Industry
Industrialisation has a major role to play in the economic development of underdeveloped countries. The gap in per capita incomes between the developed and underdeveloped countries are largely reflected in the disparity in the structure of their economies; the former are largely industrial economies, while in the latter production is confined predominantly to agriculture. Undoubtedly, some countries have achieved relatively high per capita incomes by virtue of their fortunate natural resource endowments. Petroleum exporting countries, like Saudi Arabia, Kuwait, and UAE have achieved higher per capita income by exploiting the strong advantage that they enjoy in international trade. But these countries are a rather special case. As rising levels of per capita consumption have gradually transformed the composition of demand for goods and services and as technological changes have resulted in the more economic use of new materials or the creation of synthetic substitutes, the growth of import demand of the advanced countries for most primary products has lost the momentum of the earlier period and, currently, it lags behind the growth in their domestic incomes and output. The volume of exports from the underdeveloped countries expanded at a rate of 3.6 per cent per annum while the exports from the developed countries rose at the rate of 6.2 per cent. This export lag is accompanied by a deterioration in their terms of trade. Thus in view of unfavourable trends in world trade of primary commodities, industrialisation is the only effective answer to the problems. of under-developed countries.
Percentage Industrial Distribution Of Gross Domestic Production And Per Capita Income (2009)
Before the arrival of Britishers, India was industrially more advanced as compared to the economies of the West European countries. The Britishers systematically destroyed the industrial base of India. As a result, India inherited a weak industrial base, underdeveloped infrastructural facilities and a stagnant economy at the time of Independence. The government called an Industries Conference in December 1947 to consider ways and means to utilize the existing capacity more fully and to harness industry to the growing requirements of the people. The Conference was attended by the representatives of the Central and Provincial governments, industrialists and labour. To ensure better relations between management and employees, a tripartite agreement was entered into which provided for a three-year industrial truce between the management and labourers. To assist industrial development, the government. granted certain tax concessions to the industry in 1948-49 and passed the Bill to establish the Industrial Finance Corporation of India. The Industrial Policy Resolution was also passed in 1948.* These factors had a favourable impact on industrial development.
Development of Industry in India :
Industrial development during the period of planning can be divided into the following distinct phases.
- Phase I which covered the period of the first three plans (i.e. the period 1951 to 1965) laid the basis for industrial development in the future by building up a strong industrial structure.
- Phase II which covered the period 1965 to 1980 was marked by industrial deceleration and structural retrogression.
- Phase III which covered the period of eighties (1980 to 1990-91) was marked by industrial 90 recoveries.
- Phase IV covering the post-reform period (i.e. the period 1991-92 onwards).
Phase I (1951-65)
Phase I laid the basis for industrial development in the future. The Second Plan, based on the Mahalanobis model, emphasized the development of capital goods industries and basic industries. Accordingly, huge investments were made in industries like iron and steel, heavy engineering, and machine-building industries. The same pattern of investment was continued in the Third Plan as well a strong base for industrial development was laid during the first three plan periods. The credit for this undoubtedly goes to the massive expansion of investment that took place in the public sector.
Phase II (1965-80)
The period 1965 to 1976 was marked by a sharp deceleration in industrial growth. The rate of growth fell steeply from 9.0 per cent per annum during the Third Plan to a mere 4.1 per cent per annum during the period 1965 to 1976. In addition to the phenomenon of deceleration in industrial growth during the period 1965 to 1980, the phenomenon of structural retrogression plagued the industrial sector during this period. From the point of view of long-run industrial development, the most important group increase from 9.8 per cent per annum in the First Plan to 13.1 per cent in the Second Plan and further to a phenomenal 19,6 per cent per annum in the Third Plan. However, in the next eleven years (1965 to 1976), the capital goods sector grew at an annual rate of only 2.6 per cent.
Phase III (1981-91)
The period of the 1980s can broadly be termed as a period of industrial recovery. The main causes of industrial recovery during the eighties are generally listed as follows
New industrial policy and liberal fiscal regime
One of the main causes of industrial recovery during the eighties was the liberalisation of industrial and trade policies by the government. The important features of a liberal fiscal regime were Maintenance of high budgetary deficits year after year; Resort to massive borrowing often at high-interest rates; The encouragement of dissaving.
Contribution of the agricultural sector
Increased prosperity of large farmers in certain regions of the country helped in creating additional demand for industrial goods. There was a spurt in demand for a certain range of manufactured goods due to an increase in the use of manufactured inputs per unit of cultivated area (or output).
Growth of service sector
There was a significant increase in government expenditure on all services in the eighties. The consumption pattern of the service class is less food-intensive and more oriented towards durable consumer goods. Therefore the consumption pattern of effective demand in the eighties changed in favour of consumer durable goods). The fast growth of the consumer durable goods sector pushed up the rate of industrial growth.
The Infrastructure Factor
There was a marked resurgence in infrastructure investment in the eighties. As against only 4.2 per cent per annum increase in infrastructure investment during 1965-66 to 1975-76, the increase was as high as 9.7 per cent per annum during 1979-80 to 198485. Infrastructure investment rose further by 16.0 per cent in 1985-86 and 18.3 per cent in 1986.