INDUSTRIALIZATION AND ECONOMIC DEVELOPMENT
INDIAN INDUSTRIAL STRUCTURE
2. The relative backwardness of industiral development in India may be judged from the fact that in 1948-49 factory establishments accounted for only 6.6 percent of total national income. The total labour force engaged in such establishments is about 2.4 million or 1.8 percent of the working population in the country. While in the aggregate India's industrial output may look massive, per head of population it is very much lower than the industrial output in advanced countries.
3. Prior to the first world war the only major industries which had developed substantiaflly were cotton' and jute textiles, for which the country had exceptional natural advantages. The industrial development since the twenties is associated with the adoption of a more progressive industrial and fiscal policy. Between 1922, when the policy of discriminating 420
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protection was adopted, and 1939 the production of cotton piece goods in the country increased 2 1/2 times, the production of steel ingots rose 8 times, that of paper went Up 2 1/2 times and in the case of sugar, within a period of 4 years from 1932 to 1936, the country was able to produce its entire requirements. The growth of the cement industry, which by 1935-36 produced about 95 percent of the total consumption in the country at the time, belongs to this period. The production of matches, glass, vanaspati, soap and several engineering industries also recorded large increases. Towards the close of the inter-war period, the manufacture of electrical equipment and goods was also initiated.
4. The second world war created conditions for the maximum utilization of existing capacity in Indian industries. This was the major factor responsible for the increases in industrial production recorded. Conditions were, however, not favorable for the setting up of large scale equipment and plant for new industries. Several industries such as ferroalloys, non-ferrous metals like aluminium and antimony, diesel engines, pumps, bicycles and sewing machines, chemicals like soda ash, caustic soda, chlorine and superphosphate, and certain types of machine tools and simple machinery were started on a modest scale during this period, but the major impetus of the war was felt in the sector of
medium and small-scale industries, such as light engineering, pharmaceuticals, medicines and drugs, cutlery, etc. In the immediate post-war years, there was considerable new investment activity leading to the establishment of industries like rayon, automobiles , ball and roller bearings, carding engines, ring frames and locomotives. Several new units were started and existing units expanded in industries like fertilizers, cement, sheet glass, and the manufacture of cautstic soda and sulphuric acid. Industrial development during the war and the post-war period was influenced largely by the prevailing inflationary conditions and scarcities, with the result that long term factors such as the most advantageous location or scale of operation, the availability of raw materials, the size of the market and the adequacy of the financial and technical Or
ganisation for successful operation under competitive conditions did not receive the attention they deserved. In the established industries the need during the war period to work multiple shift and the difficulties in the way of securing imports for depreciation and replacement led to a large accumulation of arrears which it will take the country several years to make good.
5. The major emphasis in industrial development in India has been on consumer goods industries, while the development of basic capital goods industries has lagged behind. The output of consumer goods industries such as cotton textiles, sugar, soap, matches and salt may be said to be on the whole sufficient to meet the existing low level of demand in the country in the present stage of economic development. In the case of capital goods industries and industries manufacturing intermediate products, the available capacity in the country is in most cases inadequate even for present requirements. The production of iron and steel in the country is hardly 50 per cent. of the existing volume of demand, and it is evident that in planning the development of a basic industry like iron and steel, account has to be taken no only of immediate requirements but also of the needs of the country over a fairly long period. A high rate of industrial advance cannot be achieved without increasing substantially the
THE FIRST FIVE YEAR PLAN
production of iron and steel and of aluminium, ferro-alloys, caustic
soda and soda ash, fertilizers and petroleum products, for all of which demand at present is much in excess of domestic supply. In respect of the manufacture of plant and machinery required by various industries, only a small beginning has so far been made with the textile machinery industry. The large developments in power generation now under way have to depend on generating equipment from abroad. In the manufacture of synthetic drugs and antibiotics and of dyestuffs and organic chemicals, only small beginnings have been made. The objective of industrial planning is to make good these deficiencies and lacunae as much as possible and to initiate development which will become the basis for the cumutlative expansion of this sector.
