CHAPTER 2
INDIAN ECONOMY 1950-90
(PART - 5)
INDUSTRIAL FEATURES, PROBLEMS AND POLICIES
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IMPORTANCE OF INDUSTRIES
1. Epicenter of Growth – As GDP rises there is a structural
transformation in the economy. Industries, with a variety of goods, started
replacing agriculture as the engine of growth. Rise in demand for agricultural
goods consequent upon a rise in income.
2. Source of Employment – With a rise in agricultural
productivity, farming sector has released a large supply of labour force. It
can be gainfully absorbed by industrial sector.
3. Source of Mechanized Means of Farming – Use of machine like tractors,
threshers, harvesters in farming has become possible only owing to the growth
of industry.
4. Infrastructural Growth – The industrial growth and
infrastructural growth are interlinked. The growth of one escalates the growth
of other.
5. Growth of Civilization – Urbanization has led to the growth
of civilization. People become conscious of their quality of life. Culturally
diverse societies are getting closure to each other.
Basic features of India's industrial development during Plan
Period –
1. Increase in industrial growth rate
2. Increase in contribution of industrial sector in GDP
3. Rapid development of basic industries
4. Strong infrastructural base
5. Import substitution
6. Establishing enterprises with foreign assistance
7. Increase in export of industrial products
8. Establishment of financial Institution
9. Development of information technology and electronics industries
10. Development of small and cottage industries
11. Dis-investment in public sector
12. Development of food processing industry and
13. Emergence of consultancy services.
Problems of Industrial Development in India –
1. Problem of Energy,
2. High cost,
3. Shortage of capital,
4. Shortage of foreign exchange,
5. Lack of able entrepreneurs,
6. Irregular rate of industrial growth,
7. Unemployment problem ignored,
8. Industrial Unrest,
9. Small and medium sector neglected,
10. Problem of industrial sickness,
11. Less utilization of installed capacity,
12. Regional disparity,
13. Increase in concentration of economic power,
14. Failure of public sector enterprises.
Measures to Encourage Industrial Development –
1. Creation of economic and social infrastructure,
2. Development of entrepreneurial skill,
3. To ensure availability of capital,
4. Financial stability,
5. Rehabilitation of sick units,
6. Removal of control,
7. Human capital formation,
8. Modernization,
9. Improvement in industrial relation,
10. Professionalization of management,
11. Industrial Research.
INDUSTRIAL POLICY
It refers to such formal declaration made by the Government
which describes the general policies which will be adopted by the Governments
towards the industries. After independence IPR – 1948, IPR-1956, IPR-1977 and
IPR-1980 have been announced. Industrial (Regulation and Development) Act 1951
also came in to effect after independence.
INDUSTRIAL POLICY RESOLUTION – 1948
IPR-1948 was announced on 06th April 1948. This policy had
adopted importance of both public as well as private sector. In this policy
industries were divided in to 4 categories –
1. Public Sector – Arms and ammunition, atomic energy, Railway transport was
given under exclusive control of government. Private sector was prohibited from
participating in these industries.
2. Public cum Private Sector – Under these category 6 industries
was placed.
3. Controlled by Private Sector – Under these category 18 industries
was placed.
4. Private and Co-operative Sector – All other industries not covered
under category 1, 2 and 3, placed under this category.
This
policy also accepted the importance of small scale and cottage industries.
INDUSTRIAL (DEVELOPMENT AND REGULATION) ACT 1951
To control and regulate
the process of industrialization in India, an act was passed by the parliament
in October, 1951. This act came in to force from 08 may 1952. The main
objectives of this act was –
1. REGULATION - Regulation of industrial investment
and production according to plan and priorities targets.
2. PROTECTION - Protection to Small Scale Industries
against competition from large industries.
3. PREVENTION - Prevention of monopoly and
concentration of ownership of industries.
4. BALANCE - Balanced regional development with a
view to reducing disparities in the level of development of different regions
of the economy.
WHY PUBLIC SECTOR GIVEN LEADING ROLE
Direct participation of
State in industrial growth was considered essential in view of the following
reasons –
1. Shortage of Capital with Private Sector – Industrial
development in India needed a big push. It is implying a large amount of
capital expenditure. At the time of independence Tatas and Birlas were the only
well known private entrepreneurs.
