INDUSTRIES
REVIEW OF PROGRESS UNDER THE TWO PLANS THE past decade has witnessed the beginning of an industrial revolution in India. During this period the growth and diversification of industry have been quite remarkable and parti- cularly rapid in the five years of the Second Plan. In this short space of time three new steel works, each of one million tons capacity, have been completed in the public sector and two existing steel works in the private sector have been doubled so as to bring their ingot capacity to two and one million tons respectively. The foundations have been laid of heavy electrical and heavy machine tools industries, heavy machine buliding and other branches of heavy engineering, and the production of machinery for the cement and paper industries has been started for the first time. In the field of chemical industries there has been an advance on a wide front, leading not only to larger units and greatly increased output of basic chemicals, eg., nitrogenous fertilisers, caustic soda, soda ash and sulphuric acid, but also to the manufacture of a number of new products e.g., urea, ammonium phosphate, penicillin, synthetic fibres, industrial explosives, polythylene. newsprint, and dyestuffs. The output of many other- industries has increased substantially, e.g. bicycles, sewing machines, telephones, electrical goods. textile and sugar machinery. New skills have been learnt by the workers and, at the other end of the Scale, a large and growing class of industrial managers has come into being. In overall terms organised industrial. production has practically doubled in the last ten years, the index of industrial production having risen from 100 in 1950-51 to 194 in 1960- 61.
2. This bare recital of facts hardly does justice to the progress that has been achieved. To the eye-of the beholder much more impressive testimony of the upsurge of industrial activity is conveyed by the great new steel works, the huge new open cast mines, the new industrial townships and the various factories springing up in the environs of the main cities of the country. Viewing the industrial 2scene as a whole, independent expert opinion has borne testimony to the great progress achieved in quite a short space of time and has characterised the broadening of the industrial base and the buoyancy of manufacturing enterprises as the most striking change in the Indian economy since the beginning of the Second Plan.
3. There can be no doubt that in the industrial field far- reaching gains have been secured. It must, however, be recognised that this success, considerable though it is, has so far been insufficient to make any great impact on the general condition of the mass of the population or radically to alter the structure of the eco- nomy. Moreover, compared with the industrial targets which the country set itself, there have been some large shortfalls. Thus, while the setting up of the three new steel plants under the Second Five Year Plan was by itself a most impressive achievement, their combined output of steel was only 0.6 million tons in 1960-61 as against the target of 2 million tons. Similarly in the case of the Tata Iron & Steel Works (TISCO) production has fallen short of the target set for the Second Plan period, the actual output of saleable steel for the five-year period being only 4.5 million tons as against 5.2 million tons reckoned upon in the 1955 forecasts of the Tariff Commission. In the field of fertilisers, the expansion of the Government Sindri Fertilizer Factory and, in the private sector the ammonium chloride project at Varanasi were not completed till 12 to 18 months after the scheduled date and have since been facing serious teething troubles in reaching capacity output. The three new fertiliser plants in the public sector at Nangal, Neiveli and Rourkela, have all been delayed by one or two years; whereas they were all planned to be more or less in full production in 1960-61, the Nangal plant came into partial production only in January, 1961, while the other two are still under, construction. The delay in their case, as also in that of the Heavy Electrical Project at Bhopal is mainly due to foreign exchange difficulties. The same cannot be said of the Heavy Machinery, the Mining Machinery and the Foundry/Forge Projects. All these three projects which should by now have been quite far advanced in their construction are still in their initial stages and instead of making a valuable contribution to the Third Plan will only begin to yield output at the end of it. In the case of the project for the manufacture of organic intermediates, which is of cardinal im- portance for the dyestuffs, plastics and drugs industries, the delay in implementation has been due, apart from the time involved in defining the exact scope and content of the project and other preliminaries, to difficulties in concluding negotiations with overseas collaborators. The experience of the Second Plan has shown that the gestation period of a project; especially in the case of heavy engineering industries, is generally longer than expected. This highlights the importance of advance planning.
