1.Indian Industry is passing through a critical phase of transition and restructuring. After responding to economic reforms with vigour and registering a robust growth rate of 11.7 per cent in 1995-96, industry recorded a growth rate of only 9.8 per cent in April-October 1996 compared with 11.7 per cent in April-October 1995. However, this slowdown cannot be regarded as an onset of a recession, and the industrial growth rate at 9.8 per cent in April-October 1996 is favourable compared with the industrial growth rate of 4.4 per cent in April-October 1993 and 9.6 per cent in April-October 1994 (Table 7.1). The graph in figure 7.2 also indicates that the successive peaks of the Index of Industrial Production (IIP) maintain an increasing trend and the valleys are getting shallower over time.

2.The slowdown of industrial growth in the current year is mainly due to the poor performance of electricity generation and mining (especially crude oil). The manufacturing sector, which contributes 77.1 per cent to industrial production, registered a growth rate of 12.1 per cent in April-October 1996, almost the same as 12.3 per cent in April-October 1995. The relative slowdown of growth in industrial production is neither generalised nor widespread. Within the broad groups of manufacturing sector, food products, transport equipment, electrical machinery, beverages and tobacco, paper and paper products and basic metals and alloys have performed well registering a growth rate of over 10 per cent. As per use-based classification, the slowdown is essentially confined to the basic goods, while all other sub-sectors viz. capital goods, intermediate goods and consumer goods have performed well in April-October1996.

3.Box 7.1 indicates the reasons as to why the slowdown in certain sectors can not be interpreted as the onset of an industrial recession.

Industrial Policy Reforms

4.Since July 1991, Indian industry has undergone a sea-change in terms of the basic parameters governing its structure and functioning. The major reforms include wide-scale reduction in the scope of industrial licensing, simplification of procedural rules and regulations, reduction of areas reserved exclusively for the public sector, disinvestment of equity of selected public sector undertakings, enhancing the limits of foreign equity participation in domestic industrial undertakings, liberalisation of trade and exchange rate policies, rationalisation and reduction of customs and excise duties and personal and corporate income-tax, extension of the scope of MODVAT etc. Separate policy measures have been announced in the form of specific packages aimed at upliftment of the small scale, tiny and cottage industries as well as 100 per cent EOU's (Export Oriented Units) and units located in the EPZs (Export Processing Zone) and Technology Parks. Box 7.2 summarises the major industrial policy changes done during 1996-97 and Box 7.3 summarises the extent of permissible foreign equity under the liberalised foreign investment regime.

BOX 7.1 Slowdown of industrial growth rates in some sectors is not indicative of an Industrial Recession. Coverage of Price Index Numbers 1996-97

Cyclical fluctuations of industrial output and profits are part of normal business cycles and dynamism of the development process, and the temporary slow down of growth rates in some industries cannot be regarded as an onset of a general industrial recession. The graph of the Index of Industrial Production (IIP) given in Figure 7.2 indicate that the peaks of industrial output have an increasing trend with valleys getting shallower. Industrial growth rate at 9.8 per cent in April-October 1996 is favourable compared with the growth rate of 4.4 per cent in April-October 1993 and 9.6 per cent in April-October 1994. In fact, except for 1995-96, annual industrial growth had never exceeded 9.8 per cent since 1980-81(Table 7.1) The manufacturing sector which contributes 77.1 per cent to industrial production registered a growth rate of 12.1 per cent in April-October 1996, almost the same as 12.3 per cent recorded in April-October 1995. Relative slowdown of industrial growth is neither general nor widespread, and is primarily due to the poor performance of crude oil and electricity in April-October, 1996. Growth rates are generally well spread out within the manufacturing sectors during April-October 1996. Capital goods, consumption goods and intermediate goods recorded growth rates of 16.6 per cent, 8.2 per cent and 10.8 per cent respectively during April-October 1996. The emerging pattern and composition of industrial growth can set in motion mutually reinforcing growth impulses for a broad-based and sustainable industrial recovery.

5.During 1996-97 government liberalised further the policies for foreign direct investment (FDI). Until December 1996 only 35 industries as mentioned in the Annexure III of the New Industrial Policy Statement of July 1991 were eligible for automatic approval of FDI up to 51 per cent of total equity. In December 1996 government allowed automatic approval of FDI up to 74 per cent by the Reserve Bank of India in nine categories of industries, including electricity generation and transmission, non-conventional energy generation and distribution, construction and maintenance of roads, bridges, ports, harbours, runways, waterways, tunnels, pipelines, industrial and power plants, pipeline transport except for POL and gas, water transport, cold storage and warehousing for agricultural products, mining services except for gold, silver and precious stones and exploration and production of POL and gas, manufacture of iron ore pellets, pig iron, semi-finished iron and steel and manufacture of navigational, meteorological, geophysical, oceanographic, hydrological and ultrasonic sounding instruments and items based on solar energy.

6.The list of items for automatic approvals of foreign equity by the RBI has been expanded by including three industries relating to mining activity for foreign equity up to 50 per cent and 13 additional industries for foreign equity up to 51 per cent. These 13 industries include a wide range of industrial activities in the capital goods and metallurgical industries, entertainment electronics, food processing, and the services sectors having significant export potential. These industries specifically include manufacture of food products like dairy products, canning and preservation of fruits and vegetables, grain milling, salt, cocoa products and sugar confectionery etc.; cotton spinning, weaving and processing in integrated mills; wool, silk and man-made fibre textiles; paints and varnishes; coke oven products; fabricated metal products; refrigerators, air-conditioners, fire fighting appliances, primary batteries and cells; support services to land transport like operation of highway bridges, toll roads and tunnels; support services to water transport; cargo handling for land, water and air transport; renting and leasing of transport, computer and industrial equipment without operators; technical testing, research and development services, and health and medical services.

7.The government also announced in January 1997 the first ever guidelines for foreign direct investment (FDI) for expeditious approval of foreign investment in areas not covered under automatic approval. Priority areas for FDI proposals as mentioned in the guidelines include infrastructure, export potential, large scale employment potential particularly for rural areas, items with linkages with the farm sector, social sector projects like hospitals, health care and medicines, and proposals that lead to induction of technology and infusion of capital. FDI approvals will, however, be subjected to sectoral caps; 20 per cent (40 per cent for NRIs) in the banking sector; 51 per cent in non-banking financial companies without any special conditions (100 per cent with specified minimum levels of foreign invesment); 100 per cent in power, roads, ports, tourism and venture capital funds; 49 per cent (not to be offset against the FDI in an investment/ holding company where there is cap of 49 per cent) in telecommunications (basic, cellular mobile and paging services); 40 per cent (100 per cent for NRIs) in domestic air-taxi operations/ airlines; 24 per cent in small scale industries; 51 per cent in drugs/ pharma industry for bulk drugs; 100 per cent in petroleum; and 50 per cent in mining except for gold, silver, diamonds and precious stones.

