Industrial Policy, Public Sector, MSMEs and Disinvestment

1. Why the state led: the industrial base at Independence, IPR 1948 and IPR 1956

Read the detailed note →

Starting point (Class 11, Indian Economy 1950–1990)

• At Independence the industrial base was narrow. It was mostly cotton textiles and jute.
• There were two well-managed steel firms, one at Jamshedpur and one at Kolkata.
• There was almost no capital goods industry, meaning industry that makes machine tools, which are then used to make consumer goods. Colonial India had almost none.
• Industrial policy is the government's plan for the growth, structure, ownership and location of industry. It works through regulation, incentives, and trade and investment measures.

Why the state had to lead (NCERT's two reasons plus ideology)

• Indian industrialists lacked the capital for large projects.
• The market was too small to justify big projects even if the capital existed.
• Ideology pointed the same way. The Avadi session of Congress (1955) adopted the goal of a "socialist pattern of society".
• Commanding heights was the Second Plan's idea. The state fully controls the industries vital to the economy. The public sector leads, and the private sector plays a supporting role.
• The private sector is the part of the economy owned and run by private individuals or firms for profit. After 1956 it worked under licensing controls. It was largely freed after 1991.
• The Mahalanobis heavy-industry strategy made growth capital-intensive. Capital-intensive industrialisation means growth that relies mainly on machines and capital, with little labour per unit of output. This legacy returns in section 8 as India's jobs problem.

The architecture

Feature	IPR 1948	IPR 1956
Categories	Four	Three (NCERT's version)
State-only	State monopoly: arms and ammunition, atomic energy, railways	Schedule A: 17 industries, exclusively state-owned
Mixed	New units only by the state in 6 basic industries: coal, iron & steel, aircraft, shipbuilding, telecom equipment, mineral oils	Schedule B: 12 industries, progressively state-owned. The state starts new units and private firms supplement.
Regulated	18 industries under central regulation	—
Private	The rest	Schedule C: the rest, private but licensed

• IDRA 1951 (Industries (Development and Regulation) Act) gave licensing its legal basis.
• IPR 1956 formed the basis of the Second Plan (Class 11, Indian Economy 1950–1990).
• Public-sector reservation means keeping specified industries only for state enterprises. The list shrank from 17 (1956) → 8 (1991) → 2 today: atomic energy (specified activities) and railway operations.

Nationalisation waves

• Nationalisation means the government taking over private firms.

Year	Action
1955	Imperial Bank → State Bank of India
1956	Life insurance (LIC)
1969 / 1980	14 banks, then 6 more
1971-73	Coal mines
1972	General insurance (GIC)

• Class 11, Indian Economy 1950–1990 adds a second motive. Some loss-making private firms were nationalised to protect workers' jobs.

2. Industrial licensing and the permit-licence raj

Read the detailed note →

How licensing worked (Class 11, Indian Economy 1950–1990)

• Industrial licensing meant a firm needed government permission to start, expand, diversify or close an industrial unit. It was abolished in 1991 except for a few hazardous or strategic products.
• Even Schedule C firms needed a licence to:
• start a new unit;
• expand output;

• diversify, that is, produce a new variety of goods.

• The aim was that output should not exceed what the planners thought "the economy required". A licence to expand came only if the government was convinced that more output was needed.

Licensing for regional equality

• Licensing for regional equality meant licences were easier to get for units in backward areas.
• Such units also got tax benefits and cheaper electricity. The goal was regional equality.
• Another policy worked the other way. The freight equalisation policy (1952-1993) subsidised the transport of minerals such as coal and iron ore so that a factory anywhere paid the same price.
• This wiped out the cost advantage of the mineral-rich eastern states (Bihar/Jharkhand, Odisha, West Bengal).
• Industry settled nearer ports and markets, and the east industrialised slowly.

The wider control web

Control	Year	Purpose
Monopolies Inquiry Commission	1964-65	Found concentration of economic power
Hazari report	1967	Found big houses pre-empting licences
Dutt Committee (Industrial Licensing Policy Inquiry)	1969	Confirmed the misuse
MRTP Act	1969	Curbed the growth of large houses (asset thresholds)
FERA	1973	Strict control over foreign exchange and foreign firms
Price and distribution controls	1950s-80s	Cement, steel, sugar and others

• The first loosening came through Industrial Policy Statements:
• 1973: joint sector.
• 1977: District Industries Centres, more emphasis on small industry.
• 1980/1985: broad-banding (one licence covering related products) and partial delicensing.

Outcomes: the licence raj

• Big industrialists took licences to block competitors, not to build new firms (Class 11, Indian Economy 1950–1990).
• Firms spent time lobbying ministries rather than improving products. NCERT calls this the "permit licence raj".
• The Licence Raj means heavy regulation through strict permits to produce. NCERT's planned-economy logic applies:
• strict permits → few firms;
• few firms → little competition;
• little competition → little innovation.

