BUSINESS ENVIRONMENT UNIT-3

PUBLIC SECTOR
MEANING OF PUBLIC SECTOR ENTERPRISES

Public sector enterprises are those Enterprises that are owned ,managed and controlled by the central ,state
or any local government on behalf of the public at large .In other words the government -owned corporations
are termed as public sector undertakings (PSUs) in India.

In a PSU majority (51% or more) of the paid up share capital is held by the central government or by any
State government or partly by the central government and partly by one or more state government.

DEFINITIONS OF PUBLIC SECTOR ENTERPRISES

State Enterprises and undertaking own and control by the local or state or Central government. Either whole
or most of the investment is done by the government. The basic aim of a state Enterprise to provide goods
and services to the public at a reasonable rate though profit earning is not excluded but their primary
objective is social service.

Bharat Heavy Electricals Limited (BHEL), Steel Authority of India Limited (SAIL), Oil and Natural Gas
Corporation (ONGC), and National Thermal Power Corporation are some significant public sector instances
in India (NTPC)

A.H Hansen says, “Public Enterprises means state ownership and operation of industrial,
agriculture,financial and commercial undertakings.”

SS Khera defines state Enterprises as “The industrial, commercial and economic activities,carried on by the
central or by a state government and in each case either slowly or in association with private enterprise, so
long it is managed by self contained management.”

According to NN Mallya “Public Enterprises are autonomous or semi autonomous corporations and
companies established, owned and controlled by the state and engaged in industrial and commercial
activities.”

According to Encyclopedia Britannica “Public Enterprises, a business organisation wholly or party

owned by the state and controlled through a public authority.Some public enterprises are placed under public
ownership because for social reason it is thought the service or product should be provided by State
Monopoly. Utilities (gas ,electricity etc), broadcasting tele-communication and certain forms of transport are
example of this kind of public Enterprise.”

Characteristic of sector public Enterprises :

1.Financed by government
2.Government management
3.Public service
4.Useful for various sectors
5.Helpful in implementing government plans
6.Autonomous or semi-autonomous bodies

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HISTORY & EVOLUTION OF PUBLIC SECTOR

 After independence in 1947, Indian industries were in a dilapidated state. It was not able to compete
with the existing industries of the time.
 Industries in India were in need of a policy thrust for rejuvenation and starring a fresh.
 In this direction, the Industrial Policy Resolution of 1956 of the Second Five year Plan (1956-61)
provided the required framework for public sector undertakings/enterprises.
 With this, the PSUs were expected to play a leading role in the economic development of the
country, preventing the concentration of economic power and reducing regional disparities for the
common good.
 Initially, through Schedule A of the 1956 Resolution, a total of 17 industrial sectors were reserved
for the public sector with a clause that no new units in the private sector would be permitted in these
categories.
 In Schedule B, another list of industries was included where the Government actively encouraged
public ownership. In this, the various sub-national Government, along with the Union Government
made a considerable investment for setting up and functioning of public sector
enterprises/undertakings.
 In the initial phase, the public sector undertakings were confined to core and strategic industries such
as irrigation projects (e.g. the Damodar Valley Corporation), Communication Infrastructure (e.g.
Indian Telephone Industries), Fertilizers and Chemicals (e.g. Fertilizers and Chemicals, Travancore
Limited), Heavy Industries (e.g. Bhilai Steel Plant, Bharat Heavy Electricals, Hindustan Machine
Tools, Oil and Natural Gas Commission etc.).
 Subsequently, the Government started nationalizing several banks (in 1955 the Imperial Bank of
India was nationalized and renamed as State Bank of India) and foreign companies (Jessop & Co,
Burn & Co, Braithwaite & Co etc.).
 Later Public Sector companies started manufacturing various consumer goods (e.g. National Textile
Corporation, Modern Foods, etc.) and providing contracting, consultancy and transportation services.
 With time, many public enterprises started getting loss even after a lot of investment and support
from the Government due to less experience and mismanagement. Due to huge debt, certain public
enterprises had to be settled/ written off from time to time by the Government.
 In 1991, the role of the public sector was reviewed due to liberalization, privatization and
globalization and the public sector were reduced to only six areas like atomic energy, coal, defence,
railway, mineral oils and transport.
 After this, every effort was made to increase participation of the private sector in the public sector for
making it profitable and enable them to compete with the private sector companies worldwide.

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FORMS OF PUBLIC SECTOR ENTERPRISES

Following are the different kinds of organizations that come under the private sector.

1. Departmental Undertaking: Departmental enterprises are established as departments of the

ministry and are considered part or an extension of the ministry itself. They have not been
constituted as autonomous or independent institutions and as such are not independent legal entities.
These undertakings are under Central or State Government and the rules of Central/State
Government are applicable. Eg. Railways

2. Statutory Corporation: Statutory Corporations are public enterprises that are brought into existence
by a Special Act of Parliament. The Act defines its powers and functions, rules and regulations
governing its employees, and its relationship with government departments. It enjoys the legal
identity of a corporate person and has the capacity of acting under its name

3. Government Company: A Government company is established under the Indian Companies Act
and is registered and governed by the provisions of the Indian Companies Act. According to the
Indian Companies Act 2013, any company in which not less than fifty-one percent of the paid-up
share capital is held by the Central Government, or by any State Government or Government, or
partly by the Central Government and partly by one or more State Governments, and includes a
company which is a subsidiary company of such a Government company is called Government
Company.

