industrial policy and prospects 2001 a.d

8/3/2019 Industrial Policy and Prospects 2001 a.d

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INDUSTRIAL POLICY ANDPROSPECTS-2001 A.D.

P.D. MALGAVKAR

Under the Auspices of theCentre for Policy Research

New Delhi

OXFORD & IBH PUBLISHING CO' PVJ' LTD'NtsW DEL}II UONNU.'" CALCUTTA


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@ 1988 Centro for Policy Research,

tsBN 8l-204-0282-0

Publisbed by Iriohan primlani for Oxtord & IBH publishing Co. pvt. Ltd.66 Janpath, New Delhi ll0 0OI and printd atSunil Printers, Ring,Road, Naraina, tcw pethi 1lO0Zgt.D1.T


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Foreword

Industrial policy has a special place in Indian economy as it isintimately woven with agricultural development and gives rise tothe service sector. For our economy to grow at a healthy rate,industry has to take a lead role.Centre for Policy Research, therefore, asked Prof. P.D.Malgavkar to take fresh stock of the changing environment-both national and international-and project possibilities of theindustrial sector to the beginning of the twenty-first century.His earlier study was published in 1977.Industrial growth is a complex phenomenon and dependsupon a host of factors. It is susceptible to financial and fiscalpolicies, social and political environment, international condi-tions, developments in other sectors of economy, etc. The pre-sent study restricts itself to the study of the industrial policyinstruments and their impact on industrial $ector, Besides pro-jecting industries sector, the study looks at the employmentprospects in the year 2001, taking into consideration the popu-lation in the working age group and the labour force in the year2001. The study suggests that in the year 2001 only 10 per centof the people could be below the poverty line with the envisagedgrowth rate; and that non-renewable resources and energy maynot be the constraints for development. The major area of con-cern would be water whose total precipitation over the sub-continent .is finite whilst regional water shortages seem to beinevitable and are likely to increase, particularly in the arid andsemi-arid areas.The study concludes that though the per capita GDP ofIndia would be small compared to the developed and affiuentworld, India wilt have the satisfaction to have moved out fromthe rank of low-income to middle-income countries and that it


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iv ronnwoRowould have a more healthy, a]nd educated population, withbright possibilities of reaching a net reproduction rate of one inthe near future, Its saving rate r]vould be high, its ICOR wouldbe reasonable, its tecbnologic{ progress satisfactory and itwould be well poised to achieve accelerated progress and deve-lopment.We hope the study will e{courage critical evaluation ofindustrial policy debate on the c$urse of action to be taken anda commitment to high industrial] growth to overcome the cons-traints of poverty eradication anp employment generation.Centre for Policy Research V.A. Plr PANANDTKERNew Delhi DnrcronDecember, 1987


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Prefaee

When the Centre for Policy Research suggested that I updatethe earlier publication "Towards Industrial Policy 2000 A.D."written in 1977, I jumped at the opportunity, especially as thereis a sea change in the industrial outlook since 1984. The spectreof energy crisis is over. On the other hand, the developed coun-tries, despite their proclamations of free trade, are followingmore and more restrictive and protective import policies. Tbeprice parity of products being exported by the developed coun-tries as against those by the developing countries has goneagainst the developing countries. The international debt burden,high interest rates, reduction in concessional finance arethreatening the economies of the developing countries.Within India, our industrial base has widened considerablyallowing for sophisticated manufacture with liberalization of theindustrial policy, the urge to produce goods that can stand ontheir own in the international market on the basis of quality,reliability, price and performance are forcing thc pace of indus-trialisation and technology upgradation. Success in this area hasbeen appreciated internationally because of which the donornations have increased their assistance to $ 5.4 billion in 1987.We have attempted to examine the implications of thenational industrial policy issues vis-a-vis the pbpulation andlabour force of the country. Though a large number of socio-economic factors contribute to indusFial growth, we haveanalysed the specific instruments through which industrial policyis being implemented in India viz., public sector, import polioy,price control, d.ispersal, sectoral segmentation, investment andtechnology. We have considered how far the changes in policywill influence the industrial growth rate which had dropped from8.25%, (1962'66) to below 5% between 1967 and 1983. Our


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Cuaprrn I

Introduction

Since bringing out the monognph Towards an Indusftial PolicJ)2000 A.D., in 1977, both the national and international sceneshave taken a fresh turn. Internationally, the energy crisis whichwas the biggest bugbear earlier has lost its venom. Crude oilprices have not only steadied but gone down and there arestrong possibilities that they may go down further. The strangle-hold ofthe OPEC countries on crude oil prices has been remov'ed. Non-OPEC countries are producing more oil and are nottoeing the line of high prices set b; the OPEC countries. On theother hand, the developed countries, despite the proclamationsof their belief in free trade, are following more and more restric-tive and protective import policies: restrictions on imports,multi-fibre agreement (said to be "restrictive agreement with thehighest cost in terms of slowing the growth of developing coun'tries"), general system of preferences, the quota system restrict-ing import of specific commodities through specific ports; andCommon Agricultural Policy (CAP) in Europe etc., have led todrastic reduction io exports from the developing countries.Thirdly, the price parity of products being exported by the deve-loped countries as against those by the developing countrieshave gone against the developing countries. The prices ofprimary commodities such as minerals and agricultural commo-dities, have steadied if not gone down whilst manufactured pro-ducts coming from the developed countries have become moreand more costly. Fourthly, developing countries are saddledwith debt burdens, high interest rates, and reduction in conces-sional finance from international development agencies. This has


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2 INousrR.IeL FoLIcy AND 2001 a.u.forced them to run for to the developed countrieswhose bankers stipulate onero conditions for making avaiFable additional finance to bridee the critical gap.

Nationally, our industrial has widened considerablyallowing for sophisticated and absorption ofmore sophisticated The Government is consci-ous that in order to foster fr industrialisation within thecountry the dichotomy betweenkets has to be removed so that ional and international mar-

for further industrialisationthe Prime Minister of the

ity goods at internationallyacceptable prices can be prod within the country and soldboth nationally and interna . The urge for upgradingtechnology is the main driving fowith its strongest championcountry, who wants India to dopt the Iatest technologieswhether in electronics, telecommunications, steel orto develop coordinated poli-extiles. Attempts are beingcies for industry, trade, and as it is realised that anintegrated and well-coordinated approach from all fronts isnecessary to take the country There is re-thinking onorganisational $tructure, ement, interrelationship etc.policies working at cross pur-he Government has realisedposes with one another will only to cotrfusion, frustrationand a slowing-down growth. therefore. are on to co-ordinate the vadous policies todevelopment. Assessment of India's aspiration for rapidconstraints in developmenthave brought out the crucial ro of infrastructure, finance,energy, and communication andupdate all these. are on to streamline andIt is in this context of changes, both in the inter-national and national scenes. we will look at the IndustrialPolicy and Prospects-2M[ A,.D.


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Crrlprnn 2

Population

We strongly believe that all policies including those of industryhave to be focussed on the population of the country, the objec-live being to ensure a healthy population well informed andeducated, so that the nation takes full advantage of the resourceEand processes, population size and growth rate, their influencoon development strategy, employment pressure, the agriculturaldevelopment, the savings rate, the disposable income, the struc-ture of industrial production and services, the distributionnetwork, and the transport and communication system.We will, therefore, start by looking at the population soena-rio of the country.The population of 685 million in 1981, with the decadalgrowth rate of 25 per cent between 1971 and 1981, emphasisesthat the spectre of population growth will be haunting theIndian economy for quite some time. Some of the salient issuesin the population policy which we should tackle are:l) Infant MortalityThe infant mortality rate refuses to decline and was ll4 pcr1,000 ia the year 1980. Developed countries have infant mortali-ty rates between 7 and 12 per I,000 whilst Sri Lanka has broughtit down to 32 per 1,000. Of course, Kerala has brought downthe infant mortality rate to 42 per I,000. But in States like UttarPradesh the infant mortality ratc in rural areas hovers around184 per 1,000. Thero is enorrnous scope for reducing the infantmortality rate and all efforts should be geared towards this eod.


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4 rlousrntll poltcY AND pnosprbrs-2o0l l.n.2) Under-nutrition anrl MalnutritiqrThe rJecline in nxortality was larg{ly achieved through the con'trol of famines and epidemics fy mass immunisation pro-grammes and public health medicdl services. But the spectre ofnutritional deficiency with conse{uent vulnerability to diseasesremains. Nearly one-third of the flopulation suffers from under-nutrition and another one'third frirm malnutrition' The quanti-tative problem is one of achieving p steady rise in the productionof cereals and pulses and the qualitative problem is one of rais-ing the production of nutritive fdods such as milk, eggs, fish,meat, sugar, vegetables and frui{s. Sixty per cent of India'spopulation, living mostly in rural areas, does not even get safedrinking water.3) Status of WomenThe World Bank has brought out the low status of women inIndia by giving the following figu{es:Ratio of adult male to adult f$maleliteracy l'9 : INumber enrolled in secofdarYschools in the Year 1981 a$ Per-centage of the age grouP 39 Male20 Female

Ever enrolled in primary scho ls 84 Malc48 FemaleThe one encouraging factor iir the latest Census is that the

sex ratio-number of females to 1,000 males-has, for the firsttime, gone up by four points bet*een the years 1971 and l98lto Sj+I fhis snolvs that the downfard trend in the position andstatus of women is arrested.