From rent-seeking to cronyism

• Crony capitalism is an economy where business success depends on ties with officials, through permits, contracts and subsidies, rather than on fair competition.
• Discretionary allocation was punished by the courts:
• 2G spectrum licences were cancelled in 2012;
• coal blocks were cancelled in 2014.

• Both pushed allocation towards auctions.

• Economic Survey 2019-20 framed the choice as "pro-business vs pro-crony".

• Pro-market versus pro-business policy (Rajan-Zingales):
• pro-market policy creates a level playing field and competition for all;
• pro-business policy hands favours to particular incumbent firms.

3. Appraisal of public-sector-led industrialisation, 1950-1990

Read the detailed note →

Achievements (Class 11, Indian Economy 1950–1990)

Sector share of GDP (%)	1950-51	1990-91
Agriculture	59.0	34.9
Industry	13.0	24.6
Services	28.0	40.5

• Industry grew at about 6% a year, which NCERT calls "commendable".
• By 1990 industry had moved well beyond textiles and jute, "largely due to the public sector".
• Import substitution means replacing imports with home production, protected by tariffs (taxes on imports) and quotas (limits on import quantity). It was followed in the first seven plans.
• It protected infant industries that could not yet compete with rich-country producers.
• It stopped foreign exchange being spent on luxury imports.

• Exports were ignored until the mid-1980s.

• Protection let electronics and automobiles take root.

• SSI let people without much capital start businesses.
• The trade-policy detail sits in planning-mixed-economy.

The critique

• A public sector undertaking (PSU) is a government-owned enterprise. PSUs led industrialisation after 1947. Many later made losses or monopolised areas the private sector could serve.
• NCERT's examples of PSUs monopolising areas private firms could serve:
• Telecom: reserved for the state even after private firms could provide it, so people waited a long time for a phone connection until the late 1990s.
• Modern Bread: "as if the private sector could not manufacture bread!" (NCERT: sold in 2001; the 74% strategic sale of Modern Food Industries to Hindustan Lever closed in 2000, with the rest in 2002 — verify).

• Hotels: still run by the government although private firms manage them well.

• Loss-makers survived because a government undertaking is hard to close, even when it drains limited national resources. A loss-making private firm would not keep wasting resources.

Sick units: the legal path

• A sick industrial unit is a firm whose losses have wiped out its net worth, or that keeps defaulting on debt.
• The path ran: SICA 1985 → BIFR (1987) → SICA repealed in 2016 → the IBC 2016 and NCLT.

Captive market

• A captive market is one where buyers have little or no choice of supplier.
• Import controls forced consumers to buy whatever Indian producers made.
• So producers had no reason to improve quality: "Why should they… when they could sell low quality items at a high price?"

Counter-views in NCERT

• PSUs should be judged by their contribution to welfare, not by profit.
• Protection is fair as long as rich nations protect their own producers.

NCERT's verdict

• After four decades of planning, no distinction was made between (i) what the public sector alone can do (for example national defence) and (ii) what the private sector can also do.
• So the state should leave areas the private sector can manage and focus on what only it can provide. This question runs through sections 5 and 6.

4. From SSI to MSME: Karve Committee, reservation and shifting definitions

Read the detailed note →

The pre-1991 SSI regime (Class 11, Indian Economy 1950–1990)

• The Karve Committee (Village and Small-Scale Industries Committee, 1955) saw small industry as a route to rural development.
• A small-scale industry (SSI) was defined by a ceiling on investment in plant and machinery. SSI is labour-intensive, meaning it uses more workers per unit of capital, so it creates more jobs. It was once protected by reservation and has come under the MSME framework since 2006.
• The ceiling changed over time:
• 1950: Rs 5 lakh;
• raised step by step to Rs 3 crore (1997);
• cut back to Rs 1 crore (1999);
• intermediate steps need verifying.
• (NCERT outdated: "at present Rs 1 crore". Now: MSMED Act 2006, then the 2020 and 2025 composite criteria.)

Protections for small units

• NCERT's logic: small units cannot compete with big firms, so they must be shielded.
• Reservation for small-scale industry meant making certain goods only in SSI units. The test was whether small units could make the item.
• Reservation began in 1967.
• It peaked at 873 items in 1984.
• The Abid Hussain Committee (1997) urged dereservation.

• The list was fully abolished in 2015.

• Other concessions were lower excise duty and cheaper bank loans.

Support bodies

• Cottage industry is household-based production using family labour, simple tools and local materials. It is supported by KVIC (KVIC Act 1956).
• NSIC (National Small Industries Corporation) was set up in 1955.
• An industrial estate is a planned area with ready plots, sheds and common infrastructure for many units. Estates came up from the mid-1950s.
• District Industries Centres were set up in 1978, and SIDBI in 1990.
• An ancillary unit is a small firm that supplies parts or services mainly to a large parent firm.

