Role of Industrialisation
Industrialisation has an important role to play in development of a country. This is true in the context of the developing countries as well. To some extent the gap in per capita income between developed and developing countries could be attributed to the structure of the economy in which a relatively poor position of industrialisation adversely affect income levels and distribution. Industrialisation has contributed to rapid growth in economies of most of the advance countries.
Industrialisation plays an important role in modernising agriculture and imporving productivity in it. Industry provides agriculture with the latest tools and equipments which go a long way in enhancing efficiency in this sector.
The export capability is also is said to be dependent on the degree of industrialisation in a country. A broad indication is provided by the fact that the growth in exprot trade has been almost double in the advanced countries compared to developing countires. There are considerable incidental benefits in terms of growth of technology, employment and infrastructure which also reveal the importance of industrialisation in a country.
No country can hope to attain self-sustaining growth without industriali-sation because among other things the growth in other sector depends to no degree on this capability and therefore, industrialisation is a must for take-off of the economy.
Also, as income increases, considering the higher income elasticity of demand for manufactures, we can say that higher income per head would lead to higher demand for manufactures. These then constitue inter-related fields which can contribute to rapid growth and economic prosperity of the country.
The per capita productivity is definitely higher in case of industry compared with agriculture which explains the secret of higher per capita income in those countries which have higher degree of industrialisation. May be it is on account of greater capital intensity and improved technology but the fact remains that higher per capita income is easier with industrialisation than without it.
Interdependence of agricultural and industrial sectors
All the sectors of an economy are dependent on one-another for their development and for the advancement of the economy as a whole. This is also true for agricultural sector and industrial sector of any economy.
Agriculture plays an important role in industrial development. It provides its services to industrial sectors in three important ways:
(i) Provision of food products and other products for the consumption purposes of industrial and other sectors.
(ii) Provision of raw-materials for the development of a few industries of the economy.
(iii) Provision of markets for the industrial products.
Generally speaking, in India approximately 60 per cent of the household consumption and 85 per cent of the commodity consumption is of agricultural products. This speaks of the importance of agriculture for the economy as a whole. Considering agricultural and industrial sectors only we find that industrial sector is depend upon agricultural sector wholly because all workers engaged in industries depend for their essential consumption requirements of agriculture. Also, agriculture provides raw materials to the cotton textile, jute, sugar, tea, tobacco, and vanaspati and other industries which are of basic importance to the national economy. Since the output of these industries is directly related to agriculture, their performance and ultimately the economy’s performance is directly affected by the agricultural performane. Not only this, agriculture also provides a market for the industrial products. If the agricultural sector is well-developed, the income of the rural people is fairly high; it provides an incentive to the rural people to demand industrial goods—consumption goods and investment goods—on an increasing scale. If on the other hand agricultural sector is just self-sufficient the demand for industrial sectoris also very low. Since the level of income of Indian farmers and landless labourers is very low, market for industrial products is very limited. This acts and has acted as a constraint for industrial development.
Just as industrial sector is dependent upon the agricultural sector agricultural sector also cannot develop without growth in the industrial sector. This happens because industries provide an impetus for growth to agriculture by providing latest farm machines and tools which make mechanization possible and which led to growth of agricultural productivity. It is because of well-developed industrial sector that irrigation facilities, fertilizers, pesticides etc. have been developed for the agricultural sector and which have made possible the increase in agricultural production and productivity. This increase in productivity results in increase in the income of the people and also in shift of the people from agricultural sector to other sectors of the economy. If other sector viz. secondary and tertiary are able to absorb this section of people, the structure of the economy undergoes changes and growth is said to have taken place. In Indian economy this shift has not taken place because of failure of agricultural sector to release and industrial sector to absorb people on an increasing scale. Thus, for the over-all growth of an economy it is very important that agriculture and industry grow hand in hand.
Pattern of industrial development since independence
The industrial development pattern on the eve of Independence and of economic planning was characterised by the following elements:
1 Lop-sided pattern of development dominated by too large and too small size industrial units, with very few medium size units. There was a high concentration of employment in small industries and household industries and in large industries.
2 Capital employed per worker in industry was very low because of low priority given to industry, low level of domestic demand and low per capita income.
3 There was a preponderance of consumer goods industries to the utter neglect of capital goods industries like steel, machinery, heavy electricals and chemicals. The country had to largely depend on imports for capital goods.
The progress of industialisation during the last 57 years has been striking. There has been a phenomenal development of capital goods industries, substantial diversification and broad-basing of manufactured products, and huge production capacities have been built with heavy investment in several industrial sectors; the development of small scale industries was truly remarkable. The share of manufactured goods in exports registered handsome gains. The country achieved near self-sufficiency in many industries. An impressive base has been created in sophisticated and high technology industrial sectors like electronics, machine tools, tele-communication equipment and the like.