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Difference Between Statutory Corporation,Departmental Undertaking & Government Company

Status of Public Sector Undertakings In India

In India, Public Sector Undertakings (PSUs) are classified into various categories based on their ownership
and the level of control by the government. These categories were introduced to give more autonomy and
financial flexibility to the PSUs, which in turn helps them to become more competitive in the market and
achieve their objectives efficiently. Some of the common categories of PSUs are:

1.Maharatna(CPSEs): Maharatna is the highest category of PSUs, which are generally large enterprises
and have significant global operations. These companies have been given greater financial autonomy and
operational flexibility by the government.
1. Bharat Heavy Electricals Limited (BHEL)
2. Bharat Petroleum Corporation Limited (BPCL)
3. Coal India Limited (CIL)
4. Gas Authority of India Limited (GAIL)
5. Hindustan Petroleum Corporation Limited (HPCL)
6. Indian Oil Corporation Limited (IOCL)
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7. National Thermal Power Corporation (NTPC)

8. Oil and natural gas corporation (ONGC)
9. Power Grid Corporation of India (POWERGRID)
10. Steel Authority of India Limited (SAIL)
11. Rural Electrification Corporation Limited (RECL)
12. Power Finance Corporation (PFC)
13. Oil India Limited (OIL

2.Navaratna: Navaratna companies are also large enterprises, but they are relatively smaller in size than
Maharatna companies. These PSUs have greater operational autonomy and financial powers than other
PSUs..
1 Bharat Electronics Limited (BEL)
2 Container Corporation of India Limited
3 Engineers India Limited (EIL)
4 Hindustan Aeronautics Limited (HAL)
5 Mahanagar Telephone Nigam Limited (MTNL)
6 National Aluminium Company (NALCO)
7 National Buildings Construction Corporation (NBCC)
8 NationCal Mineral Development Corporation (NMDC)
9 NLC India Limited (NLCIL)
10 Oil India Limited (OIL)
11 Power Finance Corporation (PFC)
12 Rashtriya Ispat Nigam Limited (RINL)
13 Rural Electrification Corporation (REC)
14 Shipping Corporation of India (SCI

3.Miniratna: Miniratna is the third category of PSUs, which are smaller in size and have fewer operational
and financial powers than Maharatna and Navaratna companies. There are two categories of Miniratna
companies, Category I and Category II.
1 Airports Authority of India (AAI)
2 Antrix Corporation
3 Bharat Dynamics Limited (BDL)
4 Bharat Earth Movers Limited (BEML)
5 Bharat Sanchar Nigam Limited (BSNL)
6 Central Warehousing Corporation
7 Cochin Shipyard (CSL)
8 Dredging Corporation of India (DCI)
9 Garden Reach Shipbuilders & Engineers (GRSE)
10 Goa Shipyard (GSL)
11 India Tourism Development Corporation (ITDC)
12 Indian Railway Catering and Tourism Corporation (IRCTC)
13 IRCON International
14 Mazagaon Dock Shipbuilders Limited

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4.Other PSUs: Besides these categories, there are other PSUs, such as Public Sector Banks, State-level
PSUs, and Joint Ventures, among others.

ROLE OF PUBLIC SECTOR IN INDIA

1) Strong Industrial Base : Role of Public Sector in Development Public sector has significantly
contributed to the GDP at factor cost. The share of industrial sector (comprising of manufacturing,
construction, electricity, gas, water supply has steadily increased during the planning decades. The
government has strengthened the industrial base considerably by placing due emphasis on setting up of

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industries like iron and steel, heavy engineering, coal, heavy electrical machinery, petroleum, chemical,
natural gas, chemicals, drugs fertilizers etc.

2) Capital Formation: The public sector fosters a powerful process of capital formation. It can collect the
savings and make them investment in the productive channels. It is evident from Indian case. During two
decades of our planning about 54% of total investment of India was done by the public sector.

3) Development of Infrastructure: The infrastructure is the backbone of an economy. The public sector
plays the vital role in the process of infrastructural development. The public authority adopts the strategy to
make sufficient expansion of irrigation facilities and power and energy, without which agricultural
development is not possible.

Without road, railways, and electricity no industrial development can be thought of. Public -.sector has
developed the road, rail, air and sea transport system. The expansion has become manifold only due to the
public sector.

4) Fillings of Gaps: At the time of independence, there existed serious gaps in the industrial structure of the
country, particularly in the fields of heavy industries such as steel heavy machine tools, exploration an
refining of oil, heavy Electrical and equipment, chemicals and fertilizers, defense equipment, etc. Public
sector has helped to fill up these gaps:

The basic infrastructure required for rapid industrialization has been built up, through the production of
strategic capital goods. The public sector has considerably widened the industrial base of the country.

6) Employment: Public sector has created millions of jobs to tackle the unemployment problem in the
country. Public sector accounts for about two-thirds of the total employment in the organized industrial
sector in India. By taking over many sick units, the public sector has protected the employment of millions.