NATIONAL PLANNING AND THE PRIV
ATE SECTOR
6. The Commission's approach to the problem of development and the respective roles of the public and the private sectors in securing such development have been set forth in an earlier chapter. The essentials of government policy in the sphere of industrial development have been stated in the Industrial Policy Resolution of April 1948. The Resolution lists certain industries like the manufacture of arms and ammunition, the production and control of atomic energy and the ownership and management of railway transport as being reserved exclusively for the Central Government. In the cases of certain other industries also such as coal, iron and steel, aircraft manufacture, ship-building, manufacture of telephone, telegraph wireless apparatus and mineral oils, the State, including the Central and State Governments and other public authorities, will be responsible for further development except to the extent that it regards the co-operation of private enterprise necessary for the purpose. The rest of the industrial field is to be open to private enterprise, individual as well as cooperative, but the State will intervene whenever the progress of any industry under private enterprise is found to be unsatisfactory. Central regulation and control is envisaged for 18 specified industries of special importance from the points of view of the investment and technical skill involved. We believe that within the framework of this policy, it is possible to have a programme of industrial development which meets the country's present needs.
7. The distinction between the public and the private sector relates to the mode of operation rather than to the ultimate objective. Private enterprise operating in terms of legitimate profit expectations and the efficient use of available resources has an important part to play in developing the economy. The scope and need for development are so great that it is best for the public sector to develop those industries in which private enterprise is unable or unwilling to put up the resources required and run the risks involved, leaving the rest of the field free for private enterprise. In this matter of investment of the limited resources available to the public sector, there should be complete coordination between the plans of the State Governments and of the Central Government. The nationalisation of the existing enterprises, which means acquisition by Government of the existing productive assets has, in our view, only a low priority, especially as most of the purposes of such a transfer of ownership can be served by judicious regulation. In a planned economy, the justification of private enterprise is that,
INDUSTRIAL DEVELOPMENT AND POLICY
within the frame work of national policy it is capable of contributing to the fulfilment of the objectives defined in the plan. This means inevitably that it has to accept new obligations towards the worker, the investor and the consumer and has to maintain a high standard of integrity and efficiency. The large volume of resources needed for all-round development of the economy can, in our judgement, be secured only if the public and the private sectors co-operate closely. Such co-operation is also necessary from the point of view of utilising to the best advantage the limited resources of initiative, technical skill and business experience available in the country.
8. Mention was made in the Draft Outline Report of the Industries (Development and Control) Bill, 1949 which was then under Government's consideration. The Industries (Development and Regulation) Act 195i incorporates some of the suggestions made by the Commission in the Draft Outline Report. The principal object of this Act is to enable the Government to implement its policy for the development and regulation of industries along the lines stated above. The Act is to apply to 37 industries listed in the first schedule. These include : (a) consumer goods industries like cotton and woollen textiles, vanaspati and vegetable oils, sugar and salt, pharmaceuticals and drugs, etc.; (b) capital goods and producer goods industries like iron and steel, locomotives and rolling stock, non- ferrous metals and alloys, heavy machinery for industry including ball and roller bearings, gear wheels, etc., and machine tools ; (c) industries producing fuel such as coal, power and industrial alcohol, motor and aviation fuel, and other oils ; (d) industries producing machinery and equipment for the generation, transmission and distribution of electric energy, electric motors, batteries and electrical goods ; (e) heavy chemicals including fertilizers; (f) automobiles including tractors, aircraft, ship-building and telephones, telegraph and wireless communication apparatus ; and (g) various others, such as arms and ammunition, agricultural implements, mathematical and scientific instruments, small and hand tools, sewing and knitting machines, bicycles, hurricane lanterns, glass and ceramics. The important provisions of the Act are-
(i) All the existing industrial undertakings in the scheduled industries have to be registered with the Government within a prescribed period ;
(ii) No new industrial unit can be established or substantial extensions to existing plants made without a licence from the Central Government ;
(iii) The Government can order an investigation in respect of any scheduled industry or undertaking if, in its opinion, there has been or is likely to be an unjustifiable fall in the volume of production in the industry or undertaking or if there is a marked deterioration in quality or an increase in price for which there is no justification ; a similar investigation can also be ordered in respect of ally industrial undertaking being managed in a manner likely to cause serious injury or damage to consumers ;
(iv) in the event of an industry or undertaking not carrying out the directions issued after such an investigation, the Government can take over its management
THE FIRST FIVE YEAR PLAN
9. For the purpose of advising the Government on matters concerning the development and regulation of the scheduled industries, the Act provides for the setting up of a Central Advisory Council representing owners, employees, consumers and certain other classes including primary producers. This Council must be consulted in regard to the making of rules under the Act and the exercise by the Central Government of powers relating to the issue of directions to industrial undertakings or the taking over of the same as provided for under the Act. Such a Council has already been set up.
