Essay on Industrialization in India |

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Essay on Industrialization in India

Essay Contents:
1. Essay on the Introduction to Industrialization
2. Essay on the Role of Industrialization
3. Essay on the Structural Changes and Reforms in Industries
4. Essay on the Growth and Structural Composition of Industries
5. Essay on the Evaluation of Industrial Performance

Essay # 1. Introduction to Industrialization:

India began her quest for industrial development after independence
in 1947. The Industrial Policy Resolution of 1948 marked the
beginning of the evolution of the Indian Industrial Policy. The
resolution not only defined the broad contours of the policy; it
delineated the role of the state in industrial development both as an
entrepreneur and as an authority. Successive policy resolutions also
reiterated this basic tilt in favor of the public sector.

The Industrial Policy Resolution of 1956 gave the public sector a

strategic role in the economy. It categorized industries which would be
the exclusive responsibility of the state or would progressively come
under state control and others. Earmarking the pre-eminent position
of the public sector, it envisaged private sector co-existing with the
state and thus attempted to give the policy framework flexibility.

The Industrial Policy initiatives undertaken by the Government since

July 1991 have been designed to build on the past industrial
achievements and to accelerate the process of making Indian industry
internationally competitive.

It recognizes the strength and maturity of the industry and attempts to

provide the competitive stimulus for higher growth. The thrust of
these initiatives has been to increase the domestic and external
competition through extensive application of market mechanisms and
facilitating forging of dynamic relationships with foreign investors and
suppliers of technology. The process of reform has been continuous.

Essay # 2. Role of Industrialization:

There is a strong case for the industrialization of countries like India
with vast human resources, large and varied natural resources and
continental dimensions.

The following are the main arguments in favor of

industrialization:
1. Raising Income:
The industrial development can provide a secure basis for a rapid
growth of income. Industries produce products that are largely
dependent upon man’s efforts. In the sphere of industries, man can, by
putting in more effort and application of ever-improving technology,
push on with the objective of producing more and more economic
goods. In the industrial sphere it is possible to enlarge the scale of
production.

Empirical evidences suggest a close relationship between the high

level of income and industrial development. In the industrially
developed countries, for example, the GNP per capita is as high as $
27,510. It is very low at $420 for the low-income economies and
around $ 1970 for the middle income economies.

2. Reduce Disparities in Export and Import Elasticity:

If an economy does not opt for industrial development, it may
concentrate on the products of primary goods, export them, and get
industrial goods from industrially developed countries. But such an
economy may find it difficult to earn foreign exchange to import their
manufactures.

The income-elasticity of export-goods of agricultural countries is low,

while the income elasticity of import-goods is high. As in the case of
domestic demand, the demand for agricultural products in other
countries, in particular advanced countries, is very low.

In fact, developed countries have surpluses in agricultural products for

exports. As against this, the demand for the import of manufactured
goods by underdeveloped countries is very intense. The disparities in
elasticity, therefore, point to the difficulty of earning adequate foreign
exchange. India presents an example who cannot export to earn
enough foreign exchange from the export of its primary products
alone.

Jagdish Bhagwari remarks, “Where this is so, industrialization is a

rational consequence”. Industrialization can, therefore, correct
disparities in the elasticity of foreign trade. The country may establish
such industries that are in the nature of import-substitutes so that the
gap between the elasticity of imports and exports is bridged.

3. Meet High-Income Demands:

After having met the needs of food, incomes of the people are spent
mostly upon non-food items. Beyond certain limits, the demands of
the people are usually for industrial products alone. Till basic needs
are met, the demand for agricultural products increases. Once
agricultural production, including dairy production, reaches a point
where the demand for food is completely met, its further expansion
comes to a halt.

With the advancement on the industrial front, the proportion of

natural raw materials in finished products has declined. Besides, the
synthetics have greatly reduced the need for natural raw material. This
points out to the fact that income-elasticity of demand for the
manufactured goods is high and that of agricultural products low.
4. Absorbing Surplus Labor:
Indian economy characterizes by surplus labor and rapidly growing
population. In addition the labor becomes redundant as the process of
technical improvement in agriculture progresses. To absorb this
surplus labor, as also to provide employment at a rate commensurate
with the addition to the labor force, it is essential to industrialize the
country. It is the establishment of industries alone that can generate
employment opportunities at an increased rate.

5. Strengthening the Economy:

The industrialization can provide the necessary elements of strength
to the economy.

i. The development of industries producing capital goods enables a

country to produce a variety of goods, in large quantities and at low
costs, make for technological progress and change in the outlook of the
people. This brings about an industrial civilization or environment for
rapid progress.

ii. It makes possible the production of infrastructural goods for the

future growth of the economy.

iii. Industrialization imparts elasticity to the system and overcome the

bottlenecks to achieve comparative advantage to suit its resources and
potentialities of manpower.

iv. It meets the requirements for the development of agriculture.

v. The industrial development imparts to an economy dynamic

element in the form of rapid growth and a diversified economic
structure which makes it a progress economy.

