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A Watt steam engine, the steam engine fuelled primarily by coal that propelled the
Industrial Revolution in Great Britain and the world.[1]
The Industrial Revolution was a period from the 19th to the early 20th century where
major changes in agriculture, manufacturing, mining, and transport had a profound effect
on the socioeconomic and cultural conditions in the United Kingdom. The changes
subsequently spread throughout Europe, North America, and eventually the world. The
onset of the Industrial Revolution marked a major turning point in human history; almost
every aspect of daily life was eventually influenced in some way.
Starting in the later part of the 18th century there began a transition in parts of Great
Britain's previously manual labour and draft-animal–based economy towards machine-
based manufacturing. It started with the mechanisation of the textile industries, the
development of iron-making techniques and the increased use of refined coal.[2] Trade
expansion was enabled by the introduction of canals, improved roads and railways. The
introduction of steam power fuelled primarily by coal, wider utilisation of water wheels
and powered machinery (mainly in textile manufacturing) underpinned the dramatic
increases in production capacity.[3] The development of all-metal machine tools in the
first two decades of the 19th century facilitated the manufacture of more production
machines for manufacturing in other industries. The effects spread throughout Western
Europe and North America during the 19th century, eventually affecting most of the
world, a process that continues as industrialisation. The impact of this change on society
was enormous.[4]
The First Industrial Revolution, which began in the 18th century, merged into the Second
Industrial Revolution around 1850, when technological and economic progress gained
momentum with the development of steam-powered ships, railways, and later in the 19th
century with the internal combustion engine and electrical power generation. The period
of time covered by the Industrial Revolution varies with different historians. Eric
Hobsbawm held that it 'broke out' in Britain in the 1780s and was not fully felt until the
1830s or 1840s,[5] while T. S. Ashton held that it occurred roughly between 1760 and
1830.[6] Some twentieth century historians such as John Clapham and Nicholas Crafts
have argued that the process of economic and social change took place gradually and the
term revolution is not a true description of what took place. This is still a subject of
debate among historians.[7][8] GDP per capita was broadly stable before the Industrial
Revolution and the emergence of the modern capitalist economy.[9] The Industrial
Revolution began an era of per-capita economic growth in capitalist economies.[10]
Historians agree that the Industrial Revolution was one of the most important events in
history.[11]
Name history
Credit for popularizing the term may be given to Arnold Toynbee, whose lectures given
in 1881 gave a detailed account of it.
The earliest use of the term "Industrial Revolution" yet located, according to historian
David Landes, was a letter of 6 July 1799 by French envoy Louis-Guillaume Otto [3].
The term Industrial Revolution applied to technological change was becoming more
common by the late 1830s, as in Louis-Auguste Blanqui description in 1837 of la
révolution industrielle. Friedrich Engels in The Condition of the Working Class in
England in 1844 spoke of "an industrial revolution, a revolution which at the same time
changed the whole of civil society." In his book Keywords: A Vocabulary of Culture and
Society, Raymond Williams states in the entry for Industry: The idea of a new social
order based on major industrial change was clear in Southey and Owen, between 1811
and 1818, and was implicit as early as Blake in the early 1790s and Wordsworth at the
turn of the century.
Causes
Regional GDP per capita changed very little for most of human history before the
Industrial Revolution. (The empty areas mean no data, not very low levels. There is data
for the years 1, 1000, 1500, 1600, 1700, 1820, 1900, and 2003)
The causes of the Industrial Revolution were complicated and remain a topic for debate,
with some historians believing the Revolution was an outgrowth of social and
institutional changes brought by the end of feudalism in Britain after the English Civil
War in the 17th century. As national border controls became more effective, the spread of
disease was lessened, thereby preventing the epidemics common in previous times.[12]
The percentage of children who lived past infancy rose significantly, leading to a larger
workforce. The Enclosure movement and the British Agricultural Revolution made food
production more efficient and less labour-intensive, forcing the surplus population who
could no longer find employment in agriculture into cottage industry, for example
weaving, and in the longer term into the cities and the newly developed factories.[13] The
colonial expansion of the 17th century with the accompanying development of
international trade, creation of financial markets and accumulation of capital are also
cited as factors, as is the scientific revolution of the 17th century.
Until the 1980s, it was universally believed by academic historians that technological
innovation was the heart of the Industrial Revolution and the key enabling technology
was the invention and improvement of the steam engine.[14] However, recent research into
the Marketing Era has challenged the traditional, supply-oriented interpretation of the
Industrial Revolution.[15]
Lewis Mumford has proposed that the Industrial Revolution had its origins in the early
Middle Ages, much earlier than most estimates.[16] He explains that the model for
standardised mass production was the printing press and that "the archetypal model for
the industrial era was the clock". He also cites the monastic emphasis on order and time-
keeping, as well as the fact that medieval cities had at their centre a church with bell
ringing at regular intervals as being necessary precursors to a greater synchronisation
necessary for later, more physical, manifestations such as the steam engine.
The presence of a large domestic market should also be considered an important driver of
the Industrial Revolution, particularly explaining why it occurred in Britain. In other
nations, such as France, markets were split up by local regions, which often imposed tolls
and tariffs on goods traded amongst them.[17]
One question of active interest to historians is why the industrial revolution occurred in
Europe and not in other parts of the world in the 18th century, particularly China, India,
and the Middle East, or at other times like in Classical Antiquity[20] or the Middle Ages.[21]
Numerous factors have been suggested, including ecology, government, and culture.[22]
However, most historians contest the assertion that Europe and China were roughly equal
because modern estimates of per capita income on Western Europe in the late 18th
century are of roughly 1,500 dollars in purchasing power parity (and Britain had a per
capita income of nearly 2,000 dollars[23]) whereas China, by comparison, had only 450
dollars. Also, the average interest rate was about 5% in Britain and over 30% in China,
which illustrates how capital was much more abundant in Britain.
Some historians such as David Landes[24] and Max Weber credit the different belief
systems in China and Europe with dictating where the revolution occurred. The religion
and beliefs of Europe were largely products of Judaeo-Christianity, and Greek thought.
Conversely, Chinese society was founded on men like Confucius, Mencius, Han Feizi
(Legalism), Lao Tzu (Taoism), and Buddha (Buddhism). Whereas the Europeans
believed that the universe was governed by rational and eternal laws, the East, believed
that the universe was in constant flux and, for Buddhists and Taoists, not capable of being
rationally understood.
Regarding India, the Marxist historian Rajani Palme Dutt said: "The capital to finance the
Industrial Revolution in India instead went into financing the Industrial Revolution in
England."[25] In contrast to China, India was split up into many competing kingdoms, with
the three major ones being the Marathas, Sikhs and the Mughals. In addition, the
economy was highly dependent on two sectors—agriculture of subsistence and cotton,
and technical innovation was non-existent. The vast amounts of wealth were stored away
in palace treasuries by totalitarian monarchs prior to the British take over.
The debate about the start of the Industrial Revolution also concerns the massive lead that
Great Britain had over other countries. Some have stressed the importance of natural or
financial resources that Britain received from its many overseas colonies or that profits
from the British slave trade between Africa and the Caribbean helped fuel industrial
investment. It has been pointed out, however, that slave trade and West Indian plantations
provided only 5% of the British national income during the years of the Industrial
Revolution.[26]
Alternatively, the greater liberalisation of trade from a large merchant base may have
allowed Britain to produce and use emerging scientific and technological developments
more effectively than countries with stronger monarchies, particularly China and Russia.
Britain emerged from the Napoleonic Wars as the only European nation not ravaged by
financial plunder and economic collapse, and possessing the only merchant fleet of any
useful size (European merchant fleets having been destroyed during the war by the Royal
Navy[27]). Britain's extensive exporting cottage industries also ensured markets were
already available for many early forms of manufactured goods. The conflict resulted in
most British warfare being conducted overseas, reducing the devastating effects of
territorial conquest that affected much of Europe. This was further aided by Britain's
geographical position—an island separated from the rest of mainland Europe.
Another theory is that Britain was able to succeed in the Industrial Revolution due to the
availability of key resources it possessed. It had a dense population for its small
geographical size. Enclosure of common land and the related agricultural revolution
made a supply of this labour readily available. There was also a local coincidence of
natural resources in the North of England, the English Midlands, South Wales and the
Scottish Lowlands. Local supplies of coal, iron, lead, copper, tin, limestone and water
power, resulted in excellent conditions for the development and expansion of industry.
Also, the damp, mild weather conditions of the North West of England provided ideal
conditions for the spinning of cotton, providing a natural starting point for the birth of the
textiles industry.
The stable political situation in Britain from around 1688, and British society's greater
receptiveness to change (compared with other European countries) can also be said to be
factors favouring the Industrial Revolution. In large part due to the Enclosure movement,
the peasantry was destroyed as significant source of resistance to industrialisation, and
the landed upper classes developed commercial interests that made them pioneers in
removing obstacles to the growth of capitalism. [28] (This point is also made in Hilaire
Belloc's The Servile State.)
Another theory is that the British advance was due to the presence of an entrepreneurial
class which believed in progress, technology and hard work.[29] The existence of this class
is often linked to the Protestant work ethic (see Max Weber) and the particular status of
the Baptists and the dissenting Protestant sects, such as the Quakers and Presbyterians
that had flourished with the English Civil War. Reinforcement of confidence in the rule
of law, which followed establishment of the prototype of constitutional monarchy in
Britain in the Glorious Revolution of 1688, and the emergence of a stable financial
market there based on the management of the national debt by the Bank of England,
contributed to the capacity for, and interest in, private financial investment in industrial
ventures.
Dissenters found themselves barred or discouraged from almost all public offices, as well
as education at England's only two universities at the time (although dissenters were still
free to study at Scotland's four universities). When the restoration of the monarchy took
place and membership in the official Anglican Church became mandatory due to the Test
Act, they thereupon became active in banking, manufacturing and education. The
Unitarians, in particular, were very involved in education, by running Dissenting
Academies, where, in contrast to the universities of Oxford and Cambridge and schools
such as Eton and Harrow, much attention was given to mathematics and the sciences—
areas of scholarship vital to the development of manufacturing technologies.
Historians sometimes consider this social factor to be extremely important, along with the
nature of the national economies involved. While members of these sects were excluded
from certain circles of the government, they were considered fellow Protestants, to a
limited extent, by many in the middle class, such as traditional financiers or other
businessmen. Given this relative tolerance and the supply of capital, the natural outlet for
the more enterprising members of these sects would be to seek new opportunities in the
technologies created in the wake of the scientific revolution of the 17th century.
The only surviving example of a Spinning Mule built by the inventor Samuel Crompton
The commencement of the Industrial Revolution is closely linked to a small number of
innovations,[30] made in the second half of the 18th century:
These represent three 'leading sectors', in which there were key innovations, which
allowed the economic take off by which the Industrial Revolution is usually defined. This
is not to belittle many other inventions, particularly in the textile industry. Without some
earlier ones, such as spinning jenny and flying shuttle in the textile industry and the
smelting of pig iron with coke, these achievements might have been impossible. Later
inventions such as the power loom and Richard Trevithick's high pressure steam engine
were also important in the growing industrialisation of Britain. The application of steam
engines to powering cotton mills and ironworks enabled these to be built in places that
were most convenient because other resources were available, rather than where there
was water to power a watermill.
In the textile sector, such mills became the model for the organisation of human labour in
factories, epitomised by Cottonopolis, the name given to the vast collection of cotton
mills, factories and administration offices based in Manchester. The assembly line system
greatly improved efficiency, both in this and other industries. With a series of men
trained to do a single task on a product, then having it moved along to the next worker,
the number of finished goods also rose significantly.
Also important was the 1756 rediscovery of concrete (based on hydraulic lime mortar) by
the British engineer John Smeaton, which had been lost for 13 centuries.[31]
Transfer of knowledge
Knowledge of new innovation was spread by several means. Workers who were trained
in the technique might move to another employer or might be poached. A common
method was for someone to make a study tour, gathering information where he could.
During the whole of the Industrial Revolution and for the century before, all European
countries and America engaged in study-touring; some nations, like Sweden and France,
even trained civil servants or technicians to undertake it as a matter of state policy. In
other countries, notably Britain and America, this practice was carried out by individual
manufacturers anxious to improve their own methods. Study tours were common then, as
now, as was the keeping of travel diaries. Records made by industrialists and technicians
of the period are an incomparable source of information about their methods.
Another means for the spread of innovation was by the network of informal philosophical
societies, like the Lunar Society of Birmingham, in which members met to discuss
'natural philosophy' (i.e. science) and often its application to manufacturing. The Lunar
Society flourished from 1765 to 1809, and it has been said of them, "They were, if you
like, the revolutionary committee of that most far reaching of all the eighteenth century
revolutions, the Industrial Revolution".[32] Other such societies published volumes of
proceedings and transactions. For example, the London-based Royal Society of Arts
published an illustrated volume of new inventions, as well as papers about them in its
annual Transactions.
Periodical publications about manufacturing and technology began to appear in the last
decade of the 18th century, and many regularly included notice of the latest patents.
Foreign periodicals, such as the Annales des Mines, published accounts of travels made
by French engineers who observed British methods on study tours.
Textile manufacture
Model of the spinning jenny in a museum in Wuppertal, Germany. The spinning jenny
was one of the innovations that started the revolution
In the early 18th century, British textile manufacture was based on wool which was
processed by individual artisans, doing the spinning and weaving on their own premises.
This system is called a cottage industry. Flax and cotton were also used for fine materials,
but the processing was difficult because of the pre-processing needed, and thus goods in
these materials made only a small proportion of the output.
Use of the spinning wheel and hand loom restricted the production capacity of the
industry, but incremental advances increased productivity to the extent that manufactured
cotton goods became the dominant British export by the early decades of the 19th
century. India was displaced as the premier supplier of cotton goods.
Lewis Paul patented the Roller Spinning machine and the flyer-and-bobbin system for
drawing wool to a more even thickness, developed with the help of John Wyatt in
Birmingham. Paul and Wyatt opened a mill in Birmingham which used their new rolling
machine powered by a donkey. In 1743, a factory was opened in Northampton with fifty
spindles on each of five of Paul and Wyatt's machines. This operated until about 1764. A
similar mill was built by Daniel Bourn in Leominster, but this burnt down. Both Lewis
Paul and Daniel Bourn patented carding machines in 1748. Using two sets of rollers that
travelled at different speeds, it was later used in the first cotton spinning mill. Lewis's
invention was later developed and improved by Richard Arkwright in his water frame
and Samuel Crompton in his spinning mule.
Other inventors increased the efficiency of the individual steps of spinning (carding,
twisting and spinning, and rolling) so that the supply of yarn increased greatly, which fed
a weaving industry that was advancing with improvements to shuttles and the loom or
'frame'. The output of an individual labourer increased dramatically, with the effect that
the new machines were seen as a threat to employment, and early innovators were
attacked and their inventions destroyed.
To capitalise upon these advances, it took a class of entrepreneurs, of which the most
famous is Richard Arkwright. He is credited with a list of inventions, but these were
actually developed by people such as Thomas Highs and John Kay; Arkwright nurtured
the inventors, patented the ideas, financed the initiatives, and protected the machines. He
created the cotton mill which brought the production processes together in a factory, and
he developed the use of power—first horse power and then water power—which made
cotton manufacture a mechanised industry. Before long steam power was applied to drive
textile machinery.
Metallurgy
The Reverberatory Furnace could produce wrought iron using mined coal. The burning
coal remained separate from the iron ore and so did not contaminate the iron with
impurities like sulphur. This opened the way to increased iron production.
The major change in the metal industries during the era of the Industrial Revolution was
the replacement of organic fuels based on wood with fossil fuel based on coal. Much of
this happened somewhat before the Industrial Revolution, based on innovations by Sir
Clement Clerke and others from 1678, using coal reverberatory furnaces known as
cupolas. These were operated by the flames, which contained carbon monoxide, playing
on the ore and reducing the oxide to metal. This has the advantage that impurities (such
as sulphur) in the coal do not migrate into the metal. This technology was applied to lead
from 1678 and to copper from 1687. It was also applied to iron foundry work in the
1690s, but in this case the reverberatory furnace was known as an air furnace. The
foundry cupola is a different (and later) innovation.
