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Essay on Industrialization in India
Essay Contents:
- Essay on the Introduction to Industrialization
- Essay on the Role of Industrialization
- Essay on the Structural Changes and Reforms in Industries
- Essay on the Growth and Structural Composition of Industries
- Essay on the Evaluation of Industrial Performance
Essay # 1. Introduction to Industrialization:
India began her quest for industrial development after independence in 1947. The Industrial Policy Resolution of 1948 marked the beginning of the evolution of the Indian Industrial Policy. The resolution not only defined the broad contours of the policy; it delineated the role of the state in industrial development both as an entrepreneur and as an authority. Successive policy resolutions also reiterated this basic tilt in favor of the public sector.
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The Industrial Policy Resolution of 1956 gave the public sector a strategic role in the economy. It categorized industries which would be the exclusive responsibility of the state or would progressively come under state control and others. Earmarking the pre-eminent position of the public sector, it envisaged private sector co-existing with the state and thus attempted to give the policy framework flexibility.
The Industrial Policy initiatives undertaken by the Government since July 1991 have been designed to build on the past industrial achievements and to accelerate the process of making Indian industry internationally competitive.
It recognizes the strength and maturity of the industry and attempts to provide the competitive stimulus for higher growth. The thrust of these initiatives has been to increase the domestic and external competition through extensive application of market mechanisms and facilitating forging of dynamic relationships with foreign investors and suppliers of technology. The process of reform has been continuous.
Essay # 2. Role of Industrialization:
There is a strong case for the industrialization of countries like India with vast human resources, large and varied natural resources and continental dimensions.
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The following are the main arguments in favor of industrialization:
1. Raising Income:
The industrial development can provide a secure basis for a rapid growth of income. Industries produce products that are largely dependent upon man’s efforts. In the sphere of industries, man can, by putting in more effort and application of ever-improving technology, push on with the objective of producing more and more economic goods. In the industrial sphere it is possible to enlarge the scale of production.
Empirical evidences suggest a close relationship between the high level of income and industrial development. In the industrially developed countries, for example, the GNP per capita is as high as $ 27,510. It is very low at $420 for the low-income economies and around $ 1970 for the middle income economies.
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2. Reduce Disparities in Export and Import Elasticity:
If an economy does not opt for industrial development, it may concentrate on the products of primary goods, export them, and get industrial goods from industrially developed countries. But such an economy may find it difficult to earn foreign exchange to import their manufactures.
The income-elasticity of export-goods of agricultural countries is low, while the income elasticity of import-goods is high. As in the case of domestic demand, the demand for agricultural products in other countries, in particular advanced countries, is very low.
In fact, developed countries have surpluses in agricultural products for exports. As against this, the demand for the import of manufactured goods by underdeveloped countries is very intense. The disparities in elasticity, therefore, point to the difficulty of earning adequate foreign exchange. India presents an example who cannot export to earn enough foreign exchange from the export of its primary products alone.
Jagdish Bhagwari remarks, “Where this is so, industrialization is a rational consequence”. Industrialization can, therefore, correct disparities in the elasticity of foreign trade. The country may establish such industries that are in the nature of import-substitutes so that the gap between the elasticity of imports and exports is bridged.
3. Meet High-Income Demands:
After having met the needs of food, incomes of the people are spent mostly upon non-food items. Beyond certain limits, the demands of the people are usually for industrial products alone. Till basic needs are met, the demand for agricultural products increases. Once agricultural production, including dairy production, reaches a point where the demand for food is completely met, its further expansion comes to a halt.
With the advancement on the industrial front, the proportion of natural raw materials in finished products has declined. Besides, the synthetics have greatly reduced the need for natural raw material. This points out to the fact that income-elasticity of demand for the manufactured goods is high and that of agricultural products low.
4. Absorbing Surplus Labor:
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Indian economy characterizes by surplus labor and rapidly growing population. In addition the labor becomes redundant as the process of technical improvement in agriculture progresses. To absorb this surplus labor, as also to provide employment at a rate commensurate with the addition to the labor force, it is essential to industrialize the country. It is the establishment of industries alone that can generate employment opportunities at an increased rate.
5. Strengthening the Economy:
The industrialization can provide the necessary elements of strength to the economy.
i. The development of industries producing capital goods enables a country to produce a variety of goods, in large quantities and at low costs, make for technological progress and change in the outlook of the people. This brings about an industrial civilization or environment for rapid progress.
