Module-2

Environmental Analysis for Enterprise

Entrepreneurial Environment

Entrepreneurial Environment is a combination of factors that play a role in the

development of entrepreneurship. First, it refers to the overall economic, socio- cultural,
and political factors that influence people's willingness and ability to undertake
entrepreneurial activities.

A strong entrepreneurial sector can significantly boost economic growth of a country.

Therefore, the focus for enterprises, including new ones, should be on improving business
operations, scaling sustainable businesses, adopting new technologies and continuous
innovation so that they can expand, and thereby create employment and wealth.

Components of entrepreneurial environment:

 Social Environment: Entrepreneurial activities can grow and manifold in a

conductive and congenial social environment. Social environment presupposes a
number of social factors which are critical for the growth of entrepreneurship.
Social environment prepares background for entrepreneurial activities.
 Economic Environment: Economic environment plays a significant role in
providing inducement to entrepreneurs for specific industrial activity. Economic
activity refers to those economic factors which influence the entrepreneurs in
identifying the business opportunities and giving their decision to finalize the
ventures out of those opportunities that are economically viable and financially
feasible.
 Political Environment: Government also plays important role in entrepreneurship
development. If the existing ruling party frames industrial policy supporting
industries , it encourages more and more entrepreneurs. Due to globalization, Indian
economy has adopted free industrial policy , restrictions on industries have been
minimized and MRTP Act has been cancelled, which has motivated many
 entrepreneurs to establish and to develop industries in Indian economy.
 Legal Environment: In practice, government regulates all important components of
the economy. Government generally tries to control the entry, working, selection of
resources and their uses in business situations. On these lines, government prepares
legal environment of the business. However, it is the duty of government to develop
regulatory framework in such a way which creates conductive environment
necessary for business activities.
 Technological Environment: The technology and its environment play a
predominant role in entrepreneurial development. Small business is influenced by
the technological change that occurs continuously. Small enterprises confront
competition in each sphere due to technological change and otherwise known as
technological-know-how. It implies the up-to-date knowledge required for
promoting and running the enterprise in the most efficient way. Technology also
helps the entrepreneur to produce qualitative products or to deliver qualitative
service.

 Cultural Environment: The effect of culture on entrepreneurs and strategies is also

significant. Entrepreneurs must make sure that each element in the business plan has
some degree of congruence with the local culture.

Factors affecting Entrepreneurial Environment:

 Lack of cash flow

 Changing Government policies

 Varying labour and raw material cost

 Competitors

 Natural disaster

 Customers’ need and demand

 New opportunities or threats

Aspects of Identification of Opportunities

  Scalability:

Profits are dependent on efficient operations of an enterprise as well as its capability to

scale up successfully. Thus, the initial focus of a business should be on capacity building
practices, i.e. improving short term critical business processes with the objective of
building excellence at every stage.

The second focus should be on the continuous improvement of daily activities, such as
providing employees with basic training methods to develop problem solving skills along
with creation of daily management teams, responsible for daily activities and capable of
taking corrective actions.

However, the strategic focus of the business should be on long term growth of the
enterprise and to achieve long term results, managing growth is essential. Managing growth
critically depends on managing people involved in the business. Thus, entrepreneurs need
to align their strategies and focus on their people priorities.

Organizations should work on building a people-friendly work culture and design,

encouraging and acquiring new talent along with capability development and performance
management that can help organizations develop into mature organizations.

 Innovation:

Innovation is one of the critical pillars that supports the success of entrepreneurs as well as
small and medium businesses. Today, innovation has become an essential part of every
organization’s growth journey. It also enables a business to increase its customer base and
enhance revenues, and can also contribute to increased profitability. For businesses to
become successful, there is need for constant innovation across all fronts – products,
operations, manpower management, production and marketing.

Entrepreneurs and MSMEs have their own unique approaches to innovation. The
breakdown of the entire process into several components is explained in the figure below

However, not all innovation has to be radical or breakthrough in nature. Even small
changes can bring about incremental and significant improvements in products or
services that

businesses can offer. Thus, regardless of the type of innovation, entrepreneurs should
consider and be cautious about the inherent risks of innovation and ensure that the journey
is smooth and fruitful.

