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Group-II Mains Supplement — Polity, Economy and AP Society · Chapter 4

Services Sector, IT/ITES, Industrial Sickness and Ease of Doing Business

What to remember

  • The services (tertiary) sector is the largest part of India's output. It includes trade, transport, communication, finance, real estate, IT and public administration.
  • Industrial sickness is now handled under the Insolvency and Bankruptcy Code, 2016. The old Sick Industrial Companies Act (SICA, 1985) and the BIFR were wound up.
  • Ease of doing business measures how simple it is to start and run a firm. In India the Business Reform Action Plan ranks States on reforms.

Services sector

The services sector covers activities that are not goods production.

  • Major groups: trade, hotels and restaurants; transport, storage and communication; financial services; real estate and professional services; public administration, defence and other services.
  • Why it grew: rising income and demand, liberalisation after 1991, telecom and IT growth, banking expansion, tourism and exports of software and business services.
  • Features: it gives a large share of GVA and exports of services, but a smaller share of jobs than agriculture. Many service jobs are informal (for example small trade and transport).
  • Policy: the Government of India promotes services through Digital India (2015), Skill India, tourism schemes and the Goods and Services Tax (GST) of 2017.
Service groupExamples
Trade and hospitalityRetail, wholesale, hotels, tourism
Transport and communicationRailways, roads, ports, aviation, telecom, postal
Finance and real estateBanking, insurance, mutual funds, housing, professional services
Community and public servicesHealth, education, administration, defence

Challenges of services-led growth. Services create fewer jobs for low-skilled workers than manufacturing could. High-end services (software, finance) need skills that many rural youth lack, so the benefits are concentrated in cities. A balanced growth path needs both a stronger manufacturing base and skill training.

IT and ITES

  • IT (software, services, products) and ITES (IT-enabled services such as business process outsourcing, call centres and back-office work) are the best-known service exports.
  • Growth factors: a large English-speaking, technical workforce, cost advantage, time-zone benefit and policy support.
  • Institutions: the Software Technology Parks of India (STPI, set up in 1991) gave export-oriented units tax and infrastructure benefits. NASSCOM (set up in 1988) is the industry association. The Information Technology Act, 2000 gave legal recognition to electronic records and digital signatures and dealt with cyber offences.
  • Spatial pattern: Bengaluru, Hyderabad, Chennai, Pune and Noida are leading hubs. HITEC City in Hyderabad was developed in the 1990s.
  • Challenges: dependence on a few foreign markets, protectionism abroad, skill gaps, automation and artificial intelligence.
  • Andhra Pradesh: Visakhapatnam and Vijayawada-Guntur-Amaravati regions, along with Tirupati, are emerging centres for IT and electronics. The State has set up policies for IT, electronics and data centres; check the latest official release for details.

Special Economic Zones

  • A Special Economic Zone (SEZ) is a duty-free enclave treated as foreign territory for trade. India's first export processing zone was set up at Kandla in 1965.
  • The SEZ Act, 2005 and its rules in 2006 gave the present framework: tax holidays, single window clearance and duty-free imports for authorised operations.
  • Andhra Pradesh has SEZs such as Kakinada, and Brandix at Atchutapuram for apparel; Sri City is a private multi-product industrial city near the Tamil Nadu border; Krishnapatnam is being developed as an industrial smart city under the National Industrial Corridor programme. The Visakhapatnam-Chennai Industrial Corridor is a key corridor for the State.
  • Kia Motors set up a car plant at Anantapur region and electronic and mobile phone units have come up around Tirupati-Sri City.

MSMEs

Micro, Small and Medium Enterprises are regulated by the MSMED Act, 2006. Classification is based on investment and turnover, and the limits have been revised from time to time; check the latest official release. MSMEs give large employment, but face problems of credit, technology, delayed payments and market access. Udyam Registration (2020) is the online registration system. The Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) gives collateral-free credit cover.

Industrial sickness

A unit is called sick when it faces continuous losses and cannot meet its obligations.