This was followed by Abraham Darby, who made great strides using coke to fuel his
blast furnaces at Coalbrookdale in 1709. However, the coke pig iron he made was used
mostly for the production of cast iron goods such as pots and kettles. He had the
advantage over his rivals in that his pots, cast by his patented process, were thinner and
cheaper than theirs. Coke pig iron was hardly used to produce bar iron in forges until the
mid 1750s, when his son Abraham Darby II built Horsehay and Ketley furnaces (not far
from Coalbrookdale). By then, coke pig iron was cheaper than charcoal pig iron.
Bar iron for smiths to forge into consumer goods was still made in finery forges, as it
long had been. However, new processes were adopted in the ensuing years. The first is
referred to today as potting and stamping, but this was superseded by Henry Cort's
puddling process. From 1785, perhaps because the improved version of potting and
stamping was about to come out of patent, a great expansion in the output of the British
iron industry began. The new processes did not depend on the use of charcoal at all and
were therefore not limited by charcoal sources.
Up to that time, British iron manufacturers had used considerable amounts of imported
iron to supplement native supplies. This came principally from Sweden from the mid
17th century and later also from Russia from the end of the 1720s. However, from 1785,
imports decreased because of the new iron making technology, and Britain became an
exporter of bar iron as well as manufactured wrought iron consumer goods.
Since iron was becoming cheaper and more plentiful, it also became a major structural
material following the building of the innovative The Iron Bridge in 1778 by Abraham
Darby III.
Mining
Coal mining in Britain, particularly in South Wales started early. Before the steam
engine, pits were often shallow bell pits following a seam of coal along the surface,
which were abandoned as the coal was extracted. In other cases, if the geology was
favourable, the coal was mined by means of an adit or drift mine driven into the side of a
hill. Shaft mining was done in some areas, but the limiting factor was the problem of
removing water. It could be done by hauling buckets of water up the shaft or to a sough
(a tunnel driven into a hill to drain a mine). In either case, the water had to be discharged
into a stream or ditch at a level where it could flow away by gravity. The introduction of
the steam engine greatly facilitated the removal of water and enabled shafts to be made
deeper, enabling more coal to be extracted. These were developments that had begun
before the Industrial Revolution, but the adoption of James Watt's more efficient steam
engine from the 1770s reduced the fuel costs of engines, making mines more profitable.
Coal mining was very dangerous owing to the presence of firedamp in many coal seams.
Some degree of safety was provided by the safety lamp which was invented in 1816 by
Sir Humphry Davy and independently by George Stephenson. However, the lamps
proved a false dawn because they became unsafe very quickly and provided a weak light.
Firedamp explosions continued, often setting off coal dust explosions, so casualties grew
during the entire nineteenth century. Conditions of work were very poor, with a high
casualty rate from rock falls.
A fundamental change in working principles was brought about by James Watt. With the
close collaboration Matthew Boulton, he had succeeded by 1778 in perfecting his steam
engine, which incorporated a series of radical improvements, notably the closing off of
the upper part of the cylinder thereby making the low pressure steam drive the top of the
piston instead of the atmosphere, use of a steam jacket and the celebrated separate steam
condenser chamber. All this meant that a more constant temperature could be maintained
in the cylinder and that engine efficiency no longer varied according to atmospheric
conditions. These improvements increased engine efficiency by a factor of about five,
saving 75% on coal costs.
Nor could the atmospheric engine be easily adapted to drive a rotating wheel, although
Wasborough and Pickard did succeed in doing so towards 1780. However by 1783 the
more economical Watt steam engine had been fully developed into a double-acting
rotative type, which meant that it could be used to directly drive the rotary machinery of a
factory or mill. Both of Watt's basic engine types were commercially very successful, and
by 1800, the firm Boulton & Watt had constructed 496 engines, with 164 driving
reciprocating pumps, 24 serving blast furnaces, and 308 powering mill machinery; most
of the engines generated from 5 to 10 hp (7.5 kW).
The development of machine tools, such as the lathe, planing and shaping machines
powered by these engines, enabled all the metal parts of the engines to be easily and
accurately cut and in turn made it possible to build larger and more powerful engines.
Until about 1800, the most common pattern of steam engine was the beam engine, built
as an integral part of a stone or brick engine-house, but soon various patterns of self-
contained portative engines (readily removable, but not on wheels) were developed, such
as the table engine. Towards the turn of the 19th century, the Cornish engineer Richard
Trevithick, and the American, Oliver Evans began to construct higher pressure non-
condensing steam engines, exhausting against the atmosphere. This allowed an engine
and boiler to be combined into a single unit compact enough to be used on mobile road
and rail locomotives and steam boats.
In the early 19th century after the expiration of Watt's patent, the steam engine underwent
many improvements by a host of inventors and engineers.
Transport in Britain
At the beginning of the Industrial Revolution, inland transport was by navigable rivers
and roads, with coastal vessels employed to move heavy goods by sea. Railways or
wagon ways were used for conveying coal to rivers for further shipment, but canals had
not yet been constructed. Animals supplied all of the motive power on land, with sails
providing the motive power on the sea.
The Industrial Revolution improved Britain's transport infrastructure with a turnpike road
network, a canal, and waterway network, and a railway network. Raw materials and
finished products could be moved more quickly and cheaply than before. Improved
transportation also allowed new ideas to spread quickly.
Coastal sail
Sailing vessels had long been used for moving goods round the British coast. The trade
transporting coal to London from Newcastle had begun in mediaeval times. The transport
of goods coastwise by sea within Britain was common during the Industrial Revolution,
as for centuries before. This became less important with the growth of the railways at the
end of the period.
Navigable rivers
All the major rivers of the United Kingdom were navigable during the Industrial
Revolution. Some were anciently navigable, notably the Severn, Thames, and Trent.
Some were improved, or had navigation extended upstream, but usually in the period
before the Industrial Revolution, rather than during it.
The Severn, in particular, was used for the movement of goods to the Midlands which
had been imported into Bristol from abroad, and for the export of goods from centres of
production in Shropshire (such as iron goods from Coalbrookdale) and the Black
Country. Transport was by way of trows—small sailing vessels which could pass the
various shallows and bridges in the river. The trows could navigate the Bristol Channel to
the South Wales ports and Somerset ports, such as Bridgwater and even as far as France.
Canals began to be built in the late eighteenth century to link the major manufacturing
centres in the Midlands and north with seaports and with London, at that time itself the
largest manufacturing centre in the country. Canals were the first technology to allow
bulk materials to be easily transported across country. A single canal horse could pull a
load dozens of times larger than a cart at a faster pace. By the 1820s, a national network
was in existence. Canal construction served as a model for the organisation and methods
later used to construct the railways. They were eventually largely superseded as
profitable commercial enterprises by the spread of the railways from the 1840s on.
Britain's canal network, together with its surviving mill buildings, is one of the most
enduring features of the early Industrial Revolution to be seen in Britain.
Roads
Much of the original British road system was poorly maintained by thousands of local
parishes, but from the 1720s (and occasionally earlier) turnpike trusts were set up to
charge tolls and maintain some roads. Increasing numbers of main roads were turnpiked
from the 1750s to the extent that almost every main road in England and Wales was the
responsibility of some turnpike trust. New engineered roads were built by John Metcalf,
Thomas Telford and John Macadam. The major turnpikes radiated from London and
were the means by which the Royal Mail was able to reach the rest of the country. Heavy
goods transport on these roads was by means of slow, broad wheeled, carts hauled by
teams of horses. Lighter goods were conveyed by smaller carts or by teams of pack horse.
Stage coaches carried the rich, and the less wealthy could pay to ride on carriers carts.
Railways
A replica of the early locomotive Sans Pareil at a 1980 restaging of the Rainhill Trials of
1829
Wagonways for moving coal in the mining areas had started in the 17th century and were
often associated with canal or river systems for the further movement of coal. These were
all horse drawn or relied on gravity, with a stationary steam engine to haul the wagons
back to the top of the incline. The first applications of the steam locomotive were on
wagon or plate ways (as they were then often called from the cast iron plates used).
Horse-drawn public railways did not begin until the early years of the 19th century.
Steam-hauled public railways began with the Stockton and Darlington Railway in 1825
and the Liverpool and Manchester Railway in 1830. Construction of major railways
connecting the larger cities and towns began in the 1830s but only gained momentum at
the very end of the first Industrial Revolution.
After many of the workers had completed the railways, they did not return to their rural
lifestyles but instead remained in the cities, providing additional workers for the factories.
Railways helped Britain's trade enormously, providing a quick and easy way of transport
and an easy way to transport mail and news.
Social effects
In terms of social structure, the Industrial Revolution witnessed the triumph of a middle
class of industrialists and businessmen over a landed class of nobility and gentry.
Ordinary working people found increased opportunities for employment in the new mills
and factories, but these were often under strict working conditions with long hours of
labour dominated by a pace set by machines. However, harsh working conditions were
prevalent long before the Industrial Revolution took place. Pre-industrial society was
very static and often cruel—child labour, dirty living conditions, and long working hours
were just as prevalent before the Industrial Revolution.[38]
Industrialisation led to the creation of the factory. Arguably the first was John Lombe's
water-powered silk mill at Derby, operational by 1721. However, the rise of the factory
came somewhat later when cotton spinning was mechanised.
The factory system was largely responsible for the rise of the modern city, as large
numbers of workers migrated into the cities in search of employment in the factories.
Nowhere was this better illustrated than the mills and associated industries of
Manchester, nicknamed "Cottonopolis", and arguably the world's first industrial city. For
much of the 19th century, production was done in small mills, which were typically
water-powered and built to serve local needs. Later each factory would have its own
steam engine and a chimney to give an efficient draft through its boiler.
The transition to industrialisation was not without difficulty. For example, a group of
English workers known as Luddites formed to protest against industrialisation and
sometimes sabotaged factories.
In other industries the transition to factory production was not so divisive. Some
industrialists themselves tried to improve factory and living conditions for their workers.
One of the earliest such reformers was Robert Owen, known for his pioneering efforts in
improving conditions for workers at the New Lanark mills, and often regarded as one of
the key thinkers of the early socialist movement.
By 1746, an integrated brass mill was working at Warmley near Bristol. Raw material
went in at one end, was smelted into brass and was turned into pans, pins, wire, and other
goods. Housing was provided for workers on site. Josiah Wedgwood and Matthew
Boulton were other prominent early industrialists, who employed the factory system.
Child labour
The Industrial Revolution led to a population increase, but the chance of surviving
childhood did not improve throughout the industrial revolution (although infant mortality
rates were reduced markedly).[39][40] There was still limited opportunity for education, and
children were expected to work. Employers could pay a child less than an adult even
though their productivity was comparable; there was no need for strength to operate an
industrial machine, and since the industrial system was completely new there were no
experienced adult labourers. This made child labour the labour of choice for
manufacturing in the early phases of the Industrial Revolution between the 18th and 19th
centuries.
Child labour had existed before the Industrial Revolution, but with the increase in
population and education it became more visible. Many children were forced to work in
relatively bad conditions for much lower pay than their elders.[41]
Reports were written detailing some of the abuses, particularly in the coal mines[42] and
textile factories[43] and these helped to popularise the children's plight. The public outcry,
especially among the upper and middle classes, helped stir change in the young workers'
welfare.
Politicians and the government tried to limit child labour by law, but factory owners
resisted; some felt that they were aiding the poor by giving their children money to buy
food to avoid starvation, and others simply welcomed the cheap labour. In 1833 and
1844, the first general laws against child labour, the Factory Acts, were passed in
England: Children younger than nine were not allowed to work, children were not
permitted to work at night, and the work day of youth under the age of 18 was limited to
twelve hours. Factory inspectors supervised the execution of the law. About ten years
later, the employment of children and women in mining was forbidden. These laws
decreased the number of child labourers; however, child labour remained in Europe up to
the 20th century.[citation needed]
Housing
Over London by Rail Gustave Doré c. 1870. Shows the densely populated and polluted
environments created in the new industrial cities
Living conditions during the Industrial Revolution varied from the splendour of the
homes of the owners to the squalor of the lives of the workers. Cliffe Castle, Keighley, is
a good example of how the newly rich chose to live. This is a large home modelled
loosely on a castle with towers and garden walls. The home is very large and was
surrounded by a massive garden, the Cliffe Castle is now open to the public as a museum.
Poor people lived in very small houses in cramped streets. These homes would share
toilet facilities, have open sewers and would be at risk of damp. Disease was spread
through a contaminated water supply. Conditions did improve during the 19th century as
public health acts were introduced covering things such as sewage, hygiene and making
some boundaries upon the construction of homes. Not everybody lived in homes like
these. The Industrial Revolution created a larger middle class of professionals such as
lawyers and doctors. The conditions for the poor improved over the course of the 19th
century because of government and local plans which led to cities becoming cleaner
places, but life had not been easy for the poor before industrialisation. However, as a
result of the Revolution, huge numbers of the working class died due to diseases
spreading through the cramped living conditions. Chest diseases from the mines, cholera
from polluted water and typhoid were also extremely common, as was smallpox.
Accidents in factories with child and female workers were regular. Dickens' novels
illustrate this; even some government officials were horrified by what they saw [citation needed].
Strikes and riots by workers were also relatively common.
Other effects
During the Industrial Revolution, the life expectancy of children increased dramatically.
The percentage of the children born in London who died before the age of five decreased
from 74.5% in 1730–1749 to 31.8% in 1810–1829.[39] Also, there was a significant
increase in worker wages during the period 1813-1913.[45][46][47]
According to Robert Hughes in The Fatal Shore, the population of England and Wales,
which had remained steady at 6 million from 1700 to 1740, rose dramatically after 1740.
The population of England had more than doubled from 8.3 million in 1801 to 16.8
million in 1851 and, by 1901, had nearly doubled again to 30.5 million.[48]
Romanticism
During the Industrial Revolution an intellectual and artistic hostility towards the new
industrialisation developed. This was known as the Romantic movement. Its major
exponents in English included the artist and poet William Blake and poets William
Wordsworth, Samuel Taylor Coleridge, John Keats, Byron and Percy Bysshe Shelley.
The movement stressed the importance of "nature" in art and language, in contrast to
"monstrous" machines and factories; the "Dark satanic mills" of Blake's poem "And did
those feet in ancient time". Mary Shelley's novel Frankenstein reflected concerns that
scientific progress might be two-edged.
Labour economics
Labour economics seeks to understand the functioning and dynamics of the market for
labour. Labour markets function through the interaction of workers and employers.
Labour economics looks at the suppliers of labour services (workers), the demanders of
labour services (employers), and attempts to understand the resulting pattern of wages,
employment, and income.
In economics, labour (or labor) is a measure of the work done by human beings. It is
conventionally contrasted with such other factors of production as land and capital. There
are theories which have developed a concept called human capital (referring to the skills
that workers possess, not necessarily their actual work), although there are also counter
posing macro-economic system theories that think human capital is a contradiction in
terms.
Contents
• 1 Compensation and measurement
• 2 Demand for labour and wage determination
• 3 Marxian economics
• 4 Two ways of analysing labour markets
• 5 The macroeconomics of labour markets
• 6 Neoclassical microeconomics of labour markets
o 6.1 Neoclassical microeconomic model — Supply
o 6.2 Neoclassical microeconomic model — Demand
o 6.3 Neoclassical microeconomic model — Equilibrium
• 7 Information Approaches
• 8 Search models
• 9 Criticisms of labour economics and recent research
• 10 See also
• 11 Notes
• 12 References
• 13 External links
Wage differences exist, particularly in mixed and fully/partly flexible labour markets. For
example, the wages of a doctor and a port cleaner, both employed by the NHS, differ
greatly. But why? There are many factors concerning this issue. This includes the MRP
(see above) of the worker. A doctor's MRP is far greater than that of the port cleaner. In
addition, the barriers to becoming a doctor are far greater than that of becoming a port
cleaner. For example to become a doctor takes a lot of education and training which is
costly, and only those who are socially and intellectually advantaged can succeed in such
a demanding profession. The port cleaner however requires minimal training. The supply
of doctors therefore would be much more inelastic than the supply of port cleaners. The
demand would also be inelastic as there is a high demand for doctors, so the NHS will
pay higher wage rates to attract the profession.
