Regulatory Frameworks of Indias Industrial Policies

Regulatory Frameworks of Indias Industrial Policies CHAPTER 3 THE REGULATORY FRAMEWORK 3.1 INTRODUCTION: THE PARADIGM SHIFT The industrial policy pursued in India for the first four decades after independence was based on the socialist school of thought that India embraced, partly to alienate itself from the colonial past and more so owing to the obvious achievements of the socialist movement in the post world-war two period. Thus, through a Resolution dated April 6, 1948 the government set out the policy to be pursued in the Industrial field, wherein to secure continuous increase in production and equitable distribution, the country opted for a centrally planned development strategy, with the state playing a major role. For this purpose, the National Planning Commission was established for planning, co-ordination, integration of national economic activity and to formulate programmes of development and to secure their execution. On October 30, 1956, at the beginning of the Second Five Year Plan, the Government adopted a New Industrial Policy Resolution, which reiterated the above objective and classified industries into three categories as follows: Schedule A were those industries whose future development was the exclusive responsibility of the state. Schedule B consisted of industries which would be progressively state-owned, wherein the state would take initiative in establishing new undertakings and private enterprise would be expected to supplement the effort of the state. Schedule C included all remaining industries whose further development was left to the initiative and enterprise of the private sector. This led to the expansion of the public sector in India, whose share in GDP increased from 9.91% in 1960-61 to 27.12% in 1988-89. However, the cause of concern was that a large number of public sector enterprises particularly the Non-departmental non-financial enterprises were making losses and had to be subsidized. Industrial undertakings in the private sector were subject to control and regulation like the Industries Development and Regulation (IDR) Act (1951) and were expected to align their business strategy and goals with the broad economic and social objectives of the State. The IDR vested with the government necessary powers to regulate and control existing and future undertakings in a number of specified industries. A license was necessary for establishing a new undertaking, taking up the manufacture of a new article in an existing unit, effecting substantial expansion, carrying on the business of an existing undertaking and changing the location of an existing unit. A Letter of Intent (LOI) was issued for sectors/activities under compulsory license under the IDR Act, 1951. The LOI was converted into Industrial License on completion of specified formalities. Further, to prevent monopolies and concentration of economic power in the hands of private sector, in 1969, the Monopoly and Restrictive Trade Practices Act (MRTP) was enacted. All these regulations and controls led to increase in bureaucracy, inhibiting enterprise and industry. Also, given the state of the economy with limited resources, scarce capital and vast population base, the development ideology revolved around the notion of conservation and optimum utilization of capital so as to maximize employment (and not necessarily output). Deployment of new capital was strictly controlled and regulated so as to meet social needs and maximize employment. Further, once the capital was committed to any activity and a certain employment was created, it was protected at any cost even if it was non-viable in the face of market forces. Labour intensive technology and employment generation were also the rationale behind the initial advocacy of small-scale industry. However, later, when it was realized that modern small scale industry was not necessarily labour intensive, the argument turned to encouraging the entry of new entrepreneurs in industry. A range of products were reserved for exclusive production in the small-scale sector, eliminating potential competition from medium and large firms. There were no pressures on the smaller firms to improve technology, update production techniques or reduce cost modernize or specialize. There was an inherent disincentive to grow beyond a certain size, if they had to continue production of a reserved product. Thus economies of scale could not be leveraged and market distortions were widespread. Until 1991, the guiding principle of Indias industrial policy was self reliance, which focused on indigenous production and reduced dependence on foreign capital and foreign technology irrespective of the cost and/or quality. This did lead to the creation of a large industrial base, diversification of products, ownership and location. But in the absence of domestic competition, export rivalry and competition of imports, industry grew with a lack of cost and quality consciousness, leading to slow growth, increasing deficits and debt and finally the crisis in 1991 which paved the way for economic reforms in India. Some of the components of the reform package include: Reforms in Industrial Policies in terms of delicensing of most industries and deregulation of industries earlier monopolized by the public sector Liberalisation of foreign trade through steady reduction in tariffs and freeing up of the foreign investment limits in most industries combined with measures to attract FDI into the country Macroeconomic stabilization through substantial reduction in fiscal deficits and governments draft on the private sectors savings Other reforms including those in taxation, financial sector, insurance sector, public sector, etc. During the last decade and half, these reforms have reoriented India from a slow-paced, centrally directed and highly controlled economy to a strong, vibrant, fast-growing and market-friendly one. There now exists an internationally competitive private sector with varied scope for collaborations and joint ventures and a facilitating regulatory framework that is evolving to match the international standards. This Chapter seeks to give an overview of the broad framework of regulations governing business in India particularly in the context of: Industrial Policy Foreign Investment Policy Anti Trust Regulations Labour Laws Protection of Intellectual Property Rights Other Economic Laws Procedures 3.2 INDUSTRIAL POLICY The Industrial Policy Resolution 1956, substantially augmented through the Statement of Industrial Policy 1991 and subsequent announcements which liberalized the economy provides the basic framework for the overall industrial policy of the Government of India. 3.2.1 Industrial Licensing The requirement of obtaining an industrial license for manufacturing has been abolished for all projects except for a short list of industries connected with security and strategic concerns (reserved for public sector), social reasons, hazardous chemicals and overriding environmental concerns. The list of items requiring compulsory licensing is reviewed on an ongoing basis. The stage of LOI has been dispensed with for all sectors/activities except for items reserved for SSI sector and an Industrial License is now issued without going through the stage of LOI. The following industries require compulsory license:- Alcoholics drinks Cigarettes and tobacco products Electronic, aerospace and defense equipment Explosives Hazardous chemicals such as hydrocyanic acid, phosgene, isocynates and di-isocynates of hydro carbon and derivatives, etc. Non-small-scale industrial units or units in which foreign equity is more than 24% require license to manufacture items reserved from small scale sector. All other industries are exempt from licensing and no industrial approval is required. Entrepreneurs are only required to file an Industrial Entrepreneurs Memorandum (IEM) with the Secretariat for Industrial Assistance (SIA), providing information on new projects and substantial expansions. There are however, certain locational restrictions in metropolitan areas. No industrial approval is required from the Government for locations outside 25 kms of the periphery of cities having a population of more than one million except for those industries where industrial licensing is compulsory. Non-polluting industries such as electronics, computer software and printing can be located within 25 kms of the periphery of cities with more than one million population. Permission to other industries is granted in such locations only if they are located in an industrial area so designated prior to 1991. Zoning and Land Use Regulations as well as Environmental Legislations have to be followed. Appropriate incentives and investments in enabling infrastructure are provided to promote dispersal of industry particularly to the rural and backward areas and to reduce congestion in cities. Recently, the Government approved a package of fiscal incentives and other concessions for the North East Region namely the North East Industrial and Investment Promotion Policy (NEIIPP), 2007, effective from 1.4.2007. Also, under the broad framework of the national industrial policy, different Indian States announce their respective Industrial Policies periodically, which highlight the areas in which the State would focus on and provide incentives to attract investment, the various sector location specific schemes offered to private investors, the plans for development of enabling infrastructure, opportunities for public-private-partnership, etc. 3.2.2 Policies for Privatisation The post 1991 liberalisation process brought with it deregulation of trade and industry, dismantling of bureaucratic controls, technological development and financial sector reforms. Privatising some of the activities which heretofore were the exclusive domain of public sector also became part of this initiative to boost enterprise and professional management of resources to enhance economic growth and competitiveness. Revolutionary policy measures were undertaken to encourage private participation in sectors like telecom, information broadcasting, power, ports, airports, banking, etc. Over the years, the government has reduced the number of industries reserved for the public sector to the two which are deemed significant from security and strategic perspective, viz., Atomic energy and Railways. However, in the last few years the railways announced opening up of its containerized operations to other private and public sector companies, thereby ending the monopoly enjoyed by the Container Corporation of India (CONCOR). Interested companies could avail of the route-specific or all-India permission by paying a registration fee which is valid for an operation period of 20 years (further extendable by 10 years). There is freedom to decide the tariffs to be charged to the customers for various services and also the exit norms involve transfer of the operational writes to another eligible operator with the railway approval. 