INDUSTRIAL DEVELOPMENT (1947 – 1990)

Industrial Development 1947 – 1990

At the time of independence, India had a weak industrial development base, poorly developed infrastructure, and a stagnant economy. At the time of independence, textile and jute industries were mostly developed in India. There were two well-managed iron and steel firms: one in Jamshedpur and the other in Kolkata. So, there was a strong need to expand the industrial base with a variety of industries.

Q1. Explain the Benefits of Industrialisation / Importance of Industrialisation

1. Structural Transformation :

In the absence of industry, economic growth would have depended upon agricultural growth and human beings would have survived merely on wage goods, like food and coarse cloth. It is with the growth of an industry that the process of development has diversified and human beings are getting a variety of goods (like cars, ACs, and refrigerators) which are a source of comfort and luxury in life.

2. Source of Employment

The industry is an important source of employment particularly when the population of a country is rising beyond the absorption capacity of agricultural land due to a rise in agricultural productivity, farming sector has yielded a large surplus of the labor force. It can be gainfully employed only in occupations outside agriculture. Industry plays an important role in this context.

3. Source of Mechanised Means of Farming :

The use of machines (like tractors, thrashers, and harvesters) in farming has become possible only owing to the growth and development of the industry.

4. Imparts Dynamism to Growth Process :

In the absence of industry, the growth process would have been confined to generating food for survival In Industrialisation has added new dimensions to human life it has generated a wave of consumerism.

5. Growth of Civilisation :

People now are conscious of their quality of life. They work hard to attain higher and higher levels of consumption patterns. Accordingly, they now strive to achieve higher levels of education, including skill and business acumen. These changes have contributed to the growth and development of civilized societies.

6. Infrastructural Growth :

Infrastructure has two aspects : (i) economic infrastructure (including roads, dams, bridges, besides banking, insurance, transport, and communication facilities), and (ii) social infrastructure (including facilities related to health and education). It is with the spread of industrialization that the need for economic infrastructure has acquired a high priority.

And, with the improvement in quality of life.

6. Meeting Ever Increasing Demand. As Der c income rises, the demand for food does not increase as much as demand for industrial products. Demand for industrial products can be met only by increasing industrial production.
7. Leads to Self-sustaining Development. Industrialisation leads to higher saving, investment and capital formation, thereby creating a solid foundation for self-sustaining development.
8. Promotes Regional Balance. Industries play an important role in social welfare and attainment of equality justice and balanced regional development. Regional imbalances are removed by removed by framing locational policies in such a manner that backward regions have a fair share in the distribution of industries.

Q2. Explain the role of the Public Sector in Industrial Development

At the time of independence, the big question facing the policymakers was to decide the pattern of ownership of industries. The aim was to determine the role of the government and the private sector in industrial development. There was a need for a leading role in the Public Sector due to the following reasons.

1. Shortage of Capital with Private Sector : Private entrepremeur did not have the capital to undertake investment in industrial ventures, required for the development of Indian economy. At the time of independence, Tatas and Birlas were only well known Private entreprenuers.

As a result, the Government had to make an industrial investment through Public Sector Undertakings (PSU’s)

2. Lack of Incentive for Private Sector : The Indian market was not big enough to encourage private industrials to undertake major projects, even if they had capital to do so. Due to limited size of the market, there was low level of demand for the industrial goods.
3. Objective of Social Welfare : The objective of equity and social welfare of the Government could be achieved only through direct participation of the state in the process of industrilsation.

As a result, the state had complete control over those industries, that were vital for the economy. The policies of the private sector had to be complementary to those of the public sector, with the public sector, with the public sector leading the way.

Problems of Industrial Development in India

Problems of Industrial Development in India are:

1. Sectoral Imbalances. A well-planned economic and industrial development requires that all sectors should be developed in a co-ordinated manner. In India, however, this has not happened. Agriculture and infrastructure have failed to provide the requisite support to the industrial sector. Even within the industrial sector, the input-output relation between various industries require that there should be coordination between all the industries. But such coordination has not taken place.
2. Regional Imbalance. Industrial development in India has remained restricted to a few states, namely, Andhra Pradesh, Bihar, Gujarat, Karnataka, Madhya Pradesh, Maharashtra, Tamil Nadu, Uttar Pradesh and West Bengal. They account for more than 75% of all factories and more than 60% of the total value added. The entrepreneurs prefer to go where the infrastructure is strong, markets are close and various other services are readily available.
3. Industrial Sickness. Industrial sickness has been an obstacle in the process of industrial development. The sick industries syndrome is on a very large scale in India. It ha raised the problem of unemployment. Industrial sickness has now assumed alarming proportions.

[Since its inception in May 1987 till Sept 2006, the Board of Industrial and Financial Reconstruction (BIFR) has received 6,991 cases under SICA (Sick Industrial Companies Act, 1985). Sickness of such magnitude is a matter of great concern.]

