Indian Industry : An introduction
Industry accounts for 26% of GDP and employs 22% of the total workforce. According to the World Bank, India’s industrial manufacturing GDP output in 2015 was 6th largest in the world on current US dollar basis ($559 billion), and 9th largest on inflation-adjusted constant 2005 US dollar basis ($197.1 billion). The industrial sector underwent significant changes due to the 1991 economic reforms, which removed import restrictions, brought in foreign competition, led to the privatisation of certain government-owned public-sector industries, liberalised the foreign direct investment (FDI) regime, improved infrastructure and led to an expansion in the production of fast-moving consumer goods. Post-liberalisation, the Indian private sector was faced with increasing domestic and foreign competition, including the threat of cheaper Chinese imports. It has since handled the change by squeezing costs, revamping management, and relying on cheap labour and new technology. However, this has also reduced employment generation, even among smaller manufacturers who previously relied on labour-intensive processes.
Electricity sector
Primary energy consumption of India is the third-largest after China and the US with 5.3% global share in the year 2015. Coal and crude oil together account for 85% of the primary energy consumption of India. India’s oil reserves meet 25% of the country’s domestic oil demand. As of April 2015, India’s total proven crude oil reserves are 763.476 million metric tons, while gas reserves stood at 1,490 billion cubic metres (53 trillion cubic feet). Oil and natural gas fields are located offshore at Bombay High, Krishna Godavari Basin and the Cauvery Delta, and onshore mainly in the states of Assam, Gujarat and Rajasthan. India is the fourth-largest consumer of oil and net oil imports were nearly ₹820,000 crore (US$110 billion) in 2014–15, which had an adverse effect on the country’s current account deficit. The petroleum industry in India mostly consists of public sector companies such as Oil and Natural Gas Corporation (ONGC), Hindustan Petroleum Corporation Limited (HPCL), Bharat Petroleum Corporation Limited (BPCL) and Indian Oil Corporation Limited (IOCL). There are some major private Indian companies in the oil sector such as Reliance Industries Limited (RIL) which operates the world’s largest oil refining complex.
Engineering
Engineering is the largest sub-sector of India’s industrial sector, by GDP, and the third-largest by exports. It includes transport equipment, machine tools, capital goods, transformers, switchgears, furnaces, and cast and forged parts for turbines, automobiles and railways. The industry employs about four million workers. On a value-added basis, India’s engineering subsector exported $67 billion worth of engineering goods in the 2013–14 fiscal year, and served part of the domestic demand for engineering goods.
The engineering industry of India includes its growing car, motorcycle and scooters industry, and productivity machinery such as tractors. India manufactured and assembled about 18 million passenger and utility vehicles in 2011, of which 2.3 million were exported. India is the largest producer and the largest market for tractors, accounting for 29% of global tractor production in 2013 India is the 12th-largest producer and 7th-largest consumer of machine tools.
Defence industry
The Defence industry of India is a strategically important sector in India. With strength of over 1.39 million active personnel, it is world’s 2nd largest military force and has the world’s largest volunteer army. The total budget sanctioned for the Indian military for the financial year 2018 is $62.8 billion, about five times what it spends on education and welfare. Despite having a modest internal defence industry, India is the largest arms importer in the world, with most of its arms purchases coming in from Russia. 12% of worldwide arms exports (by value) reach India.
Gems and jewellery
India is one of the largest centres for polishing diamonds and gems and manufacturing jewellery; it is also one of the two largest consumers of gold. After crude oil and petroleum products, the export and import of gold, precious metals, precious stones, gems and jewellery accounts for the largest portion of India’s global trade. The industry contributes about 7% of India’s GDP, employs millions, and is a major source of its foreign-exchange earnings. The gems and jewellery industry created $60 billion in economic output on value-added basis in 2017, and is projected to grow to $110 billion by 2022.
The gems and jewellery industry has been economically active in India for several thousand years. Until the 18th century, India was the only major reliable source of diamonds. Now, South Africa and Australia are the major sources of diamonds and precious metals, but along with Antwerp, New York, and Ramat Gan, Indian cities such as Surat and Mumbai are the hubs of world’s jewellery polishing, cutting, precision finishing, supply and trade. Unlike other centres, the gems and jewellery industry in India is primarily artisan-driven; the sector is manual, highly fragmented, and almost entirely served by family-owned operations.
Petroleum products and Chemicals
Petroleum products and chemicals are a major contributor to India’s industrial GDP, and together they contribute over 34% of its export earnings. India hosts many oil refinery and petrochemical operations, including the world’s largest refinery complex in Jamnagar that processes 1.24 million barrels of crude per day. By volume, the Indian chemical industry was the third-largest producer in Asia, and contributed 5% of the country’s GDP. India is one of the five-largest producers of agrochemicals, polymers and plastics, dyes and various organic and inorganic chemicals. Despite being a large producer and exporter, India is a net importer of chemicals due to domestic demands. The chemicals manufacturing industry contributed $141 billion (6% of GDP) and employed 17.33 million people (4% of the workforce) in 2016.
Pharmaceuticals
The Indian pharmaceutical industry has grown in recent years to become a major manufacturer of health care products to the world. India produced about 8% of the global pharmaceutical supply in 2011 by value, including over 60,000 generic brands of medicines.The industry grew from $6 billion in 2005 to $36.7 billion in 2016, a compound annual growth rate (CAGR) of 17.46%. It is expected to grow at a CAGR of 15.92% to reach $55 billion in 2020. India is expected to become the sixth-largest pharmaceutical market in the world by 2020. It is one of the fastest-growing industrial sub-sectors and a significant contributor of India’s export earnings. The state of Gujarat has become a hub for the manufacture and export of pharmaceuticals and active pharmaceutical ingredients (APIs).
