INDUSTRY AND MINERALS
Review of Industrial Development 7.1 It is almost three decades since the Industrial Policy Resolution of 1956 conceptualised and articulated the basic framework underlying our industrial policies. Planning was directed not only at accelerating growth of output and employment but also at achieving certain socioeconomic objectives, such as regional dispersal of growth, promotion of village and small industries, prevention of monopolies and concentration of economic power. The public sector was to provide a leading role, partly, as a catalyst, in moulding and accelerating the process of industrialisation within the framework of a 'mixed economy'. The objective of self-reliance was supported by a policy-mix that sought to protect domestic industry from foreign competition.
7.2 The fruits of these efforts have been significant in many respects. There has been a substantial diversification of the industrial base over the last three decades with the consequent ability now to produce a very broad range of industrial products; substantial self-reliance has been achieved in basic and capital goods industries which now account for as much as one half of the total value added in manufacturing. Indigenous capacities have been estab- lished to the point of virtual self-sufficiency so that further expansion in various sectors, such as mining, irrigation, power, transport and communications can be based primarily on indigenous equipment.
7.3 The process of industrialisation has also fostered entrepreneurship and the development of a wide variety of technical, managerial and operative skills. This less visible but critical investment in knowledge and know-how places India as a country with one of the largest pools of skilled manpower in the developing world. Today, the country is in a position to provide consultancy services as well as managers, technicians and skilled workers for setting up industrial projects abroad. Within the economy itself, the small scale and decentralised sector has undergone a vast expansion and now contributes about 50 per cent of industrial output.
7.4 The major thrust for the development of heavy industries has been provided by the public sector. In critical areas such as power, railways, coal, Petroleum, steel and fertilisers, the public sector has been intensely involved in setting the pace of development. Apart from public investments in basic industry and infrastructure, the expansion of the private sector in line with Plan objectives and priorities has been greatly facilitated by public financial institutions. An elaborate network of specialised development banking institutions, with the industrial Development Bank of India at the apex, has been established to help finance industrial investment in the private sector. These institutions, numbering over 50 at present, have become a major source of long-term finance of the corporate sector and have so far disbursed about Rs. 15,000 crores.
7.5 The task of achieving the multiple objectives of industrial planning, however, has not been without frustration. The principal failures of planning relate to the inability to utilise the growing potential of the industrial sector and inadequate attention paid to reducing costs and improving quality. The time for corrective action is now. The Seventh Plan proposes to make productivity and optimal utilisation of available capacities a central theme, while continuing to strive for the broad objectives of growth with social justice.
7.6 In what follows, the main lessons drawn from experience will be reviewed together with objectives of industrial development for the Seventh Plan and the strategy and policy frame proposed to achieve them. The development programmes for the major industries, viz., steel, non-ferrous metals, fertilisers, petrochemicals, cement and textiles are presented thereafter.
Physical Targets and Achievements in Sixth Plan 7.7 The target growth rate for industrial production in the Sixth Plan was 7 per cent per annum. The growth rate acheived, however, was 5.5 per cent which is somewhat lower than the trend growth rate of 6 per cent witnessed in the earlier three decades. Augmentation of new capacity in the Sixth Plan has been more or less in consonance with the targets in a large number of industries including, among others, aluminium, zinc, lead, thermoplastics, yarn, petrochemical intermediates, electrical equipment, cement and consumer durables. However, shortfalls in production have taken place in some basic industries, such as steel, cement, non-ferrous metals, fertilisers and certain other industries including textiles, jute manufactures, sugar, drugs and pharmaceuticals, commercial vehicles and railway wagons. Production targets were exceeded in a few industries like machine tools, passenger cars, motor cycles and scooters, consumer electronics and communication equipment. Domestic imba-
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lances resulting from shortfalls in production had to be corrected through imports of essential commodities like steel, cement, fertilisers and sugar.
7.8 A technological thrust has been during the Plan period in certain industries in the engineering sector. The first 500 MW thermal generating unit was commissioned and the manufacture of 500 MW turbo generators and boilers has commenced. There has been systematic upgradation of production technology for other equipment needed by the power sector. The manufacture of equipment for 1350 t.p.d fertiliser units and blast furnaces of 3200 cu. Mtrs. capacity for steel plants is now being undertaken in the country. A strong base has been laid for the rapid development of the electronics industry.
7.9 The shortfall in output as against targets of the Plan in various industries may be attributed to short-term factors and others relatively more long-term in nature. Output in may industries was affected because of inadequate and irregular availability of power. Power shortage, in fact, turned out to be the most acute constraint on the growth of industrial production. Production in a number of industries also suffered from other constraints, such as prolonged labour unrest and insufficient demand in the case of textiles, raw material shortage in the case of jute manufactures, scarcity of coking coal in the case of steel and inadequate availability of the appropriate quality of steel in the case of a number of steel using industries.
