INDUSTRY AND MINERALS
Industrial development plays a crucial role in our development strategy particularly with regard to the objectives of structural diversification, modernisation and self-reliance. The overall pace and the pattern of industrial investment and growth in the Sixth Plan have to reflect this orientation of development policy and take into account the lessons from past experience.
REVIEW 16.2 The progress of industrialisation over the last thirty years has been a striking feature of Indian economic development. The process of industrialisation was launched as a conscious and deliberate policy in the early fifties. In pursuance of this policy, large investments have been made in building up capacity over a wide spectrum of industries. Industrial production has gone up by about five times during this period. Apart from the quantitative increase in output, the industrial structure has been widely diversified covering broadly the entire range of consumer, intermediate and capital goods. In most of the manufactured products, the country has achieved a large measure of self-sufficiency, providing the capability to sustain the future growth of vital sectors of the economy primary through domestic effort. This is reflected in the commodity composition of our inter- national trade in which the share of imports of manufactured products has steadily declined; on the other hand, industrial products, particularly engineering goods, have become a growing component of our exports. The rapid stride in industrialisation has been accompanied by a corresponding growth in technological and managerial skills, not only for efficient operation of highly complex and sophisticated industrial enterprises but also for their planning, design and construction. Considerable advance has also been made in industrial research and in absorbing, adapting and developing industrial technology.
16.3 Impressive is these achievements are, the rate of industrial growth has 'not been uniform during this period. After a steady growth of about 8 per cent during the 'initial period of 14 years, there was a fluctuating trend in the industrial growth rate, approaching near stagnancy in 1966-68 climbing to a level of 9.5 per cent in 1976-77 and dipping to--1.4 per cent in 1979-80. There, are many reasons for these fluctuations in the rate of industrial growth. In the initial years of planning, industrial development was largely based on import substitution and had the advantage of a captive market. A steady growth could thus be maintained. Thereafter, the growth in industrial production was conditioned by the general pace of economic development in the country. With the changing international and national environment, it has been difficult to match the sustained growth of earlier years. During the last decade (1970-71 to 1979-80) the average growth rate has been about 4 per cent per annum. While no single factor can be identified as having a significant bearing on the rate of industrial growth, a close relationship could be identified between the trends in total investment (particularly public investment and industrial production. Other factors which have affected the growth rate from time to time are the shortage of infrastructural and other vital inputs (such as power, transport, coal, cement), unremunerative administered prices, disturbed industrial relations and to an extent inefficient management.
16.4 A significant aspect of industrial development during this period has been the predominant role assigned to the public sector in the establishment of basic industires. The public sector has taken the initiative for the development of such industries as steel, nonferrous metals, petroleums, coal, fertilisers and heavy engineering. It has also made investments in consumer industries like textiles, drugs and pharmaceuticals, cement and sugar, partly as a result of the need for it to assume the responsibility for nursing back sick units which were taken over by the Government. While the investment-, in the public sector in the States are largely confined to medium scale industries appropriate from 'be point of view of accelerated exploitation of local resources, the major thrust for the development of capital intensive industries has been provided by the Central Government. The total investment in the Central public sector undertakings as on March 1979. amounted to Rs. 15,600 crores of which approximately Rs. 12,800 crores were invested in industrial and mining undertakings. Arising from these large investments in the public sector, the share of public sector in the net domestic product in organised industry and mining has also moved up from 8 per cent in 1960-61 to 28.9 per cent in 1977- 78.
16.5 The performance of the public sector cannot be judged on the basis of the yard-stick normally applied to the private sector. The justification of the public sector lies in its contribution' to fulfilling certain broader socio-economic objectives. Viewed in this
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light, the public sector as a whole has acquitted itself reasonably well. But for the entry of the public sector in a major way in the development of these basic industries the structural changes witnessed in the Indian economy could not have been achieved. It has also provided the necessary counter-poise to the private sector for supply management as needed from time to time in periods of crisis in vital sectors of the economy. The public sector has also devoted com- paratively greater attention to research and development, so essential for achieving the goals of technological self-reliance.
16.6 In aggregate financial terms the internal resources generated by the public sector undertakings for financing the Plan have been comparatively meagre. The major factors responsible for these are-
(a) low return on investment on account of price constraints imposed on some public sector undertakings;
(b) considerable number of private sector sick units (particularly in the textile and engineering industries) which the Central Government had to take over in the interest of maintaining employment and production; and
(c) the technological complexity of the industries which had to be promoted in the public sector where a longer gestation period and slower learning curve are inevitable.