Textile
The textile and apparel market in India was estimated to be $108.5 billion in 2015. It is expected to reach a size of $226 billion by 2023. The industry employees over 35 million people. By value, the textile industry accounts for 7% of India’s industrial, 2% of GDP and 15% of the country’s export earnings. India exported $ 39.2 billion worth of textiles in the 2017-18 fiscal year. India’s textile industry has transformed in recent years from a declining sector to a rapidly developing one. After freeing the industry in 2004–2005 from a number of limitations, primarily financial, the government permitted massive investment inflows, both domestic and foreign. From 2004 to 2008, total investment into the textile sector increased by 27 billion dollars. Ludhiana produces 90% of woollens in India and is known as the Manchester of India. Tirupur has gained universal recognition as the leading source of hosiery, knitted garments, casual wear and sportswear. Expanding textile centres such as Ichalkaranji enjoy one of the highest per-capita incomes in the country. India’s cotton farms, fibre and textile industry provides employment to 45 million people in India, including some child labour (1%). The sector is estimated to employ around 400,000 children under the age of 18.
Industrial Sector- Growth and recent trends
Trends in Industrial growth
Phase one
Which had laid the basis for industrial development in the future. The second plan, basedon Mahalanobis model, emphasized the development of capital goods industries and basic industries. Accordingly huge investments were made in industries like iron andsteel, heavy engineering etc the same pattern continued in the Third plan as well. Thereoccurred a noticeable acceleration in the compound growth rate of industrial productionover the first three plan periods up to 1965 from 5.7 per cent in the First Plan to 7.2 per cent in the Second Plan and further to 9.0 per cent in the Third Plan .
Phase Two
Which cover the period 1965 to 1976 was marked by a sharp deceleration industrialgrowth. The rate of growth fell steeply from 9.0 per cent per annum during the Third Planto a mere 4.1 per cent per anum during the 1965-1976.
Phase Three
Which cover the period of 1980’s can broadly be termed as a period of industrial recovery. The rate of industrial growth was 6.4 per cent per annum during 1981-85, 8.5 per cent per annum during the Seventh Plan and 8.3 per cent per annum in 1990-91.
Phase four
The year 1991 ushered in a new era of economic liberalization fall under Phase Four.Major liberalization measures designed to affect the performance of the industrial sector were – wide-scale reduction in the scope of industrial licensing, simplification of procedural rules and regulations, reductions of areas etc.,
The average annual growth rate of industrial production which was 7.8 per cent in the pre-reform decade fell to 5.7 per cent during period 1990-2000. The Post-Reform periodwas marked by considerable fluctuations and thus showed a total lack of consistency inindustrial growth performance.
Phase Five
The period of the Tenth Plan 2002-2007 has witnessed revival of industrial growth. Therate of growth of industrial production was 5.7 per cent in 2002-03 and picked upconsiderably to 7.0 per cent in 2003-04, 8.4 per cent in 2004-05, 8.2 per cent in 2005-06and to as high as 11.5 per cent in 2006-0. For the Plan as a whole the average rate of growth of industrial production comes out average rate of growth of industrial productioncomes out to be 8.2 per cent per aurum. Yet it marks a considerable increase over earlier plans. In fact the rate of growth in industrial production at 11.5 per cent in the last year of the plan, 2006-07 is the highest growth achieved since 1995-96.
Recent trends
Sectorwise trends
Steel
In the backdrop of a slowing world economy and over capacity in production of steel, India witnessed rising imports of cheap steel from countries like China, South Korea and Ukraine into Indian markets at low prices since early 2014-15. This dumping of cheaper steel imports adversely affected domestic producers. In order to address this, apart from raising customs duty and imposition of anti-dumping duty, Minimum Import Price (MIP) on a number of items was introduced in February 2016 with a sunset clause of one year. These measures helped the domestic producers and exports recovered since February 2016 until March 2017.
Textiles and Apparels
The Textiles and Apparels sector has tremendous potential for growth in exports and employment, particularly, women’s employment. The sector witnesses a historic opportunity with China losing market share in clothing exports due to rising labour costs. However, India has not been able to leverage this opportunity due to India’s competitors i.e. Bangladesh, Vietnam, Ethiopia having duty free access to markets of EU and USA; high domestic taxes on manmade fabrics vis a vis cotton fabrics; stringent labour laws; and high logistics cost.
To address some of these constraints, the Cabinet announced a `6000 crore package for the apparel sector on 22nd June 2016. Major components of the package included enhanced subsidy under Amended Technology Upgradation Fund Scheme for concessional import of machinery from 15 per cent to 25per cent (conditional on firms generating requisite employment); implementation of Rebate of State Levies on Export( RoSL) for state levies which were not refunded through duty drawback earlier; Government to bear 12 per cent of the employers’ contribution of the full EPFS for new workers; increasing overtime caps in line with ILO norms; and introduction of fixed term employment.
Leather sector
Like the clothing sector, leather sector is also highly labour intensive sector (as discussed in Economic Survey 2016-17, Vol 1, Chapter 7). Going by global market trend, it is a favourable time to promote the footwear industry. However, challenges persist. The global demand for footwear is moving towards non leather footwear, while Indian tax policies favour leather footwear production. India also faces high customs tariffs in a number of developed country markets of leather goods and non-leather footwear. The issues in labour and employment have been recently addressed.