BOX 7.2 Reforms and Policies for Industrial Development during 1996-97

General Measures With delicensing of consumer electronics, at present only 14 industries remain under the purview of industrial licensing. Investment ceilings in plant and machinery for small scale industries (SSI) have been enhanced from Rs. 60 lakh and Rs. 75 lakh to Rs. 3 crore and that for tiny sector has been raised from Rs. 5 lakh to Rs. 25 lakh. Export obligation on non-SSI units manufacturing reserved items has been reduced from 75 per cent to 50 per cent. Prices and distribution of D grade of non-coking coal, soft and hard coke have been deregulated with effect from February 11, 1997; and the Coal Mines (Nationalisation) Act, 1973 will be amended to allow any Indian company to mine coal and lignite without any restrictions. Disinvestment Commission has been set up for identifying PSEs (Public Sector Enterprises) for equity disinvestment as well as for working out the modalities of disinvestment. Foreign Investment Promotion Council(FIPC) has been constituted to prepare project reports in selected thrust areas and thereby to facilitate the flow of foreign investment in the country. Foreign Investment Promotion Board(FIPB) has been revamped for making rules and regulations pertaining to foreign investment more transparent. First-ever guidelines for approving FDI by the FIPB have been announced to expedite approval of foreign investment in areas not covered under automatic approval; and priority areas for allowing 100 per cent foreign equity have been spelt out. It is no longer necessary for automatic approvals by RBI that the amount of foreign equity should cover the foreign exchange requirements for import of capital goods needed for the project. Licensing procedures for sugar industry have been liberalised and incentives schemes for new and expansion units have been reintroduced. An expanded list of 48 industries eligible for automatic approval upto 51 per cent foreign equity, 3 industries relating to mining activity eligible for automatic approval upto 50 per cent foreign equity and another set of 9 industries eligible for 74 per cent foreing equity have been announced by the Government. Foreign Institutional Investors (FIIs) have been allowed to make equity investments in unlisted companies and the limit of investment of 5 per cent of total equities in a single company by an individual FII has been raised to 10 per cent. The guidelines for Euro Issues and External Commercial Borrowing (ECB) have been liberalised to ease the access of Indian companies to international capital markets. The Government has decided to set up a Tariff Commission which will advise Government on appropriate levels of tariffs, tariff-related disputes and non-tariff measures. Monetary measures In order to augment the flow of credit to industry and other sectors, the Cash Reserve Ratio (CRR) has been reduced in phases from 13 per cent in June 1996 to 10 per cent in January 1997. Prime Lending Rate(PLR) applicable on bank credits above Rs. 2 lakh has been reduced, and banks have announced their maximum spreads over PLR for all advances other than consumer credit. Interest rates on term deposits of short term duration have been reduced to a maximum of 10 per cent from the prevailing level of 11 per cent. Fiscal measures Five Year Tax Holiday available for companies devoted to maintenance, development and operation of roads, bridges, ports and other core infrastructure services has been extended to water supply, sanitation and sewerage. Since January 1997, telecom projects have also been covered under tax holiday scheme. Introduction of Minimum Alternate Tax( MAT) on the corporate sector with the exception of companies engaged in power and infrastructure sectors. Reduction of rate of surcharge on corporation tax on domestic companies from 15 to 7.5 per cent. Customs duty reduced on several imports including crude oil, basic petrochemical intermediates, chemicals, plastics, natural rubber, ferrous and non-ferrous metals, components and raw materials for the electronics sector etc. Extension of the scope of MODVAT to the textile sector.

8.The FIPB will allow 100 per cent foreign equity in those cases where the foreign company has expressed inability to find a suitable Indian joint venture partner, subject to the condition that the foreign investor will divest at least 26 per cent of its equity in favour of Indian parties within three to five years.

9.The new guidelines also allow foreign companies to set up 100 per cent companies on the basis of the following criteria: (a) where only holding operation is involved and all downstream investments to be carried out need prior approval; (b) where proprietary technology is sought to be protected or sophisticated technology is proposed to be brought in; (c) where at least 50 per cent of production is exported; (d) consultancy proposals; and (e) projects in power, roads, ports and industrial towns and estates. The FIPB will also allow proposals for 100 per cent trading firms for exports, bulk imports, cash-and-carry wholesale trading and other import of goods and services provided at least 75 per cent is for procurement and sale of goods and services among group firms.

10.Industrial reforms have been to a large extent aided and supported by the liberal investment policies undertaken by the State Governments. The States have been encouraging private investment for development of basic infrastructure and management of industrial houses by awarding various fiscal concessions and other facilities. The incentive package generally includes an investment subsidy, exemption from payment of excise duty by new undertakings, tax concessions to units in small scale and tiny sectors, supply of industrial land under easy conditions, waivers or concessional rates for electricity duty, subsidies on purchase of machinery and other fixed assets, special incentives to industries involved in modernisation, technological upgradation and quality control, upgrading the facilities available at the District Industries Centres (DICs), opening of single window type information dissemination centres and several other measures. Box 7.4 highlights procedural and policy reforms undertaken by selected State Governments and the initiatives taken by them for implementation of new industrial policy.

11.In order to support on-going reforms at the State level, for the first time a multilateral funding agency like Asian Development Bank (ADB) has extended a loan assistance of US $ 250 million for the Gujarat Public Sector Resource Management Programme. The details are indicated at Box 7.5.

Pattern of Industrial Growth

12. Table 7.1 shows trends in growth rates of overall industrial production and its three major components viz., mining, manufacturing and electricity generation. It is observed from the table that since 1992-93, all the major sectors had responded to economic reforms with dynamism and witnessed significant acceleration of their respective growth rates. However, during the current year until October 1996 there has been a deceleration of industrial growth rates due to poor performance by mining and electricity generation.

13. Table 7.2 highlights the contribution made by broad sectors to the pattern of industrial growth in recent years. It is observed from the table that during 1991-96 the contribution of manufacturing sector to industrial growth has maintained an upward trend, the share of mining sector has fluctuated around 6 per cent while that of electricity has exhibited a declining trend.

