BCom Industrial Development in India Notes Study Material
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BCom 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, modernisation and self reliance.” —Planning Commission
India adopted heavy industrialization as the development strategy after independence. Inspite of considerable emphasis on developing its industrial base, in general, and manufacturing sector, the industrial sector in India still accounts for just around 26 percent of GDP and 15 percent of employment During 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
Before British rule in India, India was industrially sound (advanced) as compared to West European countries. But during British rule, the industrial base mainly cotton industry was systematically destroyed by the Britishers. When, England was in the phase of Industrial revolution, Indian traditional industries were continuously facing 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 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 our 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 industries conference in December 1947 to consider ways and means to utilise the existing capacity more efficiently with the purpose to accelerating industrial growth. The Govt. of India granted tax concession to industry in 1948-49 and passed a bill to establish Industrial Finance Corporation of India. In 1948 the Industrial policy resolution was passed. These steps had a considerable and favourable impact on the industrial development of India since independence.(BCom Industrial Development in India Notes Study Material)
INDUSTRIAL DEVELOPMENT UNDER THE PLANNING PERIOD
After independence the Government of India became free to make policy for desired industrial development. Since beginning of the eco planning in 1951 to current era, various steps have been taken by Govt. of India for industrial development. We can study about those steps in systematic manner as below:
First Five Year Plan (1951-56)
During first five year plan, the govt. of India was much emphasised on the development of agricultural sector, because that time our country has faced shortage of foodgrains. It was a big challenge to accept parallely of both sectors. Under this planning period only 55 crore out of the total expenditure of 1,960 crore (a mare 2.8%) was 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 the industrial production has reached at level of 39% and the annual growth rate of industrial output was nearly 6% but target was 7%.
Second Five Year Plan (1956-61)
The second five year plan was totally emphasized on the industrialisation 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 industrialisation with particular emphasis on the development of basic and heavy industries (Based on Mahalnobis Model), such as iron and steel, heavy chemicals, including nitrogeonus fertilisers, heavy engineering, and mahine building industry. In the public sector three large steel plants were set-up as Bhilai Steel Plant, Durgapur Steel Plant and Rourkela Steel Plant by foreign assistance. Likewise, a fertilizer factory at Nangel, Heavy Electrical Goods Industry at Bhopal and DDT Factory in Kerala were set-up.
During this planning period, 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 industrial sector during this period was 7.25% which was much better than 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 economical 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 rapid economic development of the country.(BCom 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 lession during Indo-Pakistan war when its so-called allies refused supply essential equipment and raw materials for its economic development The fourth plan made an investment of 3,630 crore an industrial development of the country which was nearly 23% of the total public sector plan outlay. Out of this investment, near 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 promotion of 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 in priority to the development of industry and minerals. It allocated a total outlay of 10,200 crores (Revised) for industries and mining as 9,600 crore in the public sector and 535 crore for village and small industries. Thus, about 24.3% of the total plan outlay was allocated on industrial development. Under this plan a target had fixed for annual growth rate of 8.2% in the industrial sector but at the end of 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 emphasised on the optimum utilisation of existing production capacities, improvement of productivity, special attention on capital goods industry and electronics industry, export of engineering goods and industrial products and development of backward region through dispersal of Industry.(BCom Industrial Development in India Notes Study Material)
During this planning period, the total outlay of 16,948 crore was provided for the industry and mineral head which was 15.5% of the total outlay of the plan. Near about two-third of this outlay was invested on the continuing projects and remaining one-third on the new projects. The annual growth rate was targeted 7% for this plan but the actual growth rate achieved was only 5.5%, which was not satisfactory indication for industrial development. Seventh Five Year Plan (1985-90)
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 sixth plan. The seventh plan was emphasised on policies and programmes 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, liberalisation of industrial licensing policy and other regulation for making rapid development.
During this plan period, total outlay of 30,052 crore 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 good sign for industrial progress.
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 raising debt burden, ever-widening budget deficits, mounting inflation and recession in industry. The Narasimha Rao Government initiated the process of fiscal reforms as also of economic reform with a view to provide 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 had envisaged to achieve annual growth rate of 8% for the industrial sector. However, the average annual growth rate was 7.3% over the planning period.
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 crore on industry and minerals which was 8% of the total outlay. Against this allocation the annual growth rate was 8.2% per annum at 1996-97 prices.
