriculture produce procurement policy, subsidy, rural economic upliftment programme i) Control over various products j) A plethora of legislation, including the Factory Act, 1948; the Industrial Dispute Act, 1947; the Companies Act, 1956; the FERA, 1947/FEMA, Act)

`
Monetary Policy: It refers to all the actions of the government or the central bank of a country which affects, directly or indirectly, supply of money, credit, rate of interest & banking system. Basically, it affects the cost and availability of credit in the economy. For individual firms, the policy changes their liquidity, cost of capital & debt-equity ratios.

 A restrictive monetary policy seeks to raise the rate of interest, reduce money supply growth rate & restrict the flow of credit & is generally aimed to fight inflation. A liberal or accommodating policy is generally meant to fight recession & stimulate demand through credit liberalisation, monetary expansion & fall in the rate of interest.

 Fiscal Policy: is the policy under which the government of a country uses taxes, public expenditure & public debt programmes to achieve pre-determined economic & social goals & to solve specific problems in the economy.

 Industrial Policy: The central objectives of an industrial policy are to promote industrialisation, correcting regional balances, enhancing competitiveness of firms, developing inter-sectoral linkages, promoting export & import substitution.

 Trade Policy: Basic objectives of trade policy are to promote exports, regulate imports, improve terms of trade, enhance export competitiveness and create conditions of exportled growth

 ECONOMIC GROWTH: Economic growth refers to the process of increase in real output over a period of time (usually a year) Increased levels of expenditure spending as well as investment, which expands circulation of money in the economy & encourages exports. In contrast, depressed economic condition would lead to less production, erosion of savings and inflationary conditions.

 Three basic measures of a countys real output: GDP, NDP & GNP. GDP is the most important & widely used measure. GDP is the sum of four major components: 1. Personal consumption expenditure 2. Gross private domestic investment 3. Government expenditure on consumption & investment 4. Net export (export minus import)

 GDP: The monetary value of all the finished goods and services produced within a country's borders in a specific time period, though GDP is usually calculated on an annual basis. It includes all of private and public consumption, government outlays, investments and exports less imports that occur within a defined territory. GDP = C + G + I + NX

 where:
"C" is equal to all private consumption, or consumer spending, in a nation's economy "G" is the sum of government spending "I" is the sum of all the country's businesses spending on capital(Investment) "NX" is the nation's total net exports, calculated as total exports minus total imports. (NX = Exports Imports)

 GDP is commonly used as an indicator of the economic health of a country, as well as to gauge a country's standard of living. Critics of using GDP as an economic measure say the statistic does not take into account the underground economy transactions that, for whatever reason, are not reported to the government.

It provides the measure of aggregate output and its comparison over time enables us to calculate the rate of growth.

 GNP: An economic statistic that includes GDP, plus any income earned by residents from overseas investments, minus income earned within the domestic economy by overseas residents. Measures the income of all of a nation's citizens, even if that income was earned abroad. Amounts that foreigners earn within the nation's boundaries are not included

 NDP: An annual measure of the economic output of a nation that is adjusted to account for depreciation, calculated by subtracting depreciation from the gross domestic product (GDP). Net domestic product accounts for capital that has been consumed over the year in the form of housing, vehicle, or machinery deterioration. The depreciation accounted for is often referred to as capital consumption allowance and represents the amount needed in order to replace those depreciated assets.

 INTEREST RATES: RBI, the apex bank, monitors & controls the economy Using interest rates as one of its prime means of controlling money supply Promoting savings as well as investment Curbing inflation Once uponNamibia had 1000% Inflationary growth every year.

 CURRENCY EXCHANGE RATES: National currencies are valued against each other at certain rates of exchange. The costliest the dollar is against the rupee, the exports gain in rupees terms. Rupee devaluation ----beneficial for exporters, but not for importers.

