Promotion of Industries in India

After reading this article you will learn about:- 1. Role of Managing Agents in the Promotion of Industries 2. Defects in the Promotion of Industries in India 3. Regulation of Promotion

Role of Managing Agents in the Promotion of Industries:

Promotion of industries in India was started by the British businessmen who realised the importance of the vast resources and established business enterprises to exploit these resources. Industrial enterprises came to be promoted by Managing Agents-a system peculiar to India which dominated the industrial enterprises scene until April 1970. British businessmen started their own enterprises in different fields.

Later, Indian businessmen also followed their example. These British and Indian businessmen conceived the idea, tested its commercial worth, financed and managed the companies promoted by them.

Managing agents were pioneers in the field of large-scale industries in India. Jute, tea and coffee plantations, textiles and steel industries were promoted and managed by managing agents. These managing agents were the individuals. Firms of joint-stock companies entrusted with the management of the joint-stock companies subject to the control and superintendence of Boards of Directors. However, in reality the managing agents played the role of pioneers, promoters, financiers and managers of large scale industrial firms.

Managing agents in India played their promotional role by taking up preliminary surveys and investigation of potential business schemes. Major industries like iron and steel, hydro-electric works, chemical, plantations etc. were all due to the initiative of the managing agents. Martin Birns, Bird, Tatas, Birlas, Dalmias, Jains, Goenkas were among the prominent houses which undertook the promotional work.

As the Fiscal Commission of 1949-50 pointed out, when neither enterprise nor capital was plentiful the managing agents provided both and well-established industries in India like cotton, jute, steel etc. owed their existence to the pioneering zeal and fostering care of several managing agency houses.

It has been claimed that managing agents provided technical advice, financial assistance and managerial background for the budding industrial undertakings in India. They also took the risks of pioneering entrepreneurship.

Reasons for the development and dominance of the managing agency system were as summarised below:

(i) Reluctance of the public to contribute to the risk-capital.

(ii) Dearth of institutional investors.

(iii) Absence of specialised institutions for promotion such as investment banks in the USA., under writing and issue houses in the UK and credit banks of Germany.

(iv) Undeveloped capital market.

(v) Enterprising efforts of British merchants in the early days.

(vi) Lack of technical knowledge required for investigation of business opportunities.

Defects in the Promotion of Industries in India:

Though the managing agents and a few leading business houses played important role in the early industrialisation of the country their promotional efforts did not evolve a systematic all-sided growth of industrial structure in India. The overriding position held by managing agents in India led to serious lacuna in the industrialisation of the country.

These may be summarised as under:

1. Industries promoted were mostly those engaged in manufacturing export goods and consumer goods. Capital goods or basic industries were not promoted on desirable scale. This led to the unbalanced and lopsided industrial development.

2. Managing agents were interested more in consolidating their hold over the companies and taking a lion’s share in the income of such companies as their remuneration. They were least interested in economical exploitation of the rich resources through industrial promotion.

3. Technical factors were left in the background as financial considerations dominated the strategy of these so-called promoters.

4. Due to predominance of the managing agents in the capital and financial structure of the enterprises promoted by them there was no well – ordained evolution of the capital market.

5. Promotional expenses were often heavy. Assets were procured at inflated prices. Managing agents sought to transfer their own property to the new enterprises at excessive prices.

6. Promotion by managing agents and leading big business houses resulted in excessive concentration of economic power in a few hands. They appointed themselves as the managing agents of the companies they set up. Also, they sought to control other companies through inter-locking of corporate investments.

Regulation of Promotion under the Companies Act, 1956:

The Indian Companies Act, 1956 contains numerous provisions to regulate the establishment of new companies for protecting the interests of investors and promoting the economic growth of the company on right lines.

These provisions aim at:

1. Prevention of promotion of under-capitalised concerns.

2. Providing safeguards to investors against misleading representations by the promoters.

These provisions may be summarised as under:

1. Minimum subscription:

The minimum subscription, which should be enough to cover the following heads of expenditure, must be received within 120 days of the issue of prospectus to carry out allotment of shares and get the certificate for commencement of business:

(a) Price of the property bought or agreed to be bought.

(b) Preliminary expenses payable by the company.

(c) Repayment of money borrowed by the company for meeting the purchases and expenses.

(d) Working capital.

Particulars giving information as to how these items are to be met out of the proceeds of the public issue of shares or other sources should be disclosed in the prospectus. This provision is meant to ensure that the companies will not suffer financial stringency.

2. Information regarding the purchase of the property:

It has been provided that detailed information relating to the purchase of the property for the company made within two years preceding the issue of the prospectus must be given. These information should include the names and titles of the vendors, the purchase price payable, names of promoters, etc.

3. Preliminary expenses:

Particulars of the preliminary expenses also have to be furnished.

4. Information about material contracts:

The general nature, dates and names of parties relating to material contracts should be described in the prospectus. Material contracts are those that are not made in the usual course of business. These are the special agreements relating to appointment, remuneration of managing directors, etc.

5. Information about directors:

Names of directors, promoters, etc. and the nature of their interests in the contracts concluded by the company should be disclosed.

6. Information about share capital:

Particulars of share capital issued, rights of voting, dividend, return of capital etc. are to be given in the prospectus.

7. Statement by expert:

It has been provided that statement by an expert who is interested in the formation of management of the company must not be included in the prospectus. Experts, such as engineers, values, accountants, etc. connected with promotion cannot be expected to give an objective assessment of the things and their statements may mislead the investing public.

8. Punishment for misrepresentation:

Any promoter or director trying to induce fraudulently other persons to invest in the shares of the company by false statements, wrong representation and guarantees shall be subjected to fine and imprisonment.

9. Other particulars other particulars to be furnished in the prospectus relate to:

(a) Shared issued at premium.

(b) Underwriting agreements.

(c) Special rights or options, if any, granted to any particular groups or interests, engineers, promoters, brokers, accountants, etc.