INDUSTRIAL DEVELOPMENT AND POLICY
INDUSTRIALISATION AND ECONOMIC DEVELOPMENT
We have emphasised in the previous chapters the need for a substantial and rapid improvement in agriculture in order to increase the supply of foodgrains and raw materials needed in the country. The fact that at the present juncture it is necessary to give the highest priority to agricultural development including the building up of the necessary basic services like irrigation and power does not, however, mean that industrial development is in any sense less important. In the development of an underdeveloped economy there is really no conflict between agricultural and industrial development. Improvement in agriculture cannot proceed beyond a point unless the surplus working force on the land is progressively diverted to industries and services. Similarly, industrial development itself cannot advance sufficiently without a large increase in the supply of food necessary to maintain the population thus diverted and of the raw materials needed to enable industries to expand production. The fact that the productivity of labour in industry is much higher than in agriculture also points to the need for rapid industrial development. Moreover, in an underdeveloped country the surpluses created in the industrial sector are likely to be available for investment relatively more easily than surpluses in the agricultural sector. The pattern of industrialisation to be adopted, that is, the relative emphasis on capital goods industries and consumer goods industries and the degree of capital intensiveness in different lines of industry, has, of course, to be decided in the light of several technical, economic and social factors. But there is no doubt that over a period the desired rate of economic progress will necessitate a rapid diversification of the occupational structure through development of industry, together with trade and transport. INDIAN INDUSTRIAL STRUCTURE
2. The relative backwardness of industiral development in India may be judged from the fact that in 1948-49 factory establishments accounted for only 6.6 percent of total national income. The total labour force engaged in such establishments is about 2.4 million or 1.8 percent of the working population in the country. While in the aggregate India's industrial output may look massive, per head of population it is very much lower than the industrial output in advanced countries. 3. Prior to the first world war the only major industries which had developed substantiaflly were cotton' and jute textiles, for which the country had exceptional natural advantages. The industrial development since the twenties is associated with the adoption of a more progressive industrial and fiscal policy. Between 1922, when the policy of discriminating 420
INDUSTRIAL DEVELOPMENT AND POLICY 421
protection was adopted, and 1939 the production of cotton piecegoods in the country increased 2 1/2 times, the production of steel ingots rose 8 times, that of paper went Up 2 1/2 times and in the case of sugar, within a period of 4 years from 1932 to 1936, the country was able to produce its entire requirements. The growth of the cement industry, which by 1935-36 produced about 95 percent of the total consumption in the country at the time, belongs to this period. The production of matches, glass, vanaspati, soap and several engineering industries also recorded large increases. Towards the close of the inter-war period, the manufacture of electrical equipment and goods was also initiated.
4. The second world war created conditions for the maximum utilisation of existing capacity in Indian industries. This was the major factor responsible for the increases in industrial production recorded. Conditions were, however, not favourable for the setting up of large scale equipment and plant for new industries. Several industries such as ferroalloys, non-ferrous metals like aluminium and antimony, diesel engines, pumps, bicycles and sewing machines, chemicals like soda ash, caustic soda, chlorine and superphosphate, and certain types of machine tools and simple machinery were started on a modest scale during this period, but the major impetus of the war was felt in the sector of medium and small-scale industries, such as light engineering, pharmaceuticals, medicines and drugs, cutlery, etc. In the immediate post-war years, there was considerable new investment activity leading to the establishment of industries like rayon, automobiles , ball and roller bearings, carding engines, ring frames and locomotives. Several new units were started and existing units expanded in industries like fertilizers, cement, sheet glass, and the manufacture of cautstic soda and sulphuric acid. Industrial development during the war and the post-war period was influenced largely by the prevailing inflationary conditions and scarcities, with the result that long term factors such as the most advantageous location or scale of operation, the availability of raw materials, the size of the market and the adequacy of the financial and technical Organisation for successful operation under competitive conditions did not receive the attention they deserved. In the established industries the need during the war period to work multiple shift and the difficulties in the way of securing imports for depreciation and replacement led to a large accumulation of arrears which it will take the country several years to make good.
5. The major emphasis in industrial development in India has been on consumer goods industries, while the development of basic capital goods industries has lagged behind. The output of consumer goods industries such as cotton textiles, sugar, soap, matches and salt may be said to be on the whole sufficient to meet the existing low level of demand in the country in the present stage of economic development. In the case of capital goods industries and industries manufacturing intermediate products, the available capacity in the country is in most cases inadequate even for present requirements. The production of iron and steel in the country is hardly 50 per cent. of the existing volume of demand, and it is evident that in planning the development of a basic industry like iron and steel, account has to be taken no only of immediate requirements but also of the needs of the country over a fairly long period. A high rate of industrial advance cannot be achieved without increasing substantially the
422 THE FIRST FIVE YEAR PLAN
production of iron and steel and of aluminium, ferro-alloys, caustic soda and soda ash, fertilizers and petroleum products, for all of which demand at present is much in excess of domestic supply. In respect of the manufacture of plant and machinery required by various industries, only a small beginning has so far been made with the textile machinery industry. The large developments in power generation now under way have to depend on generating equipment from abroad. In the manufacture of synthetic drugs and antibiotics and of dyestuffs and organic chemicals, only small beginnings have been made. The objective of industrial planning is to make good these deficiencies and lacunae as much as possible and to initiate development which will become the basis for the cumutlative expansion of this sector.