 Exchange rate the rate at which a currency can be exchanged. It is the rate at which one currency is sold to buy another. Indian foreign exchange rate system India Forex rate system was on the fixed rate model till the 90s, when it was switched to floating rate model. Fixed Forex rate is the rate fixed by the central bank against major world currencies like US dollar, Euro, etc. Floating Forex rate is the rate determined by market forces based on demand and supply of a currency. If supply exceeds demand of a currency its value decreases, as is happening in the case of the US dollar against the rupee, since there is huge inflow of foreign capital into India in US dollar

Non-Economic Environmental Factors

Non-economic factors, influencing business.& leading to Opportunities & Threats. Political Legal Cultural Demographic Social Technological Ecological Government Policies Labour Competitive Market Condition Location

Non-Economic Environmental Factors

POLITICAL FACTORS: The philosophy & approach of the political party in power substantially influences the business environment. West Bengal----largest numbers of Industrial Disputes & Mandays lost through agitation. Janta Party Govt.-----IBM & Coca Cola. Kingdom of Saudi Arabia..business environment & social system are regulated largely by Shariat (Islamic religious law) NDA & UPA Govtespecially in Telecommunication RulingCoalition..Opposition

 Political environment has a risk level to which corporate managers adjust their investment decisions. Types of Political Risk: Confiscation, Expropriation, Nationalisation, Domestication, General Instability Risk, Ownership/ Control Risk, Operation Risk(restricting future operation), Transfer Risk(subsidiary & parent company)

 LEGAL FACTORS: Legal system has a profound impact on business. Establishes codes & procedures for various types and aspects of business. Deals with deviations & infringement law like bribery, graft, black markets & tax evasion.

 Efficiency of the legal system determines adequacy, cost & speed of economic justice. Legal factor is of great importance for the growth of business. Most countries, apart from formal judiciary system, maintain commercial arbitration for quick & impartial by experts.

 International Commercial Arbitration: The resolution of disputes under international commercial contracts is widely conducted under several international institutions & rule making bodies. International Chamber of Commerce(ICC), International Centre for Dispute Resolution(ICDR), American Arbitration Association (AAA), London Court of International Arbitration (LCIA), Hongkong International Arbitration Centre, Singapore International Arbitration Centre (SIAC), World Intellectual Property Organisation (WIPO)

 Apart from the general legal system as per constitution, there are many business legislation to guide, control & regulate business activity. The broad areas covered are. 1. Industrial development & regulation 2. Foreign Exchange Management 3. Consumer protection 4. Essential commodities

5. Weights, measure & packaging 6. Patents 7. Copyright 8. Labour 9. Corporate management 10. Competition The firms which are not aware of such changes could face crisis in the usual course of business & could be driven out of the market.

 Bilateral Investment Treaties(BITs), as well as Multilateral Investment Treaties, which are designed to encourage investment in signatory countries by offering protections to investors from other signatory states. One of the significant features of some BITs is that they provide investors with the ability to resolve disputes with the host states before the International Centre for the Settlement Disputes (ICSID).

 CULTURAL: The set of basic values(achievement & success, activity & involvement, fitness & health, individualism.), perceptions, want & behaviours learned by a member of society & other important institutions. Cultural variables like social & religious practices, education, knowledge, rural community norms & beliefs.

 Cultural factors are very significant in the rural communities in India. The culture of a country, generally large & heterogeneous..& mix of various sub-cultures.

 Cultural change are slow to occur but.can be accelerated with social movements & campaigns as well as by external influences. Culture has profound impact on the language, literature & communication process within a society & business firms have to adjust their marketing communication accordingly. Segmentation on the basis of cultural divisions. .affects taste, food habits & preferences. ..horse races, alcoholic drink, beauty parlours, fashion shows, adult movies.

 DEMOGRAPHIC: Size & growth rate of population, population density, sex ratio, mortality rates, age composition, geographical distribution of population. Population explosion creates problems like.unemployment, illiteracy, urbanisation.poverty malnutitions .

 ..supply of human resources.salary & wages. in overpopulated countries..low wages.. ..labour intensive technology Cheap labour attract FDIFII.MNCs.. .affects urbanisation & labour migration.. Demographic factors are important bases for market segmentation& strategy for product positioning .