Gems and Jewellery
India is one of the largest exporters of gems and jewellery. The industry is found to play a vital role in the contribution to total foreign reserves of the country. It is one of the fastest growing sectors and is export oriented and labour intensive. As per the 68th round of NSSO, the sector employed 20.8 lakh persons in 2011-12. Exports of the sector have risen from 0.7 per cent in 2014-15 to 12.8 per cent in 2016-17.
MSME Sector
The share of MSME Sector in the country’s Gross Value Added (GVA) is approximately 32 per cent. MSMEs in India play a crucial role in providing large scale employment opportunities at comparatively lower capital cost than large industries and also in industrialization of rural & backward areas. As per the National Sample Survey (NSS) 73rd round, for the period 2015-16, there are 633.8 lakh unincorporated non-agriculture MSMEs in the country engaged in different economic activities providing employment to 11.10 crore workers.
Foreign Direct Investment
Foreign Direct Investment (FDI) has been an important source of financing for the economy. FDI policy reforms announced in 2016 brought most of the sectors under automatic approval route, except a small negative list. Total FDI inflow grew by 8 per cent i.e. US$ 60.08 billion in 2016-17 in comparison to US$ 55.56 billion of the previous year. It is the highest ever for a particular financial year. In 2017-18, till September, the inflow of total FDI was to the quantum of US$ 33.75 billion.
In terms of share in FDI Equity inflows, Mauritius, Singapore and Japan have been top three countries in India contributing 36.17 per cent, 20.03 per cent and 10.83 per cent of the total FDI Equity Inflows during 2016-17. In terms of the Sectors receiving FDI Equity inflows, Services (Finance, Banking, Insurance etc.), Telecommunications and Computer Software & Hardware have been the top three sectors with a share of 19.97 per cent, 12.80 per cent and 8.40 per cent respectively.
Development of Industries:-
Industrial Development in India during the British Rule:-
- Subject Matter of Industrial Development
- Early Efforts of Industrialization
- Industries in the Inter-War Period (1919-38)
- Industries during 1939-47
- Reasons for Low Industrial Development in India.
Subject Matter of Industrial Development:
Underdeveloped countries are greatly handicapped by shortage of capital for industry and enterprise.
Finance is the prime maker of growth. Anyway, capital for industry and entrepreneurial zeal were severely and conspicuously scarce in India when the East India Company (1600-1874) stepped into this country.
It was very difficult to raise capital on private initiative in the days of the Company rule and, thereafter, because of damped forces of demand and supply capital remained shy.
Naturally, under the circumstance, the state is supposed to act as a godfather for promoting and financing industries. Since India was under the British rule for almost 200 years (1757-1947), the British Government, found it unprofitable and unnecessary to go for industrialization in India. However, imperialist capital came in this country as a matter of colonial policy—the policy of subordination of Indian to British capital. It was only after the First World War (1914-1918), that state patronage for industrial development was visible as Britain’s supremacy all over the globe came under serious threat.
Against this backdrop, a “new” pattern was evolved to overcome the obstacles of
- shortage of entrepreneurship;
- non-availability of, mainly, venture capital; and
- dearth of managerial skill and knowhow.
This new pattern of industrial organization that evolved came to be known as the Managing Agency System (MAS)—a peculiar business entity in the early years of the nineteenth century. Before we embark upon this form of industrial organisation, we will make a brief review of the industrial development during the British rule.
Early Efforts of Industrialization:
Modern industry or the large-scale industry is a mid-19th century phenomenon. Before the British conquest, India’s supremacy in the industrial field reached its high watermark—India was called ‘the industrial workshop of the world’ during the 17th and 18th centuries. Demand for Indian cotton goods in England during this time was unprecedented. Indian cotton cloth was considered by Englishmen as the badge of ‘style and fashion’ of the time.
Woolen and silk items were also in huge demand. All this development brought untold miseries in England and other parts of Europe. Firstly, import of Indian goods destroyed the prospect of woolen and silk industries. Secondly, unemployment and suffering among the weavers mounted up. Thirdly, change in the composition of India’s trade led to the export of treasure from England to India.
To counteract these unhappy developments, some measures were taken to pacify the British nationals, but with little relief. Ultimately, the way out was found through legislations. Acts were passed, first in 1700, then again in 1720, to prohibit or restrict import trade of Indian cotton good, silks, calicos, etc., by total prohibition or by imposing heavy duties. As these measures did not yield desired result, one British author commented in 1728: “two things amongst us are ungovernable: our passions and our fashions”.
What was the net effect of this state of industrial development? What was ‘industrialization’ to India by the standards of time was ‘de-industrialization’ to Britain. India, however, had not been fortunate enough as soon as the ‘ugliest’ thing came on us in 1757—the loss of freedom through British conquest of India.
Growth of Indian Industries till World War I:
India had never been an industrial country in the modern sense of the term. In this sense, even England and other industrialized countries of today had not been so, until recently. What strikes most about India was that even being predominantly an agrarian country large varieties of industries existed in India and some of them competed quite successfully with many other countries.
But her industrial supremacy started crumbling when the English cotton industry raised its head rapidly by the mid-18th century.
Two important developments of this were:
(i) The beginning of the era of industrial revolution in England around 1750 and
(ii) The battle of Plassey in 1757 that established the Company (foreign) rule.