7.10 As for the longer term factor at work, it is worth recognizing that the stimulus to industrial growth in the Second and Third Plans came essentially from rapid expansion in public investment and import substitution. The high industrial growth of the earlier period reflected the extremely small initial industrial base over which expansion took place. The subsequent slow-down in import substitution was inevitable. The slowdown in public investment at the same time reflected the resource constraint. An effective counter to these challenges required a dynamic and efficient industrial sector capable of exploiting alternative demand opportunities. In fact, bestowed as it was with an environment of protection from international competition and severe curtailment of competition within the economy, industry could afford to neglect efficiency and pay inadequate attention to cost and quality considerations. The basic malaise of a high cost low-quality industrial structure was further aggravated by infrastructural constraints on the supply side and slow growth of per capita income in the economy on the demand side.
7.11 In the public sector, problems began with cost and time overruns in a large number of projects. After commissioning, inefficiency tended to persist at the operational stages of the projects. The functioning of the private sector had its own short- comings. Very often the emphasis was on short-term maximisation of output rather than creative productive activity. As capacities remained under-utilised in many industries, the shortages in pro- duction, quite apart from eroding the economic viability of the units, had a chain effect within the industrial sector. Lack of concern for improving efficiency in factor use was reflected in increasing material intensity of production and increasing capital output ratios. In yet another dimension economy in energy consumption, the performance of Indian industry has been well below the international norms. To some extent this was due to inadequate attention paid by industry to technological upgradation. The widening technological gap between India and the rest of the world also had the wider effect of increasing obsolescence, raising costs, and inadequately upgrading quality. It may also be added that in the first phase of industrialisation, emphasis was laid on steel based industries. The high cost of steel in later years affected competitiveness of such industries. In the next phase of industrialisation, we will be depending on other basic materials such as petrochemical intermediates electronic components and materials. It must be ensured that these will be available at competitive prices.
Outlay and Expenditure 7.12 The Sixth Plan provided an outlay of Rs. 11848 crores for industrial and mineral projects in the Central sector, (excluding coal and petroleum, which form part of the energy sector Plan) and Rs. 1,389 crores in the Plans of States and Union Territories. The actural expenditure (at current prices) has been estimated at Rs. 13,479 crores in the Central Sector and Rs. 1,741 crores by States and Union Territories. In real terms, however, both were significantly lower than projections. In fact, requirements for the projects particularly during the last two years of the Plan, were considerably larger than the outlays that could be provided in the Annual Plans because of the resource constraint. Hence, the relatively large spill over of expenditure on central sector projects into the Seventh Plan.
7.13 Outsides the public sector, the Sixth Plan envisaged an investment of Rs. 15,182 crores in the private, corporate and co- operative sectors in mining and manufacturing. It is estimated that the actual investment had exceeded the above estimate.
Industrial Policy Changes 7.14 To correct deficiencies and to impact dynamism to the growth process, industrial policies and regulations were modified during the Sixth Plan period. The measures taken in this regard include, among others, the introduction of dual pricing policy for cement; raising of exemption limit for purposes of licensing from Rs. 3 crores to Rs. 5 crores; regularisation of installed capacities in excess of licensed/ registered capacities in 34 selected industries; extension of the facility of automatic growth of capacity to the extent
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of 5 per cent per annum or 25 per cent in a Plan period to a larger number of industries; expansion of the list of industries which are open to large houses and FERA companies; and amendments to the MRTP Act with a view to exemption, of certain industries of national importance from the provisions of the Act. Based on the preparatory studies for the Seventh Plan and a review of the industrial situation in the country, the exemption limit of assets for MRTP companies under the provisions of the relevant Act has been raised from Rs. 20 crores to Rs. 100 crores. The investment limit for small scale units has been increased from Rs. 20 lakhs to Rs. 45 lakhs. Also, to encourage speedy creation of additional capacity in essential industries, a large number of industries, comprising 25 groups, have been exempted from the need to take a licence under the Industries (D&R) Act.
7.15 In order to induce better utilisation of installed capacities, a scheme covering selected industries was introduced to permit re-endorsement of capacities on the basis of 133 per cent of the highest level of production achieved over the immediately preceding 5 year period. These units are allowed the facility of 25 per cent automatic growth on the endorsed capacities during the Plan period and were, moreover, allowed to produce upto 25 per cent in excess of the re-endorsed capacities. In order to provide more flexibility to manufacturers to adjust their product mix in keeping with the market demand, and to ensure better utilisation of their capacities, a scheme of 'broad banding' in the licensing has been adopted in many sectors, such as automobiles, machine tools, industrial machinery, typewriters and textiles.
7.16 Apart from extending the scheme of investment subsidy and concessional finance to a much larger number of districts and increase in the quantum of subsidy, a special consideration is being given to 'no industry districts' which would get an over-riding priority in the matter of licensing and infrastructure development.