4) Birth PlanningBirth planning technology took giant strides in the last fewdecadJs. Besides the time imme{norial practices such as absti-lence, abortion,'prolonged breast leeding, and rvithdrawal, tech-nologioal development added o{al pills, intra-uterine devices'


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POPULATION )more efective copper and hormone releasing LU.Ds, menstrualregulation, male sterilisation, simplified female sterilisation bylaparascopy and mini laparotomy, Iow estrogen pills with fewerside effects, progestin only minipills, barrier methods such ascondoms, diaphragms, spermicidal jellies, and injectible contra-ceptives efective for two to three months. Research is nowconcentrated on improving the safety, convenience and life-spanof existing methods, and developing new methods such as pillsto induce menstruation, long-lasting bio-degradable hormonalimplants for women, non-surgical, chemical sterilisation for menand women, pills for rnen, and anti-pregnancy vaccine forwomen. WHO researchers have developed a contraceptiveimplanted under the skin of a woman's upper arm, effective forfive years.

The world-wide funding for contraceptive research amount-ed to $155 million in 1979. As the funding is mostly fromadvanoed couatries with 72 per cent of it coming from theU.S.A. where population is not a grave problem, the fundsbeing put to research in tbis area are declining in real termssjnce 1972-73. Moreover, as it is a social work not immediatelypaying, commercial pharmaceutical firms and private traders'share in the R & D on population control has steadily declinedfrom 32 per cent in 1965 to less than l0 per cent in 1979.It is not so much the development of new birth controldevices that will hold down the population but the motivationtowards smaller family and translation thereof into a birth pre-vention programme supported by an infrastructure of familyplanning clinics and doctors.The biggest problem in India is to take the available techni'ques to the large masses in rural areas. About 28 per cent ofthe couples in India usb modern contraceptives. Says the WorldBank Development Report, t984, "No other country at India'ssocio-economic development level measured by low literacy,high infant mortality and low per capita income has shown alower level of fertility." Another striking point is that though itis presumed that at least 60 per cent of the population of repro-ducible age should be protectcd for achieving the net reproduc-tion rate-I, Kerala with only 32 per cent protected by moderncontraceptives has a total fertility rate of 2.7 (1981 birth rateand death rate of Kerala 26.0 and 6.9 respectively).


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6 TNDUSTRTAL PoLtcY ANDProjection to the Year 2fi)l

2001 e.o.

After the 1981 Census, the of Health's projectionshave taken a drastic turn the lowest projected popula-rion in 2001 beirNg 959,215,700 ins 1996-2000 crude birthrate (CBR) at 20.78 and crudemedium projection in 2001 as

lity and mortality decline at 938that the present fertility rate of 4tions decline to 2.9 and at rapid

th rate (CDR) at 8.25. Themillion and the high projec-the CBR will remain at 3l .06ion is 1,052 million (assumingwhilst the death rate will go to 8.86).

The World Eank (World Report 1985) projects India'sstandard fertilitv and morta-opulation in the year 2000, wility decline, at 994 million; with fertility decline but withstandard mortalitv decline at million, and with rapid ferti-World Bank assumeswould under stand ard condi-ine conditions so down to2.2. Life oxpect&ncy would be 6l years under standard morta-d mortality decline.ity decline; and 65 years with raTbe CBR in India has not declined to any appreciabloextent since 1975 and has to be 33.3 in the year 1982(sample registraltion The death rate, on theother hand, has gone down 15.2 to 11.7. Though theNadu and Karnataka haveouthern States like Kerala, T[hown an apprebiable decline in rate, the northern Stateswhioh are more populous are to have a hish birth

rate. It would be unrealistic. bre. to assume that the birthrate would drop to about 2l by year 2001. Of course, theincreasing concern of the about the population andthe steady stream of publicity extonsion agencies andwould have some impacthe media of paper, radio andon reducing the birth rate. Webirth rate would go down to 25hand. to take CDR below 9, therefore, assume that thethe year 2000. On the othercent bv 2001 would be an

Gxtremely difficult task. Under assumptions the popula-tion in the year 2001 would beof the Ministry of Health, that the medium-term projectionabout 990 rnillion.**H6alth Ministry's assumptions for lium projection arc:1986-91 1991-96Birth rataDeath rateGencral ferlility rarte (GFR)

1981-8632.46152

30.45 27.6110.80 9.55 1996-20018.4810638 122


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POPULATION IWorld Bank projects a hypotbetical size of stationary popu-

lation for India at 1700 million, assuming it reaches NRR-I inthe year 2010. China, which is the most populous country now,would have reached the net reproduction rate of I in the sameyear but would have ultimately a stationary population of l57lmillion. Thus, India will have the dubious distinction of havingthe higbest population in the world supported by a much smallershare of natural resources, including land, as compared toChina.Reducing inlant mortality by tackling nutritional deficien'cies, improving the status of females through revising the legalmarriage age, increasing female education and encouraging birthplanning, ready availability of contraceptive supplies to therural population, and giviug incentives and social prestig,e to

small family norms would go a long way in reducing populationgrowth.Population control will mean giving lamily planning a lead'ing role in our developnrent policies. A number of developingcountries have shown that the birth rate can be brought downrapidly, examples, being Sri Lanka where the CBR came downfrom 33 in 1965 to 27 in 1983, Thailand from 43 to 27, Repub-Iic of Korea from 36 to 23, Malaysia from 41 to 29, Parramafrom 40 to 28, Cuba from 34 to 17, Chile ftom 32 to 24'Singapore from 3l to 17, Lebanon from 43 to 29 and Chinafrom 39 to 19.

If other developing countries can achieve such phenomenalsuccess in a span of l8 years (1965-1983) it should not be dim-cult for India to achieve similar, if not better results by thc year2O00, provided there is a national will, at both the political andpeople's level concerned at the spectre of population growthand a desire to overcome the menace of population growth'


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Cs,l t'rrR 3

Labour lTorce

As per l98l Census, the mair]r workers in India numbered222,516,574 or 33.44 per cent of lhe population. The proportionof cultivators and agricultural labourers to the main workerswas 66.52 per cetrt compared to the l97l percentage of 69.66which shows that there is a deni in the percentage reduction ofagriculture labour. Both cultivators and agricultural labourershave shown a decline between t$e years l97l and l9gl, theirpercentages being:curtivators 'ii.'; ii.:t:;Agricultural labourers 16.69 24.96Total 59.66 66.52Fernale work participation, on12.06 in 1971 to 13.99 in 1981.The working ageDevsl6pmgrl Report, 1985 for is 57 per ccnt. The WorldBank, however, considers the age population as between15 and 64 years. Taking into co ion the social norms andpractices in India it wouldbetween l5 and 59 years as of fair to take the populationing age. As per l98l Censusthe population of working age I to 59 is 54.1 per cent of thetotal population. As the main ers constitute 62 per cent ofthe working age population, the 38 per cent of the work-ing age population (mostly fi ) is not in the labour marketeither because of unwillingnessbecause of lack of oooortunities

other hand, increased fromas given in the World Bank

enter the labour market or(A small percentage of the


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I,ABOUR FORCE 9population in the age group of 15 to 25 is engaged in highereducation.)

The main workers for the year 2001 are already born' As'suming 36.80 per cent of the population to be the main workers,their number, in 2001, would swell to 364.32 million because ofthe greater percentage ofpeople being in the working age groupand greater participation of females in the work force. In otherwords, between l98l and 2001, 142 million extra persons willhave entered the labour market, To provide job opportunitiesfor this number within a span of20 years will strain the resourcesof the country.


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Cruprrn 4

Ind try-A ReoieutAnalysing the recent trends ia growth, Rangarajan Il]pointed out that industrial prod n Incteased at an avefaserate of 7.8 per cent in the deca following 1955. This rate ofgrowth fell to 4 per cent in the5.1 per cent in the subsequenrrate of growth has varied from1979-80 to a growth of as

rcasonably strong correlationture and output of consumer

1966-75 and increased toyears up to 1982-83. Theof 1.4 per cent inper cent in the yearthat the index of

declineas 9,61976-77 (Table 4.1). Rangara cautionsindustrial production may be imating the level of out-on the data derived fromut because the index is basedthe registered manufacturing oweights in the current index of

from the contribution to valueons only. Moreover, theial production are derived

by various industries as of1970. Some of the new and growing industries such ascrude oil, petroleum and certaia g ittdustries have faroutstripped their weightage value.The slow rate of growth of ustrial production was ex-plained as due to supply bo s, inadequate performanceof infrastructure, demand ts emanating from reductionin import substitution, slower in agriculture and changoshas a major influence onn income distribution. Agricuindustries, as agro-based i bave a weightage of 34 peruction and agriculture influ-ent in the index of industrial nd depending upon theopined that there is aperformance of agricul-

ences indusrry through fluctuatingagricultural prosperity. Rangaras industries with a one-year


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INDUSTRY-A REVIEW 1Ilag. He, however, emphasised that as there had been no signi-ficant change in the trend rate of growth in agriculture, this byitself could not explain the slower rate of growth in iadustry inthe last decade-and-a-half as compared to the earlier decade.

