Q14: Explain the banking reforms given by Narasimham committee and the challenges banking sector faces.

Ans: Banking in India in the modern sense originated in the last decades of the 18th century.  Banking can be defined as the business activity of accepting and safeguarding money owned by other individuals and entities, and then lending out this money in order to earn a profit.    However, with the passage of time, the activities covered by banking business have widened and now various other services are also offered by banks.  The banking services these days include issuance of debit and credit cards, providing safe custody of valuable items, lockers, ATM services and online transfer of funds across the country / world.

Structure of Indian Banking System :

Banks can be divided into two parts:

Banking Reforms by Narsimham Committee:

Problems Identified By the Narasimham Committee

1.      Directed Investment Programme: The committee objected to the system of maintaining high liquid assets by commercial banks in the form of cash, gold and unencumbered government securities. It is also known as the statutory liquidity Ratio (SLR). In those days, in India, the SLR was as high as 38.5 percent. According to the M. Narasimham's Committee it was one of the reasons for the poor profitability of banks. Similarly, the Cash Reserve Ratio- (CRR) was as high as 15 percent. Taken together, banks needed to maintain 53.5 percent of their resources idle with the RBI.

2.      Directed Credit Programme: Since nationalization the government has encouraged the lending to agriculture and small-scale industries at a confessional rate of interest. It is known as the directed credit programme. The committee opined that these sectors have matured and thus do not need such financial support. This directed credit programme was successful from the government's point of view but it affected commercial banks in a bad manner. Basically it deteriorated the quality of loan, resulted in a shift from the security oriented loan to purpose oriented. Banks were given a huge target of priority sector lending, etc. ultimately leading to profit erosion of banks.

3.      Interest Rate Structure: The committee found that the interest rate structure and rate of interest in India are highly regulated and controlled by the government. They also found that government used bank funds at a cheap rate under the SLR. At the same time the government advocated the philosophy of subsidized lending to certain sectors. The committee felt that there was no need for interest subsidy. It made banks handicapped in terms of building main strength and expanding credit supply.

4.      Additional Suggestions: Committee also suggested that the determination of interest rate should be on grounds of market forces. It further suggested minimizing the slabs of interest.

Along with these major problem areas M. Narasimham's Committee also found various inconsistencies regarding the banking system in India. In order to remove them and make it more vibrant and efficient, it has given the following recommendations.

Narasimham Committee Report I - 1991

The Narsimham Committee was set up in order to study the problems of the Indian financial system and to suggest some recommendations for improvement in the efficiency and productivity of the financial institution.

The committee has given the following major recommendations:-

1.      Reduction in the SLR and CRR: The committee recommended the reduction of the higher proportion of the Statutory Liquidity Ratio 'SLR' and the Cash Reserve Ratio 'CRR'. Both of these ratios were very high at that time. The SLR then was 38.5% and CRR was 15%. This high amount of SLR and CRR meant locking the bank resources for government uses. It was hindrance in the productivity of the bank thus the committee recommended their gradual reduction. SLR was recommended to reduce from 38.5% to 25% and CRR from 15% to 3 to 5%.

2.      Phasing out Directed Credit Programme: In India, since nationalization, directed credit programmes were adopted by the government. The committee recommended phasing out of this programme. This programme compelled banks to earmark then financial resources for the needy and poor sectors at confessional rates of interest. It was reducing the profitability of banks and thus the committee recommended the stopping of this programme.

3.      Interest Rate Determination: The committee felt that the interest rates in India are regulated and controlled by the authorities. The determination of the interest rate should be on the grounds of market forces such as the demand for and the supply of fund. Hence the committee recommended eliminating government controls on interest rate and phasing out the concessional interest rates for the priority sector.

4.      Structural Reorganizations of the Banking sector: The committee recommended that the actual numbers of public sector banks need to be reduced. Three to four big banks including SBI should be developed as international banks. Eight to Ten Banks having nationwide presence should concentrate on the national and universal banking services. Local banks should concentrate on region specific banking. Regarding the RRBs (Regional Rural Banks), it recommended that they should focus on agriculture and rural financing. They recommended that the government should assure that henceforth there won't be any nationalization and private and foreign banks should be allowed liberal entry in India.