6. Provide for Security:

Industrialization provides security to the country when some
international crisis develops. Dependence on foreign sources for
defense materials is a risky affair in such situations. To provide against
such contingencies as also to keep the country’s security arrangements
in perform form during all times. It is only through industrial
development in a big way that the national objective of self-reliance in
defense materials can be achieved.

Essay # 3. Structural Changes and Reforms in Industries:

Besides the uptrend in the growth-rate, the industrial scene has been
marked by a change in the structural composition of industries which
is of considerable significance for the economy.

1. Fast Growth of Basic and Capital Goods:

For quite a long period since the Second Plan (1956-61) the basic and
capital goods industries enjoyed a rapid growth. It in fact remained
higher than the general growth rate of industries. Consequently, the
industrial structure leans quite heavily towards the capability-
building industries. This trend began since the Second Plan that
accorded the highest priority to these industries. As compared to this,
the growth rates of intermediate goods and consumer goods have
mostly been lower than the general growth-rate.

The two types of consumer goods- durable and nondurable consumer

goods- the former witnessed a higher rate which compares well with
that of the basic and capital goods industries. Without double, the
higher growth rates in respect of these industries appeared high only
because the initial starting base of these industries was very low.

However, from another point of view, this means that a fast growth
was necessary to correct the imbalance in the industrial structure. The
net impact is in fact more than a mere correction of the imbalance.
The industrial capacity for production has become quite sizeable.

2. Enlarged Production Capacity:

The fast growth of the basic and capital goods industries resulted in
that the country’s capacity for the production of industrial goods has
been much expanded. This is shown by the fact that the weight age to
the basic and capital goods industries in the index of industrial
production has remained quite high. In the new index (base year 1993-
94), it is 44.9 per cent. Its weight was more than half at 55.85 per cent
in the index of industrial production with the base 1980-81.

This has increased from a lower weight age at 47.53 percent in the
index of industrial production with 1970 as base, which in turn has
risen from 36.87 per cent in the earlier index of production with 1960
as the base. This structural change is significant as it allows a country
to build infrastructure which facilitates direct productive activities. It
also means larger possibilities of producing machines which produce
consumer goods.

In fact, it is for this reason that much diversification in the products

has taken place in the country. And for the same reason, the country is
no longer dependent on imports of some goods of vital importance for
the economy. This has also enabled the country to produce goods
which cannot be imported or imported with great difficulty. The
greater importance of these industries is also reflected in India’s
exports, as the export of manufactured goods has gone up
substantially.

With the adoption of policies of liberalization several structural

reforms in the economy have taken place.

These are discussed in the following paragraphs:

3. Industrial Licensing Policy:
With the introduction of New Industrial policy (NIP) 1991, a
substantial program of deregulation has been undertaken. Industrial
licensing has been abolished for all items except for a short list of 7
industries related to security, strategic or environmental concerns.

The Monopolies and Restrictive Trade Practices Act (MRTP Act) has
been amended in order to eliminate the need to seek prior
Government approval for expansion of the present industrial units and
establishment of new industries by large companies. The system of
Phased Manufacturing Program, which was designed to enforce
progressively greater degree of local content, has been abolished.
Industrial location is discouraged only in large cities because of
environmental reasons.

A significant number of industries had earlier been reserved for the

public sector.

Now the areas reserved for the public sector are:

(a) Arms and ammunition and allied items of defense equipment,
defense aircraft and warships,

(b) Atomic energy,

(c) Mineral specified in the schedule to atomic energy, and

(d) Railway transport.

Even in this areas private sector participation can be invited on a

discretionary basis.

4. Liberalization:
The liberalization ushered in 1991 has tremendously expanded the
scope of the private industry by removing many of the entry and
growth restrictions. Prior to liberalization, 17 of the most important
industries were exclusively reserved for the public sector. Further, in
12 of the most important remaining industries the public sector was to
play a dominant role.

Even in industries open to the private sector, establishment of new

units and expansion of the existing units was regulated by licensing.
Large companies and dominant undertaking had to obtain clearance
under the MRTP Act. The restrictive policies resulted in slow growth
of the industry and economy and lack of competition causing lack of
choice, high prices, poor quality, lack of innovation and disregard for
the consumer

Now only six industries are reserved for the public sector and even in
some of these industries, selective entry of the private sector is
allowed. Industrial licensing is confined to 15 industries. Private
enterprises can now enter and grow in most of the industries.
Liberalization has given an enormous boost to private investment in
the industrial sector.