Problems of industrial development of India
While industrial development in India since independence has been truly remarkable, the process brought about in its wake a wide range of serious problems which are briefly discussed as follows:
Failure to achieve targets of production
A persistent malady of industrialisation programmes is serious gaps between planned production and actual production in physical terms. Project to invariably remain much behind schedule in completion and in starting production. Even investments made in productive assets do not bring fruits as expected in terms of time, value and quality and cost. Cost over-runs and time over-runs of projects have become a way of industrial life. The causes include poor planning indifferent execution, bottlenecks in supplies of equipment, materials, power and finance, labour problems, technical complications and so on.
Under-utilisation of capacity
A large number of industries experience endemic under-utilisation of production capacity. The magnitude of under-utilisation varies from 20% to 60% in different industrial sectors, the average under-utilisation being in the region of 40% to 50%.
It is argued by some that the net output of industries in India could be easily increased by 30 to 40% without any investment in capital equipment, but by better management of purchasing, production, manpower and marketing systems.
The facrtors responsible for under-utilisation of capacity are said to be;
1 Indiscriminate grabbing and creation of capacities by private enterprise
2 Demand short-falls q Over-optimistic demand projections q Supply bottle-necks q Labour problems q Deliberate under-utilisation to create shortages and thereby to corner more profits.
Increasing capital-output ratio
Another very disturbing future of industrial development of India is the ever-rising average and incremental capital output ratios (ICOR). The increasing trend of capital output ratios could be explained in terms of increasing capital costs of new industrial units, highly capital intensive nature of basic and heavy units, under-utilisation of capacity, unremunerative adminis-tered prices in respect of basic goods and services and so on.
High cost industrial economy
The costs and prices of manufactured goods and services in India are generally much higher than international costs and prices. The consuming public is obliged to bear high burden. The high cost economy is attributed to import substitution, government protection to indigenous industries, monopolistic tendencies in several industrial areas, high wage rates, increasing capital intensity in industrial units, low productivity of labour, uneconomic size of industrial units, lack of cost consciousness among industrial magnates and managers and so on.
Inadequate employment generation
One of the most serious deficiencies of industrial development over the decades since independence is its inadequate employment generation, in relation to investment made. The process of industrialisation has failed to make a marked dent on the unemployment problem in India. Employment generation through industrisation has been decreasing over the decades. Though employment generation is one of the major objectives of five year plans, industrialisation, especially large-scale factory oriented industrialisation with high capital intensity has proved itself to be incapable of generation of substantial direct employment. It may provide some indirect employment in ancillary sector and in the services sector which grow in tune with majufactruing activity.
Poor performance of public sector
Though public sector has grown by leaps and bounds over the last five decades backed by massive public investment, its performance on production and profits front has been generally disappointing. Though profit may not always be the appropriate criterion for evaluating the performance of public sector industrial units, its relevance cannot be ignored altogether. Commercial and economic efficiency is to a large extent reflected in profit. A loss making undertaking becomes weakened in course of time. It loses dynamism and survival capability. A large number of public sector units are ‘loss leaders’ in the industrial sphere while the rate of profitability of others is low.
Sectoral imbalances
Planned economic and industrial development pre-supposes co-ordinated and balanced development of all sectors. There should be proper orchestration and fine tuning of all sectors so that they reinforce each other. In India, industrial development on an over-all basis suffered several set-backs because of inadequate support from agriculture and infrastructure. Even within the industrial sector the input-output relations between individual industries like steel and machine building, petro chemicals and fertilizers, are such that they have to be develooped in harmony. But in real practice, several sectoral imbalances at a point of time and over a period of time plague the industrial economy of India.
Regional imbalances
Industrial development continues to be lopsided, regionwise. Large scale industries are concentrated in a very few states like Maharashtra, West Bengal, Tamilnadu and Gujarat. These four States account for 44% of total factories and 48% of productive capital. It is true that a large number of new industrial growth centres have emerged since Independence in several States like Bihar, U.P., Punjab, A.P. , Karnataka, M.P., and Rajasthan. But these States continue to be industrially backward. The industrial units established in these States have somehow failed to generate further industrialisation. Also several States have not been able to attract major industrial units inspite of incentives and facilities because of the magnetic pull of industrially advanced States.
Industrial Sickness
There is a wide-spread sickness among industrial units—both large and small, in India. It is a phenomenon throughout the country. It is not confined to private sector units only; it is equally endemic in public sector units. It makes no distinction between traditional industries like sugar, cotton, textiles and jute and modern industries like steel, cement, paper and eletronics.