 Digitization:

Digital technology has created numerous avenues for small businesses and entrepreneurs to
reach out to their customers through which they can create an impact, innovate as well as
grow.

The key trends in the digital landscape which have evolved over time include garnering and
sustaining consumer interests through creation of meaningful content, a mobile first
approach to interact in more personal ways with customers along with collecting intelligent
customer level data, offering an integrated shopping experience through an Omni-channel
strategy, engaging in smart business decisions through Internet of Things (IoT), connected
devices and creating a faster interactive experience by deploying artificial intelligence.

MSMEs and larger enterprises face many challenges when it comes to digital marketing.
These include lack of right tools and skills, tracking return on digital marketing efforts,
storing, managing and utilizing customer data and data analytics. However, if done right,
digital marketing can yield great results for small business organizations and help them
reach out and build a customer base in a cost effective way.

To utilize the potential of digital presence for business growth it is important for the
business organizations to understand the target customer base, design innovative marketing
strategies to communicate with customers, measure the success of the organization
periodically to gauge performance and set future targets and invest in relevant tools such as
Customer Relationship Management to centralize customer information.

 Consumers:

No business enterprise can be thought of without consumers. Consumers demand for

products and services to satisfy their wants. Also, consumers’ wants in terms of
preferences, tastes and liking keep on changing. Hence, an entrepreneur needs to know
what the consumers actually want so that he/she can offer the product or service
accordingly. Consumers’ wants can be known through their feedback about the products
and services they have been using and would want to use in future.

 Existing Products and Services:

One way to have an enterprise idea may be to monitor the existing products and services
already available in the market and make a competitive analysis of them to identify their
shortcomings and then, based on it, decide what and how a better product and service can
be offered to the consumers. Many enterprises are established mainly to offer better
products and services over the existing ones.

 Distribution Channels:

Distribution channels called, market intermediaries, also serves as a very effective source
for new ideas for entrepreneurs. The reason is that they ultimately deal with the ultimate
consumers and, hence, better know the consumers’ wants.

As such, the channel members such as wholesalers and retailers can provide ideas for new
product development and modification in the existing product. For example, an
entrepreneur came to know from a salesman in a departmental store that the reason his
hosiery was not selling was its dark shade while most of the young customers want
hosiery with light shade. The entrepreneur paid heed to this feedback and accordingly
changed the shade of his hosiery to light shade. Entrepreneur found his hosiery enjoying
increasing demand just within a month.

 Government:

At times, the Government can also be a source of new product ideas in various ways. For
example, government from time to time issues regulations on product production and
consumption. Many a times, these regulations become excellent sources for new ideas for
enterprise formation.

For example, government’s regulations on ban on polythene bags have given new idea to
 manufacture jute bags for marketing convenience of the sellers and buyers. A prospective
entrepreneur can also get enterprise idea from the publications of patents available for
license or sale.

Besides, there are some governmental agencies that assist entrepreneurs in obtaining
specific product information. Such information can also become basis for enterprise
formation.

 Research and Development:

The last but no means the least source of new ideas is research and development (R&D)
activity. R&D can be carried out in-house or outside the organization. R&D activity
suggests what and how a new or modified product can be produced to meet the customers’
requirements.

Available evidences indicate that many new product development, or say, new enterprise
establishments have been the outcome of R&D activity. For example, one research scientist
in a Fortune 500 company developed a new plastic resin that became the basis of a new
product, a plastic molded modular cup pallet. Most of the product diversifications have
stemmed from the organization’s R&D activity.

Setting up a small enterprise:

Small scale enterprises or small and medium-sized enterprises are companies whose
turnover falls below certain limits. An industry having number of employees and gross
revenue less than the specified limits is known as small-scale industry or small and medium
sized industry.

An industrial undertaking is referred to as small-scale industry only if its investment in

fixed assets like plant, machinery is not more than 5 crore (in manufacturing
organization)and 25 crore (in service organization).

Entrepreneurs hinder the market equilibrium by lunching innovative products and new
processes. This results in variations in the existing business processes.
 On the other hand the owners of small businesses typically operate their businesses to ear
livelihood. These businesses grow eventually and tend to imitate similar businesses that
already exist in the market.

