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INDUSTRIAL DEVELOPMENT & PROGRESS AFTER INDEPENDENCE
considerable since its of
encouragement. As a result, we have now a widely diversified base of industry and an increased domestic production of a wide range of goods and services. The index of industrial production has gone up from 7.9 in 1950-51 to 154.7 in 1999-2000. Electricity generation went up from 5.1 billion Kwh to 480.7 billion Kwh in the same period. 3.1 Particularly significant achieve-
Independence. Most noticeable are the diversification production both in industry and agriculture. New technologies were introduced in many industries. Industrial investment took place in a large variety of new industries. Modern management techniques were introduced. An entirely new class of entrepreneurs have come up with the support system from the Government, and a large number of new industrial centres have developed in almost all parts of the country. the Government Over the years, has built the
ment has taken place in the field of agriculture. Between 1950-2000, the index of agricultural production increased more than four-fold. Between 1960 and 2000, wheat production went up from 11 to 75 million tonnes, and the production of rice increased from 35 to 89.5 million tonnes. We are now having a problem of plenty, with Government godowns overflowing with wheat stocks. This is not a mean achievement for a country that relied on imported food aid until the early 1960s. The credit for this green revolution goes to Indian scientists as well as to millions of Indian farmers, who wholeheartedly
infrastructure required by the industry and made massive investments to provide the much-needed facilities of power, communications, roads etc. A good number of institutions were promoted to help entrepreneurship development, provide finance for industry and to facilitate development of a variety of skills required by the industry as well as agriculture. The Government also followed a policy of encouraging indigenous industries and
A . therefore. to make India self-sufficient in the matter of its food requirements. the country embarked upon an ambitious development and encouraged the setting up of new industries and the expansion of existing industries.8% per year. 139 some of the steps that were taken to achieve these objectives. and between 1950-90. it registered an average rate of growth of 4. India experienced a positive rate of growth. The rate of growth before 1980 was 1. imports had to be restricted.5 After India became independent plan of industrial in 1947. customs tariff was brought down and the doors of the Indian economy were opened for foreign competition.2% on average every year. and their effect on Indian economy has been attempted in the next chapter. 3. import restrictions were removed. Imports of consumer goods were.2% per capita. As a result.2 This economic expansion With the 3. by 3. we will briefly trace the developments that took place in the field of industrial economic policy of India during these years. Between 199394 and 1999-2000.75 times higher than that of 1951. Thereafter. exception of 4 years. In 1991. 3.REPORT OF THE NATIONAL COMMISSION ON LABOUR cooperated with the Government. this policy was changed completely and foreign majority investment was encouraged in a variety of industries. and because of this shortage. In the early years. India’s per capita Net National Product (NNP) in 1999-2000 was 2. the country was facing a shortage of foreign exchange.7 PROTECTION TO INDIAN INDUSTRIES: India is probably one of the few countries in the world which used its import policy for the healthy development of local industries. it grew at the rate of 2.4 In this chapter. 3.6 We may briefly recapitulate were followed by the Government to achieve this success. 3. The policy was to encourage Indian industries and though foreign technical collaborations were encouraged. The year 1991 will now be regarded as a landmark in the economic history of India. Barring the first few years after Independence.4%.3 A variety of promotional policies INCENTIVES SINCE 1947 3. Therefore. direct foreign investment in any corporate body was restricted to 40%. a more detailed review of the economic policies after 1991. disallowed. INDUSTRIAL POLICY AND contributed to a steady and impressive growth in India’s GNP. Indian industry thrived within protective tariff walls.