5.      Establishment of the ARF Tribunal: The proportion of bad debts and Non-performing asset (NPA) of the public sector Banks and Development Financial Institute was very alarming in those days. The committee recommended the establishment of an Asset Reconstruction Fund (ARF). This fund will take over the proportion of the bad and doubtful debts from the banks and financial institutes. It would help banks to get rid of bad debts.

6.      Removal of Dual control: Those days banks were under the dual control of the Reserve Bank of India (RBI) and the Banking Division of the Ministry of Finance (Government of India). The committee recommended the stepping of this system. It considered and recommended that the RBI should be the only main agency to regulate banking in India.

7.      Banking Autonomy: The committee recommended that the public sector banks should be free and autonomous. In order to pursue competitiveness and efficiency, banks must enjoy autonomy so that they can reform the work culture and banking technology up gradation will thus be easy.

Some of these recommendations were later accepted by the Government of India and became banking reforms.

Narasimham Committee Report II - 1998

In 1998 the government appointed yet another committee under the chairmanship of Mr. Narsimham. It is better known as the Banking Sector Committee. It was told to review the banking reform progress and design a programme for further strengthening the financial system of India. The committee focused on various areas such as capital adequacy, bank mergers, bank legislation, etc.

It submitted its report to the Government in April 1998 with the following recommendations.

1.      Strengthening Banks in India: The committee considered the stronger banking system in the context of the Current Account Convertibility 'CAC'. It thought that Indian banks must be capable of handling problems regarding domestic liquidity and exchange rate management in the light of CAC. Thus, it recommended the merger of strong banks which will have 'multiplier effect' on the industry.

2.      Narrow Banking: Those days many public sector banks were facing a problem of the Non-performing assets (NPAs). Some of them had NPAs were as high as 20 percent of their assets. Thus for successful rehabilitation of these banks it recommended 'Narrow Banking Concept' where weak banks will be allowed to place their funds only in short term and risk free assets.

3.      Capital Adequacy Ratio: In order to improve the inherent strength of the Indian banking system the committee recommended that the Government should raise the prescribed capital adequacy norms. This will further improve their absorption capacity also. Currently the capital adequacy ration for Indian banks is at 9 percent.

4.      Bank ownership: As it had earlier mentioned the freedom for banks in its working and bank autonomy, it felt that the government control over the banks in the form of management and ownership and bank autonomy does not go hand in hand and thus it recommended a review of functions of boards and enabled them to adopt professional corporate strategy.

5.      Review of banking laws: The committee considered that there was an urgent need for reviewing and amending main laws governing Indian Banking Industry like RBI Act, Banking Regulation Act, State Bank of India Act, Bank Nationalisation Act, etc. This up gradation will bring them in line with the present needs of the banking sector in India.

Apart from these major recommendations, the committee has also recommended faster computerization, technology up gradation, training of staff, depoliticizing of banks, professionalism in banking, reviewing bank recruitment, etc.

Evaluation of Narsimham Committee Reports

The Committee was first set up in 1991 under the chairmanship of Mr. M. Narasimham who was 13th governor of RBI. Only a few of its recommendations became banking reforms of India and others were not at all considered. Because of this a second committee was again set up in 1998.

As far as recommendations regarding bank restructuring, management freedom, strengthening the regulation are concerned, the RBI has to play a major role. If the major recommendations of this committee are accepted, it will prove to be fruitful in making Indian banks more profitable and efficient.

Banking Challenges

The banking challenges that are facing by Indian banking are as follows:

1.      Increase penetration of banking in India- tackle demand supply mismatch

Primarily supply side constraints are responsible for the high levels of financial exclusion in the country, as they have a causal effect in keeping demand low from certain factions of the population. The demand supply mismatch, which is reflected in measures of financial exclusion, shows the limitations on the banks’ ability to supply products and services.

A large proportion of the population in India, largely concentrated in rural areas is believed to be financially excluded from formalized credit markets (implies having access to bank credit) and payments systems (implies not having access to bank accounts). Inaccessible institutional credit drives these people to use the services of unorganized credit markets which charge interest at rates in the range of 35-60%. According to the Report of the Committee on Financial Inclusion (NABARD, 2008) and NSSO, 45.9 million farmer households in India do not have access to credit, even from non institutional sources. Only 27% of farmer households have loans from institutionalized sources, two-thirds of which also borrow from the unorganized sector. Among the urban poor class, financial exclusion level is not determined with certainty, since this population group is highly migratory. But, clearly, north eastern, eastern and central regions suffer more from financial exclusion than other regions of the country.