The MSME framework

• Micro, small and medium enterprises (MSMEs) are firms classified by investment and turnover. They are the backbone of jobs, exports and manufacturing.
• MSME classification now uses composite investment + turnover limits, with no manufacturing-services split since 2020.

Period	Test	Micro	Small	Medium
MSMED Act 2006, manufacturing	Investment only	≤ Rs 25 lakh	≤ Rs 5 cr	≤ Rs 10 cr
MSMED Act 2006, services	Investment only	≤ Rs 10 lakh	≤ Rs 2 cr	≤ Rs 5 cr
From 1 July 2020	Investment + turnover	≤ 1 cr & 5 cr	≤ 10 cr & 50 cr	≤ 50 cr & 250 cr
From 1 April 2025	Investment + turnover	≤ 2.5 cr & 10 cr	≤ 25 cr & 100 cr	≤ 125 cr & 500 cr

• Export turnover is excluded when turnover is counted, so exporting does not push a firm out of its category.
• Udyam Registration (2020) is online and self-declared. The Udyam Assist Platform (2023) brought informal micro units into the formal system.

Role in the economy

• MSMEs number about 6.3 crore enterprises and employ about 11 crore people (NSS 73rd round, 2015-16).
• Class 10, Globalisation and the Indian Economy says small and medium industries employ 11 crore, "next only to agriculture".
• They produce about 30% of GVA and 45% of exports, and about 99% are micro (verify current).

Credit and payment support

Tool	What it does
Priority-sector lending	Banks must lend a share of credit to MSEs
CGTMSE (2000)	Guarantees loans made without collateral
MUDRA (2015)	Shishu/Kishore/Tarun loans for micro units
TReDS	Online discounting of MSME invoices
ECLGS (2020)	COVID emergency credit guarantee
45-day payment rule	MSMED Act, plus s. 43B(h) Income Tax from FY24: a buyer's expense is deductible only if the MSE is paid within 45 days
PM Vishwakarma (2023)	Support for traditional artisans
RAMP	World Bank-backed programme to raise MSME performance

5. 1991 and after: delicensing, dereservation and the unfinished deregulation agenda

Read the detailed note →

The four controls removed (Class 11, Liberalisation, Privatisation and Globalisation: An Appraisal)

• NCERT lists four pre-1991 controls:
• licensing to start, close or set output;
• no private entry into many industries;
• some goods reserved for SSI;

• price and distribution controls.

• The Statement on Industrial Policy (24 July 1991) and later steps dismantled them.

Control	1991 onwards	Today
Compulsory licensing	Cut to 18 industries	5: alcoholic drinks, tobacco products (cigars and cigarettes), electronic aerospace & defence equipment, industrial explosives, specified hazardous chemicals
Public-sector reservation	17 → 8	Atomic energy (specified) and railway operations
SSI reservation	Items dereserved step by step	List abolished in 2015
Prices	Most decontrolled	Market-determined in most industries

• (NCERT outdated: its list still includes drugs and pharmaceuticals, which have since been delicensed. Verify the current DPIIT list.)
• Dereservation means removing items or sectors from the exclusive preserve of the public sector or SSI.
• Other 1991 changes:
• MRTP asset thresholds were scrapped, leading to the Competition Act 2002 and the CCI;
• FDI got automatic approval up to 51% in 34 industries;
• phased manufacturing programmes were abolished;

• location curbs were eased.

• The macro package as a whole belongs to lpg-reforms-1991.

Second-generation deregulation

• Ease of doing business (EoDB) is how simple it is to start, run and close a firm.
• India's World Bank Doing Business rank rose from 142 (DB2015) to 63 (DB2020).
• The index was dropped in September 2021 over data irregularities and replaced by B-READY (2024).

• DPIIT's BRAP (Business Reform Action Plan) ranks states.

• Single-window clearance lets an investor get all approvals through one interface. Examples are the National Single Window System (2021) and state single windows.

• Compliance burden is the time and cost of many licences, filings and procedures, which hit small firms hardest.

• ORF-TeamLease (2022) counted about 69,000 compliances and 26,000 imprisonment clauses for businesses.

• The Jan Vishwas Act 2023 decriminalised 183 provisions in 42 Acts. Jan Vishwas 2.0 followed (status — verify).

• Regulatory cholesterol is the build-up of excessive, outdated rules that clog business, raise costs and deter investment and jobs.
• The term belongs to the Economic Survey 2024-25 deregulation agenda.

• Budget 2025-26 set up a High-Level Committee for Regulatory Reforms (verify source/status).

• The four labour codes are covered in employment-informal-sector.

