BCom 1st Year Industrial Development in India Notes Study Material

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BCom 1st Year Industrial Development in India Notes Study Material

“Industrial development plays a crucial role in our development strategy, particularly with regard to the objectives of structural diversification, modernization, and self-reliance.” —Planning Commission

India adopted heavy industrialization as the development strategy after independence. In spite of the considerable emphasis on developing its industrial base, in general, and the manufacturing sector, the industrial sector in India still accounts for just around 26 percent of GDP and 15 percent of employment. During the long British period, no serious effort was made by the British Government to industries, especially basic and heavy industries. During different five-year plans, many measures have been taken for industrial development in India. (BCom 1st Year Industrial Development in India Notes Study Material)

Before British rule in India, India was industrially sound (advanced) as compared to West European countries. But during British rule, the industrial base mainly the cotton industry was systematically destroyed by the Britishers. When England was in the phase of the Industrial revolution, Indian traditional industries were continuously facing a lack of market and Governmental support. As a result at the time of independence, India inherited a weak industrial base, under-developed infrastructural facilities, lack of demand, and economical stagnation with a poor growth rate. (BCom Industrial Development in India Notes Study Material)

INDUSTRIAL DEVELOPMENT SINCE INDEPENDENCE

After 200 years of British rule, the condition of Indian industries was very bad. During the mid of Nineteenth Century, industries like tea, jute, textile, and coal were facing their survival. After independence, India in trying to build up a sound industrial infrastructural base and environment. In this tune, the Government of India called an industry conference in December 1947 to consider ways and means to utilize the existing capacity more efficiently with the purpose of accelerating industrial growth.

The Govt. of India granted tax concessions to the industry in 1948-49 and passed a bill to establish the Industrial Finance Corporation of India. In 1948 the Industrial policy resolution was passed. These steps had a considerable and favorable impact on the industrial development of India since independence.

INDUSTRIAL DEVELOPMENT UNDER THE PLANNING PERIOD

After independence, the Government of India became free to make policies for desired industrial development. From the beginning of eco planning in 1951 to the current era, various steps have been taken by Govt. of India for industrial development. We can study those steps in a systematic manner as below:

First Five-Year Plan (1951-56)

During the first five-year plan, the govt. of India was much emphasized in the development of the agricultural sector, because at that time our country faced a shortage of foodgrains. It was a big challenge to accept the parallel of both sectors. Under this planning period, only 55 crores out of the total expenditure of 1,960 crores (a mere 2.8%) were spent on industry and minerals.

During the planning period, a number of industries were either set up in the public sector or started production. These are Hindustan Shipyard, Hindustan Machine Tools (HMT), Chittranjan Locomotive Factory, Integral Coach Factory, India Telephone Industries, etc. The private sector also set up a number of industries like sugar, automobiles, textiles, sewing machines, etc.

During this planning period, industrial production reached the level of 39% and the annual growth rate of industrial output was nearly 6% but the target was 7%.

Second Five-Year Plan (1956-61)

The second five-year plan totally emphasized the industrialization of the country. It was based on the second industrial policy resolution of 1300 which envisaged a big expansion of the public sector. The second plan aimed at rapid industrialization with particular emphasis on the development of basic and heavy industries (Based on the Mahalanobis Model), such as iron and steel, heavy chemicals, including nitrogenous fertilizers, heavy engineering, and machine building industry. (BCom 1st Year Industrial Development in India Notes Study Material)

In the public sector, three large steel plants were set up Bhilai Steel Plant, Durgapur Steel Plant, and Rourkela Steel Plant with foreign assistance. Likewise, a fertilizer factory at Nangel, Heavy Electrical Goods Industry at Bhopal, and DDT Factory in Kerala was set up.

During this planning period, the Total public sector outlay on the industrial sector was 1,175 crore which was nearly 24% of the total outlay of the plan. The annual growth rate of the industrial sector during this period was 7.25% which was much better than the previous annual growth rate.