Marxian economics
In Marxian economics, the aim of labour economics is to provide insight and guidance
for the optimal allocation of cooperative human labour. However, this optimality is not
simply viewed as a "technical variable" as in micro-economics, because workers are not
simply a "factor of production", but human beings who organize themselves and each
other. Forms of labour cooperation can be oppressive, irrational and exploitative, or they
can be beneficial, rational, or effective. That is to say, labour economics has a political
dimension insofar as different workers and employers have different interests. There is a
workers' point of view and an employer's point of view.[citation needed]
• Frictional unemployment — This reflects the fact that it takes time for people to
find and settle into new jobs. If 12 individuals each take one month before they
start a new job, the aggregate unemployment statistics will record this as a single
unemployed worker. Technological change often reduces frictional
unemployment, for example: the internet made job searches cheaper and more
comprehensive.
• Structural unemployment — This reflects a mismatch between the skills and
other attributes of the labour force and those demanded by employers. If 4
workers each take six months off to re-train before they start a new job, the
aggregate unemployment statistics will record this as two unemployed workers.
Technological change often increases structural unemployment, for example:
technological change might require workers to re-train.
• Natural rate of unemployment — This is the summation of frictional and
structural unemployment. It is the lowest rate of unemployment that a stable
economy can expect to achieve, seeing as some frictional and structural
unemployment is inevitable. Economists do not agree on the natural rate, with
estimates ranging from 1% to 5%, or on its meaning — some associate it with
"non-accelerating inflation". The estimated rate varies from country to country
and from time to time.
• Demand deficient unemployment — In Keynesian economics, any level of
unemployment beyond the natural rate is most likely due to insufficient demand
in the overall economy. During a recession, aggregate expenditure is deficient
causing the underutilisation of inputs (including labour). Aggregate expenditure
(AE) can be increased, according to Keynes, by increasing consumption spending
(C), increasing investment spending (I), increasing government spending (G), or
increasing the net of exports minus imports (X−M).
{AE = C + I + G + (X−M)}
(Morendy Octoras)
The labour market also acts as a non-clearing market. Whereas most markets have a point
of equilibrium without excess surplus or demand, the labour market is expected to have a
persistent level of unemployment. Contrasting the labour market to other markets also
reveals persistent compensating differentials among similar workers.
Many economists have thought that, in the absence of laws or organisations such as
unions or large multinational corporations, labour markets can be close to perfectly
competitive in the economic sense.[citation needed] The competitive assumption leads to clear
conclusions — workers earn their marginal product of labour.
This can be shown in a that illustrates the trade-off between allocating your time between
leisure activities and income generating activities. The linear constraint line indicates that
there are only 24 hours in a day, and individuals must choose how much of this time to
allocate to leisure activities and how much to working. (If multiple days are being
considered the maximum number of hours that could be allocated towards leisure or work
is about 16 due to the necessity of sleep) This allocation decision is informed by the
curved indifference curve labeled IC. The curve indicates the combinations of leisure and
work that will give the individual a specific level of utility. The point where the highest
indifference curve is just tangent to the constraint line (point A), illustrates the short-run
equilibrium for this supplier of labor services.
If the preference for consumption is measured by the value of income obtained, rather
than work hours, this diagram can be used to show a variety of interesting effects. This is
because the slope of the budget constraint becomes the wage rate. The point of
optimization (point A) reflects the equivalency between the wage rate and the marginal
rate of substitution, leisure for income (the slope of the indifference curve). Because the
marginal rate of substitution, leisure for income, is also the ratio of the marginal utility of
leisure (MUL) to the marginal utility of income (MUY), one can conclude:
If wages increase, this individual's constraint line pivots up from X,Y1 to X,Y2. He/she
can now purchase more goods and services. His/her utility will increase from point A on
IC1 to point B on IC2. To understand what effect this might have on the decision of how
many hours to work, you must look at the income effect and substitution effect.
The wage increase shown in the previous diagram can be decompiled into two separate
effects. The pure income effect is shown as the movement from point A to point C in the
next diagram. Consumption increases from YA to YC and — assuming leisure is a normal
good — leisure time increases from XA to XC (employment time decreases by the same
amount; XA to XC).
But that is only part of the picture. As the wage rate rises, the worker will substitute work
hours for leisure hours, that is, will work more hours to take advantage of the higher
wage rate, or in other words substitute away from leisure because of its higher
opportunity cost. This substitution effect is represented by the shift from point C to point
B. The net impact of these two effects is shown by the shift from point A to point B. The
relative magnitude of the two effects depends on the circumstances. In some cases the
substitution effect is greater than the income effect (in which case more time will be
allocated to working), but in other cases the income effect will be greater than the
substitution effect (in which case less time is allocated to working). The intuition behind
this latter case is that the worker has reached the point where his marginal utility of
leisure outweighs his marginal utility of income. To put it in less formal (and less
accurate) terms: there is no point in earning more money if you don't have the time to
spend it.
If the substitution effect is greater than the income effect, the labour supply curve
(diagram to the left) will slope upwards to the right, as it does at point E for example.
This individual will continue to increase his supply of labor services as the wage rate
increases up to point F where he is working HF hours (each period of time). Beyond this
point he will start to reduce the amount of labor hours he supplies (for example at point G
he has reduced his work hours to HG). Where the supply curve is sloping upwards to the
right (positive wage elasticity of labor supply), the substitution effect is greater than the
income effect. Where it slopes upwards to the left (negative elasticity), the income effect
is greater than the substitution effect. The direction of slope may change more than once
for some individuals, and the labor supply curve is likely to be different for different
individuals.
Other variables that affect this decision include taxation, welfare, and work environment.
This article has examined the labour supply curve which illustrates at every wage rate the
maximum quantity of hours a worker will be willing to supply to the economy per period
of time. Economists also need to know the maximum quantity of hours an employer will
demand at every wage rate. To understand the quantity of hours demanded per period of
time it is necessary to look at product production. That is, labour demand is a derived
demand: it is derived from the output levels in the goods market.
A firm's labour demand is based on its marginal physical product of labour (MPL). This
is defined as the additional output (or physical product) that results from an increase of
one unit of labour (or from an infinitesimally small increase in labour). If you are not
familiar with these concepts, you might want to look at production theory basics before
continuing with this article.
In most industries, and over the relevant range of outputs, the marginal physical product
of labour is declining. That is, as more and more units of labour are employed, their
additional output begins to decline. This is reflected by the slope of the MPPL curve in the
diagram to the right. If the marginal physical product of labour is multiplied by the value
of the output that it produces, we obtain the Value of marginal physical product of labour:
MPPL * PQ = VMPPL
The value of marginal physical product of labour (VMPPL) is the value of the additional
output produced by an additional unit of labour. This is illustrated in the diagram by the
VMPPL curve that is above the MPPL.
In competitive industries, the VMPPL is in identity with the marginal revenue product of
labour (MRPL). This is because in competitive markets price is equal to marginal
revenue, and marginal revenue product is defined as the marginal physical product times
the marginal revenue from the output (MRP = MPP * MR).
The marginal revenue product of labour can be used as the demand for labour curve for
this firm in the short run. In competitive markets, a firm faces a perfectly elastic supply of
labour which corresponds with the wage rate and the marginal resource cost of labour (W
= SL = MFCL). In imperfect markets, the diagram would have to be adjusted because
MFCL would then be equal to the wage rate divided by marginal costs. Because optimum
resource allocation requires that marginal factor costs equal marginal revenue product,
this firm would demand L units of labour as shown in the diagram.
The demand for labour of this firm can be summed with the demand for labour of all
other firms in the economy to obtain the aggregate demand for labour. Likewise, the
supply curves of all the individual workers (mentioned above) can be summed to obtain
the aggregate supply of labour. These supply and demand curves can be analysed in the
same way as any other industry demand and supply curves to determine equilibrium
wage and employment levels. (Morendy Octora)
Information Approaches
Since the 1970s some attention has shifted to the information characteristics of the labour
market.[citation needed] In the classical model it is assumed that both sides know how much
work effort and marginal product the employee contributes.
In many real-life situations this is far from the case. The firm does not necessarily know
how hard a worker is working or how productive they are. This provides an incentive for
workers to shirk from providing their full effort — since it is difficult for the employer to
identify the hard-working and the shirking employees, there is no incentive to work hard
and productivity falls overall. The methods used to overcome this type of problem have
been studied by modern labour economists.[citation needed]
One solution used recently (stock options) grants employees the chance to benefit directly
from the firm's success. However, this solution has attracted criticism as executives with
large stock option packages have been suspected of acting to over-inflate share values to
the detriment of the long-run welfare of the firm.
Another aspect of uncertainty results from the firm's imperfect knowledge about worker
ability. If a firm is unsure about a worker's ability, it pays a wage assuming that the
worker's ability is the average of similar workers. This wage undercompenstates high
ability workers and may drive them away from the labour market. Such phenomenon is
called adverse selection and can sometimes lead to market collapse.
There are many ways to overcome adverse selection in labour market. One important
mechanism is called signalling, pioneered by Michael Spence. In his classical paper on
job signalling, Spence showed that even if education does not increase productivity, high
ability workers may still acquire it just to signal their abilities. Employers can then use
education as a signal to infer worker ability and pay higher wages to better educated
workers.
Search models
One of the major research achievements of the last 20 years has been the development of
a framework with dynamic search, matching, and bargaining. Work started in the early
1980s with contributions from Peter A. Diamond, Dale T. Mortensen and others which
characterised equilibrium in such model economies. Later, this framework was tailored to
the labour market. More recently, Mortensen and Christopher A. Pissarides have
extended the framework to include labour market institutions such as unemployment
insurance and employment protection.
More generally, sociologists and political economists claim that labour economics tends
to lose sight of the complexity of individual employment decisions.[citation needed] These
decisions, particularly on the supply side, are often loaded with considerable emotional
baggage and a purely numerical analysis can miss important dimensions of the process.
Also missing from most labour market analyses is the role of unpaid labour. Even though
this type of labour is unpaid it can nevertheless play an important part in society. The
most dramatic example is child raising. However, over the past 25 years an increasing
literature, usually designated as the economics of the family, has sought to study within
household decision making, including joint labour supply, fertility, child raising, as well
as other areas of what is generally referred to as home production. [1]
Industrialisation
From Wikipedia, the free encyclopedia
Industrialisation is the process of social and economic change whereby a human group
is transformed from a pre-industrial society into an industrial one. It is a part of a wider
modernisation process, where social change and economic development are closely
related with technological innovation, particularly with the development of large-scale
energy and metallurgy production.
One survey of countries in Africa, Asia, the Middle East, and Latin America and the
Caribbean in the late 20th century found that high levels of structural differentiation,
functional specialisation, and autonomy of economic systems from government were
likely to contribute greatly to industrial-commercial growth and prosperity. Amongst
other things, relatively open trading systems with zero or low duties on goods imports
tended to stimulate industrial cost-efficiency and innovation across the board. Free and
flexible labour and other markets also helped raise general business-economic
performance levels, as did rapid popular learning capabilities.
Positive work ethics in populations at large combined with skills in quickly utilising new
technologies and scientific discoveries were likely to boost production and income levels
– and as the latter rose, markets for consumer goods and services of all kinds tended to
expand and provide a further stimulus to industrial investment and economic growth. By
the end of the century, East Asia was one of the most economically successful regions of
the world – with free market countries such as Hong Kong being widely seen as models
for other, less developed countries around the world to emulate.[3] The first known
country to industrialize was Great Britain
Contents
[hide]
• 1 Description
• 2 History of industrialisation
o 2.1 Industrial revolution in Western Europe
o 2.2 Early industrialisation in other countries
o 2.3 The Third World
o 2.4 Petrol producing countries
o 2.5 Industrialisation in Asia
o 2.6 Newly industrialised countries
• 3 Other outcomes
o 3.1 Urbanisation
o 3.2 Exploitation
o 3.3 Change to family structure
o 3.4 Environment
• 4 Current situation
• 5 See also
• 6 References
• 7 Further reading
[edit] Description
According to the original sector classification of Jean Fourastié, an economy consists of a
"Primary sector" of commodity production (farming, livestock breeding, exploitation of
mineral resources), a "secondary sector" of manufacturing and processing, and a
"Tertiary Sector" of service industries. The industrialization process is historically based
on the expansion of the secondary sector in an economy dominated by primary activities.
The first ever transformation to an industrial economy from an agrarian one was called
the Industrial Revolution and this took place in the late 18th and early 19th centuries in a
few countries of Western Europe and North America, beginning in Great Britain. This
was the first industrialization in the world's history.
The Second Industrial Revolution describes a later, somewhat less dramatic change
which came about in the late 19th century with the widespread availability of electric
power, internal combustion engines, and assembly lines to the already industrialised
nations.
Map showing the global distribution of industrial output in 2005, based on a percentage
of the top producer, which is the United States
Most pre-industrial economies had standards of living not much above subsistence,
aming that the majority of the population were focused on producing their means of
survival. For example, in medieval Europe, 80% of the labour force was employed in
subsistence agriculture.
Some pre-industrial economies, such as classical Athens, had trade and commerce as
significant factors, so native Greeks could enjoy wealth far beyond a sustenance standard
of living through the use of slavery. Famines were frequent in most pre-industrial
societies, although some, such as the Netherlands and England of the seventeenth and
eighteenth centuries, the Italian city states of the fifteenth century, the medieval Islamic
Caliphate, and the ancient Greek and Roman civilisations were able to escape the famine
cycle through increasing trade and commercialization of the agricultural sector. It is
estimated that during the seventeenth century Netherlands imported nearly 70% of its
grain supply and in the fifth century BC Athens imported three quarters of its total food
supply.
During the Arab Agricultural Revolution from the 8th to 13th centuries, the agricultural
sector was revolutionized by a wider economy established across the medieval Arab
world. This enabled the diffusion of many crops and farming techniques between
different regions within and beyond the medieval Islamic world.[4] As a result, the Islamic
Caliphate experienced major changes in its economy, population distribution, population
[5]
vegetation cover,[6] agricultural production, income, and urban growth.[4]
Industrialization through innovation in manufacturing processes first started with the
Industrial Revolution in the north-west and Midlands of England in the eighteenth
century.[7] It spread to Europe and North America in the nineteenth century, and to the
rest of the world in the twentieth.
The Crystal Palace Great Exhibition. The United Kingdom was the first country in the
world to industrialize.
In the eighteenth and nineteenth centuries, Great Britain experienced a massive increase
in agricultural productivity known as the British Agricultural Revolution, which enabled
an unprecedented population growth, freeing a significant percentage of the workforce
from farming, and helping to drive the Industrial Revolution.
Due to the limited amount of arable land and the overwhelming efficiency of mechanized
farming, the increased population could not be dedicated to agriculture. New agricultural
techniques allowed a single peasant to feed more workers than previously; however,
these techniques also increased the demand for machines and other hardwares, which had
traditionally been provided by the urban artisans. Artisans, collectively called
bourgeoisie, employed rural exodus' workers to increase their output and meet the
country's needs.
The growth of their business coupled with the lack of experience of the new workers
pushed a rationalization and standardization of the duties the in workshops, thus leading
to a division of labour, that is, a primitive form of Fordism. The process of creating a
good was divided into simple tasks, each one of them being gradually mechanized in
order to boost productivity and thus increase income.
Some economic historians argue that the possession of so-called ‘exploitation colonies’
eased the accumulation of capital to the countries that possessed them, speeding up their
development. The consequence was that the subject country integrated a bigger economic
system in a subaltern position, emulating the countryside which demands manufactured
goods and offers raw materials, while the metropole stressed its urban posture, providing
goods and importing food. A classical example of this mechanism is said to be the
triangular trade, which involved England, southern United States and western Africa.