6. Public enterprises after 1991: CPSEs, the Ratna system, disinvestment and privatisation

Read the detailed note →

CPSEs and autonomy

• A central public sector enterprise (CPSE) is a government company in which the Centre and/or other CPSEs hold ≥ 51%.
• The DPE Public Enterprises Survey counts about 250-270 operating CPSEs (verify current).
• The autonomy route (Class 11, Liberalisation, Privatisation and Globalisation: An Appraisal, Box 3.1):
• the MoU system (1988) followed the Arjun Sengupta Committee (1984);

• Navratna and Miniratna came in 1997, and Maharatna in 2009-10.

• Maharatna, Navratna and Miniratna status is given to profitable CPSEs. It grants more financial, managerial and operational autonomy so they can compete globally.

Status	Key criteria	Board's investment power (per project)
Maharatna status	Already Navratna; listed with minimum public shareholding; 3-year average turnover > Rs 25,000 cr, net worth > Rs 15,000 cr, net profit > Rs 5,000 cr; significant global presence	Up to Rs 5,000 cr or 15% of net worth
Navratna status	Miniratna-I and Schedule A; "excellent/very good" MoU rating in 3 of 5 years; composite score ≥ 60 on six parameters	Up to Rs 1,000 cr or 15% of net worth
Miniratna status, Category I	3 years of continuous profit; pre-tax profit ≥ Rs 30 cr in at least one; positive net worth	Up to Rs 500 cr
Miniratna status, Category II	Continuous profit for 3 years, positive net worth	Up to Rs 300 cr

• There are about 14 Maharatnas, including IOCL, SAIL, NTPC, ONGC, Coal India, BHEL, GAIL and PFC (verify current).
• (NCERT outdated: HAL, listed by NCERT as a Navratna, became a Maharatna in October 2024. The MTNL Navratna example is dated. Verify lists on DPE.)

Privatisation and disinvestment: definitions

• NCERT defines privatisation as shedding the ownership or management of a government enterprise. It happens either by withdrawal from ownership and management, or by outright sale.
• Disinvestment is selling government equity in a PSE. It is a non-debt capital receipt. It also reduces the state's financial assets and future dividend income.
• NCERT's stated aims:
• financial discipline;
• modernisation;
• use of private capital and management skills;
• more FDI.

Phases

• 1991-92: minority "bundled" sales. The target was Rs 2,500 cr and about Rs 3,040 cr was realised.
• 1993: the Rangarajan Committee.
• 1996: the Disinvestment Commission.
• 1999-2004: strategic sales (Modern Foods, BALCO, VSNL, Hindustan Zinc, IPCL).
• 2005: the National Investment Fund.
• 2016: the department was renamed DIPAM.

New PSE Policy 2021

• The strategic sector idea means the state keeps a bare-minimum presence in listed sectors. The remaining CPSEs are privatised, merged or closed.
• The four strategic groups are:
• atomic energy, space and defence;
• transport and telecom;
• power, petroleum, coal and minerals;

• banking, insurance and financial services.

• All non-strategic CPSEs are to be privatised or closed.

Instruments

Route	Meaning	Examples
Minority stake sale	Sell a minority share; the state keeps majority and control	IPO/FPO, OFS, CPSE ETF, Bharat-22 ETF, buybacks; LIC IPO (2022)
Strategic sale	Sell a substantial stake (≥ 50%) plus management control	Air India to the Tatas (January 2022); NINL (2022); BPCL bid withdrawn (2022); IDBI Bank (verify)

• A golden share is a special share the state keeps in a privatised firm. It gives a veto over key decisions despite little equity.

In the budget

• Disinvestment is a non-debt capital receipt (see government-budget-fiscal-policy).
• Since 2024-25 there has been no separate disinvestment target. It is folded into "miscellaneous capital receipts".
• Asset monetisation, meaning leasing out assets without selling them, runs through NMP 2021 and NMP 2.0 (verify current).
• NCERT: about Rs 46,000 cr was raised in 2022-23.

Critique and counterpoint (Class 11, Liberalisation, Privatisation and Globalisation: An Appraisal)

• Critique:
• PSE assets were undervalued;

• proceeds were used to plug revenue shortfalls rather than to develop PSEs or build social infrastructure.

• Counterpoint:

• Ratna status improved performance;
• the government now prefers to retain profitable PSEs and let them expand globally and raise funds from markets.

7. Small producers under globalisation: compete or perish, the missing middle, clusters and platforms

Read the detailed note →

The evidence (Class 10, Globalisation and the Indian Economy)

• Ravi's case: he started a capacitor unit in Hosur (Tamil Nadu) in 1992 with a bank loan, and had 20 workers within three years.
• Import restrictions on capacitors were removed in 2001 under WTO commitments.
• Indian TV makers shifted to assembling for MNCs and imported capacitors at half Ravi's price.
• Ravi's output fell below half its 2000 level and his workforce fell from 20 to 7. Friends in Hyderabad and Chennai closed their units.
• Other hard-hit industries were batteries, plastics, toys, tyres, dairy products and vegetable oil.