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ii. It makes possible the production of infrastructural goods for the future growth of the economy.
iii. Industrialization imparts elasticity to the system and overcome the bottlenecks to achieve comparative advantage to suit its resources and potentialities of manpower.
iv. It meets the requirements for the development of agriculture.
v. The industrial development imparts to an economy dynamic element in the form of rapid growth and a diversified economic structure which makes it a progress economy.
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6. Provide for Security:
Industrialization provides security to the country when some international crisis develops. Dependence on foreign sources for defense materials is a risky affair in such situations. To provide against such contingencies as also to keep the country’s security arrangements in perform form during all times. It is only through industrial development in a big way that the national objective of self-reliance in defense materials can be achieved.
Essay # 3. Structural Changes and Reforms in Industries:
Besides the uptrend in the growth-rate, the industrial scene has been marked by a change in the structural composition of industries which is of considerable significance for the economy.
1. Fast Growth of Basic and Capital Goods:
For quite a long period since the Second Plan (1956-61) the basic and capital goods industries enjoyed a rapid growth. It in fact remained higher than the general growth rate of industries. Consequently, the industrial structure leans quite heavily towards the capability- building industries. This trend began since the Second Plan that accorded the highest priority to these industries. As compared to this, the growth rates of intermediate goods and consumer goods have mostly been lower than the general growth-rate.
The two types of consumer goods- durable and nondurable consumer goods- the former witnessed a higher rate which compares well with that of the basic and capital goods industries. Without double, the higher growth rates in respect of these industries appeared high only because the initial starting base of these industries was very low.
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However, from another point of view, this means that a fast growth was necessary to correct the imbalance in the industrial structure. The net impact is in fact more than a mere correction of the imbalance. The industrial capacity for production has become quite sizeable.
2. Enlarged Production Capacity:
The fast growth of the basic and capital goods industries resulted in that the country’s capacity for the production of industrial goods has been much expanded. This is shown by the fact that the weight age to the basic and capital goods industries in the index of industrial production has remained quite high. In the new index (base year 1993-94), it is 44.9 per cent. Its weight was more than half at 55.85 per cent in the index of industrial production with the base 1980-81.
This has increased from a lower weight age at 47.53 percent in the index of industrial production with 1970 as base, which in turn has risen from 36.87 per cent in the earlier index of production with 1960 as the base. This structural change is significant as it allows a country to build infrastructure which facilitates direct productive activities. It also means larger possibilities of producing machines which produce consumer goods.
In fact, it is for this reason that much diversification in the products has taken place in the country. And for the same reason, the country is no longer dependent on imports of some goods of vital importance for the economy. This has also enabled the country to produce goods which cannot be imported or imported with great difficulty. The greater importance of these industries is also reflected in India’s exports, as the export of manufactured goods has gone up substantially.
With the adoption of policies of liberalization several structural reforms in the economy have taken place.
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These are discussed in the following paragraphs:
3. Industrial Licensing Policy:
With the introduction of New Industrial policy (NIP) 1991, a substantial program of deregulation has been undertaken. Industrial licensing has been abolished for all items except for a short list of 7 industries related to security, strategic or environmental concerns.
The Monopolies and Restrictive Trade Practices Act (MRTP Act) has been amended in order to eliminate the need to seek prior Government approval for expansion of the present industrial units and establishment of new industries by large companies. The system of Phased Manufacturing Program, which was designed to enforce progressively greater degree of local content, has been abolished. Industrial location is discouraged only in large cities because of environmental reasons.
A significant number of industries had earlier been reserved for the public sector.
Now the areas reserved for the public sector are:
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(a) Arms and ammunition and allied items of defense equipment, defense aircraft and warships,
(b) Atomic energy,
(c) Mineral specified in the schedule to atomic energy, and
(d) Railway transport.
Even in this areas private sector participation can be invited on a discretionary basis.
4. Liberalization:
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The liberalization ushered in 1991 has tremendously expanded the scope of the private industry by removing many of the entry and growth restrictions. Prior to liberalization, 17 of the most important industries were exclusively reserved for the public sector. Further, in 12 of the most important remaining industries the public sector was to play a dominant role.
Even in industries open to the private sector, establishment of new units and expansion of the existing units was regulated by licensing. Large companies and dominant undertaking had to obtain clearance under the MRTP Act. The restrictive policies resulted in slow growth of the industry and economy and lack of competition causing lack of choice, high prices, poor quality, lack of innovation and disregard for the consumer
Now only six industries are reserved for the public sector and even in some of these industries, selective entry of the private sector is allowed. Industrial licensing is confined to 15 industries. Private enterprises can now enter and grow in most of the industries. Liberalization has given an enormous boost to private investment in the industrial sector.