14. The general index of industrial production (IIP) recorded a growth rate of 11.7 per cent during 1995-96 aided by a growth rate of 7.1 per cent in mining and quarrying, 13.0 per cent in manufacturing and 8.2 per cent in electricity. All of the 17 major (two-digit) groups within manufacturing sector recorded positive growth rates during 1995-96 and 12 groups recorded growth rates exceeding 10 per cent. The transport equipment registered the highest growth rate of 23.7 per cent, followed by non-electrical machinery and electrical machinery with growth rates of 21.9 per cent and 19.8 per cent respectively. As per the use-based classification, capital goods registered a growth rate of 17.8 per cent and the consumer goods 12.5 per cent, while the growth rates of the intermediate goods and basic goods were 10.2 per cent and 8.7 per cent respectively.

BOX 7.4 Industrial Policy Reforms: Selected State Governments

Andhra Pradesh Thrust awarded to development of power projects by finalising power purchase agreements with private developers. Gujarat Strong encouragement to private sector participation in development of ports, power stations,desalination of water supply etc. Review and re-examination of laws pertaining to different aspects of liberalisation by appointing committees. Haryana An industrial model township with Japanese assistance , an Indo-German industrial park, a software technology park and an export promotion industrial park are coming up in the state. Haryana State Industrial Development Corporation (HSIDC) has been authorised to set up industrial estates on its own or jointly with private promoters in potential areas. Involvement of private initiative in the power sector in areas of generation and distribution. Encouragement to private sector participation in road, transport and real estate development. Disinvestment of equity undertaken for 18 selected PSEs at the state level, fully in 10 projects and partially in 8 projects. Several more are in the pipeline. Karnataka 100 per cent EOUs (Export Oriented Units) and units with 25 per cent export turnover will be exempted from purchase tax, entry tax on all raw materials and other inputs.100 per cent EOUs to be exempted from power cuts imposed by Electricity Board. Promotion of 'Growth Centres' with comprehensive infrastructure facilities at Hassan, Raichur and Dharwad & mini-growth centres at different places. Establishment of 'Electronic City' at Dharwad with self-contained infrastructural facilities in addition to electronic cities at Bangalore & Mysore. Providing Wheeling and Banking of Power through the transmission and distribution System of State Electricity Board. Kerala Steps have already been taken to initiate private participation in selected areas like power, ports and road development. Several agreements with private entrepreneurs in power and port sector have been entered into by the Government. Madhya Pradesh 23 industrial centres to be promoted as nodal points for development by the state government. Establishment of container depots and air cargo complex in the state. Development of industry-specific complexes like electronics, garments, leather, food processing, chemicals, bio-technology etc. Private sector participation in infrastructure development to be encouraged by providing easy access to industrial land or by way of equity participation. New industries to be given power connection withion 15 days of completion of formalities. 100 per cent EOUs and continuous process units to be exempt from power cuts as far as possible. Power of renewing licenses under the Factories Act have been abolished. Procedures relating to environmental clearances made simpler, quicker and more transparent. Maharashtra District Collector’s permission to convert agricultural land into industrial use no longer required. Industrial location policy revised to permit setting up of non-polluting, non-hazardous and hi-tech industries within the municipal zone of Greater Bombay. Private participation encouraged in power projects and establishment of industrial estates. Orissa The Foreign Investment Division in the Industrial Promotion and Investment Corporation of Orissa will act as a single window for investments by non-resident Indians and foreign investors. Punjab State Government signed MOUs with selected industrial units to upgrade industrial training institutes. Privatisation of public sector units to be undertaken. Develop selective industrial corridors as part of infrastructural development. Use private initiative for infrastructure development, specially power. Rajasthan Re-structuring of the State Sales Tax system through rationalisation of the complex multi-layered system to a simpler one. A State Renewal Fund (SRF) has been set up by the State Government for ensuring safety net for the workers of State Public Enterprises (SPEs). Preparation of a draft Rajasthan State Power Sector Reform Bill, 1997 providing for establishment of an independent regulatory Commission and corporatization of Rajasthan State Electricity Board (RSEB). 5 projects worth Rs. 65 crores approved by State Cabinet under B-O-T scheme for private investment in roads. Sikkim Identification of thrust areas and effective promotion of industries in the chosen areas. Special promotional measures for rural and traditional industry. Establishment of growth centres and industrial estates to facilitate integrated development of industry. Development of a rehabilitation package for sick industries. Revamping the public sector undertakings. Tamil Nadu Initiatives taken to encourage private investments in infrastructure on a local area as well as institutional basis. Tirupur Industrial Development Company formed for providing further boost to export turnover in hosiery and textiles. Tamil Nadu Urban Development Fund, a trust fund and the first of its kind in India, has been constituted for implementation of future urban development projects in infrastructure. Constitution of Metropolitan Infrastructure Development Corporation(MIDC). Foreign collaborative industrial efforts already in the process of implementation in the automobile and textile sectors. Uttar Pradesh To give boost to software and hardware industries, the Government has set up software technology park and electronic cities at Noida and Kanpur. 9 Power purchase agreements have been signed with private promoters and 19 more are in the pipeline. 411 IEMs (Industrial Entrepreneurial Memorandum) have been fully implemented and 431 LOIs (Letter of Intent) have been implemented. 198 FDI (Foreign Direct Investment) proposals, 163 FTC (Foreign Technical Collaborations) have been finalished and 163 EOUs (Export Oriented Units) have been established. West Bengal The Single Window Agency of West Bengal Industrial Development Corporation (WBIDC) Ltd., strengthened to provide effective ‘Escort Service’ to new projects. Committee under the chairmanship of District Magistrate in each district formed to ensure quick decisions on land, employment and other issues. Private sector investment in power generation encouraged to meet increased demand.

BOX 7.5 ADB Loan of $ 250 million for the Gujarat Public Sector Resource Management Programme

Project Objectives The programme supports Government of Gujarat in improving public finances and augmenting domestic resource mobilisation, improving the allocation and efficiency of the public sector, and reducing Government of Gujarat’s role in commercial activities while promoting market oriented policies to enhance private sector particpation in the infrastructure sectors. Project Scope The programme focuses on (i) strengthening of State public finances and their prudent management; (ii) divesting and restructuring of State-owned enterprises (SOEs) to allow the private sector to take the lead in commercial activities while reducing the burden that SOEs put on the budget and the economy at large; and (iii) strengtheing the policy, regulatory,legal, and institutional frameworks for private sector participation in critcial infrastructure sectors(power, ports, and roads) and to evolve an enabling environment. Highlights of the Programme Reduction in overall fiscal deficit to sustainable levels. Sales tax reforms including introduction of value added tax (VAT), rationalisation of key state taxes and reforms of municipal taxes. Raise user charges to improve cost recovery. Expenditure rationalisation and improved fiscal policy management. SOE reform plan and associated institutional mechanism. Privatisation, partial divestment and restructuring, merger, leasing or closure of SOEs. Social safety mechanisms for restructuring of SOEs. Initial steps to start power sector reforms. Revision of power tariffs to maintain 3 per cent rate of return on Gujarat Electricity board's assets. Improved Investment planning in power. Creating a framework for promoting private sector investment in roads and ports and initiate private sector investment in roads and bridges by 1997. Restructuring of Gujarat Maritime Board. Strengthening of roads and bridges departments capabilities to process private sector road projects.