Many initiatives are being taken by the RBI and other banks in the country, notably public sector banks, to increase supply of financial services to the unbanked areas. Introduction of ‘no frills’ account (2005) and utilizing services of NGOs and other civil organizations for providing financial services (2006) are some steps in that direction. The ability of banks to supply products and services is clearly reflected in the population being served by them per branch, or their physical presence geographically.

Foreign banks committed to making a play in India will need to adopt alternative approaches to win the “race for the customer” and build a value-creating customer franchise in advance of regulations potentially opening up post 2009. At the same time, they should stay in the game for potential acquisition opportunities as and when they appear in the near term. Maintaining a fundamentally long-term value-creation mindset will be their greatest challenge.

2.      Credit disbursement to the priority sector:

One of the major challenges faced by the banking system in India is to provide timely and cost effective credit to the priority sectors especially the agriculture and Small scale industries, which are critical in generating employment and support the growth momentum of the economy. After witnessing robust growth between FY05-FY07, the growth in agriculture credit witnessed some moderation in FY08. Thus banks are required to ensure availability of credit to the agriculture sector, which forms the backbone of the Indian economy. With significant slowdown in economic activity and exports during the latter part of FY09, the credit growth to the micro and small experienced some moderation. While it is important for the banks to maintain the asset quality, they also need to direct the credit flow towards small and medium enterprises which play a critical role in India’s economic development.

3.      Maintain asset quality:

The secured advances made by banks have shown a mild decline in FY09. The unsecured advances of banks particularly of credit card receivables have increased substantially. In FY09, the quality of assets of banks has come under scrutiny, as the rising interest rates started putting pressure on the repayment by borrowers in the H1 FY09. While the interest rates began to soften in the latter part of the fiscal, the risk of default persisted mainly due to slowdown in economic activity. Thus a major challenge in the current economic scenario for the Indian banks is to maintain the gains made with respect to asset quality over the past few years.

In such situations, unsecured advances possess greater risk to business. The sensitive sector advances is an important indicator towards the quality of assets held by banks. Though this does not in itself indicate a high risk, the higher exposure signals a greater need for monitoring by the banks as the susceptibility increases. This is of even greater importance in the current scenario when capital markets and real estate are extremely risky sectors. The exposures of SCBs to sensitive sectors have increased inexplicably from less than 3.5% to over 20% within a span of two years. New private sector banks have the highest exposure to sensitive sectors, largely due to the exposure in real estate.

4.      Improve risk management mechanism:

Strategies to combat the problem of high risk perception must be taken up by banks on priority basis. Increased usage of rating services must be employed to reduce risk. Besides, SME specific risk management procedures must be setup to make the business more viable, as the risk perception associated with lending to small enterprises is generally very high. Further, the banks would also be required to acquire skill for managing emerging risks resulting from innovations in financial products as well as technological advancements.

The availability and ease access to reliable data/information to both banks and regulators/supervisors of the banking system is a key for prudent risk management. Hence, strengthen the existing system would be another challenge for the banking industry. More over the recent global financial market turmoil has accentuated the need for further improvement in the transparency and disclosure standards.

5.      Technology adoption:

The problem of resistance from workforce has largely been neutralized over the years, but the primary issue involved with the adoption and rapid integration of technological processes within banks still related to human resources- the availability of technically skilled resources is scarce. Technology is not among the core competencies of financial institutions, which necessitates outsourcing. Banks in India are different from banks in many other countries, in ways that they have a very large branch network and varied needs specific to regions and customers. Most off the shelf solutions are not exactly in conformity to the needs of the banks, which makes room for large customizations.

Besides, a serious concern in implementing complex technologies is protection against frauds and hackings. Security concern slows down technology adoption significantly for the banking industry. A fast pace of development of security systems is imperative to the adoption of large scale innovations in the industry.

Another issue is that of business process reengineering, which is required after computerization. Failure to successfully carry out BPR neutralizes the benefits that an institution wishes to accomplish via adoption of a technological process.

Q13: Write a Note on: (a) Trends in service sector growth (b) Business opportunities in the rural sector

Ans: (a) Trends in service sector growth

Meaning of service sector: The portion of the economy that produces intangible goods. Service industry companies are involved in retail, transport, distribution, food services, as well as other service-dominated businesses. 