However, it should be kept in mind that entrepreneurial ventures also start-up but their
goals are big. This act as the main point of difference between a small-scale business and
entrepreneurial ventures.

Steps in setting up a small business enterprise:

1. Discovery of an idea.

2. Determining the objectives.

3. Identifying opportunities.

4. Detailed investigation of an idea.

5. Undertaking various research.

6. Designing a business plan.

7. Resource rising.

8. Setting up the enterprise.

9. Managing the enterprise.

1. Idea generation:
This is the most important function of an entrepreneur. Idea is generated through vision.
Idea generation is a critical skill in entrepreneurship. Insight,observation, experience,
education, training etc. Idea can be generated through environmental scanning and
market survey. An entrepreneur conceives an idea for the formation of a company.
An entrepreneur is not someone with clever ideas but someone who has the ability to turn
that idea into a real business. An entrepreneur conceives the idea of launching the project
and program the structure of business. Converting a business idea into a commercial
venture is at the heart entrepreneurship

2. Determining the objectives:

The next step in setting up business venture is determining the objectives of the business.
Objectives are the goals of a business venture. Objectives are the ends towards which
activities of the organisation are directed. The entrepreneurs stress the need for high
achievement. The objectives must be realistic in nature.

3. Identifying opportunity:
This is the first step in setting up of a business unit Entrepreneur is an opportunity
seeker. As observed by Albert Einstein “In the middle of every difficulty lies
opportunity”. He perceives an opportunity and strives to translate the opportunity into an
idea.

Opportunities do not come suddenly. The entrepreneur must show alertness to grab
opportunities when they come. The opportunities must be carefully scrutinized and
evaluated.
The process of identifying opportunity involves identifying the needs and wants
of the customers, scanning the environment, understanding the competitor’s
policy etc.

4. Detailed investigation of an idea:

The entrepreneur than undergoes detailed investigation of an idea. He analyse the idea to
find out the feasibility whether the project is profitable of not. An entrepreneur must
show the initiative to develop the idea and implement it in practical sense.

5. Undertakes various researches:

After the selection of a worthy idea, an entrepreneur undertakes various researches relating to

a. Market selection

b. Competition

c. Location

d. Machinery and equipment’s

e. Capital

f. Customer preferences etc.

6. Designing a business plan:

At this step an entrepreneur prepares a good business plan, the designs and creates the
organisational structure for implementation of his plan. This plan is further used to achieve
the realistic goals.

7. Resource Rising:
The entrepreneur has to proceed further for raising the resources like men, money,
machine, material to commence the venture. Huge capital is required to install the
sophisticated machinery and employ skilled man power.

A critical step in the creation of a new venture is raising the capital. An entrepreneur has to
take certain steps and follow specified procedures to obtain Institutional finance.

A number of financial agencies like Banks/SFCs provide loans with certain applicable
terms and conditions.

8. Setting up the Enterprise:

 At this step the entrepreneur fulfill some legal formalities. He hunts for suitable location,
design the premises and install machinery. All the statutory formalities are to be met.

i. Acquiring license.

ii. Permission from local authorities.

iii. Approvals from banks and financial institution.

iv. Registration etc.

9. Managing a business enterprise:

Once the project is set up, the entrepreneur must try to achieve the target of a business
plan. This involves setting up of an appropriate business process. Only proper
management can ensure achievement of goals.

The entrepreneur must be capable of turning his ideas into reality. He should also have the
foresight to anticipate changes to avail of opportunities and meeting threats likely to arise in
the near future.

Problems in setting up new enterprise:

 Selling products at very low prices: Many times, new starts up ventures sell their
products at very low prices in order to increase their sale volume. Though cutting
down the prices it is not the right method to acquire the market and even if there is
an increase in the sales volume then also profits generated would not been enough
to cover up the cost of production and other expenses.

 Lack of legal knowledge:

The entrepreneur should have adequate legal knowledge to handle legal affairs efficiently.
Lack of legal knowledge on the part of entrepreneurs may affect smooth conduct of
business. He should have knowledge regarding Factories Act, Wages & Salaries Act, and
Workers Compensation Act etc.-

 Lack of experience:
An entrepreneur should have enough experience to manage the business efficiently.
Lack of adequate experience may create major problems and adversely affect the
experience.

