12. In the light of these considerations, we suggest the following general order of priorities in the industrial field :
(1) fuller utilisation of existing capacity in producer goods industries like jute and plywood and consumer goods industries like cotton textiles, sugar, soap, vanaspati, paints and varnishes ,
426 THE FIRST FIVE YEAR PLAN
(2) expansion of capacity in capital and producer goods industries like iron and steel, aluminium, cement, fertilisers, heavy chemicals, machine tools, etc.,
(3) completion of industrial units on which a part of the capital expenditure has already been incurred , and
(4) establishment of new plants which would lend strength to the industrial structure by rectifying as far as resources permit the existing lacunae and drawbacks, e.g., manufacture of sulphur from gypsum, chemical pulp for rayon, etc.
13. The emphasis on fuller utilisation of existing capacity must necessarily be a prime consideration in policy, for where such capacity exists increased production can usually be secured at diminishing cost per unit. The increase in productivity per unit of resources already employed in such industries can make a vital contribution to the increase in total production so urgently needed at the present time. It is a matter of satisfaction from this point of view that considerable progress has been made in recent months in the direction of increasing the supply of raw materials for major industries with the result that significant improvement has been recorded in the index of industrial production in the country In so far as failure to utilise existing capacity fully is due to factors other than the availability of raw materials a careful analysis will have to be made of the difficulties pertaining to each industry and the necessary steps to obviate them will have to be taken expeditiously.
14. Expansion of capacity in industries which produce capital goods and producer goods is necessary, firstly, in order to meet the additional demands on them on account of the development of agriculture, irrigation and electricity during the period of the Plan and, secondly, for establishing a better balance in the industrial structure. Iron and steel are of basic importance to development whether in agriculture, industry, or in transport, and since they are also essential for defence, they have to be given the highest priority. This is now an accepted part of the Government policy and a scheme has been worked out for the establishment of an integrated pig- iron-cum-steel plant in the near future. Capital goods industries like locomotives, machine tools, textile machinery, heavy electrical machinery, etc. represent lines of development which must claim increasing attention immediately and in the years to come. Industries manufacturing agricultural implements, diesel engines, and pumps have a direct bearing on improvement of productivity in agriculture and there is scope for further development in this field. Among the producer goods industries, cement and fertilizers rank high in importance.
15. Since the end of the war, there has been, as mentioned earlier, considerable investment activity in the country and at the commencement of the period of the Plan, there were in the private as well as in the public sector several industrial units on which considerable capital expenditure had been incurred but which had not been completed. Early completion of such units is necessary in order that the country may get the benefit of these investments. The criteria which govern the commencement of a new industrial project must conform to the basic priorities in the Plan ; but in regard to units which have already been taken in hand and on which considerable sums of money have been spent, a measure of relaxation of these criteria is justifiable
INDUSTRIAL DEVELOPMENT AND POLICY 427
16. in addition, special efforts are necessary for the establishment of new plants for industries like the manufacture of sulphur from gypsum, or pulp for rayon and newsprint, or for refining ore or scrap for non-ferrous metals like zinc, copper and tin. The importance of these industries lies in the fact that they make a direct contribution towards an increase in the supply of key material, in which there is a world shortage and for which the dependence of the country on imports makes the position of the indigenous industry particularly vulnerable.
17. It will be seen that in the scheme of priorities set out above, an increase in the supply of consumer goods, has, under present conditions, to come mainly from fuller utilisation of existing capacity. This means that the setting up of new plant and machinery for these industries has in the period of the Plan a low priority. By and large, the capacity of industries producing essential goods like cotton textiles, sugar, salt, matches and soap is adequate for present requirements. The emphasis of policy in regard to them must, therefore, be on increasing the efficiency of existing plants by renovation and modernisation and by securing a better balance in the plants. It might be necessary in special cases, such as the need for developing a backward area, to permit new capacity in these industries. Where such permission is given, undertakings organised on co-operative lines would naturally have special preference. In the case of consumer goods of secondary importance such as radios, bicycles., automobiles, electric fans, etc., the problem again is one of utilising existing capacity fully, of developing the units which have already been set up or are under construction to at least the mini mum economic size, and of promoting a progressive switch over of assembly plants to manufacturing.
18. It may be pointed out finally that the order of priorities stated above represents only in a general way the approach to be adopted to the problem of directing the flow of investment along various lines in the period of the Plan. In the nature of the case, no statement of priorities can be all inclusive or final. It might be necessary, for example., even in fields where existing capacity is generally held to be adequate, to permit investment on projects based on new techniques which might bring down the cost of production and stimulate domestic demand or exports. In such cases., the availability of raw materials must be carefully assessed and the sanction for investment should be preceded by a careful examination of the various related aspects of the industry in question. The licensing procedure prescribed under the provisions of the Industries (Development and Regulation) Act should ensure an impartial consideration of all the issues involved in a substantial expansion of existing units or establishment of new ones. To a great extent, each concrete proposition for investment that comes up raises a variety of considerations and is likely to secure high priority on certain grounds and relatively low priority on other grounds so that the problem always is to decide as to the relative weights to be attached to various considerations. Nevertheless, the considerations and priorities set forth above would, we consider, ensure a balanced allocation of resources as between different industries, and it is in the light of these that investment decisions should be taken.