  • Under SICA (1985): an industrial company at least five years old whose accumulated losses equal or exceed its net worth was "sick". The Board for Industrial and Financial Reconstruction (BIFR), set up in 1987, handled such cases.
  • Causes (internal): poor management, wrong location or technology, weak financial control, labour trouble, over-expansion. External causes: shortage of raw material, power cuts, demand slump, tax or policy changes, delayed payments, lack of credit.
  • Committees: the Tiwari Committee (1981) and the Goswami Committee (1993) studied sickness and corporate restructuring.
  • Repeal: SICA was repealed in 2003, but the repeal took effect only later. BIFR was dissolved in 2016 after the Insolvency and Bankruptcy Code came into force.

Insolvency and Bankruptcy Code (IBC), 2016

FeatureDetail
Adjudicating authorityNational Company Law Tribunal (NCLT) for companies; Debt Recovery Tribunal for individuals and partnership firms
RegulatorInsolvency and Bankruptcy Board of India (IBBI)
ProfessionalsInsolvency Professionals run the process
ProcessCorporate Insolvency Resolution Process (CIRP), time-bound: 180 days, extendable by 90 days, subject to a maximum overall limit
InitiatorsFinancial creditor (Section 7), operational creditor (Section 9), corporate debtor itself (Section 10)
MoratoriumSection 14 stops suits and recovery during CIRP
Committee of CreditorsDecides on the resolution plan; failure leads to liquidation
Section 29ABars certain persons, such as wilful defaulters, from bidding for the firm

The Code aims at quick resolution, maximising asset value and protecting creditors' rights. Other tools: the SARFAESI Act, 2002 for banks to recover secured loans, Debt Recovery Tribunals, and the Asset Reconstruction Companies.

Ease of Doing Business

The World Bank's Doing Business report ranked countries on ten indicators: starting a business, dealing with construction permits, getting electricity, registering property, getting credit, protecting minority investors, paying taxes, trading across borders, enforcing contracts and resolving insolvency. The report was discontinued in 2021 after data irregularities were found. India's reform drive continues through:

  • Business Reform Action Plan (BRAP) of the Department for Promotion of Industry and Internal Trade (DPIIT), which assesses States on reforms since 2015.
  • Make in India (2014), Startup India (2016), the National Single Window System (2021), Production Linked Incentive (PLI) schemes, GST and decriminalisation of minor offences.
  • Andhra Pradesh has been prominent in these assessments; for current ranks check the latest official release. The State enacted a single-window clearance law in the early 2000s and runs the Andhra Pradesh Industrial Infrastructure Corporation (APIIC, set up in 1973) for industrial land and parks.

Symptoms and remedies. Early signs of sickness are delay in repaying loans, falling sales, piling stock, delayed wages and unpaid dues to suppliers. Remedies include early detection by banks, a revival plan with fresh finance, change of management, merger with a healthy firm, sale of assets or, as a last step, closure and liquidation. The present law prefers resolution within a fixed time over long delay, because delay destroys the value of assets and jobs.

Exam traps

  • ITES means IT-enabled services (BPO), not "IT educational services".
  • The first export processing zone in India was at Kandla (1965); the SEZ Act is of 2005.
  • SICA (1985) and BIFR (1987) are now replaced by IBC (2016), NCLT and IBBI.
  • IBC: NCLT for companies; the regulator is IBBI.
  • CIRP is time-bound: 180 days plus 90 extension, then liquidation if no plan.
  • Section 7 (financial creditor), 9 (operational creditor), 10 (corporate debtor).
  • The Doing Business report was by the World Bank; BRAP is by DPIIT of India.
  • Services have the largest share of output but not of employment.

One-liners

  • 1. Services is the largest sector of GVA in India.
  • 2. STPI was set up in 1991.
  • 3. NASSCOM is the IT industry association.
  • 4. The IT Act is of 2000.
  • 5. SEZ Act was passed in 2005.
  • 6. Kandla was India's first export processing zone (1965).
  • 7. SICA was enacted in 1985; BIFR was set up in 1987.
  • 8. IBC is of 2016.
  • 9. NCLT is the adjudicating authority for corporate insolvency.
  • 10. IBBI regulates insolvency professionals.
  • 11. BRAP ranks States on business reforms.
  • 12. APIIC was set up in 1973.