7) Balanced Regional Development: Public sector undertakings have located their plants in backward and
untrodden parts of the county. There area lacked basic industrial and civic facilities like electricity, water
supply, township and manpower. Public enterprises have developed these facilities thereby brining about
complete transformation in the socioeconomic life of the people in these regions. Steel plants of Bhilai,
Rourkela and Durgapur; fertilizer factory at Sindri, Machine Tool plants in Rajasthan, Precision Instruments
plants in Kerala and Rajasthan, etc. are a few examples of the development of backward regions by the
public sector.

8) Contribution to Public Exchequer: In recent years, the public sector has made increasing contributions
to the public sector in the form of dividend, corporate taxes, excise and customs duty, etc.

9) Foreign Exchange Earnings: Public sector has contributed a great deal in improving the balance of
payments position of the county. The public enterprises have saved valuable foreign exchange through
import substitution. Hindustan Steel Ltd., the Bharat Electronics Ltd., the Hindustan Machine Tools, etc are
exporting a large percentage of their output and earning foreign exchange.

10) Social Justice: Public enterprises have contributed towards the achievement of constitutional objectives.
They have been helpful in reducing the concentration of economic power in private hands, in curbing anti-
social monopolies, in accelerating public control over the national economy and in bringing about a
socialistic pattern of society.
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Public sector helps in ensuing inclusive process of development. In addition to the foregoing, the public
sector has played an important role in the achievement of constitutional goals like reducing concentration of
economic power in private hands, increasing public control over the national economy, creating a socialistic
pattern of society, etc. With all its linkages the public sector has made solid contributions to national self-
reliance.

PROBLEM OF PUBLIC SECTOR

1) Poor Project Planning: Investment decisions in many public enterprises e not based upon proper
evaluation of demand and supply, cost benefit analysis and technical feasibility. Lack of a precise criterion
and flaws in planning have caused undue delays and inflated costs in the commissioning of projects.
Sometimes, projects are launched without clear-cut objectives and serious thought. Many projects in the
public sector have not been finished according to the time schedule.

2) Over-capitalization: Due to inefficient financial planning, lack of effective financial control and easy
availability of money from the government, several public enterprises suffer from over-capitalization.Such
over-capitalization resulted in high capital-output ratio an wastage of scare capital resources.

3)Excessive Overheads: Public enterprises incur heavy expenditure on social on overheads like townships,
schools, hospitals, etc. In many cases such establishment expenditure amounted to 10 percent of the total
project cost. recurring expenditure is required for the maintenance of such overhead and welfare facilities.

4)Overstaffing: Manpower planning is not effective due to which several public enterprises have excess
manpower. Recruitment is not based on sound labour projections. On the other hand, posts of Chief
Executives remain unfilled for years despite the availability of required personnel.

5) Under-utilization of Capacity: One serious problem of the public sector Has been low utilization of
installed capacity. In the absence of definite targets of production, effective production planning and control,
proper assessment of future needs, adequate supply of power and industrial peace, many industrial peace,
many undertakings have failed to make full use of their fixed assets. Under utilization of Installed capacity is
another reason for low level of profitability in public sector enterprises. In some cases productivity is low on
account of poor materials management or ineffective inventory control.

6) Inefficient Management: The management of public enterprises in our country leaves much to be
desired. Managerial efficiency an effectiveness have been low due to inept management, uninspiring
leadership, too much centralization, frequent transfers and lack of personal stake.

Political interference in day-to-day affairs, rigid bureaucratic control and ineffective delegation of authority
hamper initiative, flexibility and quick decisions. Motivations and morale of both executives and workers
are low due to the lack of appropriate incentives.

7) Unsatisfactory industrial Relations: In several public enterprises relations between management and
labour are far from cordial.Millions of mandays and output worth crores of rupees have been lost due to
strikes and gheraos. Wage disparities have been the main cause of labour trouble in the public sector.

8) Lack of Coordination: Various public enterprises are dependent on one another as the output of one
enterprise is the input of another. For instance, the efficient functioning of power and steel plants depends on

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the production and transportation of coal which n turn is dependent upon supplies of heavy equipment
machinery. Despite such interdependence, materials management and research has not been achieved.

Suggestions to improve the performance of Public sector enterprises

(1) Managing of these undertakings should be entrusted to the trained and skillful personnel.

(2) The price policy of the public sector undertakings should aim at improving the profitability of the public
undertakings. These profits can later on be used for the establishment of new enterprises, expansion and
modernisation of the existing units.

(3) All-out efforts should be made to make fuller utilisation of the capacity in different enterprises.
Possibilities of export promotion should also be explored.

(4) Public sector units should be allowed to raise larger deposits from the public. In fact, they have been
allowed to raise public deposits up to 35 per cent of their share capital.

(5) Establishment of public enterprises be based purely on economic and social welfare consideration rather
than political pressures.

(6) Disinvestment of a part of Government holdings in the share capital of selected public sector enterprises
in order to provide market discipline and to improve the performance of the public enterprises.

(7) Sick public sector units should be merged together to make them economically viable units. There
should also be restructuring of loss-making enterprises.

(8) Before the installation of these enterprises, pre-investment surveys should be conducted thoroughly.
Delays in the installation of units should be avoided.

