Growing by degrees

India was primarily an agricultural country when it attained independence in 1947. But it wasn’t like this always. Before the industrial revolution of 19th century that originated in England, India was not only a leading exporter, but also had a thriving manufacturing sector, mainly in cotton, silk, wool, handicrafts and processed spices. British rule destroyed the cloth and handicrafts industry and led to the massive import of machine-made products that originated in Britain. In the 20th century, some industries, such as cotton textiles, sugar, paper and iron and steel did develop, but there was no development of capital goods industries under British Rule.

Industrial development under the plans

The first industrial policy intent of the planners was reflected in the Industrial Policy Resolution of 1948, which spoke of a mixed economy, with participation from the public and private sectors. However, the public sector was given the pride of place.

The first plan was devoted to post-war and post-partition rehabilitation of displaced people and most of the outlay was earmarked for agriculture and allied activities, irrigation and flood control. Industry was not really discussed in much detail, except to complete the pending projects, and ensuring a fuller capacity utilisation of existing facilities.

By the time the second plan was being drawn, there was a greater focus on industry. In 1956, the characteristics of Indian industry were: a skewed pattern with most units being small factories or household units, and low capital intensity and preponderance of consumer goods over capital goods. A fresh resolution was adopted in 1956, which classified industries into three categories: Schedule A, which was to be the monopoly of the State; Schedule B, which was to be promoted mainly by the State with some private participation; and Schedule C, which was to be in the domain of the private sector. In addition, the other broad objectives of the resolution were: encouraging village and small-scale units, removing regional imbalances and reducing reliance on foreign capital progressively. However, the most defining aspect of industrial policy in the second plan was the Mahalanobis model, which emphasised development of heavy industries and manufacture of capital goods. This initiative was to be led by the public sector. Accordingly, three steel plants at Bhilai, Durgapur and Rourkela; fertiliser plants at Sindri and Nangal; locomotive factory at Chittaranjan; and further expansion of Hindustan Machine Tools and Hindustan Shipyard happened in the second plan.

In the third and fourth plans, the work that began in the second plan was taken forward. And while the industrial growth rate was 7.6 per cent against the target of 14 per cent in the third plan, and 5 per cent against the target of 8 per cent in the fourth plan, the industrial base continued to expand and diversify with the development of automobiles, cotton textile machinery, diesel engines, heavy chemicals, non-ferrous metals, fertilisers, petroleum and petrochemicals, cement etc.

In the fifth plan, the thrust on the rapid growth of core industries continued, with an additional emphasis on diversification and growth of exports. Industries manufacturing mass consumption goods such as cloth, edible oils, bicycles, sugar and pharma were also to be expanded and small industries were to be developed, with 124 items reserved exclusively. The fifth plan also witnessed the coming of the Janata Party government in 1977, which came out with an Industrial Policy statement in the same year which emphasised the small scale, cottage and tiny sector. Items reserved for the small industries went up to 807 by May, 1978. Another important development was the setting up of a District Industries Centre in each district. Industry grew at 5.3 per cent against the target of 8 per cent in the fifth plan.

The sixth plan was launched in 1980 by the new Congress government, which had been voted back to power. It coincided with the declaration of the Industrial Policy of 1980, which returned to the 1956 industrial policy and sought to underline the importance of core and heavy industries in the public sector. It also regulated the unauthorised excess capacity installed in the private sector and liberalised licensing for large industries. There was also a thrust on export industries and development of backward regions. The industry growth rate achieved was 5.5 per cent against a target of 7 per cent.

The seventh plan weaved the overall objectives of achieving growth with social justice and improving productivity with industrial policy. Accordingly, there was a thrust on industries manufacturing goods of mass consumption and upgradation of technology, ensuring additional power by setting up more power plants, focus on sunrise industries with high growth potential and self-reliance in strategic areas. Industry grew at 8.5 per cent, which was impressive even though it couldn’t match the target of 8.7 per cent.