3.2.3 Policies for Small Scale Sector The provisions in the Industrial Policy Statement of 1991 and the subsequent policies are aimed at supporting the Small Scale Industries (SSI) sector though various measures and packages focusing not only on policy of reservation but also on price and purchase preference policy for marketing SSI products, credit and fiscal support to SSIs, support for cluster based development, technology upgradation, etc. The IDR Act 1951 provided for the reservation of items for exclusive manufacture in SSI sector primarily with the objectives of increasing production of consumer goods in the small scale sector and widening of employment opportunities. In 1967, 47 items were reserved for exclusive manufacture in the small scale sector. This number was increased to 836 items in 1989. However, since 1997, a large number of items were dereserved from the list in the phased manner. As of March 2007, only 114 items are reserved for exclusive manufacture in the small scale sector. In addition to the policy of reservation, the Government has initiated various measures offering support for Cluster based Development, Technologies and Quality Upgradation, Marketing, Entrepreneurial and Managerial Development and Schemes for Empowerment of Women Owned Enterprises. Further, with a view to facilitate the development of micro, small and medium enterprises (MSME), the Micro, Small and Medium Enterprises Act 2006, was implemented. The Act provides the new classification of each category of enterprises. As per the Act, MSME are defined as follows: in the case of the enterprise engaged in the manufacture or production of goods pertaining to any industry specified in the first schedule to the IDR Act 1951 a micro enterprise is the one where the investment in plant and machinery does not exceed twenty five lakh rupees. a small enterprise is one where the investment in plant and machinery is more than twenty five lakh rupees but does not exceed five crore rupees; or a medium enterprise is one in which the investment in plant and machinery is more than five crore rupees but does not exceed ten crore rupees; in the case of enterprises engaged in providing or rendering of services a micro enterprise is one where the investment in equipment does not exceed ten lakh rupees; a small enterprise is one in which the investment in equipment is more than ten lakh rupees but does not exceed two crore rupees; or a medium enterprise is where the investment in equipment is more than two crore rupees but does not exceed five crore rupees In February 2007, the Government announced a package for promotion of the SSI sector as follows: Credit Support: The package aims at increasing the number of beneficiaries of the credit provided by the Small Industries Development Bank of India (SIDBI) by 50 lakhs, over five years beginning from 2006-07. For this purpose, the Government has provided grant to SIDBI to augment its Portfolio Risk Fund. Besides, in an attempt to increase demand-based small loans to micro enterprise, the Government announced a provision of grant to SIDBI to create a Risk Capital Fund (as a pilot scheme in 2006-07). The eligible loan limit under the Credit Guarantee Fund Scheme has been raised to Rs. 50 lakh. The credit guarantee cover has also been raised from 75% to 80% for micro enterprises for loans upto Rs. 5 lakhs. Fiscal support: The Government has increased the General Excise Exemption (GEE) limit from Rs. 100 lakh to Rs. 150 lakhs since April 2007. It further proposes to examine the eligibility of extending the time limit for payment of excise duty by micro and small enterprises; and extending the GEE benefits to small enterprises on their graduation to medium enterprises for a limited period. 3.3 FOREIGN INVESTMENT POLICY In recognition of the importance of of foreign direct investment as an instrument of technology transfer, augmentation of foreign exchange reserves and globalization of the Indian economy, the Government of India revamped its foreign investment policy as part of the reform process. 3.3.1 Foreign Direct Investment Foreign Direct Investment (FDI) regime in India was increasingly liberalized during 1990s (more particularly post 1996) and today India has the most liberal and transparent policies on FDI among the emerging economies, with restrictions on foreign investments being removed and procedures simplified. Some of the prominent features of the FDI policy in India are elucidated below: The approval mechanism for FDI has a two tier system. Under the automatic approval route, companies can issue shares and receive inward remittances for investment in areas identified and upto the limits of foreign equity prescribed, with a reporting requirement, within a period of 30 days. In these sectors, investment could be made without prior approval of the central government. Although, in case of the automatic route, it is no longer necessary to obtain the in principle permission from Reserve bank of India (RBI) before receiving overseas investment or for issuing shares to foreign investors, the company, would, however, have to make a report to the RBI within 30 days after issue of shares to the foreign investors. Proposals for investment in public sector units and also for Special Economic Zones (SEZs) / Export Oriented Units (EOUs)/ Export Processing Zones (EPZs) qualify for automatic approval subject to satisfaction of certain prescribed sector specific parameters. FDI upto 100% is permitted under the automatic route for setting up Industrial Parks. Proposals for FDI/NRI investment in Electronic Hardware Technology Park (EHTP) and Software Technology Park (STP) Units are eligible for approval under the automatic route, except for those requiring prior approval of the Central Government (as discussed below). FDI in sectors that are not covered under the automatic route requires prior approval of the Central Government. Activities/sectors require prior approval of the Government for FDI in the following circumstances:- Activities/items that require an industrial license Proposals in which the foreign collaborator has an existing financial/technical collaboration in India in the same field (except in IT and mining sector) All proposals falling outside notified sectoral policy/CAPS Proposals in which more than 24% foreign equity is proposed to be inducted for manufacture of items reserved for the Small Scale Sector The approval is granted by Foreign Investment Promotion Board (FIPB), which is a specially empowered board set up for the purpose, chaired by the Secretary, Union Ministry of Finance. Proposals for FDI could be sent to the FIPB Unit, Department of Economic Affairs, Ministry of Finance or through any of Indias diplomatic missions abroad. FIPB has the flexibility to examine all proposals in totality, free from predetermined parameters. Recommendations of FIPB regarding all proposals falling in the non-automatic route and involving an investment of Rs.6 billion or less are considered and approved by the Finance Minister. Projects with investment greater than this value are submitted by the FIPB to the Cabinet Committee on Economic Affairs for approval. Necessary regulatory approvals from the state governments and local authorities for construction of building, water, environmental clearance, etc. need to be acquired after the grant of approval for FDI by FIPB or for the sectors falling under automatic route. Single window clearance facilities and investor escort services are available in various states to simplify the approval process for new ventures. Decisions on all foreign investments are usually taken within 30 days of submitting the application. In cases where original investment is made in convertible foreign exchange, free repatriation of capital investment and profits thereon is permitted. Sectors prohibited for FDI include: Retail trading (except Single Brand Product retailing) Atomic Energy Lottery Business Gambling and Betting 3.3.1.1 Investment in SEZs In order to enhance competitiveness of Indian exports and attract investment in these sectors, Indias Foreign Trade Policy promotes the setting up of SEZs and thus provides for a hassle-free environment with world-class institutional and physical infrastructure and supporting logistics. Some of the existing EPZs/FTZs have also been converted into SEZs. All the State Governments have been advised to give priority to waste and barren land for acquisition purposes. According to the total Waste Land area surveyed by the Ministry of Forest, 5,52,692.26 hectares was available for such purpose. FDI upto 100% is permitted under the automatic route for setting up of SEZ. Proposals not covered under automatic route require approval from FIPB. The policy provides for setting up of SEZ in the public, private or joint sectors or by state governments. These could be product specific or multi-product SEZs. Designated duty-free enclaves are treated as foreign territory for trade operations and duties and tariffs, and duty-free goods need to be utilised within the approved period. The permitted activities cover an array of manufacturing and services like production, processing, assembling, reconditioning, re-engineering, packaging, trading, etc. Proposals for setting up units in SEZ, other than those requiring industrial license are approved by the Development Commissioner (DC). The approval for those requiring industrial license is granted by the DC after receiving clearance from the Board of Approval. The Letter of Permission (LOP)/Letter of Intent (LOI) issued by the DC is construed as a license for all purposes, including procurement of raw material and consumables either directly or through a canalising agency. The LOP/LOI needs to specify the items of manufacture/service activity, annual capacity, projected annual export for the first year in dollar terms, Net Foreign Exchange Earnings (NFE), limitations, if any, regarding sale of finished goods, by products and rejects in the DTA and such other matter as may be necessary and also impose such conditions as may be required. According to the policy, SEZ units have to be positive net foreign exchange earners and the performance of these units would be monitored by a unit approval committee consisting of the DC and the Customs Authority. 3.3.2 Entry Options for Foreign Investors A foreign company has the option to set up business operations in India as an Incorporated Entity or as an Unincorporated Entity. An Incorporated Entity would be a company registered under Companies Act, 1956, through joint ventures or wholly owned subsidiaries. Foreign equity in such Indian companies can be up to 100% depending on the requirements of the investor, subject to any equity caps prescribed in respect of area of activities under the FDI policy. Funding could be via equity, debt (both foreign and local) and internal accruals. For registration and incorporation, an application has to be filed with the Registrar of Companies (ROC). Once a company has been duly registered and incorporated as an Indian company, it is subject to Indian laws and regulations as applicable to other domestic Indian companies. Companies in India can be incorporated as a private company or a public company. In comparison with branch and liaison offices (discussed subsequently), a subsidiary company provides maximum flexibility for conducting business in India. However, the exit procedure norms of such companies are relatively more cumbersome. An Unincorporated Entity could be Liaison Office/Representative Office or Project Office or Branch Office. Such offices can undertake activities permitted under the Foreign Exchange Management (Establishment in India of Branch Office of other place of business) Regulations, 2000. They are also governed by the Companies Act 1956, which contains special provisions for regulating such entities. 