EXIM Policy/Foreign Trade Policy

MEANING: "Exim Policy or Foreign Trade Policy is a set of guidelines, terms and instructions, established
by the Directorate General of Foreign Trade in/for matters related to the import and export of goods in/from
India’

The EXIM (Export-Import) Policy contains guidelines governing the imports and exports of products
and services in and out of India. EXIM Policy’s primary objective is to regulate and develop foreign trade
by facilitating imports into and exports from India.

The Foreign Trade Development and Regulation Act, 1992, provides for the Indian government
to announce the EXIM Policy every five years. Each EXIM Policy announced by the Indian Government
is valid for five years, and they can amend, enhance or add new provisions to the policy every year on 31
March, taking effect from 1 April.

The Ministry of Finance, in collaboration with the DGFT, its network of regional offices and the Union
Minister of Commerce and Industry, announces amendments or changes to the EXIM Policy of India.

In 2004, the EXIM Policy was renamed the Foreign Trade Policy to provide a comprehensive approach
to foreign trade in India. The Ministry of Commerce announced the recent FTP, which came into effect on 1

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April 2023. FTP 2023-2028 seeks to make India an export hub and to integrate India further into global
value chains. It creates an enabling ecosystem for exporters, which aligns with India’s vision of becoming
‘Atmanirbhar’

Objectives of Foreign Trade Policy:

The objectives of foreign trade policy have been stated below.
1. Promote exports: The primary objective is to boost India's exports of goods and services to global
markets. This helps create more foreign exchange earnings for the nation.
2. Create jobs: By helping exports, more jobs and economic chances are created within the nation,
mainly for sectors focusing on exports.
3. Industrial growth: By incentivizing exports, the government aims to help industrial growth, mainly
for labour-intensive and employment-generating small and medium firms.
4. Diversify export basket: The policy tries to help and diversify the range of goods and services
exported from India. This reduces dependence on a few major exports.
5. Improve competitiveness: The government provides various incentives and subsidies to help
domestic firms and exporters help their cost rivalry and production efficiency in global markets.
6. Earn more foreign exchange: By achieving higher export growth, the main goal is to earn more
valuable foreign exchange, which can be used for imports and economic development.
7. Technological progress: The foreign trade policy encourages the adoption of new technologies and
innovation, which can make Indian exports more rivalry globally.

Features of Foreign Trade Policy of India

Feature of foreign trade policy of India.
1. Exchange of goods and services: Foreign trade involves the exchange of goods and services
between nations. One nation exports goods or services to another nation and, in return, imports goods
or services from that nation.
2. Use of different currencies: Since different nations have several currencies, foreign trade needs
using different currencies for payments and settlements. Exchange rates play an important role.
3. Involves cross-border movement: For foreign trade to happen, goods and services have to
physically move across global borders from the exporting nation to the importing nation.
4. Governed by trade policies: Foreign trade is regulated and governed by the trade policies and
agreements of various nations. These policies determine what goods can be exported or imported and
taxes and duties on trade.
5. Helps utilize resources effectively: Foreign trade enables nations to obtain resources and goods that
they lack but others have in abundance. This helps utilize world resources more efficiently.
6. Boosts rivalry: Foreign trade exposes domestic firms to global competition, which forces them to
better quality, efficiency and innovation. This benefits users.
7. Creates economic interdependence: When nations frequently trade with each other, they become
economically interdependent. This creates a stake in helping good trade relations.
8. Balance of trade and payments: Foreign trade leads to a balance of trade (exports vs imports) and
balance of payments ( cross-border flows of money) amongst nations. Governments try to achieve a
favourable balance.

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Foreign Trade Policy / EXIM Policy 2023

Foreign Trade Policy 2023

Why in news?
Recently, Union Minister for Commerce & Industry, Consumer Affairs, Food & Public Distribution and
Textiles has unveiled Foreign Trade Policy 2023.

What is the need for the policy?

1. To increase the export of India
2. To be in incompliance with WTO regulations
3. To push MSMSE sector
4. To include new sectors
5. To address the grievances mechanisms

What are the key features of Foreign Trade Policy (FTP) 2023?
Aim -To almost triple India’s goods and services exports to $2 trillion by 2030.

1.Ease of doing business -By digitizing applications, reducing timelines for processing applications and
lowering transaction costs for exporters.
2.Merchanting trade -FTP 2023 has allowed Indian intermediaries to carry out merchanting trade involving
the shipment of goods from one foreign country to another without touching Indian ports.
3.Simplifying policies -To facilitate export of dual-use high-end goods and technology such as UAVs
[unmanned aerial vehicles], drones, cryogenic tanks and certain chemicals.
4.International trade settlement -In the Indian Rupee (INR) granting benefits to those exports that are
paid for via the rupee.