The eighth plan was implemented from 1992 onwards in the midst of major economic reforms, wherein industrial policy reforms were a major component. The new industrial policy was announced in July 1991, which ushered in wholesale changes. Licensing was all but abolished (except in 18 industries), limit of assets under MRTP Act was removed and foreign investment was liberalised. The positive effects of these policy changes were seen with a lag. However, the immediate consequence was that many industries such as copper, paper and petroleum were not able to face foreign competition. Furthermore, private investment was slow to react to these changes. As a result, industry did achieve a growth rate of 7.3 per cent against a target of 7.4 per cent, but many production targets fell short (for example, investment in electricity generation was lesser than even the seventh plan).

In the ninth plan (1997-2002), the industrial growth rate fell to 5 per cent as against the target of 8 per cent. There was an all-round industrial slowdown in mining, manufacturing and electricity, which, in turn, was due to a fall in domestic and international demand. Even so, a number of reforms were undertaken in the ninth plan: foreign investment was further liberalised; many export promotion measures were taken such as Export Promotion Industrial Park (EPIP) scheme, assistance to States for enhancing exports under ASIDE, setting up of Export Processing Zones and Special Economic Zones and enhancement of duty drawback on many items; there was rationalisation of the public sector undertakings with many of them proposed for disinvestment; the formation of National Company Law Tribunal was announced and a Directorate of Anti-Dumping was constituted in 1998; the Competition Bill, 2001 was introduced setting up the Competition Commission of India.

Industrial growth picked up again in the tenth plan (2002-2007) and clocked 8.9 per cent. Cotton textiles, textile products, paper and paper products, basic metals and alloys, machinery and equipment, transport equipment, beverages and tobacco and chemicals and chemical products showed impressive rates of growth. Gross capital formation also shot up, which was an indicator of increased investment. Exports of manufactured products also shot up, growing at around 20 per cent per annum. There was also an overall improved investment climate with the elimination of entry and exit barriers. Additionally, there was an increase in the investment pipeline with projects planned in a number of sectors ranging from power and petroleum products to sugar, chemical and petrochemical products, electrical and non-electrical machinery, transport equipment, and construction.

The eleventh plan (2007-12) set an ambitious target of 10-11 per cent for industrial growth. However, this period was beset with great uncertainty following the global financial crisis of 2008. The long recovery of effective demand in the US and Europe also had an impact on growth in India. Industry ended up growing at around 7.5 per cent during the eleventh plan, which was creditable amid the global headwinds operating after 2008.

The twelfth plan (2012-2017) again had an ambitious target of around 10 per cent for industrial growth (there were two scenarios proposed: a 9 per cent GDP growth target, for which the industry growth target was 9.6 per cent; and a 9.5 per cent GDP growth target, for which the industry growth target was 10.9 per cent). The twelfth plan also admitted that the previous plans had not been able to set up a vibrant manufacturing and industrial sector and proposed a new strategy. It proposed a closer government-industry collaboration on the lines of the Ministry of Trade and Industry (MITI) in Japan, Chaebols in Korea, and government participation in Singapore. It spoke of the importance of value addition in manufacturing, knowledge and skills, technology, R&D and the ability to compete globally. As we know, Niti Aayog came into existence in 2015 during this plan period, and a completely different approach has been adopted since then — one that emphasises taking up large projects in critical areas and intensive monitoring of such projects. Some initiatives such as the Production-Linked Incentive Scheme rolled out by the Government of India, recently, covers 14 sectors such as mobile manufacturing, auto and auto components, textiles, pharma, specialty steel etc. Some success has been seen in the manufacturing of iPhones in India.

Conclusion

The twelfth plan approach paper had pointed out that the share of manufacturing had stagnated at 16 per cent for some time and this needed to rise to 25 per cent by 2022. This had also been pointed out in the National Manufacturing Policy of 2011. This has however not happened. The recently launched PLI scheme has seen some success and is a step in the right direction. And the major push to the infrastructure sector should also help in making manufacturing more competitive. While the global push to ‘derisk’ and move to a ‘China+1’ policy should help India, the global economic climate continues to be challenging. Our policy makers have their task cut out.

The writer is Addl. Chief Secretary, Dept of Mass Extension 963Education and Library Services, Govt of West Bengal.