10. The major instrument envisaged under the Act for establishing the necessary liaison between the public and private sectors and for ensuring that private industry conforms more and more to the planned pattern of development is the institution of Development Councils. The question of the development and regulation of industries is not one merely of how the Government should exercise certain powers, but of the kind of machinery which can work from within each industry and help bring about a steady improvement in the standards of productivity, quality of service and management. Such a machinery should provide those interested in the industry, that is, the employers, the employees and the public at large, a continuous opportunity to make a detailed study of the problems of the industry including its various constituent units, and to implement a programme of development in conformity with the needs of the industry and the overall pattern laid down in the Plan. The Industries (Development and Regulation) Act empowers the Central Government to establish Development Councils in scheduled industries. The functions which may be assigned to these Development Councils have been listed in the second schedule of the Act. The more important of these are :
(1) to recommend targets for production, to co- ordinate production programmes and to review progress from time to time,
(2) to suggest norms of efficiency with a view to eliminating waste, obtaining maximum production, improving quality and reducing costs ,
(3) to recommend measures for securing fuller utilisation of installed capacity and for improving the working of the industry particularly of the less efficient units ,
(4) to assist in the distribution of controlled materials and to promote arrangements for obtaining materials for the country,
(5) to promote or undertake scientific and industrial research and the collection and formulation of statistics,
(6) to investigate possibilities of decentralising stages and processes of production with a view to encouraging the growth of allied small-scale and cottage industries ,
(7) to promote the training of persons engaged or proposing engagement in the industry in technical subjects and the retraining in alternative occupations of persons engaged in or retrenched from the industry, and
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(8) to undertake enquiries for the purpose of tendering advice to the Government on matters referred to the Development Council.
These Development Councils will need adequate administrative and technical staff which will be provided by the Government. This procedure will not only enable the Development Councils to function efficiently but will also assist the Government in building up a cadre of trained officials conversant with the economic and administrative problems of various industries and capable, if need arose, of undertaking managerial responsibilities. For meeting the expenditure involved, the Act provides for the levy of a cess on goods manufactured in any scheduled industry, the maximum rate of such a levy being annas two per cent. of the value of the goods. The proceeds of this cess would be utilised to meet, besides the administrative expenses of the Development Council, expenditure for the promotion of scientific and industrial research pertaining to the industry, for improvements in the design and quality of the products of the industry and for providing facilities for the training of technicians and labour in the industry concerned. Development Councils along these lines are to be set up immediately for seven industries, namely, heavy chemicals (acid) and fertilizers, heavy chemicals (alkali), paper including newsprint and paper board, leather and leather goods, bicycles and parts thereof, glass and ceramics, and internal combustion engines and power driven pumps. The question of setting up a Development Council for the textile industry is under Government's consideration. The establishment of Development Councils for other industries will have to be planned in the light of the experience, gained with the Councils now being set up.
INDUSTRIAL PRIORITIES IN THE PLAN
11. In defining the priorities for industrial development within the period of the Plan, it is necessary to take into account the immediate objectives in view, the resources available and the broad framework of policy in regard to the operation of the public and private sectors outlined above. In view of the fact that an increase in agricultural production has been accorded the highest priority in the Plan, the resources available in the public sector for the expansion of industries are necessarily limited. The Plan provides for completion of the various industrial projects already under implementation by the Central Government or by the State Governments. In addition, the Central Government has a special responsibility for establishing certain defence industries so as to safeguard and develop the defence potential of the country. Defence industries such as arms and ammunition and explosives, military aircraft and control instruments are in a class by themselves and although they have inevitably a high priority, no more than a modest provision can be made for them at the present stage.
Source:-http://www.education.nic.in/cd50years/15/8P/82/8P820V01.htm
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