A service is an act or performance offered by one party to another. They are economic activities that create value and provide benefits for customers at specific times and places as a result of bringing desired change.

According to Sir William B “Service refers to social efforts which includes the Govt. to fight five giant evils – wants, disease, ignorance, squalor and illness in the society”.

Characteristics of services

Service is an act or performance offered by one party to another. They are economic activities that create value and provide benefits for customers at specific times and places as a result of bringing about a desired change in or on behalf of the recipient of the service. The distinct characteristics of services are mentioned below.

1.      Intangibility: Services are intangible we cannot touch them are not physical objects. According to Carman and Uhl, a consumer feels that he has the right and opportunity to see, touch, hear, smell or taste the goods before they buy them. This is not applicable to services. The buyer does not have any opportunity to touch smell, and taste the services. While selling or promoting a service one has to concentrate on the satisfaction and benefit a consumer can derive having spent on these services.

                       For e.g. An airline sells a flight ticket from A destination to B destination.     Here it is the matter’ of consumer’s perception of services than smelling it or tasting it.

2.      Perishability: Services too, are perishable like labor, Service has a high degree of perish ability. Here the element of time assumes a significant position. If we do not use it today, it labor if ever. If labor stops working, it is a complete waste. It cannot be stored. Utilized or unutilized services are an economic waste. An unoccupied building, an unemployed person, credit unutilized, etc. are economic waste. Services have a high level of perish ability.

3.      Inseparability: Services are generally created or supplied simultaneously. They are inseparable. For an e.g., the entertainment industry, health experts and other professionals create and offer their service at the same given time. Services and their providers are associated closely and thus, not separable. Donald Cowell states ‘Goods are produced, sold and then consumed whereas the services are sold and then produced and consumed’. Therefore inseparability is an important characteristic of services which proves challenging to service management industry.

4.      Heterogeneity: This character of services makes it difficult to set a standard for any service. The quality of services cannot be standardized. The price paid for a service may either be too high or too low as is seen in the case of the entertainment industry and sports. The same type of services cannot be sold to all the consumers even if they pay the same price. Consumers rate these services in different ways. This is due to the difference in perception of individuals at the level of providers and users. Heterogeneity makes it difficult to establish standards for the output of service firm.

5.      Ownership: In the sale of goods, after the completion of process, the goods are transferred in the name of the buyer and he becomes the owner of the goods. But in the case of services, we do not find this. The users have only an access to services. They cannot own the service.

                        For e.g. a consumer can use personal care services or medical services or can use a hotel room or swimming pool, however the ownership remains with the providers.

According to Philip Kotler, “A service is an activity or benefit that one party can offer to another that is essentially intangible and does not result in the ownership of anything. “From this it is clear that the ownership is not affected in the process of selling the services.

6.      Simultaneity: Services cannot move through channels of distribution and cannot be delivered to the potential customers and user. Thus, either users are brought to the services or providers go to the user. It is right to say that services have limited geographical area. According to Carman, “Producers of services generally have a small size area of operations than do the producers of items largely because the producer must   to get the services or vice- versa.”

When the producers approach the buyer time is taken away from the production of services and the cost of those services is increased. On the other hand it cost time and money for the buyers to come to producers directly. Here the economics of time and travel provide incentives to locate more service centers closer, to prospective customer, resulting in emergence of smaller service centers for e.g. aeroplane cannot be brought to customer, etc.

7.      Quality Measurement: A service sector requires another tool for measurement. We can measure it in terms of service level. It is very difficult to rate or quantify total purchase. E.g. we can quantify the food served in a hotel but the way waiter serves the customer or the behavior of the staff cannot be ignored while rating the total process.

Hence we can determine the level of satisfaction at which users are satisfied. Thus the firm sells good atmosphere convenience of customers, consistent quality of services, etc.

8.      Nature of demand- Generally, the services are fluctuating in nature. During the peak tourist seasons there is an abnormal increase in the demand of services. Therefore, while identifying the salient features of services one cannot ignore the nature of demand. E.g. tourists go to hill stations during summer season wherein public transport utilities are used substantially. This indicates that flexibility is the important feature of service.

