Unit-3

Iron and Steel Industry

SWOT Analysis

a. Strength

a. Abundant resources of iron ore

b. Low cost and efficient labor force

c. Modern new plants & modernized old plants

d. Strongly globalised industry and emerging global competitiveness

b. Weakness

a. High cost of energy Higher duties and taxes

b. High cost of capital

c. Quality of coking coal

d. Labor laws

e. Dependence on imports for steel manufacturing equipments & technology

f. Slow statutory clearances for development of mines

c. Opportunity

a. Huge Infrastructure demand

b. Rapid urbanization

c. Increasing demand for consumer durables

d. Untapped rural demand

e. Increasing interest of foreign steel producers in India

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 d. Threat

a. Slow growth in infrastructure development

b. Market fluctuations and China’s export possibilities

c. Global economic slow down

Growth and Problems of Major Industries: Iron and Steel Industry

The real beginning of modem iron and steel industry was made in 1907 only when Tata Iron
and Steel Company (TISCO) was set up at Jamshedpur.

The Indian Iron and Steel Company (IISCO) was set up in 1919 at Bumpur followed by the
setting up of Mysore Steel Works at Bhadravati (now Visveswaraya Iron and Steel Works) in
1923.

Iron and steel Industry witnessed rapid growth after Independence. India produced 16.9 lakh
tonnes of pig iron in. 1950-51. The Second Five-Year Plan that the three integrated steel
projects were started at Bhilai, Rourkela and Durgapur.

India is now the eighth largest producer of steel in the world. Recent developments have
amply demonstrated the mettle of Indian steel industry to rise even further and become a major
player in the world.

Steel Authority of India Limited (SAIL) Established in 1973, SAIL is a government

undertaking and is responsible for the management of steel plants at Bhilai, Durgapur, Rourkela,
Bokaro and Bumpur and also the Alloy Steel Plant at Durgapur and Salem Steel Plant. The
management of Indian Iron and Steel was taken over by Government on 14th July, 1976. SAIL
also took over Maharashtra Elektrosmelt Limited, a mini steel plant, in January 1986.
Visweswaraya Iron and Steel Limited were also taken over by SAIL in August 1989.

Iron and steel industry uses large quantities of heavy and weight losing raw materials and its
localization is primarily controlled by the availability of raw materials. Coal and iron ore are the
two basic raw materials used by iron and steel industry and on the basis of minimum
transportation cost most of the steel plants are located at three distinct places viz. (i) near coal
fields, (ii) near iron ore mining centres and (iii) at places between areas of coal and iron ore
production.

Most of the iron and steel plants of India such as Jamshedpur, Bumpur, Durgapur, Rourkela,
Bhilai and Bokaro are located in Jharkhand, West Bengal, Orissa and Chhattisgarh. These states
are very rich in coal and iron ore deposits and are important producers of these materials.
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 The other raw materials used in this industry are manganese, limestone, dolomite, chromite,
silica, etc. These raw materials are used in small quantities and can be transported without much
difficulty. Hence, they do not materially affect the localization of this industry.

Centers of Production:
At present there are 10 primary integrated plants and a large number of decentralized secondary
units known as mini steel plants. Besides, there are several rolling and re-rolling mills and
foundries which manufacture different items of steel using pig iron and ingot steel. There are
about 10,000 foundries, 95 per cent of which are concentrated in the western states of
Maharashtra and Gujarat and in the southern state of Tamil Nadu.

Some of the major problems faced by Indian iron and steel industry are
as follows:

1. Capital:

Iron and steel industry requires large capital investment which a developing country like
India cannot afford.

Many of the public sector integrated steel plants have been established with the help of
foreign aid.

2. Lack of Technology:

Throughout the 1960s and upto the oil crisis in mid-1970s, Indian steel industry was
characterized by a high degree of technological efficiency. This technology was mainly
from abroad. But during the following two decades after the oil crisis, steep hike in
energy costs and escalation of costs of other inputs, reduced the margin of profit of the
steel plants.

This resulted in lower levels of investment in technological developments. Consequently,

the industry lost its technology edge and is now way behind the advanced countries in
this regard. Material value productivity in India is still very low.

In Japan and Korea, less than 1.1 tonnes (and in several developed countries 1.05 tonnes)
of crude steel is required to produce a tonne of saleable steel. In India, the average is still
high at 1.2 tonnes. Improvement in the yield at each stage of production, particularly for
value added products will be more important in the coming years.

3. Low Productivity:

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 The per capita labour productivity in India is at 90-100 tonnes which is one of the lowest
in the world. The labour productivity in Japan, Korea and some other major steel
producing countries is about 600-700 tonnes per man per year.

At Gallatin Steel a mini mill in the U.S. there are less than 300 employees to produce 1.2
million tonnes of hot rolled coils. A comparable facility in India employs 5,000 workers.
Therefore, there is an urgent need to increase the productivity which requires retraining
and redevelopment of the labour force.

4. Inefficiency of public sector units:

Most of the public sector units are plagued by inefficiency caused by heavy investment
on social overheads, poor labour relations, inefficient management, underutilization of
capacity, etc. This hinders proper functioning of the steel plants and results in heavy
losses.

5. Low potential utilization:

The potential utilization in iron and steel is very low. Rarely the potential utilisation
exceeds 80 per cent. For example, Durgapur steel plant utilises only 50 per cent of its
potential. This is caused by several factors, like strikes, lockouts, scarcity of raw
materials, energy crisis, inefficient administration, etc.

6. Heavy demand:

Even at low per capita consumption rate, demand for iron and steel is
increasing with each passing day and large quantities of iron and steel are to be imported
for meeting the demands. Production has to be increased to save precious foreign
exchange.

7. Shortage of metallurgical coal:

Although India has huge deposits of high grade iron ore, her coal reserves, especially
high grade cooking coal for smelting iron are limited. Many steel plants are forced to
import metallurgical coal. For example, steel plant at Vishakhapatnam has to import coal
from Australia. Serious thought is now being given to replace imported coal by natural
gas from Krishna-Godavari basin.

8. Inferior quality of products:

Lack of modern technological and capital inputs and weak infrastructural facilities leads
to a process of steel making which is more time consuming, expensive and yields inferior

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variety of goods. Such a situation forces us to import better quality steel from abroad.
Thus there is urgent need to improve the situation and take the country out of desperate
position.

Major Players of Iron & Steel Industry

 Steel Authority of India

 Tata Steel Ltd.
 JSW Steel Ltd.
 Essar Steel Ltd.
 Ispat Industry Ltd.
Cotton Textiles
a. Strength:

 Entrepreneurship: India has always had very good entrepreneurs which is the

backbone of Indian textile industry. Having many skilled entrepreneurs India is being
able to setup lot of textile industry to help in the growth of the country.
 Traditional: The cultural diversity and rich heritage of the country offers good
inspiration base for designers.
 Labor availability: The availability of labor is high in our country and with
cheap labor. This helps to employ more number of employees, which will lead to more
production and thus helps to improve the global economy.
 Market demand: Natural demand drivers including rising income levels,
increasing urbanization and growth of the purchasing population drive domestic
demand
b. Weakness:

 An inadequate value addition –– Indian industry does not indulge in giving a value
addition to the products that they have manufactured where leading countries have a
separate department.
 Inability to meet quality compliances –– Because of the lack of technology,
unskilled labors, lack of adaptation to advanced machineries and due to certain
policies by the government and companies there is inability to meet quality
compliances.
 Inadequate training to sewing operatives. Infrastructure –– Comparing with other
competitive countries the infrastructure is poor in India.

c. Opportunities:

 High labor costs abroad

 Unlimited market access
 Unrestricted market

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  Shift of production base from west to east
 Growing domestic market
 Technical textiles innovation
d. Threat:

 Absence of protections under WTO

 Emerging competition
 Environmental / social issues
 Non-tariff barriers
 ISO-9001 standard
 ISO-14000 standard
Growth and Problems of Major Industries: Cotton Textiles

Growth and Development:

India held world monopoly in the manufacturing of cotton textiles for about 3,000 years
from about B.C. 1500 to A.D. 1500. In the middle ages, Indian cotton textile products
were in great demand in the Eastern and European markets.

The first modem cotton textile mill was set up in 1818 at Fort Glaster near Kolkata. But
this mill could not survive and had to be closed down. The firat successful modem cotton
textile mill was established in Mumbai in 1854 by a local Parsi entrepreneur C.N. Dewar.
Shahpur mill in 1861 and Calico mill in 1863 at Ahmedabad were other landmarks in the
development of Indian cotton textile industry.

The real expansion of cotton textile industry took place in 1870’s. By 1875-76 the
number of mills rose to 47 of which over 60 per cent were located in Mumbai city alone.
The industry continued to progress till the outbreak of the First World War in 1914. The
total number of mills reached 271 providing employment to about 2.6 lakh persons.

The First World War, the Swadeshi Movement and the grant of fiscal protection favoured
the growth of this industry at a rapid pace. Demand for cloth during the Second World
War led to further progress of the industry. Consequently, the number of mills increased
from 334 in 1926 to 389 in 1939 and 417 in 1945. Production of cloth also increased
from 4,012 million yards in 1939-40 to 4,726 million yards in 1945-46.

The industry suffered a serious setback in 1947 when most of the long staple cotton
growing areas went to Pakistan as a result of partition. However, most of the cotton mills
remained in India. Under such circumstances, India faced a severe crisis of obtaining raw
cotton.

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The country had, therefore, to resort to large-scale imports of long staple cotton which
was an extremely difficult task in view of the limited foreign exchange reserves. The only
solution to this problem was to increase hectare-age and production of long staple cotton
within the country. This goal was achieved to a great extent in the post partition era.