4. Growth of Big Industrial Houses. The policy of the government has been such that big industrial houses could grow in capital-intensive industries despite the MRTP Act and the licensing policy.
5. Higher Cost of Industrial Product. There is high cost of certain industrial products as compared to international prices because of lack of healthy competition.
6. Inadequate Employment Generation. Industries have not generated enough employment opportunities. This is because of lack of attention on choosing technologies. The main victims have been small-scale and cottage industries.
7. Industrial Dependence on the Government. Industries are generally pressurising; the government to reduce tax or duty to make imports easier and to allow capacity expansion. This shows how industrial development is dependent upon government policy.
8. Poor Performance of the Public Sector. Public sector has shown poor performance on production and profit fronts. The achievements have always fallen short of the targeted goals.
9. Underutilisation of Capacity. Some of the most important industries have been reported to be underutilised. The magnitude of underutilisation varies from 20 to 60 percent in different sectors. This is a serious problem in the process of industrial growth.

Industrial Policy Resolution (IPR) of 1956

Industrial policy is an important instrument through which the government regulates the industrial activity in an economy. The main aim of industrial policy is to direct the pattern of industrial development and me speed of industrialization following the economic program of the government.

The 1956 Resolution laid down the following objectives of industrial policy:

1. To accelerate the rate of growth and to speed up industrialisation;
2. To develop heavy industries and machine making industries;
3. To expand public sector;
4. To reduce disparities in income and wealth;
5. To build up a large and growing cooperative sector; and
6. To prevent monopolies and concentration of wealth and income in the hands of a small number of individuals.

The features of the Industrial Policy Resolution of 1956 were :

1. New Classification of Industries. Industries were classified into three schedules depending upon the role of the State:
   1. Industries whose future development would be the exclusive responsibility of the State. 17 such industries were listed in

Schedule ‘A’ which included defense industries, heavy

industries like steel, machinery heavy electricals, mining industries (iron ore, bauxite, and other important minerals), energy and power (atomic energy coal, petroleum, electricity generation, etc.), transport and communication, etc.

1. Industries in which the State would increasingly establish new units but private sector units would be allowed to expand existing units and set up new units. 12 industries were included in Schedule ’B’. These were machine tools, ferroalloys, non-ferrous metals, fertilizers, drugs and pharmaceuticals, dye stuffs and plastic, road and ocean transport, synthetic rubber, etc.
2. Other residual industries were left open to the private sector. In this category the State had the power to start any new undertaking in public interest.
3. Stress on the Role of Cottage and Small-scale Industries. The 1956 resolution recognised the critical role of cottage and small-scale industries in economic development of the country.
4. Reduction in Regional Disparities. The disparities in the level of development between different regions should be progressively reduced, Facilities for development will be made available to the industrially backward areas.
5. Emphasis on Industrial Peace. The need for maintenance and promotion of industrial peace and cordial relations between employers and employees was stressed. Reasonable wages, good working conditions and participative management were given emphasis.
6. Technical Education and Training. Need was felt to develop technical and management education and training facilities to meet the growing needs for technical and managerial personnel in industrial units.

Industrial Licensing

1. IDRA Act, 1951

Licensing is a tool for channelizing scarce resources in predetermined priority sectors of an economy. Consistent with the Industrial Policy Resolution announced in 1948, the Industries Development and Regulation Act (IDRA) was enacted in 1951.

The main objectives of the IDRA Act of 1951 were:

1. Regulation of industrial development and investment in accordance with planned priorities.
2. Avoidance of monopoly
3. Balanced regional development with a View to reducing disparities in the levels of development of different regions of an economy.

Prevention of undue competition between large-scale industries and small-scale and cottage industries.

1. Optimum utilisation of scarce foreign exchange resources.

Under this Act the following were applicable :

1. All the scheduled industries should be registered with the government within the prescribed period.
2. A licence must be obtained by all the new industries as well as the existing undertakings which seek to expand.
3. The Act authorised the government to examine the working of any industrial undertaking and issue such directions as were necessary.
4. If the undertaking continued to be mismanaged, it empowered the government to take over its management. The following are the main points of criticism against the industrial licensing system in India :

1. There were was an adhoc and haphazard system for accepting or rejecting an application for licence.
2. The quality of techno-economic examination conducted by the Directorate General of Technical Development (DGTD) was generally poor.
3. Licensing policy resulted in underutilisation of capacity in many industries. Most enterprises which obtained licence did not install the permitted production capacity.
4. In reality the policy helped large business houses in accumulating economic power. The licensing authorities, many a times, granted licence to big business houses without carrying out a proper scrutiny of their applications. It was called permit licence raj.
5. Industrial Licensing Policy, 1991

Recent initiatives in industrial licensing policy were taken in the Industrial Licensing Policy of 1991. The main features of this policy are:

1. Industrial licensing will be abolished for all the projects except for a list of industries separated due to security and strategic concerns, social reasons, hazardous chemicals, oyer-riding environmental reasons and items of elitist consumption.
2. Only eight industries groups where security and strategic concerns predominate will be reserved exclusively for public sector.
3. In projects where imported capital goods are required, automatic clearance will be given in some specified cases.
4. In locations other than cities of more than 1 million population, there will be no requirement of obtaining industrial approvals from the central government except for industries subject to compulsory licensing.
5. The mandatory convertibility clause will not longer be applicable for term loan from financial institutions for new projects.
6. The system of phase manufacturing programmes which runs on case by case basis will not be applicable to new projects.

Q. Explain the role of the Public Sector?

The main objective behind India’s development strategy, since independence, has been to combine and blend growth with equitable distribution. This necessitated emergence of public enterprises as these was an instrument of the state in which profit was not the motive but the aims were social development and benefit. A public sector enterprise is and that enterprise is owned and managed by the government.

Jawaharlal Nehru used to call public enterprises ‘temples of modern India which hold the key to India’s prosperity and well-being. The years since 1950 have seen phenomenal growth of the public sector. It provides the necessary infrastructural facilities like defense, energy iron, and steel, coal, airlines, etc. After independence, India emerged as a mixed economy with a role for both public and private sectors.

Objectives of Public Sector

The main objectives of the public sector are as follows:

1. To attain commanding heights of the economy.
2. To provide commercial surplus to finance economic development.
3. To promote rapid economic development by filling critical gaps in the industrial structure.
4. To provide basic infrastructural facilities.
5. To ensure balanced regional development and dispersal of economic activity
6. To reduce sharp disparities of income and prevent

the concentration of economic power in few hands,

7. To effect social control and regulation of long-term finances through government financial institutions.
8. To achieve self-reliance in critical areas.
9. To create employment opportunities on an increasing scale,
10. To help improve foreign exchange earnings.

Role of Public Sector

The public sector has been playing a very significant role in the economic development of India, It is clear from the following points :

1. Creation of a Strong Industrial Bags. Public sector has helped in filling the structural – supply gaps and achieving a strong industrial base. There has been significant growth in defence industries and industries of strategic importance such as iron an steel, heavy engineering and heavy electricals, petroleum and natural gas, drugs and chemicals, fertilizers etc. Thus, by establishing and developing basic, heavy and capital- intensive industries, the public sector has created a strong industrial base for the economy.
2. Development of Infrastructure. Without proper infrastructural facilities in the form of irrgation, power, energy and transportation, etc., the agricultural sector cannot grow properly. Similarly the absence of adequate development – of transport and communication facilities, basic and heavy industries, fuel and energy, banking and insurance facilities etc. – the process of industrialisation cannot be sustained.
3. Development of Backward Areas. It has been the objective of Five Year Plans to develop industrial backward states and regions by setting up giant undertakings. Examples are that of steel plants located in Madhya Pradesh, Orissa, West Bengal and Bihar, fertilizer plants set up in Assam, Orissa, Bihar, UP, Punjab and Kerala. Private sector was not interested in setting up units in backward areas due to poor working conditions an low profit.

4. To Mobilise Savings and Earn Foreign Exchange. Bharat Heavy Electricals limited, Bharat Electronics Limited, Oil and Natural Gas Commission are some examples of public sector undertakings which have helped the economy in saving foreign exchange. Undertakings like HMT, STC and Metals and Minerals Trading Corporation, etc. have made significant contribution in our export earnings.
5. To Prevent Concentration of Economic Power. Public sector helps in checking the concentration of economic power in a few private hands and reducing inequalities of income and wealth.
6. To Provide Employment. Public sector generated substantial employment opportunities in a situation of widespread unemployment and poverty.
7. To Promote Import Substitution. Public sector produces and provides goods which are substitutes of imported goods. In this way public sector helps in import substitution and saving of a lot of precious foreign exchange.

Problems of Public Sector

The major problems associated with the functioning of the public sector are :

1. Unprofitable Pricing. Public sectors operate with social welfare motive, such as need to compensate for rising costs and need to subsidies for the weaker sections of the society and farmers. Public sectors have administered prices which are not profitable.
2. Overstaffing. Generally all public sectors are overstaffed. This increases the cost of wages and brings down productivity per worker.
3. Management Gaps. Most of the public sectors have management gaps, i.e., the top positions are filled up after months and years. This gives the management an aimless progress.
4. Underutilisation of Capacity. Generally most of the public sectors are underdeveloped. i.e., they operate at sub-optimal level. The least cost level of output is not produce basically due to mismanagement.
5. Inadequate Autonomy. There is lack of financial and managerial autonomy In other words, public sectors are unable to take decisions and initiate actions.
6. High Losses. Large number of public sectors incur heavy losses. Their creditability is very low. They are termed inefficient and mismanaged enterprises.
7. Burden of Sick Units. Public sectors have to nurse sick units to normal health. These sick units are a liability on public sectors.
8. Poor Project Planning and Control. Public sectors projects take a very long time to get completed because of poor planning and control. This raises cost of the project.
9. Bureaucratic Delays. It is commonly observed that public sector lack initiative and innovativeness. The pace of work is slow. There are procedural delays, faulty planning and delayed execution of projects.