What small producers need (NCERT's three)

• Infrastructure: roads, power, water, raw materials, marketing and an information network.
• Modern technology.
• Timely credit at reasonable interest.
• NCERT says the state should support them "till they become strong enough to compete". The MNC and worker side is covered in globalisation-mnc.

The firm-size diagnosis (beyond NCERT)

• The missing middle is a firm-size pattern with many tiny firms and a few large ones, but few mid-sized firms. This is also called a bimodal distribution, and it limits productivity and jobs.
• Dwarf firms stay small despite being old. Infant firms are small only because they are young.
• Economic Survey 2018-19, "Nourishing Dwarfs to become Giants":
• small firms over 10 years old are more than half of organised manufacturing firms;

• they give only ~14% of jobs and ~8% of productivity (verify).

• Size-linked rules discourage growth:

• SSI reservation (earlier);
• labour-law thresholds (100 workers → 300 under the IR Code);

• MSME benefit cliffs, where a firm loses benefits on crossing a limit. These are partly eased by letting upgraded firms keep non-tax benefits for 3 years.

• A gazelle is a firm growing ≥ 20% a year for several years. Gazelles are the main job engines.

Responses: clusters

• An industrial cluster is a geographic concentration of linked firms, suppliers and institutions in one sector.
• Agglomeration economies are the gains from locating near each other. Marshall named three:
• labour pooling;
• shared inputs;

• knowledge spillovers.

• Examples: Tiruppur knitwear, Ludhiana hosiery and cycles, Surat diamonds, Morbi ceramics, Sivakasi fireworks and printing, Moradabad brass.

• Support schemes: MSE-CDP, SFURTI, ODOP (One District One Product).

Responses: platform competition

• E-commerce is buying and selling on online platforms.

Model	Meaning	FDI
Marketplace model of e-commerce	Platform connects buyers and sellers; owns no inventory	100%, automatic (Press Note 3/2016)
Inventory model of e-commerce	Platform owns the goods it sells	Not permitted

• Press Note 2/2018 added three rules:
• no control over vendors' inventory;
• no exclusive deals;

• a 25% cap on a vendor's purchases from the marketplace group.

• Kiranas and traders complain of deep discounting and quick-commerce dark stores.

• ONDC (2022) is public digital infrastructure that lets small sellers reach buyers on any app.
• Ex-ante regulation of digital markets means imposing obligations in advance on large "gatekeeper" platforms.
• The Committee on Digital Competition Law's draft Digital Competition Bill (2024) targets Systemically Significant Digital Enterprises. Its model is the EU Digital Markets Act.
• It contrasts with the ex-post Competition Act, which punishes abuse after it happens. The Act's 2023 amendment added a deal-value threshold for mergers.
• Status — verify current. Market-structure basics are in market-structures-competition.

8. The manufacturing push: Make in India, PLI, zones and the jobs question

Read the detailed note →

Goals and tools

• National Manufacturing Policy 2011: manufacturing at 25% of GDP and 100 million jobs; NIMZs (National Investment and Manufacturing Zones).
• Make in India (September 2014) → Atmanirbhar Bharat (2020) → National Manufacturing Mission (Budget 2025-26).
• Manufacturing is still about 15-17% of GVA (verify current).
• Production-linked incentive (PLI) pays a percentage of incremental sales over a FY20 base year.
• It launched in 2020-21 across 14 sectors with about Rs 1.97 lakh cr.
• It worked in mobiles and electronics through contract manufacturing, where a brand outsources production to another maker that builds to its design. Examples are Foxconn and Tata Electronics for Apple.

• Results in other sectors are mixed (verify current).

• A phased manufacturing programme (PMP) uses graded tariffs to raise domestic value addition step by step.

• It was abolished in 1991 and revived in 2017 for mobile handsets, with duties phased in on chargers, batteries, displays and PCBAs.

• Semiconductors:

• the India Semiconductor Mission (2021, Rs 76,000 cr);
• the design-linked incentive (DLI), which rewards spending on designing chips at home and builds design capability, not just fabs.

The industrial barometer: eight core industries

• The eight core industries carry 40.27% of IIP weight.
• The Index of Eight Core Industries is monthly, from the Office of the Economic Adviser, DPIIT. The IIP comes from NSO-MoSPI.

Industry	Weight (base 2011-12)
Refinery products	28.04 (highest)
Electricity	19.85
Steel	17.92
Coal	10.33
Crude oil	8.98
Natural gas	6.88
Cement	5.37
Fertilisers	2.63 (lowest)

• A base revision is due (verify current).

Zones

• An export processing zone (EPZ) is an enclave where firms import inputs duty-free and make goods mainly for export.

• Kandla (1965) was Asia's first EPZ. SEEPZ Mumbai followed in 1973.

• An export-oriented unit (EOU) is a unit located anywhere that exports its whole output in return for duty-free inputs. The scheme began in 1981.