15. The quick estimates of the Index of Industrial Production (IIP) are available for the period April-October, 1996. According to this index industrial sector registered a growth rate of 9.8 per cent in April-October 1996, supported by a growth rate of 1.7 per cent in mining, 3.4 per cent in electricity and 12.1 per cent in manufacturing. As per the growth rates by use-based classification all the sub sectors performed well except basic goods (Table 7.3). Capital goods and intermediate goods sectors recorded growth rates of 16.6 per cent and 10.8 per cent respectively in April-October 1996 as against the growth rates of 15.0 per cent and 7.2 per cent respectively during April-October 1995. The consumer durables and consumer non-durables registered growth rates of 9.8 per cent and 7.7 per cent respectively in April-October 1996 as against growth rates of 30.2 per cent and 9.2 per cent respectively during April-October 1995. But, the basic goods sector registered a growth rate of only 6.7 per cent in April-October 1996 as against a growth rate of 11.1 per cent during April-October 1995.

16. The continuation of high growth rates within manufacturing are well spread and broad based. Of the 17 sub sectors within the manufacturing sector, 6 sectors have registered growth rates exceeding 10 per cent in April-October 1996. These sectors include transport equipment (21.7 per cent), electrical machinery (18.3 per cent), basic metals and alloys (16.1 per cent) food products (15.7 per cent), beverages and tobacco (14.0 per cent) and paper and paper products (11.0 per cent). The two groups which registered negative growth rates are jute textiles (-9.7 per cent) and other manufacturing industries (-6.0 per cent) (Table 7.4).

17. The current IIP (base 1980-81) covers 352 items. It is generally agreed that since 1980-81 Indian industry has undergone significant structural changes and the 1980-81 weights do not fully represent some of the sectors such as automobiles, leather goods and electronics which showed substantial dynamism in the 1980s and 1990s. It is also felt that the small scale industries (SSI) sector, which is a dynamic and fast growing sector of the Indian economy, remains under-represented in the weighting diagram due to non-availability of relevant data. It was, therefore, decided to shift the base to 1993-94 for obtaining a more representative weighting diagram. The revision work has been initiated and the shift is likely to be effected during 1997. To fulfil the emerging need of disaggregated statistics pertaining to the industrial sector and to facilitate comparative studies of industrial growth among different States/UTs, the Department of Statistics has initiated action to compile the comparable series of State IIPs with the common base year 1984-85 and with an appropriate linkage to the all-India IIP.

18. The overall investment scenario in the country continues to be buoyant and promising. The number of Industrial Entrepreneurs Memorandum (IEMs) and Letters of Intent (LOIs) filed from 1991 to December 1996 totalled 31,157 with overall investment intention of Rs.6,34,760 crore and estimated employment of 5.7 million (Table 7.5).

19.Transnational corporations and foreign firms have expressed keen interest in investing in India. The total number of foreign collaborations approved during 1991 to October 1996 amounted to 10,041 of which 5,434 proposals involved direct foreign investment amounting to Rs 78,030 crore (Table 7.6). More than 75 per cent of these foreign investments are in priority sectors such as core and infrastructure industries, capital goods and services (Table 7.7).

20.There has been a substantial growth in assistance disbursed by All India Financial Institutions during the recent months. During 1995-96, the All India Financial Institutions sanctioned Rs. 64,115 crore and disbursed Rs. 36,312 crore of financial assistance, registering an annual growth rate of 12.0 per cent and 13.9 per cent respectively over the level of assistance sanctioned and disbursed during 1994-95. During April-December 1996, sanctions by All India Financial Institutions stood at Rs. 34,458 crore and disbursements at Rs. 26,813 crore registering a decline of 26.3 per cent in sanctions and increase of 15.6 per cent in disbursements over April-December 1995. The decline in sanctions is attributable to a fall in assistance sanctioned by development financial institutions over April-December 1995 by 30 per cent. Over the same period assistance sanctioned by investment institutions increased by 2.9 per cent. For 1995-96, the growth in assistance sanctioned and disbursed would have been larger but for a fall in the assistance sanctioned and disbursed by investment institutions (viz. LIC, GIC and UTI) by 31.4 per cent and 6.0 per cent respectively.

21.The public issues launched during 1995-96 (both equity and debentures) at Rs.14,241 crore registered a decline from Rs. 21,044 crore in 1994-95.The amount of rights issued also declined marginally to Rs. 6,564 crore from Rs. 6,577 crore in 1994-95. Till December, 1996 the amount of public issues (both equity and debentures) stands at Rs. 8,619 crore and rights issues is worth Rs. 1,750 crore.

Industrial Employment

22.Table 7.8 gives the status of overall employment in industry.

23.All the three sub-sectors absorbing industrial population i.e. manufacturing, small-scale and ASI factory indicate a progressive rise in levels of employment over the years. The growth of employment in the small scale sector is highly encouraging as this displays the sector is still very much in a position to absorb large amount of idle labour.

Science & Technology and Research & Development.

24.The investment in Research and Development (R&D) has increased from a paltry Rs. 20 crore in the First Five Year Plan to about Rs. 20,000 crore in the Eighth Five Year Plan. Presently there are 214 universities, 400 national laboratories and 1300 in-house R & D centres in the industrial sector. Several Science & Technology departments have been set up in the areas of environment, non-conventional energy resources, bio-technology, ocean development, industrial research, space, atomic energy, defence, health, agriculture and electronics.

25.Identification and promotion of priority areas in R & D is done by Science and Engineering Research Council(SERC) set up under the Department of Science & Technology(DST).DST supports 12 autonomous research institutions as well, for furthering research work in several disciplines. Technology Information, Forecasting and Assessment Council(TIFAC) has been set up for generating technology forecasting and technology assessment documents and enabling a technology information system that is interactive and nationally accessible.

26.Industrial research in several diverse fields of scientific activity is being undertaken through a network of 40 laboratories and 81 field stations set up by the Council for Scientific and Industrial Research (CSIR). In the field of bio-technology, more than 24 specialised R & D centres have been developed for pursuing state-of-the-art research. Identical efforts for promoting new avenues of research are being undertaken in the field of ocean development as well.