Present Position:

Table 27.4 Production of Cotton Cloth (Mill Cloth) in India, 2002-03:

State/Union Percentage of all India

Production in Sq Mtr
Territory production
1. Maharashtra 3,82,257 39.38
2. Gujarat 3,21,775 33.14
3. Tamil Nadu 64544 6.69
4. Punjab 55,784 5.75
5. Madhya Pradesh 47305 4.87
6. Uttar Pradesh 32386 334
7. Rajasthan 28384 2.92
8. Pondicherry 24357 2.51
9. Karnataka 7,222 0.74
10. Kerala 6342 0.66
Total 9,70,756 100.00

Problems of Cotton Textile Industry:

Although cotton textile is one of the most important industries of India, it suffers from
many problems. Some of the burning problems are briefly described as under:

1. Scarcity of Raw Cotton:

Indian cotton textile industry suffered a lot as a result of partition because most of the
long staple cotton growing areas went to Pakistan. Although much headway has been
made to improve the production of raw cotton, its supply has always fallen short of the
demand. Consequently, much of the long staple cotton requirements are met by resorting
to imports.

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2. Obsolete Machinery:
Most of the textile mills are old with obsolete machinery. This results in low productivity
and inferior quality. In the developed countries, the textile machinery installed even 10-
15 years ago has become outdated and obsolete, whereas in India about 60-75 per cent
machinery is 25-30 years old.

Only 18-20 per cent of the looms in India are automatic whereas percentage of such
looms ranges from cent per cent in Hong Kong and the USA., 99 per cent in Canada, 92
per cent in Sweden, 83 per cent in Norway, 76 per cent in Denmark, 70 per cent in
Australia, 60 per cent in Pakistan and 45 per cent in China.

3. Erratic Power Supply:

Power supply to most cotton textile mills is erratic and inadequate which adversely
affects the production.

4. Low Productivity of Labour:

Labour productivity in India is extremely low as compared to some of the advanced
countries. On an average a worker in India handles about 2 looms as compared to 30
looms in Japan and 60 looms in the USA. If the productivity of an American worker is
taken as 100, the corresponding figure is 51 for U.K. 33 for Japan and only 13 for India.

5. Strikes:
Labour strikes are common in the industrial sector but cotton textile industry suffers a lot
due to frequent strikes by a labour force. The long drawn strike in 1980 dealt a severe
below to the organised sector. It took almost 23 years for the Government to realise this
and introduce legislation for encouraging the organised sector.

6. Stiff Competition:
Indian cotton mill industry has to face stiff competition from powerloom and handloom
sector, synthetic fibres and from products of other countries.

7. Sick Mills:
The above factors acting singly or in association with one another have resulted in many
sick mills. As many as 177 mills have been declared as sick mills. The National Textile
Corporation set up in 1975 has been striving to avoid sick mills and has taken over the
administration of 125 sick mills. What is alarming is 483 mills have already been closed.

Exports:

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India is a major exporter of cotton textiles. Cotton yarn, cloth and readymade garments
form important items of Indian exports. Indian garments are well known throughout the
world for their quality and design and are readily accepted in the world of fashion.

Major Players of Textiles Industry

 Arvind Mills
 Raymonds
 Reliance
 Bombay Dyeing Ltd.
 Grasim Industry
Growth and Problems of Major Industries: Cement

Cement Company plays a major role in the growth of the nation. Cement is a key infrastructure
industry. Cement industry in India was under full control and supervision of the government.
However, it got relief at a large extent after the economic reform. It has been decontrolled from
price and distribution on 1st March, 1989 and delicensed on 25th July, 1991. But government
interference, especially in the pricing, is still evident in India.

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 Growth Profile of Cement Industry:

India is the second largest cement producing country after China with 137 large and 365
mini cement plants. The large plants employ 1,20,000 people. For the year ended March
31, 2011, the Indian cement industry is the second largest in the world. In 2010-11, total
cement consumption in India stood at 300 million tonnes while exports of cement and
clinker amounted to around 3 million tonnes.

Even during the global economic slowdown in 2008-09, growth in cement demand
remained robust at 8.4 per cent. In 2009-10 cement consumption has short up, reporting,
on an average, 12.5 per cent growth in consumption during the first eight months with the
growth being fuelled by strong infrastructure spending, especially from the Government
Sector.

Cement Dispatches:

Cement industry in India has successfully maintained almost total capacity utilization
levels, which resulted in maintaining a 10% growth rate. In 2006-07, the total despatch
was 155 MT, which rose up to 170 MT in 2007-08. The month of October 2009 saw a
cement dispatch of 12.22 MT, which was almost 9% higher than the total cement
dispatch of 11.21 MT in the same month in the 2008.

Exhibit 9.2 shows that there was an improvement in capacity utilization from 85% to
93% in 2007-08 and 2008-09 respectively. Similar trend is also reported in production
and export of cement during the same period.

Problems of Cement Industry:

Major problems of cement industry are as follows:

1. Poor Government Infrastructure Spending:

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 Before 2010-11, there was a stimulated growth in the spending of government on
infrastructure projects. But due to resource crunch government has reduced its spending
on infrastructure has resulted in lower demand of cement. Private sector especially real
estate sector due to financial market condition has also lowered down its demand for
cement.

2. High Lending Rates:

Banks’ lending rates are now hovering near the peak level so cement industry is unable to
meet out its working capital requirements as well as capital expenditure programme.
Actually it has affected the modernization and expansion programme of the cement
industry.

3. High Tariffs:

Frequent upward revision of various tariffs – high excise duty, sales tax, royalty on lime
stone and coal etc. has adversely affected the demand as it has increased the cost of
products to the customers. The excise duty on cement has been steadily rising.

4. Poor Availability of Coal:

Coal is an important input in the cement industry. The availability of coal has remained
the contentious issue for the industry as Coal India one of the largest domestic suppliers,
priorities supply to the power sector as per the government direction. Coal availability in
the auction conducted by the Coal India has shrunk during 2011-12 leading to sharp spike
in prices. Import has also turned costlier after the rupee depreciation.

5. The Power Shortage:

Power cuts, unsteady and inadequate power supply have created serious problems for
cement units. Continuous process requires uninterrupted power supply to operate
efficiently. Various cement plants have installed their captive power plants but their cost
increases the cost of production and adversely affects the margins of the industry.

6. Transportation Problem:

Indian Railways is the base for the transportation of cement in the country. But due to
shortage of wagons, cement dispatches by rail have declined over the years. Besides,
Railways hiked fright charges by six percent. It increases the cost of supplies. However,
Road transport is offering all help in logistic management of cement industry.

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 Growth and Problems of Major Industries: Sugar

Sugar is the second largest agro-based industry in India. The industry provides
employment to about two million skilled and semi-skilled workers besides those who
are employed in ancillary activities, mostly from rural areas. Though the industry
contributes a lot to the socio-economic development of the nation, it is plagued with a
number of problems such as cyclical fluctuations, high support prices payable to farmers,
lack of adequate working capital, partial decontrol and the uncertain export outlook.

Sugar Industry in India is well developed with a consumer base of more than billions of
people. It is also the second largest producer of sugar in the world. There are around 45
million of sugarcane growers in India and a larger portion of rural labourers in the
country largely rely upon this industry. Sugar Industry is one of the agricultural based
industries. In India it is the second largest agricultural industry after.

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Present Regulatory Framework for Sugar:

The Sugar mills are mandated to sell 10% of their output to the government for its public
distribution system around 60% of their cost of sugar at current prices. The government’s
control over how much sugar mills will sell in the open market each month compounds
their worries as a failure to complete sales within the month could result in a conversion
of the unsold quantity into the levy quota. The levy obligation alone cost $2,500 crore to
$3,000 crore a year to the sugar mills.

Problems of Sugar Industry:

(i) It is characterized by instability in recurring imbalance between the demand for and
supply of sugar in the country.

(ii) It is a totally agro-based industry. The manufacturing plant is merely an extraction

unit. Sugarcane forms about 2/3rd of the total manufacturing cost of sugar.

(iii) Sugar mills are facing tough competition from gur and khandsari producers who try
to corner major chunk of sugarcane from the farmers.

(iv) Poor yields of cane per hectare, low recovery of sugarcane; uneconomic size of sugar
units increase the cost of production and force them to become uncompetitive in the
international market.

(v) Organized cane suppliers and manufacturing units generally exploit the small cane
growers as they do not have sufficient bargaining power.

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(vi) Growing obsolescence and old machineries have forced the large number of sugar
mills to become sick.

(vii) The Sugar industry has been delicensed since August 1998 but government still
regulate the free sale quota and export volume of the sugar to regulate the domestic price
scenario.

Suggestions:

(i) Government should formulate the policy of area demarcation for cane supplies. It will
prevent unhealthy competition among sugar factories in enticing growers to supply their
cane at bargaining prices.

(ii) Sugar factories should be allowed to develop their own cane areas for improving their
internal cane supplies.

(iii) Sugar factories should formulate their own cane drawl programme based on reg-
istration of cane on an area basis.

(iv) Sugar Factories should be required to pay more incentives for early maturing cane
varieties to encourage more production in early months of crushing.

(v) Optimum utilization of the by-products should be ensured to improve viability of the
mills.

(vi) Import of raw sugar should be allowed on systematic basis to avoid shortage of
sugar.