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5.Special advance authorization scheme -Launched for the clothing and apparel sector so that they can
react to market demands and fashion trends faster.
6.Star ratings -To recognize exporters will be available to lower qualification thresholds.
7.PM MITRA (Pradhan Mantri Mega Integrated Textile Region and Apparel) -All PM MITRA parks to get
benefits as common services providers.
8.Towns of Export Excellence (TEE) -Towns producing goods of Rs750 crore or more can be recognized as
TEE based on the potential for growth in exports. TEE also get the benefit of global recognition and brand
credibility.There were already 39 such TEEs in the country and four new have been added to the list in FTP
23.
Faridabad Apparel
Moradabad Handicrafts
Mirzapur Handmade carpets
Varanasi Handloom and handicrafts
9.Online trade -Promoting cross border trade in digital economy including moves to facilitate the
establishment of dedicated e-commerce export hubs.
10.E-commerce exports -All FTP benefits are to be extended to e-commerce exports. Creation of
designated zones with warehousing facilities to help e-commerce.
11.Input duty remissions -Are being continued.
12.Status Holders -The policy has reduced the threshold of minimum exports required for the recognition
of exporters as Status Holders.Many smaller exporters can achieve higher status and avail benefits that will
reduce transaction costs.
14.MSME -Charges have been brought within ₹5,000 for MSME under the popular Advance Authorizations
and Export Promotion Capital Goods (EPCG) scheme.
15.One-time amnesty - A one-time amnesty has been offered, giving exporters more time to avail of both
the AA and EPCG schemes.

Quick facts

1.Remission of Duties and Taxes on Exported Products (RoDTEP) Scheme

RoDTEP is based on the globally accepted principle that taxes and duties should not be exported and taxes
and levies borne on the exported products should be either exempted or remitted to exporters.Recently it
is extended to Chemicals, Pharmaceuticals and Articles of Iron & Steel
industries.

2.Rebate of State Levies (RoSL) Scheme

It is eligible for the textile sector to increase competitiveness in the global market and to create
employment opportunities in India.This scheme gives a rebate of State Levies (RoSL) from customs.It is
directly credited to the Exporter bank account.

3.Advance Authorization (AA) Scheme

AA Scheme allows duty free import of inputs, which are physically incorporated in an export product.
In addition to any inputs, packaging material, fuel, oil, catalyst which is consumed or utilized in the process
of production of export product is also allowed.

4.Export Promotion Capital Goods (EPCG) scheme

It is a trade promotion scheme implemented by the Indian government that allows duty-free import of
capital goods for the purpose of export production in India. It is administered by the Directorate General of
Foreign Trade (DGFT) and is governed by the Foreign Trade Policy of India.
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DEVELOPMENT BANKS

“Development banks can be known as special industrial financial institutions. These banks were
mostly established after World War II in both developed as well as developing countries in the world.
Just like elsewhere, the development banks in India are responsible for accelerating the economic
development of the country.”

1. Unlike other commercial banks, the development banks do not mobilize savings. Instead, they invest the
resources in a productive and efficient manner.
2. These banks are expert financial bodies that perform the dual functions of granting medium and long-term
finances to private entrepreneurs and performing promotional roles for the economic development of the
country.
3. The development banks are responsible to provide medium and long-term finances to the industrial as well as
agricultural sectors. As well, they finance both private and public sectors.
4. Some of the most popular development banks in India are the Industrial Development Bank of India (IDBI),
the Industrial Credit and Investment Corporation of India (ICICI), and Export-Import (EXIM) Bank of India,
etc

What are Development Banks?

1. Development banks are nothing but financial institutions providing long-term funds for capital-
intensive investments for a long period of time. Their lending yields low rates of returns, such as
irrigation systems, urban infrastructure, mining, and heavy industries, etc.

2. They are also known as development finance institutions (DFI) or long-term lending institutions.

3. These banks lend at low and stable interest rates so as to promote long-term investments along with
social benefits.

4. Development banks are not the same as commercial ones. Instead, development banks mobilize short
to medium-term deposits and lend for similar periods of tenure to avoid a maturity mismatch, which
causes a bank’s solvency and liquidity

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Features Of Development Banks

1. This kind of institution deals with money.
2. It offers medium- and long-term financing to business divisions.
3. It doesn’t take deposits from the general public like commercial banks do.
4. It is more than just a lender for quick cash. It is a financial organization that serves many purposes.
5. Fundamentally, it is a bank for development. Its main objective is to encourage investment and
entrepreneurship in developing economies in order to advance economic growth. It encourages
startup and small enterprises and works to foster balanced regional growth.
6. In addition to private sector businesses, it also supports public sector businesses with funding.
7. It tries to instill the practice of saving and communal investment.
8. It doesn’t compete with conventional financial channels, such as the financing already provided by
banks and other conventional financial institutions. Its main role is that of a gap-filler, bridging the
gaps in the current financial facilities.
9. Instead of being driven by financial gain, it serves the greater good. It benefits the nation as a whole

Objectives Of Development Banks

 To promote industrial growth,

 To create regressive zones,
 To increase the quantity of available jobs,
 To increase exports and promote import replacement
 To encourage modernization and technical advancement,
 To promote more efforts for self-employment,
 To revive ailing units,
 to enhance training for large industry managers,
 Removing regional inequalities or inequities
 Through providing risk financing, to promote the development of research and technology in new
fields,
 To strengthen the nation’s capital market

1. IFCI (INDUSTRIAL FINANCE CORPORATION OF INDIA)

 Established in 1 July, 1948.