2. Objective of Social Welfare – The objective of equity and
social welfare could be achieved only though direct participation of government.
3. Lack of Incentive for Private Sector – Due to limited size
of market, there was low level of demand for the industrial goods. So, private
entrepreneurs never undertake any major project.
INDUSTRIAL POLICY RESOLUTION, 1956
Industrial policy is a
comprehensive package of policy measures which covers various issues connected
with different industrial enterprises of the country.
On 30th April,
1956, a second Industrial Policy Resolution was adopted in India. IPR-1956 has
the following objectives:
- * Development of machine building industrialization.
- * Increase in rate of industrial development.
- * Reduction in income and wealth inequality.
- * Classification of industries into public and private sectors,
- * Stress on the role of cottage and small scale industries,
- * Reduction in regional disparities,
- * Foreign Capital,
- * Facilities for labourers.
CLASSIFICATION OF INDUSTRIES
According to IPR-1956, the industries were reclassified in to three
categories.
Schedule A – In this schedule, 17 industries were included. (like Arms
and Ammunition, Atomic Energy, Railway Transport, Air Transport, Heavy and Core
Industries, Oil Industries, Shipping Industries, Iron and Steel Industries,
Coal, Aircraft, Electricity Generation and Distribution).
In the above 17
industries, Arms and Ammunition, Atomic Energy, Railway Transport, Air
Transport, Govt. will have its monopoly. New units of rest industries will be
established by govt., whereas old privately owned units will operate.
Schedule B – In this schedule, 12industries were included. (like Road
Transports, Sea Transport, Machine Tools, Fertilizers, Synthetic Rubber,
Chemical Pulp, Aluminum, Minerals, Carbonizations of coal, Antibiotic Drugs
etc.) These industries will be established by govt. but if private sector wants
to establish unit, will be allowed.
Schedule C – Rest all industries, which have not been placed under
schedule A and B, open for private sector. This will be controlled by the
government through licensing system under Industrial (Development and
Regulation) Act – 1951.
OUTCOME OF IPR-1956
* Scope of the public
sector in India got widened.
* A clear cut
classification of industries done first time.
* Provision of compulsory
licensing was enacted.
* The policy paved the way
of development of public sector in India.
INDUSTRIAL LICENSING
Industrial license is ‘A
written permission from the government to an industrial unit to manufacture
goods.’ In India it was started in 1952. The basis of this policy was
Industries (Development and Regulation) Act 1951. Industrial licensing was
necessary for –
* To set up new
industries;
* To expansion of existing
one;
* To diversification of
products.
As per under licensing system:
* No new industry was
allowed to setup unless a license is obtained.
* Easy to obtained license
for industrial setup in backward regions. These types of setups have also given
certain concession like tax benefits, water and electricity at low tariff etc.
* License to expand
production or diversification of products was given only if the govt. was
convinced that there is a need of large quantity of goods in economy.
SMALL SCALE SECTOR IN INDIA
In 1955, the Village and
Small Scale Industries Committee (Karvey Committee) recognized the importance
of above said industries in rural development.
Cottage Industry - These industries are mostly traditional, producing
traditional products by employing traditional methods. (up to 5 crore annual
turnover – since 08th February 2018)
Small Scale Industries - These are defined in relation to
capital investment in machines and buildings. Presently, this limit is was 5
crores. Since, 08th February 2018, classification of industries
based on the annual turnover of the industries. (Annual turnover between 5-75
crore rupees.) Some examples of small
scale industries are – Bakery products, school stationary, water bottle, belt,
paper bags, small toys, beauty products etc.
Features of small Scale Industries
1. Ownership is in single hand;
2. Management involved in activities;
3. Labour intensive;
4. Flexibility;
5. Limited reach area; and
6. Utilisation of locally available resources.
Role of Small Sector in Indian Economy
1. Provide Economic equality;
2. Production of artistic goods;
3. Protection from clan-struggle;
4. Need less technology;
5. Protection from bad effects of urbanisation and industrialization;
6. Less dependency on imports;
7. Important place in country’s exports.
Problems of Small Sector –
1. Shortage of Capital,
2. Undeveloped production system,
3. Problem of raw material,
4. Lack of organised market,
5. Competition from large scale units,
6. Lack of education,
7. Lack of standardization,
8. Export neglected,
9. Dis-interest of consumers,
10. Non-Receipt of payments in time.
Important points related to Small Scale Industries
* Government reserved a large number of products (836 in many
steps) for small scale industries to protect them from large scale industries.
