Indian Economy and Policy

The reasons for the family businesses to feel vulnerable in India today include I. the removal of the barriers to foreign investment by the government II. the shortage of cash in the economy III. the widespread allegations of corruption IV. the financial institutions moves to prune non-performing assets

Directions: Read the following passages and answer the question that follows:

PASSAGE – II

The new takeover code, looks at first glance like a typically complicated bit of Indian rulemaking. But two incendiary charges are buried within its many pages. First, SEBI wants to make takeovers, including hostile bids, much easier. Second, it wants to protect the rights of minority shareholders. For instance, any investor who takes a stake of 10% in a company must then make an offer for a further 20%, after that, any substantial increase has to be by an open offer to all the shareholders.

Just possibly, the new takeover code may cause the very large house of cards that is corporate India to collapse. It provides a way for the families that control Indian businesses to be replaced by more widely held companies or even by corporate raiders. Their immediate problem is cash. With profits harder to make, credit hard to come by, and a relatively small equity market, many family firms are being forced to weed their portfolios, retiring from investments they rushed into, in easier times.

If the government relaxes rules requiring an Indian majority holding in any company holding a telecoms licence, the foreigners may use these loans as a springboard for a full takeover. Many foreign companies now favour full control, seeing it as a chance to impose their own standards. In the early stages, a foreign firm needs a local partner’s government contacts and distribution; but once established, foreign firms complain that local partners contribute little in the way of technology or capital. One of the advisors, McKinsey & Co., a management consultancy, points out in a forthcoming report that the government now allows foreign firms to set up wholly owned investment companies that can subsequently buy Indian firms.

In the past, the big families could count on the support of India's financial institutions, which own around 40% of most big companies. However, institutions such as the Industrial Credit and Investment Corporation of India are now trying hard to prune non-performing assets. They have told families such as the Modis that they must sort out their run-down businesses or close them (which is difficult under India's restrictive labour laws) or sell. Before, we used to be benign investors. Now families will increasingly be asked to go when they don't perform, says one senior manager. Still, no family has yet been thrown to the wolves.

According to the passage, what is economic liberalisation?

Directions:  Read the passage and answer the question that follows.

Competition has been intensifying among many countries that participate in the global economy. This competition has been growing since the early 1990’s and is due to many factors. Most significant is economic liberalisation that is pursued by many developing countries and socialistic countries as well as the revolution in information and communication technology. Developing countries with growing economies have been greatly aided by the removal of regulatory controls for industries. This is especially the case when it comes to foreign investment. Another significant factor was the formulation of the World Trade Organisation which resulted in the removal of both quantitative and non-quantitative restrictions for foreign trade. With the spread of the information and communication technology (ICT) revolution, a new era for telecommunications has begun. This has lead to the spreading of faster communication between people and their organisations. In many cases, this communication is instant. All these factors have led to the intensifying of global economic competition.
However, the need to sustain this competitiveness has been a constant concern for policy makers, industrialists and law makers in all industrialised countries. Furthermore, one major concern has been about how to enhance and achieve this competitiveness. This is a plight which India currently faces. Competitiveness must not only be achieved, but sustained, and this is in respect to the whole economy and not individual sectors alone. In India, the manufacturing sector has always been strong in this regard. This is because manufactured products, particularly those which are focused on technology, assist and encourage the enhancement of competitiveness.  This not only happens within the manufacturing sectors, but it also influences the agricultural and service sectors.

Besides achieving competitiveness, what else does India need?

Directions:  Read the passage and answer the question that follows.

Competition has been intensifying among many countries that participate in the global economy. This competition has been growing since the early 1990’s and is due to many factors. Most significant is economic liberalisation that is pursued by many developing countries and socialistic countries as well as the revolution in information and communication technology. Developing countries with growing economies have been greatly aided by the removal of regulatory controls for industries. This is especially the case when it comes to foreign investment. Another significant factor was the formulation of the World Trade Organisation which resulted in the removal of both quantitative and non-quantitative restrictions for foreign trade. With the spread of the information and communication technology (ICT) revolution, a new era for telecommunications has begun. This has lead to the spreading of faster communication between people and their organisations. In many cases, this communication is instant. All these factors have led to the intensifying of global economic competition.
However, the need to sustain this competitiveness has been a constant concern for policy makers, industrialists and law makers in all industrialised countries. Furthermore, one major concern has been about how to enhance and achieve this competitiveness. This is a plight which India currently faces. Competitiveness must not only be achieved, but sustained, and this is in respect to the whole economy and not individual sectors alone. In India, the manufacturing sector has always been strong in this regard. This is because manufactured products, particularly those which are focused on technology, assist and encourage the enhancement of competitiveness.  This not only happens within the manufacturing sectors, but it also influences the agricultural and service sectors.