 Headquarter in New Delhi.
 Original authorized capital of IFCI was 100 cr. But later increased to 259 core.
 Aim to provide financial assistance (medium & long term) to large scale industries.

DEVELOPMENT OF IFCI
1. India’s first development bank called industrial finance corporation of India.
2. IFCI was established under IFCI Act 1948.
3. Until the establishment of ICICI in 1955, IFCI was solely responsible for implementation of government’s
industry policy implementations.
4. In 1993, it was reconstituted as company under Indian Companies Act, 1956 to impart higher degree of
operational flexibility.
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5. IFCI was allowed to access capital market directly.

6. In 1986 IFCI Act was amended in order to make it possible to provide assistance, inter alia, for medical,
health or other allied services.
7. It was renamed as IFCI limited with effect from October, 1999.
8. IFCI will soon merge with PNB.

ACTIVITIES OF IFCI
1. Soft loan assistance
2. Entrepreneur development
3. Industrial development in backward areas.
4. Management development- to improve professional management, IFCI sponsored MDI (management development
institute) in 1973 and established development banking center.
5. Established risk capital foundation in 1976.
6. RGVN (Rashtriya Gramin Vikas Nidhi) promoted by IFCI.
7. Subsidized consultancy: -small entrepreneur for meeting the cost of projects.
-promoting ancillary industries.
-reviving sick units.
-Implementing modernization.
-controlling pollution in factories.
7. Sequence for major sources of funds for IFCI limited (during the year 2011-2012) are
(i) borrowing in rupees
(ii) reserve & surplus
(iii) share capital
(iv) borrowing in foreign currency.

FUNCTIONS OF IFCI
1. Granting loans and advances to industrial concerns repayable within 25 years.
2. Underwriting the same of industrial securities disposed of within 7 years
3. Subscribing directly to shares and debentures of public limited companies.
4. Guaranteeing of deferred payments for the purchase of capital goods from abroad or within India.
5. Acting as agent of central government or the world bank in respect of loans sanctioned to the industrial concerns. 6.
Facilities and services provided by IFCI can fall under:
a) project finance,
b) financial services,
c) promotional services.

FINANCIAL RESOURCES
 Ownership capital
 Borrowing from RBI.
 Borrowing from central government.
 Borrowing from world bank.
 From the market by issue of bonds

IDBI (INDUSTRIAL DEVELOPMENT BANK OF INDIA)

 Established on 1 July, 1964.

 Headquarter in Mumbai.
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 Authorized capital of 3,000 crores.

 Aim: IDBI was established as principal financial institution for coordinating the activities of institutions engaged in
financing, promoting and developing industries in India.
 Also called apex development bank.

DEVELOPMENT OF IDBI
1. Established in 1964 as wholly owned subsidiary of RBI.
2. Became independent in 1976.
3. Considered as government of India owned bank.
4. 10th largest development bank in world in reach.
5. Regarded as public financial institution.
6. Continued to serve as DFI for 40 years till 2004 when it transformed into a bank, under Repeal Act 2003.

Narsimham committee (1991) – suggested that IDBI should give up its direct financing function and perform only
promotional apex and refinancing role in respect of other like SFCs and SIDBI.

SUBSIDIARIES OF IDBI
 IDBI capital market services ltd. (ICMS)
 IDBI asset management ltd. (IAML)
 IDBI Intech ltd. (IIL)
 IDBI mutual fund trustee co. ltd (IMTCL)
 IDBI Trusteeship services ltd. (ITSL)

ROLE OF IDBI
1. DIRECT ASSISTANCE: - Grants loans and advances to industries. - Guarantees loans raised by industries in open
market from co-operative & other schedule banks.
2. INDIRECT ASSISTANCE: - Provide refinance facilities to IFCI, SFC & other financial institutions approved by
government. - Subscribe to shares and bonds of financial institutions and thereby provide supplementary resources.
3. MAJOR ACTIVITY: Confined to financing, developmental, co-ordination and promotional functions.
4. IDBI is leader, coordinator and innovator in the field of industrial financing in our country.
5. Planning, promoting and developing industries with a view to fill gaps in the industrial structure by conceiving,
preparing and floating new projects.
6. IDBI has shown particular interest in development of SSI by-
- Setting up small industries development fund (SIDF) in 1986.
- National equity fund scheme (NEFS), 1988.
- Voluntary executive corporation cell (VECC) for providing support in nature of equity to tiny & SSI engaged in
manufacturing, cost not exceeding Rs. 5 lakhs.
- This scheme is administrated by IDBI through nationalized banks.
7. IDBI has introduced single window assistance scheme for grant of term loans and working capital assistance to tiny
and SSI.
8. As per data available, IDBI has extended about 1/3 of total assistance to SSI alone.
9. Scope of IDBI extended to cover consulting, merchant banking & trusteeship activities.
10. IDBI has started special refinance scheme for the resettlement and rehabilitation of voluntary retired workers of
the national textile corporation of India (NTCI).

FEE BASED SERVICES PROVIDED BY IDBI

- Credit syndication
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- Custodial services
- Foreign services.

SMALL INDUSTRIES DEVELOPMENT BANK OF INDIA (SIDBI)

 Established in 1989 and started functioning on 2 April, 1990.