Table 4.1Year-to-Year Rates of Growth in Industrial Production

(In percentage)Year (Finan- General Basic goods Capital Intermediate Consumercfal) index industries goods goods'indus- goodsApril-March industries tries industries

1962-6t +9.41963-64 +9.41964-65 +8.71965-66 +5.3Average + 8.251966-67 +0.61967-68 +1.21968-69 +6.61969-'10 +7.7i1970-?1 +4.0Average +4.021971-72 +5.7t9?2-73 +3.91973-74 +C.81974-75 +3.21975-76 +7.2Average +4.161976-17 +9.6t977-78 +3.31918-19 +7.61979-80 - 1.4198G81 +4.0Average +4.62l98I-82 +8,61982-83 +3.9

+16.4 +23.9+1r.r +14.8+ 4.0 +21.s+ 7.7 + 6.4-F 9.8 +16.65+ 5.1 - 8.6+ 2.7 - 4.3+ 10.7 + 2.8+ 8.9 + 1.9+ 3.4 + s.5+ 6.16 - 0.54+ 6.2 + 1.7+ 4.8 + s.3- 2.0 +16.7+ 6.5 - 0.3+ 15.4 + 2.3+ 6.18 + 5.14+11.7 +14.1+ 3.2 - 0.6+ 6.0 +I1.0- 0.5 - 2.6+ 3.9 + 7.2+ 4.9 + 5.82+12.6 + 7.t+ 8.2 - 2.7

+7 .5 + 0.7+8.9 + 3.3+7.8 + 8.7+1.3 + 5.6+6.4 + 4.s7+0.5 + 1.0+3.2 - 1.0+5.1 + 1.9+4.0 + 13.3+0.8 + 5.0+2,72 + 4.04+'1.3 + 4.8+4.s + 2.1+2.7 + 0.4- r.> 'f t.L+4.8 - 2.5+3.5 + r.4+4.9 +12.7+3.5 + 6.3+7.5 + 8.0+1.8 - 4.4+1.3 + 4.4+3.8 + 5.4+4.2 + 8.2+2.6 + 3.1

,torrce: Reserve Bank of India Bullctin, January 1984, page 26'


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12 rNousrnral, poI,rcy AND pno$prcrs-20Ol a.o.Rangarajan emphasised tho tgeed for reduction in the capitaloutput ratio by increasing the p{oductive efficiency of the capi.tal for which he suggested:l) An overall improvement Jn efficiency in the formulationand constructicn of projects;2) Selective investment in a flew sectors or projects whoseshortfall in output acts as a conEtraint on the growth ofoutputof other sectors. Apart from selfctive investments for overcom-ing inter-sectoral imbalances, evpn within each sector there may

be opportunities for increasing optput capacity through balanc-ing investments rather than throqgh the creation of fiesh capa-city;3) Improvement in powerl generation and utilisation.Although the plant load factor fdr thermal plants increased from44.6 per cent in 1980-81 to 46.1 ier cent in the first nine monthsof 1983-84, the regional imbalarices were acute. Improved effi-, luv rw6rvuer rruust.r4lvD wets (luu[G. IurpIovgu llt-ciency. in the operation of powen plants and better lroject for-mulation seemed to be the need df the hour:4) Optimum size plants a6 advantageous locations forachieving a planned economy. Uneconomical plant sizes, dis-advantageous locations and fragfrentation of industrial capacityhave all resulted in high production economy;5) Upgradation of its techtrology. Enterprises also mustmake serious eforts to strength4n their own R & D depart-ments. The in-house facilities of t[re enterprises must be enlargednot only to develop nerv prodlucts and processes but also toaDsorb, adapt and lmprove impofted technologies. As a part ofthe increase in project export to other developing countries,technological upgradation of pr


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INDUSTRY-A REVIEW I3REFERENCE

1. Recent trends in inCustrial grorrlh, Keynote address at the Tentt)Annual Regional Meeting of the Association of kdian EngineeringIndustry (WesterD Region) on March 3, 1984, by Dr. C. Rangarajan,Deputy Governor, Reserve Bank of India, published in Reserve Bankof India Bulletin, January 1984, pp.25-29.


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CrreplrR 5

Chenery compared the data ofpost-war period and came to theis associated with svstematicof the economic structure." Heresources according to changingtunities for trade. He then dchanges at different stages oftion, urban/rural population,(Table 5.1).The data on which Chenervlonger fully valid, especially withtaken place since 1964, the oileconomy had to pass in the Iand environmental developmentsAll the same, Chenery's data ineconomy ntay move and thethe GDP and the industry thatthe country advances from one(GNP) per capita to the next (TIndia's economic deveIndustrial production went upween 1961 and 1965. The Fomanufacture growth rate at 9.3manufactures at 5.2 per cent.able to achieve the 9 per centmanufacturing $ector's contri ion to the domestic product

bout 100 countries over thenclusion that "rising incomens in almost every featurethe need to shift thetterns of demand and oppor-rcd a Table to measure thecapita income in accumula-labour force and tradehis observations is noescalating inflation that hasthrough which the worldand the explosive technologicalare currently taking place.the directions in which thein the structure both ofis likely to take place whenof Gross National Productble 5.2).till 1965 moved very wellalmost 9 per cent " y.u, b.1-Plan projected a large-scalecent and of the smallscalothe country has not beengrowth rate since 1965. The


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RE

INDUSTRY : STRUCIURE 15

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INDUSTRY : STRUCTURE 17

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INDUSTRY: STRUCTURE 19Table 5. 3

Structure of lhe Indian Economy(Based on Chenery's table)

Year ofrefrcocefor IndiaIndia Chencry'sratio at S10Opcr capitaI. ACCUMULATION

Gross national savingsas 'l of GDPGross domestic invest-ments as % ot cDPSchool nrolment ratio %6-l I yearsAdult litcracy rate

rr.louTPUT COMPOSTTIONPrimary share of GDP IIndustries share of GDp ){Services share of GDp oA: Utilidshare of GDP ft'III. POPULATION AND LABOUR FORCEPrimary labour as f oftotal]labour forceIndustrial labour as |o oftotalllabour forcc; Utilitics and services labour. asl%lof total labour forceUrban population as fi oftotal populationBirth rate per 1000population. Death:rate per 1000populationIV. TRADEExports of goods and.services as I of GDP

t984-851984-851980-81t98l

l98l-821981-82l98l-82r98l-82

198t

1981

l98t1981

1982

1982

1981-82

12.015.136.236.s

46.413.534.65.7

68.r9.6

22.'20.04l.8

t5.2

13.2

22.623,883.I36.17

41.82l.l37.1

IJ

13

l624

(Contd.l


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20 rNousrnrll poI.rcy AND pRTablp 5.3

Imports of goods andservices as I of GDP IPrimary impotts as I oftotal exports 1Primary impotts as % oftotal imports 1

The study of value addedsector to India's GDP between

PEcrs-2001 A.D.(Contd.)

40* 78.0

industries in the organisedyears 1960 and l98l-82 indi-

18.70

r 8.0*Primary imports and exportsa) Food and livo animalsb) Beverages and tobacco

9 food and 35 fuels.

c) Crude materials, inedibles except lsmatcrials, and) Mineral fuels, lubricants andc) Animal and vcgetable oils andwent up from 13.2 per cent in 954-55 to 18.2 per cent in theyear 1965-66, Thereafter, it fell to 15.4 per cent itr theyeat 1973-74 and was l5 per ceRt the year 1982-83. (Table 5.2).Manufacturins iustead of a propulsive growth sectorof the economy, hps remained since 1965.The structune of the Indian omy in 1980s is given inTable 5.3 which shows that in me respects such as savingst, industry's share as percent-Dd investment. school enroage of GDP, India's perfo exceeds expectations.cates a structural change of thoindustry which contributed 30.7 dustries. The cotton textilesin tbe year 1960 has come do per cent of the value addedto 8.3 per cent in the yearl98l-82, the share of electricity, the other hand, has increasedfrone 2.61 per oent to 15.5 per cent; chemical and chemicalL9 per cent; basic metals andcent to 72.1 per cent andproducts from 9.11 per cent toalloy industries from 7.52machinery and machine tools fro(Table 5.4). With the era of hieh 3.24 per celt to 7.2 per cent.technology industries dawningin India there will have to be ition of new industries such aselectronics, telecommunications. and biotechnology, whoseshare may be conspicuous in year 2000.