Third Five-Year Plan (1961-66)

By the beginning of the third plan (1961-66) the Indian planners felt that the Indian economy had entered the “Take off stage” and that the first two plans had generated an institutional sector needed for rapid economic development. Consequently, the third plan was set as its goal the establishment of a self-reliant and self-generating economy. The third plan accordingly gave top priority to agriculture but it also laid adequate emphasis on the development of basic industries, which was vitally necessary for the rapid economic development of the country. (BCom 1st Year Industrial Development in India Notes Study Material)

The third plan also tried to build the power and transport facilities required for industrial development and also to activate the process of industrial and technological change. Under this planning period, the total public sector outlay on industrial development (including small and village industries) was 1,967 crore which was about 22.9% of the total plan outlay.

Fourth Five-Year Plan (1969-74)

The fourth plan set before itself the two principal objectives of “Growth with stability” and “progressive achievement of self-reliance”. Because India learn a bitter lesson during the Indo-Pakistan war when its so-called allies refused to supply essential equipment and raw materials for its economic development The fourth plan made an investment of 3,630 crores in the industrial development of the country which was nearly 23% of the total public sector plan outlay. (BCom 1st Year Industrial Development in India Notes Study Material)

Out of this investment, about 75% of the total was invested in the core sector which includes coal and iron ore, iron and steel, petroleum and petrochemicals non-ferrous metal, etc. But the experience was not good because the growth rate of industrial production was 5% as against the targeted growth of 9%. p.a.

Fifth Five-Year Plan (1974-79)

The final draft of the fifth plan prepared and launched by D. P. Dhar proposed to achieve the two main objectives, viz., removal of poverty and attainment of self-reliance, through the promotion of a higher rate of growth, better distribution of income, and a very significant set-up in the domestic rate of saving.

The fifth plan was formulated keeping priority on the development of industry and minerals. It allocated a total outlay of 10,200 crores (Revised) for industries and mining 9,600 crores in the public sector and 535 crores for the village and small industries. Thus, about 24.3% of the total plan outlay was allocated to industrial development. Under this plan, a target had a fixed annual growth rate of 8.2% in the industrial sector but at the end of the planning period, the annual growth rate was only 6% which was comparatively low.

Sixth Five-Year Plan (1980-85)

The sixth five-year plan was focused on overall development strategy, particularly with regard to the objectives of higher production, greater employment, and self-reliance. This plan also emphasized the optimum utilization of existing production capacities, improvement of productivity, special attention to the capital goods industry and electronics industry, export of engineering goods and industrial products, and development of the backward regions through the dispersal of Industry. (BCom 1st Year Industrial Development in India Notes Study Material)

During this planning period, a total outlay of 16,948 crores was provided for the industry and mineral head which was 15.5% of the total outlay of the plan. About two-thirds of this outlay was invested in continuing projects and the remaining one-third in new projects. The annual growth rate was targeted at 7% for this plan but the actual growth rate achieved was only 5.5%, which was not a satisfactory indication for industrial development. Seventh Five Year Plan (1985-90). (BCom 1st Year Industrial Development in India Notes Study Material)

The seventh five-year plan was introduced in April 1985, after the country had enjoyed a reasonable rate of economic growth of the order of 5.5 percent during the sixth plan. The seventh plan emphasized policies and programs which would accelerate the growth of industrial productivity, employment, and food grains production. During this planning period, various steps were taken for removing infrastructural constraints, liberalizing industrial licensing policy, and other regulations for making rapid development.

During this plan period, a total outlay of 30,052 crores was allotted for industries and minerals which accounted for nearly 13.5% of the total expenditure of the plan. The average annual growth rate of industrial pro this plan was 8.5% as against the target of 8%, which was a good sign for industrial progress. (BCom 1st Year Industrial Development in India Notes Study Material)

Eighth Five-Year Plan (1992-97)

The eighth five-year plan was approved at the time the country was going through a severe economic crisis caused by a balance of payments crisis, a rising debt burden, ever-widening budget deficits, mounting inflation, and a recession in the industry. The Narasimha Rao Government initiated the process of fiscal reforms as also as economic reform with a view to providing a new dynamism to the country. The eighth plan reflected these changes in its attempt to accelerate economic growth and improve the quality of life of the common man.