5. Foreign Direct Investment:
The role of Foreign Direct Investment (FDI) as a means to support domestic investment for achieving a higher level of economic development is well recognized. FDI benefits domestic industry as well as the Indian consumer by providing opportunities for technology up-gradation, access to global managerial skills and practices, optimal utilization of human and natural resources, making Indian industry internationally competitive, opening up export markets, providing backward and forward linkages and access to international quality goods and services.
Essay # 4. Growth and Structural Composition of Industries:
The productive performance of industries can be assessed in terms of the rate at which the industrial output has increased, and the changes in the structural composition of industries that have marked the industrial scene. The trends in respect of these two aspects of industrial development are traced since independence, in particular since 1951, when the government, beginning with the First Plan, embarked on the task of industrializing the country.
The scenario as the growth of industrial production reveals is one of a rising trend, with significant ups and downs spread over a number of years.
Long – Term Trend:
Overall the growth-rate of industrial production has been over six per cent since 1951. However, this has not been a steady figure through all these years.
We can see three sub-trends in the growth rates during the period:
High, Low and Higher:
The high sub-trend continued for 15 years since 1951 to 1965. During this period, the growth rate has been higher than the long-term trend rate, and an accelerating one. Commencing from 4.8 per cent growth for the first four years since independence 1947-51, the growth came up to 5.7 per cent during 1951- 52. This increased to 7.2 per cent during 1955-60 and further moved up to a high of 9 per cent during 1960-65.
The second sub-trend lasted for 10 years starting from 1966-1976, when this rising trend got a setback. The growth rate declined to 4.1 per cent and came lower than the long-term trend. However, this decline was compensated by the rise in the growth-rate over the trend rate in the third period since the mid-1970s. Beginning from a growth rate of 4.6 per cent during 1976-81, it increased to 7 per cent and over 9 per cent during the 1980s.
For the decade as a whole during 1980-81 to 1990-91 the growth rate has been 7.9 per cent. The rise in the growth curve continues to make the 1990’s with the growth rate at 6 per cent (1991-2000). Since the recent uptrend has persisted for long, even longer than the earlier one, the growth rate of industrial output may be said to have moved on to a higher path.
Present Uptrend:
While the growth-rate since 1991-92 has been on a higher path, except the low rates during 1991-93. The reasons for the low growth rate during this period has been caused by the government’s recent policies to stabilize the economy particularly for reducing/eliminating the large fiscal and balance of payments deficits and curbing the high inflationary rise in prices and to restructure it to make it more competitive and efficient.
These policies have involved compression in imports adversely affecting import-dependent industries; reduction in Government’s expenditure, reducing aggregate demand for the industrial products; high interest rates causing an increase in the industrial costs; devaluation of the rupee making import-inputs expensive.
However, this fall in the growth-rate was a transitory phase. Following liberalization of the economy, the growth rate not only recovered to a higher level, but remained fairly sizeable thereafter. The new policies have helped in promoting market, private sector and foreign direct investments, and the industrial output. Thus, despite some deviations, the over-all trend can be described as one of reasonably high growth.
Essay # 5. Evaluation of Industrial Performance:
We need to evaluate the developments in the industrial production. Since the industrial growth has experienced both desirable and undesirable features, it is appropriate to describe both of them, before making a final judgment.
Positive Features:
There have been certain positive features of industrial performance.
We describe some of them:
1. Impressive Growth:
The growth rate of industrial production has been satisfactory, if not very satisfactory. The industrial output has grown at the rate of 6 per cent since 1961. As a result its contribution to the GDP has gone up sharply from 6 per cent to 25 per cent. The industrial growth rate is far higher than that of agricultural growth rate which is at 2.7 per cent. It is also much above the growth in national income at 4 per cent.
The industrial growth rate has also exceeded the population growth at around 2 per cent. In comparison to other countries, India’s growth rate appears to be of fair size. It falls between the high growth rate of 8 per cent and more in a very few country, including some developing countries, and low growth rates of under 4 per cent in many countries, including some developed countries. Therefore, some people describe India as a semi-industrialized country.
2. Strong Industrial Base:
The good industrial performance has assisted in strengthening the base for further industrial growth. This is clear from the large developments made in the field of basic and capital goods industries. The establishment and fast expansion of such industries as steel, cement, engineering, petroleum, etc., strengthen the supplying capacity of the economy.
The strength of India’s industrial development may also be measured from the fact that India is one of the six countries in the world that can manufacture thermal and hydroelectric stations on their own. This further assists in the growth of intermediate and consumer goods industries.