3.3.2.1 Liaison Office/Representative Office The role of a liaison office is primarily to: Collect information about the market Disseminate information about the company and its products to prospective Indian customers Promote exports/imports from/to India Facilitate technical collaboration between parent company and companies in India A liaison office cannot undertake any commercial activity directly or indirectly and cannot, therefore, earn any income in India. Approval for establishing a liaison office in India is granted by the RBI. 3.3.2.2 Project Office Foreign Companies planning to execute specific projects in India can set up temporary project/site offices in India. RBI has granted general permission to foreign entities to establish Project Offices subject to specified conditions. Such offices cannot undertake or carry on any activity other than the activity relating and incidental to execution of the project. Project Offices may remit outside India the surplus of the project on its completion, general permission for which has been granted by the RBI. Since a Project Office is an extension of the foreign incorporation in India, it is taxed at the rate applicable to foreign corporations. 3.3.2.3 Branch Office Foreign companies engaged in manufacturing and trading activities abroad are allowed to set up Branch Offices in India for the following purposes : Export/Import of goods Rendering professional or consultancy services Carrying out research work, in which the parent company is engaged. Promoting technical or financial collaborations between Indian companies and parent or overseas group company Representing the parent company in India and acting as buying/ selling agents in India Rendering services in Information Technology and development of software in India Rendering technical support to the products supplied by the parent/ group companies Foreign airline/shipping company Branch Offices established with the approval of RBI, are allowed to remit outside India profit of the branch net of applicable taxes (which are at rates applicable to foreign companies) however, subject to RBI guidelines. Permission for setting up branch offices is granted by the RBI. Branch Offices could also be on stand alone basis in SEZ. Such Branch Offices would be isolated and restricted to the SEZ alone and no business activity/transaction would be allowed outside the SEZs in India, which include branches/subsidiaries of its parent office in India. No approval shall be necessary from RBI for a company to establish a branch/unit in SEZs to undertake manufacturing and service activities, subject to the conditions that: they function in sectors in which 100% FDI is permitted they comply with part XI of the Companys Act (Section 592 to 602) function on a stand alone basis in the event of winding up of business and for remittance of winding-up proceeds, the branch should approach an authorized dealer in foreign exchange in the with documents required as per FEMA. A Branch Office provides the advantage of ease in operations and an uncomplicated closure. However, since the operations are strictly regulated by exchange control guidelines, a Branch may not provide a foreign corporation with most optimum structure for its expansion/diversification plans. Box 3.1 Investment in a firm or a Proprietary Concern by NRIs A Non-Resident Indian or a Person of Indian Origin (PIO) resident outside India may invest by way of contribution to the capital of a firm or a proprietary concern in India on non-repatriation basis provided: i) Amount is invested by inward remittance or out of NRE/FCNR/NRO account maintained with Authorised Dealers of RBI (AD) ii) The firm or proprietary concern is not engaged in any agricultural/plantation or real estate business i.e. dealing in land and immovable property with a view to earning profit or earning income there from. iii) Amount invested shall not be eligible for repatriation outside India. NRIs/PIO may invest in sole proprietorship concerns/ partnership firms with repatriation benefits with the approval of Department of Economic Affairs, Government of India /RBI. Box 3.2 Investment in a firm or a Proprietary Concern by Other than NRIs No person resident outside India other than NRIs/PIO shall make any investment by way of contribution to the capital of a firm or a proprietorship concern or any association of persons in India. The RBI may, on an application made to it, permit a person resident outside India to make such investment subject to such terms and conditions as may be considered necessary. 3.3.3 Financing Options for Corporates Companies registered in India can raise finances through Share Capital or Debentures and Borrowings. 3.3.3.1 Share Capital The Companies Act, 1956 allows for two kinds of share capital, viz., Preference share capital (preferred stock) and Equity share capital (with/without voting rights). Apart from this, private companies which are not subsidiaries of public company have the option of raising funds through Venture Capital. The issue of shares to the public is governed by the guidelines issued by the Securities Exchange Board of India (SEBI) the body that regulates and oversees the functioning of Indian Stock markets and the RBI. A company issuing shares or debentures has to comply with SEBI disclosure requirements with regards to its prospectus. The prospectus has to be approved by the stock exchange and scrutinized by SEBI and then filed with the Registrar of Companies. Indian companies having foreign investment approval through FIPB route do not require any further clearance from RBI for receiving inward remittance and issue of shares to the foreign investors. The companies are required to notify the concerned Regional office of the RBI of receipt of inward remittances within 30 days of such receipt and within 30 days of issue of shares to the foreign investors or NRIs. Equity participation by international financial institutions such as ADB, IFC, CDC, DEG, etc., in domestic companies is permitted through automatic route, subject to SEBI/RBI regulations and sector specific cap on FDI. In all other cases a company may issue shares as per the RBI regulations. Other relevant guidelines of SEBI and RBI, including the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997, wherever applicable, would need to be followed. The Companies Act does not specify the nominal value of shares. According to RBI/SEBI Guidelines, in case of listed companies, the issue price shall be either at the ave Regulatory Frameworks of Indias Industrial Policies Regulatory Frameworks of Indias Industrial Policies CHAPTER 3 THE REGULATORY FRAMEWORK 3.1 INTRODUCTION: THE PARADIGM SHIFT The industrial policy pursued in India for the first four decades after independence was based on the socialist school of thought that India embraced, partly to alienate itself from the colonial past and more so owing to the obvious achievements of the socialist movement in the post world-war two period. Thus, through a Resolution dated April 6, 1948 the government set out the policy to be pursued in the Industrial field, wherein to secure continuous increase in production and equitable distribution, the country opted for a centrally planned development strategy, with the state playing a major role. For this purpose, the National Planning Commission was established for planning, co-ordination, integration of national economic activity and to formulate programmes of development and to secure their execution. On October 30, 1956, at the beginning of the Second Five Year Plan, the Government adopted a New Industrial Policy Resolution, which reiterated the above objective and classified industries into three categories as follows: Schedule A were those industries whose future development was the exclusive responsibility of the state. Schedule B consisted of industries which would be progressively state-owned, wherein the state would take initiative in establishing new undertakings and private enterprise would be expected to supplement the effort of the state. Schedule C included all remaining industries whose further development was left to the initiative and enterprise of the private sector. This led to the expansion of the public sector in India, whose share in GDP increased from 9.91% in 1960-61 to 27.12% in 1988-89. However, the cause of concern was that a large number of public sector enterprises particularly the Non-departmental non-financial enterprises were making losses and had to be subsidized. Industrial undertakings in the private sector were subject to control and regulation like the Industries Development and Regulation (IDR) Act (1951) and were expected to align their business strategy and goals with the broad economic and social objectives of the State. The IDR vested with the government necessary powers to regulate and control existing and future undertakings in a number of specified industries. A license was necessary for establishing a new undertaking, taking up the manufacture of a new article in an existing unit, effecting substantial expansion, carrying on the business of an existing undertaking and changing the location of an existing unit. A Letter of Intent (LOI) was issued for sectors/activities under compulsory license under the IDR Act, 1951. The LOI was converted into Industrial License on completion of specified formalities. Further, to prevent monopolies and concentration of economic power in the hands of private sector, in 1969, the Monopoly and Restrictive Trade Practices Act (MRTP) was enacted. All these regulations and controls led to increase in bureaucracy, inhibiting enterprise and industry. Also, given the state of the economy with limited resources, scarce capital and vast population base, the development ideology revolved around the notion of conservation and optimum utilization of capital so as to maximize employment (and not necessarily output). Deployment of new capital was strictly controlled and regulated so as to meet social needs and maximize employment. Further, once the capital was committed to any activity and a certain employment was created, it was protected at any cost even if it was non-viable in the face of market forces. Labour intensive technology and employment generation were also the rationale behind the initial advocacy of small-scale industry. However, later, when it was realized that modern small scale industry was not necessarily labour intensive, the