PROGRAMME OF INDUSTRIAL DEVELOPMENT
PROGRESS DURING THE FIRST PLAN THE progress of industry during the first five year plan appears satisfactory if judged solely by the rise in the index of industrial production. But it will be seen to be not quite uniformly satisfactory if viewed against the background of the objectives, priorities and levels of capacity and production which had been envisaged for different industries when the plan was drawn up. The picture as it is expected to emerge at the end of the year 1955--56 is briefly presented in the paragraphs which follow.
PROGRESS IN THE PUBLIC SECTOR 2. The progress of production and expansion of capacity can be considered to have been satisfactory in the case of the Sindri Fertilizer Factory, Chittaranjan Locomotive Factory, Indian Telephone Industries, the Integral Coach Factory, the Cable Factory and the Penicillin Factory. On the Other hand, progress has been somewhat behind schedule in the case of some Central and State Projects which have taken longer to complete and to begin production than had been anticipated. This is true, for instance, of the Machine Tool Factory, U.P. Cement Factory, Nepa Factory and the Bihar Superphosphate Factory. In regard to iron and steel, a new plant to be set up by the Central Government was expected to turn out 350,000 tons of pig iron by 1955-56 and the expansion scheme of the Mysore Iron and Steel Works was expected to yield an additional 60,000 tons of finished steel by the same year. These targets have not been achieved by the end of the First Plan. Preparatory work wits, however, completed by the end of the Plan period for three steel factories of 1 million ton ingot capacity each and the foundations have been laid for a rapid advance in the iron and steel industry in the coming years. As regards the heavy electrical plant, which was suggested to be taken up for implementation in the last years of the period of the plan, a good deal of time was taken in reassessing the requirements and demarcating spheres of production for the public and private sectors and so no investment of any magnitude was made on this project during the Plan period. However, much preparatory work was completed and an agreement signed with Associated Electrical Industries Ltd., for the implementation of this project.
3. As against Rs. 94 crores proposed to be spent in the public sector on industrial projects, the outlay now anticipated is Rs. 57 crores. The production targets originally envisaged and the latest estimates of production anticipated for 1955-56 are given below:-
1955-56
Target under Expected pro-
first plan duction as
now assessed
1 2 3 4
(a) Pig Iron (capacity) tons 350,000 Nil
(b) Finished steel (capacity)tons 100,000 35,000
(c) Locomotives No. 92 125
(d) Integral Coaches No. 50 20
(e) Ships GRT 20,000 13,000
(f) D.D.T. tons 700 284
(g) Penicilin million mega units 4.8 6.6
(h) Fertilisers:
(i) Ammonium sulphate tons 315,000 326,000*
*The coke-oven plant constructed recently at Sindri as an integral Part of the fertiliser works will produce 200,000 tons of coke for ammonia synthesis and the by-products of coal carbonisation,
202
203
PROGRAMME OF INDUSTRIAL DEVELOPMENT
1 2 3 4
(ii) Super phosphate (Bihar Govt. Factory) tons 16,500 Nil
(i) Newsprint. tons 30,000 4,200
(j) Cables.... miles 470 525
(k) Telephones..... No. 25,000 50,000
(50,000)+
Exchange lines. No. 20,000 35,000
35,000
(m) Cement (UP. Govt. Cement Factory)... tons 200,000 180,000
(n) Machine tools... Lathes 1,600 12
(200)+
+ Revised targets.
Delays in the execution of the iron and steel projects were perhaps unavoidable, having regard to their complexity, the large investments involved and the necessity of carrying on negotiations with foreign par ties in regard to both technical and financial assis- tance.
INVESTMENT IN THE PRIVATE SECTOR 4. It was envisaged that an investment of Rs. 233 crores would be necessary to meet the expansion programmes of industries in the private sector during the period of the first plan. The expenditure on replacement and modernisation of plant and machinery in the various industries, which had a large backlog of de depreciation to be made up, was estimated at Rs. 230 crores of which about Rs. 80 crores were attributable to the higher cost of plant and machinery ruling during the plan period as compared to earlier years. Thus, an aggregate expenditure of Rs. 463 crores on new projects, replacements and modernisation was envisaged in the plan. As against this, it is now estimated that the total gross investment in fixed capital in the private sector during the plan period has been about Rs. 340 crores. The largest investments have been in cotton textiles (Rs. 80 crores), petroleum refining (Rs. 45 crores), iron and steel (Rs. 49 crores) followed by heavy and light engineering industries (Rs. 25 crores), chemicals, fertilizers, pharmaceuticals, dyestuffs and plastics (Rs. 15 crores), cement and refractories (Rs. 18 crores), paper and paper board (Rs. 11 cores), sugar (Rs. 15 crores), electric power generation (Rs. 32 crores), jute textiles (Rs. 15 crores), rayon and staple Fibre (Rs. 8 crores) and others (Rs. 27 crores). Or the basis of data so far available, the annual investment on new units and expansions during this period is estimated to have been Rs. 53 crores in 1951-53, Rs. 44 crores in 1953-54, Rs. 50 crores in 1954-55 and Rs. 85 crores in 1955-56. The estimate of investment in 1955-56 includes anticipated expenditure of about Rs. 22 crores on iron and steel programmes, Rs. 11 crores for Trombay and other power schemes, Rs. 7 crores on the cotton textile industry, Rs. 5.5 crores on cement and refractories and Rs. 5 crores on sugar projects.