Tenth Five Year Plan (2002-07)
Under tenth plan the development objectives are being defined not just in term of increases GDP or per capita income but more broader in terms of enhancement of human well being.
During this plan period Govt. had much focused on the development of private sector and tried to make policies in areas of social sector, infrastructural development, power, telecommunication etc. to achieve development with private sector.(BCom Industrial Development in India Notes Study Material)
This plan had allocated 58,939 crore (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 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 eleventh plan was 1,53,600 crore for industry and minerals which was 4.2% of total capital outlay. The actual realization was 5% at current prices.
The eleventh plan was a very ambitions plan. It had initiative in providing over 30% resources to improve the quality of social services, strengthening infrastructure to boost industrial production, and making Indian industry competitive to enable them to face competition from the foreign enterprises and to achieve double digit growth with higher rate of growth in industrial development.
ROLE OF INDUSTRIES IN ECONOMIC DEVELOPMENT OF INDIA
In the favour of industrialisation our first Prime Minister, Jawaharlal Nehru was said that “The God which all countries worship is the God of industrialisation, the God of machine, the God of high production and utilisation of natural power and resources for greater advantage.” Industrial development plays a significant role in the economic progress of a country because it facilitate goods and services and employment generation towards a balanced growth rate.
Following are the some steps which was taken by industries for boosting the economic growth:
(i) Utilisation of Natural Resources: Our country India has much availability of economic resources. The development of industries makes possible the utilisation of these resources to the fullest possible extent. Without industrial development the natural resources remain unutilised or under utilised.
(ii) Increase in Productivity: Industrial development helps in increasing production of agriculture, trade, transport, communication, services and other sectors. When the rate of industrialisation increases, economies of scale and inter industrial linkage also increase, which accelerate the rate of production. Thus, per capita income, employment opportunities and overall growth rate also increases.
(iii) Increased Capital Formation: 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 of investment which leads to enhancement in the rate of capital formation in country.
(iv) Increase in Employment: Industrialisation facilitates to establishment of several new industries, which create more job opportunities for skilled or unskilled people both. Many people can get employment in industry as well as other allied activities like trade, communication, transport, small and cottage industries etc. Thus, industrialisation 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 in employment. It helps the people in improving their standard of living and to lead a better and comfortable life.
(vi) Increase in National Income: Industrial sector contributes a major part in national income. Gradually the percentage contribution of industries in the national income has been rising. In the first planning period, industries contributed 16% to the national income. But, currently the share of 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 lowest cost. They attract foreign customers of different countries and supply their product. Thus our foreign trade will be improved.(BCom Industrial Development in India Notes Study Material)
(viii) Economic Stability: Industrial development leads stability to the economy of a country. Industrialisation of the economy helps the nation in attaining self-reliance. It reduces agricultural dependency and provides a sound industrial base for 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 policy of ion industrialization for achieving mainly the following objectives by address problem of market failure:
(a) To achieve socialistic pattern of the 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 healthy small scale sector.
(e) To reduce regional imbalances.
(f) To create gainful employment opportunities.
(g) To build up co-operative sector.
(h) To modernize industry by upgrading technology.
(i) To alleviate poverty.
(j) To achieve self-sustained growth.
To make forward the process of industrialisation systematically, the country announced its first industrial policy in 1948. The policy statement envisoned the Indian economic sector as the mixed system with significant role to the Government along with the private sector. The subsequent Industrial Policy 1973, addressed to prevent excessive concentration of power with large business houses, emphasised that the preference to 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, 1980, emphasised 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 a 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 a 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.
Reservation Policy
Another instrument was reservation policy as to develop for the labour 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 expended to all the unskilled labour intensive units and reached to 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 manufacturing base, the trade policy restricted trade flows by imposing large tariff 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 was 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 labour intensive created huge employment opportunities in the country.(BCom Industrial Development in India Notes Study Material)
During the period 1951-66, the structure changed in favour 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 consumer goods sector.
Inspite of success in bringing about diversified structure, the overall growth of the manufacturing sector remained low. The share of 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.
Industrial Policy in the Post-1991 Period
A highly complex and tightly controlled industrial regime came in post-1991 period with the complete change in the policy thinking and orientation. The industrial policy in the post-1991 period has following objectives:
(a) To achieve sustained growth in productivity.