Critics argue that this polarity still affects the world, and has deeply retarded the
industrialisation of what is now known as the Third World.
Some have stressed the importance of natural or financial resources that Britain received
from its many overseas colonies or that profits from the British slave trade between
Africa and the Caribbean helped fuel industrial investment.
After the Convention of Kanagawa, which was issued by Commodore Matthew C. Perry,
had forced Japan to open the ports of Shimoda and Hakodate to American trade, the
Japanese government realised that drastic reforms were necessary in order to stave off
Western influence. The Tokugawa shogunate abolished the feudal system. The
government instituted military reforms to modernise the Japanese army and also
constructed the base for industrialisation. In the 1870s, the Meiji government vigorously
promoted technological and industrial development which eventually brought Japan to
become a powerful modern country.
In a similar way, Russia suffered during the Allied intervention in the Russian Civil War.
The Soviet Union's centrally controlled economy decided to invest a big part of its
resources to enhance its industrial production and infrastructures in order to assure its
own survival, thus becoming a world superpower.[9]
During the cold war, the other European socialist countries, organised under the
Comecon framework, followed the same developing scheme, albeit with a less emphasis
on heavy industry.
Oil-rich countries saw similar failures in their economic choices. An EIA report stated
that OPEC member nations were projected to earn a net amount of $1.251 trillion in 2008
from their oil exports.[12] Because oil is both important and expensive, regions that had
big reserves of oil had huge liquidity incomes. However, this was rarely followed by
economic development. Experience shows that local elites were unable to re-invest the
petrodollars obtained through oil export, and currency is wasted in luxury goods.[13]
This is particularly evident in the Persian Gulf states, where the per capita income is
comparable to those of western nations, but where no industrialisation has started. Apart
from two little countries (Bahrain and the United Arab Emirates), Arab states have not
diversified their economies, and no replacement for the upcoming end of oil reserves is
envisaged.[14]
Apart from Japan, where industrialisation began in the late 19th century, a different
pattern of industrialisation followed in East Asia. One of the fastest rates of
industrialisation occurred in the late 20th century across four countries known as the
Asian tigers thanks to the existence of stable governments and well structured societies,
strategic locations, heavy foreign investments, a low cost skilled and motivated
workforce, a competitive exchange rate, and low custom duties.
In the case of South Korea, the largest of the four Asian tigers, a very fast paced
industrialisation took place as it quickly moved away from the manufacturing of value
added goods in the 1950s and 60s into the more advanced steel, shipbuilding and
automobile industry in the 1970s and 80s, focusing on the high-tech and service industry
in the 1990s and 2000s. As a result, South Korea became a major economic power and
today is one of the wealthiest countries in Asia.
This starting model was afterwards successfully copied in other larger Eastern and
Southern Asian countries, including communist ones. The success of this phenomenon
led to a huge wave of offshoring – i.e., Western factories or tertiary corporations
choosing to move their activities to countries where the workforce was less expensive
and less collectively organised.
China and India, while roughly following this development pattern, made adaptations in
line with their own histories and cultures, their major size and importance in the world,
and the geo-political ambitions of their governments (etc.).
Both Chinese and Indian corporations have also started to make huge investments in
Third World countries, making them significant players in today's world economy.
The countries in green are considered to be newly industrialising nations. China and India
(in dark green) are special case.
In recent decades, a few countries in Latin America, Asia, and Africa, such as Turkey,
South Africa, Malaysia, and Mexico have experienced substantial industrial growth,
fuelled by exportations going to countries that have bigger economies: the United States,
Japan, China, and the EU. They are sometimes called newly-industrialised countries.[citation
needed]
Despite this trend being artificially influenced by the oil price increases since 2003, the
phenomenon is not entirely new nor totally speculative (for instance see: Maquiladora).
Most analysts conclude in the next few decades the whole world will experience
industrialisation, and international inequality will be replaced with worldwide social
inequality.[citation needed]
The concentration of labour into factories has brought about the rise of large towns to
serve and house the working population.
[edit] Exploitation
The family structure changes with industrialisation. The sociologist Talcott Parsons noted
that in pre-industrial societies there is an extended family structure spanning many
generations who have probably remained in the same location for generations. In
industrialised societies the nuclear family, consisting of only of parents and their growing
children, predominates. Families and children reaching adulthood are more mobile and
tend to relocate to where jobs exist. Extended family bonds become more tenuous. [15]
[edit] Environment
Industrialisation has spawned its own health problems. Modern stressors include noise,
air, water pollution, poor nutrition, dangerous machinery, impersonal work, isolation,
poverty, homelessness, and substance abuse. Health problems in industrial nations are as
much caused by economic, social, political, and cultural factors as by pathogens.
industrialisation has become a major medical issue wod wide.[citation needed]
GDP composition of sector and labour fore by occupation. The green, red, and blue
components of the colours of the countries represent the percentages for the agriculture,
industry, and services sectors, respectively.
In 2005, the USA was the largest producer of industrial output followed by Japan and
China, according to International Monetary Fund.[citation needed]
Economy of India
Statistics
External
Public finances
India was under social democratic-based policies from 1947 to 1991. The economy was
characterised by extensive regulation, protectionism, and public ownership, leading to
pervasive corruption and slow growth.[7][8][9][10] Since 1991, continuing economic
liberalisation has moved the economy towards a market-based system.[8][9] A revival of
economic reforms and better economic policy in 2000s accelerated India's economic
growth rate. By 2009, India had prominently established itself as the world's second-
fastest growing major economy.[11][12][13]
India's large service industry accounts for 54% of the country's GDP while the industrial
and agricultural sector contribute 29% and 17% respectively. Agriculture is the
predominant occupation in India, accounting for about 60% of employment. The service
sector makes up a further 28%, and industrial sector around 12%.[14] The labor force totals
half a billion workers. Major agricultural products include rice, wheat, oilseed, cotton,
jute, tea, sugarcane, potatoes, cattle, water buffalo, sheep, goats, poultry and fish.[15]
Major industries include textiles, chemicals, food processing, steel, transportation
equipment, cement, mining, petroleum, machinery, information technology enabled
services and software.[15]
India's per capita income (nominal) is $1016, ranked 142th in the world,[16] while its per
capita (PPP) of US$2,762 is ranked 129th.[17][18] Previously a closed economy, India's
trade has grown fast.[8] India currently accounts for 1.5% of World trade as of 2007
according to the WTO. According to the World Trade Statistics of the WTO in 2006,
India's total merchandise trade (counting exports and imports) was valued at $294 billion
in 2006 and India's services trade inclusive of export and import was $143 billion. Thus,
India's global economic engagement in 2006 covering both merchandise and services
trade was of the order of $437 billion, up by a record 72% from a level of $253 billion in
2004. India's trade has reached a still relatively moderate share 24% of GDP in 2006, up
from 6% in 1985.[8]
Despite robust economic growth, India continues to face many major problems. The
recent economic development has widened the economic inequality across the country.[19]
Despite sustained high economic growth rate, approximately 80% of its population lives
on less than $2 a day (nominal), more than double the same poverty rate in China. [20]
Even though the arrival of Green Revolution brought end to famines in India,[21] 40% of
children under the age of three are underweight and a third of all men and women suffer
from chronic energy deficiency.[22]
Contents
[hide]
• 1 History
o 1.1 Pre-colonial
o 1.2 Colonial
o 1.3 Independence to 1991
o 1.4 After 1991
• 2 Sectors
o 2.1 Agriculture
o 2.2 Banking and finance
o 2.3 Natural resources
• 3 External trade and investment
o 3.1 Global trade relations
o 3.2 Balance of payments
o 3.3 Foreign direct investment in India
• 4 Currency
• 5 Income and consumption
• 6 Employment
• 7 Economic trends
o 7.1 Issues
7.1.1 Agriculture
7.1.2 Corruption
7.1.3 Government
7.1.4 Education
7.1.5 Infrastructure
7.1.6 Labour laws
7.1.7 Economic disparities
7.1.8 Environment and health
• 8 See also
• 9 Notes
• 10 References
• 11 External links
[edit] History
Silver coin minted during the reign of the Gupta king Kumara Gupta I (AD 414–55)
Main articles: Economic history of India and Timeline of the economy of India
India's economic history can be broadly divided into three eras, beginning with the pre-
colonial period lasting up to the 17th century. The advent of British colonisation started
the colonial period in the 17th century, which ended with independence in 1947. The
third period stretches from independence in 1947 until now.
[edit] Pre-colonial
The spice trade between India and Europe was one of the main drivers of the world
economy[23] and the main catalyst for the Age of Discovery.[24]
The citizens of the Indus Valley civilisation, a permanent and predominantly urban
settlement that flourished between 2800 BC and 1800 BC, practiced agriculture,
domesticated animals, used uniform weights and measures, made tools and weapons, and
traded with other cities. Evidence of well planned streets, a drainage system and water
supply reveals their knowledge of urban planning, which included the world's first urban
sanitation systems and the existence of a form of municipal government.[25]
The 1872 census revealed that 99.3% of the population of the region constituting present-
day India resided in villages,[26] whose economies were largely isolated and self-
sustaining, with agriculture the predominant occupation. This satisfied the food
requirements of the village and provided raw materials for hand-based industries, such as
textiles, food processing and crafts. Although many kingdoms and rulers issued coins,
barter was prevalent. Villages paid a portion of their agricultural produce as revenue to
the rulers, while its craftsmen received a part of the crops at harvest time for their
services.[27]
Religion, especially Hinduism, and the caste and the joint family systems, played an
influential role in shaping economic activities.[28] The caste system functioned much like
medieval European guilds, ensuring the division of labour, providing for the training of
apprentices and, in some cases, allowing manufacturers to achieve narrow specialization.
For instance, in certain regions, producing each variety of cloth was the specialty of a
particular sub-caste.
Estimates of the per capita income of India (1857–1900) as per 1948–49 prices.[29]
Textiles such as muslin, Calicos, shawls, and agricultural products such as pepper,
cinnamon, opium and indigo were exported to Europe, the Middle East and South East
Asia in return for gold and silver.[30]
[edit] Colonial
An aerial view of Calcutta Port taken in 1945. Calcutta, which was the economic hub of
British India, saw increased industrial activity during World War II.
Company rule in India brought a major change in the taxation environment from revenue
taxes to property taxes, resulting in mass impoverishment and destitution of majority of
farmers and led to numerous famines.[33] The economic policies of the British Raj
effectively bankrupted India's large handicrafts industry and caused a massive drain of
India's resources.[34][35] Indian Nationalists employed the successful Swadeshi movement,
as strategy to diminish British economic superiority by boycotting British products and
the reviving the market for domestic-made products and production techniques. India had
become a strong market for superior finished European goods. This was because of vast
gains made by the Industrial revolution in Europe, the effects of which was deprived to
Colonial India. The Nationalists had hoped to revive the domestic industries that were
badly effected by polices implemented by British Raj which had made them
uncompetitive to British made goods. An estimate by Cambridge University historian
Angus Maddison reveals that India's share of the world income fell from 22.6% in 1700,
comparable to Europe's share of 23.3%, to a low of 3.8% in 1952. [36] It also created an
institutional environment that, on paper, guaranteed property rights among the colonizers,
encouraged free trade, and created a single currency with fixed exchange rates,
standardized weights and measures, capital markets. It also established a well developed
system of railways and telegraphs, a civil service that aimed to be free from political
interference, a common-law and an adversarial legal system.[37] India's colonisation by the
British coincided with major changes in the world economy—industrialisation, and
significant growth in production and trade. However, at the end of colonial rule, India
inherited an economy that was one of the poorest in the developing world,[38] with
industrial development stalled, agriculture unable to feed a rapidly growing population,
India had one of the world's lowest life expectancies, and low rates for literacy.
The impact of the British rule on India's economy is a controversial topic. Leaders of the
Indian independence movement, and left-nationalist economic historians have blamed
colonial rule for the dismal state of India's economy in its aftermath and that financial
strength required for Industrial development in Europe was derived from the wealth taken
from Colonies in Asia and Africa. At the same time right-wing historians have countered
that India's low economic performance was due to various sectors being in a state of
growth and decline due to changes brought in by colonialism and a world that was
moving towards industrialization and economic integration.[39]
Compare India (orange) with South Korea (yellow). Both started from about the same
income level in 1950. The graph shows GDP per capita of South Asian economies and
South Korea as a percent of the American GDP per capita.
Indian economic policy after independence was influenced by the colonial experience
(which was seen by Indian leaders as exploitative in nature) and by those leaders'
exposure to Fabian socialism. Policy tended towards protectionism, with a strong
emphasis on import substitution, industrialization, state intervention in labor and financial
markets, a large public sector, business regulation, and central planning.[40] Five-Year
Plans of India resembled central planning in the Soviet Union. Steel, mining, machine
tools, water, telecommunications, insurance, and electrical plants, among other industries,
were effectively nationalized in the mid-1950s.[41] Elaborate licences, regulations and the
accompanying red tape, commonly referred to as Licence Raj, were required to set up
business in India between 1947 and 1990.[42]
Jawaharlal Nehru, the first prime minister, along with the statistician Prasanta Chandra
Mahalanobis, carried on by Indira Gandhi formulated and oversaw economic policy.
They expected favorable outcomes from this strategy, because it involved both public and
private sectors and was based on direct and indirect state intervention, rather than the
more extreme Soviet-style central command system.[43][dead link] The policy of concentrating
simultaneously on capital- and technology-intensive heavy industry and subsidizing
manual, low-skill cottage industries was criticized by economist Milton Friedman, who
thought it would waste capital and labour, and retard the development of small
manufacturers.[44][dead link]
India's low average growth rate from 1947–80 was derisively referred to as the Hindu
rate of growth, because of the unfavourable comparison with growth rates in other Asian
countries, especially the "East Asian Tigers".[37]
The Rockefeller Foundation's research in high-yielding varieties of seeds, their
introduction after 1965 and the increased use of fertilizers and irrigation are known
collectively as the Green Revolution, which provided the increase in production needed
to make India self-sufficient in food grains, thus improving agriculture in India. Famine
in India, once accepted as inevitable, has not returned since the end of colonialism.
Major improvements in educational standards across India has helped its economic rise.
Shown here is the Indian School of Business at Hyderabad, ranked number 15 in global
MBA rankings by the Financial Times of London in 2009.[45]
In the late 80s, the government led by Rajiv Gandhi eased restrictions on capacity
expansion for incumbents, removed price controls and reduced corporate taxes. While
this increased the rate of growth, it also led to high fiscal deficits and a worsening current
account. The collapse of the Soviet Union, which was India's major trading partner, and
the first Gulf War, which caused a spike in oil prices, caused a major balance-of-
payments crisis for India, which found itself facing the prospect of defaulting on its loans.
[dead link][46]
India asked for a $1.8 billion bailout loan from IMF, which in return demanded
[47]
reforms.
In response, Prime Minister Narasimha Rao along with his finance minister Manmohan
Singh initiated the economic liberalisation of 1991. The reforms did away with the
Licence Raj (investment, industrial and import licensing) and ended many public
monopolies, allowing automatic approval of foreign direct investment in many sectors.[48]
Since then, the overall direction of liberalisation has remained the same, irrespective of
the ruling party, although no party has tried to take on powerful lobbies such as the trade
unions and farmers, or contentious issues such as reforming labour laws and reducing
agricultural subsidies.[49] Since 1990 India has emerged as one of the fastest-growing
economies in the developing world; during this period, the economy has grown
constantly, but with a few major setbacks. This has been accompanied by increases in life
expectancy, literacy rates and food security.