* Various types of concession given to the SSIs such as lower
excise duty, bank loan at a lower rate, tax benefits, water and electricity
supply at a lower rate etc.
* Small Industries Development Organisation (SIDO) – 1954
* National Small Industries Corporation Ltd. (NSIC) – 1955
* District Industry Centre (DIC) – 1979
* Small Industries Development Bank of India (SIDBI) – 1989
PRINCIPAL FEATURES OF THE STRATEGY OF INDUSTRIAL GROWTH
DURING 1950-90
* Public sector were plays
a crucial role in industrialization.
* Private sector were plays
a secondary role.
* Focused on Import
substitution and self reliance target achievement.
* Domestic industries were to be protected.
* Large scale industries were developed with a view to
develop infrastructure.
* Small Scale industries were developed with a view to
achieve objective objectives of equity and employment.
CRITICAL APPRAISAL OF INDUSTRIAL DEVELOPMENT (1950-90)
POSITIVE /GOOD EFFECT / GAINS
1. Economic Growth – Contribution of industrial sector in GDP increases
from 11.8% in 1950-51 to 24.6% in 1990-91. The 6% annual growth rate of
industrial sector with structural reforms during the period is also admirable.
2. Diversification – There is diversification of industries with Industrial
development. Indian industries are now included a wide range of consumer as
well as engineering goods.
3. Establishment of large scale industries.
4. Promotion of small scale industries – It gave opportunity to people with
small capital to get in to production process. SSI made substantial achievement
to achieve growth with social justice and equity in addition to employment generation.
NEGATIVE / BAD EFFECTS / LOSS
1. Monopoly of Public Sector – Industries, which can be handles
with the private operators (like telecommunication, hotel industry etc.) also
given to the public sector which channelize precious fund to these industries.
2. Inward Looking Trade Strategy – This policy stopped industries to
develop a strong export sector.
3. Lack of Competition – Due to excessive protection to the
domestic industries and restrictions on imports, domestic industries failed to achieve
international standard of product quality.
4. Licensing Policy – It was misused by some industrial houses to get
license not for production but for to prevent competitors from starting new
firms.
Public Sector Enterprises - A public sector enterprise is that
enterprise which is owned and managed by the government.
Characteristics of Public Enterprises –
1. Public ownership,
2. Socio-economic objective,
3. Accountability towards public,
4. Financing from government funding.
Role of Public Sector in Industrialisation –
1. Contribution in National Income,
2. Contribution in Employment generation,
3. Contribution in Export,
4. Development of small scale sector,
5. Development of backward area,
6. Expansion of Technological base,
7. Help in achievement of self-sufficiency.
Problems of Public Sector –
1. Bureaucratic Delays,
2. Lack of Technical efficiency,
3. Discriminating policy of organisation,
4. Lack of incentives,
5. Inadequate control of Parliament,
6. Lack of mutual co-operation,
7. Over capitalisation,
8. Operational and Managerial inadequacies,
9. Under utilisation of Production capacity,
10. Over-sized plants,
11. Takeover of sick units,
12. Long gestation period.
Suggestions for Reforms of Public Sector
1. Appropriate Pricing Policy,
2. Test of Efficiency,
3. Full utilisation of Production Capacity,
4. Quantitative determination of objectives,
5. Use of latest techniques,
6. Precautions in appointment of employees,
7. Competition,
8. Other suggestions.
Disinvestment in Public Sector - It refers to the dilution of stake
(claims) of the government in the equity of public sector undertaking so as to
transfer the ownership rights to private hands.
(For more data please watch video)
VIDEO REFERENCE
Indian Economy (1950-90) - PART 5
(Industrial Policy,
I.P.R. 1948 & 1956, I.D.R.A. 1951, S.S.I.)
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Regards
Dr.
Asad Ahmad
KV
IIM, Lucknow
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