Major Players of Sugar Industry

 Dwarikesh Sugars
 Rajshree Sugars
 Rana Sugars
 Shree Renuka Sugars
 Bajaj Hindustan Limited

Growth and Problems of Major Industries: Petroleum

SWOT Analysis

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Below is the Strengths, Weaknesses, Opportunities & Threats (SWOT) Analysis of Oil India
Limited. Strengths are:
Strengths

1. Its heavy investment and strong focus on R&D has resulted in it developing better
exploration methods, increasing efficiency of MEOR (Microbial Enhanced Oil Recovery)
processes, reducing flow problems etc., which has resulted in improved production from its
oil wells
2. Robust production capabilities enables it to continuously enhance its efficiency, to
evaluate opportunities to reduce costs, and to improve processes, thereby helping it increase
the reliability of order fulfillment and satisfaction of customer needs.
3. A strong financial performance provides financial stability to the company, which can be
leveraged to seek more growth avenues in the future.
4. Its strong acreage position coupled with its integrated business operations gives it a
competitive edge over others in the market
5. Its market reputation is extremely strong due to recognition from industry on various
facets of excellence like corporate governance, CSR, safety and environmental concerns
Weaknesses

Here are the weaknesses in the Oil India Limited SWOT Analysis:
1. Although it is present in a few foreign nations, the bulk of its operations are in India,
which is a competitive disadvantage as its exposure to local risks is higher than that of its
competitors, which carry out a wider scale of operations
2. It presently faces substantial debts and added to it, is raising even more debt, for funding
its recent acquisition in the Rovuma hydrocarbon block in Mozambique
Opportunities

Following are the Opportunities in Oil India Limited SWOT Analysis:

1. Energy demand in global as well as the domestic Indian market is set to accelerate, due to
growing oil, fuel demands and OIL is well positioned to capitalize on it
2. Strategic acquisitions of national and overseas exploration blocks and oil and gas
properties (like the Rovuma hydrocarbon block in Mozambique, assets in Gabon, shale
assets in the Denver-Julesberg Basin in Colorado etc.), and similar agreements will help
increase its revenues and thereby, its market share
3. It already has the Navratna status accorded by the GOI, which exempts it from taking the
government’s permission for investments and with its increasing revenue record, it can soon
get a Maharatna status which will allow it to make investments of INR 5 Billion without the
government’s permission
4. New Exploration Licensing Policy by the GOI can possibly see OIL bidding for more
blocks and winning more
Threats

The threats in the SWOT Analysis of Oil India Limited are as mentioned:
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1. Geopolitical risks (esp., international sanctions on Iran, the second largest petroleum
exporter to India) can push up oil prices, increase India’s import oil bill and thus affect its
businesses severely
2. Subsidy burden, which it faces due to GOI policies, can adversely impact its cash flows
3. A highly competitive market, with numerous private players now in the fray, which have
larger resources and asset bases, can erode its market share
4. The global economic scenario and political and economic volatility can result in sudden
rapid fluctuations in demand/price of oil thereby harming the company’s interests
Growth and Problems
The development of the Indian petroleum industry began on a very slow note. It started mainly in
the northeastern part of India especially in the place called Digboi in the state of Assam. Until
the 1970’s, the production of petroleum and the exploration of new locations for extraction of
petroleum were mainly restricted to the northeastern state in India.

An important advancement in the Indian petroleum industry came with the passing of Industrial
Policy Resolution in 1956, which emphasized focus on the growth and promotion of industries in
India. The Indian petroleum industry was sponsored completely by the government, and the
management control of the petroleum industry and all its related activity was entirely with the
government. The petroleum industry has the most significant role to play in changing the Indian
economy from an agrarian economy to an industrial economy.

The adoption of liberalization and privatization in July 1991 changed the situation again. The
government started allowing the Indian petroleum industry to go into private hands and also
entered into government and private joint ventures.

Along with liberalization and privatization, the overall economy of India grew. Also, the demand
for petroleum products increased at an annual rate of about 5.5%. The demand for petroleum and
petroleum products still continues to grow, and there is great potential for investors to invest in
the sector and gain valuable returns while meeting the increasing demands for the petroleum
products.

The petroleum industry has contributed heavily to the manufacturing industry in the
country through foreign trade in petroleum products.  

Rapid globalization, fast-changing technology, and the changing methods in the way business is
conducted have brought significant changes and enormous opportunities for petroleum
companies in India to flourish and expand their operation to global markets.

Another very important reason why the Indian petroleum industry is a good option for
investment is that the future of the petroleum industry in India promises great potential for
development. The fast economic growth of India and the various developmental activities taking
place presents India with opportunities in the future to be a dominant player globally in the
export of petroleum products. 

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Problem # 1. Shortage of Petroleum Crude:

Petroleum industry in India has been suffering from the problem of shortage of raw materials,
i.e., petroleum crude. Total refining capacity in the country has reached the level of 148.97
million tonnes in 2006-07 as against the total indigenous production of only 34.0 million tonnes.

Thus, the petroleum industry has to depend too much on the imported crude. Due to the
increasing volume of demand-supply gap, the petroleum refineries in India have failed to utilise
their production capacity fully.

Problem # 2. Dependence on Foreign Countries:

Petroleum industry in India has been depending too much on foreign countries for the supply of
petroleum crude and machineries. Total consumption of petroleum crude has increased to 146.5
million tonnes in 2006-07 as against the total production of petroleum crude of 34.0 million
tonnes. This has resulted in the import of 105.5 million tonnes of petroleum crude in 2006-07.

Moreover, the petroleum industry of the country depends too much on some foreign countries for
meeting its requirement of various drilling and refining machineries.

Problem # 3. Price Hike:

The international prices of petroleum goods have been maintaining a constant hike since 1973-
74. This has led to the excessive rise in our import bill on petroleum goods. In 2011-12, total
import bill on petroleum oil and lubricants was to the tune of Rs 7, 43,075 crore as against Rs
5,587 crore in 1980-81.

Problem # 4. Shortage of Oil Refining Capacity:

In India there is a shortage of oil refining capacity as compared to total demand for petroleum
products. Total refining capacity of the country stands at 214.1 million tonnes as compared to the
total consumption of 220.5 million tonnes of petroleum products in 2011-12. This has
necessitated the expansion of existing refineries and also setting up of new refineries under the
joint sector.

Problem # 5. Exploration of New Reserves:

In India, the production of petroleum crude of existing old reserves has been shrinking due to
normal technical reasons. The proved oil reserves in India constitute only 0.5 per cent of the
world oil reserves (proved). At this present level of consumption, the proved reserves will be
depleted within next 15 to 20 years.

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The country has now increasingly facing the growing demand-supply gap of petroleum crude.
The country has also been facing the problem of mounting import bill of POL items. Under the
present circumstances, it is quite urgent to intensify the exploration activities of the oil sector
sincerely.

Problem # 6. Technical Problems:

The petroleum industry of the country is also suffering from numerous technical problems in
respect of production of middle distillates, activating its fire fighting systems etc. which need to
be corrected and updated at the earliest possible time. The RD facilities in the industry should be
expanded with the maximum possible limit to face these technical problems.

Problem # 7. Pollution:

The growing pollution near the refineries and oil fields is a big problem for the industry. The
Government is trying to control such pollution by adopting certain effective measures.

Problem # 8. Lack of Market-Determined Pricing System:

The lack of a well functioning market determined pricing system, partly because of the lack of
vibrant competition among the companies with diversified ownership, continues to constrain the
performance of petroleum industry.

Despite the surge of international prices of petroleum touching record level, the petroleum
companies are not allowed to revise their market price of petrol and HSD accordingly and
allowed only a limited freedom to revise the prices as per revised methodology. This has resulted
a serious drain of the financial resources of the petroleum companies.

Competitors
Below are the top 4 Oil India Limited competitors:
1. ONGC
2. GAIL India Ltd.
3. Cairn India Ltd.
4. IOCL

Industrial Policy
At the time of Independence, Indian economy was facing severe problems of illiteracy,
poverty, low per capita income, industrial backwardness and unemployment. After India
attained its Independence in 1947, a sincere effort was made to begin an era of industrial
development. The government adopted rules and regulations for the various industries.
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 This industrial policy introduction proved to be the turning point in the Indian Industrial
history.

Industrial Policy

Industrial policy is a document that sets the tone in implementing, promoting the
regulatory roles of the government. It was an effort to expand the industrialization and
uplift the economy to its deserved heights. It signified the involvement of Indian
government in the development of industrial sector.

With the introduction of new economic policies, the main aim of the government was to
free the Indian industry from the chains of licensing. The regulatory roles of the Indian
government refer to the policies towards industries, their establishments, their
functioning, their expansion, their growth as well as their management.

Industrial growth of a country is guided and regulated through its industrial policies.

I. Industrial Policy of 1948

The first industrial policy after independence was announced on 6th April 1948. It was
presented by Dr Shyama Prasad Mukherjee then Industry Minister. The main goal of this
policy was to accelerate the industrial development by introducing a mixed economy
where the private and public sector was accepted as important in the development of the
economy. It saw Indian economy in socialistic patterns. The large industries were
classified into four categories:

 Industries with exclusive State Monopoly/Strategic industries:  It included

industries engaged in the activity of atomic energy, railways and arms and ammunition.
 Industries with Government control: This category included industries of
national importance. 18 such categories were mentioned in this category such as
fertilizers, heavy machinery, defence equipment, heavy chemicals, etc.
 Industries with Mixed sector: This category included industries that were
allowed to operate independently in private or public sector. The government was
allowed to review the situation to acquire any existing private undertaking.
 Industry in the Private sector: Industries which were not mentioned in the above
categories fall into this category. High importance was granted to small businesses and
small industries, leading to the utilization of local resources and creating employment.

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 II. Industrial Policy Resolution, 1956

This second industrial policy was announced on April 20, 1956, which replaced the
policy of 1948. The features of this policy were:

 A new classification of Industries.

 Non-discriminatory and fair treatment for the private sector.
Promotion of village and small-scale industries.
 To achieve development by removing regional disparity.
 Labour welfare.