argument turned to encouraging the entry of new entrepreneurs in industry. A range of products were reserved for exclusive production in the small-scale sector, eliminating potential competition from medium and large firms. There were no pressures on the smaller firms to improve technology, update production techniques or reduce cost modernize or specialize. There was an inherent disincentive to grow beyond a certain size, if they had to continue production of a reserved product. Thus economies of scale could not be leveraged and market distortions were widespread. Until 1991, the guiding principle of Indias industrial policy was self reliance, which focused on indigenous production and reduced dependence on foreign capital and foreign technology irrespective of the cost and/or quality. This did lead to the creation of a large industrial base, diversification of products, ownership and location. But in the absence of domestic competition, export rivalry and competition of imports, industry grew with a lack of cost and quality consciousness, leading to slow growth, increasing deficits and debt and finally the crisis in 1991 which paved the way for economic reforms in India. Some of the components of the reform package include: Reforms in Industrial Policies in terms of delicensing of most industries and deregulation of industries earlier monopolized by the public sector Liberalisation of foreign trade through steady reduction in tariffs and freeing up of the foreign investment limits in most industries combined with measures to attract FDI into the country Macroeconomic stabilization through substantial reduction in fiscal deficits and governments draft on the private sectors savings Other reforms including those in taxation, financial sector, insurance sector, public sector, etc. During the last decade and half, these reforms have reoriented India from a slow-paced, centrally directed and highly controlled economy to a strong, vibrant, fast-growing and market-friendly one. There now exists an internationally competitive private sector with varied scope for collaborations and joint ventures and a facilitating regulatory framework that is evolving to match the international standards. This Chapter seeks to give an overview of the broad framework of regulations governing business in India particularly in the context of: Industrial Policy Foreign Investment Policy Anti Trust Regulations Labour Laws Protection of Intellectual Property Rights Other Economic Laws Procedures 3.2 INDUSTRIAL POLICY The Industrial Policy Resolution 1956, substantially augmented through the Statement of Industrial Policy 1991 and subsequent announcements which liberalized the economy provides the basic framework for the overall industrial policy of the Government of India. 3.2.1 Industrial Licensing The requirement of obtaining an industrial license for manufacturing has been abolished for all projects except for a short list of industries connected with security and strategic concerns (reserved for public sector), social reasons, hazardous chemicals and overriding environmental concerns. The list of items requiring compulsory licensing is reviewed on an ongoing basis. The stage of LOI has been dispensed with for all sectors/activities except for items reserved for SSI sector and an Industrial License is now issued without going through the stage of LOI. The following industries require compulsory license:- Alcoholics drinks Cigarettes and tobacco products Electronic, aerospace and defense equipment Explosives Hazardous chemicals such as hydrocyanic acid, phosgene, isocynates and di-isocynates of hydro carbon and derivatives, etc. Non-small-scale industrial units or units in which foreign equity is more than 24% require license to manufacture items reserved from small scale sector. All other industries are exempt from licensing and no industrial approval is required. Entrepreneurs are only required to file an Industrial Entrepreneurs Memorandum (IEM) with the Secretariat for Industrial Assistance (SIA), providing information on new projects and substantial expansions. There are however, certain locational restrictions in metropolitan areas. No industrial approval is required from the Government for locations outside 25 kms of the periphery of cities having a population of more than one million except for those industries where industrial licensing is compulsory. Non-polluting industries such as electronics, computer software and printing can be located within 25 kms of the periphery of cities with more than one million population. Permission to other industries is granted in such locations only if they are located in an industrial area so designated prior to 1991. Zoning and Land Use Regulations as well as Environmental Legislations have to be followed. Appropriate incentives and investments in enabling infrastructure are provided to promote dispersal of industry particularly to the rural and backward areas and to reduce congestion in cities. Recently, the Government approved a package of fiscal incentives and other concessions for the North East Region namely the North East Industrial and Investment Promotion Policy (NEIIPP), 2007, effective from 1.4.2007. Also, under the broad framework of the national industrial policy, different Indian States announce their respective Industrial Policies periodically, which highlight the areas in which the State would focus on and provide incentives to attract investment, the various sector location specific schemes offered to private investors, the plans for development of enabling infrastructure, opportunities for public-private-partnership, etc. 3.2.2 Policies for Privatisation The post 1991 liberalisation process brought with it deregulation of trade and industry, dismantling of bureaucratic controls, technological development and financial sector reforms. Privatising some of the activities which heretofore were the exclusive domain of public sector also became part of this initiative to boost enterprise and professional management of resources to enhance economic growth and competitiveness. Revolutionary policy measures were undertaken to encourage private participation in sectors like telecom, information broadcasting, power, ports, airports, banking, etc. Over the years, the government has reduced the number of industries reserved for the public sector to the two which are deemed significant from security and strategic perspective, viz., Atomic energy and Railways. However, in the last few years the railways announced opening up of its containerized operations to other private and public sector companies, thereby ending the monopoly enjoyed by the Container Corporation of India (CONCOR). Interested companies could avail of the route-specific or all-India permission by paying a registration fee which is valid for an operation period of 20 years (further extendable by 10 years). There is freedom to decide the tariffs to be charged to the customers for various services and also the exit norms involve transfer of the operational writes to another eligible operator with the railway approval. 3.2.3 Policies for Small Scale Sector The provisions in the Industrial Policy Statement of 1991 and the subsequent policies are aimed at supporting the Small Scale Industries (SSI) sector though various measures and packages focusing not only on policy of reservation but also on price and purchase preference policy for marketing SSI products, credit and fiscal support to SSIs, support for cluster based development, technology upgradation, etc. The IDR Act 1951 provided for the reservation of items for exclusive manufacture in SSI sector primarily with the objectives of increasing production of consumer goods in the small scale sector and widening of employment opportunities. In 1967, 47 items were reserved for exclusive manufacture in the small scale sector. This number was increased to 836 items in 1989. However, since 1997, a large number of items were dereserved from the list in the phased manner. As of March 2007, only 114 items are reserved for exclusive manufacture in the small scale sector. In addition to the policy of reservation, the Government has initiated various measures offering support for Cluster based Development, Technologies and Quality Upgradation, Marketing, Entrepreneurial and Managerial Development and Schemes for Empowerment of Women Owned Enterprises. Further, with a view to facilitate the development of micro, small and medium enterprises (MSME), the Micro, Small and Medium Enterprises Act 2006, was implemented. The Act provides the new classification of each category of enterprises. As per the Act, MSME are defined as follows: in the case of the enterprise engaged in the manufacture or production of goods pertaining to any industry specified in the first schedule to the IDR Act 1951 a micro enterprise is the one where the investment in plant and machinery does not exceed twenty five lakh rupees. a small enterprise is one where the investment in plant and machinery is more than twenty five lakh rupees but does not exceed five crore rupees; or a medium enterprise is one in which the investment in plant and machinery is more than five crore rupees but does not exceed ten crore rupees; in the case of enterprises engaged in providing or rendering of services a micro enterprise is one where the investment in equipment does not exceed ten lakh rupees; a small enterprise is one in which the investment in equipment is more than ten lakh rupees but does not exceed two crore rupees; or a medium enterprise is where the investment in equipment is more than two crore rupees but does not exceed five crore rupees In February 2007, the Government announced a package for promotion of the SSI sector as follows: Credit Support: The package aims at increasing the number of beneficiaries of the credit provided by the Small Industries Development Bank of India (SIDBI) by 50 lakhs, over five years beginning from 2006-07. For this purpose, the Government has provided grant to SIDBI to augment its Portfolio Risk Fund. Besides, in an attempt to increase demand-based small loans to micro enterprise, the Government announced a provision of grant to SIDBI to create a Risk Capital Fund (as a pilot scheme in 2006-07). The eligible loan limit under the Credit Guarantee Fund Scheme has been raised to Rs. 50 lakh. The credit guarantee cover has also been raised from 75% to 80% for micro enterprises for loans upto Rs. 5 lakhs. Fiscal support: The Government has increased the General Excise Exemption (GEE) limit from Rs. 100 lakh to Rs. 150 lakhs since April 2007. It further proposes to examine the eligibility of extending the time limit for payment of excise duty by micro and small enterprises; and extending the GEE benefits to small enterprises on their graduation to medium enterprises for a limited period. 3.3 FOREIGN INVESTMENT POLICY In recognition of the importance of of foreign direct investment as an instrument of technology transfer, augmentation of foreign exchange reserves and globalization of the Indian economy, the Government of India revamped its foreign investment policy as part of the reform process. 