INDUSTRIAL DEVELOPMENT IN INDIA

Dr. Laxmi Narayan Assistant Professor Economics

Govt. P.G. College Mahendergarh, Haryana, India

E-mail: laxmi_narayan70@yahoo.com

LECTURE OUTLINE

Role of Industrial Development in Economic Development

Evolution of Industrial Policy in India: Transition from Socialist to Market Oriented Economy

Historical Review of Industrial Development during Various Five Year Plans

IMPORTANCE OF INDUSTRIALISATION

Provide Employment

Trickle Down Effect

Development of Social Overhead

Increase in Income and Saving

Increasing Economies of Scale

Increase in Farm Productivity

Better Utilisation of Raw Materials

INDUSTRIAL SECTOR ON THE EVE ON INDEPENDENCE

Weak Industrial Base

Low Capital Intensity

De-industrialisation of the Country

Limited Role of Public Sector

Decline of Handicraft Industry

Iron & Steel and Jute Industries

STRATEGIES FOR INDUSTRIALISATION

State Intervention In Industrial Development.

Role of Public Sector

Regulations for Control and Direction of Industrial Sector.

Industrial Licensing to Regulate Private Sector (IDR act 1951)

Industrial Policy

INDUSTRIAL POLICY

Industrial policy is combination of all government regulation aimed at regulation and control of industrial activities in a country.

Need of Industrial Policy: Limited Capacity of Private Sector Regulation of Private Sector Regulation of Foreign Sector

EVOLUTION OF INDUSTRIAL POLICIY IN INDIA

Industrial Policy Resolution 1948

Industrial (Dev. & Reg.) Policy 1956

Industrial Policy 1977

Industrial Policy 1980

New Industrial Policy 1991

MAIN FEATURES OF IPR 1948

Industries Classification– Public Sector – 03

– Public cum Private Sector – 06

– Controlled Private Sector – 18

– Private and Co-operative Sector

Importance of Foreign Capital

Domestic Protection

Industrial Relations

MAIN FEATURES OF INDUSTRIAL POLICY 1956

Industries Classification:

- Public Sector: 17

- Public-cum-Private sector: 12

- Private Sector

Fair Treatment to Private Sector Balanced Regional Growth Proper Amenities to Labourers Efficient Management of PSUs

MAIN FEATURES OF INDUSTRIAL POLICY 1977

More Emphasis on SSIs

Labour Intensive Technologies

Balanced Regional Development

Limited Role of Large Industries

No Expansion of Big Industries

Efficient Management of PSUs

MAIN FEATURES OF INDUSTRIAL POLICY 1980

Balanced Regional Development with Large and Small Industries

Regularisation of Excess Capacity Installed

Development of Backward Areas

Encouragement to EOUs

REVIEW OF PRE-1991 POLICIES

Under Utilisation of Capacity

Concentration of Economic Power

Licensing Promoted Corruption, Rent-seeking and Discrimination

Delay in Processing of Applications

Increased Regional Imbalances

GENESIS OF NEW INDUSTRIAL POLICY 1991

Balance of Payment Crisis

License-Permit- Quota Raj

To Unshackle the Industrial Sector from Administrative and Legal Controls.

To Make Industry Competitive by Increasing Efficiency

PUBLIC SECTOR POLICY

Dilution of Public Sector Role: only 08 industries

As on Date Only 03 industries (i) Atomic Energy (ii) Rail Transport and (iii) Radio Active Minerals

Divestment of PSUs

Greater Autonomy to PSUs

Chronically Sick Enterprises to be Referred to BIFR.

Facilities to Labourers

Abolition of Industrial Licensing: Only 18 Industries Related to Security and Strategic Concerns, Social Reasons, Hazardous Chemicals and Items of Elitist Consumption.

As of Now Only 05 Industries (i) Alcohol (ii) Cigarettes (iii) Hazardous Chemicals (iv) Electronics, Aerospace and Defense Equipments, and (iv) Industrial Explosive Requires Industrial License.

INDUSTRIAL LICENSING POLICY

FOREIGN INVESTMENT POLICY

Automatic Approval for FDI up to 51 % Foreign Equity in High Priority Industries.