There was a continuous effort to improve quality. power equipment and so on. products produced by Indian industries were not of good quality. India wanted to make machines that helped to produce other machines. 140 plans. industries acquired experience in manufacturing and turned out quality products comparable with imported products. Actual users of imported raw materials or products were given preference over the category of established importers i. encouragement was given to import technical know-how and to enter into foreign collaborations to undertake manufacture of capital equipment locally. As a result of this policy. We were importing these mother machines.REPORT OF THE NATIONAL COMMISSION ON LABOUR good number of restrictions were put on the import of industrial goods. This gave a muchneeded sheltered market for Indian goods.actual users and established importers. This gave further fillip to industrial development. Mines & Minerals Trading Corporation and such other Government bodies. and there was also a total or partial physical ban on the imports of such products. 3. and many industries thrived within these protective walls. The import policy was meant to serve two categories of importers . Thus. 3. 3.10 Protection from imports to encouraged Indian industry imports. greater emphasis was given to the development of machine tools. Therefore. They arranged for the import of such products and distributed them to indigenous industries according to requirements. and the new effort was to . There was a ready market for all these products. imports were strictly controlled by the import policy announced every year by the Government of India. Local industries were encouraged to have foreign collaborations and to import the technical know-how needed to produce what was being imported into the country.e. the emphasis was on the development industries. and the effort of the Government was to encourage the production of these goods indigenously. to achieve selfsufficiency. textile machinery. But as years went by. Initially.8 Levying higher tariffs restricted produce them in India.9 During the Second and Third of capital goods undertake the manufacture of a variety of products. The Government also gave encouragement to industries to import parts and components that were required for indigenous production. Certain items that were scarce and not available were channelised through the State Trading Corporation. traders.
In addition to this.13 CONTROL OF INDIAN from strict control over imports and the physical ban on the imports of many products. Indian businessmen had to learn and apply modern management and production techniques. For financial assistance to small entrepreneurs. parts and components compared industries to to those import on finished and products. The Government also followed a policy of low tariffs on the import of raw materials. Thus. They have to also play a major role in promoting the growth of enterprise. 3. customs tariffs were raised in some cases to 200 to 300% on imported products. 3. the National and a Small Small Industries Industries Corporation was also established at the Centre Development Bank of India was established in 1989. (IDBI) Industrial Exchange and Regulation Act (FERA) restricted foreign investment in a company to 40%.12 FINANCIAL INFRASTRUCTURE: BUSINESS: As a consequence of the restrictions on imports. the Government of India established the Industrial Finance Corporation of India (IFCI) (1948). gradually transformed into a community of industrialists. The price of local products was comparatively cheaper than those of imported goods. what was once a trading community.REPORT OF THE NATIONAL COMMISSION ON LABOUR 3. and to manufacture or assemble final products in India. and the Life Insurance 141 INDUSTRIES: Though some of the policies of the Government resulted in inhibiting the growth of large-scale . Industrial Industrial India Credit and Investment Bank of Corporation of India (ICICI) (1955). 3. Development (1964). those who were importing products entered into collaboration with their principals and entered the field of manufacturing. the Government set up a number of development banks.15 ENCOURAGEMENT TO SMALL Reconstruction Corporation of India (1971). 3.11 HIGH CUSTOMS TARIFFS: Apart Corporation of India (LIC) (1956). This ensured that much of the control in companies with foreign collaboration remained in the hands of Indians. The principal function of a development bank is to provide medium and longterm investments.14 Regulations under the Foreign To provide the financial infrastructure necessary for industry. This gave protection to local industries. Finance Corporations were established in all states on the basis of an Act that was passed by Parliament in 1951. Unit Trust of India (UTI) (1963). To succeed. This encouraged Indian parts components. With this objective.
k) Differential central excise levies for the small-scale sector. Special financial assistance schemes at concessional rates of interest and low margins for technician entrepreneurs. These j) promotional measures covered: Special incentives for setting up units in backward areas. 142 a) Industrial extension services through small industries service institutes and other organisations. infrastructural support. n) Creation of a large number of institutions both by the State Governments and the Central Government enterprises. financial f) g) Provision of training facilities. they gave encouragement to small-scale industries by providing a number of support measures for growth. Credit facilities at concessional rates of interest and credit guarantees through commercial banks and State Finance Corporations. Subsidised power tariffs and exemption of electricity duties. b) Factory space in industrial estates through cooperative and other industrial estates.REPORT OF THE NATIONAL COMMISSION ON LABOUR industries. to help small d) e) . h) Supply of local and imported machinery on hire purchase basis. and fiscal. ready built shades and developed industrial plots made available through State Government agencies. l) Preference for products produced in small-scale industries and 15% price preference to them in State Government purchases. i) Assistance for domestic as well as export marketing. entrepreneurship development. and technology. Availability of indigenous scarce raw materials through special quotas and imported materials through import licenses. marketing. o) Special effort to promote new entrepreneurs by providing them training in entrepreneurship development. c) m) Reservation of products for exclusive manufacture in the small-scale sector. Policy measures undertaken by the Central and State Governments addressed the basic requirements of the SSI like credit.