3.3.1 Foreign Direct Investment Foreign Direct Investment (FDI) regime in India was increasingly liberalized during 1990s (more particularly post 1996) and today India has the most liberal and transparent policies on FDI among the emerging economies, with restrictions on foreign investments being removed and procedures simplified. Some of the prominent features of the FDI policy in India are elucidated below: The approval mechanism for FDI has a two tier system. Under the automatic approval route, companies can issue shares and receive inward remittances for investment in areas identified and upto the limits of foreign equity prescribed, with a reporting requirement, within a period of 30 days. In these sectors, investment could be made without prior approval of the central government. Although, in case of the automatic route, it is no longer necessary to obtain the in principle permission from Reserve bank of India (RBI) before receiving overseas investment or for issuing shares to foreign investors, the company, would, however, have to make a report to the RBI within 30 days after issue of shares to the foreign investors. Proposals for investment in public sector units and also for Special Economic Zones (SEZs) / Export Oriented Units (EOUs)/ Export Processing Zones (EPZs) qualify for automatic approval subject to satisfaction of certain prescribed sector specific parameters. FDI upto 100% is permitted under the automatic route for setting up Industrial Parks. Proposals for FDI/NRI investment in Electronic Hardware Technology Park (EHTP) and Software Technology Park (STP) Units are eligible for approval under the automatic route, except for those requiring prior approval of the Central Government (as discussed below). FDI in sectors that are not covered under the automatic route requires prior approval of the Central Government. Activities/sectors require prior approval of the Government for FDI in the following circumstances:- Activities/items that require an industrial license Proposals in which the foreign collaborator has an existing financial/technical collaboration in India in the same field (except in IT and mining sector) All proposals falling outside notified sectoral policy/CAPS Proposals in which more than 24% foreign equity is proposed to be inducted for manufacture of items reserved for the Small Scale Sector The approval is granted by Foreign Investment Promotion Board (FIPB), which is a specially empowered board set up for the purpose, chaired by the Secretary, Union Ministry of Finance. Proposals for FDI could be sent to the FIPB Unit, Department of Economic Affairs, Ministry of Finance or through any of Indias diplomatic missions abroad. FIPB has the flexibility to examine all proposals in totality, free from predetermined parameters. Recommendations of FIPB regarding all proposals falling in the non-automatic route and involving an investment of Rs.6 billion or less are considered and approved by the Finance Minister. Projects with investment greater than this value are submitted by the FIPB to the Cabinet Committee on Economic Affairs for approval. Necessary regulatory approvals from the state governments and local authorities for construction of building, water, environmental clearance, etc. need to be acquired after the grant of approval for FDI by FIPB or for the sectors falling under automatic route. Single window clearance facilities and investor escort services are available in various states to simplify the approval process for new ventures. Decisions on all foreign investments are usually taken within 30 days of submitting the application. In cases where original investment is made in convertible foreign exchange, free repatriation of capital investment and profits thereon is permitted. Sectors prohibited for FDI include: Retail trading (except Single Brand Product retailing) Atomic Energy Lottery Business Gambling and Betting 3.3.1.1 Investment in SEZs In order to enhance competitiveness of Indian exports and attract investment in these sectors, Indias Foreign Trade Policy promotes the setting up of SEZs and thus provides for a hassle-free environment with world-class institutional and physical infrastructure and supporting logistics. Some of the existing EPZs/FTZs have also been converted into SEZs. All the State Governments have been advised to give priority to waste and barren land for acquisition purposes. According to the total Waste Land area surveyed by the Ministry of Forest, 5,52,692.26 hectares was available for such purpose. FDI upto 100% is permitted under the automatic route for setting up of SEZ. Proposals not covered under automatic route require approval from FIPB. The policy provides for setting up of SEZ in the public, private or joint sectors or by state governments. These could be product specific or multi-product SEZs. Designated duty-free enclaves are treated as foreign territory for trade operations and duties and tariffs, and duty-free goods need to be utilised within the approved period. The permitted activities cover an array of manufacturing and services like production, processing, assembling, reconditioning, re-engineering, packaging, trading, etc. Proposals for setting up units in SEZ, other than those requiring industrial license are approved by the Development Commissioner (DC). The approval for those requiring industrial license is granted by the DC after receiving clearance from the Board of Approval. The Letter of Permission (LOP)/Letter of Intent (LOI) issued by the DC is construed as a license for all purposes, including procurement of raw material and consumables either directly or through a canalising agency. The LOP/LOI needs to specify the items of manufacture/service activity, annual capacity, projected annual export for the first year in dollar terms, Net Foreign Exchange Earnings (NFE), limitations, if any, regarding sale of finished goods, by products and rejects in the DTA and such other matter as may be necessary and also impose such conditions as may be required. According to the policy, SEZ units have to be positive net foreign exchange earners and the performance of these units would be monitored by a unit approval committee consisting of the DC and the Customs Authority. 3.3.2 Entry Options for Foreign Investors A foreign company has the option to set up business operations in India as an Incorporated Entity or as an Unincorporated Entity. An Incorporated Entity would be a company registered under Companies Act, 1956, through joint ventures or wholly owned subsidiaries. Foreign equity in such Indian companies can be up to 100% depending on the requirements of the investor, subject to any equity caps prescribed in respect of area of activities under the FDI policy. Funding could be via equity, debt (both foreign and local) and internal accruals. For registration and incorporation, an application has to be filed with the Registrar of Companies (ROC). Once a company has been duly registered and incorporated as an Indian company, it is subject to Indian laws and regulations as applicable to other domestic Indian companies. Companies in India can be incorporated as a private company or a public company. In comparison with branch and liaison offices (discussed subsequently), a subsidiary company provides maximum flexibility for conducting business in India. However, the exit procedure norms of such companies are relatively more cumbersome. An Unincorporated Entity could be Liaison Office/Representative Office or Project Office or Branch Office. Such offices can undertake activities permitted under the Foreign Exchange Management (Establishment in India of Branch Office of other place of business) Regulations, 2000. They are also governed by the Companies Act 1956, which contains special provisions for regulating such entities. 3.3.2.1 Liaison Office/Representative Office The role of a liaison office is primarily to: Collect information about the market Disseminate information about the company and its products to prospective Indian customers Promote exports/imports from/to India Facilitate technical collaboration between parent company and companies in India A liaison office cannot undertake any commercial activity directly or indirectly and cannot, therefore, earn any income in India. Approval for establishing a liaison office in India is granted by the RBI. 3.3.2.2 Project Office Foreign Companies planning to execute specific projects in India can set up temporary project/site offices in India. RBI has granted general permission to foreign entities to establish Project Offices subject to specified conditions. Such offices cannot undertake or carry on any activity other than the activity relating and incidental to execution of the project. Project Offices may remit outside India the surplus of the project on its completion, general permission for which has been granted by the RBI. Since a Project Office is an extension of the foreign incorporation in India, it is taxed at the rate applicable to foreign corporations. 3.3.2.3 Branch Office Foreign companies engaged in manufacturing and trading activities abroad are allowed to set up Branch Offices in India for the following purposes : Export/Import of goods Rendering professional or consultancy services Carrying out research work, in which the parent company is engaged. Promoting technical or financial collaborations between Indian companies and parent or overseas group company Representing the parent company in India and acting as buying/ selling agents in India Rendering services in Information Technology and development of software in India Rendering technical support to the products supplied by the parent/ group companies Foreign airline/shipping company Branch Offices established with the approval of RBI, are allowed to remit outside India profit of the branch net of applicable taxes (which are at rates applicable to foreign companies) however, subject to RBI guidelines. Permission for setting up branch offices is granted by the RBI. Branch Offices could also be on stand alone basis in SEZ. Such Branch Offices would be isolated and restricted to the SEZ alone and no business activity/transaction would be allowed outside the SEZs in India, which include branches/subsidiaries of its parent office in India. No approval shall be necessary from RBI for a company to establish a branch/unit in SEZs to undertake manufacturing and service activities, subject to the conditions that: they function in sectors in which 100% FDI is permitted they comply with part XI of the Companys Act (Section 592 to 602) function on a stand alone basis in the event of winding up of business and for remittance of winding-up proceeds, the branch should approach an authorized dealer in foreign exchange in the with documents required as per FEMA. A Branch Office provides the advantage of ease in operations and an uncomplicated closure. However, since the operations are strictly regulated by exchange control guidelines, a Branch may not provide a foreign corporation with most optimum structure for its expansion/diversification plans. Box 3.1 Investment in a firm or a Proprietary Concern by NRIs A Non-Resident Indian or a Person of Indian Origin (PIO) resident outside India may invest by way of contribution to the capital of a firm or a proprietary concern in India on non-repatriation basis provided: i) Amount is invested by inward remittance or out of NRE/FCNR/NRO account maintained with Authorised Dealers of RBI (AD) ii) The firm or proprietary concern is not engaged in any agricultural/plantation or real estate business i.e. dealing in land and immovable property with a view to earning profit or earning income there from. iii) Amount invested shall not be eligible for repatriation outside India. NRIs/PIO may invest in sole proprietorship concerns/ partnership firms with repatriation benefits with the approval of Department of Economic Affairs, Government of India /RBI. Box 3.2 Investment in a firm or a Proprietary Concern by Other than NRIs No person resident outside India other than NRIs/PIO shall make any investment by way of contribution to the capital of a firm or a proprietorship concern or any association of persons in India. The RBI may, on an application made to it, permit a person resident outside India to make such investment subject to such terms and conditions as may be considered necessary. 