Key service Businesses in India:

1.      Education and Health Services

2.      Financial Activities

3.      Government

4.      Information

5.      Leisure and Hospitality

6.      Professional and Business Services

7.      Transportation and Warehousing and utilities

8.      Wholesale and Retail Trade

Trade and investment in Services

India’s Trade in Services

Trade in services has been growing rapidly in the past two decades (1990-2010). In 1980s India’s services trade was valued at $6 billion and in 2010 it reached $240 billion. India’s services exports not only grew more rapidly than the country’s merchandise exports, but it also grew faster than global services exports. For the period 1980-2010, India’s service exports grew at a CAGR of 13.2%, while world exports of services have grown at the rate of 7.84%.

 Substantial part of this growth has been in the post reform period (1991-2010) – 21.7%. In the 1980s and 1990s, India had a negative trade balance in services but from 2004 onwards, it has a positive trade balance in services. India’s share in world trade in services has increased from less than one percent to over 3% between 1980 and 2010, while it share in goods trade remained constant at one per cent during the same period. While the world’s trade in services is still dominated by the developed countries, emerging economies like China and India are now among the top ten exporters and importers of services among WTO member countries. In 2011, India was the eighth largest exporter and seventh largest importer of services. Comparatively, China was the fourth largest exporter of services.

Investments in Services

In the post-liberalisation period, services sector has attracted significant foreign investment due to the availability of skilled labour at lower wages and the large and unsaturated domestic

market. According to AT Kearney Global Services Location Index, in 2011, India was the

leading outsourcing destination among 50 countries, followed by China. India’s rank is highest due to human resource (2nd) but it ranked poorly in terms of business environment (43rd).

The economic reforms in general and liberalisation of FDI policy in particular have led to

manifold increase in FDI inflows since the 1990s. In 1980s, India received $0.08 billion worth of FDI inflows, which increased to $42.5 billion in 2008 and then declined due to the global slowdown to $24.6 billion in 2010. The cumulative FDI equity inflows were $179 billion during April 2000 to August 2012. Bulk of the FDI inflow into India is routed through Mauritius. Other important investing countries include Singapore, Japan, the US and the UK.

 Over the years, India’s share in world’s FDI inflows has increased. In 2009, India’s share in

World’s total FDI inflows were 2.44%, which increased from 0.15% in 1980s. However, India’s share declined to 1.98% in 2010.

 Trends in Service Sector Growth

The Indian economic growth has slowed down to 6.9% in 2012. Nevertheless, it is projected to grow at 7.3% in 2013, which is higher than the average projected growth rate for emerging and developing economies (6%).With the rise in GDP and per capita income, the number of people below the poverty line has declined while those in high and middle-income group have increased. McKinsey & Company (2007) forecast that if the Indian economy grows at the rate of 7.3% between 2005 and 2025, then by 2025, 583 million Indians will be in the middle class, which is equivalent to the current population of Australia. The share of middle class in the total population will increase from around 5% in 2005 to 41% in 2025. They will account for 59% of the country’s total consumption by 2025. With increase in income, there has also been an increase in the literacy rate, which is expected to increase further.18

 Moreover, India has one of the youngest populations in the world - with 54% of Indians below 25 years of age. All this is leading to a change in the consumption pattern with an increase in demand for discretionary services like education, private health, personal care and hotels and restaurants. The Indian market is large and unsaturated and majority of services has been opened up for foreign investment. India wants to develop as a knowledge-based hub and the government is promoting exports of services. All these factors will drive the future growth of services in India.

 Indian government projection show that services sector will continue to grow at a fast pace. The Planning Commission estimates that the economy will grow at 9.5% in the XIIth

 Five Year Plan (2012-2017). The services sector is projected to grow at the rate of 10% during 2012-2017. Certain services like trade, hotels and restaurants and transport, storage and communications and financing, insurance, real estate are expected to grow faster than overall services growth while others like community social and person services may grow at a slower pace.

Ans: (b) Business opportunities in the rural sector

Meaning of Rural Sector: In general, a rural area is a geographic area that is located outside cities and towns. Rural areas are also known as 'countryside' or a 'village' in India. It has a very low density of population. In rural areas, agriculture is the chief source of livelihood along with fishing, cottage industries, pottery etc. The quest to discover the real rural India still continues in great earnest. Almost every economic agency today has a definition of rural India. Here are a few definitions: According to the Planning Commission, a town with a maximum population of 15,000 is considered rural in nature.