4. The main industrial targets which have not been achieved are those set for iron and steel. fertilisers, certain items of industrial machinery, e.g. paper and cement plant
machinery, heavy castings and forgings, aluminium, newsprint, raw films, chemical pulp, soda ash, caustic soda, dyestuffs and cement. The shortfalls have unfortunately occurred in some of the very industries which are of crucial importance and have deprived the economy of benefits reckoned on for the start of the Third Plan. The relevant figures are given below :
Table 1: Production targets for 1960-61 and
actual performance
unit production actual
targets produc-
tion
steel finished million tons 4.3 2.2
nitrogenous fertilisers (in
terms of nitrogen) 000 tons 290.0 110.0
phosphatic fertilisers (in
terms of P205) 000 tons 120.0 55.0
textile machinery Rs. crores 17.0 9.0
cement machinery Rs. crores 2.0 0.6
paper machinery Rs. crores 4.0
aluminium 000 tons 25.0 18.5
newsprint 000 tons 60.0 25.0
chemical pulp tons 30000.0
soda ash 000 tons 230.0 145.0
caustic soda 000 tons 135.00 100.0
dyestuffs million lb. 22.0 11.5
cement million tons 13.0* 8.5
Most of the other targets of capacity and production have been
approximately fulfilled and in some cases, e.g. power driven pumps,
disel engines, electric motors, A.C.S.R. cables, electric fans, radio
receivers and sugar exceeded.
5. Broadly speaking, it can be said that the industrial advance has been in keeping with the avowed objective of enabling the economy to reach as soon as possible the stage of self-sustaining growth, for, despite the shortfalls, notable progress has been achieved in the development of iron and steel, heavy engineering and other capital goods industries.
6. The actual cost of many of the projects has. been more than what was envisaged when the Second Plan was drawn up. For instance, on the basis of preliminary project reports, a provision of Rs. 425 crores was made in the Second Plan for the three public sector steel plants, their townships, ore mines and quarries. The first detailed estimates available by the end of 1956 indicated the revised investment requirements as Rs. 559 crores exclusive of escalation. The latest estimate of the actual outlay on the steel plants and ancillaries referred to above amounts to Rs. 620 crores. The further rise in cost as compared to the 1956 estimates has been explained as due primarily to increases in the quantities of work and to escalation. Similar divergences between actual outlay and the project cost estimates have occurred in the case of TISCO in the private sector. The capital expenditure on their expansion programmes has increased by about Rs. 30 crores over the initial estimates. While differences of this kind may have been inescapable in the past in view of the lack of experience in project engineering, the importance of achieving more accurate estimates requires to be emphasised. In other countries consultant organisations specialising have played an important part in this field and in the last few years similar agencies have begun to spring up in this country also, and they should be able to assist entrepreneurs in project evaluation and in esti- mating capital costs in a more thorough and scientific manner.
7. In the last ten years, some success has been achieved in the dispersal of industry. The selection of the locations for the three new steel plants (Bhilai, Rourkela and Durgapur), the Heavy Machinery Plant (Ranchi) and the Heavy Electrical Project (Bhopal) and the decision to exploit the lignite deposits at Neiveli in Madras, justified as these all were on purely economic grounds, have also had the effect of creating new centres of industry in areas of the country hitherto untouched by it. Preference in fact has always been given to the location of public sector projects in relatively backward areas whenever this could be done without significant prejudice to technical and economic considerations; and this will be the guiding principle for the future also. Similarly in the licensing of private sector projects the claims of under-developed regions have generally been kept in view to the extent possible.
FINANCING OF THE INDUSTRIAL PROGRAMMES 8. The overall fixed investment on public sector projects in 1956-61 has been about Rs. 770 crores as against the original estimate of Rs. 560 crores. For the private sector, the corresponding investment figures are Rs. 850 crores and Rs. 685 crores respectively. Except in the case of the expansion of the Sindri Fertiliser Factory, where internal resources played some significant part in financing new investment, public sector projects were carried out by means of advances from Government in the form of equity capital and loans. The foreign exchange cost of Government steel works, machine-building, mining equipment and heavy foundry/forge projects was met mainly from credits advanced by friendly countries. The equity participation that was originally proposed by Krupp-Demag in the Rourkela Steel Works was the only sizeable private investment envisaged in a public sector project. This was given up in 1956 in the course of negotiations regarding contracts for the purchase of machinery. The steel expansion programmes in the private sector were assisted to the extent of Rs. 70 crores by the International Bank for Reconstruction and Development (I.B.R.D.) and
240 THIRD FIVE YEAR PLAN
by credits from other international sources and by Rs. 20 crores of interest-free advances from the Government of India. The high levels of investment recorded by private enterprise in other fields were facilitated by deferred payment arrangements resorted to on a considerable scale.