3.3.3 Financing Options for Corporates Companies registered in India can raise finances through Share Capital or Debentures and Borrowings. 3.3.3.1 Share Capital The Companies Act, 1956 allows for two kinds of share capital, viz., Preference share capital (preferred stock) and Equity share capital (with/without voting rights). Apart from this, private companies which are not subsidiaries of public company have the option of raising funds through Venture Capital. The issue of shares to the public is governed by the guidelines issued by the Securities Exchange Board of India (SEBI) the body that regulates and oversees the functioning of Indian Stock markets and the RBI. A company issuing shares or debentures has to comply with SEBI disclosure requirements with regards to its prospectus. The prospectus has to be approved by the stock exchange and scrutinized by SEBI and then filed with the Registrar of Companies. Indian companies having foreign investment approval through FIPB route do not require any further clearance from RBI for receiving inward remittance and issue of shares to the foreign investors. The companies are required to notify the concerned Regional office of the RBI of receipt of inward remittances within 30 days of such receipt and within 30 days of issue of shares to the foreign investors or NRIs. Equity participation by international financial institutions such as ADB, IFC, CDC, DEG, etc., in domestic companies is permitted through automatic route, subject to SEBI/RBI regulations and sector specific cap on FDI. In all other cases a company may issue shares as per the RBI regulations. Other relevant guidelines of SEBI and RBI, including the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997, wherever applicable, would need to be followed. The Companies Act does not specify the nominal value of shares. According to RBI/SEBI Guidelines, in case of listed companies, the issue price shall be either at the ave

Toyota Prius

1. – What micro environmental factors affected both the first generation and second generation models of the Toyota Prius? How well has Toyota dealt with these factors? The micro environmental factors are those forces close to a company, yet outside its internal environmental, that influence the ability of a business to serve its customers, forces such as customers, suppliers, competitors and other business that assistor influence a business’s ability to sell, distribute, promote and develop products or services.In regards the Toyota Prius case, the factors that the company dealt with are: Customers: Toyota launched the first generation in 2001 with a small, cramped and not attractive car into a market were the big SUV’s were dominating the business. They were bringing to the market a low consume, environmentally friendly and high tech vehicle. In my opinion, Toyota took a risk launching a vehicle that was fitting future need’s that customers were going to have with the upcoming economic situation (gas price increment).Toyota launched the second generation improving the fuel consumption and improving the lacks on the first version: style and capacity. The biggest success was to anticipate the customer needs. Suppliers: Without the support of suppliers, Toyota would not have be able to launch the first generation. Toyota needed the suppliers to be onboard on this risky project in which they were developing a new technology that requires a high capital investment up front with a high risk of failure.Competitors: First generation did not have direct competitors since it was the only hybrid vehicle on the market. I consider that the challenge for Toyota on the first generation was to create a market niche for this new vehicle concept. The scenario was different for the second generation were the market niche existed already and new competitors were getting into the business. Honda with the hybrid Civic, Mercury with the Mariner and Ford with the Escape were trying to make their first steps on this vehicle category but being a step behind Toyota in price and efficiency. 2. Outline the major macro environmental factors – demographic, economic, natural, technological, political and cultural – that have affected Prius sales. How well Toyota dealt with each of these factors? Demographic: American population has been growing at around 10% since 2000 as well as the GDP per capita. This lead to an increase on the demand for automobiles and to a more demanding costumer due to his higher purchase power. Economic: Toyota Prius was launched in USA in a growing economic environment but right before a scenario were gasoline price would start rising considerably.Looks like Toyota did not respond against trends and fads but did a good long term economic analysis going ahead in respect his competitors that just wait until gasoline price started rising to start taking fuel consumption into account as an important facto r during the vehicle development. Natural: December 1997 world’s leading nations meet Japan to discuss Kyoto protocol. Several months before, Toyota introduces in Japan the first hybrid vehicle. Consumers start to take into account environmental factors on their purchases. Another factor that push consumers toward lower consume vehicles is the gasoline price rise that occurs in 2004.Smaller SUV’s, cars and hybrids see their demand increase due to these two natural factors. Toyota, being aware of this factors, changed his targeted costumer investing $40 million dollars campaign on this set of customers, the environmental conscious. Technological: late 90’s is considered a high-tech boom. This may be the reason why Toyota targeted first on early adopters and techies who are attracted by car’s advanced technology. Political: Many states are rewarding the car owners with tax breaks amounting to thousands of dollars.Furthermore, some states government gave fur ther tax breaks, in some circumstances complementing the federal tax break. There were also some eco-friendly organizations involved in this incentive game such as Google, Timberland and Hyperion Solutions providing employees as much as $5,000 toward the purchase of hybrids. Many states even gave permission for the hybrids to use carpooling lanes which allow people to travel more quickly to work. Lastly, lots of insurance companies offer discounts to hybrid cars. Cultural: since the last decade, society is getting more sensitive in regards environmental issues.This is being reflected on customer decisions that are looking for environmental friendly product even at a higher price to them. 3. – Evaluate Toyota’s marketing strategy so far. What has Toyota done well? How might it improve its strategy? Marketing strategy consist of 4 P’s which are product, price, place and promotion: Product: Toyota brought to the market a new vehicle concept that fitted into the new economic, social and political scenario. Toyota identified the lacks on the first generation and incorporated the improvements on the second generation improving also efficiency.Price: Toyota Prius with Honda Civic were the only two Hybrid models in which customers were recovering the price premium and starting to save money after 75. 000 miles. Place: Toyota was aware of the difficulty of introducing a new concept to the market. Lack of customer information could induce to a mistrust toward the product. Toyota put emphasis training specifically to the dealerships to make sure customers were being properly informed. In addition, Toyota opened a site on the web where customers could share their questions and modifications they made to their Prius.Promotion: Toyota did not put too much effort on advertising this vehicle. Toyota used the dealerships as a communication line to the customers. In my opinion, the biggest success of Toyota comes from the long term strategy they planed that come up with a vehicle that fit perfectly to the changing economic and social context. In addition to the low consume advantage the Prius was, they continued improving their models to provide customers with the same comfort and capacity of vehicles that were dominating the American roads by increasing the capacity on his second generation for instance.Customers, in general, are afraid to invest in new concept products due to a mistrust on their performances. Battery life and maintenance were the biggest concerns that customers were having. Other automakers, such as Renault are offering to the customers a systems in which they take the responsibility of the battery life. Automakers own the batteries and customers just pay a monthly rent for the maintenance and replacement. I consider that this strategy offers more confidence to the new customers to invest on this new technologies. 4. GM’s marketing director for new ventures, Ken Stewart, says â€Å"if you want to get a lot o f hybrids on the road, you put them in vehicles that people are buying now†. They seems to summarize the U. S. auto makers† approach to hybrids. Would you agree with Mr. Stewart? Why or why not? American market is being currently dominated by big SUV’s and pickup trucks. Statistics display this customer preferences. The American auto makers are trying to provide to customers a more efficient vehicle keeping the current confront and performances.Obviously, the efficiency achieved is not the same as the one other auto makers are achieving by developing smaller hybrid vehicles. In my opinion, what they are doing is to find a short term solution to the current customer needs instead of anticipating the future ones which are smaller cars with even higher fuel efficiency. So, if the macro environment continues pushing auto makers toward the efficiency cars, they will continue being ahead the others because even if they are trying to improve efficiency, it is not the mai n goal for them right now.