 SOCIAL: Social class, group, family, roles & status Organisation operates within society..exists primarily to satisfy its needs. Organisation has social responsibility.. Social factors influence the policy & strategy of the business,..in turn organisation strives to satisfy the needs & wants of the society. Culture, values, tastes & preferences, social integration & disintegration.are part of the agenda of every business organisation.

 TECHNOLOGICAL: Highly perishable Foreign investment even upto 100% & has been allowed keeping technology transfer in mind.sophisticated& latest Mirage-2000, MIG... Technology imports& foreign technical collaboration.allowed

 Technologicalinventionswonders.horrors. mixed blessing.. Invention..Innovations. It enhanced the expectations of the customers. Social change Need to spend in R&D Productivity Quality

 ECOLOGICAL/ NATURE & PHYSICAL ENVIRONMENT: Significantbut sadly ignored. Water, air, sunlight, soil, minerals, plant, animals, micro organism, Environment, biotic factors(plants, animals & micro organism),

GOVERNMENT POLICIES: Provides basic environment for business. Policy of LPG Duties & taxes Licensing Registration Red tapism Industrial & trade policy

LABOUR: Labour policy Labour climate Skill Trade unionism

 COMPETITIVE MARKET CONDITION: LOCATION:

Constitutional Framework of State Control of Business

Karachi session of INC .in order to end the exploitation of the masses, political freedom must include the real economic freedom of the starving millions . The state was to safeguard the interest of the industrial workers,.ensuring that suitable legislation.. the economic consequences of old age, sickness and unemployment The state was to own or control key industries and services, mineral resources, railways, waterways, shipping and other means of public transport

 The historic objectives Resolution which was moved by Pandit Nehru on 9th Dec. 1946 and which was subsequently adopted by the Constituent Assembly on 22 January 1947, inspired the shaping of the Constitution through all its subsequent stages. The Constitution has three parts, 1. The Preamble 2. The Fundamental Rights 3. The Directive Principles of State Policy

The Preamble
The Preamble is an introduction to the Constitution and contains its basic philosophy for which the Constitution stands. We the people of India having solemnly resolved to constitute ourselves into a Sovereign, Socialist, Secular, Democratic Republic and to secure to all citizens: Justice: social, economic and political; Liberty of thought, expression, belief, faith and worship;

The Preamble
Equality of status and opportunity; and to promote among them all fraternity assuring the dignity of the individual and the unity and integrity of the Nation In our Constituent Assembly this 26th day of November 1949 , do herby adopt, enact and give to ourselves this Constitution.

 The words We, the people of India..adopt, enact and give to ourselves this Constitution, declare the ultimate sovereignty of the people of India and that the Constitution rests on their authority. Thus the goal envisaged by the Constitution is that of a Welfare State and the establishment of a socialistic pattern of society.

 The Preamble recognises the truth of the proposition that political freedom is not an end by itself; it is a means to secure to all citizens social, economic and political justice. ..it commits that the ideal of converting political democracy established by the Constitution into a social & economic democracy and that too in a democratic way, under the rule of law.

 Sovereign: From 15th August, 1947 to 26th Jauary,1950, our political status was that of a Dominion in the British Commonwealth of Nations. But with the writing of the Constitution, India became a Sovereign Republic Socialist: Added to Preamble by the 42nd Amendment of the Constitution in 1976.

The Fundamental Rights

The Constitution has eight Fundamental Rights: 1. Right to equality; 2. Right to six freedoms; a) Freedom of speech & expression; b) Freedom to assemble peacefully & without arms;

The Fundamental Rights

c) Freedom to form association or unions; d) Freedom to move freely throughout the territory of India; e) Freedom to reside & settle in any part of the territory of India; and f) Freedom to practice any profession or to carry on any occupation, trade or business.

