INDUSTRY AND MINERALS
INDUSTRIAL progress has been markedly uneven during the eight years which comprise the Third Plan and the subsequent Annual Plans. In the first four years, conditions were relatively favourable for industrial investments and growth and the progress achieved was significant. Thereafter for nearly three years the economy was subjected to considerable stress and strain and the growth rate in industrial production declined, first slowly and then steeply till it reached virtual stagnation. In the last year of this period, 1968-69, there were distinct signs of recovery and hope for the future. These vicissitudes may be illustrated with reference to the index of industrial production. The increase in industrial output (1960 as base) stood at 8.2 per cent in 1961-62, 9.6 per cent in 1962-63, 9.02 per cent in 1963 64 and 8.8 per cent in 1964-65. Thereafter there was sharp deterioration in the rate of growth of output. It fell to 5.3 per cent in 1965-66, 0.2 per cent in 1966-67 and 0. 5 per cent in 1967-68. The decline in these years was mainly due to low rates of growth in textiles and food industries on the one hand and metals and machinery industries on the other. In many of these industries, there was a fall in absolute output. Industrial production, however, showed a sharp recovery during 1968-69 with a rise of 6.2 per cent.
14.2. The decline in industrial growth after 1964-65 is attributable to several factors of which the most important were the series of dislocations caused by the hostilities in 1965 and the two successive droughts. Many industries were severely affected by the shortage of raw materials and components arising from the pause from the pause in external aid in 1965. Although aid was subsequently resumed and the import in policy for raw materials liberalised after devaluation new factors intervened, creating problems of a different character. The two bad agricultural years led to considerable decline in savings, in investments and purchasing power. Agricultural raw material for industrial production were in short supply. On the other hand, as result of the completion of projects already initiated, there were significant additions to capacity. This increase in capacity at time when domestic demand was at a subdued level accentuated the problem of unutilised capacity in many industries and more particularly in the capital goods industries. In spite of the comparatively easy availability of imported raw materials at the stage, depressed demand prevented full exploitation of industrial potential. The inffationary environment and the increase in the cost of projects consequent on devaluation led to serious problems. To some extent, the position was relieved by a determined. attempt to find external markets. In a variety of industrial goods, there was, for the first time in the last two decades, the transformation of sellers market into a buyers market.
14.3. With the improvement in agricultural production in 1967-68, industrial production and investment have picked up. There has been significant improvement in agricultural production in 1968-69. In many industries the capacity utilisation has considerably improved.
Only in a few industries like a machine tools and cables the production continues to remain at relatively unsatisfactory levels. The fuller utilisation capacity in these industries is very closely linked with the increasing tempo of investment. It is only through faster economic development and larger exports that the performance of these industries can be imporved.
Diversified Structure 14.4. In spite of this rather uneven performance significant achievements contributing towards the realisation of diversified industrial structure were made during this period. Substantial capacity has been created in many new lines. A fairly sound base for future growth has been laid. Several of the large projects initiated at the commencement of the Third Plan have been completed and brought into production. In particular, in the field of heavy engineering and machine building industries, the commencement of production of the different units in the Heavy Engineering Corporation, Mining and Allied Machinery Corporation and of heavy electrical projects has now made it possible, largely through indigenous effort, the expansion of further capacity in vital sectors like iron and steel, mining and power generation. In the field of rail and road transport and communications, virtual self-sufficiency for the supply of equipment and rolling stock has been realised. Machinery manufacturing capacity for a variety of traditional industries like textiles, sugar and cement has been developed. Design and engineering capabilities have been expanded. Process technology has been either acquired or developed to enable the planning, designing and construction of industrial projects with maximum indigenous effort in fields like fertilisers, rayon and dissolving pulp. There has been appreciable increase in the production capacity of steel and non-ferrous metals. Progress has also been made in the expansion of capacity in petroleum, fertiliser, and petrochemical industries. In wide range of indus- tries, it will be possible merely by the fuller utilisation of existing capacity as distinguished from new investment to achieve subsantially higher levels of production in the initial years of the Fourth Plan.
14.5 Among industries in which Third Plan targets of capacity or production were fully or nearly realised by 1965-66 are aluminium, automobiles, electric transformers, cotton textile machinery, machine tools, sugar, jute textiles, power driven pumps, diesel engines and petroleum products. On the other hand, in some of the important industries like steel and fertilisers, there was considerable short- fall in production. In the subsequent years, there has been a step up in production in certain industries such as aluminium, fertilisers, heavy chemicals, cement and petroleum products. The Third Plan targets for steel and fertilisers were not realised even by 1968-69, the output of finished steel being 4.7 million tonnes in 1968-69 against the Third Plan target of 6.8 million tonnes and of nitrogenous fertilisers at about 54 1,000 tonnes against an expected 800,000 tonnes.