 Started working as wholly owned associate institution of IDBI.
 Headquarter in Lucknow.
 Aim – to provide adequate financial and non-financial aid to small scale industries.

FUNCTIONS
 It helps in modernization and technical upgradation of present industrial units.
 It provides special help to labor intensive industries which enable them to provide more employment.
 It provides leasing, refinancing, factoring, and services to small sector.
 SIDBI provides financial assistance in following forms: - Refinance assistance - Bills financing - Resource support
to institutions. - Project financing
 SIDBI is the principal financial institution for financing, promotion and development of micro, small and medium
enterprises (MSME) sector.
 SIDBI introduced two schemes: Equipment financing scheme and Venture capital scheme.
 It provides loan under its SINGLE WINDOW SERVICES.
 SIDBI amended bill 2012 introduced by Pranab Mukharji in loksabha on 22 May, 2012
1) expand activities to floriculture,
2) development of tourism related,
3) entertainment facility.
 It also accepts repayment of foreign currency loans in foreign currency.

INDUSTRIAL INVESTMENT BAMK OF INDIA (IIBI)

 Established on 27 march, 1997

 Headquarter in Kolkata.
 Aim:
- to give financial assistance for the reconstruction of sick or closed industrial units.
- To offer technical and managerial facilities.

DEVELOPMENT OF IIBI
1.Industrial reconstruction corporation of India (IRCI) 1997 for rehabilitation of sick industrial units.
2.It was reconstituted as industrial reconstruction bank of India in 1985 under IRBI Act, 1984.
3.With a view to converting the institution into a full-fledged development financial institution, IRBI was incorporated
under the companies Act 1956, as industrial investment bank of India (IIBI) in March, 1997.
4. As effect from budget 2012, IIBI closed.

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National Bank for Agriculture and Rural Development

(NABARD)

As the name suggests NABARD is a development bank focussing primarily on the rural sector of the country. It is, in
fact, India‘s apex development bank. It is one of the most important institutions in the country. NABARD is
responsible for the development of the small industries, cottage industries, and any other such village or rural projects.

Established on 12th July 1982, it had an initial capital of 100 crores. The bank is under the supervision of a Board of
Directors which the Government of India will appoint. The headquarters of NABARD is in Mumbai but it has many
branches and regional divisions.

NABARD is instrumental in the development and efficiency of the current rural credit system. Over half the credit in
the rural region comes from Co-operative banks and Regional Rural Banks. NABARD is responsible for regulating
and supervising the functioning of such banks. Over the years NABARD has been pushing for development in the
credit schemes for rural populations to meet their new credit requirements.

Other than meeting credit requirements of the rural sector NABARD is also instrumental in social innovations and
projects. It partners with various organizations for many innovative projects such as SHG-Bank linking, innovative
schemes for water and soil conservation. Over the last three decades, the institution has gained goodwill and trust in
the farmers and rural communities.

Functions of NABARD
Let us take a look at some of the main functions of this organisation. It basically performs three kinds of roles, i.e.
credit functions, development functions, and supervisory functions.

 Frames the policy for rural credit in the country for all financing institutions
 National Bank for Agriculture and Rural Development will itself provide finance and refinancing facilities to
the banks and rural regional banks
 Identification of credit potential and preparation of the credit plans for all districts
 It also helps all regional banks and institutes under its governance with the preparation of their own credit
plans and policies
 Helps Regional Rural Banks establish an agreement with State Governments and other Co-op Banks and
institutions
 It will also monitor the implementation of such plans and track their progress
 Helps banks improve their MIS system, modernize their technology, develop human resources etc

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 As per the Banking Regulation Act 1949, NABARD has to conduct the inspection of Regional Rural Banks
and other Co-op banks
 It communicates and consults the RBI in matters such as issuing of licenses for new banks, the opening of
branches of Rural Banks etc.
 From time to time it will also inspect the investment portfolios of Regional Rural Banks and other State Co-op
Banks

Export and Import Bank of India (EXIM)

The Export and Import Bank of India, popularly known as the EXIM Bank was set up in 1982. It is the principal financial
institution in India for foreign and international trade. It was previously a branch of the IDBI, but as the foreign trade
sector grew, it was made into an independent body.

The main function of the Export and Import Bank of India is to provide financial and other assistance to importers and
exporters of the country. And it oversees and coordinates the working of other institutions that work in the import-export
sector. The ultimate aim is to promote foreign trade activities in the country.

The management of the EXIM bank is done by a board, headed by the Managing Director. There are 17 other Directors on
the board. The whole paid-up capital of the bank (100 crores currently) is subscribed by the Central Government
exclusively.

Functions of the EXIM Bank

Let us take a look at some of the main functions of Export and Import Bank of India bank:

1. Finances import and export of goods and services from India

2. It also finances the import and export of goods and services from countries other than India.
3. It finances the import or export of machines and machinery on lease or hires purchase basis as well.
4. Provides refinancing services to banks and other financial institutes for their financing of foreign trade
5. EXIM bank will also provide financial assistance to businesses joining a joint venture in a foreign country.
6. The bank also provides technical and other assistance to importers and exporters. Depending n the country of
origin there are a lot of processes and procedures involved in the import-export of goods. The EXIM bank will
provide guidance and assistance in administrative matters as well.
7. Undertakes functions of a merchant bank for the importer or exporter in transactions of foreign trade.
8. Will also underwrite shares/debentures/stocks/bonds of companies engaged in foreign trade.
9. Will offer short-term loans or lines of credit to foreign banks and governments.