27.The Union Budget for 1996-97 has taken various measures to promote R&D facilities. A matching one time grant has been awarded to CSIR and the Indian Council of Agricultural Research (ICAR) for modernisation of laboratories and institutes. The Technology Development and Application Fund created in 1995-96 has been proposed to be strengthened by Rs.30 crore. A Five Year Tax Holiday under Section 80-IA of the Income Tax Act has been allowed to companies exclusively created for participation in R&D activities. The existing procedure for awarding weighted deduction under Section 35(2AA) of the Income Tax Act on sums paid for scientific research to a National Laboratory or a University or an IIT has been amended, by deleting the condition of approval by an outside body. In order to encourage R&D efforts, goods developed and patented in India and concurrently in specified countries have been exempted from levy of excise duty for a period of 3 years. The exemption procedure for customs duty on import of equipment and consumables for R&D institutions has been rationalised as well.

28.Among the various policies enunciated for restructuring of the PSUs, a major step involved the disinvestment of a part of Government equities in selected public undertakings for improving their performance as well as to increase their public accountability by broad basing their management and ownership. In the process of disinvestment, a major step taken by the government has been to set up the Disinvestment Commission for working out the terms and conditions as well as modalities pertaining to disinvestment of public equities. At present the government contemplates restructuring of equity in 40 major PSUs, including blue-chip companies like ONGC, GAIL, SAIL, MTNL, IPCL, NTPC, BEML, Power Grid, NHPC, IOC, IBP and Bongaigaon Refineries. While the Commission is to determine the modalities of disinvestment, the actual sale of PSU shares would be done through Deptt. of Public Enterprises(DPE). The Commission also intends to identify the non-core PSUs where the Government may even disinvest by more than 50 per cent and may have minority ownership. Box 7.6 indicates the year-wise and PSU-wise details of Government equities in 40 selected public sector enterprises, where it has approved disinvestment since 1991 until the end of September 1996.

29.Under the auspices of the National Renewal Fund(NRF)set up in February 1992, for mobilising funds to assist voluntary retired persons from PSUs in undergoing re-training and re-deployment, Rs. 252 crore and Rs.217 crore were released in 1994-95 and 1995-96, respectively. An estimated number of 87,800 workers have opted for voluntary retirement so far and a major portion of NRF has been utilised in the textile sector.

30.Memorandum of Understandings (MOUs) system has been further strengthened. During 1995-96, 104 PSEs signed MOUs as compared to 99 in 1994-95. The Department of Public Enterprises (DPE) carries out an exercise every year for assessing the annual performance of the PSEs who have signed MOUs. As per the latest evaluation, out of 104 PSEs, 51 were rated as excellent, 31 as very good and a meagre 2 as poor. Evaluation for 1 unit is still pending. The results indicate a marked improvement over 1994-95 when 39 units were rated as excellent among the 95 appraised. The financial performance of the PSEs has also been better than their targeted levels for 1995-96 (Table 7.9). The gross margin during 1995-96 stood at Rs. 26,137 crore as against the target of Rs. 24,106 crore thereby surpassing the targeted level by 8 per cent.

31.The profitability of PSUs in terms of ratios of gross margin, gross profit and pre-tax profit to capital employed have shown some improvement recently (Table 7.9).The ratio of PAT to net worth has also improved. Out of the 15 large enterprises which are monopolies and operate in the core sector the loss making ones included Fertiliser Corporation of India, Indian Airlines Corporation, Bharat Gold Mines, Rashtriya Ispat Nigam and Hindustan Shipyard.

Box 7.6

Year-wise/PSU-wise Details of Shares Disinvested Since 1991-92

-----------------------------------------------------------------------------------------------
  S.No. Name of the PSE                                 %of Central Govt. Holding
                                                -----------------------------------------------
                                                1.7.91  31.3.92 31.3.93 31.3.94 31.3.95 31.3.96
-----------------------------------------------------------------------------------------------
1.      Andrew Yule                             71.30   62.80   62.80   62.80   62.80   62.80
2.      Bharat Earthmovers Ltd.                 100.00  80.00   80.00   80.00   60.08   60.08*
3.      Bharat Electronics Ltd                  100.00  80.00   80.00   80.00   75.86   75.86
4.      Bharat Heavy Electricals Ltd.           100.00  80.00   79.54   79.46   67.72   67.72
5.      Bharat Petroleum Corpn Ltd.             100.00  80.00   70.00   69.62   66.20   66.20
6.      Bongaigaon Refineries & Petro. Ltd.     100.00  80.00   74.60   74.59   74.47   74.47
7.      CMC Ltd.                                100.00  83.31   83.31   83.31   83.31   83.31
8.      Cochin Refineries Ltd.                   61.16  55.04   55.04   55.04   55.04   55.04
9.      Dredging Corpn Ltd.                     100.00  98.56   98.56   98.56   98.56   98.56
10.     Fert. & Chem. (Travancore) Ltd.          98.69  97.46   97.35   97.35   97.35   97.35
11.     HMT Ltd.                                100.00  95.14   90.32   90.32   90.32   90.32
12.     Hindustan Cables Ltd.                   100.00  96.36   97.97   97.97   97.97   95.97
13.     Hindustan Copper Ltd.                   100.00 100.00   98.88   98.88   98.88   98.88
14.     Hindustan Organic Chemicals Ltd         100.00  80.00   80.00   80.00   56.90   56.90*
15.     Hindustan Petroleum Corpn. Ltd.         100.00  80.00   70.00   69.72   60.25   51.00*
16.     Hindustan Photofilms Mfg. Co. Ltd.      100.00  87.47   87.47   87.47   87.47   87.47
17.     Hindustan Zinc Ltd.                     100.00  80.04   75.93   75.93   75.92   75.07
18.     Indian Petrochemicals Corpn Ltd.        100.00  80.00   80.97   62.40   62.40   61.43
19.     Indian Railway Const. Co. Ltd.          100.00  99.74   99.74   99.74   99.74   99.74
20.     Indian Telephone Industries Ltd.         99.65  79.72   77.79   77.67   77.02   77.02
21.     Madras Refinerries Ltd.                  84.62  67.70   67.70   51.80   51.80   51.80
22.     Mahanagar Telephone Nigam Ltd.          100.00  80.00   80.00   80.00   67.18   65.73#
23.     Minerals & Metals Trading Corpn.        100.00  99.33   99.33   99.33   99.33   99.33
24.     National Aluminium co. Ltd.             100.00  97.28   87.20   87.19   87.15   87.15
25.     National Fertilizers Ltd.               100.00  97.72   97.66   97.66   97.65   97.65
26.     National Mineral Dev. Corpn. Ltd.       100.00 100.00   98.38   98.38   98.38   98.38
27.     Neyveli Lignite Corporation             100.00  95.42   93.86   94.19   94.19   93.29
28.     Rashtriya Chemicals & Fertilizers       100.00  94.36   92.50   92.50   92.50   92.50
29.     Shipping Corpn. of India                100.00  81.49   81.49   81.49   80.12   80.12
30.     State Trading Corpn.                    100.00  92.02   91.02   91.02   91.02   91.02
31.     Steel Authority of India Ltd.           100.00  95.01   89.49   89.45   89.04   88.93#
32.     Videsh Sanchar Nigam Ltd.               100.00  85.00   85.00   85.00   85.00   82.02
33.     Container corporation of India          100.00 100.00  100.00  100.00   80.00   76.92#
34.     Indian Oil Corporation                   99.88  99.88   99.88   99.88   96.08   91.04
35.     Oil & Natural Gas Gorporation           100.00 100.00  100.00  100.00   98.00   96.12
36.     Engineers India Ltd.                    100.00 100.00  100.00  100.00   94.01   94.01
37.     Gas Authority of India Ltd.             100.00 100.00  100.00  100.00   96.63   96.63
38.     Indian Tourism & Dev. Corp.             100.00 100.00  100.00  100.00   90.00   89.97
39.     Kudermukh Iron & Ore Company Ltd.       100.00 100.00  100.00  100.00   99.03   99.03
40.     Industrial Dev. Bank of India.          100.00  100.00 100.00  100.00  100.00   72.14
-----------------------------------------------------------------------------------------------