The major hurdles that the new entrepreneurs face are the availability of resources to carry
out such a business. The most important is the allocation of funds that comes in the form
of money to research and development.

 Lack of finance:
Finance is the life blood of every business. To start up a new venture requires adequate
capital. It is required to meet business expenses like purchase of raw material, payment of
wages and salaries; payment of interest on loans etc. Lack of finance can create hurdles in
setting up of a business unit.

 Lack of technology:
Technology is never constant, it keeps on changing. Sophisticated technology helps in
increasing the production capacity and quality of the products. Lack of suitable technology
can hamper the reputation of the firm. Adoption of suitable technology can prove
beneficial to the business success and vice versa.

 Problem of human resource:

Organisation is made up of people and people make an organisation. A firm requires skilled,
qualified and talented employees. Lack of competent staff is another major issue for a
business unit.

 Problem of data:
 Entrepreneurship is based on research work. The Entrepreneur need to conduct a survey
for gathering information regarding market condition, competition, technology, consumer
etc. the data collected may not be accurate and precise. At times it is incorrect and
outdated. This hampers the survival of a business.

 Problem of marketing:
The Entrepreneur should have marketing knowledge. This helps to face cut-throat
competition in all sectors. Lack of marketing efforts and knowledge with respect to
product, pricing, distribution and promotion hampers the Entrepreneurial growth.

Identification of opportunities:

An entrepreneurial opportunity can be identified every time when there is a challenge ,

want, need or problem that can be dealt with, resolved or fulfilled in a creative manner.
This situations in which new things like goods, services, production methods , raw
materials etc., can be introduced and sold at prices more than their actual costs are termed
as entrepreneurial opportunities.

Business Opportunity Identification Process

It is pertinent to know how entrepreneurs identify and decide a new business opportunity
with the best chance to succeed. The most important part of all business attempts common
to most successful start-ups is answering an unmet need in the market. Customers are
always interested in products that add value. They buy products needed only to satisfy
some problems. In actual fact, there is no substitute for indulging the unmet needs of
customers.
Most entrepreneurs searching for new business ideas fundamentally consider three central
issues. The main one is the potential economic value. He first considers if the venture has
the capacity to generate profit. The second is the newness of such a venture. He /She will
prefer products, services or technology that does not previously exist in that environment.
 The third is the perceived desirability whether their product has the moral or legal
acceptability in that environment. He then considers if:
· His final business decision idea corrects a deficiency in the market.
· The resources and capability to carry out this business idea are available to him/her.
· The market for it are readily available and at profit sales.
· The new business idea can compete favourably with existing related competitors
and their market.
· This business market is growing or not and how one should prepare to join that business.

Characteristics of entrepreneurial opportunities:

 Market oriented
 Profit oriented

 Specific
 Motivational
 Legal
 Ethical
 Convertible to product

Steps in opportunity identification:

a. Preparation
Preparation stage is that knowledge and experience exercised just before the
opportunity discovery process. These knowledge and experience are not often deliberately
acquired. However, preparation itself is usually a deliberate attempt to widen capability in
an area and become sensitive to concerns in a field of interest. In an organized situation,
the background of the business, the products or services or the technological knowledge
must have majorly informed the main ideas of the successful venture. One cannot
however, rule out the role of new ideas and expertise originating from individuals in the
organization that will eventually result in a new business.

b. Incubation
Incubation stage is the part of the opportunity identification process that involves the
consideration of a concept or a specific problem ordinarily not subjected to conscious or
formal analysis by a businessman or his team. It is usually not consciously done and
therefore more often than not, an instinctive and unempirical approach for the consideration
of several potential alternatives.

c. Insight
Insight stage occurs at the moment a fundamental solution suddenly becomes recognized
unexpectedly. It is a particular moment that keeps occurring persistently right through the
process of opportunity identification. Insights have been found to be extensive channels
to the discovery of start-up businesses and sometimes reveal additional knowledge for
the development of a current process of discovery. In respect
of a business venture, insight predictably encompasses the abrupt recognition of an
opportunity in business, the answer to an adequately pondered crisis and the possession
of a concept from social networks and associates.