• A special economic zone (SEZ) is a zone with liberal laws, tax breaks and infrastructure to attract investment and exports. The SEZ policy came in 2000 and the SEZ Act in 2005.
• SEZs lost appeal after MAT/DDT (2011) was applied to them and the tax holiday ended in 2020.
• They faced land protests at Nandigram and Singur.

• The DESH proposal to replace them is pending (verify).

• Class 10, Globalisation and the Indian Economy:

• SEZs offer world-class facilities (electricity, water, roads, transport, storage) and no taxes for the first five years;

• government also allowed "flexible" labour laws to attract foreign investment.

• China's SEZ model is in india-china-pakistan.

• Other tools: industrial corridors, PM MITRA textile parks, PM GatiShakti and the National Logistics Policy 2022.

The jobs question

• Labour-intensive industrialisation uses more workers per unit of capital, as in textiles and footwear. It suits labour-abundant economies.
• Despite abundant labour, India specialised in capital- and skill-intensive industry because of:
• the heavy-industry legacy (section 1);
• rigid labour laws;

• small firm size (section 7).

• Economic Survey 2019-20 proposed "Assemble in India", meaning joining global chains of network products such as electronics.

• Budget 2025-26 targets labour-intensive sectors such as footwear and leather and toys. There is also an Employment Linked Incentive (verify current).
• Premature deindustrialisation is covered in growth-theories-business-cycles.

9. Startups, innovation and frontier industries

Read the detailed note →

Entrepreneurs and startups (Class 8, Factors of Production)

• A startup is "an entrepreneurial venture with limited resources that aims at rapid growth and expansion while leveraging technology".
• NCERT lists what an entrepreneur does:
• identifies a problem;
• combines the factors of production;
• takes risks with money and time;
• makes key decisions;

• contributes to society's welfare.

• NCERT's case is J.R.D. Tata. He started Tata Airlines in 1932, which later became Air India, and received the Bharat Ratna in 1992. Basics are in factors-of-production.

• Startup India launched on 16 January 2016, now National Startup Day.
• DPIIT recognition covers firms up to 10 years old with turnover ≤ Rs 100 cr (verify later revisions, including for deep tech).
• India has about 1.9 lakh recognised startups, the third-largest ecosystem, and 100+ unicorns (verify current).

Funding ladder

• Bootstrapping: growing on founders' savings and the firm's own revenue (Zoho, Zerodha).
• Seed funding: the earliest outside money, used for the idea, prototype and first market test. Example: the Startup India Seed Fund Scheme (2021).
• Angel and VC money:
• the Fund of Funds for Startups (2016, via SIDBI), with a new FFS in Budget 2025-26;

• angel tax abolished in Budget 2024-25.

• Finally an IPO.

• Business incubator vs startup accelerator:
• an incubator nurtures very early startups over a long period with space, mentors and networks. Examples are Atal Innovation Mission AICs and DST TBIs.
• an accelerator runs fixed-term cohorts with mentoring and small investment, ending in a demo day.

Valuation labels

Label	Valuation (private firm)
Soonicorn	Likely to reach $1 bn soon
Unicorn	> $1 bn
Decacorn	> $10 bn
Hectocorn	> $100 bn

Deep tech and reverse flipping

• A deep-tech startup is built on real science or engineering, such as AI, semiconductors or biotech. It needs long gestation and heavy R&D. Relevant policies are the draft National Deep Tech Startup Policy and a Deep Tech Fund of Funds (verify).
• Reverse flipping means a startup that moved its parent company abroad ("flipping") moves it back to India. Examples include PhonePe, Groww, Zepto and Razorpay.
• Drivers are domestic IPOs, GIFT IFSC and the 2024 fast-track cross-border merger rules (verify).

Innovation base

• Research and development intensity is gross R&D spending (GERD) as a share of GDP.
• India is at about 0.65%, against China ~2.4%, the US ~3.5% and Korea ~5%.

• The private share is low at ~36-40% (verify current).

• New funding: the ANRF Act 2023 and the RDI scheme (Rs 1 lakh cr, 2025 — verify).

• The Global Innovation Index is published annually by WIPO. It ranks economies on innovation inputs and outputs.
• India was 81st in 2015 and about 38-39th recently (verify current).

Frontier industries

• Sunrise industries are new, fast-growing ones:
• semiconductors;
• green hydrogen (mission 2023, 5 MMT by 2030);
• EV and ACC batteries;
• drones;
• space after IN-SPACe (2020);

• AI (IndiaAI Mission 2024).

• Sunset industries are mature or declining: film cameras, landlines, coal-based power. The last links to a "just transition" for coal workers.

• Industry 4.0 means cyber-physical systems, IoT, AI, robotics, big data and cloud computing, giving smart factories. In India it is supported by SAMARTH Udyog Bharat 4.0.
• Industry 5.0 adds a human-centric, sustainable and resilient focus, with humans and machines working together.