Under the eighth plan, total resource allocation was 46,889 crore on industry and minerals which accounted for 10.8% of the total plan outlay. The plan envisaged achieving an annual growth rate of 8% for the industrial sector. However, the average annual growth rate was 7.3% over the planning period. (BCom 1st Year Industrial Development in India Notes Study Material)

Ninth Five-Year Plan (1997-2002)

The focus of the ninth plan was on “Growth with Social Justice and Equality”. It made industrial development more liberal. Various efforts were to be made for the establishment of new industries in the backward regions and much liberalization in licensing for industries.

The ninth plan had allocated 71,684 crores to industry and minerals which were 8% of the total outlay. Against this allocation, the annual growth rate was 8.2% per annum at 1996-97 prices. (BCom 1st Year Industrial Development in India Notes Study Material)

Tenth Five-Year Plan (2002-07)

Under the tenth plan, the development objectives are being defined not just in terms of increased GDP or per capita income but broader in terms of enhancement of human well-being. (BCom 1st Year Industrial Development in India Notes Study Material)

During this plan period Govt. had much focused on the development of the private sector and tried to make policies in areas of the social sector, infrastructural development, power, telecommunication, etc. to achieve development with the private sector. (BCom 1st Year Industrial Development in India Notes Study Material)

This plan had allocated 58,939 crores (at 2001-02 prices) of total plan outlay to industries and minerals which was 3.9% of the total plan outlay. Targeted industrial growth in the tenth plan was kept at 10% per annum. As against this, the actual growth rate had achieved only 8.2%

Eleventh Five-Year Plan (2007-12)

Under the eleventh plan, the industry growth is targeted to be stepped up to 10-11% and service sector growth to 9-11%. The eleventh plan aims at double-digit growth both in manufacturing and industry. For this, it was emphasized to improve the performance of the core sector (steel, coal, cement, oil, fertilizer, and refined petroleum) for sustainable growth. The total capital outlay in the eleventh plan was 1,53,600 crore for industry and minerals which was 4.2% of the total capital outlay. The actual realization was 5% at current prices.

The eleventh plan was a very ambitious plan. It had the initiative to provide over 30% of resources to improve the quality of social services, strengthen infrastructure to boost industrial production, and make Indian industry competitive to enable them to face competition from foreign enterprises and to achieve double-digit growth with a higher rate of growth in industrial development.

ROLE OF INDUSTRIES IN THE ECONOMIC DEVELOPMENT OF INDIA

In the favor of industrialization our first Prime Minister, Jawaharlal Nehru said that “The God which all countries worship is the God of industrialization, the God of the machine, the God of high production and utilization of natural power and resources for greater advantage.” Industrial development plays a significant role in the economic progress of a country because it facilitates goods and services and employment generation towards a balanced growth rate. (BCom 1st Year Industrial Development in India Notes Study Material)

Following are some steps that were taken by industries for boosting economic growth:

(i) Utilisation of Natural Resources: Our country India has much availability of economic resources. The development of industries makes possible the utilization of these resources to the fullest possible extent. Without industrial development, natural resources remain unutilized or underutilized. (BCom 1st Year Industrial Development in India Notes Study Material)

(ii) Increase in Productivity: Industrial development helps in increasing the production of agriculture, trade, transport, communication, services, and other sectors. When the rate of industrialization increases, economies of scale and inter-industrial linkage also increase, which accelerates the rate of production. Thus, per capita income, employment opportunities, and overall growth rate also increase. (BCom 1st Year Industrial Development in India Notes Study Material)

(iii) Increased Capital Formation: The capital formation of a country depends upon saving and investment. When a country enjoying with industrial development, it increases per capita income and an opportunity and facility for investment which leads to an enhancement in the rate of capital formation in the country. (BCom 1st Year Industrial Development in India Notes Study Material)

(iv) Increase in Employment: Industrialisation facilitates the establishment of several new industries, which create more job opportunities for skilled and unskilled people. Many people can get employment in industry as well as other allied activities like trade, communication, transport, small and cottage industries, etc. Thus, industrialization reduces the problems of unemployment in the country.