As soon as the battle was won, the foreign ruler started abusing both economic and political power in an un-sympathetic and hostile way. Under pressure from the powerful rising English manufacturing interests, EIC dealt a severe blow to Indian industries that led to final extinction—the phase of India’s ‘deindustrialization’. Now the cycle turned inside out. It employed the arm of political injustice on Indian products (one-way free trade) to strangulate a competitor with whom she could not contend ‘on equal terms’.
The last nail in the coffin was hammered in 1813 when the trading monopoly of the EIC was withdrawn. It was the political domination and the commercial policy of Britain that threw open India to all. India now suddenly was reduced to an importing country from an exporting nation. Indian market now became flooded with machine-produced goods at a lower price and also witnessed the loss of export markets. Further tragedy was in store.
Being a colonial country, she had to pay a large sum for England’s industrialization scheme. India was forced to supply raw materials for triggering industrial revolution with greater rapidity in England. India was then forcibly transformed from being a country of combined agricultures and manufactures into an agricultural colony of British manufacturing capitalism.
A history of modern Indian large scale private industry between 1850 and 1914 is associated with the developments in mainly plantations like jute, cotton, and steel. Beginning of these modern Indian industries was the ‘product of India’s economic contact with Britain’.
There was also a limited development of mining, especially coal. One thing that is worth noting is that most of these industries, except textile factories, were under European control.
In the early days of the Company rule, Indian raw jute had been in great demand for the Dundee mills. World conditions after 1850 were quite propitious for the growth of jute manufacturing and the credit for jute spinning firm in Rishra, near Serampore, Bengal, went to George Acland—a Scottish. The foundations of cotton textile industry were laid also during the early 1850s. Though the jute industry was dominated by the foreigners the cotton industry was shaped and cared by the natives, mainly the Parsee entrepreneurs.
Some abortive attempts were made by the East India Company in the 19th century to develop iron and steel industry. However, the credit for the development of large scale manufacture of steel in India goes to Jamshedji Tata and his son Dorabji. Tata Iron and Steel Company were set up in 1907 and it started function of producing pig iron in 1911 and steel ingots in 1912.
The progress or the achievements of modern large scale industries can be visualized by considering the output produced and the employment data. Between 1880 and 1914 large scale industrial output grew at the rate of 4-5 p.c. p.a. —a rate of growth that is comparable to other contemporary countries of the world. But in the light of total economic activity in India, output produced was rather insignificant. This is also true about the employment situation; it came to less than eight-tenths of 1 p.c. of the total labor force in 1913-14.
Meanwhile India’s industrial structure started diversifying. In spite of inadequacy of domestic demand and high production costs, industries like woolen mills, breweries, and paper making industries made significant march during this time. Though these industries were recorded officially as the large industries, they were small in character.
Other industries having small-scale character that operated were tanning, vegetable oil processing, glass-making, leather goods manufacturing, etc. Despite diversification, India’s modern manufacturing industry could not develop on a sound footing before the outbreak of the World War I.
The three important reasons behind such industrial development were:
(i) Young in experienced entrepreneurs,
(ii) Absence of State aid towards industrialization,
(iii) Steep uninhibited competition with developed foreign machine manufactures.
- C. Majumder then adds: “The pattern of industrial development which had emerged in the 19th century—confined to a limited sector and concentrated in a few unevenly distributed areas—remained virtually unchanged till the beginning of World War I, though within these narrow limits the years 1905-14 witnessed a relatively rapid growth”.
Industries in the Inter-War Period (1919-38):
No country under colonial dependence could undertake any industrial transformation, if not all-round development. Up to the First World War, India experienced the classic period of imperialism of free trade and the British Government’s unsympathetic, hostile policy against industry.
In addition, shortage of capital, management experience and technical expertise, as well as the absence of a growing indigenous market, and, above all, general poverty, caused slow expansion of Indian industries. Even then, one can safely conclude that during 1850-1914, the foundations of modern industries were laid in India.
Meanwhile, the outbreak of the First World War exposed the weakness of Britain’s strategic position in the East as India had been deprived to develop the most elementary basis of modern industry. In order to impress upon the Indian people and the (industrial) bourgeoisie, Britain granted some political and economic concessions, particularly future industrialization during the War and immediately after the War.
As the issue of tariff protection crept into the heads of Indians, the British Government appointed the Industrial Commission in 1916 and assured that industrialization efforts would henceforth continue with utmost sincerity. Unfortunately, industrialization scheme as prepared by the Industrial Commission ultimately came to nothing.
However, during the war-period, industries like cotton and jute made much headway. Steel industry also experienced substantial growth. Consumer goods industries like chemicals, cement, fertilizers, mineral acids, etc., for which India depended on foreign countries, also progressed during the War.
However, such prosperity of Indian industries was not a long-lasting one. Above all, promises made by the foreign ruler remained, however, unaddressed—as usual. On the contrary, faced by the intense foreign competition, Indian industries in the mid- 19205 demanded protection in an unwavering manner. To this end, the Fiscal Commission was appointed in 1921 that ushered in a policy of discriminating protection.
This was indeed a belated response to repeated demand made by the Indians from at least since the 1880s. The policy definitely helped some industries to develop. But the end result was rather a haphazard development of certain industries and not general economic development as such. In 1936, ‘The Economist’ observed India’s industrialization effort: “Although India has begun to modernize her industries, it can hardly be said that she is as yet being industrialized”.