5. Shortfalls in investment in certain industries have occurred principally through (a) the unfavourable conditions which obtained generally during the first two years of the plan, (b) change in the size of the plant and the construction schedule of the Caltex Refinery at Visakhapatnam, (c) delay in respect of schemes relating to FACT, aluminium, gypsumsulphur and chemical pulp which had been envisaged under the plan. Broadly speaking, the lag in private investment occurred in industries which required heavy capital investment and offered a relatively small profit margin. The National Industrial Development Corporation (NIDC) and the Industrial Credit and Investment Corporation of India (ICIC) only came into existence during 1954-55. Until 1954 when the relevent legislation was amended, the Industrial Finance Corporation of India was precluded from extending loans to industries in excess of Rs. 50 lakhs. The overall investment in new units and expansions has, however, come very nearly to the figure of Rs. 233 crores since in fields like cotton textiles and power generation the investment exceeded the amounts which had been originally anticipated.
6. As regards investment on replacement and modernisation programmes, on the whole, except in the case of the sugar industry, progress was satisfactory but by no means commensurate with requirements. Considerable arrears have to be overcome if the older established industries are to maintain their competitive position (luring the next few years. In engineering establishments a recent survey of the state of machine tools, which the Ministry of Commerce and Industry have carried out has disclosed the extent to which replacement arrears exist. Large arrears have also been revealed by recent studies into the condition of technical equipment in the sugar, cotton textile and jute industries.
204
SECOND FIVE YEAR PLAN
PRODUCTION LEVELS IN DIFFERENT INDUSTRIES 7. The plan had empbasised as the first priority the achievement of higher levels of production through the intensive utilisation of existing capacity. This object has been broadly fulfilled, and production targets have been achieved in cotton textiles (mill sec- tor), sugar and vegetable oils. Increase in production from unutilised capacity as well as from significant additions to production capacity have been secured more or less in accordance with the targets which were set in cement, paper, soda ash, caustic soda and other chemicals, rayon, bicycles and certain other industries. On the other hand, due to the non-fulfilment in investment programmes mentioned ealier, shortfalls in production have occurred in aluminium and nitrogenous fertilisers in the private sector. In one group of' industries shortfalls in production were on account of lack of adequate domestic demand. These include some of the light engineering industries such as diesel engines and pumps, radios, batteries, electric lamps and hurricane lanterns. In some industries, production remained below target levels on account of reduced export demand (jute manufactures) or low demand from indigenous industries which cater for exports (plywood for tea chest). Production of superphosphate scarcely exceeded 50 per cent. of the planned output. On a broad view it may be said that on the whole the results achieved during the first five year plan have been satisfactory. This is due in no small measure to the success of agricultural programmes, improvements in the availability of raw materials and to the assistance given by the State through appropriate fiscal and other adjustments in accordance with requirements at different periods such as protection to nascent industries, revision of import and export duties, etc.
8. Compared to the consumption levels estimated, earlier for different mineral and agricultural raw materials, it is expected that in the case of petroleum crude, the actual requirements will be considerably larger in the last year of the plan as a result of production being commenced by petroleum refineries earlier than had been anticipated In the case of rock phosphate, jute, iron ore and glass sands, on account of lower production levels in the consumer industries consumption will be less than had been estimated.
INDUSTRIAL PLANT AND MACHINERY AND CAPITAL GOODS 9. Valuable experience and skill have been gained (luring the first plan in the construction of industrial plant and machinery and in the production of capital goods. A new blast furnace and a contact sulphuric acid plant were almost completely designed and fabricated by Indian industry. As regards progress in the manufacture of industrial machinery, it is estimated that the value of output of different items of textile machinery produced in the country from about Rs. 4 crores during 1946-50 to about Rs. 11 crores during 1951-56. In the manufacture of cement machinery, beginnings have been made with the production of some of the component items needed by the industry. As regards jute mill machinery, production of spinning machinery has been developed recently by one of the engineering works. In the field of electrical equipment the output of two important items, namely electric motors and transformers, is estimated to have risen from a value of Rs. 150 lakhs in 1950-51 to about Rs. 450 lakhs in 1955-56. The output of locomotives in the private sector is expected to reach 50 units in 1955-56 valued at about Rs. 3 crores from practically negligible numbers at the commencement of the first plan. The value of output of indigenous machine tool industries is expected to rise to Rs. 1 crore as compared to Rs. 40 lakhs in 1950-51; new types of machine tools have also been developed. The capital goods sector may now be described as having emerged from the teething stage of development and gained sufficient experience to play a larger role during the second five year plan. For this purpose, plans have been formulated by some leading firms for taking up the development of more complex items of plant and machinery in technical collaboration with foreign firms.