24 143 .00 186.16 were While most of the institutional provided by the Central projects made were in undertaken road and support services and some incentives Government.54 6. the State Governments offered others in varying degrees to attract investments and to promote small industries. roads.45 71. Apart from this.02 17. This helped considerably in the growth of industries.REPORT OF THE NATIONAL COMMISSION ON LABOUR 3. available and to communications STRUCTURE: Energy-Transport- entrepreneurs who wanted to set up industries. 3. Similarly. communications.18 Changes in the production of Communications facilities are extremely essential for smooth and accelerated industrial growth. creation of port facilities etc. 3.26 3. various State Governments made developed plots of land or industrial estates with power. water. as well as the State Governments invested huge funds in power generation and distribution.1 Production of Commercial Energy Form of energy Coal Lignite Crude oil Natural gas Thermal power Hydro power Nuclear power Unit Million tonnes Million tonnes Million tonnes Million cubic mets Billion Kwh Billion Kwh Billion Kwh 1950-51 33.00 2. The Government made huge investments in providing such infrastructure facilities to industries. investments were building.17 INVESTMENT IN INFRA- completed.00 0.07 33. The Central Government.998. and many new power primary commercial energy since 195051 are summarised in the following table: Table 3.73 14.52 1990-91 211.
.20 The pattern of sectoral significant sources of energy since the eighties.REPORT OF THE NATIONAL COMMISSION ON LABOUR 3. cater to the growing needs industries during the last fifty years.21 Power shortages caused by plants. New sources of oil were The Oil and discovered.0 3.19 Oil and natural gas emerged as 3. 3. substantial shortfalls in achieving power targets have been a recurring theme from plan to plan.8 46. The indigenous oil exploration programme gained credibility in the seventies. and considerable refining capacity was created.22 OIL AND NATURAL GAS: The Oil and Petroleum industry must be considered a gift of the planning era. Management Institutes and Engineering Colleges to train persons with higher management and technical skills.23 3. It also set up Indian Institutes of Technology. all over the country to train skilled workers. and the commissioning of new refineries. the Government set up a large number of industrial training institutes. consumption has also undergone noticeable changes over the years as can be seen from the following table: Table 3. oil exploration.4 24.2 9.9 1.2 Shares Percentage in Final Energy Consumption Sector Industry Transport Domestic Agriculture Others Total 1953-54 39.0 1990-91 50.3 100.8 9. Natural Gas Commission was set up for Additional refining capacity was created through the expansion of some of the existing 144 TRAINING AND SKILLS To of DEVELOPMENT: Trained manpower is necessary for industrial growth.4 100.7 2.0 2.5 13.
Pune. loans and other facilities for the growth of industries in these areas. defence industries and some areas were reserved for the public sector..’ 3. cheap developed land. 3. the Research in science and applied technology is very much needed in order to sustain in technological The development industries. telephones. atomic energy. We have therefore had no shortage of skilled manpower to cater to the growing requirements of industry. industries were mostly located in and around port cities like Mumbai. After Independence. subsidies on power rates. exemption from sales tax levy. Indian scientists and technologists also ushered in the Green Revolution. physics.REPORT OF THE NATIONAL COMMISSION ON LABOUR 3. Coimbatore. civil aviation. Rajkot. This considerably helped the growth of under developed or backward areas in the different states.25 SCIENTIFIC RESEARCH : up in these areas. banks were nationalised and were included in public sector. 3.28 Right from the beginning.29 In the Industrial Policy Before Independence. communications. Kolkata or Chennai. and developed space technologies on their own.26 BACKWARD AREA DEVELOPMENT: planners attached great importance to the public sector. electronics. Government of India set up 48 national laboratories to undertake applied research in chemistry. EMPHASIS ON PUBLIC SECTOR 3.27 Both the Central Government 145 Resolutions of 1948 and 1950. whenever there was a . and many others.24 Our youth have been quick at and the State Governments followed a deliberate policy of encouraging industries in backward areas. The Central Government selected a few backward districts and offered 25% capital subsidy for industries set learning skills. Baroda. Certain industries like life insurance. grew up as new industrial cities. It was expected that the sector would control the ‘Commanding heights of the Indian economy. Bangalore. etc. Faridabad. Power. 3. a very important role was assigned to the public sector. botany. and these research institutes developed a number of new processes which are commercially exploited by industries. and the White Revolution. sales tax. Thereafter. Hyderabad. Various State Governments also offered similar capital incentives. new centres of industries were developed as a result of the infrastructural facilities that were made available by the State Governments.