On the whole, during the inter-war period, output of cotton piece goods, steel ingots, paper, etc., increased substantially. Many other industries also progressed even in terms of employment and the number of factories. But as far as diversification was concerned, it was indeed slow and the state of transformation of the economy was only ‘marginal’.
Industries during 1939-47:
The Second World War, however, opened a new phase in India’s industrial history. As the character of the World War II was different from that of the First, the latter created a far more urgent and intense demand for the rapid growth of India’s basic and key industries. Against the backdrop of this favoured ambience of industrial development and the near-cessation of imports due to war operations, Indian industries somehow came to take pleasure in having a quasi- monopoly situation in the home market.
As a result, not only industrial output of large scale industries expanded significantly, but also a more widening of the industrial diversification became possible during the war-time years. During 1938-39 and 1945-46, the general index of output of all large scale manufacturing activity (at 1938-39 prices) rose from 100 to 161.6 and that of factory employment increased from 100 to 159.
Despite this headway, India’s manufacturing before independence displayed many frailties. Firstly, India did not possess capital goods industries worth the name. This, therefore, hampered her potentiality to reproduce its existing productive capacity. Secondly, import dependence of the Indian manufacturing sector was enormous.
Thirdly, possession of technical skill and institutes offering technical education were virtually negligible. Industrial development is largely conditioned by the stock of ‘human capital’—the stock of scientific and technical cadre. India was still a country denied to grow by the apathetic foreign government.
However, the prospect for industrial development in India after independence must not be undermined as she had already constructed enough possibilities for industrial development.
Reasons for Low Industrial Development in India:
In this connection, it is better to point out some reasons behind the low level of industrial development in India.
It was the result of:
(i) Inadequate capital accumulation;
(ii) Mobilisation of unproductive investment; (Keynes castigated inordinate love for liquidity of Indians. Male people were desirous of seeing jewellery in the neck of their female counterparts);
(iii) Undue preference for quick-return yielding commerce and trading activities of the Indian capitalist classes; and
(iv) Concentration of entrepreneurship in the hands of a few small sections of Indians.
In addition, shortage of capital goods and absence of skilled personnel also acted as drag on India’s industrial development.
Though these acted as strong depressants, colonial status seemed to be the strongest stumbling block for India’s drive for industrialization. Above all, the contribution of the British Government towards India’s industrialization was minimal before 1916, that is, before the establishment of the Industrial Commission. The industrial policy of the imperial power could be described as ‘a case of too little and too late’.
Industrial Growth and Structure – Public, Private and Joint Sectors
Division of the Economy between Public Sector and Private Sector:
The present economic structure of Indian economy is known as mixed economy, where there is a coexistence of both the public sector and the private sector. All the different types of industries are divided between these two sectors. From the very beginning, most of the industries of the country were within the purview of private sector.
But after independence and especially after the introduction of economic planning followed by the introduction of Industrial Policy Resolutions, 1948 and 1956 the importance of the public sector was realised. Accordingly, some definite category of industries was gradually reserved for the public sector for their expansion and development.
In this way, the sizes and activities of the public sector gained its momentum with the growing volume of planned expenditure for the development of public sector under different Five Year Plans of the country. Thus in a mixed economy like India, some industries are owned and managed by the State through its public sector and the remaining others are owned and managed by the private sector of the country.
In India, only those industries are reserved for the public sectors which are essential for speedy development of the economy and where private sector is reluctant to invest either due to low rate of return or heavy risk involved in it.
In India, the area of activities of the public sector were very much restricted to a limited range like power, irrigation, roads, railways, port, communications and some departmental undertakings at the time of independence. But after independence, the area of activities of the public sector was expanded at a rapid pace. Two industrial policy resolutions adopted in 1948 and 1956 respectively have divided the industries of the country into different categories.
Accordingly, some industries were entirely reserved for the public sector; some industrial fields were left completely for the private sector. Such division of areas between the public and private sector reveals that while the heavy, basic and strategic industries were reserved for the public sector, the entire group of consumer goods industries, producing both consumer durables and non-durables was kept open for the private sector.
The entire agricultural sector, being the largest sector of the country has been left for the private sector. Again the infra-structural fields like railway, air transport, port, power, communications, banks, insurance, financial corporation’s etc. are reserved for the public sector.
The logic behind reserving the heavy and basic industries like iron and steel, heavy electrical plant, heavy engineering etc. for the public sector and the quick-yielding consumer goods industries for the private sector is quite simple.
R.K. Hazari made an attempt to analyse the logic behind such strategy of the Government, where he argued that the industrial programme of the government adopted after 1955 were finalised as per the following two hypotheses:
(a) Private investment activity in relatively simple goods would generally be promoted by shutting out imports as well as through utilisation of excess capacity at home, with a consequent boost to profits; and
(b) Public investment, being indifferent to profits, would be made in those basic and strategic- areas which had long gestation periods, poor or zero rate of profits, a large exchange requirement, complex technology and equally complex problems of co-ordination.
Here the first hypother is argued that private investment was in the form of ‘induced investment’ and could be promoted by adopting a policy of protection against various imported substitutes. The argument in favour of the second hypothesis was that the flow of investments in low profit yielding and heavy investment requiring industries were in the form of ‘autonomous investment’ and, therefore, could be undertaken by the state.