Which of the following best explains the sentence “It wants a level playing field” as used in the passage? The machine tool industry in India

Directions: Read the following passage and then answer the question that follows:

Now another aspect of the complete scenario: imports.
Today the import duty on a complete machine is 30% for all practical purpose, whereas the import duty on raw materials and components ranges from 35.85%. The story does not end here. After paying such high import duties on component, once a machine is made, it suffers excise duty from 5% – 10% (including on the customs duty already paid). At the time of sale, the machine tools suffer further taxation, i.e. central sales tax or State sales taxes which range from 4% – 16%. This much for the tax angle. Another factor, which pushes the cost of manufacture of machine tools, is the very high rate of interest payable to banks ranging up to 22%, as against 4%–7% prevailing in advanced countries.
The production of machine tools in India being not of the same scale as it is in other countries, the price which India's machine tool builders have to pay for components is more or less based on pattern of high pricing applicable to the prices of spares.
The machines tool industry in India has an enviable record of very quick technology absorption, assimilation and development. It will be a pity, in fact a tragedy, if we allow this industry to die and disappear from the scene.
It is to be noted that India is at least 6500 km away from any dependable source of supply of machine tools. The Government of India has always given a great deal of importance to the development of small scale and medium scale industries. This industry has also performed pretty well. Today, they are in need of help from India's machine tool industry to enable them to produce quality components at reduced costs.
Then, what is it that the industry request from the Government? It wants a level playing field. In fact, all of us must have a deep introspection and recognize the fact that the machine tool industry has a very special place in the country from the point of strategic and vital interest of the nation. Most important, it requests for the Government's consideration and understanding. It is therefore high time that the government gives the due attention to this industry which has a good potential.

Which of the following are not the principal focuses of the content of the passage?

1. Exorbitant sales tax for the Indian machine tool industry.
2. Indian machine tool industry and its vital role in the country's development.
3. Strategy for development of technology that is most helpful to the machine tool industry in India.

   Directions: Read the following passage and then answer the question that follows:
   
   Now another aspect of the complete scenario: imports.
   Today the import duty on a complete machine is 30% for all practical purpose, whereas the import duty on raw materials and components ranges from 35.85%. The story does not end here. After paying such high import duties on component, once a machine is made, it suffers excise duty from 5% – 10% (including on the customs duty already paid). At the time of sale, the machine tools suffer further taxation, i.e. central sales tax or State sales taxes which range from 4% – 16%. This much for the tax angle. Another factor, which pushes the cost of manufacture of machine tools, is the very high rate of interest payable to banks ranging up to 22%, as against 4%–7% prevailing in advanced countries.
   The production of machine tools in India being not of the same scale as it is in other countries, the price which India's machine tool builders have to pay for components is more or less based on pattern of high pricing applicable to the prices of spares.
   The machines tool industry in India has an enviable record of very quick technology absorption, assimilation and development. It will be a pity, in fact a tragedy, if we allow this industry to die and disappear from the scene.
   It is to be noted that India is at least 6500 km away from any dependable source of supply of machine tools. The Government of India has always given a great deal of importance to the development of small scale and medium scale industries. This industry has also performed pretty well. Today, they are in need of help from India's machine tool industry to enable them to produce quality components at reduced costs.
   Then, what is it that the industry request from the Government? It wants a level playing field. In fact, all of us must have a deep introspection and recognize the fact that the machine tool industry has a very special place in the country from the point of strategic and vital interest of the nation. Most important, it requests for the Government's consideration and understanding. It is therefore high time that the government gives the due attention to this industry which has a good potential.

Why do small and medium scale industries look for help from India's machine tool industry?

Directions: Read the following passage and then answer the question that follows:

Now another aspect of the complete scenario: imports.
Today the import duty on a complete machine is 30% for all practical purpose, whereas the import duty on raw materials and components ranges from 35.85%. The story does not end here. After paying such high import duties on component, once a machine is made, it suffers excise duty from 5% – 10% (including on the customs duty already paid). At the time of sale, the machine tools suffer further taxation, i.e. central sales tax or State sales taxes which range from 4% – 16%. This much for the tax angle. Another factor, which pushes the cost of manufacture of machine tools, is the very high rate of interest payable to banks ranging up to 22%, as against 4%–7% prevailing in advanced countries.
The production of machine tools in India being not of the same scale as it is in other countries, the price which India's machine tool builders have to pay for components is more or less based on pattern of high pricing applicable to the prices of spares.
The machines tool industry in India has an enviable record of very quick technology absorption, assimilation and development. It will be a pity, in fact a tragedy, if we allow this industry to die and disappear from the scene.
It is to be noted that India is at least 6500 km away from any dependable source of supply of machine tools. The Government of India has always given a great deal of importance to the development of small scale and medium scale industries. This industry has also performed pretty well. Today, they are in need of help from India's machine tool industry to enable them to produce quality components at reduced costs.
Then, what is it that the industry request from the Government? It wants a level playing field. In fact, all of us must have a deep introspection and recognize the fact that the machine tool industry has a very special place in the country from the point of strategic and vital interest of the nation. Most important, it requests for the Government's consideration and understanding. It is therefore high time that the government gives the due attention to this industry which has a good potential.