REGULATION OF INDUSTRY 10. The two main instruments for securing the development of industries in conformity with the objectives set out in the plan were provided by the Industries (Development and Regulation) Act,1951, namely, licensing and the organisation of Development Councils for individual industries. The Act was amended in 1953 with a view to bringing additional industries with in the schedule. The Licensing Committee set up in accordance with the provisions of the Act functions as an advisory body to the Ministry of Commerce and Industry for the scrutiny of applications for new units and expansions of capacity in the scheduled industries. The review of followup action on approved projects has shown the need for evolving a better definition of the "effective steps" required to be taken by licensees within periods prescribed in advance.
11. Since 1952, Development Councils have been set up for ten industries, namely, Heavy Chemicals (Acids & Fertilizers), Heavy Chemicals (Alkalis), Internal Combustion Engines & Pumps, Bicycles, Sugar. Heavy Electrical Industries, Light Electrical Industries, Drugs and Pharmaceuticals, Artificial Silk and Woollen Manufactures., These Councils have been utilised for the formulation of programmes of developmen for the second five year plan.
205
PROGRAMME OF INDUSTRIAL DEVELOPMENT
PROGRAMMES IN THE SECOND PLAN 12. The first plan was regarded essentially as a period of preparation for large-scale industrial development in the country. The establishment of heavy industries entails a considerable Amount of preparatory work, embracing study of a 'wide range of problems relating to markets, availability of raw materials and fuels, choice of processes, costs of production and the building up at different levels of the technical and managerial experience required for running undertakings. It is also necessary to secure foreign technical assistance for the development of a number of industrial projects. Finally, the problems of how best to ensure the largescale outlay required for these projects is also and important matter to be gone into in these preparatory studies. In regard to a number of major undertakings visualised in the public and private sectors under the second five year plan these preparatory studies have been completed so that substantial development in the industrial sector is expected during the next five years.
In the context of industrialisation, important questions for consideration are (1) industrial policy with special reference of the rules to be assigned to the public and private sectors, and (2) industrial priorities.
INDUSTRIAL POLICY 13. Eight years ago the Government of India made a declaration of industrial policy in their resolution dated the 6th April, 1948. Since then the constitution of India has been enacted, guaranteeing certain fundamental rights And laying down Directive Principles of State Policy, and Parliament has accepted a socialist pattern of society as the objective. These important developments have necessitated a fresh statement of industrial policy, which has to be governed by the principles laid down in the Constitution and the objective of socialism. It follows that the State has to assume direct responsibility for the future development of industries over a wider area than before. There are, however, limiting factors which make it necessary at this stage to define the fields in which the State will assume exclusive responsibility or play of dominant role. After an examination of all relevant considerations, Government have made a fresh statement of policy on the 30th April, 1956 which will help speeding up industrialization and, in particular, to develop heavy industries and machine making industries, to expand the public sector, and to build up a large and growing co-operative sector Under there vised policy industries specified in Schedule 'A' will be the exclusive responsibility of the State while Schedule 'B' enumerates industries which will be progressively State-owned, but in which private enterprise will also be expected to supplement the efforts of the State. In regard to industries falling outside these schedules, their future development will, in general, be left to the initiative and enterprise of the private sector. Notwithstanding these demarcations it is always open to the State to undertake any type of industrial production. These as well as other aspects of revised policy have been dismissed at considerable length in Chapter II. The policy statement along with the schedules is appended to Chapter II.
INDUSTRIAL PRIORITIES 14. Within the framework of the policy set out above, the next phase in the expansion of industrial capacity has to be conceived in terms of the following priorities:-
(1) increased production of iron and steel and of heavy chemicals, including nitrogenous fertilizers, and development of the heavy engineering and machine building industries;
(2) expansion of capacity in respect of other developmental commodities and producer goods such as aluminium, cement, chemical pulp, dyestuffs and phosphatic fertilizers; and of essential drugs;
(3) modernisation and re-equipment of important national industries which have already come into existence, such as Jute and cotton text-Lies and sugar;
(4) fuller utilisation of existing installed capacity in industries where there are wide gaps between capacity and production; and
(5) expansion of capacity for consumer goods keeping in view the requirements of common production programmes and the production targets for the industry.