Relative Role of Public Sector and Private Sector in the Indian Economy:
Relative Role of Public and Private Sector as reflected in the Industrial Policy of India:
In a country like India, both the public sectors as well as the private sector are playing their relative role quite effectively. The Industrial Policy Resolutions of 1948 and 1956 have made special provision for the reservation of sphere for both the public as well as the private sector considering their relative role in the economy of the country.
The Industrial Policy, 1948 has divided Indian industries into four broad categories, involving both the public as well as the private sector and thereby laid the foundation of mixed economy. Thereafter, Industrial Policy Resolutions, 1956, classified the Indian industries into three schedules, i.e., state owned sector, progressively state-owned sector and private sector.
As per this policy, 1956, the State would facilitate and encourage the private sector industries by ensuring infra- structural facilities like power, transport and other services and provided non-discriminatory treatment to both public and private owned units.
Moreover, the philosophy and programme of action for the promotion of public sector was incorporated in the Industrial Policy Resolutions of 1948 and 1956. The Industrial Policy Resolutions of 1956 aptly observed, “The adoption of the socialistic pattern of society as the national objective, as well as the need for planned development requires that all industries of basic and strategic importance or in the nature of public utility services, should be in the public sector. Other industries which are essential and require investment on a scale which only the state in present circumstances, could provide, have also to be in the public sector. The state has, therefore, to assume direct responsibility for the future development of industries over a wider area.” Thus, the Industrial Policy Resolutions of 1948 and 1956 have clearly mentioned the relative role of both public and private sector in a country like India.
While analyzing the role of public sector in Indian economy, Mrs. Indira Gandhi the then Prime Minister of India, rightly observed, “We advocate a public sector for those reasons to gain control of the commanding heights of the economy to promote critical development in terms of social gain or strategic value rather than primarily on consideration of profit and to provide commercial surpluses with which to finance further economic development.”
The Industrial Policy Statement, 1977, has also mentioned about the role of public sector and thereby it prescribed the expansion of the role of public sector especially in respect of strategic goods of basic nature. The public sector was also encouraged to develop ancillary industries and to transfer its expertise in technology and management to small scale and cottage industry sector.
Considering the growing problem of sickness of public sector enterprises, the Industrial Policy of 1980 reaffirmed its faith on the public sector in-spite of having erosion of faith in it in recent years. Therefore, the policy introduced a time bound programme in order to revive the efficiency of public sector undertakings through its effective operational system of management.
Again the industrial Policy of 1980 also made an attempt to integrate industrial development in the private sector by promoting the concept of economic federalism with setting up of a few nucleus plants in each district, identified as industrially backward district, to generate as many ancillaries and small and cottage units as possible.
The new Industrial Policy, 1991 radically liberalized the industrial policy itself and deregulates both the public and private sector industries substantially, in line with the liberalisation move introduced during the 1980s. Realising the relative role of both public and private sector industries of the economy, the new industrial policy, 1991 un-shackled both the two industrial sectors from the cobwebs of unnecessary bureaucratic controls and introduced liberalisation measures in order to integrate Indian economy with the world economy, liberated the indigenous private sector enterprises from the restrictions of MRTP Act so as to attain sustained growth in productivity and employment and also to achieve international competitiveness.
Moreover, the new policy also made provision for reducing the load of public sector enterprises most in their expansion programmes. The policy for the public sector has helped them to restructure their potentially viable units. Moreover, the priority areas for the growth of future public sector enterprises are also rescheduled to include essential infrastructure, exploration and exploitation of minerals and oil, technology development and products with strategic consideration.
Thus, we have seen that various industrial policies, formulated by the Government since 1948 have given due consideration to the relative role of both public and private sector in Indian economy. Therefore, these policies have made sincere attempts for the sustained development of both the public as well as private sector simultaneously.
Relative Role of Public Sector in India:
Public sector occupied a no worthy place for achieving systematic and planned development in a developing country like India. In a country like India suffering from multi-dimensional problems, private sector is not in a position to make necessary effort for the development of its various sectors simultaneously.
Thus, in order to provide the necessary support to the development strategy of the country, the public sector offers the necessary minimum push for bringing the economy to a path of self sustained growth. Thus it is now well recognized that public sector plays a positive role in the industrial development of the country by laying down a sound foundation of industrial structure in the initial stage of its development.
The following are some of the important relative roles of the public sector in the economic development of a country like India:
(a) Promoting economic development at a rapid pace by filling gaps in the industrial structure;
(b) Promoting adequate infrastructural facilities for the growth of the economy;
(c) Undertaking economic activity in those strategically significant development areas, where private sector may distort the spirit of national objective;
(d) Checking monopolies and concentration of power in the hands of few;
(e) Promoting balanced regional development and diversifying natural resources and other infrastructural facilities in those less developed areas of the country;
(f) Reducing the disparities in the distribution of income and wealth by bridging the gap between the rich and the poor;
(g) Creating and enhancing sufficient employment opportunities in different sectors by making heavy investments;
(h) Attaining self-reliance in different technologies as per requirement;
(i) Eliminating dependence on foreign aid and foreign technology;
(j) Exercising social control and regulation through various public finance institutions;
(k) Controlling the sensitive sectors such as distribution system, allocating the scarce imported goods rationally etc.; and
(l) Reducing the pressure of balance of payments by promoting export and reducing imports.
Relative Role of Private Sector in India:
India, being a mixed economy, has assigned a great importance on the private sector of the country for attaining rapid economic development. The Government has fixed a specific role to the private sector in the field of industries, trade and services sector.