9. The quantum of funds drawn by private enterprise from each of the recognised sources as compared with the Plan expectations is currently estimated as follows:
Table 2: Sources of supply and quantum drawn
by private enterprise
(Rs. crores)
Second latest
Plan estimate
expectations for the
Second
Plan
loans from institutional agencies 40 80
direct loan participation by Central
and State Governments 20 20
foreign capital including suppliers credit 100 200
new issues 80 150
internal and other resources 380 400
total 620 850
10. The current assessment of the break-up of the overall investment in organised industries as compared with the estimates as forecast in the Introduction to the volume on the Programmes of Industrial Development : 1956-61 (page ix) is as follows :
Table 3: Overall investment break-up
(Rs. crores)
forecast current
under the assessment
Second
Plan
metallurgical industries (iron and steel,
aluminium and ferromanganese 502.5 770.0
engineering industries (heavy and light) 150.0 175.0
chemical industries (heavy chemicals,
fertilisers, drugs and pharmaceu-
ticals, coal carbonisation, dye-
stuffs , plastics and chemical pulp) 132.0 140.0
cement, electric porcelain and
refractories 93.0 60.0
petroleum refining 10.0 30.0
paper, newsprint, security paper 54.0 40.0
sugar 51.0 56.0
cotton, jute, woollen and silk yarn
and Cloth 36.3 50.0
rayon and staple fibre 24.0 34.0
others 41.5 115.0
replacement and modernisation 150.0 150.0
total 1244.3 1620.0
11. In spite of the large investment (about 30 per cent above the Plan estimate) the physical targets set under the Second Plan are broadly estimated to have been achieved to the extent of only about 85 to 90 per cent. The wide gap between the rather high target originally set for the cement industry and the capacity actually achieved accounts for a high proportion of the overall shortfall in the physical performance.
THIRD FIVE YEAR PLAN : OBJECTIVES AND OVERALL APPROACH 12. The industrial plan for the period 1961-66 has to be governed by the over-riding need to lay the foundation for further rapid industrialisation. over the next 15 years, if long-term objectives in regard to national income and employment are to be achieved. From this point of view it is essential to stress forward with the establishment of basic capital and producer goods industries- with special emphasis on machine building programmes-and also with the acquisition of the related skills, technical know-how and designing capacity, so that in the following Plan periods the growth of the economy in the fields of power, transport, industry and mineral production will become self-sustaining and increasingly independent of outside aid.
13. There are, however, other factors which have also to be kept in mind. Thus, while longterm objectives require concentration on capital goods industries and increased production of processed industrial raw materials, the industrial programme for the Third Plan has also to provide, to the extent possible, for meeting the demand likely to be generated over the next 5 years for a wide range of other manufactured goods. Owing to the need to devote a large portion of available resources to laying the foundation for future development, it may be difficult to meet this demand in all cases. The aim is to provide fully for essential needs, but restraint on consumption will be unavoidable, especially in the case of goods of luxury or semi- luxury character the production of which it will be difficult to increase pari passu with the growth of demand.
14. The operation of industries depends not only on markets but also on the supply of raw materials, power, fuel and facilities for transport. Industrial programmes have, therefore, necessarily to take into account, and will in fact be limited by, the rate at which the supply of raw materials, power, etc. can be increased. In particular, power and fuels are likely to be inhibiting factors in the first half of the Third Plan period. This may entail forgoing in some instances the adoption of industrial processes which make a heavy demand on electric power, notwithstanding their attractiveness.