While the credit rating of India was hit by its nuclear tests in 1998, it has been raised to
investment level in 2007 by S&P and Moody's.[50] In 2003, Goldman Sachs predicted that
India's GDP in current prices will overtake France and Italy by 2020, Germany, UK and
Russia by 2025 and Japan by 2035. By 2035, it was projected to be the third largest
economy of the world, behind US and China.[51][52]
[edit] Sectors
[edit] Agriculture
Farmers work inside a rice field in Andhra Pradesh. India is the second largest producer
of rice in the world after China[53] and Andhra Pradesh is the 2nd largest rice producing
state in India and West Bengal being the largest rice producing state in India.[54]
Main articles: Agriculture in India, Forestry in India, Animal husbandry in India, and
Fishing in India
India ranks second worldwide in farm output. Agriculture and allied sectors like forestry,
logging and fishing accounted for 16.6% of the GDP in 2007, employed 60% of the total
workforce[14] and despite a steady decline of its share in the GDP, is still the largest
economic sector and plays a significant role in the overall socio-economic development
of India. Yields per unit area of all crops have grown since 1950, due to the special
emphasis placed on agriculture in the five-year plans and steady improvements in
irrigation, technology, application of modern agricultural practices and provision of
agricultural credit and subsidies since Green revolution in India. However, international
comparisons reveal that the average yield in India is generally 30% to 50% of the highest
average yield in the world.[55]
India is the largest producer in the world of milk, cashew nuts, coconuts, tea, ginger,
turmeric and black pepper.[dead link][56] It also has the world's largest cattle population (193
million).[57] It is the second largest producer of wheat, rice, sugar, groundnut and inland
fish.[58] It is the third largest producer of tobacco.[58] India accounts for 10% of the world
fruit production with first rank in the production of bananas, sapotas and mangoes.[58]
India has one of the world's fastest growing automobile industries[61][62] and is global
leader of auto industry.[63] Shown here is Tata Motors' Nano, world's least expensive car
in production.[64]
Industry accounts for 27.6% of the GDP and employ 17% of the total workforce.[14]
However, about one-third of the industrial labour force is engaged in simple household
manufacturing only.[65][dead link] In absolute terms, India is 16th in the world in terms of
nominal factory output.[66] India's small industry makes up 5% of carbon dioxide
emissions in the world.
Textile manufacturing is the second largest source for employment after agriculture and
accounts for 26% of manufacturing output.[69] Tirupur has gained universal recognition as
the leading source of hosiery, knitted garments, casual wear and sportswear.[70] Dharavi
slum in Mumbai has gained fame for leather products. Tata Motors' Nano attempts to be
the world's cheapest car.[64]
India is fifteenth in services output. It provides employment to 23% of work force, and it
is growing fast, growth rate 7.5% in 1991–2000 up from 4.5% in 1951–80. It has the
largest share in the GDP, accounting for 55% in 2007 up from 15% in 1950.[14]
Most Indian shopping takes place in open markets and millions of independent grocery
shops called kirana. Organized retail such supermarkets accounts for just 4% of the
market as of 2008.[75] Regulations prevent most foreign investment in retailing. Moreover,
over thirty regulations such as "signboard licences" and "anti-hoarding measures" may
have to be complied before a store can open doors. There are taxes for moving goods to
states, from states, and even within states.[75]
Tourism in India is relatively undeveloped, but growing at double digits. Some hospitals
woo medical tourism.[76]
Structure of the organised banking sector in India. Number of banks are in brackets.[77]
The Indian money market is classified into: the organised sector (comprising private,
public and foreign owned commercial banks and cooperative banks, together known as
scheduled banks); and the unorganised sector (comprising individual or family owned
indigenous bankers or money lenders and non-banking financial companies (NBFCs)).
The unorganised sector and microcredit are still preferred over traditional banks in rural
and sub-urban areas, especially for non-productive purposes, like ceremonies and short
duration loans.[78]
Mumbai is the financial and commercial capital of India. Shown here is the World Trade
Center of Mumbai
Prime Minister Indira Gandhi nationalised 14 banks in 1969, followed by six others in
1980, and made it mandatory for banks to provide 40% of their net credit to priority
sectors like agriculture, small-scale industry, retail trade, small businesses, etc. to ensure
that the banks fulfill their social and developmental goals. Since then, the number of bank
branches has increased from 10,120 in 1969 to 98,910 in 2003 and the population
covered by a branch decreased from 63,800 to 15,000 during the same period. The total
deposits increased 32.6 times between 1971 to 1991 compared to 7 times between 1951
to 1971. Despite an increase of rural branches, from 1,860 or 22% of the total number of
branches in 1969 to 32,270 or 48%, only 32,270 out of 5 lakh (500,000) villages are
covered by a scheduled bank.[79][80]
The public sector banks hold over 75% of total assets of the banking industry, with the
private and foreign banks holding 18.2% and 6.5% respectively. [81] Since liberalisation,
the government has approved significant banking reforms. While some of these relate to
nationalised banks (like encouraging mergers, reducing government interference and
increasing profitability and competitiveness), other reforms have opened up the banking
and insurance sectors to private and foreign players.[14][82] Since liberalisation, the
government has approved significant banking reforms. While some of these relate to
nationalised banks (like encouraging mergers, reducing government interference and
increasing profitability and competitiveness), other reforms have opened up the banking
and insurance sectors to private and foreign players.[14][82]
More than half of personal savings are invested in physical assets such as land, houses,
cattle, and gold.[83]
India has the world's fifth largest wind power industry, with an installed wind power
capacity of 9,587 MW. Shown here is a wind farm in Muppandal, Tamil Nadu.
India's total cultivable area is 1,269,219 km² (56.78% of total land area), which is
decreasing due to constant pressure from an ever growing population and increased
urbanisation.
India has a total water surface area of 314,400 km² and receives an average annual
rainfall of 1,100 mm. Irrigation accounts for 92% of the water utilisation, and comprised
380 km² in 1974, and is expected to rise to 1,050 km² by 2025, with the balance
accounted for by industrial and domestic consumers. India's inland water resources
comprising rivers, canals, ponds and lakes and marine resources comprising the east and
west coasts of the Indian ocean and other gulfs and bays provide employment to nearly 6
million people in the fisheries sector. In 2008, India had the world's third largest fishing
industry.[84]
India's major mineral resources include coal, iron, manganese, mica, bauxite, titanium,
chromite, limestone and thorium.
India meets most of its domestic energy demand through its 92 billion tonnes of coal
reserves (about 10% of world's coal reserves).[85] India's oil reserves, found in Bombay
High off the coast of Maharashtra, Gujarat, Rajasthan and in eastern Assam meet 25% of
the country's domestic oil demand.[14][86] India's total proven oil reserves stand at 11
billion barrels,[87] of which Bombay High is believed to hold 6.1 billion barrels [88] and
Mangala Area in Rajasthan an additional 3.6 billion barrels.[89] India's huge thorium
reserves — about 25% of world's reserves — is expected to fuel the country's ambitious
nuclear energy program in the long-run. India's dwindling uranium reserves stagnated the
growth of nuclear energy in the country for many years.[90] However, the Indo-US nuclear
deal has paved the way for India to import uranium from other countries.[91] India is also
believed to be rich in certain renewable sources of energy with significant future potential
such as solar, wind and biofuels (jatropha, sugarcane).
In March 2008, India's annual imports and exports stood at US$236 and US$155.5 billion
respectively.[92] Shown here is the cargo of a container ship being unloaded at the
Jawaharlal Nehru Port, Navi Mumbai.
India's economy is mostly dependent on its large internal market with external trade
accounting for just 20% of the country's GDP.[93] In 2008, India accounted for 1.45% of
global merchandise trade and 2.8% of global commercial services export.[94] Until the
liberalization of 1991, India was largely and intentionally isolated from the world
markets, to protect its economy and to achieve self-reliance. Foreign trade was subject to
import tariffs, export taxes and quantitative restrictions, while foreign direct investment
(FDI) was restricted by upper-limit equity participation, restrictions on technology
transfer, export obligations and government approvals; these approvals were needed for
nearly 60% of new FDI in the industrial sector. The restrictions ensured that FDI
averaged only around US$200 million annually between 1985 and 1991; a large
percentage of the capital flows consisted of foreign aid, commercial borrowing and
deposits of non-resident Indians.[95] India's exports were stagnant for the first 15 years
after independence, due to the predominance of tea, jute and cotton manufactures,
demand for which was generally inelastic. Imports in the same period consisted
predominantly of machinery, equipment and raw materials, due to nascent
industrialization.
Since liberalization, the value of India's international trade has become more broad-based
and has risen to Rs. 63,080,109 crores in 2003–04 from Rs.1,250 crores in 1950–51.
India's major trading partners are China, the US, the UAE, the UK, Japan and the EU.[96]
The exports during April 2007 were $12.31 billion up by 16% and import were $17.68
billion with an increase of 18.06% over the previous year.[97] In 2006-07, major export
commodities included engineering goods, petroleum products, chemicals and
pharmaceuticals, gems and jewellery, textiles and garments, agricultural products, iron
ore and other minerals. Major import commodities included crude oil and related
products, machinery, electronic goods, gold and silver.[98]
Since independence, India's balance of payments on its current account has been
negative. Since liberalisation in the 1990s (precipitated by a balance of payment crisis),
India's exports have been consistently rising, covering 80.3% of its imports in 2002–03,
up from 66.2% in 1990–91. India's growing oil import bill is seen as the main driver
behind the large current account deficit.[100] In 2007-08, India imported 120.1 million
tonnes of crude oil, more than 3/4th of the domestic demand, at a cost of $61.72 billion.
[101]
Although India is still a net importer, since 1996–97 its overall balance of payments (i.e.,
including the capital account balance) has been positive, largely on account of increased
foreign direct investment and deposits from non-resident Indians; until this time, the
overall balance was only occasionally positive on account of external assistance and
commercial borrowings. As a result, India's foreign currency reserves stood at $285
billion in 2008, which could be used in infrastructural development of the country if used
effectively.
Due to the global late-2000s recession, both Indian exports and imports declined by
29.2% and 39.2% respectively in June 2009.[102] The steep decline was because countries
hit hardest by the global recession, such as United States and members of the European
Union, account for more than 60% of Indian exports.[103] However, since the decline in
imports was much sharper compared to the decline in exports, India's trade deficit
reduced to $252.5 billion.[102]
India's reliance on external assistance and commercial borrowings has decreased since
1991–92, and since 2002–03, it has gradually been repaying these debts. Declining
interest rates and reduced borrowings decreased India's debt service ratio to 4.5% in
2007.[104] In India, External Commercial Borrowings (ECBs) are being permitted by the
Government for providing an additional source of funds to Indian corporates. The
Ministry of Finance monitors and regulates these borrowings (ECBs) through ECB policy
guidelines.[105]
Inflows
Rank Country Inflows (%)
(Million USD)
As the fourth-largest economy in the world in PPP terms, India is a preferred destination
for foreign direct investments (FDI);[108] India has strengths in information technology
and other significant areas such as auto components, chemicals, apparels,
pharmaceuticals, and jewellery. Despite a surge in foreign investments, rigid FDI policies
resulted in a significant hindrance. However, due to some positive economic reforms
aimed at deregulating the economy and stimulating foreign investment, India has
positioned itself as one of the front-runners of the rapidly growing Asia Pacific Region.
[108]
India has a large pool of skilled managerial and technical expertise. The size of the
middle-class population stands at 50 million and represents a growing consumer market.
[109]
India's recently liberalized FDI policy (2005) allows up to a 100% FDI stake in ventures.
Industrial policy reforms have substantially reduced industrial licensing requirements,
removed restrictions on expansion and facilitated easy access to foreign technology and
foreign direct investment FDI. The upward moving growth curve of the real-estate sector
owes some credit to a booming economy and liberalized FDI regime. In March 2005, the
government amended the rules to allow 100 per cent FDI in the construction business. [110]
This automatic route has been permitted in townships, housing, built-up infrastructure
and construction development projects including housing, commercial premises, hotels,
resorts, hospitals, educational institutions, recreational facilities, and city- and regional-
level infrastructure.
A number of changes were approved on the FDI policy to remove the caps in most
sectors. Fields which require relaxation in FDI restrictions include civil aviation,
construction development, industrial parks, petroleum and natural gas, commodity
exchanges, credit-information services and mining. But this still leaves an unfinished
agenda of permitting greater foreign investment in politically sensitive areas such as
insurance and retailing. FDI inflows into India reached a record $19.5 billion in fiscal
year 2006-07 (April-March), according to the government's Secretariat for Industrial
Assistance. This was more than double the total of US$7.8bn in the previous fiscal year.
The FDI inflow for 2007-08 has been reported as $24 billion [111] and for 2008-09, it is
expected to be above $35 billion.[112] A critical factor in determining India's continued
economic growth and realizing the potential to be an economic superpower is going to
depend on how the government can create incentives for FDI flow across a large number
of sectors in India.[113]
[edit] Currency
India inherited several institutions, such as the civil services, Reserve Bank of India,
railways, etc., from its British rulers. Mumbai serves as the nation's commercial capital,
with the Reserve Bank of India (RBI), Bombay Stock Exchange (BSE) and the National
Stock Exchange (NSE) located here. The headquarters of many financial institutions are
also located in the city.
The RBI, the country's central bank was established on April 1, 1935. It serves as the
nation's monetary authority, regulator and supervisor of the financial system, manager of
exchange control and as an issuer of currency. The RBI is governed by a central board,
headed by a governor who is appointed by the Central government of India.
Percentage of population living under the poverty line of $1 (PPP) a day, currently
356.35 rupees a month in rural areas (around $7.4 a month).
As of 2005:
• 85.7% of the population lives on less than $2.50 (PPP) a day, down from 92.5%
in 1981. This compares with 80.5% in Sub-Saharan Africa.[116]
• 75.6% of the population lives on less than $2 a day (PPP), which is around 20
rupees or $0.5 a day in nominal terms. It was down from 86.6% and compares
with 73.0% in Sub-Saharan Africa.[116][117][118][119][120]
• 24.3% of the population earned less than $1 (PPP, around $0.25 in nominal terms)
a day in 2005, down from 42.1% in 1981.[116][121]
• 41.6% of its population is living below the new international poverty line of $1.25
(PPP) per day, down from 59.8% in 1981.[116] The World Bank further estimates
that a third of the global poor now reside in India.
Today, more people can afford a bicycle than ever before. Some 40% of Indian
households owns a bicycle, with ownership rates ranging from around 30% to 70% at
state level.[122] Housing is still very modest. According to Times of India, "a majority of
Indians have per capita space equivalent to or less than a 10 feet x 10 feet room for their
living, sleeping, cooking, washing and toilet needs." and "one in every three urban
Indians lives in homes too cramped to exceed even the minimum requirements of a prison
cell in the US."[123] The average is 103 sq ft (9.6 m2) per person in rural areas and
117 sq ft (10.9 m2) per person in urban areas.[123]
Around half of Indian children are malnourished. The proportion of underweight children
is nearly double that of Sub-Saharan Africa.[22][124] However, India has not had famines
since the Green Revolution in the early 1970s. While poverty in India has reduced
significantly, official figures estimate that 27.5%[125] of Indians still lived below the
national poverty line of $1 (PPP, around 10 rupees in nominal terms) a day in 2004-2005.
[126]
A 2007 report by the state-run National Commission for Enterprises in the
Unorganised Sector (NCEUS) found that 65% of Indians, or 750 million people, lived on
less than 20 rupees per day[127] with most working in "informal labour sector with no job
or social security, living in abject poverty."[128]
Since the early 1950s, successive governments have implemented various schemes, under
planning, to alleviate poverty, that have met with partial success. All these programmes
have relied upon the strategies of the Food for work programme and National Rural
Employment Programme of the 1980s, which attempted to use the unemployed to
generate productive assets and build rural infrastructure. [129] In August 2005, the Indian
parliament passed the Rural Employment Guarantee Bill, the largest programme of this
type in terms of cost and coverage, which promises 100 days of minimum wage
employment to every rural household in 200 of India's 600 districts. The question of
whether economic reforms have reduced poverty or not has fuelled debates without
generating any clear cut answers and has also put political pressure on further economic
reforms, especially those involving the downsizing of labour and cutting agricultural
subsidies.[130][131]
[edit] Employment
See also: Indian labour laws
Agricultural and allied sectors accounted for about 60% of the total workforce in 2003
same as in 1993–94. While agriculture has faced stagnation in growth, services have seen
a steady growth. Of the total workforce, 8% is in the organised sector, two-thirds of
which are in the public sector. The NSSO survey estimated that in 1999–2000, 106
million, nearly 10% of the population were unemployed and the overall unemployment
rate was 7.3%, with rural areas doing marginally better (7.2%) than urban areas (7.7%).