428 THE FIRST FIVE YEAR PLAN
DEVELOPMENT IN THE PUBLIC SECTOR 19. Over the five year period, the total expenditure on the projects included in the Plans for the Central Government and for the States amounts to Rs. 94 crores*. The bulk of this expenditure-about Rs. 83 crores-is in respect of projects directly under the Central Government. The projects under implementation by the State Governments are estimated to involve an expenditure of about Rs. 11 crores, of which Rs. 4.8 crores will be advanced by the Central Government as loans. The industrial plan in the public sector envisages in respect of certain projects the participation of private capital, indigenous as well as external. The estimated contribution of such private capital is about Rs. 20 crores.
20. The major new industrial project included in the Plan is the one for iron and steel, estimated to cost Rs. 80 crores in all over a period of six years from the date of commencement. The expenditure projected upto 1955-56 is Rs. 30 crores, of which Rs. 15 crores will be provided by the Government and ;he remainder is to be secured through participation of indigenous and external capital. The estimated capacity of this project will be about 800,000 tons of pig iron, while the steel capacity (in regard to which a firm decision will be taken later) will be a minimum of 350,000 tons, with further additions if necessary in the light of the availability of pig iron supplies from the expanded capacity in the private sector in the next few years. By 1955-56, this project, it is expected, will be producing about 350,000 tons of pig iron. The completion of this project by 1958 as well as the projects for expansion in the private sector will raise the availability of pig iron and steel from domestic sources by about 100 per cent. The Sindri plant as completed in October 1951 is capable of producing 350,000 tons of ammonium sulphate a year, and it is hoped that the corresponding monthly rate of output will be attained shortly. Another project, at present under consideration, is the expansion of the Sindri factory for the production of urea and ammonium nitrate. The all-steel coach factory which is a part of the plan for railways is expected to cost Rs. 4 crores and to produce 350 units per annum by 1957 on single shift operation as against 50 units by 1955-56.
21. The Plan provides for the completion within the five-year period of all the industrial projects in hand in the public sector ; in fact, most of these projects will be completed by 1953-54. The Chittaranjan Locomotive Factory, the total cost of which on completion will approximate to Rs. 15.0 crores (cost within the Plan period Rs. 4.73 crores) has already commenced manufacturing some of the necessary components and it is expected that by 1957 the factory will be able to produce 120 locomotives a year without having to depend
*This is exclusive of the finance that might be allotted for industries out of the lumpsum provision of Rs. 50 crores for basic industries and transport referred to in Chapter IV. In the last years of the period of the Plan, it is proposed to provide for a project for the manufacture of heavy electrical plant and equipment out or the lumpsum. provision. This figure of Rs. 94 crores differs from the estimates of expenditure on industry in the public sector given in Chapter IV, since it has been prepared on a different basis and certain items, e.g., expenditure on small scale and cottage industries, and finance for the establishment of Industrial Finance Corporations and trading estates, has not been included.
INDUSTRIAL DEVELOPMENT AND POLICY 429
on imported components. This together with the output of 50 locomotives at TELCO will more or less meet the normal annual 'requirements of the railways. Work on the construction of the machine tool factory at Jalahalli in Mysore State has already commenced. The factory is estimated to cost Rs. 9.78 crores, and by 1955-56 it will produce 1,600 machine tools of the value of over Rs. 4 crores per annum. This factory will specialise in the production of high precision machine tools and will thus provide the basis for the subsequent expansion of heavy as well as light engineering industries. The provision of over Rs. 14 crores for ship-building includes the expenditure for the acquisition of the Vishakhapatnam Yard and its development besides the loans and subsidy to be given to the shipping companies for purchase of ships built in the Yard. The Plan provides for the manufacture of engines and boilers in the workshop at the Yard and also for expansion of berths for the building of ships so as to enable the Hindustan Shipyard Limited to bring down the cost of ships -constructed to the level of those built in the U.K. The operation of the Yard will enable coastal shipping in India to meet the bulk of its replacement requirements.
22. Details regarding expenditure and additional capacity for the projects in the public sector are given in appendix 1. It will be seen that most of the projects in this sector relate to the manufacture of capital goods or of intermediate products which are of vital importance not only from the point of view of immediate needs but also in terms of future economic development. Their completion will correct to some extent the present lopsidedness of the industrial structure. The penicillin and D.D. T. factories which do not fall in the category mentioned above have a special importance at this juncture from the point of view of improvement in public health. Among the projects of the State Governments, mention must be made of the Madhya Pradesh newsprint project and the expansion of the Mysore Iron and Steel Works. The former will produce about one-third of the country's requirement of newsprint, while the latter introduces for the first time the technique of electric smelting of iron ores.