The Fundamental Rights

3. Right to life & personal property (Constitutional Right only) 4. Right to freedom of religion 5. Right to cultural & educational freedom 6. Right against exploitation 7. Right to Constitutional remedies 8. Right to Education

 Some of the Fundamental Rights have economic significance: A). The Right to Equality: Prohibits discrimination against any citizen on the ground of.. Sospecial efforts are to be made for the development of the socially & economically backward section of society

B). The Right to Freedom: Particularly, the right to practice any profession or to carry on any occupation, trade or business has great economic significance. The freedom of profession has three exception: ..Public Interest, Requiring technical or professional qualifications & State itself decides to engage in any trade or occupation.

C). Right to life: It has great economic implications.. a) Right not to be subjected to bonded labour b) Right to decent environment c) Right to privacy d) Right to pure drinking water e) Right to good roads

D). Right against exploitation: .prohibits the exploitation of the weaker section by individual as well as by the state. Traffic in human being & other similar forms of forced labourprohibited. No child below the age of 14 years shall be employed

 Thus, the fundamental rights, guarantee several economic rights to the citizen. At the same time, the state is empowered to impose reasonable restrictions on such economic rights in public interest. .restriction by way to impose a series of statutory controls over business.

Directive Principles of State Policy

The Directive Principles are the directives to various states and agencies for governance There are 17 Directives Principles & they may be classified, for convenience, under four heads: 1. Provisions dealing with Welfare (Art.38,42,45,47) 2. Provisions dealing with Social Justice (Art.39,41,43,46) 3. Provisions promoting Democracy (Art.40,44,45) 4. Misc. Provisions (Art.48,49,50,51)

 First two categories of Provisions have economic significance. Article 38(1) lays down that the State shall promote the welfare of the people by securing social, economic & political justice. Article 38 (2)----State shall minimise the inequalities in Income & eliminate inequalities in status, facilities & opportunities among individuals & groups of people.

 Article 39 emphasizes that the State shall direct its policy towards securing: (a) adequate means of livelihood (b) A proper distribution of the material resources of the community to the common good. (c) The prevention of concentration of wealth to the common detriment (d) Equal pay for equal work for both man & woman (e) The protection of the strength & health of the workers (f) The protection of childhood and youth against exploitation or moral & material abandonment

 Article 41 lays down that the State shall, within the limit of its economic capacity & development, make provision Article 42 states that the State shall make provision for securing just and humane conditions of work and maternity relief. Article 43 emphasises the necessity of an adequate or living wage in all sectors of economic activity. Article 43(A) states that the state shall take steps to ensure the participation of workers in the management of undertakings, establishments or other organisations engaged in any industry.

 Article 46----with special care, the educational & economic interests of weaker sections, particularly..SC, ST. Article 48(A)-----endeavour to protect & improve the environment and to safeguard the forest and wildlife of the country.

 Thus, Directive Principles of State Policy enjoin upon the State varied responsibilities and provide vast scope for State intervention in the economy.

Distinction between Fundamental Rights & Directive Principles

State must fulfil State shall strive Directive Principles are fundamental of better governance.. Fundamental Rights are justifiable but Directive Principles are not. Directive Principles are subsidiary to Fundamental Rights Fundamental Rights are negative specifying donts but Directive Principles are positive specifying dos

 Despite socialistic philospphy, the State and the political parties, never accepted it for the welfarism either in economy or in polity. With the passage of time, the govt became personified in an individual. With the change in the economic system, change in the political system is also required. Constitution has many contradictions.and is directionless Change is required in PreambleDirective Principles..Fundamental Rights..

The Planning Commission

The planning commission of India was set up in March 1950 with Jawaharlal Nehru as its chairman. was created as an executive organ of the central Govt., is charged with responsibility of determining the size of the five-year plans & the annual plans. The commission comprises eight members: 1. Prime minister (chairman) 2. Four full time members (including deputy prime chairman) 3. Minister of planning 4. Minister of finance 5. Minister of defense

 New planning commission is formed with change of govt. Functions of the planning commission: 1. Making real assessment of various resources & investigating the possibilities of augmenting resources. 2. Formulating plans 3. Defining stages of plan implementation and determining plan priorities.

