INDUSTRIAL ECONOMICS

PRESENTATION ON

PRESENTED BY: ANJALI KRISHNAN M

MEGHASHYAMA S
3rd SEMESTER MA ECONOMICS
INDUSTRIAL GROWTH IN INDIA TRENDS AND PATTERNS
INTRODUCTION

INDUSTRY: Industry is the production of an economic good or service with an

economy. The manufacturing or technically productive enterprises in a particular
field, country, region or economy viewed collectively, or one of these individually.

For statistical purposes, industries are categorized generally according a uniform

classification code such as Standard Industrial Classification (SIC). Any general
business activity or commercial enterprise that can be isolated from others, such
as the tourist industry or the entertainment industry.

Industries can be classified in a variety of ways- NIC (National industrial

classification), SIC(standard industrial classification) etc.

INDUSTRY: It refers to a group of companies that are related in terms of their

primary business activities. In modern economics, there are dozens of different
industry classification which are typically grouped into larger categories called
sector. Many developed countries and many developing or semi developed
countries depend significantly on industry.

HISTORY – INDUSTRIAL GROWTH IN INDIA

-PROCESS OF INDUSTRIAL TRANSITION IN INDIA

The process of industrial transition in the British period is broadly divided into
industrial growth during the 19th century and industrial progress during the 20th
century.

It was mainly the private sector –whether indigenous or foreign that carried
industrialization forward. Only after the First World War some protection was
granted to Indian industries otherwise Indian industry had to weathers all storms
and face world competition on its own strength. This explains the slow growth of
industrialization.

(a) Private enterprise and industrial growth in the 19th century: - The
outstanding industrial events of the 19th century were the decline of
indigenous industries and the rise of large-scale modern industries.This
change was brought about by private enterprises. The rise of large scale
industries was slow in the beginning but by the close of the 19th century,
the movement was more rapid.

The period 1850-55 saw the establishment of First Cotton mill, First Jute
mill and First Coal mine. In the same period , the First Railway line was laid
in India. In a period of 25 years ,that is, by the last quarter of the 19th
century, there were 51 cotton mills and 18 jute mills. During the same
period, India produced one million tonnes of coal per annum and the Indian
railways had a mileage of 8,000. By the end of the 19th century there were
194 cotton mills and 36 jute mills, and coal production had risen to over 6
million tonnes per annum.In spite of the very rapid increase in
industrialization and the fact that the foundations for the development of
modern industries for the utilization of coal and iron resources were laid by
the end of the 19th century.

India was being gradually converted into an agricultural colony of the

British by 1900, India had become a great exporter of rice,
wheat,cotton,jute,oilseeds,tea etc.

(b)Private enterprise and industrial growth in the first half of the 20th
century:- In 1905 , the swadheshi movement was started . It stimulated
Indian industries and there was a slow but steady growth in the field of
exisiting industries as well as the establishment of new industries between
1890 and outbreak of the war of 1914. Over 70 cotton mills and nearly 30
jute mills were set up in the century. Coal production was more than
doubled. Extension of railways continued at the rate of about 800 miles per
annum.The foundation of iron and steel industry was finally laid during this
period.

The war of 1914-18 created enormous demand for factory goods in India.
Imports from England and other foreign countries fell substantially.
*Tariff protection to Indian industries: - In 1923 the government of India
accepted the recommendations of the first Fiscal commission and gave
protection to selected Indian industries against foreign competition.
Between 1924 and 1939 several major industries were given protection by
the government, prominent among them being iron and steel industry,
cotton textiles, jute, sugar, paper and pulp industry, matches etc. India
industrialists took advantage of the policy of protection extended by the
government and developed the protected industries rapidly. They were
able to capture the entire Indian market and eliminate foreign competition
altogether in important fields.

*PROGRAMMES FOR INDUSTRIA L DEVELOPMENT UNDER THE FIVE YEAR

PLANS

 First Five Year Plan(1951-56):- On the eve of the first plan , the
industrial development textiles in India was confined largely to the
consumer goods sector .and other important industries being cotton
textiles, sugar, salt, soap ,leather goods and paper.