The IRDA divided industries into three categories:

 Schedule A industries: The industries that were under the monopoly of the state
or government. It included 7 industries. The private sector was also introduced in this
industries if national interest required.
 Schedule B industries: In this category of industries, the state was allowed to
establish new units but the private sector was not denied to set up or expand existing units
e.g. chemical industries, fertilizer, synthetic, rubber, aluminium etc.
 Schedule C industries: So the industries that were not a part of the above-
mentioned industries then it formed a part of Schedule C industries.

To summarize, the policy of 1956 in which the state was given a primary role for
industrial development as capital was scarce and business was not strong.

III. Indian Policy Statement, 1973

Indian Policy Statement of 1973 identified high priority industries with investment from
large industrial houses and foreign companies were permitted. Large industries were
permitted to start operations in rural and backward areas with a view to developing those
areas and enabling the growth of small industries around. And so the basic features of
Indian Policy Statement were:

 The policy was directed towards removing the distortions, it provided for closer
interaction between agriculture and industrial sector.
 Priority was given towards generation and transmission of power.
 The list of industries reserved for the small-scale sector was expanded.
 Special legislation was made to protect cottage and household industries were
introduced.

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IV. Indian Policy Statement 1977

Indian Policy Statement was announced by George Fernandes then union industry
minister of the parliament. The highlights of this policy are:

A] Target on the development of small-scale and cottage industries.

 Household and cottage industries for self-employment.

 Tiny sector investment up to 1 lakhs.
 Smallscale industries for investment up to 1-15 lakhs.

B] Large-scale sector

 Basic industries: infrastructure and development of small-scale and village

industries.
 Capital goods industries: meeting the requirement of cottage industries.
 High technological industries:development of agriculture and small scale
industries such as petrochemicals, fertilizers and pesticides.

C] Restrict the control of big business houses.

D] Role of the public sector:

 Development of ancillary industries.

 To make available expertise in technology and management in small and cottage
industries.

E] Revival and rehabilitation of sick units.

V. Industrial Policy, 1980

The Congress government announced this policy on July 23rd, 1980. The features of this
policy are:

 Promotion of balanced growth.

 Extension and simplification of automatic expansion.
 Taking over industrial sick units.
 Regulation and control of unauthorized excess production capabilities installed
for industrial houses.
 Redefining the role of small-scale units.

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 Improving the performance of the public sector.

VI. New Industrial Policy, 1991

The features of NIP, 1991 are as follows:

 Public sector de-reservation and privatization of public sector through

disinvestment.
 Industrial licensing.
 Amendments to Monopolies and Restrictive Trade Practices (MRTP) Act, 1969.
 Liberalised Foreign Investment Policy.
 Foreign Technology Agreements (FTA).
 Dilution of protection to SSI and emphasis on competitiveness enhancement.

The all-around changes introduced in the industrial policy framework have given a new
direction to the future industrialization of the country. There are encouraging trends on
diverse fronts. Industrial growth was 1.7 percent in 1991-92 that has increased to 9.2
percent in 2007-08.The industrial structure is much more balanced. The impact of
industrial reforms is reflected in multiple increases in investment envisaged, both
domestic and foreign.

Small Scale Industries

Small scale industries (SSI) are those industries in which manufacturing, providing

services, productions are done on a small scale or micro scale. For example, these are the
ideas of Small scale industries: Napkins, tissues, chocolates, toothpick, water bottles,
small toys, papers, pens. Small scale industries play an important role in social and
economic development of India. These industries do a one-time investment in machinery,
plants, and industries which could be on an ownership basis, hire purchase or lease basis.
But it does not exceed Rs. 1 Crore.

Essentially small scale industries comprise of small enterprises who manufacture goods

or services with the help of relatively smaller machines and a few workers and
employees. Basically, the enterprise must fall under the guidelines set by the Government
of India. At the time being such limits are as follows,

 For Manufacturing Units for Goods: Investment in plant and machinery must be

between 25 lakhs and five crores.
 For Service Providers: Investment in machinery must be between 10 lakhs and two
crores.

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In developing countries like India, these small scale industries are the lifeline of
the economy. These are generally labour-intensive industries, so they create much
employment. They also help with per capita income and resource utilization in the
economy. They are a very important sector of the economy from a financial and social
point of view.

Examples and Ideas of Small Scale Industries

 Bakeries

 Candles

 School stationeries

 Water bottles

 Leather belt

 Small toys

 Paper Bags

 Xerox and printing

 T-shirt Printing

 Photography

 Beauty parlours
Characteristics of Small Scale Industries

 Ownership: Such units are generally under single ownership. So it is a sole

proprietorship or sometimes a partnership.

 Management: Both the management and the control generally is with the owner/owners.

So the owner is actively involved with the daily running of the business.

 Limited Reach: Small scale industries have a restricted area of operations. So they meet
local and regional demand.

 Labor Intensive: These small scale industries tend to use labour and manpower for
their production activities. So their dependence on technology is pretty limited.

 Flexibility: These units are more adaptable to their changing business environment. So in

case of sudden changes or unexpected developments, they are flexible enough to adapt and
keep carrying on. Large industries do not have this advantage.

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  Resources: They use local and readily available resources. This also helps the economy
with better utilization of natural resources and less wastage.
Role of Small Scale Industries in the Indian Economy

1. Total Production

These enterprises account for almost 40% of the total goods and services produced in the Indian
economy. They are one of the main reasons for the growth and strengthening of the economy.

2. Employment

These small scale industries are a major source of employment in the country. The whole labour
force cannot find work in the formal sector of the economy. So these labour-intensive industries
provide a livelihood to a large portion of the workforce.

3. Contribution to Export

Nearly half of the goods (45-55%) of the goods that are exported from India are produced by these
small enterprises. About 35% of direct exports and 15% of the indirect exports are from the small
scale industries. So India’s export industry majorly relies on these small industries for their growth
and development.

4. Welfare of the Public

Other than economic reasons, these industries are also important for the social growth and
development of our country. These industries are usually started by the lower or middle-class
public. They have an opportunity to earn wealth and employee other people. It helps with
income distribution and contributes to social progress.

All types of small-scale industries found in India whether in manufacturing sector or service sector
are divided into five types:

1. Manufacturing Industries:

Those units which are producing complete articles for direct consumption and also for processing
industries are called as manufacturing industries. For example : Powerlooms, engineering industries,
coin industries, khadi industries, food processing industries etc.

2. Ancillary Industries:

The industries which are producing parts and components and rendering services to large industries
are called as ancillary industries.

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3. Service Industries:

Service industries are those which are covering light repair shops necessary to maintain mechanical
equipments. These industries are essentially machine- based.

4. Feeder Industries:

Feeder industries are those which are specialising in certain types of products and
services, e.g. casting, electro-plating, welding, etc.

5. Mining or Quarries.

Small Scale Industries-Policy

1. Industrial Policy Resolution (IPR) 1948:

The IPR, 1948 for the first time, accepted the importance of small-scale industries in the overall
industrial development of the country. It was well realized that small-scale industries are
particularly suited for the utilization of local resources and for creation of employment
opportunities.

However, they have to face acute problems of raw materials, capital, skilled labour, marketing,
etc. since a long period of time. Therefore, emphasis was laid in the IPR, 1948 that these
problems of small-scale enterprises should be solved by the Central Government with the
cooperation of the State Governments. In nutshell, the main thrust of IPR 1948, as far as small-
scale enterprises were concerned, was ‘protection.’

2. Industrial Policy Resolution (IPR) 1956:

The main contribution of the IPR 1948 was that it set in the nature and pattern of industrial
development in the country. The post-IPR 1948 period was marked by significant developments
taken place in the country. For example, planning has proceeded on an organised manner and the
First Five Year Plan 1951-56 had been completed. Industries (Development and Regulation) Act,
1951 was also introduced to regulate and control industries in the country.

The parliament had also accepted ‘the socialist pattern of society’ as the basic aim of social and
economic policy during this period. It was this background that the declaration of a new
industrial policy resolution seemed essential. This came in the form of IPR 1956.

The IPR 1956 provided that along with continuing policy support to the small sector, it also
aimed at to ensure that decentralized sector acquires sufficient vitality to self-supporting and its

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 development is integrated with that of large- scale industry in the country. To mention, some 128
items were reserved for exclusive production in the small-scale sector.

Besides, the Small-Scale Industries Board (SSIB) constituted a working group in 1959 to
examine and formulate a development plan for small-scale industries during the, Third Five Year
Plan, 1961-66. In the Third Five Year Plan period, specific developmental projects like ‘Rural
Industries Projects’ and ‘Industrial Estates Projects’ were started to strengthen the small-scale
sector in the country. Thus, to the earlier emphasis of ‘protection’ was added ‘development.’ The
IPR 1956 for small-scale industries aimed at “Protection plus Development.” In a way, the IPR
1956 initiated the modem SSI in India.

3. Industrial Policy Resolution (IPR) 1977:

During the two decades after the IPR 1956, the economy witnessed lopsided industrial
development skewed in favour of large and medium sector, on the one hand, and increase in
unemployment, on the other. This situation led to a renewed emphasis on industrial policy. This
gave emergence to IPR 1977.

The Policy Statement categorically mentioned:

“The emphasis on industrial policy so far has been mainly on large industries, neglecting cottage
industries completely, relegating small industries to a minor role. The main thrust of the new
industrial policy will be on effective promotion of cottage and small-scale industries widely
dispersed in rural areas and small towns. It is the policy of the Government that whatever can be
produced by small and cottage industries must only be so produced.”