(v) Better Standard of Living: Industrial development is a path of economic development because it increases per capita income, as well as employment. It helps people in improving their standard of living and to lead a better and more comfortable life. (BCom 1st Year Industrial Development in India Notes Study Material)

(vi) Increase in National Income: Industrial sector contributes a major part of national income. Gradually the percentage contribution of industries to the national income has been rising. In the first planning period, industries contributed 16% to the national income. But, currently, the share of the industrial sector in national income has gone, up to 25.9 percent.

(vii) Export Promotion: Developed industries and trade ensures about availability of quality products at the lowest cost. They attract foreign customers from different countries and supply their products. Thus our foreign trade will be improved. (BCom 1st Year Industrial Development in India Notes Study Material)

(viii) Economic Stability: Industrial development leads stability to in the economy of a country. Industrialization of the economy helps the nation in attaining self-reliance. It reduces agricultural dependency and provides a sound industrial base for a stable economy.

PHASES OF INDUSTRIAL GROWTH AND INDUSTRIAL POLICY

Industrial Policy in India During the Pre-1991 Period

After independence, in the pre-1991 period, India also adopted a policy of ion industrialization for achieving mainly the following objectives by addressing the problem of market failure:

(a) To achieve a socialistic pattern of society by expanding the public sector.

(b) To prevent undue concentration of economic power.

(c) To achieve rapid industrial development through promoting heavy and capital goods industry.

(d) To protect and develop a healthy small-scale sector.

(e) To reduce regional imbalances.

(f) To create gainful employment opportunities.

(g) To build up the cooperative sector.

(h) To modernize industry by upgrading technology.

(i) To alleviate poverty.

(j) To achieve self-sustained growth.

To make forward with the process of industrialization systematically, the country announced its first industrial policy in 1948. The policy statement envisioned the Indian economic sector as a mixed system with a significant role for the Government along with the private sector.

The subsequent Industrial Policy 1973, addressed preventing excessive concentration of power with large business houses and emphasized that the preference be given to small and medium enterprises in enhancing capacity, especially in the industries producing mass consumption goods. The Industrial Policy Statement, 1977, along with assigning a greater role to the cottage, tiny, small, and medium enterprises, stressed the need for close integration between industrial and agricultural sectors.

Unlike the previous statements, the industrial policy statement, of 1980, emphasized improvement in the level of competition in the domestic markets, technological advancement, and modernization of industries for enhancing capacity, productivity, and quality of goods.

Mainly, three instruments were used during this period to achieve the various objectives of industrial policy as follows:

Industrial Licensing

Licensing was one of the core instruments of industrial policy in India. As per the Industries Development and Regulatory Act of 1951, even very small size investors needed to obtain a license before establishing an industrial plant. A license was required not only for starting a unit but also for adding a new product line, changing the output level above the permitted level, and also changing the location of a plant. Such tight control over the establishments has been cited as a reason for inefficiencies and rigidities in the industrial sector and its poor performance in the past. (BCom 1st Year Industrial Development in India Notes Study Material)

Reservation Policy

Another instrument was a reservation policy to develop for the labor-intensive small-scale sector. The objective was to enhance the level of employment in the country. The number of products reserved for this sector contained to grow over a period of time. Gradually, the reservation was expanded to all the unskilled labor-intensive units and reached above 800. As an outcome of such protectionist policies, the country lost the advantage that it could have reaped and it allowed large players to expand their capacity.