Practice questions

  1. Which sector contributes the largest share of India's Gross Value Added?

    1. Services
    2. Manufacturing
    3. Mining
    4. Agriculture
    Answer

    A. Services

    The tertiary sector has the largest share of GVA.

  2. ITES stands for

    1. Integrated Telecom Enterprise System
    2. Internet Technology Export Scheme
    3. Indian Trade and Economic Services
    4. Information Technology Enabled Services
    Answer

    D. Information Technology Enabled Services

    It covers BPO, call centres and back-office work.

  3. The Software Technology Parks of India (STPI) was set up in

    1. 2005
    2. 1991
    3. 1965
    4. 1985
    Answer

    B. 1991

    STPI gave export-oriented units infrastructure and tax benefits.

  4. Which body is the main industry association of the Indian IT sector?

    1. SEBI
    2. FICCI
    3. IBBI
    4. NASSCOM
    Answer

    D. NASSCOM

    NASSCOM was set up in 1988.

  5. The Information Technology Act was passed in

    1. 2000
    2. 1991
    3. 2016
    4. 2005
    Answer

    A. 2000

    It gave legal recognition to electronic records and digital signatures.

  6. India's first export processing zone was established at

    1. Santacruz
    2. Visakhapatnam
    3. Kandla
    4. Noida
    Answer

    C. Kandla

    Kandla EPZ was set up in 1965.

  7. The SEZ Act was enacted in

    1. 2016
    2. 1991
    3. 2005
    4. 2000
    Answer

    C. 2005

    The rules followed in 2006.

  8. Which of the following is an SEZ-related benefit?

    1. Exemption from all labour laws
    2. No audit at all
    3. Free land from the Reserve Bank
    4. Duty-free import of goods for authorised operations
    Answer

    D. Duty-free import of goods for authorised operations

    SEZs are treated as foreign territory for trade operations.

  9. The Visakhapatnam-Chennai Industrial Corridor is relevant to which State?

    1. Punjab
    2. Andhra Pradesh
    3. Gujarat
    4. Kerala
    Answer

    B. Andhra Pradesh

    The corridor covers the coastal belt of Andhra Pradesh.

  10. The Andhra Pradesh Industrial Infrastructure Corporation (APIIC) was established in

    1. 1973
    2. 1991
    3. 1956
    4. 2014
    Answer

    A. 1973

    APIIC develops industrial parks and land.

  11. Micro, Small and Medium Enterprises are regulated by the

    1. SEZ Act, 2005
    2. Companies Act, 2013
    3. MSMED Act, 2006
    4. IT Act, 2000
    Answer

    C. MSMED Act, 2006

    The Act defines the enterprise classes.

  12. The Sick Industrial Companies (Special Provisions) Act was passed in

    1. 1991
    2. 1985
    3. 2002
    4. 2016
    Answer

    B. 1985

    SICA was enacted in 1985.

  13. The Board for Industrial and Financial Reconstruction (BIFR) was set up in

    1. 1969
    2. 2002
    3. 1951
    4. 1987
    Answer

    D. 1987

    It handled sick industrial companies under SICA.

  14. Under SICA, an industrial company was considered sick if its accumulated losses

    1. equalled or exceeded its net worth
    2. were nil
    3. were below net worth by half
    4. were below 10 percent of sales
    Answer

    A. equalled or exceeded its net worth

    This was the SICA test, applied to companies at least five years old.

  15. Which law now governs insolvency resolution of companies in India?

    1. MRTP Act, 1969
    2. FEMA, 1999
    3. Sick Industrial Companies Act, 1985
    4. Insolvency and Bankruptcy Code, 2016
    Answer

    D. Insolvency and Bankruptcy Code, 2016

    IBC replaced SICA and the BIFR process.