The IPR 1977 accordingly classified small sector into three broad categories:

1. Cottage and Household Industries which provide self-employment on a large scale.

2. Tiny sector incorporating investment in industrial units in plant and machinery up to Rs.
1 lakh and situated in towns with a population of less than 50,000 according to 1971 Census.
3. Small-scale industries comprising of industrial units with an investment of upto Rs. 10
lakhs and in case of ancillary units with an investment up to Rs. 15 lakhs.

The measures suggested for the promotion of small-scale and cottage industries included:

(i) Reservation of 504 items for exclusive production in small-scale sector.

(ii) Proposal to set up in each district an agency called ‘District Industry Centre’ (DIC) to serve
as a focal point of development for small-scale and cottage industries. The scheme of DIC was
introduced in May 1978. The main objective of setting up DICs was to promote under a single
roof all the services and support required by small and village entrepreneurs.

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What follows from above is that to the earlier thrust of protection (IPR 1948) and development
(IPR 1956), the IPR 1977 added ‘promotion’. As per this resolution, the small sector was, thus,
to be ‘protected, developed, and promoted.’

4. Industrial Policy Resolution (IPR) 1980:

The Government of India adopted a new Industrial Policy Resolution (IPR) on July 23, 1980.
The main objective of IPR 1980 was defined as facilitating an increase in industrial production
through optimum utilization of installed capacity and expansion of industries.

As to the small sector, the resolution envisaged:

(i) Increase in investment ceilings from Rs. 1 lakh to Rs. 2 lakhs in case of tiny units, from Rs.
10 lakhs to Rs. 20 lakhs in case of small-scale units and from Rs. 15 lakhs to Rs. 25 lakhs in case
of ancillaries.

(ii) Introduction of the concept of nucleus plants to replace the earlier scheme of the District
Industry Centres in each industrially backward district to promote the maximum small-scale
industries there.

(iii) Promotion of village and rural industries to generate economic viability in the villages well
compatible with the environment.

Thus, the IPR 1980 reimphasised the spirit of the IPR 1956. The small-scale sector still remained
the best sector for generating wage and self-employment based opportunities in the country.

5. Industrial Policy Resolution (IPR) 1990:

The IPR 1990 was announced during June 1990. As to the small-scale sector, the resolution
continued to give increasing importance to small-scale enterprises to serve the objective of
employment generation.

The important elements included in the resolution to boost the development of small-scale
sector were as follows:

(i) The investment ceiling in plant and machinery for small-scale industries (fixed in 1985) was
raised from Rs. 35 lakhs to Rs. 60 lakhs and correspondingly, for ancillary units from Rs. 45
lakhs to Rs. 75 lakhs.

(ii) Investment ceiling for tiny units had been increased from Rs. 2 lakhs to Rs. 5 lakhs provided
the unit is located in an area having a population of 50,000 as per 1981 Census.

(iii) As many as 836 items were reserved for exclusive manufacture in small- scale sector.

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(iv) A new scheme of Central Investment Subsidy exclusively for small-scale sector in rural and
backward areas capable of generating more employment at lower cost of capital had been
mooted and implemented.

(iv) With a view, to improve the competitiveness of the products manufactured in the small-scale
sector; programmes of technology up gradation will be implemented under the umbrella of an
apex Technology Development Centre in Small Industries Development Organisation (SIDO).

(v) To ensure both adequate and timely flow of credit facilities for the small- scale industries, a
new apex bank known as ‘Small Industries Development Bank of India (SIDBI)’ was established
in 1990.

(vi) Greater emphasis on training of women and youth under Entrepreneurship Development
Programme (EDP) and to establish a special cell in SIDO for this purpose.

(vii) Implementation of delicencing of all new units with investment of Rs. 25 crores in fixed
assets in non-backward areas and Rs. 75 crores in centrally notified backward areas. Similarly,
delicensing shall be implemented in the case of 100% Export Oriented Units (EOU) set up in
Export Processing Zones (EPZ) up to an investment ceiling of Rs. 75 lakhs.

This sector can stimulate economic activity and is entrusted with the responsibility of realising
various objectives generation of more employment opportunities with less investment, reducing
regional imbalances etc. Small scale industries are not in a position to play their role effectively
due to various constraints.

The various problems faced by small scale industries are as under:

(1) Finance:

Finance is one of the most important problem confronting small scale industries Finance is the
life blood of an organization and no organization can function proper у in the absence of
adequate funds. The scarcity of capital and inadequate availability of credit facilities are the
major causes of this problem.

Firstly, adequate funds are not available and secondly, entrepreneurs due to weak economic base,
have lower credit worthiness. Neither they are having their own resources nov are others
prepared to lend them. Entrepreneurs are forced to borrow money from money lenders at
exorbitant rate of interest and this upsets all their calculations.

After nationalization, banks have started financing this sector. These enterprises are still
struggling with the problem of inadequate availability of high cost funds. These enterprises are
promoting various social objectives and in order to facilitate then working adequate credit on
easier terms and conditions must be provided to them.

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(2) Raw Material:

Small scale industries normally tap local sources for meeting raw material requirements. These
units have to face numerous problems like availability of inadequate quantity, poor quality and
even supply of raw material is not on regular basis. All these factors adversely affect t e
functioning of these units.

Large scale units, because of more resources, normally corner whatever raw material that is
available in the open market. Small scale units are thus forced to purchase the same raw material
from the open market at very high prices. It will lead to increase in the cost of production thereby
making their functioning unviable.

(3) Idle Capacity:

There is under utilization of installed capacity to the extent of 40 to 50 percent in case of small
scale industries. Various causes of this under-utilization are shortage of raw material problem
associated with funds and even availability of power. Small scale units are not fully equipped to
overcome all these problems as is the case with the rivals in the large scale sector.

(4) Technology:

Small scale entrepreneurs are not fully exposed to the latest technology. Moreover, they lack
requisite resources to update or modernise their plant and machinery Due to obsolete methods of
production, they are confronted with the problems of less production in inferior quality and that
too at higher cost. They are in no position to compete with their better equipped rivals operating
modem large scale units.

(5) Marketing:

These small scale units are also exposed to marketing problems. They are not in a position to get
first hand information about the market i.e. about the competition, taste, liking, disliking of the
consumers and prevalent fashion.

With the result they are not in a position to upgrade their products keeping in mind market
requirements. They are producing less of inferior quality and that too at higher costs. Therefore,
in competition with better equipped large scale units they are placed in a relatively
disadvantageous position.

In order to safeguard the interests of small scale enterprises the Government of India has
reserved certain items for exclusive production in the small scale sector. Various government
agencies like Trade Fair Authority of India, State Trading Corporation and the National Small
Industries Corporation are extending helping hand to small scale sector in selling its products
both in the domestic and export markets.

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(6) Infrastructure:

Infrastructure aspects adversely affect the functioning of small scale units. There is inadequate
availability of transportation, communication, power and other facilities in the backward areas.
Entrepreneurs are faced with the problem of getting power connections and even when they are
lucky enough to get these they are exposed to unscheduled long power cuts.

Inadequate and inappropriate transportation and communication network will make the working
of various units all the more difficult. All these factors are going to adversely affect the quantity,
quality and production schedule of the enterprises operating in these areas. Thus their operations
will become uneconomical and unviable.

(7) Under Utilization of Capacity:

Most of the small-scale units are working below full potentials or there is gross underutilization
of capacities. Large scale units are working for 24 hours a day i.e. in three shifts of 8 hours each
and are thus making best possible use of their machinery and equipments.

On the other hand small scale units are making only 40 to 50 percent use of their installed
capacities. Various reasons attributed to this gross under- utilisation of capacities are problems of
finance, raw material, power and underdeveloped markets for their products.

(8) Project Planning:

Another important problem faced by small scale entrepreneurs is poor project planning. These
entrepreneurs do not attach much significance to viability studies i.e. both technical and
economical and plunge into entrepreneurial activity out of mere enthusiasm and excitement.

They do not bother to study the demand aspect, marketing problems, and sources of raw
materials and even availability of proper infrastructure before starting their enterprises. Project
feasibility analysis covering all these aspects in addition to technical and financial viability of the
projects, is not at all given due weight-age.

Inexperienced and incomplete documents which invariably results in delays in completing

promotional formalities. Small entrepreneurs often submit unrealistic feasibility reports and
incompetent entrepreneurs do not fully understand project details.

Moreover, due to limited financial resources they cannot afford to avail services of project
consultants. This result is poor project planning and execution. There is both time interests of
these small scale enterprises.

(9) Skilled Manpower:

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A small scale unit located in a remote backward area may not have problem with respect to
unskilled workers, but skilled workers are not available there. The reason is Firstly, skilled
workers may be reluctant to work in these areas and secondly, the enterprise may not afford to
pay the wages and other facilities demanded by these workers.

Besides non-availability entrepreneurs are confronted with various other problems like
absenteeism, high labour turnover indiscipline, strike etc. These labour related problems result in
lower productivity, deterioration of quality, increase in wastages, and rise in other overhead costs
and finally adverse impact on the profitability of these small scale units.

(10) Managerial:

Managerial inadequacies pose another serious problem for small scale units. Modern business
demands vision, knowledge, skill, aptitude and whole hearted devotion. Competence of the
entrepreneur is vital for the success of any venture. An entrepreneur is a pivot around whom the
entire enterprise revolves.

Many small scale units have turned sick due to lack of managerial competence on the part of
entrepreneurs. An entrepreneur who is required to undergo training and counseling for
developing his managerial skills will add to the problems of entrepreneurs.

The small scale entrepreneurs have to encounter numerous problems relating to overdependence
on institutional agencies for funds and consultancy services, lack of credit-worthiness, education,
training, lower profitability and host of marketing and other problems. The Government of India
has initiated various schemes aimed at improving the overall functioning of these units.