The considerations underlying these priorities are explained more fully in the following paragraphs.
15. The expansion of the iron and steel industry has obviously the highest priority since, more than any other industrial product, the levels of production of these materials determine the tempo of progress of the economy as a whole. conditions in India are favourable for securing the protraction of iron and steel at costs which are low in comparison with those of most other countries.
16. Heavy engineering industries are a natural coro- llary of iron and steel works. The high priority accorded to them arises both on this account and from the fact that they will provide from within the country a
206
SECOND FIVE YEAR PLAN
wide range of industrial machinery and capital equipment, such as locomotives for railways and power plants for the generation of electricity. In the absence of facilities for their manufacture, a developing economy has to depend on foreign sources of supply with attendant, difficulties and uncertainties. To facilitate the production of the wide range of items going into the manufacture of plants intended to turn out a product like steel. diverse types of fabricating facilities have to be created in a large number of establishments. In other words, heavy engineering industries and workshops in the country have to be generally strengthened for undertaking such tasks as the construction of steel plants, fertilizer factories etc. In this context the creation of certain basic facilities such as the establishment of heavy foundries, forges and structural shops is absolutely necessary. It is, therefore, proposed that the establishment of these facilities, which constitute an essential and primary phase of development for the manufacture of heavy industrial machinery in the country, should be undertaken at an early date. These developments have a priority second only to that of expansion of the steel industry.
An important pre-requisite for fostering the production of heavy industrial machinery is the establishment of organisations which can undertake the task of preparing designs for plant and equipment required by heavy indsutries. Preliminary steps are being taken for the setting up of such an organisation for the fertiliser industry. Apart from other steps that may be taken to secure these facilities in a general way, it is important that Indian personnel should be intimately associated with all aspects of development work on projects in the public sector, so that designing and fabrication can be undertaken within the country as early as possible.
17. The high priority assigned to the expansion of capacity for the production of nitrogenous fertilizers arises from the growing need for fertilizers for carrying out the agricultural programme which must continue to be of basic importance in the economic development of the country.
18. Cement ranks next in importance to iron and steel as a developmental commodity and hence a high place has to be given to it in the scheme of priorities.
19. Some progress has been made during the first plan in the modernisation and re-equipment of jute and cotton textile mills. But considerable arrears of replacement still exist in these two industries, whose role in the country's economy and as carriers of foreign exchange cannot be minimised. Keeping in view the developments which have taken place in India in recent years and the progress made in these two industries in other countries, it would be difficult to maintain expanding export markets in the face of competition unless an extensive programme of renovation is undertaken. In the circumstances, a high priority has been given to modernisation programmes for jute and cotton textile industries.
20. Reference has been made earlier to the levels of utilisation of installed capacity in some of the major industries. It is a basic principal of planned development that capital resources, which are scarce in relation to competing demands should be conserved, and that additional production should be achieved to the maximum extent possible through greater use of idle capacity. While this objective should be given the importance that it deserves, the technological and economic issues involved in the assessment of idle capacity which is in fact available for use have to he gone into carefully in individual industries.
21. In cases, where the need and the scope for the expansion of capacity for consumer goods is disclosed, on the basis of an examination of relevant factors like domestic demand, export possibilities, availability of raw materials etc., necessary developments have to permitted and even encouraged. But in the interest of providing, larger employment opportunities, the expansion of capacity of several of the large-scale consumer goods industries has to be worked out in terms of common production programmes and the targets' adopted for the decentralised sector of industry.
PROGRAMMES IN THE PUBLIC SECTOR 22. Iron & Steel-In conformity with the priority given to iron and steel, the second five year plan envisages the construction of three steel plants of one million tons ingot capacity each in the public sector and the provision of facilities in one of these for the production of 350,000 tons of foundry grade pig iron.
The plant to be located at Rourkela is expected to entail an outlay of about Rs. 128 crores* during the period 1956-61 and to produce 720,000 tons of flat products of steel hot and cold rolled. It is being designed to operate the L. D. process (oxygen blowing in steel production) and will be equipped for the recovery of crude benzol, coal-tar and ammonia. It is proposed that the hydrogen from the coke-oven gases and the nitrogen from the liquid air plant should be harnessed for the manufacture of nitrolimestone fertilizer at Rourkela taking advantage of the surplus coke-oven gas expected to be available as a result of the adoption of the L.D. process.
The second plant to be located at Bhilai in Madhya Pradesh and estimated to cost about Rs. 110 crores* is expected to povide 770,000 tons of saleable steel, heavy