16.7 Notwithstanding these considerations, there is need for substantial improvement in the working of the public sector undertakings. The continued growth prospects of the public sector, and indeed of the economy, are critically dependent on its ability to generate resources for its future growth. A substantial improvement in the efficiency of these undertakings, so as to provide a reasonable rate of return on large investments made on them is, therefore, of crucial importance. To the extent pricing policy has inhibited the resource raising capacity of certain undertakings, it would be necessary to review it to bring it in line with prudent commercial norms. There is also the need to management practices within the undertakings so as to impart a greater concern for optimal utilisation of capacity and higher levels of technical efficiency. Inordinate- delays have been a common feature in the implementation of public sector tender takings: these not only lead to loss of production but also significantly contribute to higher investment costs. Modern techniques of project monitoring and construction management will need to be introduced to avoid the excessive costs inherent in the serious slippages in the construction of projects. At the same time it is necessary that there should be adequate delegation of authority to the public sector undertakings and also Within the public sect-or undertakings at various levels. As far as possible, the authority and discretion of the public sector management, within the delegated functions, should not be brought into question; the- performance of the management should be judged on the basis of overall results achieved as distinct from the Soundness of individual decisions taken by it. The induction of professional management and industrial culture in the public sector enterprises should be steadily promoted. An intensive institutionalised programme or induction and short term training for senior public sector managers should be introduced to ensure continuous availability of a body of properly trained and motivated personnel for top level positions in the public sector.
16.8 Certain other deficiencies in the nature and pattern of industrial development have also emerged. Regional imbalances in industrial development have no. been corrected to the extent required. The expectation that massive, investments in Central sector projects would have a wide ranging 'trickle down effect' in stimulating small and ancillary industries has no' been realised in many States. Even within States, industries have tended to gravitate towards existing centres, the backward areas remaining substantially untouched. The incentive schemes for attracting industries to backward areas have not been able to prevent this tendency to an adequate extent. Schemes for giving capital subsidies to the backward districts appear, in retrospect, to have been used to a large extent, in fact, by the developed States.
16.9 The pattern of industrial development has not been sufficiently guided by cost considerations. In a regime of protection from international competition, industries have tended to get established at suboptimal capacities, leading to a high cost industrial structure. Adequate attention has also not been given to improvements in technology and quality of products. Some of these factors- have led to the emergence of sickness in certain industries particularly when market conditions tend to generate a measure of competition within the economy.
STRATEGY FOR THE SIXTH PLAN 16.10 In the above context, the perspectives for the coming years have been identified. Such projections must take as their starting point the economic situation in the base year of the Plan i.e. 1979- 80. During this year, the weakness of the infrastructure particularly coal, power and transport. has been an overriding constrain_ to industrial production, and virtually for the first time since the beginning of planned development, a fall in industrial output (of-1.4 per cent) was recorded. The capacity in a number of industries remained substantially unutilised, leading to shortages of various industrial products. A further consequence of this has been a sharp worsening in our balance of trade, single large imports of cement, Sugar, steel fertilisers ' etc. had to be resorted to so as to augment domestic supplies, accentuating an already difficult situation that arose from the increase in the prices of crude oil in the international market.
16.11 In addition to the conventional strategies of aiming at optimum utilisation of existing capacities and improvement of productivity, certain other elements of policy would be necessary in the medium
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term perspective. These would encompass the following:-
(a) Substantial enhancement of manufacturing capacities in public/private sector covering a wide range of industries for providing not only consumer goods and consumer durables but also for supporting agricultural and industrial growth through supply of intermediate and capital goods. The pace of industrial investment will need to be speeded up so that manufacturing capacities are in position well ahead of demand to permit competitive market forces to operate and to avoid possibilities of shortages with attendant adverse effects on the economy.
(b) The capital goods industry in general and the electronics industry in particular will need special attention as these support the growth of a wide range of economic activity. The proper development of these in- dustries in terms of competitive costs and high quality would be essential to ensure that the projects based on domestic capital goods do not become very costly. Similarly other selected industries would need to be identified (such as machine tools and commercial vehicles) for accelerated development for supporting not only the domestic requirements but also for exploiting the export potential in a larger measure than hitherto.
(c) In the context of the substantial foreign exchange resources required to support the Plan, export of engineering goods and industrial products, as also project exports will need to be stepped up. Manufacturing capacities would have to be substantially augmented on a selective basis, to generate adequate domestic supplies to support the export effort. Suitable strategies will need to be identified.