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14.6 Table 1 indicates the increase in production in some of the important industries.
14.7 In many industries such as steel, textile machinery, machine tools, commercial vehicles and fertilisers, the production levels in 1968-69 remained substantially below installed capacities. In some, the low level of production was a reflection of the levels of demands; in others, such as steel and fertilisers, it was the result of low efficiency
14.8. Several policy and administrative measures were taken in response to the changing economic conditions.
For private industry, the availability of institutional finance was stepped up and now financial institutions brought into existence. The Unit Trust of India was set up in July 1964 to channel the savings of middle and low income groups for investment in risk capital. In order to provide larger financial assistance to new industries and coordinate the activities of the existing agencies, an Industrial Development Bank was set up in July 1964. The Refinance Corporation was amalgamated with it. A scheme for providing discounting facilities for the purchase of plant and machinery was instituted. With a view to relaxing controls and encouraging the growth of
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medium industries, the exemption limit for obtaining licence under the Industries (Development and Reguation) Act was raised in 1964 from Rs. 10 lakhs to Rs. 25 lakhs. Measures were taken to streamline and expe- dite the procedures of licensing, import of raw material and capital goods, issue of capital and approval of foreign collaboration agreements. A system of issue of letters of intent was introduced to signify Governments preliminary approval to the proposals in principle. After careful review, a number of industries such as cement and paper, were exempted from the licensing provisions of the Industries (Development and Regulation) Act. In order to provide the necessary flexibility in the operation of the industrial capacity, existing units were permitted to diversify or expand production up to 25 per cent of the licensed capacity under certain conditions without being required to secure a licence. Relaxations were made from time to time in the control on prices and distribution of industrial commodities. In 1963, 16 commodities were freed from price and distribution control. Subsequently, control on several other indus- tries such as iron and steel, coal, fertilisers and commercial vehicles was relaxed. Sugar has been partially decontrolled. Price control on paper has been lifted. Control is still exercised with respect to some commodities like vansapati drugs and kerosene.
14.9. A certain measure of disperasl of industries has been achieved, though much more effort is called for in this regard. Several of the public sector projects of this period, such as the heavy electrical projects at Hardwar and Ramachandrapuram and the instrument project at Kota, were establisehed in regions which are industrially backward. Several State Governments took steps to establish industrial areas and provide basic facilities at suitable focal points in order to encourage the growth of industries on a wider scale. State Industrial Developments Corporations were set up for promoting new schemes and participating in suitable private sector projects. Attempts were made to promote dispersal of industries by such measures as exemption from capital gains tax for industries move- ment of metropolitan towns.
14.10. In considering the industrial policy to be followed for the future, note has to be taken of the present industrial situation. By and large, the channelisation of investible resources in desired directions through the various systems of licensing and control served a vital purpose in fostering industrial growth. Over the years a wide and strong industrial base has been created in the country with an extensive range of production from sophisticated machinery and capital goods to consumer goods and intermediate products. Simultaneously, there has been expansion in the facilities for consultancy and design. In any comprehensive system of licensing and control, there are certain inherent difficulties and shortcomings. Experience over the past few years has undoubtedly highlighted some of these problems. In a wide gange of industries where specific targets were laid down in the Plans, it was not possible to ensure adequate phasing and to review them periodically for adjustments in the light of changing situation. As a result capacity was in certain sectors created in excess of requirements resulting in avoidable investments. In certain other industries like fertiliser, the addition to capacity fell short of requirements. The bunching of licensing and inadequate implementation led to imbalances in some sectors of industry. In a few industries though licences were issued to the full extent of the requirements and even beyond such requirements, actual manufacturing capacity created fell far short. The lack of synchornised growth resulted in an undue burden of maintenance imports. Detailed controls not only put considerable strain on the administrative machinery, but led to delayed implementation. Further the controls did not always secure the objectives for which they were designed. The system of controls also resulted in private enterprise becoming increasingly dependent on Government and ceasing to carry out its own entrepreneurial functions, including market studies. Another serious shortcoming which characterised the activities of the private sector was inadequate cost-consciousness and little appreciation of the essential need to reduce such costs, because of the existence of sellers market. All these factors point to the need for corrective steps of a far-reaching character, particularly with a view to taking full advantage of the production capacity that has already been developed, and permitting fuller play of market forces in various sectors of industry.
Approach 14.11. A variety of considerations has to be taken into account in determining the approach to industrial development. There is a considerable volume of underemployment of manpower depending on agriculture. There are large numbers employed in traditional manufacturing industry, using very poor techniques and making a precarious living. The prospect of improving the employment situation binges on a rapid increase in non-farm employment opportunities, which in turn depend on the tempo, nature and route of industrialisation. The overall rate of industrial development has necessarily to be related to the development in the rest of the economy which can be sustained within given limits of technological capacity and of resources, physical and financial; and its pattern must be shaped in relation to the specific situation obtaining in the country.