India's labor force is growing by 2.5% annually, but employment only at 2.3% a year.[132]
Official unemployment exceeds 9%. Regulation and other obstacles have discouraged the
emergence of formal businesses and jobs. Almost 30% of workers are casual workers
who work only when they are able to get jobs and remain unpaid for the rest of the time.
[132]
Only 10% of the workforce is in regular employment.[132] India's labor regulations are
heavy even by developing country standards and analysts have urged the government to
abolish them.[8][133]
Child labor is a complex problem that is basically rooted in poverty. The Indian
government is implementing the world's largest child labor elimination program, with
primary education targeted for ~250 million. Numerous non-governmental and voluntary
organizations are also involved. Special investigation cells have been set up in states to
enforce existing laws banning employment of children (under 14) in hazardous industries.
The allocation of the Government of India for the eradication of child labor was $10
million in 1995-96 and $16 million in 1996-97. The allocation for 2007 is $21 million.[135]
In 2006, remittances from Indian migrants overseas made up $27 billion or about 3% of
India's GDP.[136]
India's 300 million strong middle-class population is growing at an annual rate of 5%.[137]
Shown here is a residential area in the Mumbai metropolitan area.
In the revised 2007 figures, based on increased and sustaining growth, more inflows into
foreign direct investment, Goldman Sachs predicts that "from 2007 to 2020, India’s GDP
per capita in US$ terms will quadruple", and that the Indian economy will surpass the
United States (in US$) by 2043.[10] Despite high growth rate, the report stated that India
would continue to remain a low-income country for several decades but can be a "motor
for the world economy" if it fulfills its growth potential. [10] Goldman Sachs has outlined
10 things that it needs to do in order to achieve its potential and grow 40 times by 2050.
These are
1. improve governance
2. raise educational achievement
3. increase quality and quantity of universities
4. control inflation
5. introduce a credible fiscal policy
6. liberalize financial markets
7. increase trade with neighbours
8. increase agricultural productivity
9. improve infrastructure and
10. improve environmental quality.[138]
[edit] Issues
[edit] Agriculture
An Indian farmer
Main article: Agriculture in India
Slow agricultural growth is a concern for policymakers as some two-thirds of India’s people
depend on rural employment for a living. Current agricultural practices are neither economically
nor environmentally sustainable and India's yields for many agricultural commodities are low.
Poorly maintained irrigation systems and almost universal lack of good extension services are
among the factors responsible. Farmers' access to markets is hampered by poor roads,
rudimentary market infrastructure, and excessive regulation.
India has many farm insurance companies that insure wheat, fruit, rice and rubber
farmers in the event of natural disasters or catastrophic crop failure, under the supervision
of the Ministry of Agriculture. One notable company that provides all of these insurance
policies is Agriculture Insurance Company of India and it alone insures almost 20 million
farmers.
India's population is growing faster than its ability to produce rice and wheat.[21] The most
important structural reform for self-sufficiency is the ITC Limited plan to connect 20,000
villages to the Internet by 2013.[143] This will provide farmers with up to date crop prices
for the first time, which should minimise losses incurred from neighbouring producers
selling early and in turn facilitate investment in rural areas.
[edit] Corruption
India ranked 120th on the Ease of Doing Business Index 2008, behind countries such as
China (83rd), Pakistan (86th), and Nigeria (108th).
Corruption has been one of the pervasive problems affecting India. The economic
reforms of 1991 reduced the red tape, bureaucracy and the Licence Raj that had strangled
private enterprise and was blamed for the corruption and inefficiencies. Yet, a 2005 study
by Transparency International (TI) India found that more than half of those surveyed had
firsthand experience of paying bribe or peddling influence to get a job done in a public
office.[144]
The Right to Information Act (2005) and equivalent acts in the Indian states, that require
government officials to furnish information requested by citizens or face punitive action,
computerisation of services and various central and state government acts that established
vigilance commissions have considerably reduced corruption or at least have opened up
avenues to redress grievances.[144] The 2007 report by Transparency International ranks
India at 72nd place and states that significant improvements were made by India in
reducing corruption.[145][146]
[edit] Government
The number of people employed in non-agricultural occupations in the public and private
sectors. Totals are rounded. Private sector data relates to non-agriculture establishments
with 10 or more employees.[129]
The current government has concluded that most spending fails to reach its intended
recipients.[147] Lant Pritchett calls India's public sector "one of the world's top ten biggest
problems — of the order of AIDS and climate change".[147] The Economist's article about
Indian civil service (2008) says that Indian central government employs around 3 million
people and states another 7 million, including "vast armies of paper-shuffling peons".[147]
Million dollar bureaucracies can be run without a single computer in the management.[147]
At local level, administration can be worse. It is not unheard of that most state assembly
seats are held by convicted criminals.[148] One study found out that 25% of public sector
teachers and 40% of public sector medical workers could not be found at the workplace.
India's absence rates are one of the worst in the world.[149][150][151][152]
The Reserve Bank of India has warned that India's public-debt to GDP ratio is over 70%.
[153]
The government of India is highly indebted and its former investment-grade status
has deteriorated near junk status.[154] India's current public-debt to GDP ratio is 58.2%
(US has 60.8%) [155][156]
[edit] Education
India has made huge progress in terms of increasing primary education attendance rate
and expanding literacy to approximately two thirds of the population.[157] However,
education is still far behind developing countries such as China. Most children never
attend secondary schools.[157] An optimistic estimate is that only one in five job-seekers in
India has ever had any sort of vocational training.[158]
[edit] Infrastructure
See also: Transport in India, Indian Road Network, Ports in India, Electricity in India,
States of India by installed power capacity, Water supply and sanitation in India, and
Communications in India
Rapid increases in exports has resulted in congestion on highways across India. Shown
here is the Mumbai-Pune expressway in Maharashtra.
Development of infrastructure was completely in the hands of the public sector and was
plagued by corruption, bureaucratic inefficiencies, urban-bias and an inability to scale
investment.[159] India's low spending on power, construction, transportation,
telecommunications and real estate, at $31 billion or 6% of GDP in 2002 had prevented
India from sustaining higher growth rates. This has prompted the government to partially
open up infrastructure to the private sector allowing foreign investment[129][160][161] which
has helped in a sustained growth rate of close to 9% for the past six quarters.[162]
Some 600 million Indians have no mains electricity at all.[163] While 80% of Indian
villages have at least an electricity line, just 44% of rural households have access to
electricity.[164] According to a sample of 97,882 households in 2002, electricity was the
main source of lighting for 53% of rural households compared to 36% in 1993.[165] Some
half of the electricity is stolen, compared with 3% in China. The stolen electricity
amounts to 1.5% of GDP.[164][166] Almost all of the electricity in India is produced by the
public sector. Power outages are common.[163] Many buy their own power generators to
ensure electricity supply. As of 2005 the electricity production was at 661.6 billion kWh
with oil production standing at 785,000 bbl/day. In 2007, electricity demand exceeded
supply by 15%.[163] Multi Commodity Exchange has tried to get a permit to offer
electricity future markets.[167]
Indian Road Network is developing. Trucking goods from Gurgaon to the port in
Mumbai can take up to 10 days.[168] India has the world's second largest road network.[169]
Container traffic is growing at 15% a year.[170] Some 60% of India’s container traffic is
handled by the Jawaharlal Nehru Port Trust in Mumbai. Internet use is rare; there were
only 2.1 million broadband lines in India in January 2007.[171]
Most urban cities have good water supply water 24 hours a day, while some smaller cities
face water shortages in summer season. A World Bank report says it is an institutional
problem in water agencies, or "how the agency is embedded in the relationships between
politics and the citizens who are the consumers."[172]
India's restrictive labor regulations hamper the large-scale creation of formal industrial
jobs.[8][158][173]
Lagging states need to bring more jobs to their people by creating an attractive investment
destination. Reforming cumbersome regulatory procedures, improving rural connectivity,
establishing law and order, creating a stable platform for natural resource investment that
balances business interests with social concerns, and providing rural finance are important.
One of the critical problems facing India's economy is the sharp and growing regional
variations among India's different states and territories in terms of per capita income,
poverty, availability of infrastructure and socio-economic development. [175] Seven low-
income states - Bihar, Chhattisgarh, Jharkhand, Madhya Pradesh, Orissa, Rajasthan, and
Uttar Pradesh - are home to more than half of India's population.[176]
Between 1999 and 2008, the annualized growth rates for Gujarat (8.8%), Haryana
(8.7%), or Delhi (7.4%) were much higher than for Bihar (5.1%), Uttar Pradesh (4.4%),
or Madhya Pradesh (3.5%).[177]
Poverty rates in rural Orissa (43%) and rural Bihar (40%) are some of the worst in the
world.[172] On the other hand, rural Haryana (5.7%) and rural Punjab (2.4%) compare well
with middle-income countries.[172]
About 1.2 billion people in developing nations lack clean, safe water because most
household and industrial wastes are dumped directly into rivers and lakes without
treatment. This contributes to the rapid increase in waterborne diseases in humans. [182]
Out of India's 3119 towns and cities, just 209 have partial treatment facilities, and only 8
have full wastewater treatment facilities (WHO 1992).[183] Indoor air pollution from
burning wood, coal and animal dung is widespread.[184] 70% of rural households in India
lack ventilation. Particulate concentrations in houses are reported to range from 8,300 to
15,000 μg/m3, greatly exceeding the 75 μg/m3 maximum standard for indoor particulate
matter in the United States.[185]
Labour in India
From Wikipedia, the free encyclopedia
India's labour force exhibits extremes ranging from large numbers of illiterate workers
unaccustomed to machinery or routine, to a sizable pool of highly educated scientists,
technicians, and engineers, capable of working anywhere in the world. A substantial
number of skilled people have left India to work abroad; the country has suffered a brain
drain since independence. Nonetheless, many remain in India working alongside a trained
industrial and commercial work force. Administrative skills, particularly necessary in
large projects or programs, are in short supply, however. In the mid-1990s, salaries for
top administrators and technical staff rose sharply, partly in response to the arrival of
foreign companies in India.
Contents
[hide]
• 1 Labour Relations
• 2 Recent trends
• 3 See also
• 4 References
The government recorded 1,825 strikes and lockouts in 1990. As a result, 24.1 million
workdays were lost, 10.6 million to strikes and 13.5 million to lockouts. More than 1.3
million workers were involved in these labour disputes. The number and seriousness of
strikes and lockouts have varied from year to year. However, the figures for 1990 and
preliminary data from 1991 indicate declines from levels reached in the 1980s, when in
some years as many as 35 million workdays were lost because of labour disputes.
The isolated, insecure, and exploited labourers in rural areas and in the urban
unorganized sectors present a stark contrast to the position of unionized workers in many
modern enterprises. In the early 1990s, there were estimates that between 10 percent and
20 percent of agricultural workers were bonded laborers. The International Commission
of Jurists, studying India's bonded labour, defines such a person as one who works for a
creditor or someone in the creditor's family against nominal wages in cash or kind until
the creditor, who keeps the books and sets the prices, declares the loan repaid, often with
usurious rates of interest. The system sometimes extends to a debtor's wife and children,
who are employed in appalling working conditions and exposed to sexual abuse. The
constitution, as interpreted by India's Supreme Court, and a 1976 law prohibit bonded
labour. Implementation of the prohibition, however, has been inconsistent in many rural
areas.
Many in the urban unorganized sector are self-employed labourers, street vendors, petty
traders, and other services providers who receive little income. Along with the
unemployed, they have no unemployment insurance or other benefits.
Industrial relations
From Wikipedia, the free encyclopedia
The field of industrial relations (also called labour relations) looks at the relationship
between management and workers, particularly groups of workers represented by a
union.
Labour relations is an important factor in analyzing "varieties of capitalism", such as
neocorporatism (or corporatism), social democracy, and neoliberalism (or liberalism).
Labour relations can take place on many levels, such as the "shop-floor", the regional
level, and the national level. The distribution of power amongst these levels can greatly
shape the way an economy functions.
Another key question when considering systems of labour relations is their ability to
adapt to change. This change can be technological (e.g., "What do we do when an
industry employing half the population becomes obsolete?"), economic (e.g., "How do
we respond to globalization?"), or political (e.g., "How dependent is the system on a
certain party or coalition holding power?").
Governments set the framework for labor relations through legislation and regulation.
In Australia industrial relations is the commonly used term, though in recent years the
term workplace relations has also become common. This was a prominent issue in the
defeat of the centre-right Howard Liberal government at the 2007 federal election, who
with a Senate majority had introduced the WorkChoices policy.
The academic discipline of labor studies is closely related to and often studied and
taught in conjunction with the study industrial and labor relations in english language
universities.
Part of a series on
Organized labour
Labour rights[show]
Trade unions[show]
Strike actions[show]
Academic disciplines[show]
v•d•e
Contents
[hide]
• 1 Theoretical perspectives
o 1.1 Unitarist perspective
o 1.2 Pluralist perspective
Consequently, trade unions are deemed as unnecessary since the loyalty between
employees and organizations are considered mutually exclusive, where there can't be two
sides of industry. Conflict is perceived as disruptive and the pathological result of
agitators, interpersonal friction and communication breakdown.
Consequently, the role of management would lean less towards enforcing and controlling
and more toward persuasion and co-ordination. Trade unions are deemed as legitimate
representatives of employees, conflict is dealt by collective bargaining and is viewed not
necessarily as a bad thing and, if managed, could in fact be channeled towards evolution
and positive change.
Exim Bank (full name: The Export-Import Bank of India) is an Indian government-
owned financial institution for the public sector created by and Act of the Parliament of
India: the Export-Import Bank of India Act 1981.
Exim Bank is managed by a Board of Directors, which has representatives from the
Government, Reserve Bank of India, Export Credit Guarantee Corporation of India
(ECGC), a financial institution, public sector banks, and the business community.
The Bank's functions are segmented into several operating groups including:
Project Finance / Trade Finance Group handles the entire range of export credit services
such as supplier's credit, pre-shipment credit, buyer's credit, finance for export of projects
& consultancy services, guarantees, forfaiting etc.
Small and Medium Enterprises Group to the specific financing requirements of export
oriented SMEs. The group handles credit proposals from SMEs under various lending
programmes of the Bank.
Export Services Group offers variety of advisory and value-added information services
aimed at investment promotion
Fee based Export Marketing Services Bank offers assistance to porate Affairs.
[edit] Organization
Exim Bank is managed by a Board of Directors, which has representatives from the
Government, Reserve Bank of India, Export Credit Guarantee Corporation (ECGC) of
India, a financial institution, public sector banks, and the business community.
The Bank's functions are segmented into several operating groups including:
Corporate Banking Group which handles a variety of financing programmes for Export
Oriented Units (EOUs), Importers, and overseas investment by Indian companies.
Project Finance / Trade Finance Group handles the entire range of export credit services
such as supplier's credit, pre-shipment Agri Business Group, to spearhead the initiative to
promote and support Agri-exports. The Group handles projects and export transactions in
the agricultural sector for financing.
Small and Medium Enterprise: The group handles credit proposals from SMEs under
various lending programmes of the Bank.
Export Services Group offers variety of advisory and value-added information services
aimed at investment promotion
Export Marketing Services Bank offers assistance to Indian companies, to enable them
establish their products in overseas markets.
Besides these, the Support Services groups, which include: Research & Planning,
Corporate Finance, Loan Recovery, Internal Audit, Management Information Services,
Information Technology, Legal, Human Resources Management and Corporate Affairs.