Rural development in general is used to denote the actions and initiatives taken to improve the standard of living in non-urban neighborhoods, countryside, and remote villages. These communities can be exemplified with a low ratio of inhabitants to open space. Agricultural activities may be prominent in this case whereas economic activities would relate to the primary sector, production of foodstuffs and raw materials.

Characteristics of Rural sector

(i) Labor Intensive:

Rural industries are labor intensive because they give more employment of labor than machines. Rural entrepreneurs are generally labor intensive because they give much stress on human capital.

(ii) Use of traditional Skill:

Rural entrepreneurs give much emphasis on use of traditional skill during the course of production. They have no capacity to apply modern skill and technology in their industry.

(iii) Less Capital:

Rural entrepreneurs generally invest less capital to produce goods and commodities in their industry. As they have no capacity to afford for much capital investment, they emphasize on less capital investment.

(iv) Decentralized Production:

As rural industries are scattered and operated in a small scale, it encourages decentralized production.

(v) Use of Local Raw Materials:

Rural entrepreneurs make better use of local raw materials during the course of production. They usually make better and effective use of local raw materials because its transportation cost is less.

Business Opportunities in Rural Sector

In the rural area of your city for finding new business opportunities you must keep safety and environment issues creating another opportunities for the products. Build your ideas for the marketing the product and promoting in local area is a good start for your new business. Try to produce the products as local and keep marketing and don’t hide the flavor the thinks you make from your company. Buy the local products in rural area for your business and this will reduce the cost of transportation. Make the products with local area and high quality, safety products with strict

Standards.

Here are the new businesses opportunities for surviving in rural area are:

·         1) Local clothing: create clothing with your idea promote them in local area, then go beyond in rural area and find how the business runs. Create clothing with your thinking and promote into variety of clothing and market in local area.

·          2) Local photography business: take photos in your area by visiting the most unknown areas make into posters, mounted and frame art, postcards and sell towards tourists, students, or visitors who visit your area. You can make the blog for photography business and sell it.

·          3) Local food business in rural area: start new business by preparing new food stuffs and market them into restaurant, food markets, it will make huge commercial production for food business. It is better for foods business because in rural area as for lower transportation distances

4) Local tour guide: be a local tour guide in online by creating a website about your area. Guide the visitors who visit your area and living places this can be set up your own business. Target the visitors, tourists, or any school trips visiting your area this can make you some of the money.

Q12: Write a Note on: (a) Environment for the SME Sector (b) Infrastructure development and policy.

Ans: (a) Environment for the SME Sector

Meaning: Small and medium enterprises or small and medium-sized businesses are companies whose personnel numbers fall below certain limits. The abbreviation "SME" is used in the European Union and by international organizations such as the World Bank, the United Nations and the World Trade Organization.

Definition of Micro, Small & Medium Enterprises (MSMEs)

Small Scale Industrial Unit: An industrial undertaking in which the investment in fixed assets in plant & machinery, whether held on ownership terms, or on lease, or by hire purchase, does not exceed Rs. 100 lakhs as on 31-03-2001 is to be treated as a Small Scale Industrial Unit.

Table 1: Official Definition of Small Scale Industry in India as Modified from Time to Time

Year	Definition of SSI
1950	Capital Assets not exceeding Rs. 5 lacs
1958	Capital Investment of less than Rs. 5 lacs
1959	In capital investment, value of machinery to be taken at original price paid irrespective of it being new or old
1960	Gross value of fixed asset up to Rs. 5 lacs
1966	Up to Rs. 7.5 lacs
1975	Up to Rs. 10 lacs
1977	Up to Rs. 10 lacs
1980	Up to Rs. 20 lacs
1985	Up to Rs. 35 lacs
1991	Up to Rs. 60 lacs
1997	Up to Rs. 3 crores
1999	Up to Rs. 1 crore
2004	Up to Rs. 1 crore*

Source:

1.      SIDBI Report on SSI sector 2002.

2.      *Notification of Ministry of Small Scale Industry, Government of India.