3. Industrial Modernization:
The profile of industries has witnessed a transformation from one of old and traditional to new and modern. This is clear from the several changes that have taken place in industrial development. One is diversification in the industrial set up. This has seen a journey from an industrial structure restricted mostly to a few consumer goods industries like textiles and sugar, then to setting up of steel plants.
There was also some limited development of engineering in railway workshops and assembly plants. All this has now changed. Traditional industries like textiles are no longer as important as before. The weight age of these industries in the index of production has declined substantially/Engineering and Information Technology have been important.
These industries have gained importance and produce a large variety of products. Second, there are significant advances in the fields of technology and managerial skills. This has enhanced the capabilities of the country not only to operate highly complex and sophisticated industrial enterprises, but also for their planning, design and construction. Significant progress has also been made in the field of industrial research.
4. Self-Reliance:
The industrial development has done a commendable work in making India a self-reliant country in quite a number of commodities, and in several other the foreign dependence has become very much less as compared to earlier.
For example, in commodities like Iron and steel, the country has become self-reliant. In matters of items such as machinery and fertilizers, the dependence has been significantly reduced. In quite many manufactured consumer goods, the country has ceased to rely on imports. This can be attributed to a strategy of industrialization that stressed the development of producer goods industries which over time enabled the country to produce durable consumer goods.
5. Increased Investment:
There have been large investments actualized and planned for in the year 1990s and thereafter. The sharp spurt in the loans sanctioned and loans disbursed by the All Indian Financial Institutions are indicative of this development. The period has also seen huge increase in Foreign Direct Investment as well as Portfolio Investment.
Negative Features:
1. Long Retrogression:
The fall in the growth rate over a long period of over a decade or so following the mid-1960s is a matter of concern. However, the growth rate rose to as high as 9 per cent in the five year period of 1960-65. But thereafter there has been an almost continuous fall in the growth rate to an average of as low as 4.1 percent during the ten year period of 1965-76. Similar serious is the structural retrogression. There has been a large decline in the growth rate of basic and capital good industries.
The growth rate of basic goods industries fell from 10.4 per cent during 1960-65 to 6.5 per cent during 1965-76, and that of capital goods industrial from 19.6 per cent to 2.6 per cent. The growth rate of intermediate goods declined from 6.9 per cent to 3.0 per cent and that of consumer goods industries from 4.9 per cent to 3.4 per cent. The slow growth of these industries has inhibited the growth in a large number of other industries.
2. Large Inefficiency:
Many large industries suffer from inefficiency which leads to the high costs of several firms, in any case two to three times higher than the world costs. The inefficiency manifests in low levels of productivity and existence of large unused capacity. The extent of underutilization has been in some cases as high as 70 to 90 per cent.
The industries involved have been large in number and important ones such as steel casting, cycle tubes, mining and coal washing machinery, cement mill machinery, pulp machinery, building and road construction machinery etc.
The inefficiency causes serious consequences such as wastage of inbuilt capacity, finances and managerial ability, waste of employment potential, loss of production, dampening of enthusiasm for new industries, emergence of unethical practices. Inefficiency also turns out shoddy goods of questionable quality produced by many firms.
3. Widespread Sickness:
Many large industries have fallen sick resulting in their sporadic closures. The number of such sick industrial units was 3,317 in March 2001 belonging to industries like engineering, textiles, chemicals, sugar, rubber, cement etc. It is important to note that unlike the developed countries, countries like India with limited resources, cannot afford their productive assets turning non-operational. Further, it results in loss of jobs, production and of revenue to the government and undesirable socio-economic consequences.
4. Regional Imbalance:
The industrial development of the country has resulted in unequal distribution. Gross region/state imbalances have developed with few states taking a lion’s share. According to the Annual Survey of Industries (1996-97) four states (Andhra Pradesh, Gujarat, Maharashtra and Tamil Nadu) have accounted for a very large proportion of the industrial activities of the country.
On the other hand the four states with large population namely Bihar, Madhya Pradesh, Uttar Pradesh and West Bengal have very little by way of industrial development. All this shows large regional imbalances caused largely by a faulty industrial planning that allowed the existing grown industrial regional to grow further.
5. Employment Generation:
The industrial development has failed to generate employment to any significant extent.
Taking together the achievements and the negative aspects, the picture of industrial development appears to be a mixed one. However, despite such an inference, the country is industrial still in a backward stage. The growth-rate, though not unsatisfactory, is not sufficiently high to make a perceptible dent in the agrarian character of the economy.