Thus the industrial structure exhibited the features of an under developed

economy. The first plan did not envisage any large-scale programmers of
industrialization. Accordingly only rupees 55 crore out of the total
expenditure of rupees 1,960 crore in the first plan (2.8%) was spent on
industry and minerals.

The plan made an attempt to give a practical shape to the concept of mixed
economy by providing for the development of both, the public sector and
private sector in a complementarily manner. A number of industries were
either set up in the

Public sector or started production.

Important projects in this category included Hindustan shipyard, Hindustan

machine tools, Hindustan Antibiotics, Integral coach factory etc. The
private sector also set up a number of industries mostly in the consumer
goods like sugar, cotton, textiles etc.
The table shows the trends in industrial growth :-

Concepts which included in the table

*IIP-(INDEX OF INDUSTRIAL PRODUCTION):-It is a single representative

figure to measure the general level of industrial activity in the country.

*BASIC GOODS:- In economics a good wanted not for its own sake but for
the goods derived it.

*CAPITAL GOODS:-It is the durable good used as a inputs in the production

of other goods or services

*INTERMEDIATE GOODS:- Semi-finished products or goods used as inputs in

the production of other goods

*CONSUMER GOODS:-Which are products directly purchased by consumer

for personal or household use it divided into

(a) DURABLE GOODS:-These goods are typically characterized by long

Period between successive purchases.

E.g.:- cars, household

(b)NON-DURABLE GOODS:-They may be defined either as goods that are

immediately consumed in one use.

E.g.:-cosmetics, food, fuel etc

 FIRST FIVE YEAR PLAN(1951-56)

And this table (1) shows the trends in industrial growth when the
growth rate of industrial production over the first plan period up to
1956 is 5.7%. We can see this fact that the rate of growth of capital
goods industries shot up considerably from 9.8% per annum in first
plan.
Another important group of industries from the point of view of industrial
is basic industries. The rate of growth of this group also registered a
significant increase from 4.7% per annum in the first plan.

 Second Five Year Plan(1956-61):- The second plan accorded top

priority to programmes of industrialization as would be clear from
the fact that the expenditure on industry and minerals was hiked to
rupees 938 crore under this plan which was 20% of total expenditure
of rupees 4,672 crore.Based on Mahalanobis model, the second plan
set out the task of establishing basic and capital goods industries on a
large scale so that a strong base for industrial development in the
future could be built.
Annual growth rate of IIP is 7.2% capital goods 13.1. Another
important group of industries from the point of view of industrial
development is basic industries it is significant increase 4.7 to 12.1 in
second plan
 THIRD FIVE YEAR PLAN(1961-66)
Third five year plan also pressed forward with the establishment of
basic capital and producer goods industries with special emphasis on
machine building programme so that the growth of the economy in
the subsequent plan could become self-sustain. Expenditure on
industry in third plan was rupees 1,726 crores which is 20.1% of the
total expenditure of rupees 8,577 crore under the plan.
Trends in industrial growth in 3rd plan we can see that Annual
industrial production is 9.0% the view of long run industrial
development is the fact that the rate of growth of capital goods
industries shot up considerably from 19.6% in the third plan. Another
important group of industries from the point of view of industrial
development is basic industries it is10.4% per annum.
These trends shows that a strong base for industrial development
was laid during the first three plans. The credit for this goes to the
macssive expansion of investment that took place in the public
sector.
 FOURTH FIVE YEAR PLAN: (1969-74) & FIFTH FIVE YEAR PLAN:(1974-
79)
This structure of industrial development was promoted and nurtured
in the 4th& 5th plan also with minor changes here and there. Out of
the total expenditure of rupees 15,779 crore in the fourth plan ,
industry receives rupees 2,864 crore (ie 18.2% of the total).The
expenditure on industry was hiked to 22.8% (rupees 8,989) crore out
of the total of rupees 39,426 crore) in the fifth plan.
The trends in industrial growth we can see in these 4th plan was
marked by a sharp deceleration in industrial growth.
The rate of growth steeply from 9.0% per annum during the third
plan to mere 4.1% per annum during the 4th plan.(Removal of
poverty is major objective).but in fifth growth rate is 6% .If we
consider the fifth plan period, the rate of growth of capital goods
industries goes up to 5.7% per annum. But as would be clear this
table even this is substantically lower than the rates of growth
recorded in the first three plans. The same case of basic industries.
Decline in the growth rate of capital goods industries and basic
industries in the period after the third plan clearly represents the
phenomenon of structural retrogression.
Several explanations were offered for the phenomenon of
decelaration and retrogression in the industrial sector the govt
expressed the view that exogeneous factor such as the wars of 1965
and 1971 drought conditions in some year oil crisis of 1973 etc.were
responsible for slow down of growth.
Use-based or 1951 to 1955 1960 19651974t to 1979-80
functional 55 to to o 1979
classification (4years) 1960 1965 1976 (Fifth plan
Average)