10. Corporate governance, CSR and ESG: disciplining private corporate power

Read the detailed note →

Governance basics (beyond NCERT)

• Corporate governance is the rules by which a company is directed and controlled. It balances shareholders, managers and other stakeholders.
• India's typical problem is the promoter-dominated firm. Majority owners can extract value from minority shareholders, which is called tunnelling.
• The classic Western problem is different: managers vs dispersed owners.

Milestones

Year	Event
1999 → 2000	Kumar Mangalam Birla Committee → Clause 49 of the listing agreement
2003	Narayana Murthy Committee
2009	Satyam accounting fraud
2013	Companies Act 2013
2015	SEBI LODR Regulations
2017	Kotak Committee
2018	IL&FS collapse
2023	Adani-Hindenburg episode

Independent directors

• An independent director (ID) is a non-executive director with no material financial or family ties to the company or its promoters. IDs provide objective oversight and protect minority shareholders.
• ≥ one-third of a listed board must be IDs (s. 149). It is half if the chair is executive or promoter-linked (LODR).
• IDs serve at most two 5-year terms.
• They must enrol in the IICA databank and pass a proficiency test.
• The top 1,000 listed firms need a woman ID.

Related-party transactions

• A related-party transaction (RPT) is a deal between a company and connected parties such as directors, promoters or group firms.
• s. 188 of the Companies Act and LODR Reg. 23 require audit-committee approval by independent directors.
• "Material" RPTs are those above Rs 1,000 cr or 10% of consolidated turnover, whichever is lower.
• They need shareholder approval, and related parties cannot vote.
• A scale-based revision is under way (verify current).

Beneficial ownership

• Beneficial ownership means the real people who ultimately own or control a firm, even when legal title sits elsewhere.
• Key rules:
• Significant Beneficial Owner rules (10%, 2018; s. 90);
• the PMLA threshold cut to 10% (2023);
• FATF standards;
• SEBI's granular FPI disclosure (2023).

Proxy advisers and activism

• A proxy advisory firm advises institutional investors how to vote. They are SEBI-registered, for example IiAS, InGovern, SES.
• Shareholder activism means using ownership rights to influence management. Example: Invesco vs Zee (2021).

CSR

• Class 8, Factors of Production says business owes duties to nature and to workers:
• reduce waste and pollution. NCERT's example is Tamil Nadu leather-factory effluents polluting rivers and soil.

• pay fair wages, provide safe conditions, invest in training and respect workers' rights.

• Corporate social responsibility (CSR) is mandated by s. 135, Companies Act 2013, in force from 1 April 2014.

• It applies to a company with any one of:
• net worth ≥ Rs 500 cr;
• turnover ≥ Rs 1,000 cr;

• net profit ≥ Rs 5 cr.

• CSR spend ≥ 2% × average net profit of the preceding 3 years, on Schedule VII activities.

• Unspent money:
• for ongoing projects it goes to an Unspent CSR Account and must be spent within 3 years;

• otherwise it goes to a Schedule VII fund such as PM CARES within 6 months.

• Penalties have been civil since the 2020 decriminalisation.

• Spending is about Rs 30,000 cr a year. It is skewed towards education and health, and towards industrialised states (verify current).
• (NCERT error: it says India was the "first nation in the world" to bring a CSR law. Mauritius mandated CSR in 2009. Say instead that India was among the first to mandate CSR spending by law.)

ESG and BRSR

• ESG (environmental, social, governance) is the investor's lens for judging non-financial risk and performance.
• Business Responsibility and Sustainability Reporting (BRSR) is SEBI's mandatory ESG disclosure.
• It came in 2021 and became mandatory for the top 1,000 listed firms from FY 2022-23.
• It replaced the BRR (2012).

• Its principles come from the NGRBC (2019).

• Newer layers:

• BRSR Core with reasonable assurance, phased in (verify current);
• value-chain disclosures;
• SEBI-regulated ESG rating providers (2023);

• ESG mutual funds.

• Greenwashing is covered in environment-sustainable-development.

---

Exam angles

Prelims — high-yield facts and traps

• Chronology:
• IPR 1948 (4 categories) → IDRA 1951 → freight equalisation 1952 → Karve Committee 1955 → IPR 1956 (Schedules A 17 / B 12 / C).
• SSI reservation 1967-2015; MRTP 1969 → Competition Act 2002; FERA 1973 → FEMA 1999.

• SICA 1985/BIFR 1987 → IBC 2016; Arjun Sengupta Committee 1984 (PSU autonomy/MoU); Rangarajan Committee 1993 (disinvestment); Abid Hussain Committee 1997 (dereservation).

• Compulsory licensing (5): alcoholic drinks, tobacco (cigars/cigarettes), electronic aerospace & defence equipment, industrial explosives, hazardous chemicals.