  16. The adjudicating authority for corporate insolvency under IBC is the

    1. Competition Commission
    2. BIFR
    3. National Company Law Tribunal
    4. Debt Recovery Appellate Tribunal
    Answer

    C. National Company Law Tribunal

    NCLT handles CIRP for companies.

  17. Which body regulates insolvency professionals in India?

    1. Insolvency and Bankruptcy Board of India
    2. SEBI
    3. NABARD
    4. RBI
    Answer

    A. Insolvency and Bankruptcy Board of India

    IBBI is the regulator under IBC.

  18. Under the IBC, the Corporate Insolvency Resolution Process is meant to be completed in

    1. 2 years
    2. 180 days, extendable by 90 days
    3. 30 days
    4. 5 years
    Answer

    B. 180 days, extendable by 90 days

    CIRP is time-bound, with a limited extension.

  19. Under IBC, which section allows a financial creditor to start insolvency proceedings?

    1. Section 7
    2. Section 14
    3. Section 9
    4. Section 10
    Answer

    A. Section 7

    Section 9 is for operational creditors, 10 for corporate debtors and 14 for moratorium.

  20. Section 14 of the IBC provides for

    1. appeal to the Supreme Court
    2. bar on wilful defaulters
    3. liquidation fee
    4. a moratorium during insolvency proceedings
    Answer

    D. a moratorium during insolvency proceedings

    It stops suits and recovery during CIRP.

  21. Who decides on the resolution plan under IBC?

    1. Registrar of Companies
    2. Committee of Creditors
    3. Board of Directors
    4. Gram Sabha
    Answer

    B. Committee of Creditors

    The Committee of Creditors votes on the plan.

  22. The SARFAESI Act of 2002 allows

    1. registration of start-ups
    2. tax holiday for SEZs
    3. banks to recover secured loans without going to court
    4. transfer of public lands
    Answer

    C. banks to recover secured loans without going to court

    It provides for enforcement of security interest.

  23. The Tiwari Committee of 1981 examined

    1. industrial sickness
    2. IT exports
    3. tax reforms
    4. labour law
    Answer

    A. industrial sickness

    Goswami (1993) also looked at sickness and restructuring.

  24. The World Bank's Doing Business report was discontinued in

    1. 2005
    2. 2010
    3. 2021
    4. 2016
    Answer

    C. 2021

    It was discontinued after data irregularities were reported.

  25. Which of the following was NOT an indicator of Ease of Doing Business?

    1. Starting a business
    2. Literacy rate
    3. Enforcing contracts
    4. Paying taxes
    Answer

    B. Literacy rate

    Literacy is a social, not a business-regulation, indicator.

  26. The Business Reform Action Plan ranks States and is run by

    1. NITI Aayog alone
    2. SEBI
    3. RBI
    4. DPIIT
    Answer

    D. DPIIT

    The Department for Promotion of Industry and Internal Trade runs BRAP.

  27. Make in India was launched in

    1. 2014
    2. 1991
    3. 2005
    4. 2020
    Answer

    A. 2014

    It aims to promote manufacturing and investment.

  28. Startup India was launched in

    1. 2020
    2. 2000
    3. 2008
    4. 2016
    Answer

    D. 2016

    It supports innovation and start-up ecosystems.

  29. Which of these is an AP-based private multi-product industrial city near the Tamil Nadu border?

    1. Gift City
    2. Sri City
    3. Kandla
    4. Noida
    Answer

    B. Sri City

    Sri City hosts electronics, automotive and other units.

  30. The car manufacturer Kia set up a plant in which State?

    1. Odisha
    2. Assam
    3. Andhra Pradesh
    4. Bihar
    Answer

    C. Andhra Pradesh

    The plant is located in the Anantapur area.

  31. A major challenge of service-led growth in India is

    1. limited job creation for low-skilled workers
    2. lack of banks
    3. absence of telecom
    4. lack of any exports
    Answer

    A. limited job creation for low-skilled workers

    Services need skills many workers lack.

  32. Consider the statements: 1. SICA was replaced by the IBC. 2. IBBI is the adjudicating authority for corporate insolvency. Which is/are correct?