A sick unit is one which is unable to perform its normal function and activities of production of goods and services at a reasonable profit on a sustained basis. A few important feautres of sickness include: q Failure to generate internal surpluses on a continuous basis. q Over-dependence on periodic infusion of funds from outside q depletion of working capital to meet current commitments q Current ratio being less than 1:1. q Drying up of sufficient cash inflow sources. q Piling up of losses exceeding capital and reserves q Failure to meet interest liabilities. q Worsening debt-equity ratio and so on.
The Sick Industrial Companies Act, 1985, defines a sick unit as one which has accumulated losses equal to or exceeding, at the end of any financial year, its entire net worth and has also suffered cash losses in such financial year and also the financial year immediately preceding such financial year.
Causes of industrial sickness
The factor which bring about incidence of industrial sickness are several. They collectively and cumulatively contirbute to sickness of industrial units. They are external and internal.
External Factors
1 Decline in market demand for the products and services manufactured by the units.
2 Decline in market share because of excessive competition and surplus capacity in the industry.
3 Problems in the normal provision and availability of inputs like raw materials, power, skilled manpower, finance, credit and transport at reasonable prices and costs, with the result that production suffers and costs go up abnormally, which could not be easily matched up by quick price increases.
4 High incidence of levies such as excise duty and other taxes which could not be recovered from the market through sales revenue.
5 Government control and restrictions on location, manufacturing capacity, product mix, product quality, prices, distribution, minimum wages and so on. Strict conformity with the statutory and legal provision would lead to sickness.
6 Natural or man-made calamities like droughts, floods, fire accidents and so on.
Internal Factors
1 Lack of managerial expertise and inadequate business acumen, foresight and dynamism in running the unit.
2 Wrong choice of location of the unit and production technology.
3 Constant technical problems with maintenance of production volume, quality, time schedules and cost limits.
4 Poor maintenances of plant and machinery and failure to renovate worn-out and outdated equipments.
5 Inadequate and deficient capital structure, incompetent financial planning and control, poor management of working capital, cash flows, capital expenditures, dividend policy etc.
6 Lack of discipline on the cost front, careless and wanton expenditure on overheads, wastage of materials and manpower, improper physical controls on assets, property and facilities.
7 Lack of basic integrity and honesty on the part of key ownership and managerial personnel.
8 Mismanagement of industrial relations with consequent industrial unrest, indiscipline, militancy of the unions, prolonged strikes and lock-outs and so on.
9 Feebale marketing skills—to make proper demand projections, to push the product in the market, to build up market imange and customer loyalty, to face up to competition, to anticipate recessionary situations and to take advance remedial measures.
Impact
Industrial sickness affects the working class more than any other section of society. They lose their means of living. It also affects the banking sector which has huge funds locked up in sick units with little hope of recovery. Sickness of large units affects the health of small units depending on them for input-output supplies. It will also have a chain reaction among the industrial production and pollutes the industrial climate. Investors and creditors of sick units also experience hardships because of their inability to recover their stake. When government takes over sick units and bear the burden of maintaining them, the public exchequer and tax payer have to bear the bill.
Remedial and rehabilitation measures
The government has taken a number of steps for the revival of sick industrial units as well as to prevent the incidence of sickness among industries.
Several other measures are suggested here:
1 Inducing the employees and workers of sick units to join together, organise themselves into a society, take over the units and nurse them back to normal health by adopting proper methods and measures.
2 Categorising the sick units in terms of basic causes which rendered them sick and taking all-out measures to tackle those causes specifically.
3 Creation of a special fund to finance renovation, replacement and modernisation of plant equipment of sick units.
4 Shifting the units to better locations, if locational problems were the cause of sickness.
The above measures are only illustrative and not exhaustive.
There is also much consensus among knowledgeable circles which are concerned with industrial sickness, on the following points:
1 There is no sense in artificially reviving incurable sick units by the Government. They should be allowed to die and disappear, instead of wasting further efforts and resources of them. Rehabilitation has to be selective.
2 There should be legal provisions for prosecuting and punishing the entrepreneurs who are responsible for rendering their units sick in a wilful, fraudulent manner.
3 Proper preventive measures should be designed at macro and micro levels and knowledge about them to be disseminated among the entrepreneurs/ owners/ managers of industrial units in general and small units in particular.
4 Leading banks should create separate cells for monitoring the performance of industrial units in which bank funds are committed, in terms of certain performance norms and indicators.
5 Mechanisms for diagnosing early danger signals of sickness have to be designed and quick and effective measures have to be initiated to set them right.
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