Development of Industry
committed to the idea of promoting rapid industrial growth for economic
development. Development can be achieved through several pathways. In a country
like India with a large population where many raw materials were grown or were
available, processing industries which were more labour-intensive would have
also led to industrial growth. Alternatively, the Gandhian model stressed a
model of growth with village and cottage industries as the ideal way to produce
consumer goods, which would eliminate rural poverty and unemployment.
government adopted the Nehruvian model of focusing on large scale, heavy
industry to promote wide-ranging industrial development. In keeping with the
basic principle of a “socialistic society”, the state would play a major role
in developing the industrial sector through setting up units wholly owned by
the state. The emphasis on heavy industry was to promote the production of steel
and intermediate products like machines, chemicals and fertilizers for the
developing industries. The social purpose that would be achieved by this model
of development was to restrict private capital which was considered to be
exploitative and excessively profit-oriented, which benefited a small class of
of Industrial Policy statements were adopted to promote these objectives. The
first policy statement was made in 1948. It classified industries into four categories:
1. Strategic industries which would be state
monopolies (atomic energy, railways, arms and ammunition);
2. 18 industries of national importance under
government control (heavy machinery, fertilizer, heavy chemicals, defence
3. Industries in both the public and private
in the private sector.
definitive policy statement was the Industrial Policy Resolution of 1956 which
classified industries into three categories: Schedule A industries were under
the monopoly of the state; Schedule B industries, the state could start new
units but the private sector could also set up or expand their units; Schedule
C were the remaining industries.
Industrial Development and Regulation Act of 1951 was an important instrument
for controlling the private sector. This Act stipulated that no new industrial
units could be set up, nor the capacity of existing units expanded without a
licence or permit from the government.
Policy Statement of 1973 encouraged large industrial houses to start operations
in rural and backward areas to reduce regional imbalances in development. The
Policy Statement of 1977 was framed by the short-lived Janata government which
was aimed at promoting rural, village and small scale industries.
Policy Statement of 1980 was announced by the Congress government which also
aimed at promoting balanced growth. Otherwise all these statements continued
the ideology of a strong public sector owned by the state and control over the
private sector and especially the large business houses.
were also other interventions which intruded into the market economy. For
instance, inputs produced in the private sector like cement were rationed, and
permits had to be obtained even for private construction of houses. The
manufacture of consumer goods was severely restricted under the licensing
policy. This was partly an expression of the ideology of reducing inequalities
in consumption between the affluent and weaker sections of society. But it was
also a way to ensure that scarce resources like steel, cement etc. would be
used in strategic industries for the long-term development of the economy.
important industries and services were nationalised. These included coal mines,
petroleum companies, banking and insurance services. Private entrants have been
allowed into some of these activities only in recent years.
were only five public sector enterprises in India in 1951. By 2012, this number
had increased to 225. The capital investment increased from ₹ 29 crores in 1951 to 7.3 lakh
crores in 2012. The setting up of public sector enterprises in heavy industry
was again dictated by two considerations. First, at the ideological level, the
government was committed to a socialistic pattern of development which involved
a high degree of state control over the economy. But at a more practical level,
the government had to take over the responsibility for the establishment of
heavy industrial units which required a very high level of investment. These
were known as “long gestation” projects, that is, it would take many years
before such units would be able to start production.
1950s, the private sector did not have the resources or the willingness to
enter into such investment. Steel plants in Bhilai (Chhattisgarh), Rourkela
(Odisha), Durgapur (West Bengal), Bokaro (Jharkhand), engineering plants like
Bharat Heavy Electricals (BHEL) and Hindustan Machine Tools were all set up in
the 1950s in collaboration with Britain, Germany and Russia which provided the technical
which did not have to be located near raw material sources were set up in
backward areas to reduce regional disparities in industrial and economic
development. BHEL was first set up in Bhopal, and later in Tiruchirappalli,
and Haridwar. Steel plants were set up in the relatively backward belt of
Orissa, Bihar and West Bengal. Public sector enterprises also contributed to
the national exchequer because their profits accrued in part to the central
government. Thus the growth of the public sector served many economic and
social purposes, in addition to creating industrial capacity in the country.
it was clear that public sector enterprises were facing severe problems. While
on the whole they were showing a profit, nearly half of the profit was
contributed by the petroleum units. Many were making continuous losses. Part of
the problem lay in the expansion of the public sector into non-strategic areas
like tourism, hotels, consumer goods (for instance, in the 1970s, television
sets were produced only by public sector companies) and so on.
were many factors which contributed to the poor performance of public sector
enterprises. Decisions on location were made for political rather than
efficiency considerations. Delays in construction resulted in cost overrun, so
that the units were overcapitalized. Administrative prices were not always
economical and did not make sense when the intermediate goods produced in the
public sector were used as inputs in the private sector. Public sector units
were also overstaffed, though the technology of heavy industries did not
require so many workers. This increased the operating cost of the units. Bureaucrats
were entrusted with the management of public enterprises, leading to
inefficiency in management. Recognising all these problems, the government
began a programme of disinvestment of the loss-making and non-strategic units
of all the shortcomings, the strategy of industrialisation by concentrating on
building up long-term industrial capacity through the establishment of heavy
industries has been successful in making India into a modern, industrial
in 1991 the Indian government announced a shift in its industrial policy to
remove controls and licences, moving to a liberalised economy permitting a much
larger role to the private sector. The share of the public sector was to be
reduced through a policy of disinvestment and closure of sick units. This
created a sea change in the economic outlook of the country, particularly from
the point of view of the consumers. It is not merely that the aspirations of
the growing middle class for a better standard of living in terms of
availability of goods and services have been met. Even the lower income
families could now buy such goods.
positive side, liberalisation has certainly made India a more attractive
destination for foreign investment. State governments are keen to advertise
that they are relaxing restrictions to improve the ease of doing business in
their state. All this has created a general air of prosperity which is
reflected in the growth statistics of the economy as a whole.
negative side, liberalisation and globalisation have resulted in a significant
increase in income disparities between the top income groups and the lower
income groups. The removal of ceilings on corporate salaries has widened the disparities
between the salaried class of corporate executives and wage earners. The formal
sector has very limited potential for additional employment and most of the new
employment is generated in the informal sector, and disparities have also
increased across these two sectors.
neither the advocates of a free economy nor leftist economists are happy with
the level of liberalisation. The former want more free play of market forces to
eradicate imbalances and checks to progress which are still in place. The
leftists are unhappy that the state has abdicated its responsibility of
ensuring and promoting social justice and welfare by allowing free play to
private capitalists to exploit the economy.