1,Basic Goods 4.7 12.1 10.4 6.5 8.4 -0.5

2,Capital Goods 9.8 13.1 19.6 2.6 5.7 -2.3

3,Intermediate 7.8 6.3 6.9 3.0 4.3 1.9
Goods
4,Consumer 4.8 4.4 4.9 3.4 5.5 -4.4
goods
5,General Index 5.7 7.2 9.0 4.1 6.1 -1.6
(IIP)

 SIXTH FIVE YEAR PLAN(1980-85)

The total expenditure of rupees 1,09,292 crore under the sixth plan
,the share of the ng industrial sector was rupees 15, crore which
comes to 13.7%. The period of the sixth plan saw wide range changes
in the industrial policy of the govt.The industrial and trade policies
were substantially liberalized.As a result, industrial production
started picking up but also created certain distortions in the economy
as the import – intensive sector of consumer durables and the group
of chemicals, and allied industries much ahead of other sectors and
group of industries.Plan period of 1980 can broadly be termed as a
period of industrial recovery. In this table the rate of industrial
growth was 6.4% per annum during 1981-85.
  SEVENTH FIVE YEAR PLAN (1985-90)
The over all envisaged in the seventh plan for industrial and mineral
programmes (as stated earlier, data on village and small-scale industries
are excluded in the public sector which is 11.9% of the total expenditure
of rupees 2,18,730 crore in the seventh plan. Industrial production was
targeted to grow at the rate of 8.7% per annum.The actual targeted to
grow at the rate of 8.7% per annum. The actual average rate of growth
during the seventh plan works out 8.5 % per annum.In the 7th plan the
annual growth is 8.5 this marked upturn from growthrates of around 4%
achived during the latter half of 1960s and 1970s.
This performance is also an improvement upon the growth rates
achived during the first and second plan periods.Very important aspect
of the growth revival during the first half of the 1980 was that it was not
associated with an acceleration in the growth of factor inputs but
was,rather based on better productivity performance.

Rate of Growth of Industrial Production (Use-based) (Base1980-81)

Use-based or 1981-85 1985-90 1990-91

Functional
Classification
1,Basic Goods 8.7 7.4 3.8

2,Capital Goods 6.2 14.8 17.4

3,IntermediateGOODS 6.0 6.4 6.1

4,Consumer Goods 5.1 7.3 10.4

General Index(IIP) 6.4 8.5 8.3

ECONOMIC REFOORM AND INDUSTRIL GROWTH IN INDIA

Until 1980s the process of industrialization was guided by an inward looking and
state led command planning strategy. There was a system of government
regulation and controls on the private sector and a protected environment for the
public sector.

A process of reflection and debate on the need for a change in policies had been
set in motion in India I the second half of the 1979s.india used the decade of
1980s for experimentation of domestic deregulation. The reform on the industrial
policy front coincided with sharp deterioration I the fiscal deficit of the
government increased from 6.2% of GDP IN 1980-81 TO 8.3% BY 1990-91.

The country went through a severe economic crisis in 1991.ut was converted in to
an opportunity to introduce some fundamental changes in the content and
approach .the response to the policies was to put in place a set of policies aimed
at stabilization and structural reform. Whilestabilization policies were aimed at
correcting the weaknesses that had developed on the fiscal and the balance of
payment frunts,the structural reforms sought to remove the rigidities that had
entered into the various segments of the Indian economy.

The trust of the new economic policy has been towards the creating a more
competitive environment in the economy as a measure to improve the
productivity and efficiency of the system. This was to be achieved by removing
the barriers to entry and the restriction on the growth of the firm.

