Industrial growth (B.COM)

INTRODUCTIONIndustrialisation plays an important role in the

economic development of a country. According to R. Nagraj in his article “Industrial growth”, Industry

contributes 27 % percent of India’s domestic output in 2001. It employed 17.5% of the workforce and 43% of the renewable capital stock. Between 1951 and 2000, industrial output grew at annual rate of 5.5%. Output shifted from simple consumer goods to complicated and sophisticated capital goods that are required by

modern industries.

Phases of Industrial GrowthPHASE PLAN COVERED

High growth phase (1951-66) Phase I 1st Plan (1951-56)2nd Plan (1956-61)3rd Plan (1961-66)

Low growth phase (1966-74) Recovery phase (1974-80)

Phase II Three Annual Plan (1966-69)

4th Plan (1969-74)5th Plan (1974-79)

High growth phase (1980-90) Phase III 4th Plan (1969-74)5th Plan (1974-79)

The Reform phase Phase IV Annual Plan (1992-97)8th Plan (1992-97)

9th Plan (1997-2002)10th Plan (2002-07)11th Plan (2007-12)

• Phase I1st Plan (1951-56)

o The aim of the plan was to have fuller utilisation of existing capacity in producer goods and consumer good industries.

o The plan with an outlay of just Rs.55 crore for the industrial sector.

o It laid down an ambitious foundation for establishment of basic industries such as steel, machines, buildings, chemicals etc

2nd Plan (1956-61)o 2nd Plan was based on Mahalanobis Modelo The second plan envisaged expansion of

public sector in areas like iron steel, coal, cement, non-ferrous metals, etc.

o Setting up of the three steel plants in the public sector at Bhilai, Rourkela and Durgapur.

o An outlay of Rs.938 crore was kept for the industrial sector.

3rd Plan (1961-66)o 3rd plan was to hasten the process of

industrial and technological change.o The basic strategy was the same as it was

in the second plan.o The targets laid down for industrial sector

were realised only to the extent of 70%o Indian steel was probably one of the

cheapest steel in the world.

• Phase II4th Plan (1969-74)

o The three years plan holiday from 66-69 had a depressing effect on industrial development.

o Good weather conditions in almost all parts of the country could with a marked improvement in wheat output raised food grain productions to a new peak.

o The objectives of this plan were completing the ongoing Projects and expanding the capacities of levels needed for future development.

o Industrial production during the 4rth plan was increased by 4% per annum against the target of 8 to 10% per annum.

5th Plan (1974-79)o The programme of industrial development

with an outlay of ₹9000 crore during the fifth plan was so formulated as to achieve the twin objectives of self-reliance and growth with social justice.

o To achieve this objective, the plan gave priority to the core sector industries, export expansion and adequate supply of mass consumption goods.

o The achieved growth rate in industrial production during the plan was around 5.2%.

Reasons for the slow industrial growth, these were:-

-consecutive crop failures in 1965 and 1966-border conflicts with neighbours-freezing of US aid-currency devaluation

• Phase Iii6th Plan (1980-85)

o Export industrial products.o Development of indigenous research and

optimum utilisation of existing capacityo Dispersal of industries in backward area.o The industrial and trade policy were

liberated substantially.o The growth targeted up to 7% p.a. but the

actual was 5.5%

7th Plan (1985-90)o Adequate supply of wage goods.o Full utilization of established industrial

units.o Development of industries.

Reason for high growth rateo Green revolutiono Shift in the barter termso Increase in the share of public sector.o Improvement in infrastructure.

8th Plan (1992-96)o Expected growth rate - 7.5%o Policy of Liberalization, Industrialization

and Globalization.o Achieved growth rate - 8.1%.

Year Growth rate of Industrial production

1992-1993 4.2%

1993-1994 6.8%

1994-1995 9.4%

1995-1996 12.3%

1996-1997 7.7%

Phase IV

9th Plan (1997-2002)

o During 1997-1998 and 1998-1999, industrial products registered a growth of 3.8%.

oCAUSES OF SLOWDOWN:-High real interest rates.

Lower speculative demand for automobiles and real estate.

Outdated technologies.

10th Plan (2002-07)o TARGETED GROWTH RATE - 10%

o Industry Has to face much more INTERNATIONAL COMPETITIONS.

oRole of public sector declined.o Industrial sector GROWTH RATE - :

2005-2006 - 8.2%2006-2007 - 10.6%

Automobile components, pharmaceutical, special chemicals, textiles have shown a marked increase in global competitiveness.

o 11th Plan (2007-12)oExpected growth rate

Industrial sector - 10%Manufacturing sector - 11%

Achieved growth rate

#) 2007-08 - 15.5%#) 2008-09 - 2.5%#) 2009-10 - 5.3%#) 2010-11 - 8.2%

CHALLENGES AND OBJECTIVES

•Rapid and inclusive growth.•Emphasis on social sector.

•Empowerment through education and skill development.

•Growth rate of industrial sector to 10%.OIL SHOCK

Challenges faced by INDUSTRIAL SECTOR in 12th plan

a) Cost effective. b) Environment and Security concerns.c) Need to facilitate growth of labour intensive industries.d) Large investment plan made for

infrastructure.

o Increasing role of public sector and technology incentive industries.

o Mahalanobis strategy was based upon the assumption that lack of capital goods industries was the barrier to maximising long-term growth.

o To meet the employment objectives, protection was given to domestic and local industries.

INDUSTRIAL POLICY

o Indian industry is pre-deominantly domestically financed.

o Foreign capital is often tied in with the technology import requirements for very large operations. Since the 1990s, the role of foreign capital has increased.

o Commercial banks meet most of the long-term finance requirements of the industries.

o The stock market has played a limited role, that too mainly financing very large companies.

Financing of Industrial Growth

Industrial LabourThe industrial labour market remains dualistic. That is, there is existence of :

1. Organised Labour(a) They are factory workers.(b) They are protected by numerous labour laws. (c) Size of organised industrial labour is decreasing due to decline in strength

of labour.

2. Unorganised Labour

(a) They are part of growing urban unorganised labour market.

(b) Due to excess supply of unskilled labour, there is competitive equilibrium of wages that is marginally higher than that for those in rural areas, adjusted. For cost differences.

(c) These workers have better access to education, vocational training and healthcare.

Two Viewpoints on Observed trends in Industries in India

1. Classical Economic ViewIn a large agrarian economy, industrial growth is explained by size and growth of agricultural surplus and of exports. Since the trade ratios for large economies are small, agricultural productivity mainly determines industrial demand. There is inadequate, public investment in irrigation and power, which have resulted in low agricultural productivity.

2. Alternate Economic View

Industrial sector is small because of policy-induced restrictions on output and investment, which have cut off the foreign market for domestic players. International trade and investment opportunity have proved to be an effective transition mechanism for increase in domestic demand and technology.

Year Expected growth rate

Achieved growth rate

1951-56 7 7.3

1956-61 10.5 6.6

1961-66 11 9

1969-74 12 4.7

1974-79 8 5.9

1980-85 8 5.9

1985-90 8.7 8.5

1992-97 7.5 7

1997-2002 8 5

2002-07 10 8.2

2007-12 9 6.9

2012-16 8 ---

GROWTH RATE OF INDUSTRIAL PRODUCTION