15. Industrial policy.-The expansion of industry will continue to be governed by the Industrial Policy Resolution of April, 1956. As in the Second Plan the roles of the public and
INDUSTRIES 241
private sectors are conceived of as supplementary and complementary to one another. For example, in the case of nitrogenous fertilisers where the public sector has already assumed a dominant role, it is envisaged that during the Third Plan the private sector will enter this field in a bigger way than in the past and supplement the efforts of the public sector. In the case of pig iron, the policy has been relaxed to allow the establishment of plants in the private sector with a maximum capacity of 100,000 tons per year as compared to units of 15,000 tons permitted so far. Programmes for the manufacture of dyestuffs, plastics and drugs in the private sector will be largely complementary to the programme for the manufacture of primary aromatic compounds as by-products at the steel works and of organic intermediates to be undertaken in the public sector. Similarly, whereas the manufacture of bulk drugs will be organised in a big way in the public sector, the further processing of bulk drugs will also be undertaken in the private sector.
16. Against the background of the goal of a socialist pattern of society, it is necessary in encouraging and approving programmes in the private sector to guard against industrial development being concentrated in the hands of a few entrepreneurs and leading to complete or partial monopolies. This matter has been discussed in paragraphs 26 to 29 of Chapter I.
17. Industrial priorities.-Plans for industrial expansion have to hold a balance between different and competing claims of nearly equal importance. There are, however, certain general considerations which require to be mentioned. In the first place, where there are wide gaps between capacity and production or where, by multi-purpose shift operation or the addition of balancing equipment, it is possible to secure greater output at diminishing cost, fuller utilisation of existing installed capacity must take precedence over expansions or the setting up of new units. Secondly, expansion of existing plants will have to be given preference over establishment of new units since the creation of additional capacity in this manner will not only be quicker but will also assist in bringing down the investment costs per unit output. For example, the expansion of the Bhilai, Rourkela, and Durgapur Steel Plants will lower the investment from about Rs. 2000 to Rs. 1500 per ton of finished steel and have a beneficial effect on the level of retention prices.
18. As regards new developments the accent will have to be on projects which, by contributing to exports, will earn or, by replacing imports, will save foreign exchange. It will not be possible to allow significant expansion of industries, which are heavily dependent on the import of raw materials and whose expansion, therefore, until these materials are available within the country, swells the demand or foreign exchange or maintenance account. On the other hand, having regard both to the short-term and, the long-term needs of the economy, special attention will have to be given to the development of industries for whose products there are reasonable prospects of finding export markets.
19. Subject to these general considerations the emphasis to be given to programmes and projects over the next few years will have to be broadly in accordance with the following priorities :
(1) Completion of projects envisaged under the Second Five Year Plan which are under implementation or were deferred during 1957-58 owing to foreign exchange difficulties.
(2) Expansion and diversification of capacity of the heavy engineering and machine building industries, castings and forgings, alloy tool and special steels, iron and steel and ferro-alloys and step-up of output of fertilisers and petroleum products.
(3) Increased production of major basic raw materials and producer goods like aluminium, mineral oils, dissolving pulp, basic organic and inorganic chemicals and intermediates inclusive of products of petrochemical origin.
(4) Increased production from domestic industries of commodities required to meet essential needs like essential drugs, paper, cloth, sugar, vegitable oils and housing materials.
INDUSTRIAL DEVELOPMENT PROGRAMMES 20. The development programmes for industries and minerals envisaged under the Third Plan will entail in all about Rs. 2993 crores of investment in order to reach the physical targets set for achievement. Their foreign exchange component is placed at about Rs. 1338 crores. The details of the break-up are as under :
(Rs. crores)
public sector private sector public and
private sectors
total foreign total foreign total foreign
exchange exchange exchange
(a) new investment
(i) mineral development 478 200 60 28 538 228
(ii) industrial development 1330 660 1125 450 2455 1110
total 1808 860 1185 478 2993 1338
(a) replacement 150 50 150 50
The fixed investment of Rs. 1808 crores for industries and minerals in the public sector shown in the Table above differs from the figure of Rs. 1882 crores given elsewhere as the outlay requirements of the public sector for industries and minerals. The difference arises from the fact that the latter figure includes (a) assistance to plantation industries, which do not strictly fall within the scope of manufacturing industries, (b) the cost of the construction subsidy given to Hindustan Shipyard, (c) programmes of the National Productivity Council and the Indian Standards Institution and expenditure on the extension of the metric system of weights and measures, and assistance to the private sector through the National Industrial Development Corporation (N.I.D.C.) and direct loans and State participation in private undertakings.