--------------------------------------------------------------------------------------------------
Link for indian foreign policy and exim policy. Pls refer this anna
http://www.eximpolicy.com/
http://exim.indiamart.com/indian-exim-policy/
Highlights of EXIM Policy, 2002 - 2007
Agriculture
Export restrictions like registration and packaging
requirement are being removed today on Butter,
Wheat and Wheat products, Coarse Grains,
Groundnut Oil and Cashew to Russia .
Quantitative and packaging restrictions on wheat
and its products, Butter, Pulses, grain and flour of
Barley, Maize, Bajra, Ragi and Jowar have
already been removed on 5th March, 2002.
(d) Leather
Duty free imports of trimmings and
embellishments upto 3% of the FOB value
hitherto confined to leather garments extended to
all leather products.
(e) Textiles
(c) Projects
Free import of equipment and other goods used
abroad for more than one year.
i. Licence/Certificate/Permissions and
Customs clearances for both imports
and exports on self-declaration basis.
ii. Fixation of Input-Output norms on
priority;
iii. Priority Finance for medium and long
term capital requirement as per
conditions notified by RBI;
iv. Exemption from compulsory negotiation
of documents through banks. The
remittance, however, would continue to
be received through banking channels;
v. 100% retention of foreign exchange in
Exchange Earners’ Foreign Currency
(EEFC) account;
vi. Enhancement in normal repatriation
period from 180 days to 360 days.
Value of fuel as a
percentage of
Product Group
FOB value of
exports
Bulk Drug and Drug
5%
Intermediates
Glass 5%
Ceramic Products 5%
Pesticides
(Technical)/
5%
Pesticides formulation
from Basic Stage
Refractory items 7%
Ferrous engineering
products
manufactured though 7%
forging/ casting
process
Fibre to yarn 4%
Yarn to fabric/
3%
madeups/ garments
Fibre to fabric/
7%
madeups/ garments
DGFT
Customs
Adoption and harmonisation of the 8 digit
ITC(HS) code.
Banks
ISO 4217
INR
Code
Official
India
user(s)
Bhutan (alongside the Bhutanese ngultrum)
Unofficial
Nepal (in towns of Nepalese side of Nepal-
user(s)
India border, alongside the Nepalese rupee)
Inflation 3.97 %
Source The World Factbook October, 2008 est.
Bhutanese ngultrum at par
Pegged by
Nepalese rupee
Subunit
1/100 paisa
Symbol
Coins
Freq. used 50 paise, 1, 2 & 5 rupees
Rarely used 5, 10, 20 & 25 paise, 10 rupees
Banknotes
Freq. used 5, 10, 20, 50, 100, 500 & 1000 rupees
Rarely used 1 & 2 rupees
Central bank Reserve Bank of India
Website www.rbi.org.in
Mint India Government Mint
The rupee (Hindi: रपया) (code: INR) is the currency of India. The issuance of the
currency is controlled by the Reserve Bank of India. The most commonly used symbols
for the rupee are Rs, ₨ and र. The ISO 4217 code for the Indian rupee is INR. On 5
March 2009 the Indian Government announced a contest to create a symbol for the
Rupee.[1] The modern rupee is subdivided into 100 paise (singular paisa).
In most parts of India, the rupee is known as the rupee, rupaya (Hindi), roopayi in Telugu
(రూపయ) and Kannada (ರೂಪಯ), rubai in Tamil (ரபாய), roopa in Malayalam
(രപ), rupaye in Marathi (रपये) or one of the other terms derived from the Sanskrit
rupyakam [2] (Devanagari: रपयकं), raupya meaning silver; rupyakam meaning (coin) of
silver. However, in West Bengal, Tripura, Orissa, and Assam, the Indian rupee is
officially known by names derived from the Sanskrit Tanka. Thus, the rupee is called টাকা
Taka in Bengali, টকা tôka in Assamese, and ଟଙା Tôngka in Oriya, with the symbol T, and
is written as such on Indian banknotes.
Contents
[hide]
• 1 Numeral system
• 2 History
• 3 Plastic Money
• 4 International use
• 5 Coins
o 5.1 East India Company, -1862
o 5.2 Regal Issues, 1862-1947
o 5.3 Independent Issues, Predecimal, 1950-1957
o 5.4 Independent Issues, Decimal, 1957-
• 6 Banknotes
o 6.1 British India, 1861-1947
o 6.2 Independent Issues, 1949-
o 6.3 Currently Circulating Notes
o 6.4 Language panel
o 6.5 Security features
• 7 Convertibility
o 7.1 Chronology
• 8 Claim of Pakistani governmental counterfeiting
• 9 See also
• 10 Exchange rates
o 10.1 Historical exchange rates
o 10.2 Current exchange rates
• 11 References
• 12 External links
As is standard in Indian English, large values of Indian rupees are counted in terms of
thousands, lakh (100 thousand = 105 rupees, in digits 1,00,000), crore (100 lakhs = 107
rupees, in digits 1,00,00,000) and arawb (100 crore = 109 rupees, in digits
100,00,00,000). The use of million or billion, as is standard in American or British
English, is far less common.
For example, the amount INR 3,25,84,729.25 is spoken as three crore twenty-five lakhs
eighty-four thousand seven hundred twenty-nine rupees and twenty-five paise (see Indian
numbering system).
[edit] History
Main article: History of the rupee
India was one of the earliest issuers of coins (circa 6th century BC). The first "rupee" is
believed to have been introduced by Sher Shah Suri (1486-1545), based on a ratio of 40
copper pieces (paisa) per rupee. Among the earliest issues of paper rupees were those by
the Bank of Hindustan (1770-1832), the General Bank of Bengal and Bihar (1773-75,
established by Warren Hastings) and the Bengal Bank (1784-91), amongst others.
Until 1815, the Madras Presidency also issued a currency based on the fanam, with 12
fanams equal to the rupee.
Historically, the rupee, derived from the Sanskrit word raupya, which means silver, was a
silver coin. This had severe consequences in the nineteenth century, when the strongest
economies in the world were on the gold standard. The discovery of vast quantities of
silver in the U.S. and various European colonies resulted in a decline in the relative value
of silver to gold. Suddenly the standard currency of India could not buy as much from the
outside world. This event was known as "the fall of the rupee."
India was not affected by the imperial order-in-council of 1825 that attempted to
introduce the British sterling coinage to the British colonies. British India at that time was
controlled by the British East India Company. The silver rupee continued as the currency
of India throughout the entire period of the British raj and beyond. In the year 1835,
British India set itself firmly upon a mono-metallic silver standard based on the rupee.
His decision was influenced by a letter, written in the year 1805, by Lord Liverpool that
extoled the virtues of mono-metallism.
Following the Indian mutiny in 1857, the British government took direct control of
British India. Since 1851, gold sovereigns were being produced in large numbers at the
Royal Mint branch in Sydney, New South Wales. In the year 1864 in an attempt to make
the British gold sovereign become the 'imperial coin', the treasuries in Bombay and
Calcutta were instructed to receive gold sovereigns. These gold sovereigns however
never left the vaults. As was realized in the previous decade in Canada, and the next year
in Hong Kong, existing habits are not easy to replace. And just as the British government
had finally given up any hopes of replacing the rupee in India with the pound sterling,
they simultaneously realized, and for the same reasons, that they couldn't easily replace
the silver dollar in the Straits Settlements with the Indian rupee, as had been the desire
of the British East India Company.
Since the great silver crisis of 1873, a growing number of nations had been adopting the
gold standard. In 1898, British India officially adopted the gold exchange standard by
pegging the rupee to the British pound sterling at a fixed value of 1 shilling 4 pence (i.e.,
15 rupees = 1 pound). In 1920, the actual silver value of the rupee was increased in value
to 2 shillings (10 rupees = 1 pound). Interestingly in British East Africa at this time, the
decision was made to replace the rupee with a florin. No such opportunity was, however,
taken in British India.
In 1927, the peg was once more reduced, this time to 1 shilling 6 pence (13⅓ rupees =
1 pound). This peg was maintained until 1966, when the rupee was devalued and pegged
to the U.S. dollar at a rate of 7.5 rupees = 1 dollar (at the time, the rupee became equal to
11.4 British pence). This peg lasted until the U.S. dollar devalued in 1971.
The Indian rupee replaced the Danish Indian rupee in 1845, the French Indian rupee in
1954 and the Portuguese Indian escudo in 1961. Following independence in 1947, the
Indian rupee replaced all the currencies of the previously autonomous states. Some of
these states had issued rupees equal to those issued by the British (such as the Travancore
rupee). Other currencies included the Hyderabad rupee and the Kutch kori.
In 1957, decimalisation occurred and the rupee was divided into 100 naye paise (Hindi
for "new paise"). In 1964, the initial "naye" was dropped. Many still refer to 25, 50 and
75 paise as 4, 8 and 12 annas respectively, not unlike the usage of "bit" in American
English for ⅛ dollar.
In March 2009 the Indian Finance Ministry launched a public competition to select a
symbol for the currency.[4]
With Partition, the Pakistani rupee came into existence, initially using Indian coins, and
Indian currency notes simply overstamped with Pakistan. In previous times, the Indian
rupee was regarded as an official currency of other countries, including Aden, Muscat,
Kuwait, Bahrain, Qatar, the Trucial States (now the UAE), Kenya, Tanganyika, Uganda,
the Seychelles, and Mauritius. The Gulf rupee, also known as the Persian Gulf rupee
(XPGR), was introduced by the Indian government as a replacement for the Indian rupee
for circulation exclusively outside the country with the Reserve Bank of India
[Amendment] Act, May 1, 1959. This creation of a separate currency was an attempt to
reduce the strain put on India's foreign reserves by gold smuggling. After India devalued
the rupee on June 6, 1966, those countries still using it — Oman, Qatar and what is now
the United Arab Emirates (known as the Trucial States until 1971) - replaced the Gulf
rupee with their own currencies. Kuwait and Bahrain had already done so in 1961 and
1965 respectively.
The Bhutanese Ngultrum is at par with the Indian Rupee and both are accepted in Bhutan.
The Indian rupee is also accepted in towns of Nepalese side of Nepal-India border.
Some Indian shops in the United Kingdom have accepted Rupees. The Glassy Junction
Pub in Southall is also famous for accepting Rupees as well as pound sterling[citation needed].
[edit] Coins
[edit] East India Company, -1862
The three Presidencies established by the British East India Company (Bengal, Bombay
and Madras) each issued their own coinages up to 1835. All three issued rupees together
with fractions down to ⅛ and 1⁄16 rupee in silver. Madras also issued 2 rupees coins.
Copper denominations were more varied. Bengal issued 1 pie, ½, 1 and 2 paise. Bombay
issued 1 pie, ¼, ½, 1, 1½, 2 and 4 paise. In Madras, there were copper coins for 2, 4 pies,
1, 2 and 4 paisa, with the first two denominated as ½ and 1 dub or 1⁄96 and 1⁄48 rupee. Note
that Madras also issued the Madras fanam until 1815.
All three Presidencies issued gold mohurs and fractions of mohurs, including 1⁄16, ⅛, ¼
and ½ in Bengal, 1⁄15 (a gold rupee) and ⅓ (pancia) in Bombay and ¼, ⅓ and ½ in
Madras.
In 1835, a single coinage for the EIC was introduced. It consisted of copper 1⁄12, ¼ and ½
anna, silver ¼, ½ and 1 rupee and gold 1 and 2 mohurs. In 1841, silver 2 annas were
added, followed by copper ½ pice in 1853. The coinage of the EIC continued to be issued
until 1862, even after the Company had been taken over by the Crown.
In 1862, coins were introduced which are referred to as Regal issues. They bore the
portrait of Queen Victoria and the designation "India". Denominations were 1⁄12 anna, ½
pice, ¼ and ½ anna (all in copper), 2 annas, ¼, ½ and 1 rupee (silver) and 5 and 10 rupees
and 1 mohur (gold). The gold denominations ceased production in 1891 while no ½ anna
coins were issued dated later than 1877.
In 1906, bronze replaced copper for the lowest three denominations and in 1907, a cupro-
nickel 1 anna was introduced. In 1918 and 1919, cupro-nickel 2, 4 and 8 annas were
introduced, although the 4 and 8 annas coins were only issued until 1921 and did not
replace their silver equivalents. Also in 1918, the Bombay mint struck gold sovereigns
and 15 rupee coins identical in size to the sovereigns as an emergency measure due to the
First World War.
In the early 1940s, several changes were implemented. The 1⁄12 anna and ½ pice ceased
production, the ¼ anna was changed to a bronze, holed coin, cupro-nickel and nickel-
brass ½ anna coins were introduced, nickel-brass was used to produce some 1 and 2
annas coins, and the composition of the silver coins was reduced from 91.7% to 80%.
The last of the regal issues were cupro-nickel ¼, ½ and 1 rupee pieces minted in 1946
and 1947.
India’s first coins after independence were issued in 1950. They were 1 pice, ½, 1 and 2
annas, ¼, ½ and 1 rupee denominations. The sizes and compositions were the same as the
final Regal issues, except for the 1 pice, which was bronze but not holed.
The first decimal issues of India consisted of 1, 2, 5, 10, 25 and 50 naye paise and 1
rupee. The 1 naya paisa was bronze, the 2, 5 and 10 naye paise were cupro-nickel and the
25 and 50 naye paise and 1 rupee were nickel. In 1964, the word naya(e) was removed
from all the coins. Between 1964 and 1967, aluminium 1, 2, 3, 5 and 10 paise were
introduced. In 1968, nickel-brass 20 paise were introduced, replaced by aluminium coins
in 1982. Between 1972 and 1975, cupro-nickel replaced nickel in the 25 and 50 paise and
the 1 rupee. In 1982, cupro-nickel 2 rupees coins were introduced. In 1988, stainless steel
10, 25 and 50 paise were introduced, followed by 1 rupee coins in 1992. Also in 1992,
the 5 rupee coin was introduced.
Between 2005 and 2008, new, lighter 50 paise,1, 2 and 5 rupee coins were introduced, all
struck in ferritic stainless steel. The move was prompted by the melting down of older
coins whose face value was less than their scrap value.
The coins commonly in circulation are 50 paise, 1, 2 and 5 rupees. Although they remain
valid, 5, 10, 20 and 25 paise coins have become increasingly rare in regular usage.
5 22 mm
1.5 g Aluminium Square 1957 1994
paise (diagonal)
10 Ferritic Emblem of
16 mm 2g Circular Value 1961 1998
paise stainless steel India
20 27 mm
2.2 g Aluminium Hexagon 1982 1994
paise (longest)
25
19 mm 2.83 g Circular Rhinoceros –
paise
1973
Value, Hand
50
22 mm 3.79 g circular showing -
paise
thumb
Value, Hand
Rs. 2 27 mm 5.62 g circular showing 2 2005 -
fingers
Value, wavy
Rs. 5 23 mm 6g circular 2007 -
lines
[edit] Banknotes
[edit] British India, 1861-1947
In 1861, the Government of India introduced its first paper money, 10 rupee notes. These
were followed by 20 rupee notes in 1864, 5 rupees in 1872, 10,000 rupees in 1899, 100
rupees in 1900, 50 rupees in 1905, 500 rupees in 1907 and 1000 rupees in 1909. In 1917,
1 and 2½ rupees notes were introduced.
The Reserve Bank of India began note production in 1938, issuing 2, 5, 10, 100, 1000
and 10000 rupee notes, while the Government continued to issue 1 rupee notes.
After independence, new designs were introduced to remove the portrait of the King. The
government continued to issue the 1 rupee note, while the Reserve Bank issued other
denominations, including the 5000 and 10,000 rupee notes introduced in 1949. In the
1970s, 20 and 50 rupee notes were introduced but denominations higher than 100 rupees
were demonetized in 1978. In 1987, the 500 rupee note was introduced, followed by the
1000 rupees in 2000.
Description
Date of
Image Obverse Value Dimensions Main Colour
issue
Obverse Reverse
117 × Mahatma
Rs. 5 Green Tractor 2002
63 mm Gandhi
147 × Parliament of
Rs. 50 Violet 1997
73 mm India
Blue-green at
Rs. 157 × Himalaya
centre, brown- 1996
100 73 mm Mountains
purple at 2 sides
These images are to scale at 0.7 pixels per millimetre. For table standards, see the banknote specification table.