Import Licensing

This trade policy was also formulated to achieve the objectives of industrial policy. In concurrence with the objective of expanding the manufacturing base, the trade policy restricted trade flows by imposing large tariffs and non-tariff barriers.

The protectionist industrial policies helped the country in bringing the structural transformation of the industrial sector.

During this period, the share of the registered sector in the total manufacturing sector also witnessed an improvement.

The pre-reform period also witnessed a substantial increase in the number of small-scale units, because the government actively supported the setting of such units by providing various tax and non-tax incentives and huge subsidies. These units being labor intensive created huge employment opportunities in the country.

During the period 1951-66, the structure changed in favor of intermediate products, such as chemicals, petroleum, and machinery. Along with the improvement in the share of intermediate and capital goods, the country witnessed a decline in the share of the consumer goods sector. (BCom 1st Year Industrial Development in India Notes Study Material)

In spite of the success of bringing about a diversified structure, the overall growth of the manufacturing sector remained low. The share of the manufacturing sector in India’s GDP increased from 9 percent in 1950-51 to 15 percent in 1979-80, but it remained stagnant thereafter at this level. The main reason for the stagnation is that more competition is required to force the existing units to improve the quality of their products. (BCom 1st Year Industrial Development in India Notes Study Material)

Industrial Policy in the Post-1991 Period

A highly complex and tightly controlled industrial regime came in the post-1991 period with a complete change in policy thinking and orientation. The industrial policy in the post-1991 period has the following objectives:

(a) To achieve sustained growth in productivity.

(b) To achieve optimum utilization of human resources and enhance the employment level.

(c) To attain international competitiveness and transform m major partner and player in the global arena.

(d) To improve the profitability of the public sector units.

(e) To abolish the monopoly of any sector in any industry except on strategic and security grounds.

To achieve the various objectives in the post-1991 period the country adopted the strategy of liberalization, privatization, and globalization.

Liberalization: Industrial liberalization has been achieved by delicensing, dereservation, and other measures. Under the liberalization policy Govt. of India abolished licensing requirements for setting up industrial units in locations other than cities with more than one million population. In cities with a population of more than one million, polluting industries are allowed only outside the 25 km periphery. But industries of non-polluting nature, such as electronics, computers, software, and printing are permitted even in such cities.

Privatization: Through privatization Govt. of India opened a large number of sectors for the private sector that was reserved for the public sector only. It opened a broad spectrum for the participation of private sectors in various areas.

Globalization: This globalization policy, post-1991, linked our industries with the world’s industries through the approval of FDI in various sectors and reducing the peak customs duty on manufactured products. Most of the areas are now opened up for foreign capital flows.

In spite of various liberalization, privatization, and globalization measures, the performance of the manufacturing sector, especially is not good. The share of industry in the total GDP and even that of the manufacturing sector in the GDP has remained almost stagnant. However, the share of the industrial sector in total employment has improved. (BCom 1st Year Industrial Development in India Notes Study Material)

PROBLEMS OF INDUSTRIAL DEVELOPMENT IN INDIA

Indian Industries have faced various constraints or obstacles in the process of industrialization during the pre and post-reform era. These constraints are given below:

(i) Constraints on Land Acquisition: Indian Industrial sector has faced land acquisition problems, because land laws fall primarily in the domain of the State Governments, with a very limited role for the Central Government. Given the considerable influence of large landlords in state politics, land reform is politically difficult to introduce in India. Apart from landlords, there are other political pressures from different constituencies that prevent the acquisition of land by the State Governments and leasing of the same to industrial units.

Tata Nano Project in West Bengal was evident from the prolonged protest from farmers on the issue of land lease granted by the West Bengal Government to Tata Motors for manufacturing of their budget car Nano.