d. Evaluation.
Evaluation stage is about investigating if the recognized and developed ideas are feasible,
if the businessman has the required abilities to realize the ideas and if the idea is
sufficiently innovative for prospects. It sometime involves full feasibility analysis of
the ideas through all forms of research instruments and criticisms from relevant business
acquaintances. It is fundamental to also investigate the prospect and viability of the new
insight ideas as the spirit of entrepreneurship is to make satisfactory and sensible profits.

e. Elaboration.
Elaboration is that stage that exposes the opportunity/ideas to external analysis with the
tedious and time–consuming options selection, choice decision and organization of
resources. It is customarily in search of all legalities that could build confidence and
 guarantee the practicability of the business. Elaboration also reduces uncertainties by
providing the detailed planning activities after the evaluation viability confirmation.
This will eventually reveal the concept areas that still need further analysis and attention.

Environmental Analysis

Environmental analysis is a strategic tool. It is a process to identify all the external and
internal elements, which can affect the organization’s performance. The analysis entails
assessing the level of threat or opportunity the factors might present. These evaluations are
later translated into the decision-making process. The analysis helps align strategies with
the firm’s environment.

Our market is facing changes every day. Many new things develop over time and the whole
scenario can alter in only a few seconds. There are some factors that are beyond your
control. But, you can control a lot of these things.

Process of Environmental Analysis:

1. Identifying Environmental Factors: First of all, the factors which influence the
business entity are to be identified, to improve its position in the market. The
identification is performed at various levels, i.e. company level, market level, national
level and global level.

2. Scanning and Selecting Relevant and key factors: Scanning implies the process of
critically examining the factors that highly influence the business, as all the factors
identified in the previous step effects the entity with the same intensity.

3. Defining variables for Analysis: In this step, a careful analysis of all the
environmental factors is made to determine their effect on different business levels and
on the business as a whole. Different tools available for the analysis include
benchmarking, Delphi technique and scenario building.

4. Using different Methods, Techniques, and Tools: Some of the methods are
 Scenario Building, Benchmarking, and Network Methods. Some of the techniques are
Brainstorming, survey, Historical enquiry. Some of the analytical tools are Mean,
Median, Mode, Frequency.

5. Forecasting Environmental Factors: After identification, examination and analysis,

lastly the impact of the variables is to be forecasted.

6. Designing Profiles: Internal areas are recorded in Strategic Advantages Profile (SAP),
and External areas are recorded in Environmental Threat and Opportunity Profile
(ETOP). These two Profiles are designed & combined in to one.

7. Strategic Position and Reporting Writing: After analysis of business

environment a strategist knows the actual situation and can make some future
forecasting based on the Environmental Analysis.

Techniques of Environmental Analysis:

SWOT Analyses: Strength & weakness are determine by internal analysis whereas
opportunities & threats are determine by external analysis.

 Strength: After analysis of the internal environment of a company, we will be able to

identify the strengths that give the company a competitive advantage. The
entrepreneur can use this information to maximise these strengths and earn more
profits.

 Weakness: Study of the internal environment also point out the weaknesses of the
company. For the growth and stability of the company, these identified weaknesses
must be corrected without delay.

 Opportunity: Analysis of the external environment helps with the identification of

possible opportunities. The entrepreneur can prepare to capitalize on these.

 Threats: Analysis of the external environment will also help in the identification of
any business threats from competitors or any other factors. The company can come
up with a strategy to diffuse such threats or minimize its impact.
ETOP Analyses: ETOP stands for Environmental threat & opportunity profile. It is a
technique to structure the environment for fundamental business analysis. The preparation
of ETOP involves in dividing the environment into different sector and then analyze the
impact of each sector on the organization. A comprehensive ETOP requires sub dividing
each environmental sector into sub sectors and then he impact of each sector is described in
the form of a statement.

Importance of ETOP:

1. Provide clear picture to the strategist about the sectors & factors in these sectors which
may have favorable impact on the organization.

2. It help an organization in formulating an appropriate strategy to take

advantage of opportunity & threats to the business.

3. Spying: To try secretly to get information about a organization.

4. Ratio analysis

5. Interpolation & Extrapolation: To estimate values of data or a function between two

known values. To make an estimate about something from known facts.