23. The increasing participation of the Government in industrial development raises the question of the appropriate Organisation for enterprises in the public sector. The criteria of successful operation for private or public enterprises are basically the same ; the public must get the service of requisite quality at minimum cost, and the interests of the worker and the shareholder or the tax payer must be adequately safeguarded. Indeed, the standards of performance expected of public enterprises have to be more rigorous. It is, therefore, of the highest importance that industrial units in the public sector should be so organised as to secure the advantages of flexibility in operation generally characteristic of private enterprise with technical efficiency and responsiveness to public need, shortterm as well as long-term, which form the raison d'etre of government initiative and management in this field.
24. The principal questions which arise in this connection and our approach to them have been indicated in an earlier chapter. The drawbacks of departmental management of public enterprises are well known. Successful conduct of such enterprises requires a great
430 THE FIRST FIVE YEAR PLAN
deal of initiative and the power to take quick decisions on the part of the executives in charge, and these can hardly be secured if the enterprise is directly under a government department. On the other hand, the extent of autonomy which can be insisted upon for such enterprises at the present stage is a matter on which a definite judgment cannot be hazarded except in the light of further experience. Several of the industrial undertakings directly under the Central Government have already been organised as joint stock companies with boards of directors vested with powers of management in the same manner as in any undertaking in the private sector. Recent enquiries into the working of industrial enterprises in some of the States reinforce the desirability of organising these enterprises as entities independent of day-to-day governmental control. We recommend, therefore, that industrial undertakings under the Stat Governments should also be organised as joint stock companies and operated on business lines with the internal management entirely under the control of the board of directors. The main principle to be followed is that such enterprises should not be subject to governmental control in their day-to-day administration but should, nevertheless, be accountable to the public which is their ultimate owner as well as beneficiary. What organisational structure and administrative procedures will answer these requirements best has to be determined in the light of experience. For the immediate present, the problem is to see that the right conventions in these matters are evolved. To a great extent, this is a matter of securing the right personnel for the boards of directors, the top executives and the technicians.
DEVELOPMENTS IN THE PRIVATE SECTOR 25. While the emphasis of industrial expansion in the public sector during this five-year period is on initiating and promoting investment in certain basic lines and on completing the projects in hand., the initiative and responsibility for securing the necessary expansion over the bulk of the field of industry rest with private enterprise. The expansion programme in the private sector is set out in appendix II. For convenience of reference, we give a table summarising the more important expansion programmes in this section :-
Expansion Programme in Certain Major Lines in the Private Sector
1950-51 1955-56
Unit Rated Produc- Rated Produc-
Capacity tion Capacity tion
(i) Agricultural Machinery :-
(a) Pumps, power-driven. Numbers 33,460 34,310 69,400 80,000
to
85,000
(b) Diesel engines Numbers 6,320 5,540 39,725 50,000
(2) Aluminium. Tons 4,000 3,677 20,000 12,000
(3) Automobiles (manufactur- Numbers 30,000 4,077 30,000 30,000
ing only).
INDUSTRIAL DEVELOPMENT AND POLICY 431
1950-51 1955-56
Unit Rated Produc- Rated Produc-
Capacity tion Capacity tion
(4) Bicycles Numbers 120 99 530 530
(5) Cement Tons '000 3,194 2,692 5,016 4,550
(6) Electric Transformers KVA '000 370 179 485 450
(7) Fertilizer :
(i) Ammonium sulphate Tons 78,670 46,528 131,270 120,000
(ii) Superphosphate Tons 123,460 55,089 192,855 164,000
(8) Glass Industry :
Sheet glass Tons 11,700 5,850 52,200 26,000
(9) Heavy Chemicals :
(i) Caustic soda Tons '000 19 11 37 33
(ii) Soda ash Tons '000 54 45 86 78
(iii) Sulphuric acid Tons '000 150 99 213 192
(10) Iron and Steel :
(i) Pig iron Tons '000 1,850 1,572 2,700 1,950
(ii) Steel (main producers) Tons '000 975 976 1,550 1,280
(11) Paper and Board Tons '000 137 114 198 188
(12) Petroleum Refining
(i) Liquid petroleum
products Gals.
Million N. A. N. A. N. A. 403
(ii) Bitumen Tons N. A. N. A. N. A. 37,500
(13) Power Alcohol Gals.
Million 13 5 21 18
(14) Locomotives Numbers .. .. 50 50
(15) Rayon :
(i) Rayon filament Lbs. Million 4 .. .. 1818
(ii) Staple fibre Bales '000 .. .. 28 28
N.A.-Not available.
26. The total capital investment necessary for industrial expansion in the private sector is -estimated at Rs. 233 crores*. Some 80 per cent. of this investment would be in respect of capital goods and producer goods industries. The major ones among those are : iron and steel, which is estimated to take up about Rs. 43 crores ; petroleum refineries, which will involve an expenditure of Rs. 64 crores ; cement, estimated to cost Rs. 154 crores ; aluminium, expected to take up Rs. 9 crores ; fertilizers, heavy chemicals and power alcohol, estimated to cost about Rs. 12 crores. Additional electric power generation in the private sector will involve an expenditure of Rs. 16 crores in the five year period. In the consumer goods industries, although the emphasis is mainly on achieving increases in production through fuller utilisation of capacity already established, considerable investment is envisaged in certain new