Lesson 2: Meaning of Industrialization, The Role of Industry in Economic Development Objectives: After studying this lesson, you will

be able to understand Meaning of industrialization Need for industrialization Role of industry in economic development

Lesson 2: Meaning of Industrialization, The Role of Industry in Economic Development Structure: 2.1 Introduction

2.2 Definition of Industrialisation 2.3 Need for Industrialization 2.4 Role of Industry in economic development. 2.4.1 Structural changes in the economy 2.4.2 Beneficial effects on agricultural development 2.4.3 Rise in per capita income 2.4.4 Changes in the pattern of trade 2.4.5 Changes in the Social Environment

2.5 2.6 2.7 2.8

Summary Key Concepts Check your Progress Self-Assessment Questions

2.9

Answers to check your progress

2.10 Suggested Readings

Objectives: After studying this lesson, you will be able to understand Meaning of industrialization Need for industrialization Role of industry in economic development

2.1 Introduction:

The term industrialization is generally used in two different meanings. In the narrow meaning, it refers to the establishment and development of the production of the means of production: in the broad meaning, it refers to the completion of the industrial revolution and the transfer of the economy to industrial methods of production.
2.2 Definition of Industrialization: According to Shirokov taken together both the above, these meanings imply that industrialization begins with the setting up of the heavy industries for the production of the means of production and that when an adequate industrial potential has been created, the entire economy is transferred to the industrial methods of production. Thus, these two meanings correspond to the initial and the concluding stages of industrialization.

But in the context of developing countries, the more meaningful definition of industrialization would be as follows: Industrialization is a system of economic development in which the major part of the national resources are used to develop a technically up-to-date, diversified national industry capable of assuring a high rate of growth for the economy as a whole and of overcoming economic and social backwardness. In general the Industrialization is the process of manufacturing consumer goods and capital goods and of creating social overhead capital in order to provide goods and services to both individuals and businesses. As such industrialization plays a major role in the economic development of underdeveloped countries.

Industrialization is a pre-requisite for economic development as the history of advanced countries shows. For development, the share of the industrial sector should rise and that of the agricultural sector decline. This is only possible through a policy of deliberate industrialization. As a result, the benefits of industrialization will trickle down to the other sectors of the economy in the form of the development of agricultural and service sectors leading to the rise in employment, output and income.

In overpopulated underdeveloped countries there is overcrowding on the land, holdings are subdivided and fragmented and farmers practice traditional agriculture. For rapid development, LDCs cannot afford to wait for changes in farm practices to take place. Therefore, LDCs must begin with industrial development to supply fertilizers, farm machinery and other inputs so as to increase efficiency on the farm.

2.3 Need for industrialization: Industrialization is necessary in order to provide employment to the underemployed and unemployed in the agricultural sector. In overpopulated countries large number of people is underemployed or disguised unemployed whose marginal product is zero or negligible, they can be transferred from agriculture to industry with little or no loss in agricultural output. Since, the marginal product of labor is higher tin industry than in agriculture, transferring such workers to the industrial sector will raise aggregate output. Thus overpopulated countries have no choice but to industrialize.

Further industrialization is essential for the following reasons besides above stated factors:
(a) It brings increasing returns and economies of scale than in agriculture

(b) To free from the adverse effects of fluctuations in the prices of primary products and deterioration in terms of trade.
(c) It provides scope for using the new technology, new and diverse skills in larger enterprises. (d) It followed by urbanization, employment opportunities and incomes increase. (e) People enjoy the fruits of modernization in the form of a variety of goods and services available in urban centers due to industrialization. (f) It also affects the rural sector through the demonstration effect and tends to raise the living standards and promotes social welfare. (g) Industrialization brings social transformation, social equality, equitable distribution of income and balanced regional development in the process of economic development.

2.4 Role of Industry on Economic Development: The effects of industrialization on the economy of a nation are many and varied. For the sake of convenience, they can be grouped into the following headings: 1) Structural changes in the economy 2) Beneficial effects on agricultural development 3) Rise in the per capita income 4) Changes in the pattern of trade and 5) Changes in the social environment. 2.4.1 Structural changes in the economy: The most important structural changes in the economy induced by industrialization are in the occupational pattern. Most of the developing countries are characterized by heavy dependency of their population on the agriculture sector. Incomes in this sector being low the economies of these countries remain stagnant and backward. Industrialization brings about a marked change in occupational distribution by opening up substantial employment opportunities in the industrial sector. The pressure of population on agriculture declines and the disguised unemployed people earning only a subsistence lively wood in agriculture are able to move out to industries where incomes are higher and prospects of progress brighter, thus industrialization brings with its strong forces of dynamism that help the developing courtiers in breaking the shackles of stagnation.