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10. EXIM bank can also provide business advisory services and expert knowledge to Indian exporters in respect of
multi-funded projects in foreign countries

Importance of the EXIM Bank

Other than providing financial assistance, the Export and Import Bank of India bank is always looking for ways to
promote the foreign trade sector in India. In the early 1990s, EXIM introduced a program in India known as the Clusters
of Excellence.

The aim was to improve the quality standards of our imports and exports. It also has a tie-up with the European Bank for
Reconstruction and Development. It has agreed to co-finance programs with them in eastern Europe.

In order to promote exports EXIM bank also has schemes such as production equipment finance program, export
marketing finance, vendor development finance, etc.

NHB (National Housing Bank)

What is National Housing Bank?

 National Housing Bank is a government-owned corporation. The government took over the NHB from the
RBI in 2019 after purchasing the entire stake for Rs. 1,450 crores.
o The move is in response to the recommendation of the Narasimham-II committee report from October
2001.
 NHB raises funds via debt instruments such as bonds, debentures, and borrowings.
 Its bonds, which are guaranteed by the Government of India, are eligible securities for commercial banks to use in
order to meet the statutory liquidity requirements under the Banking Regulation Act.
 Furthermore, it receives external assistance from international organisations such as USAID and OECF Japan.
 It accepts deposits through commercial banks' Home Loan Accounts.
 The National Housing Bank refinances Housing Finance Companies, which are located throughout the country
and account for the majority of the market, followed by commercial banks, co-operative banks, and Land
Development Banks.
 National Housing Bank offers refinancing to housing finance companies at varying rates based on loan size.

National Housing Bank – Historical perspective

 The Sub-Group on Housing Finance for the Seventh Five Year Plan (1985-1990) identified the lack of long-term
finance to individual households on a significant scale as a major impediment to housing sector progress and
recommended the establishment of a national level institution.
 The Committee of Secretaries considered the recommendation and formed the High-Level Group, chaired by Dr
C. Rangarajan, the then-Deputy Governor of the Reserve Bank of India, to examine the proposal and
recommend the establishment of the National Housing Bank as an autonomous housing finance institution.
 The High-Level Group's recommendations were accepted by the Government of India.
 On February 28, 1987, the Prime Minister of India announced the decision to establish the National Housing
Bank (NHB) as an apex level institution for housing finance while presenting the Union Budget for 1987-88.

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 Following that, the National Housing Bank Bill, which provided the legislative framework for the establishment
of NHB, was passed by Parliament in the winter session of 1987 and became an Act of Parliament with the assent
of the President of India on December 23, 1987.
 The National Housing Policy of 1988 called for the establishment of the NHB as the apex housing institution.
 NHB was established on July 9, 1988, under the National Housing Bank Act of 1987.
 The entire paid-up capital was contributed by the Reserve Bank of India.
 The general supervision, direction, and management of NHB's affairs and business are vested in a Board of
Directors under the Act.
 NHB's headquarters are in New Delhi.

National Housing Bank – Objectives

 To promote a sound, healthy, viable, and cost-effective housing finance system capable of serving all segments of
the population, as well as to integrate the housing finance system with the overall financial system.
 To encourage the development of a network of dedicated housing finance institutions to adequately serve various
regions and income groups.
 To increase resources for the sector and direct them toward housing.
 To make mortgages more affordable.
 To monitor the activities of housing finance companies as per the supervisory powers it derives from the Act.
 To encourage the expansion of the supply of buildable land as well as building materials for housing, as well as to
upgrade the country's housing stock.
 Encourage government agencies to become facilitators and suppliers of serviced land for housing.

National Housing Bank – Role & Importance

 Ensuring adequate financing for housing infrastructure development, as well as a continuous flow of liquidity to
various housing finance institutes for timely financing to all income segments.
 Ensure proper regulation and oversight of all housing finance companies operating throughout the country.
 The NHB is also in charge of auditing such companies, ensuring their compliance with the relevant guidelines,
and ensuring that the organisations make credit available at affordable rates in order to provide housing facilities
for all.
 The NHB was also created with the goal of increasing the number of housing units in the country.
o As a result, the National Housing Bank plays an important role in making land available for housing
development by acting as a facilitator to enable companies in the housing sector to raise funds and
smooth the entire function, resulting in increased efficiency and productivity.

National Housing Bank – Functions

 It is primarily in charge of registering and supervising all Housing Finance Companies (HFCs), as well as
maintaining surveillance through on-site and off-site mechanisms and coordinating with other regulators.
 Supervision and control of housing companies operating in India under the authority granted by the National
Housing Bank Act.
 Raising funds on a large scale and refinancing for housing finance companies, cooperative banks, and other
housing agencies for onward lending to individuals and housing infrastructure companies.
 Regulating and ensuring that housing finance companies meet all regulatory capital requirements outlined in
the BASEL guidelines.
 Assuring that they have a proper risk management system in place, as well as good governance practises, and
so on.

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