Performance of industries in planning period.

As far as the 8th five year plan the overall outlay for industry and mineral
programmers in the public sector was kept at 40,588 crore .This was only 9.3% of
total plan outlay. This reduced allocation to industry and mineral is in line with
the liberalization measures announced in the new industrial policy of 1991.

In line with the liberalization of industrial policy, the 8th plan placed less emphasis
on quantitative target. It sought to achieve the desired growth in different sectors
primarily through modification in industry, trade, fiscal policies and changes in
duties and taxes rather than through quantitative restriction on import, export or
licensing mechanism. The annual growth rate during 8th plan was 7.4% per
annum.The cause cited for lower growth during 8th five year plan as compared to
seventh plan include sudden exposure to foreign competition on account of
liberalization of import and a drastic reduction in import duties. There was also
slowdown of public investment to control the fiscal deficit.

Private investment also slowed down drastically under the underdeveloped

capital market, high cost of borrowing and imposition of Minimum Alternative Tax
(MAT).

Inadequate and quality of infrastructure –power and transportation bottlenecks,

inadequate handling facility at port, increasing imports of basic materials and
intermediate goods and components second hand machinery due to anomalous
tariff structure also affect industrial production.

The ninth plan emphasized on the quality of the quality of infrastructure, exports
,review of small scale industries , reservation for critical export industries such as
toys, garments and leather gods, labor legislation, disinvestment of PSEs ,balance
in industrial development investment in domestic Rand D, and linking of Rand D
with industry. The government also decided to dismantle the administered price
mechanism in respect of petroleum products in a phased manner.

The ninth plan outlay for industry and minerals was kept at 65,148 crore .this was
7.6% of the total plan outlay of 8, 59,200crore.the industrial growth during ninth
five year plan was 4.5% while that for manufacturing mining and electricity
generation were 5.3%,2.5 and 5.5% respectively. Internal factor cited for the
slowdown were slowdown in domestic and global demand ,continuing high real
interest rates, infrastructure bottlenecks in power and transports, lack of reforms
in and and labor markets, decline in private investment and delays in establishing
appropriate institutional and regulatory frameworks in some key sectors.

The tenth five year plan proposed on outlay of 58,938crore for industry and
minerals which was just 3.9% of the total outlay of 15,25,638crore.this reduced
the allocation to industry is in line with the government’s strategy to liberalize
and privatize and give more space to the private sector to expand its activities .
The plan achieved growth rate of 8% per annum.

The dynamism in manufacturing during the tenth plan increased its growth rate to
8.7% compared to 3.8% in the ninth five year plan. A conductive investment
climate for the industry was attempted through elimination of entry barriers n
etc. Against the background of a growing manufacturing scenario, the growth
target for 11th plan for industry and manufacturing were set at an average annual
rate of 9.8%.the emphasis was on creation of world class infrastructure, especially
on quality of electricity, power, roads, railway, airport, etc.

group 2007- 2008- 2009- 2010- 2011-

08 09 10 11 12

mining 4.6 2.6 7.9 5.2 -2.0

manufacturing 18.4 2.5 4.8 9.0 3.0

electricity 6.3 2.7 6.1 5.5 8.2

General index 15.5 2.5 5.3 8.2 2.9

The manufacturing growth rate peaked at 18.4% in 2007-08 and then started
decelerating .the decline manufacturing growth was primarily responsible for
slow down of GDP 2011-12,while global economic meltdown, frangile economic
recovery in US and EU ,etc.The rate of growth of manufacturing in GDP has
declined from 10.3% in 2007-08 to 4.3% I 2008-09, revived in 009-10 and 2010-11
to 9.7% and 7.6% respectively.

The national manufacturing policy was introduced in 2011has the underline

objective of increasing the share of manufacturing in the GDP from 1% to 16% to
25%by 2025 and also provide employment to 100 million additional job seekers.