The most dominant sector of India, i.e., agriculture and other allied activities like dairying, animal husbandry, poultry etc. is totally under the control of the private sector. Thus private sector is playing an important role in managing the entire agricultural sector and thereby providing the entire food supply to the millions.
Moreover, the major portion of the industrial sector engaged in the non-strategic and light areas, producing various consumer goods both durables and non-durables, electronics and electrical goods, automobiles, textiles, chemicals, food products, light engineering goods etc., is also under the control of the private sector. Private sector is playing a positive role in the development and expansion of aforesaid group of industries. Besides, the development of small scale and cottage industries is also the responsibility of-the private sector.
Finally, the private sector is also having its relative role in the development of tertiary sector of the country. The private sector is managing the entire services sector providing various types of services to the people in general.
The entire wholesale and retail trade in the country is also being managed by the private sector in a most rational manner. Moreover, the major portion of the transportation, especially in the road transport is also managed by the private sector. With the growing liberalization of Indian economy in recent years, the private sector is being assigned with much greater responsibility in various spheres of economic activities.
Role of Joint Sector Industries in Developing the Economy of India
The radical shift in Government policy has brought the concept of the joint sector into sharp focus. It is nothing but a form of partnership between the public sector and the private sector.
Although the Joint Sector concept was conceived by the authors of the 1956 Industrial Policy Resolution, it was really the brainchild of the Industrial Licensing Policy Enquiry Committee, popularly known as the Dutta Committee.
Besides the public and the private sector, there was need for a new sector—a joint sector—for the harmonious industrial development of the economy. The joint sector is envisaged as something in between the public and the private sector and in which the state could actively participate in management, control and decision-making.
It is claimed that the joint sector scheme has the advantages of both the public and the private sectors and at the same time avoids the evils of both sectors and thus fulfils the basic socio-economic objectives of the country.
Moreover, it offers an avenue of growth when all other gates to growth seem to have been closed.
The concept of a joint sector is basically an extension of the idea of mixed economy in which the public and private sector units are separate and function independently but are nevertheless part of a national plan.
It is a compromise between total nationalisation and complete private autonomy. In the joint sector, the relationship between the representatives of the private and public sectors is much closer as they have to work together within the same unit.
The joint sector was recommended for units where a large proportion of the cost of a new project was to be met by public financial institutions either directly or through their support.
There are three different concepts of joint sector: First, financial institutions can exercise the right to convert debt into equity and appoint directors on company boards.
Secondly, Government may appoint directors on company boards through the exercise of powers granted by the Monopolies and Restrictive Trade Practices Act to check malpractices.
This need not involve share participation and must not be confused with the joint sector. The third form is the real joint sector where the Government directly, or through its agencies, is a co- shareholder in an enterprise. The Government in this case plays a promotional and entrepreneurial role and is an active majority partner.
In a memorandum submitted to the Government, JRD Tata suggested a slightly different definition of the joint sector. “A joint sector enterprise is intended to be a form of partnership between the private sector and the Government in which the State participation of capital will not be less than 26 per cent, the day-to-day management will normally be in the hands of the private sector partner, and control and supervision will be exercised by a board of directors on which government is adequately represented”.
The Dutta Committee advocated conversion of some of the private sector units into joint sector enterprises as an important means of curbing the concentration of economic power in certain private groups.
A number of new industrial projects had been established in the private sector with the help of funds provided by public financial institutions but the latter had not asked for a voice in the management.
It was strange that huge private industrial empires should be built up with funds provided by public institutions without knowing how the money was actually spent. The Dutta Committee asked the Government to enunciate a new industrial policy whereby this anomaly could be rectified.
There was a change in the industrial policy without there being a change in the 1956 Policy Resolution. The Government announced the new industrial policy in February 1970. The joint sector concept as suggested by the Dutta Committee was accepted in principle.
It was laid down that while sanctioning loans or subscribing to debentures, public financial institutions should in future have the option to convert them into equity within a specified period of time. Specific guidelines had been laid down.
In case the aggregate loans granted were below Rs. 25 lakh, the financial institutions are not to insert any convertibility clause in the agreement. If the loans granted were between Rs. 25 lakh and Rs. 50 lakh, it is optional for the financial institutions to insert a convertibility clause in the agreement. Once convertibility was agreed to, the undertaking is required to appoint representatives of the lending institutions as directors on company board.
It is not difficult to understand the logic behind the joint sector. As has been emphasised by the then Prime Minister, the old concepts of exclusive private ownership and private profit do not fit in with today’s social values and priorities.
An open society requires an open corporate structure; the joint sector provides this openness without taking away the advantages of private enterprise and initiative. The joint sector is a departure from exclusive private ownership but it should be welcomed in preference to outright nationalization.
The joint sector experiment has been viewed with misgivings by many industrialists. It has been assailed as “nationalization by the backdoor”.
But others have welcomed it on the ground that it is preferable to wholesale nationalization of existing private undertakings. There is one serious objection to the joint sector.
The concept is based on mutual trust and confidence, yet the idea originated because the private sector could not be trusted enough to grow on its own. Thus, conceived in mistrust, the marriage might be a disastrous failure.
The joint sector was evolved to check the concentration of economic power of private groups. But some think it is not necessary to check the concentration of economic power as the existing Monopolies and Restrictive Trade Practices Act was adequate for the purpose.