30 Upto the year 1999.33 INDUSTRIAL POLICY 235 public sector undertakings and the Government had invested an amount of Rs. That is how a large number of textile industries came into the public sector. The Government took over sick industries to provide employment. 1948: The first Industrial Policy Resolution. 273700 crores in such undertakings. broadly laid down the objectives of the Government’s policy in the industrial field and clarified industries and enterprises into four categories. No incentives were offered to Indian industries for their growth. The Government was keen to dispel the apprehension that foreign enterprises may be taken over. they made RESOLUTION. who laid the foundations of modern industry in . namely: a) Those exclusively owned by the Government. There the were many of desired and undesired hurdles placed in the way of growth Indian industry.D. EVOLUTION OF INDUSTRIAL POLICY IN INDIA 3. and equipment undertakings facilities for manufacture. there were Immediately after Independence. Walchand Hirachand. iron and steel. coal.g. railways. arms and and in atomic energy. Key or basic industries. announced in 1948. 3. Lala Sriram.7 crores.32 AFTER INDEPENDENCE : 146 emergencies. Credit must be given to pioneers like Jamshedji Tata.31 Before Independence. were etc. ammunition. the policy of the British Government was against encouraging industrial development in India. e. 3.REPORT OF THE NATIONAL COMMISSION ON LABOUR shortage. G. mineral already existing in this group promised efficient working and ‘reasonable’ expansion for a period of ten and others. Birla India..g. e. the Government stepped in to bail out. any industry vital for national defence. ship aircraft building. 3. It also declared its policy on foreign capital in 1949. The except radio receivers. and invited foreign capital for investment in the country. 397. a gross profit of Rs. the Government of India announced its industrial policy in 1948 and laid down the plan for future industrial growth in the country. etc. In 1998-99. b) Whatever industrial development took place in India was in spite of the negative and hostile attitude of the British Government. as it did with the cement and paper industries. telephone. telegraphs communications oils.
1951: The Industrial Policy Resolution of 1948 was followed by a Government of India (GOI) Resolution on 2 nd September 1948. 1951 (IDR): The IDR Act gave very wide powers to the Government.35 In 1951. except those owned by the Central Government were compulsorily required to register with the designated authority. which the Central Government may approve. Such licenses and clearances were also required in cases of ‘substantial expansion’ of an existing industrial undertaking.REPORT OF THE NATIONAL COMMISSION ON LABOUR years. the Industrial The main in Part I of the Schedule. provisions of the Act were: a) All existing undertakings at the commencement of the Act. left open to the private sector. falling production. 3. This resulted in more or less complete control by the . more or less. the Central Government could issue necessary directions in respect of quality of its products. c) The third category of 18 specified industries were to be subject to the Government’s control and regulation in consultation with the then d) provincial (now State) Governments. location.36 In regard to the industries listed REGULATION) ACT. constituting a Central Advisory Council of Industries under the chairmanship of the Minister for Industry. the State could exercise the option to nationalise them. b) No one except the central Government would be permitted to set up any new industrial 147 industries specified in one part to INDUSTRIAL DEVELOPMENT REGULATION ACT.37 IMPLEMENTATION OF THE AND could transfer (Development and Regulation) Act was passed by the Parliament. 3. The rest of the industrial field was. minimum standards in respect of size and techniques to be used. such as. at the end of which. Part I and II in the Schedule to the Act. The industries to be brought under regulation were divided into two parts.34 INDUSTRIAL (DEVELOPMENT & e) d) c) undertaking “except under and in accordance with a licence issued in that behalf by the Central Government. 3. rise in prices etc. a) Government another. 3.” Such a licence or permission prescribed a variety of conditions.