27/96

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28/96

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29/96

Cseprtn 6

Industry: Policy./ .tThe Prime Minister is advocating hightechnology and wouldlike the country advanced economically so that it can be on parwith the advanced countries. As per the World Bank Devdlop'ment Report 1984, India today is in the low-income category(less than $400 GNP per capita) with per capita GNP of $260(1982). Industrial market economies have per capita GNP ex-ceeding $5,000. Even assuming India's per capita income of-1985 as $300, to reach the level of $5,000 by 2001 the yearly GNPgrowth rate has to be about 18 per cant, It is in this contextthat we have to see the possibilities of India's achieving levelsof income commensurate with those of the developed countries.Referring to the World Bank Development Report 1985, thehighest growth rate of GDP witnessed during the period 1970-82was 7.6 per cent for Rumania, 8.6 per cent for the Republic ofKorea, 9.9 per cent for Singapore and 7,7 per cent for Malaysia'Japan had a growth rate of 10.4 per cent between 1960 and1970 which came down to 4.6 per cent during the years 1970'82.To achieve these growth rates, the industrial growth of thecountries had necessarily to be higher. For instance, theaverage arlnual growth rate of industry for the Republic of Koreaduring the period 1970-82 was 13.6 per cent; Rumania 8.6 percent; Singapore 8.9 per cent. Japan's industrial growth rate was13 per cent between 1960 and 1970 and 5.6 per cent for theperiod 1970-82.Looking at the performance of the economies of variouscountries it would be reasonable to state that the highest indus-trial growth rate that can be reached over a period of 15 years


30/96

24 rnnusrnru por,rcy AND pR 2001 e.o.could be aboutbetween 1970 15 per cent, (e. South 13.6 per centand 1982). In in the past, however, rightthrough 1960 to 1982 had an a industry growth rate ofabout 5 per cent (Table 4.1, ,I Review, Chapter 4). Awareof the poor performances in the the present Governmenthas launched bold policies for ing the growth rate andadvancing the technological of the countrv. It would beworthwhile considering the e implications of the policybeing followed by the GoThe study Regulation andsummed up the following aspolicy in the country:1) Public sector.2) Imports substitution,3) Pricing,4) Dispersal of industry, an5) Segmentation of industryThese very instruments act as thegrowth. Besides these constraints,

almost equally the overall impactwould be responsible for betweengrowth rate. Weightage given toTable 6.1. We will now evalinfiuence these factors and arrivethe coming years.

opment by S.S. Marathe hasof the industrialnstruments

sectofs.constraints to industrial

.25 and 1.5 per cent of theeach factor is indicated inhow far. the present policiest a feasible growth rate for

two other factors. investmentand technology influence the ind growth rate.Having consiidered the o growth rate achieved byother countries it would be lr hile evaluating the impact ofthe present policies of the Gov of India on the indus-trial growth rate. We have noted above seven factors as in-fluencing the growth of Indian . If we assume tho opti-mum growth rats at 15 per cent, impact of these seven factorsin all could be considered as l0 cent over and above theexisting industrial growth rate of per cent. It would be diffi-ch one of these factors sepa-ult to give proper weightage torately. No singlO factor, without a conducive climate in theother areas, can influence theextent. Moreovef, the influence rate to any appreciablethese factors can only becumulative. However, for no rl purposes even if we divideof these factors, each factor


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INDUST&Y : POLICY 25Table 6.1

Industrial Growth Rate : 1985-2000(Per cent)1985-90 1990-95 1995-2000

Normal growth ratePolicy induced grotrth rate

Public sectorImport policyPrice controlsDispersalSectoral segmentationINeslmentsExternalPrivate sectorCapital marketTechnology

5.00 5.00Estimatd

5.00Nolional(pr"lbl")

1.501.25t.2s1.501.501.501.50

5.00

0.250.500.500.250.25t.00o.75

0.500.751.000.500.501.501.00

0.751.001.000.500.751.501.25

15.00 t0.75 11.75Public SectorTill recently, with a low industrial base, the Government had toplay an active and dominant role in providing inlrastructure forthe industrial growth as also in the development of a wide rangeof industries of national importance. As per the Bureau ofPublic Enterprises (BPE) survey, by l98l-82, 1E7 public enter-prises were established by the Central Government with a capi-tal of Rs. 21,865 crores and employment of 1.9 million. Thesefigures exclude departmental enterprises like the railways, postsand telegraphs, telephones, nationalised banks, insurance corn-panies as also enterprises established by the State governmentssuch as State Transport Corporations, Electricity Boards, andirrigation works. Although the total picture of the entire publicsector, that is Central, State and local including departmentalundertakings is not available, it is surmised that the publicsector excluded from the Bureau of Public Enterprises survey isrnuch larger than the Central public sector included in thesurvey. An estimate made by the Centre for Monitoring IndianEconomy in March 1983 places the total investments in theenterprises coveled by the Bureau of Public Enterprises review,at about 40 per cent of the total and in terms of emploiment the


32/96

26 INDUSTRIAL por,rcy AND pR 2001 ,c.o.BPE units account for less thanall public sector enterprises. quarter of the employment in

Pre-tax profits of the BpEinterest, were as little as Rs. 18.7 that is, after providing for

Natural Gas Commission

several thousands of crores ofhighest returns of Rs. 421 crothan 4 per cent on the capitalin the year 1980-81. Thefor the year 1976-77 were less

formance in the year l98l-82crores gave a return of little lessin that year. The per-f pre-tax profits of Rs. 1074

5 per cent. The profits ofthe Central sector, however, from compauies which haveconcerned with hieh returnmonopoly in their activity orindustries such as oil, For i the State Trading Corpora-tion, and Minerals and Metals T g Corporation make theirprofits largely from the monopoIndian Oil Company and Oil conferred on them; Oil tndia,make their profits because their igh proftabiliry is a conse-quence of the pricing policy forRs 380 per tonre was raised to oil. The crude oil price ofll82 with effect from Julv11, 1981,* and this alone a for the increase of overRs. 700 crores in the profitability public sector enterprises.The total number of ises incurring losses went upfrom 56 to 65 in the year l98l-82from Rs. 614 crores to Rs. Zl0prises engaged in non-manenterprises ineurre

to grow. The poor performanceprofound effect on the overall eco omy of the country.

res on a total investment of

nd the total losses made roseif one considers enter-ing activities, a total of ?8the year l98l-82. As Indianprivate, have got increasinglyincreased and will continuethe public sector will have aenvisaged to engage in theto transform the economylved with every sort of activityglass, bread, footwear, tea,

course. some of these under-of the country, it began to be invsuch as scooters, rubber goodstextiles, hotels and beverages. Otakings were taken over by the S as they faced failure in theprivate sector. AII the same, f ories for the manufacture ofbread, scooters, automobiles, e , were deliberately started by


33/96

INDUSTRY : POLICY 27The public sector has almost the sole responsibility inrespect of much of the infrastructure, such as generation anddistribution of electricity, mining and supplying of coal andmineral oil, rail transport, communications including telephones,teleprinters, wireless and transport.Shri B.K. Nehru has stated, "As the commanding heightsof the economy, coal, steel, oil, electric power, railway trans-port, telecommunications, banking and insurance are all in thepublic sector and as they are all inefficient the rest of the eco-nomy which must rely on the inputs they provide is necessarilyhampered." The continuing failure ofthe public sector to gene-rate adequate surpluses from their working has led to thesupport of these loss-incurring undertakings from the generalrevenues ofthe State. The linkage effects ofthe inadequacies ofthe performance of the public sector are all pervasive-. power-cuts, unscheduled interruptions, and trippings and wide voltagefluctuations not only curtail production but increase the wast-age, damage equipment and lead to idling of the capital invest:ment. It may be safe to say that a 10 per cent power cut leadsto about 25 per cent extra capital outlay for the same produc-tion. The intermittently operative communication system leadsto costly delays in information collection and manaserial deci.sions and discourages clispersal of industries.Pronouncements of the Government indicate that the publicsector will continue to be relied upotr as a major instrument ofgrowth. However, because of its poor performance to date,eforts will be made to improve the management, project plan.ning and implementation and technology. Simitarly, employ-ment must be streamlined and units that cannot be revivedshould be closed down. The strong will of the Central Govern-ment may, perhaps, streamline the public sector enterprises runby the Central Government. The trouble, however, is that seve-ral enterprises have been started by State Governments whichperpetually run into loss, managerial strength of which is weakand they are in areas of industries where the State has no busi-ness or justification to enter. Many Chief Ministers when theycome fresh to a State are frightened at the colossal losses of theState enterprises and they appoint committees to investigate ifany ofthem could be closed. The committees' reports, however,are never implemented as these enterprises give berths to


34/96

28 INDUSTRT L PoLrcY AND pR 2001 a.o.politicians who oannot be accom ted elsewhere. The oosi-tiors of Chairnlen and Di in State Covernmeut enter-prises have often been used asGovernment is given full credit for initiating the policy of improv-ing the performance of the sector so that they are run

party-in-pov/er.Taking the public sectorefficiently and effectively, thatproductivity and performance,

acute shortage of foreign exchafavour of import substilution at

patronage to be given by thea whole, even if the Central

organisation is tuned totechnology is updated, and

which resulted in a bias in

sufficient resources are for updating the technology,rve still have to contend with p$blic sector units managed byState Governments and local Even if we give equalvis others we could takeeightage to the Central sectorcredit for 0.75 per cent increase !n the growth rate when theCentral Government fully its policy. The other 0.75per cent which could have been ted by the undertakingsof the State Governments will nod contribute to any progress inthe improvement of industrial grdwth.Import SubstitutlonEver since the mid-fifties, the ind policy lays emphasis onimport substitution as an i part of the strategy for sell-reliance. Import substitution the norm because of the

y cost. The foreign exchangeallocation was made on a half-no long-range production plan ly basis with the result thatbe drawn up by the under-takings. Production, therefore, i limited to the availability offoreign exchangd. This also in a curb on productivityand increase in production cost factory production was Iimit-ed to the extent of foreisn allocation. Increased pro-duction could, however, be through indigenousmaterials and where increased ion was attemoted it couldbe at disproportlonally high cost. Import restrictions, hightoms duties, and shortage of all encouraged highindigenous production as a , and not cost, wascriterian for selling the product. The bilateral aid also led tohigh cost imports as there could no international competition