4. Identifying the factors retarding economic growth & determining conditions for its successful implementation; 5. Determining plan machinery at each stage of the planning process; 6. Making periodic policy measures to achieve objectives & targets of plan; and 7. Making additional recommendations as and when necessary.

The National Development Council

The highest national forum for economic planning in India since August 6, 1952. Works as the Advisory body. Members of NDC: a) The Prime Minister of India b) All state Chief Ministers c) Members of Planning Commission

 Functions of NDC: 1. To review the National Plan periodically 2. To consider important questions related to social & economic policy affecting national development 3. To recommend various means of achieving aims & targets set out in the National Plan & measures achieving active participation & cooperation of the people to ensure all round development. 4. To take the final decision regarding allocation of central Assistance for planning among different states. 5. To approve the draft plan prepared by the Planning Commission.

 Objectives of Planning in India: Growth with social justice to general masses 1. Attainment of higher rate of economic growth 2. Reduction of economic inequalities 3. Achieving full employment 4. Attaining economic self reliance 5. Modernisation of various sectors 6. Redressing imbalances in the economy

Industrial Licensing Policy

The Industrial Licensing Policy was laid down to be complementary to the industrial policy resolution announced by the Govt. of India time to time. It can be studied in the following stages: 1. The Industrial (Development & Regulation) Act, 1951 2. Industrial Licensing Policy, 1951-60 3. Industrial Licensing Policies for 1960-70 4. Industrial Licensing Policies 1970-77 5. Industrial Policy Statement 1980-90 6. Liberalisation in industrial licensing 1991 and after

 The Industrial (Development & Regulation) Act, 1951: Described as The single most important piece of economic development legislation Along with Companies Act,1956, MRTP Act, 1969it confer on the Govt. powers of almost total regulation and control over the working of the private industries and corporate sector.

 Main provisions: 1. Industries, listed in the first schedule of the First Schedule of this Act, should be registered with the Govt. within the prescribed period and issued a certificate of registration. 2. No new industrial undertakings of a major size can be started in the scheduled industry. 3. Industrial undertaking can not change the location of unit without the permission of the Central Govt.

4. Revoking license in case of misappropriation .. 5. Govt. can order investigation into the working of an industrial undertaking. 6. Govt. can issue direction to the management in respect of prices, production, quality and other areas of performance for the progress of industry & companys economic demand. 7. .in the event of the undertaking not carrying out these instructions, the govt. can take over its management.

8. Central Govt. has comprehensive power to control and regulate the supply, distribution, and prices of any of the articles produced by the scheduled- A industries. 9. It empower Central Govt. to authorise & establish, Central Advisory Council(CAC) with necessary sub-committees & standing committees. 10. Development Councils are to be constituted in respect of each industry or group of industries.

 Development Councils along with the Central Advisory Council, represent the positive side of the Act..the has been borrowed from UK & France models. In 1984, there was an important amendment to this act to empower the Govt. to issue notifications for reservation of specific products for small-scale industries..in larger public interest.

 Industrial Licensing Policy, 1951-60: Prior to 1960, Aimed at achieving following 1. Development of industries & encouraging industrial activity in accordance with the plan priorities. 2. Checking the concentration of economic power 3. Reduction of regional disparities 4. Proper allocation of foreign exchanges 5. Development, protection, and encouragement of small-scale industries. 6. Modernisation of technology and achievement of industrial growth.

 The govt. policy in the 195os & early 1960s was liberal, allowing industrial licenses without much ado. Was generally welcomed at its early stage.

 However, with the gradual drift of the economic policy towards the socialistic pattern of society & sovereignty & supremacy of the public sector & towards the goal of avoiding the concentration of economic power in the larger business housesmore & more restrictions were sought to be introduced in the policy of industrial licensing in the late 1960s. Politicians, academicians & business houses as criticised it as stifling the industrial growth, creating unemployment & large production gaps.