Keeping criminal trials fair - Free Essay Example

Sample details Pages: 9 Words: 2813 Downloads: 9 Date added: 2017/06/26 Category Law Essay Type Analytical essay Topics: Crime Essay Criminal Law Essay Did you like this example? Judicial staying of criminal proceedings is an exceptional course for the trial judge to take and usually the trial process itself including appropriate judicial directions to the jury, is adequate to ensure that a criminal trial remains fair at common law and Article 6 of the European Convention on Human Rights, as given effect to in the Human Rights Act 1998. Critically evaluate this comment in the light of appropriate case law. The fundamental issue being raised is the fairness of criminal trials. The remedies that are used by criminal courts when the judge decides that there has been some unfairness in the proceedings include staying of proceedings, quashing of indictments and excluding evidence. Don’t waste time! Our writers will create an original "Keeping criminal trials fair" essay for you Create order Exclusion of evidence can be made during the trial process, by means of the trial judge directing that the jury ignore that evidence, and staying of proceedings stops the trial process, and is only exercised when there has been an abuse of the process. English fair trial jurisprudence commenced from domestic common law, then developed via section 78 of Police and Criminal Evidence Act 1984, and thereafter via international human rights law, in particular Article 6 of the European Convention on Human Rights (ECHR) incorporated into domestic legislation by the Human Rights Act 1988 (HRA 1988), as discussed below. Regarding the exclusion of evidence, the original common law rule from the mid-eighteenth century to early twentieth century, was that the admissibility of evidence at trial was wholly unaffected by the circumstances in which it was obtained 1, and also reaffirmed in 1955 by the Court of Appeal. 2 The trial judgeà ¢Ã¢â€š ¬Ã¢â€ž ¢s discretion at common law to exclude relevant evidence was provided in Sang, 3 which laid down two principles that evidence could be excluded, firstly if it was to have a prejudicial effect outweighing its potential value, and secondly to exclude improperly or unfairly obtained evidence. In Sang the trial judge ruled that he had no discretion to exclude evidence relating to the commission of an offence to conspire to utter forged banknotes on the basis that it had been initiated by an agent provocateur, that is, an agent enticing the defendant to commit the crime, being the defence of entrapment. This was reaffirmed by the House of Lords, in which the existence of the discretion to exclude improperly or unfairly obtained evidence was recognised, but that this was limited to evidence obtained after the commission of the offence. 4 ______________________________________________________________________________ 1 R v Warwickshall [1783] 1 Leach 263; R v Griffin [1809] Russ Ry 151 2 Kuruma à ¢Ã¢â€š ¬Ã¢â‚¬Å" v à ¢Ã¢â€š ¬Ã¢â‚¬Å" R [1955] A.C. 197 3 R v Sang [1980] AC 402 HL 4 Brannan à ¢Ã¢â€š ¬Ã¢â‚¬Å" v à ¢Ã¢â€š ¬Ã¢â‚¬Å" Peek [1948] 1 K.B. 68 The trial judgeà ¢Ã¢â€š ¬Ã¢â€ž ¢s discretion to exclude evidence was only exercised in exceptional circumstances. In Apicella 5, a sample of bodily fluid taken from the defendant in a routine examination and used to verify that he had passed on a venereal disease to the victims was not held to be an unfair use of prosecution evidence. Furthermore, even illegality of police procedures could not render such evidence inadmissible as in Fox à ¢Ã¢â€š ¬Ã¢â‚¬Å" v à ¢Ã¢â€š ¬Ã¢â‚¬Å" Chief Constable of Gwent 6, where although it was held that the actions of police officers in unlawfully entering the defendantà ¢Ã¢â€š ¬Ã¢â€ž ¢s property to arrest and take him to the police station to provide a breath sample, instrumental in securing a conviction for drunk driving, the sample itself as evidence was still admissible evidence. Since the mid 19 80s, the common law approach was radically altered by the development of the exclusionary discretion under section 78 PACE 1984, which provides:- In any proceedings, the court may refuse to allow evidence on which the prosecution proposes to rely to be given if it appears to the court that, having regard to all the circumstances, including the circumstances in which the evidence was obtained, the admission of the evidence would have such an adverse effect on the fairness of the proceedings that the court ought not to admit it. The landmark case of Mason 7 showed that the Court of Appeal was prepared to interpret section 78 broadly and marked the departure from the common law approach. The Court of Appeal allowed the appeal and quashed the conviction of the defendant, as his confession had been obtained after being falsely informed by police officers that his fingerprint had been found at the scene of the crime. As stated above, the defence of entrapment, (Sang, ibid), was not considered a valid defence at common law. However, in Smurthwaite; Gill 8 the trial judge took into account such allegations when exercising his discretion under section 78, though the evidence was admitted as the trial judge decided that the police officer, though posing as an undercover hit man, was not acting as an agent provocateur when he recorded the secret conversations of a husband and wife hiring him to kill each other, as the defendants made their own efforts and were not enticed. In the case of identification eviden ce, the trial judge is required to warn the jury of the need for caution and explain the reasons for it, particularly the particular dangers attached to the evidence. This is the Turnbull direction, in which the judge asks the jury to carefully consider the circumstances in which the witness saw the offender and a reminder that even a confident witness can be wrong. 9 ______________________________________________________________________________ 5 Apicella [1985] Cr App R 295 6 [1986] 1 AC 281, HL 7 R à ¢Ã¢â€š ¬Ã¢â‚¬Å" v à ¢Ã¢â€š ¬Ã¢â‚¬Å" Mason [1988] 1 WLR 139 CA 8 R v Smurthwaite; R v Gill [1994] 98 Cr App R 437 CA 9 R à ¢Ã¢â€š ¬Ã¢â‚¬Å" v à ¢Ã¢â€š ¬Ã¢â‚¬Å" Turnbull [1976] 3 All ER 549 In Boardman à ¢Ã¢â€š ¬Ã¢â‚¬Å" v à ¢Ã¢â€š ¬Ã¢â‚¬Å" DPP 10 Lord Hailsham laid down further guidelines in identification cases, that if the only evidence the prosecution has is a history of a pattern of similar offences, this would be weak and prejudicial evidence, and a à ¢Ã ¢â€š ¬Ã‹Å"hallmarkà ¢Ã¢â€š ¬Ã¢â€ž ¢ or à ¢Ã¢â€š ¬Ã‹Å"signatureà ¢Ã¢â€š ¬Ã¢â€ž ¢ is required, as demonstrated in Mullen 11, in which the à ¢Ã¢â€š ¬Ã‹Å"signatureà ¢Ã¢â€š ¬Ã¢â€ž ¢ was the use of a torch to crack the window glass by means of a blow to gain entry. Identification evidence reduces the need to establish such a à ¢Ã¢â€š ¬Ã‹Å"signatureà ¢Ã¢â€š ¬Ã¢â€ž ¢, but an identification parade has been deemed to be unnecessary if the witness knows the defendant. 12 In Beckford 13 such a warning was deemed necessary even though the witness knew the defendants and the main issue at hand was not accuracy. The prosecution is required to demonstrate that the circumstances of the identification are of good quality to avoid a submission of no case, in which the judge withdraws the case from the jury. However, in cases involving an abnormal or perverted personality, such as in cases of sexual offences, the jury may attach excessive weight to the pattern of previous convictions in ma king a decision about the defendantà ¢Ã¢â€š ¬Ã¢â€ž ¢s guilt, the à ¢Ã¢â€š ¬Ã‹Å"similar facts principleà ¢Ã¢â€š ¬Ã¢â€ž ¢, as in West 14, in which Rosemary West was accused of complicity in her husband Frederick Westà ¢Ã¢â€š ¬Ã¢â€ž ¢s abduction, torture, rape and murder of young girls, and all evidence relating to her sexual history was laid bare. The justification for the admission of such evidence was to demonstrate that she had such a perverted personality that she was capable of anything, and the Court of Appeal dismissed any prejudice. In such cases, it is for the trial judge to make the appropriate directions to the jury and to consider whether to exclude such evidence, but as the Criminal Law Revision Committee suggested 15, this problem does not exist in France where the defendantà ¢Ã¢â€š ¬Ã¢â€ž ¢s criminal record is read out at the commencement of the trial. In any event, the law is inclined to ban evidence which shows that the defendant has the disposition or propens ity to behave in a certain way if the probative value of the evidence is exceeded by its prejudicial effect. However, in Kray and others 16, it was held that a number of offences of a similar character could constitute a series of offences, in which the evidence relating to one could be admissible in the trial of another. In such cases the judge can exercise his discretion to direct that counts be severed and order separate trials, to avoid joining of the charges, it he considers that this would affect fairness of the proceedings. ______________________________________________________________________________ 10 [1990] 90 Cr App R 325 11 R à ¢Ã¢â€š ¬Ã¢â‚¬Å" v à ¢Ã¢â€š ¬Ã¢â‚¬Å" Mullen [1992] Crim L R 735 12 R à ¢Ã¢â€š ¬Ã¢â‚¬Å" v- Reid [1994] Crim LR 442 13 R à ¢Ã¢â€š ¬Ã¢â‚¬Å" v à ¢Ã¢â€š ¬Ã¢â‚¬Å" Beckford [1993] Crim LR 944 14 The Times, 3 Apr 1996 15 Evidence (General) Eleventh Report (1972) 16 R à ¢Ã¢â€š ¬Ã¢â‚¬Å" v à ¢Ã¢â€š ¬Ã¢â‚¬Å" Kray and others [ 1969] 53 Cr App R 569 In Sawoniuk 17, regarding the admission of evidence of multiple instances of the defendantà ¢Ã¢â€š ¬Ã¢â€ž ¢s mistreatment of Jewish prisoners in a war crimes prosecution, the Court of Appeal permitted the presentation of this evidence but as background evidence than under the à ¢Ã¢â€š ¬Ã‹Å"similar facts principleà ¢Ã¢â€š ¬Ã¢â€ž ¢. Following on