14.12. There is first the need to achieve speedy self-reliance. With investment growing at a higher rate than aggregate income and given the rapid expansion of demand for manufactured inputs going into agriculture, the economy's requirements of capital equipment, metals, petroleum products and chemicals are growing fast. It is in these areas that dependence on imports is specially large. Consequently, the projected developments alongwith a progressive movement towards self-reliance necessitate a relatively faster expansion of the domestic production in these industries over the next decade or so. These industries are capital intensive and the optimum size of the units is relatively large. While the compulsion of circumstances makes it necessary to devote a substantial part of resources available for industrial development to such large and capital intensive industries, it is necessary to bear in mind that capital is a scarce resource in the economy.
14.13. If the investments in these industries are not planned carefully and if there are undue delays in bringing capacity to full utilisation, the cost in terms of the capital locked up and the possible sacrifice of alternative opportunities for using this capital could be very large
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More generally, the programmes and projects in these areas should be subjected to close scrutiny with a view to reducing the degree of capital intensity without sacrificing low cost production, technological improvement and economic efficiency.
14.14. Second important consideration in industrial planning is the desirability of dispersed industrial development. The requirement of non-farm employment is so large and so widely spread throughout the country that a greater dispersal of industrial development is a matter of necessity. Even from the narrow and immediate economic view-point, the society stands to gain by dispersed development. The cost of providing necessary infrastructure for further expansion of existing large urban and industrial centres is often much larger than what it might be if development was purposefully directed to occur in smaller towns and rural areas.
14.15. A third consideration is the avoidance of technological unemployment among the workers in traditional industries under the impact of unregulated spread of capital intensive modern technology during a period of transition when it is difficult to find alternative opportunities of employment for the person adversely affected. At the same time it is to be recognised that over the long run it is only through the adoption of improved techniques and increasing producti- vity that economic conditions of the traditional industries can be improved and maintained on a viable basis. From this point of view, the country cannot afford to freeze the existing technological situation merely for the sake of avoiding unemployment or providing additional employment. Such action only postpones the problem to a later date when its solution may become even more difficult. This means that subsidisation should be avoided as far as possible, that all protective measures are only for a fixed period and that emphasis is placed on positive schemes of assistance which ensure appropriate location and continuous progress. Thus at one end the economic view regarding the optimum deployment of total resources must predominate over the technological, and at the other end the short cut method of relief and subsidy must be eschewed.
Objectives 14.16. The industrial programmes and policies for the Fourth Plan have been conceived keeping in view the need to correct imbalances in the industrial structure and to bring about the maximum utilisation of capacity already built up. At the same time conditions have to be brought about for a vigorous growth in industrial output and capacity without any undue burden on balance of payments. In broad terms, the objectives of investments in the industrial field are :
(1) completing investment in relation to which commitments have already been made ;
(2) increasing existing capacities to levels required for present or future developments, in particularLY providing for more adequate internal supplies of essentials in increasing demand or needed by import substitution or for export promotion ; and
(3) taking advantage of internal developments or availabilities to build new industries or new bases for industries.
Policy in making these investments and otherwise will be directed towards canalisation of capital and personnel resources in such a way as to achieve as widespread an industrialisation of the country as possible and to encourage the emergence of new entrepreneurship and greater dispersal in the ownership and control of industries.
14.17. Industrial development will continue to be guided by the broad principles enunciated under the Industrial Policy Resolution of 1956. This policy provides for a flexible approach in the development of industries within the public, private and co-operative sectors. At the same time, the policy takes into account the need to present private monopolies and the concentration of economic power in the hands of a small number of individuals. Subject to overall consideration of resources, the programmes in the public sector envisage further expansion in high priority fields to fill the gap in the industrial structure and investments in certain other industries in which the development of private sector has fallen short of the requirements of the economy. Co-operative and private sectors are envisaged to make a significant contribution to industrial development in all other fields and necessary facilities for such expansion will be provided, except to the extent restrictions are considered necessary to achieve the social objectives of preventing concentration of economic power.
Licensing Policy 14.18. Both from the point of view of accelerating industrial development and improving administrative efficiency, a review of the system of controls has been considered necessary. The primary purpose of control is to ensure proper allocation of scarce resources. Regulation of industrial developments has to be considered primarily in relation to the allocation of foreign exchange. Thus, import control and control on commodities in short supply would have to continue. Within the broad framework of control in strategic areas there is advantage in allowing the market much fuller play. The supply of a variety of industrial commodities has considerably eased and the need is one of stimulating demand and production. With the broader industrial base and growing availability of capital equipment and raw materials from within the country, the need to control further expansion in industries which are largely based on domestic resources has assumed less importance. Accordingly, the Draft Fourth Five Year Plan suggested the following industrial licensing policy :