The current series, which began in 1996, is called the Mahatma Gandhi series. Currency
notes are printed at the Currency Note Press, Nashik, Bank Note Press, Dewas, Bharatiya
Note Mudra Nigam (P) Limited presses at Salboni and Mysore and at the Watermark
Paper Manufacturing Mill, Hoshangabad.
Each banknote has its amount written in 17 languages (English & Hindi on the front, and
15 others on the back) illustrating the diversity of the country. ATMs usually give Rs.
100, Rs. 500, and Rs. 1000 notes. Rs. 1000 notes are analogous to the higher valued notes
of the United States dollar and the euro.
In recent years, the banknotes were slightly modified to include see through registration
on the left side of obverse. In addition, the year is now printed on the reverse. EURion
constellation was added to Rs. 100. The revised Rs. 10, 20 were issued in 2006, and Rs.
50, 100, 1000 in 2005. The RS. 5 notes were stopped from being printed, but have started
again since 2009.
The language panel on Indian rupee banknotes display the denomination of the note in 15
of the 22 official languages of India.
[edit] Convertibility
Officially, the Indian rupee has a market determined exchange rate. However, the RBI
trades actively in the USD/INR currency market to impact effective exchange rates. Thus,
the currency regime in place for the Indian rupee with respect to the US dollar is a de
facto controlled exchange rate. This is sometimes called a dirty or managed float. Other
rates such as the EUR/INR and INR/JPY have volatilities that are typical of floating
exchange rates.[6] It should be noted, however, that unlike China, successive
administrations (through RBI, the central bank) have not followed a policy of pegging the
INR to a specific foreign currency at a particular exchange rate. RBI intervention in
currency markets is solely to deliver low volatility in the exchange rates, and not to take a
view on the rate or direction of the Indian rupee in relation to other currencies.[7]
Also affecting convertibility is a series of customs regulations restricting the import and
export of rupees. Legally, foreign nationals are forbidden from importing or exporting
rupees, while Indian nationals can import and export only up to 5000 rupees at a time,
and the possession of 500 and 1000 rupee notes in Nepal is prohibited.
RBI also exercises a system of capital controls in addition to the intervention (through
active trading) in the currency markets. On the current account, there are no currency
conversion restrictions hindering buying or selling foreign exchange (though trade
barriers do exist). On the capital account, foreign institutional investors have
convertibility to bring money in and out of the country and buy securities (subject to
certain quantitative restrictions). Local firms are able to take capital out of the country in
order to expand globally. But local households are restricted in their ability to do global
diversification. However, owing to an enormous expansion of the current account and the
capital account, India is increasingly moving towards de facto full convertibility.
[edit] Chronology
• 1991 - India began to lift restrictions on its currency. A series of reforms remove
restrictions on current account transactions including trade, interest payments &
remittances and on some capital assets-based transactions.
• 1997 - A panel set up to explore capital account convertibility recommended India
move towards full convertibility by 2000, but timetable abandoned in the wake of
the 1997-98 East Asian financial crisis.
• 2006 - The Prime Minister, Dr Manmohan Singh, asks the Finance Minister and
the Reserve Bank of India to prepare a road map for moving towards capital
account convertibility. The "Fuller Capital Account Convertibility Report" that
came about was sharply criticized by experts, 2006-07-31,
http://rbidocs.rbi.org.in/rdocs/PublicationReport/Pdfs/72250.pdf, retrieved 2009-
01-23
On 30-08-2009, Vikki, the son of an ISI agent, Majid Manihar was arrested in Bahraich,
Uttar Pradesh, on trying to enter India with fake notes. Investigations and interrogation
revealed that currency is printed in Pakistan and then routed to India through Nepal. He
also admitted that fake notes were sold at 50% of their face value in the country. [10]
From Currate.com Tools: AUD CAD CHF EUR GBP HKD JPY USD
From Yahoo! Finance: AUD CAD CHF EUR GBP HKD JPY USD
From XE.com: AUD CAD CHF EUR GBP HKD JPY USD
From OANDA.com: AUD CAD CHF EUR GBP HKD JPY USD
A joint venture (often abbreviated JV) is an entity formed between two or more parties
to undertake economic activity together. The parties agree to create a new entity by both
contributing equity, and they then share in the revenues, expenses, and control of the
enterprise. The venture can be for one specific project only, or a continuing business
relationship such as the Fuji Xerox joint venture. This is in contrast to a strategic alliance,
which involves no equity stake by the participants, and is a much less rigid arrangement.
The phrase generally refers to the purpose of the entity and not to a type of entity.
Therefore, a joint venture may be a corporation, limited liability company, partnership or
other legal structure, depending on a number of considerations such as tax and tort
liability.
Contents
[hide]
• 7 External links
Some countries, such as the People's Republic of China and to some extent India, require
foreign companies to form joint ventures with domestic firms in order to enter a market.
This requirement often forces technology transfers and managerial control to the
domestic partner.
[edit] Brokers
In addition, joint ventures are practiced by a joint venture broker, who are people that
often put together the two parties that participate in a joint venture. A joint venture broker
then often make a percentage of the profit that is made from the deal between the two
parties.
Competitive goals
Strategic goals
1. Synergies
2. Transfer of technology/skills
3. Diversification
[edit] Examples
• INTO University Partnerships specialises in creating JVs with British universities
• AutoAlliance International (Ford + Mazda)
• Infineum (ExxonMobil + Shell)
• Brewers Retail Inc. (Inbev, Molson Coors + Sapporo Breweries)
• Bank DnB NORD (DnB NOR + NORD/LB)
• Equilon (Texaco + Shell)
• Strategic Alliance (Northwest Airlines + KLM)
• LG.Philips Components (LG + Philips)
• NUMMI (General Motors + Toyota)
• Penske Truck Leasing (GE + Penske)
• Sony Ericsson (Sony + Ericsson)
• TNK-BP (BP + TNK (Tyumen Oil Co.))
• Verizon Wireless (Verizon Communications + Vodafone)
• CW Television Network (CBS Corporation + Warner Bros.)
• The Baseball Network (ABC, NBC, + Major League Baseball)
• The Prime Time Entertainment Network from the Prime Time Consortium
(Warner Bros. + the Chris-Craft group of independent stations.)
• The XFL (NBC + World Wrestling Entertainment)
• The Nokia Siemens Networks (Nokia + Siemens AG)
• Fujitsu Siemens Computers (Fujitsu + Siemens AG)
• The Balfour Beatty Skanska, construction contractors (Balfour Beatty + Skanska)
• Shell-Mex and BP (Royal Dutch Shell + British Petroleum, 1931-1975)
• United Launch Alliance (ULA) (Boeing + Lockheed Martin).
• Sony BMG Music Entertainment (Sony Music Entertainment [part of Sony] +
Bertelsmann Music Group [part of Bertelsmann])
• MSNBC (Microsoft + NBC Universal)
• Hulu (NBC Universal + News Corp + ABC, Inc.)
• GlobalFoundries (AMD + Advanced Technology Investment Co. (ATIC))
• Borusan Enerji (Borusan Holding + EnBW AG)
• TriStar Pictures (Columbia Pictures, HBO, + CBS)
Management consulting
From Wikipedia, the free encyclopedia
Management consulting refers to both the industry of, and the practice of, helping
organizations improve their performance, primarily through the analysis of existing
business problems and development of plans for improvement.
Contents
[hide]
• 1 History
• 2 Approaches
o 2.1 Specializations
• 3 Current state of the industry
• 4 Trends
o 4.1 Rise of Internal Corporate Consulting Groups
4.1.1 Advantages
4.1.2 Disadvantages
• 5 Government Consultants
o 5.1 United Kingdom
• 6 Management Consulting Companies Rating
• 7 Criticism
• 8 Professional qualifications
• 9 See also
o 9.1 Lists of firms
o 9.2 Areas of action of Consulting
o 9.3 Related Culture
o 9.4 Institutes
• 10 References
• 11 External links
• 12 Further reading
[edit] History
Management consulting grew with the rise of management as a unique field of study. The
first management consulting firm was Arthur D. Little, founded in 1886 by the MIT
professor of the same name.[citation needed] Though Arthur D. Little later became a general
management consultancy, it originally specialized in technical research. Booz &
Company was founded by Edwin G. Booz, a graduate of the Kellogg School of
Management at Northwestern University, in 1914 as a management consultancy and the
first to serve both industry and government clients.
After World War II, a number of new management consulting firms formed, most
notably Boston Consulting Group, founded in 1963, which brought a rigorous analytical
approach to the study of management and strategy. Work done at Boston Consulting
Group, McKinsey, Booz & Company, and the Harvard Business School during the 1960s
and 70s developed the tools and approaches that would define the new field of strategic
management, setting the groundwork for many consulting firms to follow. In 1983,
Harvard Business School's influence on the industry continued with the founding of
Monitor Group by six professors.
One of the reasons why management consulting grew first in the USA is because of deep
cultural factors: it was accepted there, (contrary to say, Europe), that management and
boards alike might not be competent in all circumstances; therefore, buying external
competency was seen as a normal way to solve a business problem. This is referred to as
a "contractual" relation to management[citation needed]. By contrast, in Europe, management is
connected with emotional and cultural dimensions, where the manager is bound to be
competent at all times. This is referred to as the "pater familias" pattern[citation needed].
Therefore seeking (and paying for) external advice was seen as inappropriate [citation needed].
However, it is sometimes argued that in those days the average level of education of the
executives was significantly lower in the USA than in Europe, where managers were
Grandes Ecoles graduates (France) or "Doktor" (Germany), though this is very difficult
to quantify given the vastly differing management structures in American and European
businesses[citation needed].
It was only after World War II, in the wake of the development of the international trade
led by the USA, that management consulting emerged in Europe. The current trend in the
market is a clear segmentation of management consulting firms.[citation needed]
[edit] Approaches
In general, various approaches to consulting can be thought of as lying somewhere along
a continuum, with an 'expert' or prescriptive approach at one end, and a facilitative
approach at the other. In the expert approach, the consultant takes the role of expert, and
provides expert advice or assistance to the client, with, compared to the facilitative
approach, less input from, and fewer collaborations with, the client(s). With a facilitative
approach, the consultant focuses less on specific or technical expert knowledge, and more
on the process of consultation itself. Because of this focus on process, a facilitative
approach is also often referred to as 'process consulting,' with Edgar Schein being
considered the most well-known practitioner. The consulting firms listed above are closer
toward the expert approach of this continuum.
Many consulting firms are organized in a matrix structure, where one 'axis' describes a
business function or type of consulting: for example, strategy, operations, technology,
executive leadership, process improvement, talent management, sales, etc. The second
axis is an industry focus: for example, oil and gas, retail, automotive. Together, these
form a matrix, with consultants occupying one or more 'cells' in the matrix. For example,
one consultant may specialize in operations for the retail industry, and another may focus
on process improvement in the downstream oil and gas industry.
[edit] Specializations
A fifth type that is emerging is the sourcing advisory firm, that advise buyers on sourcing
choices related to insourcing, outsourcing, vendor selection, and contract negotiations.
The top 10 sourcing advisors (as ranked by the Black Book of Outsourcing) were TPI,
Gartner, Hackett Group, Everest Group, PwC, Avasant, PA Consulting, and EquaTerra.[1]
Although a fast growing sector, the largest sourcing advisory practices would likely be
classified as boutiques when considering the management consulting industry as a whole
- with one of the largest players, TPI, for example, citing 2006 revenues of less than
US$150M during its acquisition by ISG.[2]
[edit] Trends
Management consulting is becoming more prevalent in non-business related fields as
well.[citation needed] As the need for professional and specialized advice grows, other
industries such as government, quasi-government and not-for-profit agencies are turning
to the same managerial principles that have helped the private sector for years.
One important and recent change in the industry has been the spin-off or separation of the
consulting and the accounting units of the large diversified firms. For these firms, which
began business as accounting firms, management consulting was a new extension to their
business. But after a number of highly publicized scandals over accounting practices,
such as the Enron scandal, accountancies began divestiture of their management
consulting units, to more easily comply with the tighter regulatory scrutiny that followed.
Added to these approaches are corporations that set up their own internal consulting
groups, hiring internal management consultants either from within the corporation or
from external firms employees. Many corporations have internal groups of as many as 25
to 30 full-time consultants.
Internal consulting groups are often formed around a number of practice areas,
commonly including: organizational development, process management, information
technology, design services, training, and development.
[edit] Advantages
There are several potential benefits of internal consultants to those who employ them:
• If properly managed and empowered, internal consulting groups evaluate
engagement on projects in light of the corporation's strategic and tactical
objectives.
• Often, the internal consultant requires less ramp up time on a project due to
familiarity with the corporation, and is able to guide a project through to
implementation—-a step that would be too costly if an external consultant were
used.
• Internal relationship provides opportunities to keep certain corporate information
private.
• It is likely that the time and materials cost of internal consultants is significantly
less than external consultants operating in the same capacity.
Note: Corporations need to be conscious of and consistent with how internal consultant
costs are accounted for on both a project and organizational level to evaluate cost
effectiveness.
A group of internal consultants can closely monitor and work with external consulting
firm. This would ensure better delivery, quality, and overall operating relationship.
External firms providing consulting services have a dichotomy in priority. The health of
the external firm is in aggregate more important that the health of the client organization.
(client objectives are ultimately secondary to that of the strategic goals of the external
firm)
Again assuming proper management, internal consulting groups are less likely have a
dichotomy in priority. The health of the client organization is in aggregate more
important that the health of the internal consulting group. (Put the company objectives
first)
[edit] Disadvantages
• The internal consultant may not bring the objectivity to the consulting relationship
that an external firm can.
• An internal consultant also may not bring to the table best practices from other
corporations. A way to mitigate this issue is to recruit experience into the group
and/or proactively provide diverse training to internal consultants.
• Where the consulting industry is strong and consulting compensation high, it can
be difficult to recruit candidates.
• It is often difficult to accurately measure the true costs and benefits of an internal
consulting group.
• When financial times get tough, internal consulting groups that have not
effectively demonstrated economic value (costs vs. benefits) are likely to face size
reductions or reassignment.
From 1997 to 2006, Labour governments have spent £20 billion for management
consultants and at least another £50 billion for IT systems, up significantly from the £500
million a year spent by the previous Conservative government.[3] From 2003–2006
spending on consultants has risen by a third, from £2.1 billion in 2003–04 to £2.8 billion
in 2005–06, largely due to increases in spending by the National Health Service. In the
past three years £7.2 billion has been spent on consultancy services from large
consultancy firms.[4]
[edit] Criticism
Despite consistently high and growing revenues, management consultancy also
consistently attracts a significant amount of criticism, both from clients, and also from
management scholars.
"Management consultants are often criticized for overuse of buzzwords[6], reliance on and
propagation of management fads, and a failure to develop plans that are executable by the
client." A number of critical books about management consulting argue that the mismatch
between management consulting advice and the ability of business executives to actually
create the change suggested results in substantial damages to existing businesses.[7]
Disreputable consulting firms are often accused of delivering empty promises, despite
high fees. They are often charged with "stating the obvious" and lacking the experience
on which to base their advice. These consultants bring few innovations, and instead offer
generic and "prepackaged" strategies and plans that are irrelevant to the client’s particular
issue. They may fail to prioritize their responsibilities, placing their own firm’s interests
before the clients'. [8]
Further criticisms include: disassembly of the business (by firing employees) in a drive to
cut costs[6], only providing analysis reports, junior consultants charging senior rates,
reselling similar reports to multiple clients as "custom work", lack of innovation,
overbilling for days not worked, speed at the cost of quality, unresponsive large firms &
lack of (small) client focus, and lack of clarity of deliverables in contracts.
• Strategic management
• Operations management
• Industrial engineering
Related Culture
• Case interview
• Motivational speaking
• Business coaching
• Management fad
• Business philosophies and popular management theories sub system organisation
and effect on the entire managemental culture
Institutes
Mahendra Babu.