• Trap: "Drugs & pharmaceuticals need an industrial licence" — FALSE (delicensed; NCERT list outdated).

• Trap: "Defence production is reserved for the public sector" — FALSE. Only atomic energy and railway operations are reserved.

• 1991: FDI automatic approval up to 51% in 34 industries; public-sector reservation cut 17 → 8.

• MSME (2025): micro 2.5/10 cr; small 25/100 cr; medium 125/500 cr (investment/turnover).
• Export turnover is excluded. There has been no manufacturing-services split since 2020. Udyam since 2020.

• Trap: "SSI limit is Rs 1 crore" — FALSE today.

• Ratna: Maharatna board power Rs 5,000 cr or 15% of net worth; Navratna Rs 1,000 cr; Miniratna-I Rs 500 cr; Miniratna-II Rs 300 cr.

• HAL is the newest Maharatna (Oct 2024). A CPSE means ≥ 51% central holding.

• DPE and DIPAM are both under the Finance Ministry.

• Strategic sale = ≥ 50% plus control. Minority sale = control retained.

• Disinvestment is a non-debt capital receipt.

• New PSE Policy 2021 names four strategic sector groups.

• Core industries: 40.27% of IIP. Refinery products highest (28.04), fertilisers lowest (2.63).

• ICI comes from OEA-DPIIT; IIP from NSO-MoSPI.

• E-commerce FDI: 100% automatic in marketplace; none in inventory. Press Note 2/2018 sets a 25% vendor cap.

• PLI = incentive on incremental sales over a base year. Kandla EPZ 1965 (Asia's first); EOU 1981; SEZ Act 2005.
• Startup labels: soonicorn → unicorn ($1 bn) → decacorn ($10 bn) → hectocorn ($100 bn).
• DPIIT recognition: ≤ 10 years old, turnover ≤ Rs 100 cr.
• Incubator = long nurture; accelerator = fixed cohort plus demo day.

• GII is published by WIPO (not the World Bank).

• Company law:

• CSR thresholds 500 cr net worth / 1,000 cr turnover / 5 cr net profit; 2% of the 3-year average net profit.
• IDs ≥ one-third of the board.
• Material RPT: lower of Rs 1,000 cr or 10% of turnover.
• SBO at 10%.
• BRSR for the top 1,000 listed firms.
• Proxy advisers are SEBI-regulated.
• Trap: "India was the first country to mandate CSR" — FALSE (Mauritius, 2009).

Mains — GS-III themes

1. "What the public sector alone can do vs what the private sector can also do": appraise PSU-led industrialisation. - Should profitable PSUs be privatised? (This is an NCERT exercise.) - Discuss the New PSE Policy 2021, Air India, and how disinvestment proceeds should be used (asset creation vs deficit plugging).

2. Why manufacturing failed to deliver labour-intensive exports: - causes: capital-intensive legacy, the missing middle, labour and land constraints; - evaluate PLI; - China+1; Industry 4.0 and jobs.

3. MSMEs: - definitions and graduation incentives; - the credit gap and delayed payments (43B(h)); - informality; dwarfs vs gazelles; - "compete or perish" under globalisation, fair globalisation, clusters and the state's role.

4. From licence raj to "regulatory cholesterol": - EoDB and decriminalisation (Jan Vishwas); - state capacity; - cronyism and pro-market vs pro-business policy.

5. Startups: - funding cycles, deep tech, reverse flipping; - low R&D intensity; - governance failures in startups as a bridge to corporate governance.

6. Corporate governance (GS-III with GS-IV ethics overlap): - how effective IDs are in promoter-run firms; - RPT abuse and tunnelling; - CSR as a tax or as philanthropy; - ESG and greenwashing; - ex-ante digital regulation vs innovation.

Current-affairs hooks

• Union Budget: MSME thresholds and credit-guarantee cover, National Manufacturing Mission, startup Fund of Funds, the regulatory-reform committee, disinvestment and miscellaneous capital receipts.
• Economic Survey chapters on MSMEs, manufacturing and deregulation.
• Monthly data: Index of Eight Core Industries and IIP releases; PLI disbursement data; semiconductor fab/ATMP approvals; SEZ/DESH reform news.
• PSEs: DPE Public Enterprises Survey, Ratna upgrades, DIPAM transactions (IDBI Bank, OFS, LIC stake), National Monetisation Pipeline.
• MSMEs: MSME Day (27 June), Udyam registration data, SIDBI/RBI MSME credit reports, enforcement of the 45-day payment rule.
• Startups and innovation: National Startup Day (16 January), unicorn counts, reverse-flip IPOs, WIPO GII release (September-October).
• SEBI and MCA: SEBI board decisions (RPT thresholds, BRSR Core, ESG ratings, FPI disclosure); MCA CSR data and Companies Act amendments.
• Competition: CCI orders against big tech, the Digital Competition Bill, quick-commerce vs kirana disputes, ONDC.