(b) To achieve optimum utilisation 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 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 liberalisation, privatisation and globalisation.
Liberalisation: Industrial liberalisation has been achieved by delicensing, dereservation and other measures. Under liberalisation policy Govt. of India abolished licensing requirements for setting up industrial units in locations other than the cities of more than one million population. In the cities with a population of more than one million, polluting industries are allowed only outside 25 km periphery. But industries of non-polluting nature, such as electronics, computer, software and printing are permitted even in such cities.
Privalisation: Through privatisation Govt. of India opened a large number of sectors for the private sector those were reserved for the public sector only. It opened a broad spectrum for participation of private sectors in various areas.
Globalisation: This globalisation policy, in the post-1991, linked our industries with world’s industries through approval of FDI in various sectors and reducing the peak custom duty on the manufactured product. Most of the areas are now opened up for foreign capital flows.
Inspite of various liberalisation, privatisation, globalisation measures, the performance of the manufacturing sector, specially is not good. The share of industry in the total GDP and even that of manufacturing sector in the GDP has remained almost stagnant. However, the share of the industrial sector in the total employment has improved.
PROBLEMS OF INDUSTRIAL DEVELOPMENT IN INDIA
Indian Industries has faced various constraints or obstacles in the process of industrialisation during pre and post reform era. These constraints are given as below:
(i) Constraints on Land Acquisition: Indian Industrial sector has faced land acquisition problem, because land laws fall primarily in the domain of the State Governments, with very limited role for the Central Government. Given the considerable influence of large landlords in the state politics, land reform are politically difficult to introduce in India. Apart from landlords there are other political pressures from different constituencies that prevent 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 financial crisis. Through financial sector reform our Govt. tried to pump more financial facility to industries by improving the operational flexibility to banks. CRR and SLR were reduced time to time by Govt. of India but the SLR requirements is 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 the private sector firms remains substantially higher.
(iii) Under-utilisation of Capacity: In India, a large number of industries suffer from the problem of under-utilisation of production capacity. The causes of failure of this are shortage of raw materials, frequent power failures, labour disputes, Government policies, lack of demand etc.
(iv) Lack of Infrastructure: Our country is still facing lack of infrastructural facility like improper transportation and communication facility, lack of Industrial zones, water and power crisis etc. In the absence of infrastructure facilities in many parts of the country, the industrial development potentialities in those areas could not be tapped.(BCom Industrial Development in India Notes Study Material)
(v) Lack of Skilled Labour: India is a labour abundant country. But, in the absence of enough quality education facilities most of the labour remains uneducated or unskilled, constraining their employability in manufacturing sector.
In the modern age of mechanisation and automation, the manufacturing sector requires skilled labour. Thus, less availability of skilled labour is responsible for this slow rate of industrial development in the country.
(vi) Poor Capital Formation: It is a 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 infront 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 public sector should be made in backward States like Bihar, Orissa, Madhya Pradesh, Jharkhand, Chhattisgarh etc.(BCom Industrial Development in India Notes Study Material)
(viii) Industrial Sickness: In India mainly public sector, several units have been declared sick. This growing sickness of industrial units introduced problem for industrial development.
(ix) Concentration of Wealth: Industrialisation pattern has made two classes i.e. upper class and lower class in society. It leads to concentration of wealth, in the pocket of few corporate houses only. The business houses are multiplying their personal assets fastly inspite of acceleration industrial growth.
(x) Industrial Disputes: Indian Industries are regularly facing industrial disputes like, lockouts, strike, worker-management unrest etc. It resulted fall in production and lower profit. It can also lead to 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 facility.
(2) To develop competent and highly motivated entrepreneurs.
(3) To encourage capital formation in country.
(4) To provide better research and development facilities (R & D).
(5) To development of human capital formation or skill formation.
(6) To improve upon the degree of capacity utilisation through providing proper infrastructural inputs like power, energy, transport and reducing the degree of industrial disputes.
(7) To increase the efficiency of public sector undertakings through eliminate red-tapism, producing quality product and better administrative capabilities.
(8) To development of export based industries on priority basis.
(9) To provide adequate credit or borrowing facilities from financial institutions or by commercial banks.
(10) To facilitate enough quality education and emphasis on human capital formation of the country.
(11) Industrial units are mandate to upgrade the working conditions in the establishment and provide technologically upgraded facilities.
Development of Industries in India Notes Study Material
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