#       Figures are provisional, as the shares sold in Oct. 1995 are yet to be transferred in favour of successful Bidders.
*       These companies had floated public issues. Percentage of Govt. holding after proposed public issue is not known.

            
                     Subsidy on Major Products

                                            (Rs.crore)
            ______________________________________________________________________                  
Subsidy                 Subsidy before    1996-97         1996-97
                        Price Increase    (After Price    (Current
                                           Revision       Estimates)
                                           in July, 1996)               
______________________________________________________________________
HSD                     4900               1980                 8340
    Rs./Litre           1.17               0.47                 1.97

SKO (Domestic)          4870               4870                 6350
    Rs./Litre           4.17               4.17                 5.18

LPG (Domestic)          2210               1710                 1950
    Rs./Cylinder        80.90              62.55                70.22

Naptha (Fert)           940                 690                 980
    Rs./MT              3073                2253                3163

FO (Fert)               560                 470                 390
    Rs./KL              585                 2997                2587

LSHS(Fert)              200                 110                 200
    Rs./MT              1482                811                 1502

Bitumen(Packed)         220                 140                 190
    Rs./MT              2720               1724                 2596

WAX                     40                  10                  40
    Rs/MT               5676                1333                5676

Total                   13940               9980                18440
______________________________________________________________________

87.The small scale sector contributes over 40 per cent to the gross turnover in the manufacturing sector, 45 per cent of manufacturing exports and 34 per cent of total exports.

88.The number, employment, output and exports in the small scale sector as estimated by the Office of the Development Commissioner, Small Scale Industries are given in Table 7.18.

89.In output terms, the small scale sector recorded a growth rate of 11.4 per cent in 1995-96, as against 10.1 per cent in 1994-95. The growth of the small sector has been generally above the growth rates achieved by the industrial sector as a whole. However, the estimated growth rate of the small scale industries in 1995-96 at 11.4 per cent kept pace with the overall industrial growth rate of 11.7 per cent.

90.Several new measures have been adopted for improving the efficiency and performance of the small scale units. These include provision of infrastructural support in integrated manner through Integrated Infrastructure Development (IID) scheme, enhanced technology support for modernisation and quality upgradation through opening of five new tool rooms with Danish and German assistance, enhancing entrepreneurship development programmes by involving voluntary agencies, strengthening special employment generation programmes through Prime Minister's Rozgar Yojana (PMRY) scheme and enhancing the information and data base of the small scale industries sector. Box 7.8 summarises the facilities and incentives provided to the small scale industries sector.

91.Investment limits on plant and machinery for the small scale industries have been raised from Rs. 60 lakh/75 lakh to Rs. 3 crore and that for tiny units has been raised from Rs. 5 lakh to Rs. 25 lakh. Export obligation on non-SSI units manufacturing reserved items has been reduced from 75 per cent to 50 per cent.

92.At the end of March 1996, the aggregate bank credit to SSI sector amounted to Rs. 29,482 crore accounting for 15.99 per cent of the aggregate net bank credit, as against Rs. 25,843 crore at the end of March 1995 accounting for 15.29 per cent of the total net bank credit disbursed. The advances outstanding against tiny sector increased from Rs. 7,734 crore at the end of March 1995 to Rs. 8,183 crore at the end of March 1996. However, the share of tiny sector in the advances to SSI sector has declined from 29.93 per cent at the end of March 1995 to 27.76 per cent at the end of March 1996.

BOX 7.8 Incentives and Facilities for Small Scale Industries

Fiscal Incentives Excise concessions available for both registered and unregistered units on a graded scale depending on turnover upto Rs.300 lakh. Full exemption upto a turnover of Rs.30 lakh and concessional rate of excise duty for a turnover in excess of Rs.30 lakh but not exceeding Rs.75 lakh and normal rate of duty thereafter. Reservation of products for exclusive manufacture (836 products at present). Investment ceiling on plant and machinery for SSI units has been raised from Rs. 60 lakh/75 lakh to Rs. 3 crore and that on tiny units from Rs. 5 lakh to 25 lakh. Export obligation of non-SSI units producing reserved items has been reduced from 75 per cent to 50 per cent. Price and purchase preference to products manufactured in small scale sector in Government purchase programme. Infrastructural support to Entrepreneurship Development Instititutes (EDIs) to augment their training capacities. Joint programme with the State Bank of India (SBI) and Small Industries Development Bank of India (SIDBI) for modernisation and technology upgradation of industry cluster. Assistance to industrial associations/voluntary agencies to set up testing centres. Special programmes on vendor development, quality awareness and pollution control. A scheme of Integrated Infrastructure Development (IID) was launched in March, 1994 to strengthen infrastuctural facilities in rural and backward areas. 20 projects have been sanctioned so far. Quality certification scheme launched to improve SSI product quality. Financial support to acquire ISO 9000. A scheme for creation of technology development fund in the States launched with the involvment of the State Government and Industry associations. Credit Policies Priority sector lendings to SSIs. 40 per cent of advances to SSI sector reserved for tiny sector and village and cottage industries. Concessional/fixed rate of interest of loans upto Rs.2 lakh (two slabs). Computation of working capital limits on the basis of minimum of 20 per cent of projected annual turnover for SSI units with fund based working capital requirement upto Rs.100 lakh. Seven Point Action Plan for improving the flow of credit to SSI sector initiated in 1995-96, consisting of: Time bound action for setting up of specialised SSI branches in 85 identified districts. At least, 100 such dedicated branches were opened before the end of 1995-96. More than 100 branches were opened in 1995-96 and banks will open 100 more spe Adequate delegation of powers at the branch and regional levels. Banks to conduct sample surveys of their performing SSI accounts to find out whether they are getting adequate credit. Steps to be taken to ensure that composite loans (covering both term loans and working capital) are sanctioned to SSI entrepreneurs as far as possible. Regular meetings by banks at zonal and regional levels with SSI entrepreneurs. Need to sensitize bank managers and reorient them regarding working of the SSI sector. Simplification of procedural formalities by banks for SSI entrepreneurs. Scope of National Equity Fund (NEF) scheme providing equity type assistance at 1 per cent service charge enhanced to cover whole country except metropolitan areas to support expansion, modernisation and techology upgradation. Ceiling of soft loan assi Technology Development & Modernisation Fund (TDMF) scheme launched for modernisation and for improved and updated technology to export oriented units.