5. Foreign Direct Investment:

The role of Foreign Direct Investment (FDI) as a means to support
domestic investment for achieving a higher level of economic
development is well recognized. FDI benefits domestic industry as well
as the Indian consumer by providing opportunities for technology up-
gradation, access to global managerial skills and practices, optimal
utilization of human and natural resources, making Indian industry
internationally competitive, opening up export markets, providing
backward and forward linkages and access to international quality
goods and services.

Essay # 4. Growth and Structural Composition of Industries:

The productive performance of industries can be assessed in terms of
the rate at which the industrial output has increased, and the changes
in the structural composition of industries that have marked the
industrial scene. The trends in respect of these two aspects of
industrial development are traced since independence, in particular
since 1951, when the government, beginning with the First Plan,
embarked on the task of industrializing the country.

The scenario as the growth of industrial production reveals is one of a

rising trend, with significant ups and downs spread over a number of
years.

Long – Term Trend:

Overall the growth-rate of industrial production has been over six per
cent since 1951. However, this has not been a steady figure through all
these years.
We can see three sub-trends in the growth rates during the
period:
High, Low and Higher:
The high sub-trend continued for 15 years since 1951 to 1965. During
this period, the growth rate has been higher than the long-term trend
rate, and an accelerating one. Commencing from 4.8 per cent growth
for the first four years since independence 1947-51, the growth came
up to 5.7 per cent during 1951- 52. This increased to 7.2 per cent
during 1955-60 and further moved up to a high of 9 per cent during
1960-65.

The second sub-trend lasted for 10 years starting from 1966-1976,

when this rising trend got a setback. The growth rate declined to 4.1
per cent and came lower than the long-term trend. However, this
decline was compensated by the rise in the growth-rate over the trend
rate in the third period since the mid-1970s. Beginning from a growth
rate of 4.6 per cent during 1976-81, it increased to 7 per cent and over
9 per cent during the 1980s.

For the decade as a whole during 1980-81 to 1990-91 the growth rate
has been 7.9 per cent. The rise in the growth curve continues to make
the 1990’s with the growth rate at 6 per cent (1991-2000). Since the
recent uptrend has persisted for long, even longer than the earlier one,
the growth rate of industrial output may be said to have moved on to a
higher path.

Present Uptrend:
While the growth-rate since 1991-92 has been on a higher path, except
the low rates during 1991-93. The reasons for the low growth rate
during this period has been caused by the government’s recent policies
to stabilize the economy particularly for reducing/eliminating the
large fiscal and balance of payments deficits and curbing the high
inflationary rise in prices and to restructure it to make it more
competitive and efficient.
These policies have involved compression in imports adversely
affecting import-dependent industries; reduction in Government’s
expenditure, reducing aggregate demand for the industrial products;
high interest rates causing an increase in the industrial costs;
devaluation of the rupee making import-inputs expensive.

However, this fall in the growth-rate was a transitory phase. Following

liberalization of the economy, the growth rate not only recovered to a
higher level, but remained fairly sizeable thereafter. The new policies
have helped in promoting market, private sector and foreign direct
investments, and the industrial output. Thus, despite some deviations,
the over-all trend can be described as one of reasonably high growth.

Essay # 5. Evaluation of Industrial Performance:

We need to evaluate the developments in the industrial production.
Since the industrial growth has experienced both desirable and
undesirable features, it is appropriate to describe both of them, before
making a final judgment.

Positive Features:
There have been certain positive features of industrial performance.

We describe some of them:

1. Impressive Growth:
The growth rate of industrial production has been satisfactory, if not
very satisfactory. The industrial output has grown at the rate of 6 per
cent since 1961. As a result its contribution to the GDP has gone up
sharply from 6 per cent to 25 per cent. The industrial growth rate is far
higher than that of agricultural growth rate which is at 2.7 per cent. It
is also much above the growth in national income at 4 per cent.

The industrial growth rate has also exceeded the population growth at
around 2 per cent. In comparison to other countries, India’s growth
rate appears to be of fair size. It falls between the high growth rate of 8
per cent and more in a very few country, including some developing
countries, and low growth rates of under 4 per cent in many countries,
including some developed countries. Therefore, some people describe
India as a semi-industrialized country.

2. Strong Industrial Base:

The good industrial performance has assisted in strengthening the
base for further industrial growth. This is clear from the large
developments made in the field of basic and capital goods industries.
The establishment and fast expansion of such industries as steel,
cement, engineering, petroleum, etc., strengthen the supplying
capacity of the economy.

The strength of India’s industrial development may also be measured

from the fact that India is one of the six countries in the world that can
manufacture thermal and hydroelectric stations on their own. This
further assists in the growth of intermediate and consumer goods
industries.