were left to be developed by the private sector. In category B industries were private enterprises who could participate along with public enterprises. This sector was called the joint sector. b) approval of foreign exchange expenditure on the import of plant and machinery. the Government of India appointed Commission “to inquire into the existence and effect of concentration of economic power in private hands. emphasised the role development of the national economy. 3. The Commission looked at concentration of economic power in the area of industry.42 MONOPOLIES COMMISSION: In a Monopolies Inquiry April 1964. importance of the SSI Sector in providing employment. The Parliament accepted the socialistic pattern of society as the objective of social and economic policy. therefore. c) approval for the terms of foreign collaboration. 3.41 of The The Industrial Policy of 1956.” The Commission was requested to look at the prevalence of monopolistic and restrictive practices in important sectors of economic activity.38 INDUSTRIAL POLICY RESOLUTION. expansion. an Act was 148 therefore announced in 1956. location. and examined industrywise and productwise concentration.39 A new Industrial policy was for the first time. All basic and strategic industries were to be set up in the public sector. manufacture of new products etc. All remaining industries falling in category C. 3. 1956 : After 1948. On this basis. It also laid emphasis on the equitable distribution of national income and the effective mobilisation of resources. recommended the development of ancillary industries in areas where large industries were to be set up. The industrial policy.40 This Industrial Policy divided industries into three categories. the factors responsible for these and the legal solutions for them. The Commission also examined the concentration ratio.REPORT OF THE NATIONAL COMMISSION ON LABOUR bureaucracy on the industrial 3. . India adopted a democratic constitution. They had full control over: a) approval of any proposal on capacity. small-scale statement industries pointed in out the the development of the country. and were called category A type of industries. guaranteed fundamental rights and also enunciated certain directives of state policy. 3. This Commission drafted a law to control monopolies and recommended the setting up of a permanent Monopolies and Restrictive Trade Practices Commission.
it had not ensured development of industries according to announced licensing policies. capital goods. 1973 : Statement of 1973 drew up a list of Appendix 1 industries to be started by large business houses so that the competitive effort of small industries was not affected. 1977: Industrial Foreign Exchange and Regulation Act (FERA) was amended in 1973. The Committee felt that the licensing policy had not succeeded in preventing the practice of pre-empting capacity by large houses.44 FERA AMENDMENT. and all industrial licenses.43 an INDUSTRIAL LICENSING POLICY In July 1969. 3. terms of foreign collaboration were brought under the SIA. Only certain industries in the area of sophisticated technology were allowed 51% foreign capital. a number of new restrictions were put on the large industrial houses in the industrial licensing policy announced in February 1970. The entry of Competent industries Small including and medium 1 entrepreneurs was encouraged in all Appendix industries. They were also not allowed to expand and take up production of new products. In 1969. and were not allowed to participate in certain industries. Foreign equity was to be permitted only in companies in Appendix 1 industries.REPORT OF THE NATIONAL COMMISSION ON LABOUR passed and a Monopolies Commission was appointed by the Government in 1969. 3. 3. the Monopolies and Restrictive Trade Practices Act (MRTP) Act was passed by the Government and following the report of Industrial Licensing Policy Inquiry Committee (ILPIC).46 INDUSTRIAL Policy POLICY The thrust of the Statement of STATEMENT. This brought a great change in the foreign investment policy of the Government of India. Foreign firms were not allowed more than 40% of 149 December 1977 was on effective promotion of Cottage and Small Industries widely dispersed in rural .45 INDUSTRIAL POLICY The Policy INQUIRY COMMITTEE: Committee was appointed to examine the shortcomings in licensing policy. Large industries were permitted to start operations in rural and backward areas with a view to developing those areas and enabling the growth of small industries around. 1973: The STATEMENT. or in those that were engaged in exports. import licenses. A Secretariat for Industrial Approvals (SIA) was set up in November 1973. Inquiry Industrial Licensing equity. FERA companies were subject to many restrictions. it did not prevent investment in non-priority industries etc. 3.