Micro Small Medium Enterprises (MSME): MSME Sector consists of any enterprises, whether proprietorship, Hindu undivided family, association of persons, co-operative society, partnership or undertaking or any other legal entity, by whatever name called, engaged in production of goods pertaining to any industry specified in the first schedule of Industries Development and Regulation Act, 1951 & other enterprises engaged in production and rendering services, subject to limiting factor of investment in plant and machinery and equipment respectively as noted below:

Classification	Manufacturing Enterprises	Service Enterprises
Micro	Rs. 2.5 million/ Rs. 25 lakh (US $ 50,00)	Rs. 1 million/ Rs. 10 lakh (US $ 20,00)
Small	Rs. 50 million/ Rs. 5 crore (US $ 1 million)	Rs. 20 million/ Rs. 2 crore (US $ 0.4 million)
Medium	Rs. 100 million/ Rs. 10 crores (US $ 2 million)	Rs. 50 million/ Rs. 5 crores (US $ 1 million)

Characteristics of SMEs Sector -These are as follows:

1.      Bring out of Individual initiatives and skills

2.      Greater operational flexibility

3.      Low cost of production

4.      High propensity to adopt technology

5.      High capacity to innovate export

6.      High employment orientation

7.      Reduction of regional imbalances

Significance of SMEs Sector-These are helpful in achievement of the following goals:

1.      Employment generation

2.      Balanced regional development

3.      Optimization of capital

4.      Mobilization of local resources

5.      Exchange Earnings

6.      Feeder to large industries

7.      Increased standard of living

8.      Less pressure of population on agriculture

9.      Equitable distribution of income

10.  Social advantage

Suggestions for improvements in SMEs Sector- Following are the suggestion plans that can be made to improve the performance of SMEs Sector

1.      Formulating Programme on Modern Business Tools

2.      Creating Awareness Programmes

3.      Think beyond conventional marketing

4.      Make use of internet

5.      Confirm to Technical Standard

6.     Planned Strategic Approach

Ans: (b) Infrastructure development and policy

Meaning: The basic physical systems of a business or nation. Transportation, communication, sewage, water and electric systems are all examples of infrastructure. These systems tend to be high-cost investments; however, they are vital to a country's economic development and prosperity. Infrastructure projects may be funded publicly, privately or through public-private partnerships.

Areas of Infrastructure Development:

1.     Physical Infrastructure: The term physical infrastructure is used to refer to a very wide array of systems and infrastructure that makes it possible for goods, services and people to be transferred from one geographical place to another. This term is also used in reference to systems that facilitate provision of services. These include:

i.                    Transport

ii.                  Power or Electricity

iii.                IT Industry in India

2.      Social Infrastructure: Social Infrastructure is a subset of the infrastructure sector and typically includes assets that accommodate social services. As set out in the table below, examples of Social Infrastructure Assets include schools, universities, hospitals, prisons and community housing. Social Infrastructure does not typically extend to the provision of social services, such as the provision of teachers at a school or custodial services at a prison.

Examples of Social Infrastructure Assets
Sector	Examples
Health	·         Medical facilities ·         Ancillary infrastructure (e.g. offices, car parks, training facilities)
Education	·         Schools (primary and secondary) ·         Tertiary facilities ·         Residential student accommodation
Housing	·         State or Council housing ·         Defence force housing
Civic and Utilities	·         Community & sports facilities ·         Local government facilities ·         Water and wastewater treatment
Transport	·         Bus stations ·         Park and rides ·         Availability-based roading (excluding demand-risk toll roads)
Corrections and Justice	·         Prisons ·         Court houses

Government Initiatives for Infrastructure Development: Infrastructure development is accorded high priority by the Government of India. It is amply clear that the present unmet and projected future demand for infrastructure services, arising from the needs of a growing economy, will require massive investments in the sector over the next few years. Private sector investment has been necessitated not just by budgetary considerations, but also because the Government has redefined its role from that of an owner of assets and the sole provider of services to that of ensuring that infrastructure services are actually delivered in a desirable manner. The Government of India has, therefore, taken a number of initiatives for the development of efficient infrastructure and towards creating an enabling environment for private participation and enhancing competition in the infrastructure

sector.

The infrastructure sector was one of the thrust areas in the union budget 2012-13. The investment in this sector during the twelfth five year plan will go up to Rs. 50 lakh crore, about half of which is expected from the private sector.

The Reserve Bank of India (RBI) has issued guidelines to allow banks and non-banking financial companies (NBFCs) to sponsor infrastructure debt funds (IDFs), to support long-term finance in infrastructure.