3. Industrial Modernization:
The profile of industries has witnessed a transformation from one of
old and traditional to new and modern. This is clear from the several
changes that have taken place in industrial development. One is
diversification in the industrial set up. This has seen a journey from an
industrial structure restricted mostly to a few consumer goods
industries like textiles and sugar, then to setting up of steel plants.

There was also some limited development of engineering in railway

workshops and assembly plants. All this has now changed. Traditional
industries like textiles are no longer as important as before. The
weight age of these industries in the index of production has declined
substantially/Engineering and Information Technology have been
important.

These industries have gained importance and produce a large variety

of products. Second, there are significant advances in the fields of
technology and managerial skills. This has enhanced the capabilities of
the country not only to operate highly complex and sophisticated
industrial enterprises, but also for their planning, design and
construction. Significant progress has also been made in the field of
industrial research.

4. Self-Reliance:
The industrial development has done a commendable work in making
India a self-reliant country in quite a number of commodities, and in
several other the foreign dependence has become very much less as
compared to earlier.

For example, in commodities like Iron and steel, the country has
become self-reliant. In matters of items such as machinery and
fertilizers, the dependence has been significantly reduced. In quite
many manufactured consumer goods, the country has ceased to rely
on imports. This can be attributed to a strategy of industrialization
that stressed the development of producer goods industries which over
time enabled the country to produce durable consumer goods.

5. Increased Investment:
There have been large investments actualized and planned for in the
year 1990s and thereafter. The sharp spurt in the loans sanctioned and
loans disbursed by the All Indian Financial Institutions are indicative
of this development. The period has also seen huge increase in Foreign
Direct Investment as well as Portfolio Investment.

Negative Features:
1. Long Retrogression:
The fall in the growth rate over a long period of over a decade or so
following the mid-1960s is a matter of concern. However, the growth
rate rose to as high as 9 per cent in the five year period of 1960-65. But
thereafter there has been an almost continuous fall in the growth rate
to an average of as low as 4.1 percent during the ten year period of
1965-76. Similar serious is the structural retrogression. There has been
a large decline in the growth rate of basic and capital good industries.

The growth rate of basic goods industries fell from 10.4 per cent
during 1960-65 to 6.5 per cent during 1965-76, and that of capital
goods industrial from 19.6 per cent to 2.6 per cent. The growth rate of
intermediate goods declined from 6.9 per cent to 3.0 per cent and that
of consumer goods industries from 4.9 per cent to 3.4 per cent. The
slow growth of these industries has inhibited the growth in a large
number of other industries.

2. Large Inefficiency:
Many large industries suffer from inefficiency which leads to the high
costs of several firms, in any case two to three times higher than the
world costs. The inefficiency manifests in low levels of productivity
and existence of large unused capacity. The extent of underutilization
has been in some cases as high as 70 to 90 per cent.

The industries involved have been large in number and important

ones such as steel casting, cycle tubes, mining and coal washing
machinery, cement mill machinery, pulp machinery, building and road
construction machinery etc.

The inefficiency causes serious consequences such as wastage of

inbuilt capacity, finances and managerial ability, waste of employment
potential, loss of production, dampening of enthusiasm for new
industries, emergence of unethical practices. Inefficiency also turns
out shoddy goods of questionable quality produced by many firms.

3. Widespread Sickness:
Many large industries have fallen sick resulting in their sporadic
closures. The number of such sick industrial units was 3,317 in March
2001 belonging to industries like engineering, textiles, chemicals,
sugar, rubber, cement etc. It is important to note that unlike the
developed countries, countries like India with limited resources,
cannot afford their productive assets turning non-operational.
Further, it results in loss of jobs, production and of revenue to the
government and undesirable socio-economic consequences.

4. Regional Imbalance:
The industrial development of the country has resulted in unequal
distribution. Gross region/state imbalances have developed with few
states taking a lion’s share. According to the Annual Survey of
Industries (1996-97) four states (Andhra Pradesh, Gujarat,
Maharashtra and Tamil Nadu) have accounted for a very large
proportion of the industrial activities of the country.

On the other hand the four states with large population namely Bihar,
Madhya Pradesh, Uttar Pradesh and West Bengal have very little by
way of industrial development. All this shows large regional
imbalances caused largely by a faulty industrial planning that allowed
the existing grown industrial regional to grow further.

5. Employment Generation:
The industrial development has failed to generate employment to any
significant extent.

Taking together the achievements and the negative aspects, the picture
of industrial development appears to be a mixed one. However,
despite such an inference, the country is industrial still in a backward
stage. The growth-rate, though not unsatisfactory, is not sufficiently
high to make a perceptible dent in the agrarian character of the
economy.