Role of Industrialization

Industrialisation is the process of manufacturing consumer goods and capital goods and of
building infrastructure in order to provide goods and services to both individuals and businesses.
As such Industrialisation plays a major role in the economic development of underdeveloped
countries like India with vast manpower and varied resources. Let us discuss, in detail, the role
of industrialization in the Indian economy.

1. Raising Income: The first important role is that industrial development provide a secure basis
for a rapid growth of income. The empirical evidence suggests a close correspondence between
the high level of income and industrial development. In the industrially developed countries, for
example, the GNP per capita income is very high at around $ 28,000. Whereas for the
industrially backward countries it is very low at around $ 400 only.

2. Changing the Structure of the Economy: In order to develop the economy underdeveloped
countries need structural change through industrialization. History shows that in the process of
becoming developed economy the share of the industrial sector should rise and that of the
agricultural sector decline. This is only possible through 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.

3. Meeting High-Income Demands: Beyond certain limits, the demands of the people are
usually for industrial products alone. After having met the needs of food, income of the people
are spent mostly on manufactured goods. This means the income-elasticity of demand for the
manufactured goods is high and that of agricultural products is low. To meet these demands and
increase the economy’s output underdeveloped countries need industrialization.

4. Overcoming Deterioration in the Terms of Trade: Underdeveloped countries like India

need industrialization to free themselves from the adverse effects of fluctuations in the prices of
primary products and deterioration in their terms of trade. Such countries mainly export primary
products and import manufactured goods. The prices of primary products have been falling or
are stable whereas the prices of manufactured products have been rising. This led to deterioration
in the terms of trade of the LDCs. For economic development such countries must shake off their
dependence on primary products. They should adopt import substituting and export oriented
industrialization.

5. Absorbing Surplus Labour (Employment Generation): Underdeveloped countries like

India are characterized by surplus labour and rapidly growing population. To absorb all the
surplus labour it is essential to industrialise the country rapidly. It is the establishment of
industries alone that can generate employment opportunities on an accelerated rate.

6. Bringing Technological Progress: Research and Development is associated with the process
of industrialization. The development of industries producing capital goods i.e., machines,
equipment etc., 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 results in
bringing about an industrial civilization or environment for rapid progress which is necessary for
any healthy economy.

7. Strengthening the Economy: Industrialisation of the country can provide the necessary
elements for strengthening the economy. In this regard the following points may be noted.

(a) Industrialisation makes possible the production of goods like railways, dams, etc. which
cannot be imported. These economic infrastructures are essential for the future growth of the
economy.

(b) It is through the establishment of industries that one can impart elasticity to the system and
overcome the historically given position of a primary producing country. Thus, with
industrialization we can change the comparative advantage” of the country to suit its resources
and potentialities of manpower.

(c) Through industrialization the requirements for the development of agriculture can be met. For
example, improved farm-implements, chemical fertilizers, storage and transport facilities, etc.,
appropriate to our own conditions can be adequately provided only by our own industries.

(d) The industrial development imparts to an economy dynamic element in the form of rapid
growth and a diversified economic structure which make it a progressive economy.

(e) Providing for Security: Industrialisation is needed to provide for the country’s security. This
consideration becomes all the more critical when some international crisis develops. In such
situation, dependence of foreign sources for defence materials is a risky affair. It is only through
industrial development in a big way that the national objective of self-reliance in defence
materials can be achieved.

Industrial Policy Resolution of 1956

Industrial Policy Resolution of 1956 (IPR 1956) is a resolution adopted by the Indian
Parliament in April 1956. It was the first comprehensive statement on industrial development of
India.The 1956 policy continued to constitute the basic economic policy for a long time. This
fact has been confirmed in all the Five-Year Plans of India. According to this resolution the
objective of the social and economic policy in India was the establishment of a socialistic pattern
of society. It provided more powers to the governmental machinery. It laid down three categories
of industries which were more sharply defined. These categories were:

1. Schedule A: those industries which were to be an exclusive responsibility of the state.

2. Schedule B: those which were to be progressively state-owned and in which the state
would generally set up new enterprises, but in which private enterprise would be
expected only to supplement the effort of the state; and
3. Schedule C: all the remaining industries and their future development would, in general
be left to the initiative and enterprise of the private sector.
Although there was a category of industries left to the private sector (Schedule C above), the
sector was kept under state control through a system of licenses. In order to open new industry or
to expand production, obtaining a license from the government was a prerequisite. Opening new
industries in economically backward areas was incentivised through easy licensing and
subsidization of critical inputs like electricity and water. This was done to counter regional
disparities that existed in the country. Licenses to increase the production were issued only if the
government was convinced that the economy required more of the goods.[2]

Fair and non-discriminatory treatment for the private sector, encouragement to village and small-
scale enterprises, removing regional disparities, and the need for the provision of amenities for
labor, and attitude to foreign capital were other salient features of the IPR 1956.

The Industrial Policy of 1956 is known as the economic constitution of the country.

Industrial Policy of 1956: 8 Main features of 1956 Policy

A comprehensive industrial policy was formulated in 1956. It has following objectives:

(i) Development of machine-building industries.

(ii) Increase in rate of industrial development.

(iii) Reduction of income and wealth inequalities.

Main Features of 1956 Policy:

The following are the features of this policy:

(i) Categories of Industries:

Large scale industries have been divided into 3 categories.

(a) Public Sector:

Under Schedule A, 17 industries were included. These industries were arms and ammunition,
atomic energy, iron and steel, heavy machinery, mineral oil, coal etc.

(b) Public-cum-private sector:

Under Schedule B, 12 industries were included. Industry will be state owned but private sector
can also establish industry. Industries like aluminium, machine tools, drugs, chemical fertilizer,
road and sea transport, mines and minerals were included.

(c) Private sector:

Under Schedule C, all remaining industries not covered in A and B Schedule were included.
These industries will be established by private sector.

(ii) Cottage and small scale industries:

Govt. will make efforts to promote cottage and small scale industries. Those industries will make
use of local resources and will generate employment.

ADVERTISEMENTS:

(iii) Concession to public sector:

Govt. will provide facility of power, transport and finance to Public sector units. However, Govt.
will not adopt indifferent attitude towards private sector units.

(iv) Balanced regional development:

Industrially backward regions will be given priority in establishing industries. More incentives
will be given to industries which will be established in these regions.

(v) Training to managers:

Private and public sector managers will be given technical and managerial training so that they
can perform well. Management courses will be started in universities for these persons.

(vi) Better facilities for labour:

Under this policy, better facilities for labour will be provided. Workers will be given fair
remuneration, better working conditions and opportunities to participate in management.

(vii) Management in public units:

Policy laid emphasis on the proper management of public units. Public units can be a good
source of revenue if efficiently managed.

(viii) Foreign capital:

Policy laid stress that foreign capital can play important role in industrial development. Many
concessions were offered to make use of foreign capital.