Concept and Meaning of Parallel Economy

Meaning of Parallel Economy or Black Money:

Parallel economy is based on the black money or unaccounted money. We can define black
economy as the money that is generated by activities that are kept secret, in the sense that these
are not reported to the authorities. As such, this money is also not accounted to the fiscal
authorities i.e., taxes are not paid on this money. Parallel Economy is also termed as ‘black
economy’, ‘unaccounted economy’, ‘illegal economy’, ‘subterranean economy’, ‘unsanctioned
economy’ or 'hidden economy'.

Fiege Definition of parallel economy: Feige dene parallel economy as “the hidden/parallel
economy includes those activities that go unreported or are unmeasured by the society’s current
techniques for monitoring economic activity.”

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NIPFP Definition o Parallel Economy :The National Institute of Public Finance and Policy
(NIPFP) dene black money as the aggregate of incomes which are taxable but not reported to the
tax authorities.

Scneider & Este Denition of Parallel Economy: According to “Scneider & Este ““Parallel
Economy includes all unregistered activities while contribute to the officially calculated GNP
(Gross National Product)

“Parallel Economy is tax evaded economy. It is possible to convert illegal economy or black
money into white money or vice – versa”

What is Black Market?

Black Market Meaning: Black market is a market where all the commerce is conducted without
regard to taxation, laws and regulations of trade. The goods acquired illegally may be cheaper
than legal market prices. Because the supplier doesn’t have to pay for the production cost or
taxes. Criminals steal goods and sell them below the legal market price.

Parallel economy exists due to various reasons

 High tax rates implemented by the government are responsible for parallel economy
 Complicated taxpaying procedures and policies of the government.
 People believe that their money is not going to be properly utilized by government as
their trust on government is less.
 High inflation which puts tax payers under high tax paying brackets.
 People do not get enough return on their paid taxes.
 Involvement of government agencies and officials in corrupt practices.  Insufficient
laws and their implementation to counter such activities

The impact of black money or Parallel Economy:

 Loss of revenue to the government and running of parallel economy in country
 Black money causes decrease in quality of public goods and services
 Black money results in higher taxation and inflation
 Black money causes difficulty in the formation of monetary and fiscal policy
 Black money results in increased criminal activities

Meaning and Concept of Parallel Economy or Black Money in India:

Parallel economy or black money is Funds earned on the black market on which income and
other taxes have been paid. According to Kaushik Basu, “the former chief economic adviser to
the Indian
Govt., says that the nation’s trade on of petty corruption helped India avoid the worst of the
banking crisis that has crippled most other large economic few years.”

When people or business entities do not show their exact income as per govt. rules and
regulations , the income comes under parallel economy or black money The informal or parallel
economy includes unreported income from the production of legal goods and services, either

Page | 32
from monetary or barter transaction- hence all economic activities which would generally be
taxable were they reported to the state ( tax ) authorities.

Effects or Impact / Consequences of Parallel Economy or Black Money in India:

- Revenue loss of Govt: Black money or parallel economy is not recorded and reported, so no
tax is paid through income. Business class doesn’t report their exact output, sales and under
registration of property.

- Wrong Estimation of GDP: To evades taxes, manufacturers under-report their output and
sales. This under reporting leads to under – estimation of GDP.

- Difficult to frame policies: No paying of taxes result in decreasing the budgets of govt. and
due to decreased budget, it is difficult to frame good policies and plans.

- Unequal distribution of Income: The persons who are earning well doesn’t PAY their taxes
and those whose income is less , pay their taxes annually. This results the unequal distribution of
income.

- Political Corruption: There is a lot of corruption in political sector. Various MLA’s , MP’s
and ministers and workers of party collect money from businessmen and receive high amount of
donation from them.

- Unequal distribution of Wealth: The rich sector is becoming rich by not paying taxes and
poor and becoming poorer.

- Investment in Unproductive Assets: If someone has black money they invest their money in
foreign liquor factories and luxury housing.

- Widening the gap between rich and the poor - Deteriorate the general moral standards of the
society

The top 5 black money scams in India are:

1. 2G Spectrum Scam ( Mr. A. Raja_______ 1.76 lack crore)
2. Commonwealth Games Scam ( Mr. Suresh kalmadi________ 3500 crore)
3. Telgi Scam ( Mr. Abdul Karim Telgi_________ 20000 crore)
4. Satyam Scam (Mr. Ramalingam Raju_______ 14000 crore)
5. IPL Scam ( Mr. Lalait Modi and Mr. Shashi Tharoor)

Top level countries which are generating black money:

1. India
2. Russia
3. U.K
4. Ukraine
5. China

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Objectives of Demonetization in India :
- To get all currency into banks
- To increase the actual GDP and reduces black money in the economy
- To eliminate completely fake currency which is in circulation?
- Reduce future generation of black money.

Components or Aspects of Black market Economy or Parallel Economy in India:

There are various components through which parallel economy runs in India. Some of them are:
- Arms and ammunition
- Currency exchange
- Hawala
- Swiss bank accounts
- Copyright media
- Corruption and bribery
- Drugs, alcohol and tobacco
- Smuggling
- Fraud

Arms and Ammunition: There is a huge demand of weaponry items which cannot be obtained
legally or may only obtained legally after obtaining permits and paying the fees. It is not easy to
get weapons legally.
- Drugs, Tobacco and Alcohol: The illegal drug trade consists of the cultivation, manufacture,
distribution and sale of illegal controlled drugs which includes alcohol and tobacco.
- Currency Exchange: There are various reasons for currency exchange. It is difcult or illegal
for the citizens to own much or any foreign currency.
- Corruption and bribery: Bihar is the most corrupt state in India. In Bihar, more than 80
percent of the subsidized food aid to poor is stolen. India is ranked 85 out of a 179 countries in
Transparency International’s Corruptions Perceptions Index
- Copyright Media: There is too much black marketing in copyright media
- Hawala : It is an alternative or paralleled remittance system. It is developed in India, before the
introduction of western banking practices. It is a major remittance system which is used around
the world currently. The transfers of money takes places based on Communication between
members of a network of hawaldars or Hawala dealers.
- Swiss bank Accounts: According to the Swiss banking association report, 2006, India is on the
top list of depositing money in Swiss banks.

Conclusion: The black money or parallel economy not only affected our economy. It has also
affected the moral, politics, public life in the country.

Balance of Payment

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Meaning
Balance of payments refers to the recording of all economic transactions of a given country with
rest of the world.Each country has got to enter into economic transactions with other countries of
the world.As a result of such transactions,it receives payments to other countries.Balance of
Payments is a statement of accounts of these receipts and payments.

Ordinarily a country has to deal with other country in respect of three items:
1. Visible Items
It includes all kind of physical goods imported and exported.

2. Invisible Items
It includes all kind of import export services.

3. Capital Transfers
These are concerned with capital receipts and capital payments like investment by foreigners in
India.

Like an ordinary trader,each country has to work out a balance in respect of its dealing,in all the
above three items,with other countries of the world in a given period.Thus it comes to know how
much it has to pay to other countries and how much it has to receive from other countries and
what is the position of overall balance.

Definition
The balance of payments (henceforth BOP) is a consolidated account of the receipts and
payments from and to other countries arising out of all economic transactions during the
course of a year.

Acc. to Kindleberger
“The balance of payments of a country is a systematic record of all economic transactions
between its residents and residents of foreign countries.”

In words of Benham
“Balance of payments of a country is record of the monetary transactions over a period of time
with the rest of the world”.

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Features of Balance of Payments
1. Systematic Record

It is a systematic record of receipts and payments of a country with other countries.

2. Fixed Period of Time

It is a statement of account pertaining to a given period of time, usually one year.

3. Comprehensiveness

It includes all the three items i.e. visible, invisible and capital transfers

4. Double entry System

Receipts and payments are recorded on the basis of double entry system.

5. Adjustment of Differences

Whenever there is difference in actual total receipts and payments, need for necessary adjustment
is felt. In case of unfavorable balance of payments, government will have to take foreign loans or
to promote foreign investment, so as to meet the difference in balance of payments.

6. All Items-Government and Non-Government.

Structure/forms of balance of payments

Balance of payments has three forms:
1. Current account
2. Capital account
3. Overall balance of payments
1. Current Account
Balance of payments on current account includes the value of imports and exports of both
visible(goods) and invisible items(services). Current account transactions are called account of
actual transactions,because all items included in it are actually transacted.These items have a
direct effect on the income,output and employment of a country’s economy.

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Balance of payments on current account may be both balanced and unbalanced.In case of
balanced position of BOP,receipts and payment on account of exports and imports are equal. In
case of unbalanced balance of payments,it can be in deficit or in surplus.Disequilibrium of the
balance of payments on current account is usually balanced with the help of transactions in
capital accounts.

2. Capital Account
Capital account refers to financial transactions.It mainly includes foreign investment and external
loans.All kinds of short term and long term international capital transfers,movement of
gold,foreign debts,foreign investments,payments and receipts on account of interest and
grants,etc. are also included in capital account.All transactions under capital account are
concerned merely with financial transfers,between our country and other foreign countries.

3. Overall Balance of Payments

Total of a country’s balance of payments on current account and capital account is known as
overall balance of payments.

Disequilibrium in Balance of Payments

Because of several reasons,especially due to differences in the value of exports and
imports,disequilibrium in balance of payments may be caused.Disequilibrium may sometimes be
on minus/deficit/unfavourable side and sometimes on plus/surplus/favourable side. Unfavourable
or favourable balance of payments can be explained as under:

Unfavourable or favourable balance of payments
Balance of payments is said to be unfavourable when the payments (debit) of the country are
more than its receipts (credit). On the other hand, when the payments (debit) of the country are
less than its receipts (credit), the balance of payments is said to be favourable. Disequilibrium in
balance of payments may be of two kinds:

1.Favourable balance of Payments

When receipts are more than payments then balance of payments turns favourable.This situation
increases foreign exchange reserves.In this case exports of goods ,services and capital receipts
are more than import of goods, services and capital payments.It is also known as surplus balance
of payments.