This is Subsequently Increased to 74% in Some Industries and With the Replacement of FERA (1973) with FEMA (1999), 100% FDI is Permitted in Many Areas.

Automatic Approval for Import of Capital Goods (Maximum Limit 2 Crore)

FOREIGN TECHNOLOGY AGREEMENTS (FTAs)

Automatic Permission will be Given for FTAs in High Priority Industries up to a Lump-sum Payment of Rs. 1 Crore.

5% Royalty for Domestic Sales and 8% for Exports, Subject to Total Payment of 8% of Sales for 10 Year Period

No Permission will be Necessary for Hiring of Foreign Technicians and Foreign Testing of Indigenously Developed Technologies.

In Cities with Less Than 1 Million population, No Requirement of Obtaining Location Clearance (Except for Industries Subject to Compulsory Licensing)

In Cities with more than 1 Million Population, Industries will be Located Outside 25 kms (other than Non Polluting Industries such as Electronics, Computer Software and Printing)

INDUSTRIAL LOCATION POLICY

Threshold Limit of Assets in MRTP Companies Removed

Abolition of Phased Manufacturing Programme

Reservation for SSIs

Removal of Mandatory Convertibility Clause

Encouragement to Industries in Backward Areas

OTHER IMPORTANT FEATURES

IMPLEMENTATION OF NIP 1991

Contraction of Public Sector

Liberalisation of Industrial Licensing Policy: Only Five Industries are under Compulsory Licensing

Introduction of Industrial Entrepreneurs' Memorandum (IEM) for industries not requiring compulsory licensing

Liberalisation of the Location Policy

….cont’d

Five Year Tax Holidays to Power Generation Industries

Increase in Lending Limit of Banks

Amendments in SICA in 1993 and 2003

Increase in Investment Limit of Small Enterprises Micro Enterprises – 25 Lakh (10 Lakh) Small Enterprises – upto 5 Crore (5 Crore) Medium Enterprises – upto 10 Crore (5 Crore)

….cont’d

MRTP act Replaced with Competition Act

Tax Holidays for Industries in Backward Areas

Encouragement to Private Sector Participation in Infrastructure

Reimbursement Scheme for Technology Upgradation.

Setting up of Foreign Investment Promotion Board (FIPB)

….cont’d

Permission to Raise Capital from Foreign Markets

Encouragement to Foreign Investment

Disinvestment of PSUs

POSITIVE IMPACT OF NIP 1991

Increase in Production Removal of Bureaucratic Hurdles Increase in Competition

Increase in Efficiency of Public Sector Increase in Foreign Investment Increase in Exports Balanced Regional Development

Less Economic Burden on Government

CRITICISM OF NIP 1991

Concentration of Economic power

Increase in Unemployment No Evidence of Positive Effect

on Productivity Ignore Social Objectives Distortion in Production Structure: Growth of

Capital Goods Industries Declined

Adverse Effect of Small Scale Industries

Misplaced Faith in Foreign Investment

Danger of Business Colonisation.

Personalized Relationship and Corrupt Practices still Continue

Increase in Regional Imbalances

Outlay(Rs. Crore)

% of total

Outlay

Tgt Gwth Rate

Act. Gwth RateLarge Small

1ST 55 42 4.95 - 7.52ND 938 187 24.0 - 6.63RD 1726 241 23.0 14.0 9.04TH 2864 243 19.7 8.0 4.55TH 8989 592 24.3 7.1 5.96TH 20407 1780 22.8 6.9 5.57TH 25971 3249 13.4 8.7 8.58TH 40588 6334 10.8 7.3 7.49TH 33587 8384 8.2 8.2 5.0

10TH 52856 6083 3.9 10.0 8.611TH 142100 11500 4.2 10.5 8.6/2.8

INDUSTRIAL DEVELOPMENT DURING PLAN PERIOD

IMPORTANT HIGHLIGHTS OF DIFFERENT PLANS

First Five Year Plan (1951-56): Many Basic and Heavy

Industries, Set Up, Namely: Sindri Fertiliser, Chitranjan Locomotive, HMT, U.P. Cement Industry, Indian Telephones, Indian Cables, DDT and Penicillin Factories.