7.17 Finally, liberalised policy has been introduced for the manufacture of computers and electronic items along with a package of incentives. The manufacture of telecommunication equipment, hitherto reserved for development exclusively in the public sector, has now been allowed to the private sector also.
The International Scene 7.18 Industrial growth is determined not only by national resource endowment and domestic industrial policies or programmes; it is also affected to a considerable extent by the international economic and technological environment. Since the energy crisis of the mid-70's, the consequent recession in industrial countries and the macro-economic policies of major industrial economies have had a profound adverse effect on the rate of growth of many developing countries. There are signs that the protectionist trend may continue and, in specific sectors, even worsen.
7.19 Third world countries have to face a difficult trade and aid environment; but they will be able to overcome the emerging problems by exploiting imaginatively the rapid technological progress now underway. During the last two decades, the pattern as well as the methods of production in developed countries have undergone vast changes. Technology in certain industries, particularly materials, electronics, computers, control and instrumentation industries, is changing fast. The miracle chip of the 1980s along with developments in micro-electronics has transformed the face of the modern world and shrunk it within a milli-second of instant communication. The world is passing through an information revolution leading to convergence of three major technologies, namely, computers, communication and micro- electronics, which will pervade all spheres of economic activities.
7.20 In general, technology has emerged as the key resource and input for industrial growth and development. Even traditional industries like automobiles and chemicals are rapidly moving into high technology. The last two decades have witnessed massive effort in development of technology by industry in the developed world. Yet there are some late entrants, who have made rapid strides in the last three decades. They have managed to compress their learning process, strengthen the technological base and emerge as high growth countries with a significant international presence. Some of their strategies are of relevance of India.
7.21 Inter-dependence of industry at a global level is an emerging phenomenon. Virtually no business, industry or institution can remain indifferent to the shift to a global economy. This is evident in the pattern of global restructuring that is taking place in steel, textiles, automobiles, electronics, computers, etc. The challenge before our industry is to shape a course based on this global perspective and national realities.
Objectives of the Seventh Plan 7.22 In accordance with the guiding principles of the Seventh Plan, namely, to achieve growth with social justice, and improving productivity, the objective of the development programmes and policies in the industrial sector would be:
(i) To ensure adequate supply of wage goods and consumer articles of mass consumption at reasonable prices and of acceptable quality;
(ii) To maximise the utilisation of the existing facilities through restructuring, improved productivity and upgradation of technology;
(iii) To concentrate on development of industries with
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large domestic market and export potential to emerge as world leaders in them;
(iv) To usher in 'sunrise' industries with high growth potential and relevance to our needs; and
(v) To evolve an integrated policy towards self- reliance in strategic fields and opening up of avenues for employment of skilled and trained man-power.
7.23 The Seventh Plan aims at an overall annual average growth rate of over 8 per cent in the industry sector, selected segments of it having been projected to grow at much higher rates. For this target to be achieved, Indian industry will have to attain a higher level of productivity and economic viability. Upgradation of tech- nologies and modernisation of industry will have to be combined with better efficiency in the use of factors of production. The resultant improvement in product quality and reduction in costs would not only stimulate domestic demand but would also enable our industrial products to compete abroad. Above all, it would benefit the Indian consumer.
7.24 The growth rate in the industrial sector would be supported by (a) improving performance and efficiency of the core sector namely, power, railways, steel and coal and (b) enlarging purchasing power through overall economic growth and the specific poverty alleviation and employment generation programmes.
Strategies for the Seventh Plan The main elements of the strategy for the industrial sector are set out in the ensuing paragraphs:
7.25 (i) Restructuring of Industry: The goals of long term economic development can be achieved only if there is a planned and progressive restructuring of industry. The trends of shift from traditional industries to basic metals, fertilisers and industrial manufactures will have to continue with an increasing share for the emerging technology intensive industries. In the evolution of an industrial structure capable of meeting domestic needs and competing in world markets, 'sunrise' industries have a special role to play. The investment pattern and policy frame-work should facilitate structural change within the industrial sector towards high- technology, high-value-added and knowledge-based industries like electronics, advanced machine tools and telecommunications. As defence production involves many areas of application of sophisticated technology, appropriate links will also be forged between defence needs and industry. The main objective of the restructuring process would be to usher in a pattern of industrial development which would take India into the ranks of leading industrial countries of the world.
7.26 (ii) Efficient use of capital: Large investments have been made in the industrial sector, and the programmes in the Seventh Plan will focus on the efficient use of these investments so that surpluses could be generated for further investments. This will apply especially to those units where capacity utilisation has been low and marginal investments in removing constraints can give significant returns. Improvement in maintenance would go a long way in contributing to better capacity utilisation. It is also essential that maintenance and health of the existing projects be fully ensured before any expansion is undertaken.