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(Here Bf =Balanced balance of Payment;R-P>0=Receipts are greater than payments or their
difference is positive.)
2. Unfavorable Balance of Payments
Balance of payments is unfavorable when its payments are more than its receipts. This situation
reduces foreign exchange reserves. In this case exports of goods, services and capital receipts are
less than import of goods, services and capital receipts are less than import of goods, services
and capital payments. It is also known as deficient balance of payments.

(Here, BF= Favourable balance of payments; R-P <0=Receipts, are less than payments or their
difference is negative.)

 Equilibrium in Balance of Payments

When capital receipts of a country and exports(visible and invisible) are to its capital payments
and imports(visible and invisible) then its balance of payments is in equilibrium.

(Here, B = balanced balance of payments; R =Reciepts,P=Payments)

In short, balance of payments is unfavourable,if to meet the deficit between receipts and
payments a country either makes payments in terms of gold or borrows from abroad for a short
period. On the contrary, if to meet the surplus between receipts and payments a country either
receives payment in terms of gold or lends to foreign countries for a short period, the balance of
payments is said to be favourable.

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Causes of Unfavourable Balance of Payments/Unfavourable Balance of
Trade
Main Causes of unfavourable balance of payment of India are as follows:
1. Import of Machinery:

Since independence, import of machines has increased on two scores:

i. During World War II,machines in Indian industries overworked.Consequently, these were

large-scale depreciation and wear and tear of machines.In order to replace he same,large quantity
of new machines was imported.

ii.Industrialisation of the country in the wake of Five year Plans also necessitated import of
machines worth crores of rupees. This turned India’s Balance of payments unfavourable.

2. Import of War equipments:

In order to defend itself against China and Pakistan, large amount of war equipment were
imported by India.These imports also caused disequilibrium in the balance of payments.

3. More demand of Consumption Goods

In the post war period,demand not only of foreign goods but also of Indian goods went up.
Previously,large amount of oilseeds,tea, iron ores etc. used to be exported out of India.Now
because of increase in population their demand within the country has gone up.So export of these
goods has gone down very much.

4. Price disequilibrium

There has been wide difference in the domestic prices of the goods and the prices of goods in
foreign countries.Due to inflation,domestic prices have increased more than the increase in prices
of foreign goods.This has led to increase in imports and decrease in exports.

5. Expenditure on Embassies

Independent India had to establish its political relations with other countries.To that end,it had to
set up its embassies in foreign countries.It was an expensive affair.It also turned balance of
payments unfavourable.This item does not affect balance of trade,as it is an invisible item,but it
does affect balance of payments.

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6. Foreign Competition

India mainly exports jute, tea and textiles, but now foreign competition intense goods is growing.
Bangladesh is India’s rival in jute export and Sri Lanka and Indonesia in the export of tea and
Korea and china in the export of cloth. This has also adversely affected our exports.

7. Increase in price of Crude Oil

Value of imports has gone up on account of constant hike in the price of crude oil.Of the exports
30% is spent on petroleum products.

8. Payments of interest on foreign Debts

The huge interest burden also caused disequilibrium in th balance of payments.This item does
not affect balance of trade, as it is an invisible item.

9. Less growth in Exports

Despite various export promotion schemes,our exports are still less than our imports.Moreover
growth rate of exports is less than the growth rate of imports.

10. Gulf War

In 1991,Gulf War(War between Iraq and several western countries)had also its adverse effect on
India’s balance of payments.On the one hand,price of petrol shoot up and on the other,foreign
remittances by Indians working in gulf area,viz., Kuwait,Iraq,etc. to India altogether stopped.It
rendered the imports expenses and reduced the foreign remittances.

11. Disintegration of USSR

India had large amount of foreign trade with USSR.The disintegration of USSR had an adverse
effect on India’s foreign trade.

Beside, there are some other minor factors also accounting for adverse balance of payments,viz.,
poor quality, malpractices of Indian traders causing impediments in exports,bad effects of high
cost of production on exports, etc.

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Measures/Suggestions to correct disequilibrium in the Balance of
Payments
The main factor accounting for disequilibrium of payments is the excess of imports over
exports.Two measures are,therefore called for to correct this disequilibrium.Exports should be
promoted and imports discouraged.Import substitution should be resorted to.Following specific
measures are suggested to correct disequilibrium in the balance of payments:

1.Promotion of Exports

Promotion of exports is the best measure to correct an adverse balance of payments. To achieve
this end,all taxes on export goods be withdrawn,export industries should be provided raw
materials and transport facilities at reduced prices,so that prices of these goods remain low.
These industries should be provided credit facilities at liberal rates.To promote exports,intensive
publicity of Indian goods be undertaken in foreign markets and goods be designed to the tastes of
the foreign consumers.

2. Increase in Production

To cut down imports and encourage exports,it is essential that agricultural, industrial and mineral
production be increased.Jute manufactured products,tea and coffee are of great importance
among exports from India.Efforts have been made to increase the production of these products in
Five Year Plans.Their production needs to be further increased.Recently,several new items have
entered the export list viz. machines,electric fans,cycles,ready made garments,gems and
jewellery etc. Raw materials should be made available to export industries at international
prices.Production capacity of cement,fertilizers,iron and steel etc. should be utilized fully.

3.Trade Agreements

Government of India enters into trade agreements with the governments of other countries in
order to expand trade. Many foreign trade delegates visit India to strengthen trade ties. India has
negotiated trade agreements with many countries viz.
Bangladesh,Bulgaria,Germany,Egypt,France,Korea,Iran,Iraq etc.On 15April,1994,India enters
into trade agreements with all other countries signing GATT, automatically. India has entered
into trade agreement with WTO nations, SAARC nations.As a member of World Trade
Organization,India is having trade relations with other 149 member nations of WTO.More trade
agreements should be done with foreign countries to promote our foreign trade and exports.

4.Encouragement to Foreign Investment

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Foreign industries and multinational corporations (MNCs) are encouraged to invest their capital
in India.Special facilities are provided to attract foreign capital.It leads to inflow of foreign
exchange in the country.It also increases production of export goods and thus exports are
encouraged.However,care should be taken that foreign capitalists do not dominate our economy.

5.Attraction to Foreign Tourists

Attractive picnic spots be developed in different parts of the country to attract foreign
tourists.Government spends lot of money to develop such spots.Besides,foreign tourists be
provided with transport and other facilities.Large amount of foreign exchange can be earned
from foreign tourists.

6.Devaluation of Indian Currency

Lowering of the value of domestic currency in terms of foreign currencies is called

devaluation.A country resorts to devaluation when its exports fall short of imports.As a result of
devaluation imports become dearer and exports cheaper.India devalued its rupee in the year
1949,1966, and twice in the year 1991.But now this measure is not used,as now exchange rate of
rupee with other currencies of the world is determined by market forces of demand and supply
and not by government.

7.Deflation

It means that prices of the goods produced in the country should be brought down.As a result of
it,foreigners will get export goods at cheaper price.Thus exports will be
encouraged.Moreover,because of availability of Indian goods at lower rates the demand of
imports will also come down.

8.Restriction on Imports

Another important method of correcting balance of payments is restriction on imports. Following

measures can be adopted to cut down imports.

i. Restrictions on the import of luxury goods.

ii. Issue of licenses for the import of essential goods only.

iii. Fixation of quotas for the import of different goods.

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iv. Levying of new import duties and enhancing of the rates old duties.

v.Motivating the Indians to use indigenous goods.

vi. Less credit facilities for imported goods etc.

9. Import Substitution

Import substitution plays an important role to correct an adverse balance of payments.Import

substitution means total or partial replacement of an imported product of the same functional
requirement mainly from indigenous material and know how.Its main objective is to reduce
imports.For instance,prior to independence,cycles, sewing machines,electric fans etc. used to be
imported from abroad.Now,the same are being produced in the country.Similarly,in place of
copper wire imported for power industry,aluminium wire produced in the country is being
increasingly used.

In short,disequilibrium in the balance of payments can be corrected by increasing exports and

reducing imports. Government of India has taken several measures to promote exports and
popularize import substitutions.

Foreign Trade Policy

The Foreign Trade Policy (FTP) was introduced by the Government to grow the Indian export of
goods and services, generating employment and increasing value addition in the country. The
Government, through the implementation of the policy, seeks to develop the manufacturing and
service sectors. This article is a snapshot of the various aspects of the policy.

Primary Focus Areas

The Government, through the policy, primarily focuses on adopting a twin strategy of promoting
traditional and sunrise sectors of exports including services. Further, it intends to simplify the
process of doing business.

Duration of the Policy

The Foreign Trade Policy (FTP) was flagged off in the financial year of 2015-16, and will
remain effective until the 31st of March, 2020. During this period, all the exports and imports of
the country will be governed by the policy. The Government strives to make India a significant
partner in global trade by 2020.

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 Foreign Trade Policies Aimed at Improving Ease of Doing Business
Here’s an overview of some of the major initiatives under the Foreign Trade Policy:

Niryat Bandhu Scheme

DGFT has come up with the Niryat Bandhu Scheme for mentoring budding exporters on the
intricacies of foreign trade by means of counseling, training and outreach programmes. Given the
rise of small and medium scale enterprises and their role in employing people, MSME clusters
have been identified for focused interventions to increase exports.