(d) Industrial progress will necessarily depend upon continued technological excellence; this would call for a judicious blend of permitting import of contemporary technology, and promoting the development of indigenous know-how through domestic research and development. A re-orientation and review of the existing procedures and parameters for transfer of technology for this purpose appears necessary. Further, instead of responding to initiatives from foreign parties. suitable perspectives and strategies will have to be developed for seeking out and arranging for appropriate and advanced technologies, of relevance to the specific areas of our interest. This may require the strengthening of appropriate in- stitutional arrangements.
(e) Although industrial development would increase the demand for energy , measures will need to be taken in the context of the emerging energy situation to improve energy efficiency, not only of manufacturing industry, but also of their end-products. Further, efforts will need to be made to adjust the energy consumption pattern in the industrial sector to domestic energy endowments. This will have particular relevance in sectors such as road transport for which alternative solutions (for example n terms of alternative fuels for commercial vehicles) will need to be developed on an urgent basis.
(f) New strategies for development of backward regions will need to be devised. The thrust would be to implement a new model of development which would prevent concentration of industry in existing metropolitan areas. The recommendations of the National Committee on Development of Backward Areas will be examined so as to evolve a viable strategy in this direction.
INDUSTRIAL POLICY INITIATIVES FOR THE SIXTH PLAN 16.12 Industrial policy cannot be static and will have to respond to the changes in the economic scene as set out in the preceding paragraphs. The framework of rules and regulations relevant to the nascent stage of development are not necessarily appropriate to the complex industrial structure which has since been built up. Without sacrificing the basic principles of a planned economy, sufficient flexibility would need to be built into the system to impart a sense of dynamism to take advantage of the considerable technological and managerial capabilities that have been developed over he years. In order to make efficient use of scarce capital, much greater attention will have to be paid to securing greater efficiency and competitiveness in 'the functioning of our Industry. In order to protect employment, all encouragement will have to be given to the growth of cottage, village and small industries. Sectors where efficient production can be secured on a small scale would continue to be reserved for future expansion only by the small scale units. However, it social costs of protection of the decentralised sector are to be contained within reasonable limits, there must be a greater play of competition. in "he remaining sectors which are not reserved exclusively for small scale industry. In industries where the economics of scales are not important dispersal of industries to secure greater regional balance is, both economically efficient as well as socially desirable. However, where economies of scale exercise an important influence on the cost of production, expansion of existing enterprises is to be preferred to setting up new plants of uneconomic size. This apPlies particularly to the expansion of capacities which depend on export markets. Moreover. consistent with the emphasis on technological self-reliance, adequate stress must also be laid on keeping the technology in use upto-date. To that end, import of technology particularly for export oriented and Key industries may need to be libaralised,
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16.13 The directional changes in the Industrial Policy are reflected in the Industrial Policy Statement of July, 1980. This accords particular emphasis on improving efficiency and productivity in the, industrial sector through optimum utilisation of existing capacity. To this end, it is proposed to grant recognition to increased capacities arising from technological improvements and labour productivity by endorsing industrial licences selectively on the basis of such capacities and to permit automatic growth in Industries in the core sectors or those which have a direct linkage with the core sectors or with long term exports. The Industrial Policy Statement of 1980 also provides for the induction of advanced technology, introduction of processes which would aim at optimum utilisation of energy as also for the establishment of appropriate capacities to achieve economies of scale. A special thrust is to be given to the establishment of export-oriented units. The operational elements of the industrial policy will have to be kept constantly under review in order to meet the challenges arising from the shifts in the international and national economic situation.
INVESTMENT PROGRAMMES AND TARGETS 16.14 The Plan envisages an average annual rate of growth of 8 per cent of industrial production during the five year period. Against the background of the actual rate of growth in the last decade, this may appear to be a formidable task and determined efforts will be required in order to achieve the substantially higher industrial growth postulated In the Plan. A significant improvement in the functioning of the infrastructure, particularly coal, power and railways is an essential pre-condition for the realisation of the industrial growth target. It is expected that with the concentrated attention being given to improving the operational efficiency of the infrastructural system, the trend of improvement seen in the second half of 1980-81 and the large investments provided in the Plan for these sectors, these constraints would be eliminated to a considerable extent In the near future. Assuming such an improvement, a detailed analysis suggests that capacity is not likely to be a constraint in achieving the production targets envisaged in the Plan. Based on levels of capacity utilisation actually achieved in the past, the existing capacity and the capacity currently under implementation are adequate to achieve the production targets envisaged. With the substantial step up in public sector investment and the more hopeful prospects for agricultural growth, demand is also unlikely to be a constraint in achieving the postulated growth in industrial production. The suggested order of increase is in any case necessary to secure an increase of 9 per cent per annum. in exports.