QUEST: Quick Environmental Scanning Technique as proposed by B Nanus. It is a

scanning procedure designed to assist executives and planners to keep changes things that
are next to each other in a line.

It is a technique that facilitates estimation of wide-ranging environmental factors and

assesses their influences on the organization. It tries to scrutinise the environmental
forces on the basis of events and trends occurring in the market.

Process of Quest:

1. Preparation
2. Environmental Scanning Workshop

3. Intermediate Analysis & Report

4. Strategic options workshop & follow-up

PEST: PEST stands for “political, economic, social & technological” and describes a
framework of macro- environmental factors used in the environmental scanning
component of strategic management. The level of importance given to these factors varies
as per the industry in which a company works and the goods/ services it deals in.

Political factors

The political factors take the country’s current political situation. It also reads the
global political condition’s effect on the country and business. When conducting this step,
ask questions like “What kind of government leadership is impacting decisions of the
firm?”

Firms can use these factors for their benefit

 Government policies
 Taxes laws and tariff
 Stability of government
 Entry mode regulations

Economic factors

Economic factors involve all the determinants of the economy and its state. These are
factors that can conclude the direction in which the economy might move. So, businesses
analyze this factor based on the environment. It helps to set up strategies in line with
changes.
Firms can use these factors for their benefit

 The inflation rate

 The interest rate
 Disposable income of buyers
 Credit accessibility
 Unemployment rates
 The monetary or fiscal policies
 The foreign exchange rate
Social factors

Countries vary from each other. Every country has a distinctive mindset. These attitudes
have an impact on the businesses. The social factors might ultimately affect the sales of
products and services.

Firms can use these factors for their benefit:

 The cultural implications

 The gender and connected demographics
 The social lifestyles
 The domestic structures
 Educational levels
 Distribution of Wealth
Technological factors

Technology is advancing continuously. The advancement is greatly influencing businesses.

Performing environmental analysis on these factors will help you stay up to date with the
changes. Technology alters every minute. This is why companies must stay connected all
the time. Firms should integrate when needed. Technological factors will help you know
how the consumers react to various trends.
Firms can use these factors for their benefit:

 New discoveries
 Rate of technological obsolescence
 Rate of technological advances
 Innovative technological platforms

Converting business opportunities into reality:

Converting opportunities into reality or opportunities exploitation refers to activities

conducted in order to gain economic returns from the discovery of a potential
entrepreneurial opportunity. It involves the decision to act upon a perceived opportunity
and the associated behaviours aimed at realising the value of opportunity.

During opportunity exploitation people acquire and organize requisite resources and
competencies to develop a product or service and take it to an existing or new market.
Not all opportunities being perceived are acted upon . The marshalling of resources is
associated with cost and outcomes of an attempt to exploit a perceived entrepreneurial
opportunity are uncertain.

Therefore deciding on whether or not to exploit an opportunity involves weighing the

potential value of the opportunity against the costs of exploiting it, and comparing this to the
outcomes of other possible courses of action.

The different stages from which a business enterprise has to undergo during its
development phase are stated below:

 Product selection

 Location

 Project feasibility study

 Preparation of business plan

  Preparation of a project profile

 Decide the constitution

 Registration of business units

 Clearances from specific departments

 Machinery and equipment selection

 Arrange for infrastructure

Environmental Pollution Act or Environmental (Protection) Act, 1986

The Environment (Protection) Act was enacted in the year 1986. It was enacted with the
main objective to provide the protection and improvement of environment and for matters
connected

There with. The Act is one of the most comprehensive legislations with a pretext to
protection and improvement of the environment.

The Constitution of India also provides for the protection of the environment. Article 48A
of the Constitution specifies that the State shall endeavour to protect and improve the
environment and to safeguard the forests and wildlife of the country. Article 51 A further
provides that every citizen shall protect the environment.

Objectives:

 To protect and improve the environmental quality

 To establish an authority to study, plan and implement long-term requirements of

the environmental safety

 To give directions and to coordinate system of adequate response to emergency

situations threatening the environment

 To create an authority with the purpose of environmental protection, regulation

of discharge of pollutants and handling harmful substances
  To coordinate the activities of various regulating agencies

 To cover all the problems relating to environment comprehensively

Major environmental pollution clearances:

 Environmental pollution control: Before initiating any construction activity,

entrepreneurs are required to obtain No objection Certificate from State Pollution
Control Board.