YEAR SHARE OF
INDUSTRY TO
 GDP

1950-92 21.6

1992-97 25.9

1997-2002 25.7

2002-07 26.1

2007-08 28.7

2008-09 28.1

2009-10 28.1

2010-11 27.8

2011-12 27.0

The share of industry in the gross domestic product in 1950-51(at 1999-2000

prices) was 15.1%.this increased steadily to 25.9% in 1990-91.his share of industry
in GDP rose to 28.1% in 2008-09. But in 2011-12,

The Quick Estimates of Index of Industrial Production (IIP) with base 2004-05 for
the month of July 2013 have been released by the Central Statistics Office of the
Ministry of Statistics and Programme Implementation. IIP is compiled using data
received from 16 source agencies viz. Department of Industrial Policy &
Promotion (DIPP); Indian Bureau of Mines; Central Electricity Authority; Joint
Plant Committee; Ministry of Petroleum & Natural Gas; Office of Textile
Commissioner; Department of Chemicals & Petrochemicals; Directorate of Sugar;
Department of Fertilizers; Directorate of Vanaspati, Vegetable Oils & Fats; Tea
Board; Office of Jute Commissioner; Office of Coal Controller; Railway Board;
Office of Salt Commissioner and Coffee Board.

2. The General Index for the month of July 2013 stands at 171.5, which is 2.6%
higher as compared to the level in the month of July 2012. The cumulative growth
for the period April-July 2013-14 over the corresponding period of the previous
year stands at (-) 0.2%.

3. The Indices of Industrial Production for the Mining, Manufacturing and

Electricity sectors for the month of July 2013 stand at 117.0, 182.7 and 164.5
respectively, with the corresponding growth rates of (-) 2.3%, 3.0% and 5.2% as
compared to July 2012 (Statement I). The cumulative growth in the three sectors
during April-July 2013-14 over the corresponding period of 2012-13 has been (-)
4.0%, (-) 0.2% and 3.9% respectively.

4. In terms of industries, eleven (11) out of the twenty two (22) industry groups
(as per 2-digit NIC-2004) in the manufacturing sector have shown positive growth
during the month of July 2013 as compared to the corresponding month of the
previous year (Statement II). The industry group ‘Electrical machinery & apparatus
n.e.c.’ has shown the highest positive growth of 83.6%, followed by 44.0% in
‘Wearing apparel; dressing and dyeing of fur’ and 16.5% in ‘Luggage, handbags,
saddlery, harness & footwear; tanning and dressing of leather products’. On the
other hand, the industry group ‘Radio, TV and communication equipment &
apparatus’ has shown a negative growth of 20.8% followed by 11.3% in ‘Furniture;
manufacturing n.e.c.’ and 10.6% in ‘Machinery and equipment n.e.c.’.

5. As per Use-based classification, the growth rates in July 2013 over July 2012 are
1.7% in Basic goods, 15.6% in Capital goods and 2.4% in Intermediate goods
(Statement III). The Consumer durables and Consumer non-durables have
recorded growth of (-) 9.3% and 6.8% respectively, with the overall growth in
Consumer goods being (-) 0.9%.

6. Some of the important items showing high positive growth during the current
month over the same month in previous year include ‘Fruit Pulp’ (50.5%), ‘Cashew
Kernels’ (23.2%), ‘Apparels’ (39.8%), ‘Leather Garments’ (62.6%), ‘Purified
Terephthalic Acid’ (29.6%), ‘Vitamins’ (61.8%), ‘Ayurvedic Medicaments’ (44.6%),
‘Cable, Rubber Insulated’ (336.0%) and ‘Ship Building & Repairs’ (58.7%).
7. Some of the other important items showing high negative growth are: ‘Grinding
Wheels’ [(-) 29.4%], ‘Boilers’ [(-) 36.6%], ‘Air Conditioner (Room)’ [(-) 30.8%],
‘Earth Moving Machinery’ [(-) 42.6%], ‘Sugar Machinery’ [(-) 27.9%], ‘Plastic
Machinery Incl. Moulding Machinery’ [(-) 40.7%], ‘Transformers (Small)’ [(-)
22.7%], ‘Generator/ Alternator’ [(-) 42.0%], ‘Telephone Instruments (incl. Mobile
Phones & Accessories)’ [(-) 21.5%] and ‘Gems and Jewellery’ [(-) 20.5%].

Indian industrial sector is growing faster after the planning period mainly because
of liberalization and also privatization principles of government .it led new way of
development in India towards consumer oriented industrial development.