93.The number of beneficiaries being extended support under the National Equity Fund (NEF) scheme rose to 685 in 1995-96 as against 536 in 1994-95. The sanctions awarded under the scheme stood at Rs.6.6 crore in 1995-96 as compared to 3.1 crore in 1994-95. The disbursements, on the other hand, amounted to Rs.3.8 crore as against Rs.2.2 crore in the previous year.

94.Under the Technology Development and Modernisation Fund (TDMF), loans amounting to Rs. 25.46 crore were sanctioned in the year 1995-96 to 64 units by Small Industries Development Bank of India (SIDBI). Further under the IID scheme, 20 projects have been sanctioned in different parts of the country. Several measures have been taken as well for promoting entrepreneurship development through different courses and schedules.

Industrial Sickness

95.Since its inception in May 1987, 1,853 references have been registered with Board for Industrial and Financial Reconstruction (BIFR) upto December 31,1996 under the Sick Industrial Companies (Special Provision) Act, 1985, both in respect of private companies and public sector undertakings. Out of 2,692 references received by it, 406 references were dismissed as non-maintainable under the Act. Rehabilitation schemes were approved/sanctioned in 404 cases while winding up was recommended in 496 cases. 184 companies have been declared "no longer sick" on successful completion of the rehabilitation schemes sanctioned for them. As regards public sector undertakings, out of the 188 references registered upto December, 1996, 28 were dismissed as non-maintainable, 36 were recommended for rehabilitation schemes and winding up was suggested for 24. Four public sector undertakings have already been declared ``no longer sick" on successful completion of the rehabilitation schemes. The proportion of cases effectively decided to those registered by BIFR till the end of December, 1996 has improved to 80.41 per cent.

96.BIFR has taken a number of steps to streamline its internal procedure with a view to speed up disposal of cases registered with it. The time taken for holding first hearing has been brought down to 30 days recently as against 160 days before. The time lag between hearings has also been reduced considerably. The number of hearings has increased progressively over the years. As against 614 hearings in 1988, 1,560 hearings were held in 1995. 1,485 hearings were held upto December, 1996 despite the fact that the Board has been functioning with only three Benches since April, 1996.

97.The number of cases being registered with the BIFR has been decreasing progressively except in 1994 when 193 references were registered. In 1995 only 117 cases were registered while in 1996 it stands at 97 upto December, 1996. Due to the combined effect of accelerated disposal and reduced fresh registrations, the total pendency of cases in BIFR, which was 436 as on January 1, 1996, has come down to 336 cases as on December 31, 1996. Table 7.19 gives the status relating to private and public sector undertakings registered with BIFR as on December 31, 1996.

98.As per the information available with the RBI there were 2,71,206 sick industrial units in the country with outstanding bank credit of Rs.13,739 crore as on March 1995. They accounted for 6.7 per cent of the total bank credit and 13.3 per cent of the total bank advances to industry. These ratios were significantly lower than in the preceding two years. While the small scale units accounted for 99.1 per cent of the total number of sick industrial units, their share in total outstanding bank credit to sick industrial units was only 25.8 per cent (Table 7.20). The reasons for industrial sickness are internal factors such as project appraisal deficiencies, project management deficiencies and several external factors like shortage of raw materials, power crisis, transport and financial bottlenecks, changes in Government policy, increase in overhead cost etc. Marketing problems in the form of market saturation, product obsolescence and demand recession are also to be held responsible.

99.The Reserve Bank has been placing emphasis on a systematic approach to the detection of sickness at the incipient stage and timely formulation of rehabilitation packages in respect of those sick/weak non-SSI units which are found to be potentially and commercially viable. The RBI continues not only to monitor the performance of individual banks through their half-yearly returns but also guide the banks and financial institutions in implementation of sanctioned rehabilitation packages.

Industrial Relations

100.Industrial relations have shown a steady improvement in the years following the economic reforms. Mandays lost due to strikes and lockouts declined significantly from 22.97 million in 1992-93 to 17.99 million in 1995-96 (Table 7.21). This was mainly due to improvement in the industrial relations situation in cotton, engineering, coal and non-coal mining, beverages, tobacco & tobacco products, jute and rubber industries. During 1992-96, industrial unrest was witnessed mainly in the states of Andhra Pradesh, Gujarat, Tamil Nadu and Maharashtra. Government's proactive role through timely and effective conciliation of industrial disputes and involvement of the social partners in the formulation and implementation of labour and industrial relations policies and programmes has successfully harmonised the interests of employers and workers.

101.The rapid increase in industrialisation and urbanisation has exerted extra pressure on the infrastructural facilities of human settlements manifesting in environmental problems like increased incidence of air, water and noise pollution.

102.The ambient air quality of major towns and cities in the country is being monitored under the National Ambient Air Quality Monitoring (NAAQM) programme. The monitoring results indicate that sulphur dioxide and Nitrogen dioxide levels are mostly within the permissible limits whereas Suspended Particulate Matter (SPM) values are higher than the prescribed limits at some places due to vehicular and air pollution, burning of fossil fuel and natural dusty conditions. The pollution caused by vehicles contributes significantly towards air pollution. The problem of suspended particulate matter is more acute during the summer due to local dusty conditions. During the winter months, lower ambient temperatures, lower mixing depth temperature inversion, higher traffic density, higher consumption of domestic fuels, aggravate the pollution problems.

