Importance of Industrialisation

Importance of Industrialisation

To understand importance of industries, we need to understand why the share of agriculture in an economy's income and employment decreases with development. First, demand for food remains constant with regard to income. Therefore, as an economy grows and incomes increase, consumers tend to spend a lesser share of their income on products from the agricultural sector.

Second, even the food that is consumed is subject to more transformation. Food products are taken over longer distances, processed and branded. This also requires that food products have to be preserved. As a result, the prices that farmers get tend to be much less compared to the prices at which consumers buy.

Third, there are limits to the ability of agriculture to absorb labour due to the declining marginal productivity of land. Wages too cannot therefore increase and as a result poverty levels may remain high, especially when more and more people continue to rely on agriculture for their livelihood.

Due to all these factors, there is a need for an economy’s production and employment base to diversify away from agriculture.

What benefits does industrialisation bring to an economy?

As stated earlier, it is essential to produce inputs to other producers in an economy. Even agriculture requires inputs from industry such as fertilisers and tractors to increase productivity.

Second, a market exists for both producers and consumer goods. Even services like banking, transport and trade are dependent on production of industrial goods.

Third, by using modern methods of production, industries contribute to better productivity and hence lower cost of production of all goods produced. It therefore helps people to buy goods at a cheaper rate and help create demand for more products.

Fourth, through such expansion of production, industrialisation helps to absorb the labour force coming out of agriculture. Employment generation is therefore an important objective of industrialisation.

Fifth, a related advantage of industrialisation is therefore technological change. Through use of modern techniques, industrialisation contributes to learning of such methods and their improvement. As a result labour productivity, ie, output per unit of labour input increases, which can help workers earn higher wages.

Sixth, expanding incomes lead to more demand for goods and services.