Conclusions:
In any economic system, no single form of organisation can exist. The national economy runs on the conditions that all major forms of organisations not only coexist but also are dependent on each other. Because of the need of the time, immediately after independence, public sector was accorded more than its traditional role in the Indian economy. Over the years both public sector and private sector have contributed in the development process of the Indian economy. However, after liberalisation, public sector is gradually being marginalised in favor of private sector. Private sector now has the required resources, will, and the capability to contribute even in the traditional domains of public sector. Now, in an open and globally integrated economy where survival depends on the efficient use of the scare resources, it is being realised that private sector involvement is a better alternative than public sector involvement. Hence, worldwide, there is a greater and faster move towards privatisation than ever before.
SEZs and Industrial Corridors of India
SEZ
The SEZ Corridor is an emerging corridor implementing a number of Special Economic Zones (SEZs) along the Grand Southern Trunk Road (NH 45) in Chennai. Started with the establishment of the Madras Export Processing Zone in 1984 (converted to a SEZ in 2003), the SEZ corridor currently has 5 operational SEZs and over 10 approved projects in development. The GST Road is widely made use of for SEZ projects due to its connectivity with various means of transport by road, rail and air. This is evident by the presence of the Chennai International Airport, various railway stations parallel to the road, and also it’s connectivity to the complex road network of the National Highways Authority of India.
A number of SEZ projects has emerged in this stretch, making it the SEZ corridor of Chennai. It includes MEPZ SEZ established in 1984, Mahindra World City, New Chennai, Shriram Properties’s Gateway SEZ, Estancia SEZ and ETL Infrastructure. It is also emerging as a major IT SEZ region with a number of huge investments by Infosys. Infosys has set up its largest development center in Mahindra SEZ while India Land Tech Park is developing a massive 500-acre (2.0 km2) SEZ which is estimated to have 20,900,000 sq ft (1,940,000 m2) office space for both IT and Electronics use. Shriram The Gateway SEZ, is an integrated township with IT/ITeS SEZ residential and mall, which is also home for IT majors like Accenture, ReDIM Information Systems and EISL is an IT/ITES SEZ by ETL Infrastructure at Chengalpattu on 260 acres (1.1 km2).
Industrial corridors
Industrial Corridor refers to a set of infrastructural spending allocated to a specific geographical area, with the aim of stimulating industrial development. An industrial corridor aims to crease an area with a cluster of manufacturing or other industry.
The major Indian Industrial Corridors are:
- Delhi-Mumbai Industrial Corridor (DMIC);
- Bengaluru- Mumbai Economic Corridor (BMEC);
- Chennai-Bengaluru Industrial Corridor (CBIC);
- Vizag-Chennai Industrial Corridor (VCIC) and
- Amritsar-Kolkata Industrial Corridor (AKIC)
Government of India has identified, planned and launched five industrial corridor projects under Make in India Campaign in the Union Budget of 2014-2015, to provide an impetus to industrialisation and planned urbanisation. In each of these corridors, manufacturing is key economic driver and these projects are seen as critical in raising the share of manufacturing in India’s Gross Domestic Product from the current levels of to to by 2022. A National Industrial Corridor Development Authority (NICDA) is being established to converge and integrate the development of all industrial corridors.
Delhi-Mumbai Industrial Corridor (DMIC)
The DMIC project was launched in pursuance of an MOU signed between the Government of India and the Government of Japan in December 2006. DMIC Development Corporation (DMICDC) incorporated in 2008, and it is the implementing agency for the project. DMICDC has been registered as a company with 49% equity of Government of India, 26% equity of the JBIC and the remaining held by government financial institutions. The Japanese Government had also announced financial support for DMIC project to an extent of USD 4.5 Billion in the first phase for the projects with Japanese participation involving cutting-edge technology.
Bengaluru- Mumbai Economic Corridor (BMEC)
The Bengaluru-Mumbai Economic Corridor (BMEC) spreaded across the states of Maharashtra and Karnataka is a proposed economic corridor in India between Mumbai and Bangalore. The Indian government aims to generate an investment over ₹3 lakh crore (US$45 billion) from this corridor and expects it to create 2.5 million jobs.
Chennai-Bengaluru Industrial Corridor(CBIC)
The mega infrastructural plan of Chennai – Bengaluru Industrial Corridor aims to come up along Chennai, Sriperumbudur, Ponnapanthangal, Ranipet, Chittoor, Bangarupalem, Palamaner, Bangarpet, Hoskote and Bangalore. It is expected to boost commerce between south India and East Asia by enabling quicker movement of goods from these places to the Chennai and Ennore ports.
Vizag-Chennai Industrial Corridor (VCIC)
With Vizag-Chennai Industrial Corridor, four nodes namely Vishakhapatnam, Kakinada, Gannavaram-Kankipadu and Srikalahasti-Yerpedu of Andhra Pradesh have been identified for development. This new industrial corridor is expected to spur growth by augmenting existing investment in world-class transport networks, infrastructure, and industrial and urban clusters.
Greater connectivity and economic integration between South Asia and the rest of Asia is likely to contribute significantly to development and foster regional cooperation as well. VCIC will create employment opportunities that alleviate poverty and reduce inequality.
Amritsar-Kolkata Industrial Corridor (AKIC)
Amritsar Kolkata Industrial Corridor (AKIC) project is structured around the Eastern Dedicated Freight Corridor (EDFC) and also the highway systems that exist on this route. The Project intends to facilitate development of a well-planned and resource efficient industrial base served by world class sustainable infrastructure, bringing significant benefits in terms of innovation, manufacturing, job creation and resource security to states coming within its Influence Region.