cus-costthe

when the foreign exchange is to one country. Moreover,


35/96

INDUSTRY : POLICY 29the pervasive fear of concentration of industry led Governmentto divide even uneconomic demands into a number of units,thus perpetuating a series of uneconomic high cost manufactur-ing units. Assured markets at home because of pent-up demandand lack of imports led to a lag in technology, all resulting inthe local prices often being two to three times higher thanprices abroad. The import restrictions coupled with high cus-toms duties led to a protected market for local manufacturers,who, whilst being completely out of tune with the internationalmarket, could sell all their goods at a very high cost within thecountry. Moreover, the basic cost ofraw material such as steel,and aluminium, are far too high as compared with internationalprices. Current steel prices are 60 to 80 per cent higher than theinternational prices which makes it very difficult for the localmanufacturer to compete with international manufacturers. Thesame is the case with chemicals.Government recently announced a three-year valid importpolicy. It has liberalised import of technology and would likethe manufacturing sector to achieve international parity in costs,quality, reliability and technology. It has removed constraintson the production capacity and size of units. It will, however,take a decade to realise the full impact of this policy. Underfavourable conditions we may assume that the curreot policywould add 0.5 per cent to the industrial growth rate in theperiod 1985-90,0.75 per cent between 1990 and 1995, and I percent thereafter.Price ControlsIn the past, price controls have been used extensively. Themethodology used for determining the price to be paid to theproducer has often been biased in favour of protecting, in theshort run, the interest of the consumer, but has generally ignor-ed the longer term interest of the consumer. Initially, the mainemphasis on price controls was on the regulation of food-grainprices, By the seventies the pressure on prices had accentuated.Price controls, therefore, were used not only for stabilisingprices of esseutial consumer goods like foodgrain and edible oils,but also for regulating prices of industrial raw materials. By1977, the Government had realised that the resulation of orices


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Controlled prices, of necessi , have to be lower than themarket prices. Marathe points t that unless price elasticity ofdeimand for that item was nesli Ie, lower levels of controlled

30 rNousrnnr, pot,lcy ANr)of industrial products had maThere was a growing recognitionprice controls is not often in the

prices would aggravate the imsupply. An excess of demand in

prices throughout the country byhas led to a lop-sided location of

-2001 a.o.production less attractive.keeping prices Iow through

interest of the economy.

between demand and

ling the transport cost. Thisindustry irrespective of the

n to the available supplyat a given controlled price can nly be taken care of by somesystem of rationing which ines the quantity available toeach user, A system of ratio is relatively easier to operatewhen the product is ho and users thereof requirethe product in rnore or less quantities. Even insuch cases, unless the controlled reflects the true economiccost, (input cost plus adequate rgin of profit to attract addi-the imbalance between effec-ional investment), over a periodtive demand and available would. aggravate as waswitnessed in the case of cement i d sugar.. One of the methods of control is the system of dualprices, The logic behind dualend-users or limited quantities ;is that certain specifiedrespect of all users should bemade available at prices whichduction but are not adequate to y be related to cost of pro-intain a satisfactorv level ofprofitability for bn industry.open market are expected tothe undertakings.

lled supplies sold in thethe overall profitability ofControl on cement pricescement industry, so much soimport large quantities of

led to the attrition of thethe country had to annuallyt from foreign countries.Cement also suffers from defect, that is, uniform F.O.R.cost of freight. The freight n policy has put a pre-mium on the locations which closer to the raw materialrather than to the markets. more or less equal demand,northern and eastern regionscent of cement, that is a little o er produced only 31 per60 per cent of its require-ments, whilst the balance was in south and west. Theaverage lead distance (in ) for cement has gone upfrom 377 in 1960-61 to 635 km 1973-74. The reluctance to


37/96

INDUSTRY: POLICY 3Iinvest in Cement plants also resulted in obsolescent plants andunremunerative technology being perpetuated which is costingdearly to the consumer. It is only since Iggl when partial de-control of prices of cement was introduced that the iroductionhas come up.In dual pricing the leakage from the receivers of goods atcontrolled prices to the open market such as in cement andsugar is quite common. Moreover, the criterion for releasinggoods at controlled prices to particular categor.ies of consumersleads to political.intervention and opens up-avenues of corrup-tion and black market.The ill-effects of the Drugs price Control Order are beingfelt even now. There are around 25,000 fonnulations and 75ba_sic drugs (-excluding imported ones) manufactured by over5,000 units of which 130 are in the organised sector. The DrugsPrice Control Order tries to control the retail prices to becharged uniformly in all parts of the ccuntry fo. proJurt, *nor"consumption depends not on prices but on thi recommenda-tions of the medical practitioners, and the input costs which inmany cases are uncontrolled.An elaborate and cumbrous system of price controls tendsto put a premium on the prices at which a medicine is availableas distinct from the ready availability of the medicine whenneeded. The emphasis on the price aspect becomes even moreirrelevant when it is recognised that the price of medicine (orinjection) constitutes only a small part oi the total cost borneby the patient who is more interested in the availability of themedicine when needed than about the priie to be paid for it. Itis argued that the price control is used more for ihe fixation ofprices of essential and life.saving drugs, and to permit somewhatmore generous mark-ups on direct costs in the case of non-prescliption drugs and formulations. As the profitability of aconcern, however, is based upon the margin that the companygets over and above its cost, it would be more interested in seli-ing non-essential or less-essential drugs where margrns arehigher and curtail production of essential drugs w-here themargin, if any, is negligible.. Much more important in the consideration of R & D costsis the amendment ofthe patent Act. patents for food and drugsare applicable for seven years from the ciate of filing or five years


38/96

decade, which would allow to expect 0.5 per cent rise in

32 TNDUSTRTAL PoLIcY ANDfrorn the date of sealing. Undfind it diflicult and unrem

2001 e.o,this Act, foreign companiesto file applications in India.

is more in controlled

On the other hand, Indian are unwilling to patenttheir innovations and depend on trade-secrets. No wonderthe number of patents sealed sone down from 3944 in1974-75 to 1019 in the year

No\ry that the Government delicensed 94 mass consump-(subject of course to the allion bulk diugs and formulatiopervasive exception of MRTP companies, reservation forsmall-scale industries, and n in cities with over five lakhpopulation) strong pressure is ng brought on the Govern-ment by Indian pharmaceutical mpanies to maintain status-quo as otherwise they fear multinational comoanies wiIlswamp the pharmaceuticals and industry.In short, concludes a set of controlled prices leadsto the stagnation of industrytechnology as ttre interest of more so to the stasnation ofprices being higher or in higher sale in the open market

As the quantity to be allocat-han to improvo the proded to the controlled market is a specific porcentage of the pro-duction capacity or actual uction of the industry, theproducer would be more i in reducing the productionor getting the production ty reduced on paper so thatwith lesser goods available at prices the price of goodsin the open market would be hi Instead of increasing theproduction and productivity, bre, such controls lead tolowering of production, obsoscarcity of commodities. of teohnology and generalTbe Government is gra ally reducing price controls,though the pre$sure fromimplementation of this policy.lobby will strongly press forcane prices, which perforce dicourse, as therp is no controllobby seeks continuance of concessions, the productionwill suffer. We would there-t the policy of discrete with-of sugar and the consutrrerfore, not be wrong in assumingdrawal of prica controls would if at all. be effective after a

; lobbies will not allow speedyFor instance, the agri(ulturalttinuance of controls ori sugartates dual prices for sular. Ofr gar prices, and the khbndsari


39/96

INDUSTRY: POLICY 33industrial growth during 1985-90; and I per cent during 1990-95and thereafter.Dispersal of InilustryIndustries have a tendency to congregate near one another asthey need infrastructural facilities, .skilled labour, repair andmaintenance service, supply of raw material, tools, parts andcomponents from trade and are helped by inter-industry counsel-ling and sales. Added to these general causes is the availabilityof service facilities such as banking, telecommunication, market,transport, freight, etc. On the other hand, such congregationslead to over-crowding, development of slums and deteriorationin the quality of life.Though public sector etrterprises such as steel mills were setup in undeveloped areas their spin-off effects for developingother industries around them were limited. A deliberate attemptwas made in the seventies through subsidy and concessionalfinance schemes to take industries to industrially backwardareas.

The criteria for identifying industrially backward States weredeveloped by the Pande Committee whilst the Wanchoo Com-mittee recommended fiscal incentives. Capital subsidy is avail-able to the industry during the construction stage, interest con-cession helps in the earlier stagcs of production, whilst taxconcession is attractive when production begins. The capitalsubsidy is limited to a ceiling of Rs. 15 lakhs, the amount givenon concessional terms is limited to Rs. 2 crores; whilst 20 percent of the taxable profits are exempted from taxation. TheCentral Subsidy Scheme is limited to 101 districts, whilst conces-sional finance is available in respect of investment in all 241 dis-tricts declared backward by the Planning Commission.In the earlier years industrially advanced States and thosewith a relatively well-organised administration like Maharashtra,Gujarat and Karnataka accounted for a substantial portion ofdisbursements from the Central Subsidy Scheme. Moreover, thesubsidy scheme has benefited those areas which have attractedmore large-scale units and which. were located in the indus-trially-advanced States like Tamil Nadu, Maharashtra, Gujaratand Karnataka. Says Marathe, the incentive scheme for deve-


40/96

34 rNDusrRIeL poI.tcy AND 2001 e.o.lopment of backward districts has tended to remain skewed infavour of the more industriallv States and the districtsnear the established industrialIn April 1983 divided backward areas of thecountry into three categories. 'A' consists of no- indus-try district, plus special like Assam, J & K, Himachald hilly areas totalling il8 dis-radesh, Arunachal Pradesb.tricts. Category 'B' consists of districts formerly eligible forCentral subsidy excluding included in category 'A', anddistricts eligible for conces-ategory 'C' oomprising thesional fnance excluding in categories 'A' and 'B'. Thesubsidy for category 'A' was to 25 per cent with a maxi-mum of Rs. 25 lakhs. 'B' and 'C' districts if they hadexceeding Rs. 30 crores becauseto be eligible for further invest-already attracted an in

