Q11: Write a detailed note on Industrialization trends and current Industrial Policy 1991 highlighting the Provisions and implications.

Ans: Industrialisation: The process in which a society or country (or world) transforms itself from a primarily agricultural society into one based on the manufacturing of goods and services. Individual manual labor is often replaced by mechanized mass production and craftsmen are replaced by assembly lines. Characteristics of industrialization include the use of technological innovation to solve problems as opposed to superstition or dependency upon conditions outside human control such as the weather, as well as more efficient division of labor and economic growth.

Role of Industrialisation in India:

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.

 Industrialisation Trends: The industrial sector has shown a sustained

increase during the fiscal year 2003-04. The overall growth in industrial

production, as measured by the index of industrial production (IIP) has increased

from 2.7% in 2001-02 to 5.7% in 2002-03. Further, it grew by 6/.9% during

April- March, 2003-04

Table 1: SECTORAL INDUSTRIAL GROWTH (%)

Period	Mining & Quarrying	Manufacturing	Electricity	Overall
(Weight)	(10.47)	(79.36)	(10.17)	(100.00)
1997-98	6.9	6.7	6.6	6.7
1998-99	-0.8	4.4	6.5	4.1
1999-00	1.0	7.1	7.3	6.7
2000-01	2.8	5.3	4.0	5.0
2001-02	1.2	2.9	3.1	2.7
2002-03	5.8	6.0	3.2	5.7
2003-04	5.1	7.2	5.0	6.9

Source: Economic Survey 2004-05

Industrial Policy 1991

To a large extent, the Industrial Policy of a nation reflected the socio-economic and

political ideology of development of it. Indeed, some people as the Economic

Constitution of India described the Industrial Policy Resolution of 1956, the fundamental

principles of which reined until 1991.The Industrial Policy indicated the respective roles

of the public, private, joint and cooperative sectors; small, medium and large scale

industries and underlined the national priorities and the economic development strategy.

It also expressed government's policy towards foreign capital and technology, labour

policy, tariff policy etc. in respect of the industrial sector. In short, the industrial

development, and thereby the economic development to a very significant extent, has been guided, regulated and fostered by the industrial policy.

Objectives of Industrial policy 1991

1.      Attainment of international competitiveness.

2. Development of backward areas.

3. Encouraging competition within Indian industry.

4. Efficient use of productive resources.

5. Full utilisation of plant capacities to generate employment.

6. Revival of weak units, etc.

Following are some of the main features of the industrial policy 1991 and its Implications:

1. Dereservation of Public Sector: -The role of public sector has been reduced to a great extent. The number of industries reserved for public sector was reduced to 8 industries. There was further Dereservation. At present, there are only three industries reserved for public sector which include. (a) Atomic energy (b) Railways, and (c) specified Minerals.

2. Delicensing: -The most important features of NIP, 1991 was the abolition of industrial licensing of all industries except six industries. The six industries are of social and strategic concern. The six industries are

1. Hazardous Chemicals. 2. Alcohol 3. Cigarettes 4. Industrial Explosives 5. Defence Products, and 6. Drug and pharmaceuticals.

3. Disinvestment of public sector: -The NIP 1991 permitted disinvestment of public sector units. Disinvestment is a process of selling government equity in PSUs in favour of private parties. Disinvestments aim at certain objectives. (1) To provide better customer Service. (2) To make effective use of disinvestment funds. (3) To overcome the problem of political interference. (4) To enables the government to concentrate on social development. etc

4. Liberalisation of Foreign Investment: -Prior to this policy, it was necessary to obtain approval from the government in respect of foreign investment. At present, 100% foreign equity participation is allowed in select industries.

5. Liberalisation Foreign Technology: -The NIP 1991 liberalised foreign technology to bring about technological improvement in Indian industry. (1) No Permission is required for hiring foreign technicians and foreign testing of indigenously developed technologies.

6. Liberalisation of Industrial Location: -The IP 1991 stated that there is no need to obtain approval from Central Government to locate industries in areas (other than cities of more than one million populations). However, industries subject to compulsory licensing, approval need to be obtained. In cities with a population of more than one million, polluting industries were required to be located outside 25 Kms of the city area.

7. Removal of Mandatory Conversion Clause (MCC): - In India, banks and FIs provide a large part of industrial finance. The banks and FIs have the option to convert the loans into equity. This may create a threat of takeover by FIs. Therefore, the IP 1991 abolished MCC.

8. Abolition of phased Manufacturing Programme: - The IP 1991 has suggested for the abolition of PMP, which was in force in engineering and electronic industries.