103.The data on ambient water quality of rivers indicates that levels of coliform count and Biological Oxygen Demand (BOD) are generally high resulting in deterioration of water quality. This is primarily due to inadequate sanitation facilities and discharge of waste water into the surface water bodies without proper treatment.

104.Urban noise levels in major cities also indicate an increasing trend due to rise in human population, automobiles and industrial activities. Specific studies reveal that noise levels in industrial areas are generally within the prescribed limits but exceed the standards in respect of commercial, residential and silence zones during certain hours. The problem is more conspicuous near the traffic intersections and commercial centres.

105.The on-going initiatives of Government to improve environment include preventive as well as promotive measures. Fiscal incentives are provided by the Government to encourage the installation of appropriate pollution abatement equipment in the form of custom waive off and soft loans. While the industries are encouraged and the fiscal incentives are provided for installing equipment for control of pollution, punitive measures including legal action is taken against the defaulting units.

106.To achieve the goal of pollution abatement, emission and effluent standards for air, water and noise have been notified. Regular monitoring is carried out and the enforcement efforts have been intensified. At present, a majority of identified units have already installed the requisite pollution control equipment. According to the data collected by the Central Pollution Control Board (CPCB) on September 30, 1996, out of 1,551 units belonging to 17 categories of highly polluting industries, 1,259 units had facilities to comply with the environmental standards, 112 were closed and 180 were not having adequate facilities. Show Cause notices under Section 5 of the Environment (Protection) Act 1986 have been issued to all the defaulting units.

107.Apart from notifications of effluent and emission standards for the major categories of polluting industries, national ambient air quality standards including ambient noise standards have been notified. Industries have been directed to instal necessary pollution control equipment within a stipulated time frame. More stringent norms for vehicular emissions have been notified under the Central Motor Vehicles Rules which have come into effect from April, 1996. Supply of unleaded petrol in four metropolitan cities of Mumbai, Calcutta, Delhi and Chennai has been introduced with effect from April 1, 1995 for use in four wheel vehicles fitted with catalytic converters. The use of unleaded petrol will be gradually expanded to other cities in the country.

108.Twenty-four critically polluted areas in the country have been identified and action plans have been drawn up to improve the quality of environment in these areas. Adoption of clean technologies of production and formation of Waste Minimisation Circles is being encouraged to minimise environmental pollution. Under the World Bank aided Industrial Pollution Control Project, technical and financial assistance is provided for setting up Common Effluent Treatment Plants (CETPs) in clusters of small scale industrial units. An "Eco-Mark" scheme has been launched to certify various products of the industries which fulfil the prescribed pollution control standards to achieve the objective of environment-friendly production, packaging and waste disposal. To increase public awareness and participation, several public awareness campaigns on effects of pollution and measures to control it have been launched.

109.The Policy Statement for Abatement of Pollution indicates adoption of best available clean and practicable technologies, rather than end-of-the-pipe treatment, as the key elements for pollution prevention. As a part of this thrust, the Ministry of Environment & Forests has set up a Clean Technologies Division for identifying cleaner technologies that can be introduced in different development sectors. Techniques like coal beneficiation are being promoted. The programme envisages setting up a National Clearing House for cleaner technologies as the overall co-ordinating agency and sectoral centres in different areas of development to focus on their activities. Another initiative taken to motivate environmentally oriented technologies and practices is mandatory submission of Annual Environmental Statements which would be subsequently evolved into environmental audit.

110.Prior environmental clearance of development projects based on impact assessment is being increasingly emphasised. Such clearance has been made mandatory for 29 specified categories of development projects through a statutory notification issued in January, 1994. This has been done with a view to mitigating the adverse environmental effects of these projects and in integrating the environmental concerns into development. This mechanism is also of help in catalysing the process of inducting cleaner environment-friendly technologies into the developmental process. (Table 7.22)

111.The success of the Ganga Action Plan has encouraged its replication for water pollution abatement in tributaries of the Ganga (Yamuna, Gomati and Damodar) under Ganga Action Plan Phase-II. A wider scheme called the National River conservation Plan covering pollution abatement works for grossly polluted stretches in 18 major rivers in 10 States of the country has also been initiated. Further, a programme for conservation of selected lakes has also been formulated by the Ministry.

112.The National Environmental Tribunal Act, providing relief, compensation and restitution to victims of accidents while handling hazardous substances, and for environmental damages, came into force from 17 June, 1995. The Act provides (i) strict liability for damages arising out of any accident occurring while handling any hazardous substances and (ii) Establishment of a National Environmental Tribunal for effective and expeditious disposals of cases arising from such accidents with a view to give relief and compensation for damage to persons, property and the environment and (iii) matters connected therewith or incidental thereto.

113.The National Environment Appellate Authority (NEAA) has been set up by the Government in January 1997. Public hearings have now been built into the environment impact assessment. The machinery for hearing appeals against environment pollution impact assessment is also being set up. The measures are to ensure greater transparency and faster decision-making in matters concerning the environmental impact of industrial projects.

114.Industrial growth which remained buoyant in 1995-96 has slowed down in the first half of 1996-97. The slowdown of industrial growth is due to a number of factors including constraints in the infrastructure sector, terms of credit availability, lower demand from exports and other segments. In particular, crude oil production and hydel power generation have declined in the first half of 1996. This negative growth coupled with deceleration in thermal and nuclear power and coal production have contributed to the dampening of industrial growth. A general slowdown of demand due to delayed budget presentation and high interest rates along with slowdown in investment, exports, and private and public consumption expenditure have also dampened industrial growth and have possibly led to unintended inventory build up in the current year. At the micro level a slowdown is evident in automobiles, steel and fertiliser production.

115.However, the manufacturing sector which contributes more than three-fourths of industrial production is performing well. The slight slowdown of growth in industrial production is neither generalised nor widespread. The slowdown is essentially confined to the basic goods sector which is primarily due to infrastructural constraints in energy and mining. Otherwise, all other sub-sectors viz. capital goods, intermediate goods and consumer goods are doing well in the current year. A temporary slowdown of the industrial growth cannot be regarded as the beginning of a recession.

116.The warning signals of deceleration in industrial production in certain sectors have been taken very seriously by the Government. Corrective actions have been initiated in the capital and money markets to induce industrial growth. A number of policy measures have been announced by the Reserve Bank of India to ensure that genuine production activities get adequate credit. These include substantial scaling down of cash reserve ratio (CRR), raising of export credit limit, permitting commercial banks to provide foreign currency denominated loans and reduction in Prime Lending Rates (PLR) for all advances and to announce the maximum spread over PLR by banks. A better agricultural performance in the second half of the year is likely to result in increased demand that augurs well for industry. Given these trends, the current year is expected to end up with an industrial growth rate of around 10 per cent.