 Industries requiring water and affecting effluent disposal: Issue of NOC certificate
from State Pollution Control Board is essential before the commencement of any
construction activity for industries requiring water and effluent disposal.

 For units functioning outside the industrial area: Business units that are functioning
outside the industrial region require permission from the municipal corporation/
municipality / panchayat.

 Registration and licensing of a boiler: Safety clearance from the Chief Inspector of
Boilers and Chief Electrical Inspector are required before initiating any operation
with pressure and electrical vessels.

 For registration as a 100 per cent export-oriented unit : Entrepreneurs are required
to obtain clearance from Development Commissioner of Export Processing Zone to
be recognized as 100 per cent export-oriented unit so that various incentives can be
gained SEBI will provide the clearance if the company is willing to issue equity
shares to the public.

Industrial Policy

The role played by the government in the process of developing industries are defined as
a set of statements known as Industrial policy. The policy also defines the role played by
different large and small scale industries and the level of public and private intervention.
The set of objectives for industrial development along with the steps for achieving these
objectives is Industrial policy. Therefore Industrial policy mainly defines the roles and
activities of the different public and private sectors.

Objectives of Industrial Policy:

Industrial policy is meant for the growth and development of the industries and in the
process of achieving these, all the other activities are defined by the Industrial policy. The
growth pattern of the industrial activity is also monitored by Industrial policy by framing
certain rules and procedures. Modifications and changes can be made to the policy as per
the changes in the environment and situations.

The important objectives of the industrial policy are as follows -

Rapid Industrial Development

One of the main objectives of the industrial policy is to increase the industrial
development and on those lines, the Industrial policy of the Indian government
concentrates on increasing the industrial development. Different means are being
identified for making the investment environment favourable for the private sector and
resources are being mobilized to make investments in the public sector. Thus leads to rapid
increase in the development of the industries.

Balanced industrial Structure

The present industrial structure seems to be very downgraded and in line of this, the
industrial policy is designed to rectify and modify the structure. For instance, before
independence India was rich in consumer product industries but there was no
development observed in capital goods industries and heavy industries.

In this context, the industrial policy was drafted in a such a manner that it maintains
balance in the industrial structure and this is done by concentrating more of heavy
industries and capital goods sector. Several methods are being identified by the industrial
policy for maintaining the balance in the industrial structure.

Prevention of Concentration of Economic Power

For different public and private sectors, different rules, regulations, activities and
responsibilities are being drafted by the industrial policy. By this, industrial policy tries
to eradicate the symptoms of dominance of a particular sector and thus prevent the focus
of the economic power within the hands of a few.

Balanced Regional Growth

The regional differences if any in the industrial development are corrected by the
industrial policy. For instance, in India, some of the regions are industrially developed
like Gujarat and

Maharashtra, while some of the regions are industrially backward like Bihar and Orissa. In
these situations, industrial policy comes into picture and tries to maintain balance in all the
regions with respect to industrial development by amending some programs and policies
which attract starting industries in the weak areas.

After independence, in 1948, the first industrial policy was formed by the Indian
government and then modifications were made in the year 1956. Till 1991 the policy was
mostly dominated by the public sector enterprises. Later in 1991, many changes and
amendments were being made by expanding the outline of the policy to much broader.

Industrial Policy Resolutions:

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 the Indian economy in socialistic patterns. The large industries were classified into
four categories:

 Industries with exclusive State Monopoly/Strategic industries

 Industries with Government control

 Industries with Mixed sector

 Industry in the Private sector

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 these
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, aluminum, 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.
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.

III. Indian Policy Statement 1977

Indian Policy Statement was announced by George Fernandes then the 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.

 Small scale 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 smallscale 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.

 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 the public sector through disinvestment.

 Industrial licensing.

 Amendments to Monopolies and Restrictive Trade Practices (MRTP) Act, 1969.

 Liberalized Foreign Investment Policy.

 Foreign Technology Agreements (FTA).

 Dilution of protection to SSI and emphasis on competitiveness enhancement.