Moreover, the Central t shares up to one-thirdthe cost of inftastructural t in one or more identifiedgrowth centres in no-industry zubject to a maximum

of the subsidy scheme, were noment subsidy.

of Rs. 2 crore$ per district.more than 50 per cent of

thermore, thc licensingirstrumeni fog pushing

units which would havetion and which have an

vas deliberately used as anto no-industry districts which

employment level in the at least three times the levelof direct employment arewould be entitled to Central as nucleus plants whichSubsidy. Of course, theMRTP/FERA companies are from such subsidy. Fur.meaqt pressurising people into politically acceptableto the Minister concerned or to fhe Government of the dav.The no-industry-district tion disqualified districtswhich had rural industries such hs a cement or sugar factory andancillary units or a mechanised saw mill. As a result, a sirua-tion arose where there were Stdtes like Maharasbtra which didnot have a single no-industry or Gujarat which had onesuch district only. This Ied the Ntates to carve out districts witha view to get benefts of the no-ilndustry district scheme.Instead of industries congrebating near one another becauseof infrastructrlral facilities, th{ policy forces industries ro gointo no-industry areas which alsb means areas that would haveno infrastruotsral facilities, no skilled labour, no suppliers of


41/96

INDUSTRY : POLICY 35tools, components or raw materials, no ancillary industry andno market. Against this background, the Sivaraman Committeoappointed for the development of backward areas by the plan-ning Commission opted for "growth centres approach', ratherthan "area approach". The growth centres would have a degreeof urbanisation, would have a population of 50,000 or more;would have less than 10,000 workers in non-household manu-facturing; and they should not be near an existing centre with alevel of employment in non-household manufacturing exceeding10,0O0 as per the l97l Census. To ensure adequate continuityand time for the development of growth centres, the selectedcentres would remain eligible for special assistance for a decade.Accordingly 126 centres qualified to be considered as potentialgrowth centfes.. Instead of developing the infrastructure and skills of theIabour force, and encouraging units based upon socio-culturalenvironment and skills the concept of forcing industries to go tono-industry land is to force industries to go in for an obstacleraoe with all odds against their success; or alternatively, to keepthem alive at high cost to the community, both in price andquality.

Backward areas lack minimum infrastructural facilities suchas road network, communication, water supply, power, besiriesfacilities such as health-care, education, training, entertainment,sports, higher education and speedy communication wbich arcall pre-requisites for attracting industry. It has to be acceptedthat when large industry comes about it leads to rapid urbani-sation. The policy, therefore, has to tie up the process of urbani-sation, infrastructure development and industrialisation ratherthan force industries to the backward regions at all costs, thusIeading to high cost and poor quality industrialisation and low,if any, stress on high technology and process improvement.As the pulls of the region will continue to dominate tbcindustrial policy of the country, we may not expect much contri-bution to the industrial growth rate from the policy of dispersalof industries. We will therefore assume a modest contributionof 0.25 per cent to growth rate from this avenue durine l9g5-90and 0.5 per cent thereafter.


42/96

36 Illousrntlr, PoLtcY AND PRSegmentation into lnilustrialThe industrial policy from its initi.tries into sectors such as.monopoly houses, large industries,and household industries. Initiallycottage and household industryemployment potential and toavenues of employment. Successireduction in employment in tradireturns received bY thosemany a time would not even beof the persons or families engageding conditions and Practice ofhold industries aggravates theproduotion and stagnation ofpite the disastrous effects of theprotected sectors have gathoredvival as it is not bY. productiononly through political and osectors can continue. This has ledto be exclusively manufactured bYgiven for equipment, productionkhadi, excise levy concession onindustries sector, banning ofcient sectors, price preference inovernment, etc. All efforts are.so tbat eftcient units are curbedduction are somehow kePt intoway of strangulating the Ismuggling of goods within thedemands for quality produts.to the perpetuation ofmachinery and equipment, outstagnancy in innovation, researchlogy.The Governr4ent was warymore than his licensed caPacitY.ed production tbe PolicYand production. The PolicY which icts freedom in produc'

-2001 r.n.

has tried to split indus-ionals, foreign companies,industries and cottagethe support for small, andon the grounds of itsthe traditional crafts andstudies have shown theindustries, and the lowin these industries whichient to meet the daily needs

them. The unhealthy work-labour within the house-trend in the overallin that industry. Des-sectoral segmentation, thelitical support for their sur-or quality of goods butnal support that these

reservation of commoditiessectors, subsidies to bemarketing of goods as inin the small'scale

ion in progressive and effi-the purchase o[ goods bYto enforcing disincentivesinefficient sectors of pro'ion. This is the surestand encouraginguntfy to meet the peot-uporeover, such a PolicY leadstechnology, obsolescentI production processes and

d development, and techno-a manufacturer producingof encouraging increas-stagnation in productivitY

wlon,.sector


43/96

INDUSTRY: POLICY 37tion and at the same time lays emphasis on maintenance of theexisting employment acts as a major inhibitor for the adoptionof new and cost-effective technologies. It is axiomatic that iflabour displacement is to be avoided it can only be either byincreasing production or by diversifying. Greater freedom inexpansion and diversion, therefore, is necessary for a firm to.enable it to absorb new technology without creating any indus-.trial relations problems.The policies announced by the Government recently havesome good features such as the delicensing and decanalisationof industries, and broad-banding of production whether forautomobiles, electronics, textiles or typewriters. In some areassuch as electronics, reservation for small industry has beenbrushed aside. The stringent price control on all commodities isbeing relaxed. All the same, one is uneasy to see that the open'ing and liberalisation of industries is still subject to special cons-traints on FERA companies and large companies with overRs. 100 crores of assets and continue to give special protectionto small and household industry. The policy-makers have torealise that just as special concessions given to the powerloonlindustry and the constraints imposed on the organised textileindustry led to a crash of the textile industry which at one time,led the international market, similarly protection and conces-.sions given to specific sectors develop lobbies for the perpetua-tion of the concessions and hamper the process of liberalisationand growth of industry. It would be in the interest of thecountry to encourage industries to develep on the strength andsuitability of their size and structure for a particular industryrather than for sentimental purposes. Instead of increasingemployment this would be a sure way of declining the impor-tance of industry and the employment therein.As strong lobbies have come about to perpetuate the sectoraldivision of industry, we may expect only a modest growth fromthis source in the next decade. We will assume the contributionof0.25 per cent during 1985-90,0.5 per cent during 199&95 and0.75 per cent thereafter.InvestmentSome of the facets of the curent investment policy would have


44/96

(NRI) and from foreign co Technologically qualifiednon-resident Indians and foreisn bringing technologyinto the country, open up aven for the introduction oftechnology within the country. Their would not onlyadd to the scarce capital resources base of the country butwould also lead to value additi skill development andemployment generation. Indica are that non-residentIndians will be investing both in theas also in "plateau" industries such high technology industriesunderstood that a group of non-resi Indians is putting up a

38 ttOUSrnW pOLtCy ANDa positive impaot upon the growthavenues for attracting investment

Rs. 700-crore fertiliser plant in Ushore gas from the Arabian Sea.

capital market is on the upswingclass persons enterirlg the capital

-2001 l.n.e. One is the opening ofm non-resident Indians

fertilisers and steel. It isPradesh based on the off-

390 crores shows that thea large number of middle

are also possibilities ofthis group going in for a steel mill th an investment of overRs. 2,500 crores in Goa. The s negotiations with theJapanese and French Governments d industries lead one toforeign sources in thexpect considerable investmentindustrial and infrastructural nt of the country.The second source of growth be the opening of freshr. The number of indus-reas for investment by the privatetries hitherto reserved exclusivelv govefnment such as tele-generation, refi neries, etc.,sector. The Governmentthe possibilities of gettingcommunications. fettilisers.are now being opened to the prihas gone further and is consiprivate investment for the of inlrastructure such asbridges, roads and helicopter Added to this is thebright future for the capital market. The phenomenal responseto the debentures issue ofthe Reli Textiles industry whereinthey got applications for over

The Reliance Industryclaims that it has over l5 lakhlarge segnrent of housebolds is lders which shows that ag the capital market. Theinsatiable appetite of the institutions or high yielding securitiesto deploy their large cash surplus a rapid growth in theplacement of debentures. With the moters becominE techno-logy conscious and projects equity. issues alsoregistered an upswing. The total raised in the marketwent up from Rs. 264 crores in I I to Rs. 1.452 crores in


45/96

INDUS1RY: POLICY 391984-85 (reckoned July to June) registering a compound annualgrowth rate of 53 per cent.