Second Five Year Plan (1956-61): Based on IPR 1956 and Mahalanobis Model; Major Industries: Steel Plants at Bhilai, Durgapur and Rourkela.

Third Five Year Plan (1961- 66): Focus on Expansion of Heavy Industries. Major Industries: Bokaro Steel Plant, Machine Tool Factory at Pinjore and Hyderabad

Fourth Five Year Plan (1969-74): No Worth While Change in Industrial Structure

Fifth Five Year Plan (1974-79): Focus on Development of Core/Basic and Export Industries, Balanced Development, Modern Technology

Sixth Five Year Plan (1980-85): Main Objective - Optimum Utilisation of Existing Capacity and to Increase Productivity. Focus: Capital Goods Industries Specially Electronic Industry, Adoption of New Technologies.

Seventh Five Year Plan (1985-90): Main Objective - Increasing Production of Consumer Goods and to Increase Productivity. Focus: Achievement of Self Sufficiency in Defense Production, Development of Sunrise Industries like Electronics.

Eighth Five Year Plan (1992-97): More Importance to Private Sector, Public Sector in Core and Basic Industries only; Top Priority to Capital Goods Industries.

Ninth Five Year Plan (1997-2002): More Importance to Private Sector, Development of Backward Areas, Increasing Industrial Efficiency, MRTP Ceiling Removed.

Tenth Five Year Plan (2002-07): Focus on Infrastructure Development, R&D, Technical Development and Modernization. Special Concessions to EOUs.

ELEVENTH FIVE YEAR PLAN(2007-12)

Strengthening Manufacturing Sector, Making Indian Industries more Competitive, strengthening infrastructure,

Focus On Pharmaceuticals, Auto-Components and Textiles

Special Concessions for MSME and Labour Intensive Industries

Emphasis on Technological Improvement

Wider Role for Private Sector

Flexible Labour Laws

ACHIEVEMENTS DURING PLANNING PERIOD

Vast Network of Infrastructure Developed

Increase in the Share of Industrial Sector in National Income: 16% to 25.9%.

National Defense and Self independence Development of Public Sector Moderanisation Increase in Foreign Collaboration Increase in Government Income

INDUSTRIES UNITS 1950-51 2007-08Finished Steel Lakh Tonnes 10 552

Electricity Bn. kwh 5.1 704Crude Oil Lakh Tonnes 03 341Fertilisers Thousand

Tonnes18 14738

Cement Lakh Tonnes 27 1683Passenger Cars Thousands 7.9 1545Cloth bn. sq. Mtrs 4.5 55

DEVELOPMENT OF STRONG INDUSTRIAL BASE

WEAKNESS OF INDUSTRIAL EVELOPMENT

DURING PLANS

Under-utilisation of Capacity Irregular Increase in Industrial

Production Increase in Monopoly Power

Poor Performance of Public Sector Industrial Sickness Industrial Disputes Poor Quality Production Regional Imbalances

FDI – Foreign Direct Investment SSIs – Small Scale Industries EOUs – Export Oriented Units PSUs – Public Sector Units.

MRTP - Monopolistic & Restrictive Trade Practices FERA - Foreign Exchange Regulation Act FEMA - Foreign Exchange Management Act SICA – Sick Industries Companies Act BIFR – Board for Industrial & Financial

Reconstruction

ABBREVIATIONS USED

Excess Capacity Trickle Down Effect Competition Act Labour Relation

Memorandum of Understanding (MOU) License-Permit-Quota Raj Balanced Regional Growth Phased Manufacturing Programme

NEW/KEY TERMS

S.C. Kuchhal, “Industrial Economy of India” Chaitanya Publishing House.

R.K. Misra AND V.K.Puri, “Indian Economy” Himalaya Publications.

Ruddar Dutt and K.P.M. Sundaram, “Indian Economy” Sultan Chand.

Uma Kapila, “Understanding the Problems Of Indian Economy” Academic Foundation.

REFERENCES

Evaluate Industrial Development during the Period of Planning in India.

What Have been the Causes of Slow Industrial Growth during Planning Period?

Explain the Industrial Policy Resolution of 1991. What New Changes have been Introduced in it? Evaluate it.

Discuss the Main Features and Shortcomings of New Industrial Policy of India.

FAQs