from section 78, the HRA 1988 enabled the direct application of the European Convention on Human Rights into English law. Article 6(1) of the ECHR provides that à ¢Ã¢â€š ¬Ã…“everyone is entitled to a fair and public hearingà ¢Ã¢â€š ¬Ã‚ ¦.by an independent and impartial tribunal established by lawà ¢Ã¢â€š ¬Ã‚ . The main impact of the application of the ECHR is that the trial judge was given considerable discretion to ascertain whether the proceedings as a whole, including the way evidence was taken, was fair. In Shannon 18, entrapment was a key consideration for the trial judge in deciding whether to rule evidence as inadmissible, but did not justify exclusion of the evidence. The agent provocateur, in this instance, was a journalist who posed as an Arab Sheikh and the defendant supplied him with drugs, but the appeal that this evidence was unfairly obtained and thereby the defendant was denied a fair trial with regard to Article 6 of the ECHR was unsuccessful. The trial judge, in exercising his discretion whether to exclude the evidence, had to consider whether admission would compromise the fairness of the trial as if the evidence was unreliable or tainted. In considering this, the Court of Appeal looked at the European Courtà ¢Ã¢â€š ¬Ã¢â€ž ¢s judgement in Texeira 19. The Court decided that there had been a violation of Article 6(1) as the defendant had been denied a fair trial from the outset. Two undercover police officers asked to buy heroin from the defendant, who bought the drugs for them, but the court had regard to the lack of evidence that he was predisposed to crime a nd the offence would not have been committed but for the officersà ¢Ã¢â€š ¬Ã¢â€ž ¢ intervention. The Court of Appeal distinguished Shannon from Texiera on the basis that there was not an actual incitement by the agent provocateur to commit the offence in the former case. The House of Lords, looking at Shannon, decided that the Texiera judgement did not intend to state that there was a breach of Article 6 every time police officers provided an opportunity to commit an offence and the person took advantage of it. 20 ______________________________________________________________________________ 17 R à ¢Ã¢â€š ¬Ã¢â‚¬Å" v à ¢Ã¢â€š ¬Ã¢â‚¬Å" Sawoniuk [2000] 2 Cr A R 220 CA 18 [2001] 1 Cr App R 168 19 Texiera de Castro à ¢Ã¢â€š ¬Ã¢â‚¬Å" v à ¢Ã¢â€š ¬Ã¢â‚¬Å" Portugal [1999] 28 EHRR 313 para 74; Att-Genà ¢Ã¢â€š ¬Ã¢â€ž ¢s Reference (No 2 of 2001) 1 WLR 1869 [2001] 20 R à ¢Ã¢â€š ¬Ã¢â‚¬Å" v à ¢Ã¢â€š ¬Ã¢â‚¬Å" Looseley: Att-Genà ¢Ã¢â€š ¬Ã¢â€ž ¢s Reference (No 3 of 2000) [2 002] 1 Cr App R 29 Regarding the exercise of the trial judgeà ¢Ã¢â€š ¬Ã¢â€ž ¢s discretion to stay proceedings for abuse of process, the case of Latif 21 considered whether illegality in the investigation process could lead to a prosecution being stayed for abuse of process. The House of Lords considered that such illegality could have this effect but that this would not necessarily lead to a stay of proceedings. Lord Steyn set a test: à ¢Ã¢â€š ¬Ã…“the judge must weigh in the balance the public interest in ensuring that those that are charged with grave crimes should be tried and the competing public interest in not conveying the impression that the court will adopt the approach that the end justifies the means.à ¢Ã¢â€š ¬Ã‚  In Chalkley 22, the scope of section 78 in exclusion of evidence was regarded as entirely distinct from the question of whether a prosecution should be stayed for abuse of process. In Looseley, the trial judge exercised his discretion to stay the p roceedings. In this case, undercover police officers cajoled a defendant into selling them heroin by plying him with cigarettes and making repeated requests, when the defendant had actually disclaimed any interest in drug dealing. The trial judge decided that the officers had solicited the offence and ordered a stay of the proceedings for an abuse of the process. The Court of Appeal overturned this decision and decided that the defendant had voluntarily provided the drugs to the officers and had had previous convictions for drug dealing. The House of Lords issued monumental directives regarding the importance of maintaining fairness and integrity of criminal proceedings. The House of Lords allowed this defendantà ¢Ã¢â€š ¬Ã¢â€ž ¢s appeal and Lord Nicholls stated:- à ¢Ã¢â€š ¬Ã…“Every court has an inherent power and duty to prevent abuse of its process. This is a fundamental principle of lawà ¢Ã¢â€š ¬Ã‚ ¦It is simply not acceptable that the state through its agents should lure its citizens into committing acts forbidden by the law and then seek to prosecute them for doing so. That would be entrapment.à ¢Ã¢â€š ¬Ã‚  The House of Lords agreed that a stay of proceedings on the grounds that there had been an abuse of process was the only acceptable remedy. However, it was also considered that section 78 would be applicable where tainted evidence could be excluded from the trial process without having to stop it. A clear distinction has been drawn between a willing defendant ready to supply drugs and someone who was coerced into this via a campaign of repeated requests and encouragements. ______________________________________________________________________________ 21 R à ¢Ã¢â€š ¬Ã¢â‚¬Å" v à ¢Ã¢â€š ¬Ã¢â‚¬Å" Latif [1996] 1 All ER 353 22 R à ¢Ã¢â€š ¬Ã¢â‚¬Å" v à ¢Ã¢â€š ¬Ã¢â‚¬Å" Chalkley [1998] 2 Cr App R 79 Lord Hoffman laid down five criteria for the admissibility of evidence, having had regard to the guidance of trial judges in previo us cases. These criteria have refined the Court of Appealà ¢Ã¢â€š ¬Ã¢â€ž ¢s approach to the jurisprudence on entrapment and have established a framework for trial judges to follow when deciding when to exercise their discretion to exclude evidence or stay proceedings. Staying of proceedings is obviously considered to be the only remedy where there has been a clear abuse of process, but this must be decided upon with regard to the facts of the case. Fairness of proceedings can also be affected by whether the prosecution chooses to withhold disclosure on the grounds of public interest, but this must be on the basis of an informed decision after consulting the Treasury Solicitor 23. Public interests include the protection of police operations, though this obviously conflicts with cases where entrapment has been used. Recommendations have been provided by the Royal Commission on Criminal Justice that trial judges be given the power to exclude repetitious or conflicting evidence 2 4, an attempt to avoid time-wasting in this respect. Recommendations have also been provided by the Auld Review of the Criminal Courts, which highlighted the problems that may occur when evidence obtained through deception or otherwise, is excluded, even if it is potentially reliable, and looked at the overlap between the courtsà ¢Ã¢â€š ¬Ã¢â€ž ¢ power to stay proceedings as an abuse of its process and its powers to exclude evidence. The Review called for simplification of the jurisprudence regarding the exclusion of unfairly obtained evidence and that of staying a prosecution on the ground of an abuse of process. In fact, the Review called for more trust to be given to the trial judgeà ¢Ã¢â€š ¬Ã¢â€ž ¢s discretion, as stated:- à ¢Ã¢â€š ¬Ã…“The English law of criminal evidence should, in general, move away from technical rules of inadmissibility to trusting judicial and lay fact finders to give relevant evidence the weight it deservesà ¢Ã¢â€š ¬Ã‚ . In conclusion, it is submitted that the trial judgeà ¢Ã¢â€š ¬Ã¢â€ž ¢s present powers to exclude evidence are sufficient. The trial judge has an extremely wide discretion to exclude unfairly obtained evidence and to stay proceedings if he or she considers there has been an abuse of the process. The exercise of staying of proceedings is only rarely exercised, as there has to be a clear abuse of process, as in Looseley, otherwise the judge can just direct the exclusion of such evidence. The guidelines provided from section 78 and thereafter the human rights law incorporated after 1988 have further refined and developed the original common law approach into a fairer system of the administration of criminal justice. As stated in Montgomery and Coultier 25, the Scots law requirement is to balance the interests of the defendant as opposed to the public interest in ensuring that a serious crime is prosecuted, and this should be the main consideration in English law. ________________________________________ ______________________________________ 23 R à ¢Ã¢â€š ¬Ã¢â‚¬Å" v à ¢Ã¢â€š ¬Ã¢â‚¬Å" Horseferry Road Magistrates Court, ex parte Bennett (No. 2) [1994] 1 All ER 289 24 Cm 2263, para 8.13 25 Montgomery à ¢Ã¢â€š ¬Ã¢â‚¬Å" v à ¢Ã¢â€š ¬Ã¢â‚¬Å" Coultier à ¢Ã¢â€š ¬Ã¢â‚¬Å" v à ¢Ã¢â€š ¬Ã¢â‚¬Å" HM Advocate [2001] 2 WLR 779 BIBLIOGRAPHY A Guide to The Police and Criminal Evidence Act 1984: TC Walters MA Oà ¢Ã¢â€š ¬Ã¢â€ž ¢Connell (Financial Training Publications) pp 103-104 Criminal Evidence (5th edition): Richard May Steven Powles 5th edition (Sweet and Maxwell) pp10-02 à ¢Ã¢â€š ¬Ã¢â‚¬Å" 10-33 Criminal Evidence: Paul Roberts Adrian Zuckerman (Oxford) pp147 à ¢Ã¢â€š ¬Ã¢â‚¬Å" 175 Criminal Evidence Procedure: The Essential Framework (2nd edition): Stephen Seabrooke John Sprack (Blackstone) Evidence and the Adversarial Process à ¢Ã¢â€š ¬Ã¢â‚¬Å" The Modern Law (2nd edition): Jenny McEwan (Hart Publishing) pp 197 à ¢Ã¢â€š ¬Ã¢â‚¬Å" 221 Human Rights, Serious Crimes and Criminal Procedure: The Hamlyn Lectures: Andrew Ashworth QC (Sweet Maxwell) pp 52 à ¢Ã¢â€š ¬Ã¢â‚¬Å" 87 Police and Criminal Evidence Act 1984: A Practical Guide: Greg Powell Chris Magrath (Oyez) pp 192-206 The Police and Criminal Evidence Act 1984 (3rd edition): Michael Zander (Sweet Maxwell) pp 172 251

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