Small Scale Industry (SSI)

The investment limit for small-scale industries and ancillary units is Rs. 1 crore. However, to facilitate technology up-gradation and enhance competitiveness, the investment limit (in plant and machinery) has been raised from Rs. 1 crore to Rs. 5 crores in respect of 69 items reserved for manufacture in the small scale sector and all items in the drugs and pharmaceuticals sector.

Role of Small Scale Industries

SSIs have found their economic rationale in the Mahalanobis model which forms the theoretic basis of India’s second and subsequent five-year plans. It focussed on the development of highly capital-intensive large-scale basic and heavy industries, It underlined the development of SSIs as a means to promote employment. The role of SSIS and cottage industries is clear from the following :

1. Labour Intensive. SSIs are labour intensive in character, i.e., they require more labour and are best suited for solving the problem of unemployment.
2. Self-employment. SSIS provide opportunites for self-employment,
3. Capital Intensive. SSIs are less capital intensive, i.e., they require relatively smaller amount of capital to produce a commodity In a country like India where capital is scare SSI is best suited to bring about industrial development.
4. Import Light. SSIs are import light, i.e., low import intensity in the capital structure of SSI reduces the need for foreign capital.
5. Export Promotion. SSIs offer vast opportunities for export promotion. These goods are in great demand in advanced countries.
6. Equal Distribution of Income. SSIs can serve more even distribution of income and wealth as compared to large-scale industries.
7. Decentralisation of Industries. SSIs bring about decentralisation of industries and, thus promote the objective of regional development.
8. Seed Beds for Large-scale Industries. SSIs provide all the essential raw materials to the large – scale industries which are needed for their development.
9. Sustaining Agricultural Development. The development of SSIS will divert labour from agriculture to industries which will bring about a more desirable occupational structure and will relieve agriculture from pressure of population, SSIS can bring about agricultural development through promotion of agro-based industries like agricultural machinery repairs and service workshops etc.

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Performance and Contributions of SSIs

SSIs have recorded tremendous progress during the last fifty years. The performance and contributions of

SSIs in the Indian economy is clear from the following :

They have captivated a dominant position in manufacturing sophisticated items.

1. Employment offered by SSIS have also shown a tremendous rise.
2. SSIS supply large amount of producer, consumer and complementary goods, They help in increasing the standard of living of people and improving their quality of life. Goods include paper, readymade garments etc.
3. SSIS and cottage industries produce articles of craft and art which protect the rich heritage of India.
4. SSIs have contributed about 35 per cent to direct exports from the country.

Problems/Shortcomings of SSIs

SSIs suffer from various problems and difficulties. The important ones are :

1. Difficulty of Finance. Small entrepreneurs are poor and heavily indebted. They find it difficult to get cheap credit facilities, They are forced to borrow money from moneylenders and traders who charge a very high rate of interest and purchase finished goods from SSIs at a lower rate.
2. Shortage of Raw Material. Entrepreneurs have limited access to quality raw material. They are either ignorant of sources of supply or lack the necessary finance, so they obtain raw material from moneylenders, traders and commission agents who supply them at high prices.
3. Difficulty of Marketing. Since methods of production of SSIs remain static, goods do not get ready market. There are problems of insufficient holding capacity, inadequate market intelligence and competition from large-scale efficient units.
4. Outdated Machines and Equipments. Technological obsolescence is high in SSIs. Methods of production used are old and inefficient. They result in low productivity poor quality of products and high costs.
5. Underutilised Export Potential. The export potentials of SSIS have largely remained untapped because of the absence of any programme of modernisation and integrated programme of assistance.
6. Bureaucratic Hurdles. The laws and procedures relating to SSls are complex, They need to be simplified.
7. Inadequate Dispersal. Most of SSIS remain confined to a few states. Of all registered small-scale industrial units, over one-third of them are in the states of West Bengal, Madhya Pradesh and Uttar Pradesh.

Q. Though the public sector is very essential for industries, many public sector undertakings incur huge losses and are a drain on the economy’s resources. Discuss the usefulness of public sector undertakings in light of this fact.

Ans. Though many public sector undertakings are incurring huge losses, they are still very useful in the areas of strategic concerns and hazardous chemicals. Public sector undertaking is required for;

1. Creation of a Strong Industrial Base Development of Infrastructure

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