The present boom in the stock capital market is in responseto the 1985 budget and the Government's new policy framework.It is estimated that each percentage point rise in the flow ofhousehold savings into the capital rnarket means a sum ofRs. 300 crores based on the 1983-84 prices. Besides, large por-tions of the black money (estimated at around Rs. 35,000 croresby the Raja Chelliah Committee) would be attracted to thehandsome returns being offered in the capital market, especiallyas the opportunities for generating black money would be reduc-ed with the reduction of controls and with the opening of theeconomy. This flow of money to the capital market is comple-mented by the flight of capital from other speculative businesseslike commodities, construction and diamonds. In 1984-85 capi-tal consents (separate from actual capital issues) amounted toRs. 2,000 crores compared to Rs. 1,080 crores in 1983-84. If thelast five years' growth rate is maintained, the capital marketalone would go up to Rs. 30,000 crores during the Seventh FiveYear Plan and will touch Rs..12,000 crores annually by 1990.With easy access to rapidly growing markets, venture capitalwill be easier to come by.We may expect the investment climate to contribute I percent growth rate in the period 1985-90 and a full 1.5 per centthereafter.TechnologyTechnology is one ofthe important sources influencing produc-tivity and .the rate of growth. A study at the University ofChicago concluded that the marginal rate of return from theadditional dollar spent on R & D was about 50 per cent. Datafor about 900 manulacturing firms in the U.S.A. showed thatthe rate ofreturn from R & D was about 17 per cent. EdwardDenison observed that technological change was responsible forabout 4O per cent of the total increase in national income perperson employed during the period 1929-57 in the U.S.A. A$tudy by the University of Pennsylvania in 1977 of 17 innova-tions showed a median social rate of return which included dis-economies involved in the earlier obsolescence of older techno-


46/96

40 lNDUsrRIAr, PoLrcY AND PRlogies and the displacement ofU.S. Commerce Dapartmentinnovation was responsible formic growth from 1929 to 1969.technologically intensivefaster than that of other indcent faster; output per workincreased half as fast.Technology put man intoance, expanded man's popenetrated the deepest reachesrevolution possible and alsoto provide a host of new andfrom computers to telecommInnovation is a change inthe resources through new wacal with invention thoushimpact on the economicresources with which innovatiThe present Governmentnological thrust to take lndiathe technologicalnologies like electronics,and the stagnancy ofsteel, drugs and chemicals, thetries make technological heaDespite the Government'logical era the process ofand assimilation takes consilists have to develop a culturegive due emphasis to researchcal innovation so that adevelop indigenous strength tovate products and servicesexternal demand withquality, reliability andIn the overall scheme ofgive a weightage of 1.5 per cenexpect the technological factor

-2001 e.o.ur, at about 55 per cent. Theshowed that technological

5 per cent of the nation's econo-also showed that from 1957-73ies' output grew 45 per centemployment increased 88 per38 per cent faster while pricesunlocked material abund-

advanced the quality of life andknowledge. It made the greencapacity to manipulate materialsgoods and services rangingwealth-producing capacity ofof doing things. It is not identi-it will follow from it. It is the

to produce and utiliseis concerned.gone all-out to ensure a tech-.the 2lst century. Conscious ofand slide-back in the high tech-mmumcatlons, computers etc.,in industries such as textiles,Government is keen that indus-at the earliest.keenness to usher in a techno-logical identification, adoptiontime. Moreover. industria-d an organisation that would

development and technologi-is created within the country totechnologies and to inno-t will meet both internal andte goods and services of highat comDstitive costs.srowth rate we wouldgrowth rate to technology. Wecontribute 0.75 per cent to the


47/96

INDUSTRY : POLICY 4Igrowth rate during 1985-90, I per cent during 1990'95 and 1.25per cent between 1995 and 2000.

We are now in a position to bring together the contributionthat these seven factors could make to the industrial growth rateduring the period 1985-2000. We noted that the normal indus'trial growth rate for India was limited to 5 per cent. We wouldassume this 5 per cent growth rate and add thereto the policy-induced growth rate for the coming years. The result of theanalysis made in previous paragraphs is consolidated in Table6.1. It will be seen that though the optimum industrial growthrate could be 15 per cent, our analysis indicates that during theperiod 1985-90 this growth rate would be 8.5 per cent. It wouldincrease to 10.75 per cent Curing 199G95 and to 11.75 duringthe period 1995-2000 provided the present will and drive forensuring a steady industrial gtowth rate and technology thrustare continued during the period.

NOTEl. Regulation and Development: India's Policy Experience ofControls over lndusfy. Sharad S. Marathe, Sage Publica-tions, 1986.


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CHlprrn 7

Ind try: ProspeetsAt this stage it would be worth referring to the Lima Deve-developed by the Unitedopment Objective (LIDO) modelNations Industrial Development ion (UNIDO) as itindicates the possible growth ratesthe year 2000.

UNIDO in its Lima targetachieve specific goals bythe developing countries'share in manufacturing value added for the worli as a whole togo up from 9 per cent in the year 1975 to 25 per cent in theyear 2000. UNIDO developed the L[ma Development Objectivemodel to help formulate giowth tarlgets for the perioO up tothe year_ 20@ reflecting the sect$ral growth ;ecessary forthe developing countries to attain this objective. The LIDOmodel in its modified form is a muflti-period model generating

achievements necessary for 19g0, l9D0 and 2000 to accomolishthe Lima target (Table 7.1).In the LIDO model there are tliree exogenous assumptionsregarding the values of economic v{riables ior the target year.First, the growth rate of GDp in devblopeC countries was takenas per Table 7.1.Secondly, the Lima target of 25] per cent regional share intotal world manufacturing value aitded (MVA) is assumed tohave been achieved by the year 2000 by the developing countries.Thirdly, the overall trade surplus of fhe indusrriuiir.i "ountri",or the year 2000 is taken as $134 billion in 1975 prices whichrepresents I per cent share of their tdtal GDp in the year 2000.This would also look after the target set by the U.N. fo. "on""r_


49/96

INDUSTRY : PROSPECTS 43Table 7.1

Key Assumptions in the Original and Modified Scenarios(per cent)

Original Moditied scenariosscenario 1975-80 t9E0-90 1975-2000( r975-2000)

GDP (Average annual growth rate)Developed countriesDeveloping countriesAverage annual agricultural growthrate of the developing countries

4.08.t5.6

3.56.2

sionary aid flows of 0.7 per cent of their gross national product(GNP).The first step in the operation of the system is to estimatethe average growth rate of the gross domestic product (GDP) foreach region, the growth rate in the industrialised countrieshaving already been stipulated exogenously. The final demand isexamined under four heads, namely Consumption, Investment,Exports and Imports. For each region, each of these com-ponents is considered as a vector distinguishing agriculture,mining, manufacturing and others. The sum of consumption,investment, and exports, Iess imports gives the GDP. In its pre-sent form, the LIDO model distinguishes four regions, namelyAfrica, Asia, Latin America, and the Middle East, and oneeconomic group ofthe industrialised countries; and divides theeconomy into four sectors of agriculture, mining, manufactur-ing, and others.Having outlined the assumptions and the structure, the

sector-wise value added in 1975 dollars, and the average annualgrowth rates between 1975 and 2000 have been estimated as inTables 7.2. and 7.3.The structural shifts implied by the scenario are outlined in'table 7.4 and the regional share of world GDP and exportsare indicated in Table 7,5, This shows that GDP of the deve-loping countries must grow at an annual rate of 8.4 per centover the 1990s in order to reach the Lima target.To achieve this growth rat the LIDO model visualises that

3.77.4

3.98.4J.O


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44 INtusrnrtl pot,lcy AND -2001 Lo,7.2

Value Addcd, by , for the Year 2000lions of 1975 dollars)Region/Economic GDpgroupingAfrica 635.?5Asia 1715,03Latin America 2831,63Middle East 985.48Industrialisedcountries 13445.94

Value Added : AverageRegion/Economic groupingAfricaAsiaLatin AmericaMiddle EastDeveloping countriesIndustrialised oountries

Reg ion/Econornic groupingr97 5AfricaAsiaLatin AmericaMiddle EastIndustrialised countris2000AfricaAsiaLatin AmericaMiddle EastIndustrialised countries

47.239.8r34.9)to1

2s7 .2

Agri- Miningculture

Growth Ratcs, 1975-2000(percentage)

Manufac- Othersturing120.0 348.9419.7 934.2779.4 t726s179.9 536.14496.0 8118.3

Manu- Othersfacturi ng

(percntagc)Manufac- Othersturing

2.6 6.0 8.5 7.13.7 '1.4 9.4 8.44.5 6.5 8.4 8.52.4 3.8 9,4 8.43.6 5.2 8.8 8.32.8 0.1 4.2 3.8

6.27.58.06.67.4

7.4Sectoral Shares in Totat V Addd (GDP), 1975 and 2000

Agri- Miningcullure31.834.312.36.86.7

18.818.76.75.04.3

10.53.64;t46.12.17.4') 'l4.8tt11.9

tl.4 46.315.7 46.422.4 60.77.9 39.229.t 6t.318.9 54.9?4.5 54.527 .5 61.018.3 54.433.4 60.4


51/96

INDUSTRY : PROSPECTS 45Table 7.5

Regional Shares of World GDP and Exports(pcrcentage)

Region/Economicgrouping

GDP Exports-qt-----ffi- -r9i3-----7000-AfricaAsiaLatin AmericaMiddle EastIndustrialised countris

2.4o.t3.0

84.5

J-)8.1

IJ.J4.8

69.7

4.14.84.98.5

77.7

5.0tt.213.463.3

th investment rate in the developing countries will have to goup from 23.4 per cent to 32.7 per cent. (Table 7.6).Table 7.6

Final Demand : Components' Share of GDP, 1975 and 2000(pcrcentag)

Econcmic grouPiog Consump-tion Invest- Exports Importsment1915Dweloping countri3Industrialised countries2000