(i) Financial Constraints: Second big issue was the financial crisis. Through financial sector reform, our Govt. tried to pump more financial facilities into industries by improving the operational flexibility of banks. CRR and SLR were reduced from time to time by Govt. of India but the SLR requirements are still quite high. So, it reduces the availability of credit to the private sector and imposes credit constraints on them. At present, the interest rate is high and the cost of borrowing for private sector firms remains substantially higher.

(iii) Under-utilisation of Capacity: In India, a large number of industries suffer from the problem of under-utilization of production capacity. The causes of failure of this are shortage of raw materials, frequent power failures, labor disputes, Government policies, lack of demand, etc. (BCom 1st Year Industrial Development in India Notes Study Material)

(iv) Lack of Infrastructure: Our country is still facing a lack of infrastructural facilities like improper transportation and communication facility, lack of Industrial zones, water and power crises, etc. In the absence of infrastructure facilities in many parts of the country, the industrial development potentialities in those areas could not be tapped.

(v) Lack of Skilled Labour: India is a labor-abundant country. But, in the absence of enough quality education facilities, most of the labor remains uneducated or unskilled, constraining their employability in the manufacturing sector. (BCom 1st Year Industrial Development in India Notes Study Material)

In the modern age of mechanization and automation, the manufacturing sector requires skilled labor. Thus, less availability of skilled labor is responsible for this slow rate of industrial development in the country.

(vi) Poor Capital Formation: It is another big constraint in the way of industrial development of the country. In India, the rate of saving is low in comparison with other countries because our per capita income is very low.

(vii) Regional Imbalances: Regional imbalance is a big challenge in front of industrial development in India. Industrial development has been concentrated in a few states like Maharashtra, Gujarat, Tamil Nadu, West Bengal, Delhi, etc. while the other states lag far behind. Thus, a huge investment in the public sector should be made in backward States like Bihar, Orissa, Madhya Pradesh, Jharkhand, Chhattisgarh, etc.

(viii) Industrial Sickness: In India mainly in the public sector, several units have been declared sick. This growing sickness of industrial units introduced problems for industrial development.

(ix) Concentration of Wealth: The industrialization pattern has made two classes i.e. upper class and lower class in society. It leads to the concentration of wealth, in the pocket of a few corporate houses only. The business houses are multiplying their personal assets fastly in spite of the acceleration of industrial growth. (BCom 1st Year Industrial Development in India Notes Study Material)

(x) Industrial Disputes: Indian Industries are regularly facing industrial disputes like lockouts, strikes, worker-management unrest, etc. It resulted in a fall in production and lower profit. It can also lead to an unemployment problem.

(xi) High Level of Corruption: High level of corruption has been found to be a major obstacle in trickling down the impact of various policies at the targeted level. In 2012, Transparency International (TI) placed India on 94th rank out of 176 countries. This ranking of India resists foreign investors to invest their money.

SUGGESTIONS TO REMOVE INDUSTRIAL BACKWARDNESS

To remove industrial backwardness some steps should be taken. These steps are as follows:

(1) To provide better infrastructural facilities.

(2) To develop competent and highly motivated entrepreneurs.

(3) To encourage capital formation in the country.

(4) To provide better research and development facilities (R & D).

(5) To the development of human capital formation or skill formation.

(6) To improve upon the degree of capacity utilization through providing proper infrastructural inputs like power, energy, and transport and reducing the degree of industrial disputes. (BCom 1st Year Industrial Development in India Notes Study Material)

(7) To increase the efficiency of public sector undertakings by eliminating red-tapism, producing quality products, and better administrative capabilities.

(8) To the development of export-based industries on a priority basis.

(9) To provide adequate credit or borrowing facilities from financial institutions or commercial banks.

(10) To facilitate enough quality education and emphasis on the human capital formation of the country.

(11) Industrial units are mandated to upgrade the working conditions in the establishment and provide technologically upgraded facilities.

BCom 1st Year Industrial Development in India Notes Study Material

BCom 1st Year Industrial Development in India Notes Study Material

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