21. The estimate of investment on replacement shown in the above Table falls short of the minimum requirements of the cotton textile, jute textile and woollen textile industries in regard to which special studies have been made recently. The backlog of replacements in these three industries alone has been estimated at about Rs. 169 crores. The estimate that investment on replacement account in the Third Plan will be of the order of Rs. 150 crores is more or less a projection of the actual performance during the Second Plan. Even so, it is on the optimistic side in view of (a) the pressure on the available resources of private enterprise and institutional agencies for new investment and (b) the fact that mills with large backlogs of replacement are in no position to provide resources for renovation commensurate with needs and (c) the small allocation made in the Plan to enable the N.I.D.C. to assist these programmes financially.
22. It is necessary to emphasise that in the case of several projects the estimates of cost, on the basis of which the overall figures have been calculated, lack at this stage the required degree of precision, since these projects are in very preliminary stages of formulation in respect of scope, processes, location and other relevant particulars. Further, some of them fall under industries about which no experience is available in the country which might facilitate more accurate estimates. The esimates of foreign exchange requirements have been made on the assumption that payments wilt be made in cash and that, broadly, machinery and equipment will be obtained from the cheapest sources of supply. These estimates will be vitiated if changes have to be made in these underlying assumptions. For instance, the estimates will go up considerably if, in order to utilise the credits that have been made available by different countries, a large part of the equipment has to be obtained from sources which are not the cheapest.
23. As compared to these estimates of requirements, the resources available both for the public and the private sector programmes are expected, on present reckoning, to be deficient. The current allocations for industries and minerals in the public sector and the estimates of resources likely to be available for private sector programmes amount only to Rs. 2570 crores-Rs. 1470* crores for the public sector and Rs. 1100 crores for the private sector. In addition, it is hoped that about Rs. 150 crores will be forthcoming for meeting the continuing arrears of replacement and modernisation in certain pre-war industries.
24. These estimates point to the probability that in both sectors there will be a sizeable spill-over into the Fourth Plan and that the physical targets will not all be achieved by the end of the Third Plan period. Some spill-over would be probable in any case considering the very preliminary stage which some of the projects have so far reached, the uncertainties about foreign exchange and the relatively long gestation periods in the case of heavy industries. It is difficult at this stage to forecast with any great degree of accuracy which projects will get delayed and spillover into the Fourth Plan and which of the physical targets will not be achieved. The mat- ter is, however, discussed further in connection with the public and private sector programmes.
PUBLIC SECTOR PROGRAMMES 25. General observations.-The industrial and mineral programmes of the public sector, exclusive of defence industries and projects of the Ministries of Railways and of Transport and Communications designed to meet their own operational requirements, e.g. electric and diesel locomotives, telephones and teleprinters are shown in Annexures I and II. Their overall cost is about Rs. 1882** crores, whereas the provision that it has been possible to make for them is only Rs. 1520 crores (Rs. 1450 crores at the Centre and Rs. 70 crores in the States). It is probable, therefore, that, as already stated, their full implementation will take rather more than five years. It is not possible at present to say what stage each one of the public sector projects will have reached by 1965-66 but some general indications can be given. It will be seen that in Annexure I projects of the Central Government have been grouped in three categories, viz.
(1) projects under execution and carried over from the Second Plan; (2) new projects for which external credits are already assured wholly or partly; and (3) new projects for which external credits have yet to be arranged.
It may reasonably be assumed that all the projects falling in category (1) will be completed during the Third Plan. This should also apply to most of these in category (2); at any rate considerable progress should be made with all these projects. But some of them e.g. the pre-