    1. 1 only
    2. 2 only
    3. Both 1 and 2
    4. Neither 1 nor 2
    Answer

    A. 1 only

    The adjudicating authority is NCLT; IBBI is the regulator.

  33. Consider the statements: 1. The IT Act, 2000 recognises electronic records. 2. The SEZ Act was passed in 1991. Which is/are correct?

    1. 1 only
    2. 2 only
    3. Both 1 and 2
    4. Neither 1 nor 2
    Answer

    A. 1 only

    SEZ Act was passed in 2005.

  34. Consider the statements: 1. Services have the largest share of GVA in India. 2. Services also employ the largest share of workers. Which is/are correct?

    1. 1 only
    2. 2 only
    3. Both 1 and 2
    4. Neither 1 nor 2
    Answer

    A. 1 only

    Agriculture still employs the largest share of workers.

  35. Consider the statements: 1. BIFR was set up in 1987. 2. BIFR dealt with sick companies under SICA. Which is/are correct?

    1. 1 only
    2. 2 only
    3. Both 1 and 2
    4. Neither 1 nor 2
    Answer

    C. Both 1 and 2

    Both statements are correct.

  36. Consider the statements: 1. The Doing Business report is published by DPIIT. 2. BRAP is published by the World Bank. Which is/are correct?

    1. 1 only
    2. 2 only
    3. Both 1 and 2
    4. Neither 1 nor 2
    Answer

    D. Neither 1 nor 2

    Doing Business was by the World Bank; BRAP is by DPIIT.

  37. Consider the statements: 1. Kandla was India's first export processing zone. 2. SEZs are treated as foreign territory for trade. Which is/are correct?

    1. 1 only
    2. 2 only
    3. Both 1 and 2
    4. Neither 1 nor 2
    Answer

    C. Both 1 and 2

    Both are correct.

  38. Consider the statements: 1. IBC provides a time-bound resolution process. 2. Section 29A bars wilful defaulters from bidding. Which is/are correct?

    1. 1 only
    2. 2 only
    3. Both 1 and 2
    4. Neither 1 nor 2
    Answer

    C. Both 1 and 2

    Both are correct.

  39. Consider the statements: 1. Disguised unemployment is common in IT. 2. MSMEs often face credit and delayed payment problems. Which is/are correct?

    1. 1 only
    2. 2 only
    3. Both 1 and 2
    4. Neither 1 nor 2
    Answer

    B. 2 only

    Disguised unemployment is seen in agriculture.

  40. A firm has repeated losses, delays wage payments and cannot repay its bank loan. It is showing signs of

    1. disinvestment
    2. industrial sickness
    3. inflation
    4. privatisation
    Answer

    B. industrial sickness

    These are symptoms of sickness.

  41. A bank wants to recover a secured loan quickly by taking possession of collateral without a court case. The relevant law is

    1. MSMED Act
    2. SEZ Act
    3. IT Act
    4. SARFAESI Act
    Answer

    D. SARFAESI Act

    SARFAESI allows enforcement of security interest.

  42. A start-up wants to register with a single online system for government support. Which is the national single-window platform launched in 2021?

    1. STPI portal
    2. Udyam portal only
    3. GSTN portal
    4. National Single Window System
    Answer

    D. National Single Window System

    NSWS gives approvals through one platform.

  43. A company's CIRP fails to produce a resolution plan. The result is generally

    1. tax holiday
    2. liquidation
    3. merger with BIFR
    4. automatic revival
    Answer

    B. liquidation

    Failure of resolution leads to liquidation.

  44. The Credit Guarantee Fund Trust for Micro and Small Enterprises provides

    1. telecom licences
    2. export subsidies
    3. collateral-free credit cover
    4. IT park land
    Answer

    C. collateral-free credit cover

    CGTMSE gives guarantee cover to lenders.

  45. Udyam Registration is relevant to

    1. IT exporters only
    2. MSMEs
    3. large public companies
    4. banks
    Answer

    B. MSMEs

    It is the online registration system for MSMEs.

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