Developing countrieslndustrialised countries

76.O76.9

69.576.2

23.4.ra )32.722.8

24.6 21.O16.4 16.524.0 26.320.3 r9.3

The Indian economy has not shown adequate resilience andfor the last few years there has not been any appreciableincrease in the per capita net national product which wasRs. 633 in 1970'71, and though at current prices in l98l'82 itwas Rs. 1868, at 1970-71 prices it was only Rs. 7l 1. Similarly,the structure of the net domestic product shows that there wasan improvement in the share of the manufacturing sector from13.2 per cent in 1954-55 to 18.2 per cent in 1965-66. It hasslipped back to about 15.5 per cent in the year 1981-82.' The term "agriculture" includes agriculture' forestry, Iog-ging, fishing and mining and quarrying. The individual con-tribution in India for the year 1981-82 of agriculture is 38'2 per


52/96

46 rNnusrnrir, por,rcy AND

Sector 1954-55(percentage)

t9'73-74 1981-82AgricultureManufactureElectricityConstructionTransportOther serviccs

55.813,20.3J-OJ.J

23.6

42.618.20.94.75.1

28.5

45.7415.391.13< A''4.42

27.7

40.615.51.67.O

30.6Saarce : National Account Statibrics at lgi.}-71 prices, January 19g4,(C. S.O. covt. of India).

cenl forestry and logging 0.6 per cent, fishing 0.6 per cent, andmining and quarrying 1.2 per (ent. In other words, the share olthe agriculture sector at 38.2 per cent and of manufacture at15.5 per cent are very much n]ear LIDO model share for Asiafor the year 1975 (Table7.7).India's gross r'nvestment ccimes to 23.g per cent of GDp forthe year 1984-85. Continuou$ eforts will have to be made toincrease the savings rate and dreate an investment climate sothat the investment visualised in the LIDO model can beachieved during the rest of the ireriod.The economic and induslrial policies ushered in by theGovernment are Iikely to stimufate development and growth. Atthe same time, we have to accept that we have lost irrevocablythe period 1975-85, and may, therefore, not meet the tarsetvisualised by the LIDO model {or the year 2000, though wc niaybe able to achieve the growth pattern visualised in ihe modelfor the rest of the period up to fhe year 2000.

cenl forestry and logging 0.6 per cent, fishing 0.6 per cent, andmining and quarrying 1.2 per (ent. In other words, the share ofthe agriculture sector at 38.2 per cent and of manufacture at15.5 per cent are very much n]ear LIDO model share for Asiafor the year 1975 (Table7.7).India's gross r'nvestment ccimes to 23.g per cent of GDp for

The Planning Commissiori visuaUses GDp srowth rate of5 per cent for the Seventh pla$. If this growth ite is taken asthe norm up to the year 2001, the per cafita income (assumingthe population to be 990 mill{on with GDp of Rs. +I:,AZOcrores) would come to Rs. 4,tr90 in the year 2001. If, on theother hand, India can achieve I growth rate of 7.5 per cent forall this period, as visualised in tfie LIDO model for A.iu, th" p.,capita income would conoe tQ Rs. (092 (GDp Rs. 603, i00crores).


53/96

INDUSTRY: PROSPECTS 47As per our analysis in the previous chapter, the industrialgrowth rate in the coming years will be as follows:

Industrial Growth RateI985*2000Percentage

1985-901990-95t995-2000

8.510.73ll.75

The Planning Commission has assumed a growth rate of4 per cent in agriculture. Agricultural growth rate is dependenton the inputs such as pesticides and herbicides from industries,besides the infrastructural strengthening such as electricity,irrigation, transport, and market network. It is also dependenton the development of new varieties of seeds which would eivegreater production and would be resistant to pests, drought -andunfavourable soil and weather conditions. The impact of high-yielding varieties in wheat and rice has reached a plateau.The possibilities of biotechnology improving the agriculturalproductivity and development of better varieties and new'methods of fertilising, waste and weed control are remote.The improvement in electricity generation, distribution andsupply will take some time. We are, therefore, doubtful ifthe 4 per cent growth rate 'assumed by the planning Com-mission can be achieved in the Seventh plan. We are led toassume that agricultural growth rate during the Seventh planwould, at best, reach 3.7 per cent. In succeeding plans thesupporting systems for agricultural growth would have sufr-ciently developed. We would also visualise greater mechanisa-tion and better management in agriculture. We, therefore,visualise an agricultural growth rate of 3.7 per cent during1985-90, 4 per cent during 1990-95 and 4.2 per cent during1995-2000.As pointed out by Rangarajan,.ths'incremental gross outputratio measured in 1970-7 | prices went up from 3.2: 1 in theFirst Plan to 5.7 : L in the Fourth plan, whilst tho aggregareICOR using the CSO data comes to 6.1 I : l. The growingconcern of the Government in improving the infrastructuralfacilities such as power supply, transport, communications and


54/96

48 rupustnler, pot.tcy AND p 2001 a.o.telecommunications, the in upon better maintenancepeople of the advantages of

materials intensiveness, in-and management, awareness ofproduction, productivity and racrease in the production ofsector, structural change in the nsumer goods and servicesindustry would all help toimprove the incremental output (ICOR) to 5: l.We expect the utilities secto such as transport, construc-tion, etc., to keep pace with the sector with a growthrate of 8.75. 10.75 and 11.75 in three five-year periods upto 2000.

We visualiseslightly above thetries growth rate.the services r maintaining a growth rateGDP growth but lower than the indus-

The impact of growth in a ture, industries, utilities andGDP growth rate of 6 perper cent durilg the periodservices sector would result incent during the period 1985'90, 71990-95, and 8.5 per cent during 5-2000.

TableSectoral and GDP

Growth rate percentagc199G95 | 995-2000AgricultureManufacturing/IndustriesUtilitiesG.D.P.

At 1984'85 Prices weTable 7.9.GDP at 1

Ycar

4.0 4.210.75 11.7510.?5 11.757.5 8.sthe GDP to be as Per

Percentage1985199019952000

189,Jal 1 57.58.5547 ,


55/96

INDUSTRY : PROSPECTS 49Assuming these growth rates, the per capita income visua-

lised in the year 2001 with a population of 990 million would beRs. 5,532 at 1985 prices as against Rs. 4,160 if the economyprogresses at an annual GDP growth rate of 5 per cent.


56/96

Culprrn 8

UNIDO examined whether the a capacity of the econo-mic system of the developing is sufficient to accommo-date the vastly increased labour forces of the future. Whileanalysing the employment pomining, manuflacturing andfeature of this modifcation is

the study had to combineThe most strikingthe highest expansion rate which the services sector will haveprimarily due to the inclu-sion of mining in "industry", has a slow rate of growth.On the modifed basis. the growth rates of GDP andsectoral value added, bygiven in Table 8.1. regions, 1975-2000. are as

TableAnnual Growth Rates of G and Scctoral Value

(in prccntage)Economic grouping Industry Services TotalGDPDeveloping countriesDeveloDed countries

Source : Table 2, p. 21, IndustryPublicarion. 1981. Development UNIDO

Employment frrospects in zMI

7.46 8.42 7.39

Employment potential dependg upon labour force require-ments which are determined by the corresponding economicdevelopmont and labour produotivity (output per capita) in each


57/96

EMPLOYMENT PROSPECTS IN 2OOI 5Isector and region. After studying the table of productivity for196G75 and sub-periods thereof the study gives the actual levelrof labour demand and its sectoral distribution in 1960 and 1975and its projection to the year 2000, The assumed elasticities ofproductivity growth with respect to value added, 1975-2000 forAsia aro as follows :

PercentaggRegion Agriculture Industry Serviccs

0.20 0.45 0.45Source : 'hble 3, p.21, Industry and DcYclopment No' 6, UNIDO -Publication, 1981.

Tho study emphasises that the specific growth rates and elas'ticities are quite close to historical values. Given the rationali-satiot potential indicated by large inter-country productivitydifftentials in many indusfies and taking a not too pessimisiicview of future investments and innovations, the study assumesthat labour productivity would not come to a standstill butwould proceed at the assumcd ratcs.Thi labour forcc requirements by the economic sctors asper tbc modified LIDO scenario, taking into consideration theelasticity values of productivity growth for Asia, are given inTable 8.2.

Table 8.2Labour Forc Requiremcnts (rnillions of pcrsons)

Region/Economicgrouping Agriculture Industry Services TotalAsia

196019752000

236.3 32.8294.1 53.0464.3 136.053.3 322.485.4 432.4193.8 794,1

Source: Trble4, p.22, Industry & Development, No.6 UNIDOPublication, 1981.


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52 nousrnnr por,rcy ANDThe percentage-wise demandfor the Asian region comes to :

2001 ,r.o.r labour by economic sectors

TablePercntage-wise Demand for by Economic Sectors

Year1%019752m0

Agricul-tureIJ.J68.058.5

Indus- Servitry ccs10.2tz.J

16.5I9.824'.4

Source I Table 5, p. 23, IndustryPublication, 1981.It will be seon from the acultural labour comes down from2000, that of industry increasesservices from 19.8 to 24,4. The

application of historicallyproductivity development

Development No. 6, UNIDOthat the percentage of agrF.0 in 1975 to 58.5 in the year12.3 to l7.l and that of

growth implied in theabove target ensures that the ur force will be absorbed

industrial policy and prospects 2001 a.d

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