2.4.2 Beneficial effects on agricultural development:

Industrialization helps in accelerating the pace of agricultural growth in a number of ways. For instance, it increases the demand for wage goods, of which initially food is the most important. This results in more favorable markets for agricultural products and tends to breakdown the relateltively stagnant subsistence character of agriculture. The production of cash crops is stimulated, the development of agricultural processing industries encouraged and the integration of the rural and urban economies made possible. Industrialization also makes a wider range of consumer goods available to agricultural workers, raises their level of wants and encourages greater productive efforts.

By encouraging the reorganization of agriculture on a more efficient largescale, mechanized basis, industrialization creates conditions which are highly favorable to increasing productivity in agriculture.

2.4.3 Rise in Per Capita Income:

As pointed out in the beginning of this chapter, develop countries tend to be industrialize while under developed countries are not. The economic history of most of the developed countries shows that with economic development the share of industry in total national income rose rapidly.

This is just another way of saying that the progress of industrialization was accompanied by an increase in national and per capita income. For instance, the study of Cheney and Taylor shows that large developing countries like India, and small industry oriented countries can gain considerable by encouraging industry.

2.4.4 Changes in the foreign trade: It has also been frequently observed that as a country passes through the phase of underdevelopment of development, the pattern of foreign trade undergoes a significant change. From a major exporter of primary products, the country slowly and gradually becomes a major exporter of manufactured products. The process of industrialization opens up new vistas for export diversification and a number of manufactured products start entering into the export basket. These products have elastic demand in international markets and fetch better prices. As a result, export earnings start looking up. 2.4.5. Changes in the social environment:

Viewed from a sociological angle, the most important impact of industrialization is that the social outlook of the people undergoes drastic changes. The traditional village life with its communal bonds is completely transformed as large number of villagers goes away to cities to work in industries. As a result, a new entrepreneurial class is born, capital formation increases, technical innovations take place and new skills emerge.

2.5 Summary On account of the above reasons, the Indian planners gave topmost priority to programmers of industrialization. They were convinced that the solution to the problem of backwardness lay in emphasizing the process of industrial development. Since the productivity of labor is the highest in the manufacturing industries, national income could be raised at a fast rate only through the establishment of industries on a wide scale. Moreover, industrialization induced development in other sectors. The growth of industrial sector was also deemed necessary as it was expected to absorb the rapidly increasing labor force of the economy. Moreover, it was expected to provide increasing opportunities to the underemployed people in the agricultural sector and help in reducing the pressure of population on land. As a part of long-term strategy of planned development, the main emphasis was on industrialization. Within the industrial sector itself, a very high priority was given to heavy capital goods industries. The experience of different countries has clearly shown that unless a country develops iron and steel, heavy engineering, machine tools and heavy chemical industries, it will fail to accelerate the pace of economic development. While this high priority to heavy capital goods industries has helped the country in building up a strong industrial base and has given a sense of stability and continuity to the planning process, it has failed to generate enough employment opportunities so that there is no mass scale transfer of labor from the agricultural sector to the industrial sector.

Short answer type questions:

a) What is Industrialization? b) What is the need of Industrialization? Long answer type questions: a) Explain the factors which are influence the industrial development? b) Discuss the relationship between agriculture and industry c) Analyze the impact of Industrialization on employment

Suggested Readings

Misra, Puri Kuschal.S Sivaiah & Das

Indian Industrial Economy. Industrial Economics. Industrial Economics.

Bole Rao & Desai

Birthwal.R Bhagwati.J.N & Desei.P Chenery.H.B

Industrial Economics.
Industrial Economics.

India: Planning for Industrializatio

Patterns of Industrial Growth, Am Economic Review, September, 19

Isher Judge Ahluwalia

Industrial growth in India- Stagna mid 60s. The Indian Economy. Industrial Economics

Pramit Chaudhury Cheruniliam