 Industrial Licensing Policies for 1960-70: 1. Criticesed sharply by S.G.Barve, member of Planning Commission 1966 2. Two Reports of R.K.Hazari. 3. Reports of Administrative Reform Commission m- 1967-68. 4. Report from the Industrial Licensing Policy Enquiry Committee (Dutt Committee) 1969

1. Dutt committee was very critical on a) the concentration of economic power & monopolistic tendencies b) unethical practices followed by big housesmultiple applications in different namesc) preferences to big business houses in lending by financial institutions.d) .restrictive trade practices by big houses.e) .ground of clearing/approving any project proposal was not techno-economic merits but the source of sponsorship.

 Suggested for joint sectors in place of private sectors.

Industrial Licensing Policies 1970-77: Industrial licensing policy of 1970: Following the Reports from Dutt Committee & others MRTP Act, 1969 & new Industrial Licensing Policy, Feb. 1970 announced. Banning the entry of large industrial houses & foreign companies into any field except core industries, heavy investment projects, export-oriented projects Accepted the proposal of convertibility of term loans granted to industries by public financial institutions into equity..which became a practice to insert a convertibility clause as a condition of approval for all such projects which depend on substantial term loans.

 In a bid to reduce the proportion of foreign holding in the foreign majority companies, the govt. announced a policy of dilution of the proportion of foreign holding by issuing fresh equity to the Indian public.

 Industrial licensing policy of 1973: Contradiction between the definitions of a large industrial houses (Dutt committee & ILP, 1970.assets exceeding Rs. 35 crore..abandoned) & MRTP Act, 1969(..assets exceeding Rs.20 crore.accepted), removed. List of the core industries defined by ILP, 1969..enlarged

 The existing policy of reservation for the small-scale sector & the policy with regard to joint sectorto continue. Creation of Project Approval Board (PAB)..to deal with composite applications seeking approval under four major procedural hurdles.Licensing, MRTP, Capital goods & Foreign Investment Board. Introduction of a common secretariat, Secretariat for Industrial Approvals (SIA) to receive & process all types of applications.

Industrial Licensing Policy of 1977: Huge Oil price hike in 1973-74 Janta Party in powerin 1977 New industrial policy statement , Dec. 13, 1977.

 Supplementing the policy by redefining some of the priorities.. 1. Priorities to small scale, village & tiny sector industries. 2. Geographical dispersal of industries from metropolitan centres to rural & backward areas. 3. 500 (later 800) items reserved for small-sectors 4. Locational redistribution of industrieslicenses were to be issued to new industrial unit within certain limits (meteropolitan.population more than 10 lakhs.urban more than 5 lakhs) 5. DIC in each & every districts.

 Industrial Policy Statement 1980-90: 75 crore were de-licensed Congress back in power Aimed to review infrastructural gaps & inadequacy in performance. Basic objective to transmit the fruits of industrialisation & economic progress to maximum numbers of rural & urban people. No industrial license was required for smallscale industries.under some conditions to be fulfilled.

 22 industries were freed from both MRTP & FERA Controls. In 1990, Janta Dal govt. announced new licensing policy. New units with an investment up to Rs. 75 crore in centrally notified backward areas & Rs. 25 crore in other areas..were exempted from licensing. Import of capital goods was allowed to the tune of 30% of the plant & machinery. Export oriented units located in EPZs with an investment of Rs. 75 crore were de-licensed.

 Liberalisation in industrial licensing 1991 and after: A substantial programme of deregulation began to undertake. Industrial licensing was abolishedfor all items except for six industries..

1) Distillation & brewing of alcoholic drinks. 2) Cigar & cigarettes of tobacco & other related items. 3) Electronics, aerospace, and defence equipments 4) Industrial explosive ..gunpowder, detonating fuses, safety fuses, matches.etc.

5) Hazardous chemicals & 6) Drugs & pharmaceuticals Many industries reserved for public sectors .are opened for competition..defense.. Reform is going on.