To achieve the objective of the scheme, outreach activities will be organized in a structured
manner with the assistance of Export Promotion Councils and other willing knowledge partners
in academia and research community. Besides, for the optimal utilization of resources, all the
stakeholders will be attempted to be associated, including Customs, ECGC, Banks and
concerned Ministries.

Electronic IEC
Import exporter code, or in casual terms, export permit is mandatory for carrying out exports and
imports from/to another country. DGFT has facilitated the online filing of IEC application.

E-BRC
The initiative of Electronic Bank Certificate (e-BRC) enables DGFT to capture essential details
of realization of export proceeds directly from the banks by means of secured electronic mode.
This paves the way for implementation of various export promotion schemes without any
physical interface with the stake holders.
A Memorandum of Understanding (MOU) has been signed with 14 State Governments for
sharing e-BRC data to benefit the exporters with GST refunds. Moreover, MOU has been signed
with Enforcement Directorate, Agricultural Directorate, Agricultural Processed Food Products
Export Development Authority and Goods and Services Tax Network (GSTN).

Exporter Importer Profile

Exporter importer profile is created to upload various documents, and to reduce the cost of
transaction and time. One of the featured advantages of the system is that after the documents are
uploaded, it isn’t necessary to submit the documents or copies of the same to Regional Authority
repeatedly with each application.

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Online Filing of Applications
Thanks to digitization, filing of applications has been made easier than ever before. The DGFT
has facilitated the online filing of applications to obtain IEC and various Authorizations/scrip.
The entity has introduced a web interface for online filing of application. The application can be
paid online and the fees can be remitted through the banking facilities provided. The furnished
applications are digitally signed and submitted electronically to the concerned Regional
Authority of DGFT, post which it is electronically processed by the Regional Authority and
Authorization/scrip’s are issued.
Online Inter-Ministerial Consultation
In a recent development, the exporters are provided with a facility to upload copies of all the
required documents including technical specifications, literature, and the likes of it in PDF, JPG,
JPEG or GIF format in the online filing system in respect of:

 Fixation of norms under Advance Authorization by Norms Committees.

 Export of restricted items.
 Import of restricted items.
 SCOMET items.

The exporters are not anymore required to submit the hard copy of application other than
agricultural drawings, machine drawings, etc; which is difficult to scan and upload. The
applications will be processed online.
Facility for CA/CS/Cost Accountant
Charted Accountants, Company Secretaries and Cost Accountants can now upload their digitally
signed documents through an electronic procedure. By using this facility, the exporter shall link
digitally uploaded annexure with his/her online application.
Electronic Data Interchange
DGFT has established the system of EDI with the objective of facilitating exports and promoting
good governance. The official body has set up a secured EDI message exchange system for
activities connected with documentation, namely; Customs, banks and EPC’s; thereby resulting
in reduced physical interface of exporters and importers with the Government Departments.
Besides, it leads to the waiver of transaction costs.
Export Consignment
Export consignments will be processed without any delay/ withdrawal for any reason. The
concerned authorities can instead ask for an undertaking from exporter and release such
consignment.
Withdrawal of Seizure of Export Related Stock
Agencies should abstain from making any seizures as it stands in the way of the manufacturing
activity and hampers the schedule of delivery. Certain agencies are still entitled to conduct the

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seizure based on prima facie evidence of serious irregularity, in which case the seizures should
be withdrawn within seven days unless the defaults are substantiated.
Round-the-Clock Customs Clearance
24*7 customs clearance has been made available at 19 sea ports and 17 air cargo complexes. The
round-the clock Customs clearance facility has been extended to all Bills of Entry at 19 sea ports
and 17 Air Cargo Complexes. In addition to it, Merchant Overtime Charges (MOT) need not be
collected for the services provided by the Customs officers at 24*7 Customs Ports and Airports.
Single Window Interface
Single Window Interface for Facilitating Trade (SWIFT) has been launched to facilitate the
easier perusal of business.  The system enables the importers to electronically lodge Integrated
Declaration at a single point only with Customs. The necessary permissions are obtained from
other regulatory agencies without physically approaching them.
Authorized Economic Operator (AEO) Programme
In accordance with WCO’s Safe Framework of Standards (FOS), Indian Customs have
developed an Authorized Economic Operator (AEO) programme to the benefit of businesses
engaged in international trade. The following benefits are accorded:

 Secure supply chain from point of export to import.

 Potential to comply with the security standards when contracting to supply overseas
importers or exporters.
 Enhanced privileges of border clearance in countries partnered by Mutual Recognition
Agreement (MRA).
 Minimal disruption to flow of cargo after a disruption related to security disruption.
 Reduction in dwell time and related costs.
 Customs advice or assistance on unforeseen issues experienced by trade with Customs of
countries with which India have partnered with MRA.

Facility of Filing Shipping Bills

Shipping bills can now be filed online before the actual shipment.  Bills of air shipment can be
filed before seven days, whereas bills of ICD’s can be filed before 14 days for shipments by sea.
Facilitating Export of Perishable Export Products
To reduce the costs of transportation and handling, a single window system has been introduced
to facilitate the export of perishable agricultural produce. Under this system, multi functional
nodal agencies will be accredited by the Delhi based Agricultural and Processed Food Products
Export Development Authority (APEDA).
Time Release Study
Time release study is a unique tool created by the WCO for determining the actual performance
of Customs. In addition to it, the tool helps in identifying bottlenecks in the international supply

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chain or constraints affecting Customs release. Indian Customs will now implement it at major
Customs locations on a six-month basis.
Towns of Export Excellence
Specified towns with a goods turnover of Rs 750 Crore or more may be notified as TEE based on
its export potential. Handloom, handicraft, agriculture and fisheries sector will have a threshold
limit of Rs 150 Crore.  Tee’s will be provided with the following benefits:

 Recognized associations of units will receive financial assistance under MAI scheme on
priority basis, for export promotion projects in marketing, capacity building and
technological services.
 Common service providers in these areas will be considered eligible for Authorization under
EPCG scheme.

National Committee on Trade Facilitation (NCTF)

National Committee on Trade Facilitation (NCTE) has been constituted in consequence to
India’s ratification of the WTO agreement on Trade Facilitation (TFA). It has been established to
facilitate domestic co-ordination and implementation of TFA provisions.
E-Mail Notification Service
The Central Board of Excise and Customs (CBEC) have commenced an e-mail notification
service to assist the importers with information pertaining to all important stages of import
clearances.
Facility of Deferred Payment
As another measure for facilitation of trade, the CBEC has introduced the facility of deferred
payment of customs duty. Certified importers under AEO programme are considered eligible for
availing the benefit of the facility.

Foreign Trade: 8 Salient Features of Foreign Trade of India

Some of the salient features of foreign trade of India are: 1. Negative or Unfavourable
Trade 2. Diversity in Exports 3. Worldwide Trade 4. Change in Imports 5. Maritime Trade
6. Trade through a few Selected Ports Only 7. Insignificant Place of India in the World
Overseas Trade  8. State Trading!

1. Negative or Unfavorable Trade:

India had to import various items like heavy machinery, agricultural implements, mineral oil and
metals on a large scale after Independence for economic growth.

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But our exports could not keep pace with our imports which left us with negative or unfavorable
trade.

2. Diversity in Exports:
Previously, India used to export its traditional commodities only which included tea, jute, cotton
textile, leather, etc. But great diversity has been observed in India’s export commodities during
the last few years. India now exports over 7,500 commodities. Since 1991, India has emerged as
a major exporter of computer software and that too to some of the advanced countries like the
USA and Japan.

3. Worldwide Trade:
India had trade links with Britain and a few selected countries only before Independence. But
now India has trade links with almost all the regions of the world. India exports its goods to as
many as 190 countries and imports from 140 countries.

4. Change in Imports:
Earlier we used to import food-grains and manufactured goods only. But now oil is the largest
single commodity imported by India. Both the imports as well as exports of pearls and precious
stones have increased considerably during the last few years. Our other important commodities
of import are iron and steel, fertilizers, edible oils and paper.

5. Maritime Trade:
About 95 per cent of our foreign trade is done through sea routes. Trade through land routes is
possible with neighboring countries only. But unfortunately, all our neighboring countries
including China, Nepal, and Myanmar are cut off from India by lofty mountain ranges which
make trade by land routes rather difficult. We can have easy access through land routes with
Pakistan only but the trade suffered heavily due to political differences between the two
countries.

6. Trade through a few Selected Ports Only:

We have only 12 major ports along the coast of India which handle about 90 per cent overseas
trade of India. Very small amount of foreign trade is handled by the remaining medium and
small ports.

7. Insignificant Place of India in the World Overseas Trade:

Although India has about 16 per cent of the world’s population, her share in the world overseas
trade is less than one per cent. This shows the insignificant place of India in the world’s overseas
trade. This is, however, partly due to very large internal trade, vast dimensions of the country
provide a solid base for inter-state trade within the country. Europe is divided into a large
number of smaller countries and the international trade is quite high (trade counted twice, first
time as exports and second times as imports).

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8. State Trading:
Most of India’s overseas trade is done in public sector by state agencies and very little trade is
done by individuals.

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 Assignment 3

Q1. Discuss the problems faced by cotton textile industries in India?

Q2. Explain the Foreign trade policy of India.

Q3. Discuss Indian Government’s measures to improve the development

of SSEs.

Q4. What is the balance of Payment? Discuss the impact of fluctuation

in exchange rates on the balance of payment. Differentiate between BOP
& BOT.

Q5. Explain the Concept of Parallel Economy. What are the various
causes of Parallel economy? Explain effect of Black Money in India.
List of Top five scams in India. Explain the objective of
Demonetization.

Q6. Give the objectives of Industrial Policy. To what extent industrial

policy helped in bringing industrialization in the country?

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