and an entitlement to import upto 30% of the total value of plant and machinery.47 Within the SSI sector. and the trend was gradually to dilute the strict licensing system and allow more freedom to the entrepreneurs. raw material and other resources.48 The policy items for statement exclusive Exemption from licensing for all new units and those having an investment of Rs. call for quality control. considerably expanded the list of reserved l manufacture in the small-scale sector. This policy included: l concept of tiny sector was introduced. 3. The steps that were taken in accordance with the policy included: a) Re-endorsement of licenses: The capacity indicated in the licenses could be re-endorsed. It was defined as an industrial unit with investment in machinery and equipment upto Rupees one lakh.2. 3. This tiny sector was to be given special attention and extended help. It emphasised that “whatever can be produced by small and cottage industries must only be so produced. The concept of District This concept was recommended by the Karve Committee and was introduced in 1967 with 47 products. a new 1980. The list of such reserved items was 504 till 1977. supply of machinery and equipment. These included economic investigation of the districts.49 ERA OF LIBERALISATION: After Industries Centres was introduced for the first time. by way of provision for margin money assistance. b) c) Automatic re-endorsement of licensed capacities (1988). research and extension etc. The new policy expanded this list to 807. Investment of foreign equity up to 40% was freely allowed. and situated in towns with a population of less than 50.000 according to the 1971 census.REPORT OF THE NATIONAL COMMISSION ON LABOUR areas and small towns. Each district would have such a district centre which would provide all the support and services required by small entrepreneurs. provided it was 25% more than the licensed capacity (1984). d) Liberalisation of 31 May 1990. an era of liberalisation started. 3. 150 . Broad banding and selective delicensing (1985-86) extended to 25 industries.5 crores in fixed assets.” The focal point of development of small-scale industries was taken away from the big cities to districts. arrangement for credit facilities.
Food & Drug Administration (xii) Director of Mines (xiii) Controller of Capital Issues (xiv) Chief Controller of Imports and Exports etc.52 Our industries were suddenly to face international required competition. procedures laid down for obtaining industrial licensing and various rules made under the Act acted as a great deterrent to the growth of industries in the country. when the Government of l Investment ceiling for small industries were removed.REPORT OF THE NATIONAL COMMISSION ON LABOUR l Location removed. 3. an entrepreneur had to obtain clearance from many Agencies. Indian industries were not competitive in the world market. it is becoming increasingly difficult not only to face competition in the world. restrictions were (vii) Registrar of Companies (viii) Exchange Control Department of RBI (ix) (x) (xi) Chief Controller of Explosives Chief Inspector of Boilers Commissioner. sold their interests or preferred to close down. .50 Though the Government policies and procedures were aimed at industrial development of the country. We propose to deal with the consequences in the next Chapter. The bureaucracy acquired unprecedented powers and authority over all kinds of industrial activities and industrial entrepreneurs felt that they were placed at the mercy of these bureaucrats. the enactment of the IDR Act. either produced in the country or imported from abroad. For the existing ones. Despite industrial licensing. 3.51 Thus. but also competition at home with the products of multinationals. Apart from the IDR Act. It is no wonder that many of these industries allowed their foreign collaborators to take over. there were a number of other Acts which were enacted and which acted as obstacles and retarded the industrial development of the country. like: (i) (ii) (iii) (iv) (v) (vi) Secretariat for Industrial Approvals (SIA) Department of Industrial Development Chief Inspector of Factories Pollution Control Board Director of Town Planning Department of Company Affairs 151 India announced the new economic policy in July 1991. Those who remained in the field are trying to downsize and reduce their operations. 3.
REPORT OF THE NATIONAL COMMISSION ON LABOUR 152 .
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