NATIONAL PLANNING AND THE PRIVATE SECTOR
6. The Commission's approach to the problem of development and the respective roles of the public and the private sectors in securing such development have been set forth in an earlier chapter. The essentials of government policy in the sphere of industrial development have been stated in the Industrial Policy Resolution of April 1948. The Resolution lists certain industries like the manufacture of arms and ammunition, the production and control of atomic energy and the ownership and management of railway transport as being reserved exclusively for the Central Government. In the cases of certain other industries also such as coal, iron and steel, aircraft manufacture, ship-building, manufacture of telephone, telegraph wireless apparatus and mineral oils, the State, including the Central and State Governments and other public authorities, will be responsible for further development except to the extent that it regards the co-operation of private enterprise necessary for the purpose. The rest of the industrial field is to be open to private enterprise, individual as well as cooperative, but the State will intervene whenever the progress of any industry under private enterprise is found to be unsatisfactory. Central regulation and control is envisaged for 18 specified industries of special importance from the points of view of the investment and technical skill involved. We believe that within the framework of this policy, it is possible to have a programme of industrial development which meets the country's present needs. 7. The distinction between the public and the private sector relates to the mode of operation rather than to the ultimate objective. Private enterprise operating in terms of legitimate profit expectations and the efficient use of available resources has an important part to play in developing the economy. The scope and need for development are so great that it is best for the public sector to develop those industries in which private enterprise is unable or unwilling to put up the resources required and run the risks involved, leaving the rest of the field free for private enterprise. In this matter of investment of the limited resources available to the public sector, there should be complete coordination between the plans of the State Governments and of the Central Government. The nationalisation of the existing enterprises, which means acquisition by Government of the existing productive assets has, in our view, only a low priority, especially as most of the purposes of such a transfer of ownership can be served by judicious regulation. In a planned economy, the justification of private enterprise is that,
INDUSTRIAL DEVELOPMENT AND POLICY 423
within the frame work of national policy it is capable of contributing to the fulfilment of the objectives defined in the plan. This means inevitably that it has to accept new obligations towards the worker, the investor and the consumer and has to maintain a high standard of integrity and efficiency. The large volume of resources needed for all-round development of the economy can, in our judgement, be secured only if the public and the private sectors co-operate closely. Such co-operation is also necessary from the point of view of utilising to the best advantage the limited resources of initiative, technical skill and business experience available in the country.
8. Mention was made in the Draft Outline Report of the Industries (Development and Control) Bill, 1949 which was then under Government's consideration. The Industries (Development and Regulation) Act 195i incorporates some of the suggestions made by the Commission in the Draft Outline Report. The principal object of this Act is to enable the Government to implement its policy for the development and regulation of industries along the lines stated above. The Act is to apply to 37 industries listed in the first schedule. These include : (a) consumer goods industries like cotton and woollen textiles, vanaspati and vegetable oils, sugar and salt, pharmaceuticals and drugs, etc.; (b) capital goods and producer goods industries like iron and steel, locomotives and rolling stock, non- ferrous metals and alloys, heavy machinery for industry including ball and roller bearings, gear wheels, etc., and machine tools ; (c) industries producing fuel such as coal, power and industrial alcohol, motor and aviation fuel, and other oils ; (d) industries producing machinery and equipment for the generation, transmission and distribution of electric energy, electric motors, batteries and electrical goods ; (e) heavy chemicals including fertilizers; (f) automobiles including tractors, aircraft, ship-building and telephones, telegraph and wireless communication apparatus ; and (g) various others, such as arms and ammunition, agricultural implements, mathematical and scientific instruments, small and hand tools, sewing and knitting machines, bicycles, hurricane lanterns, glass and ceramics. The important provisions of the Act are-
(i) All the existing industrial undertakings in the scheduled industries have to be registered with the Government within a prescribed period ;
(ii) No new industrial unit can be established or substantial extensions to existing plants made without a licence from the Central Government ;
(iii) The Government can order an investigation in respect of any scheduled industry or undertaking if, in its opinion, there has been or is likely to be an unjustifiable fall in the volume of production in the industry or undertaking or if there is a marked deterioration in quality or an increase in price for which there is no justification ; a similar investigation can also be ordered in respect of ally industrial undertaking being managed in a manner likely to cause serious injury or damage to consumers ;
(iv) in the event of an industry or undertaking not carrying out the directions issued after such an investigation, the Government can take over its management
424 THE FIRST FIVE YEAR PLAN
9. For the purpose of advising the Government on matters concerning the development and regulation of the scheduled industries, the Act provides for the setting up of a Central Advisory Council representing owners, employees, consumers and certain other classes including primary producers. This Council must be consulted in regard to the making of rules under the Act and the exercise by the Central Government of powers relating to the issue of directions to industrial undertakings or the taking over of the same as provided for under the Act. Such a Council has already been set up.
10. The major instrument envisaged under the Act for establishing the necessary liaison between the public and private sectors and for ensuring that private industry conforms more and more to the planned pattern of development is the institution of Development Councils. The question of the development and regulation of industries is not one merely of how the Government should exercise certain powers, but of the kind of machinery which can work from within each industry and help bring about a steady improvement in the standards of productivity, quality of service and management. Such a machinery should provide those interested in the industry, that is, the employers, the employees and the public at large, a continuous opportunity to make a detailed study of the problems of the industry including its various constituent units, and to implement a programme of development in conformity with the needs of the industry and the overall pattern laid down in the Plan. The Industries (Development and Regulation) Act empowers the Central Government to establish Development Councils in scheduled industries. The functions which may be assigned to these Development Councils have been listed in the second schedule of the Act. The more important of these are :
(1) to recommend targets for production, to co- ordinate production programmes and to review progress from time to time,
(2) to suggest norms of efficiency with a view to eliminating waste, obtaining maximum production, improving quality and reducing costs ,
(3) to recommend measures for securing fuller utilisation of installed capacity and for improving the working of the industry particularly of the less efficient units ,
(4) to assist in the distribution of controlled materials and to promote arrangements for obtaining materials for the country,
(5) to promote or undertake scientific and industrial research and the collection and formulation of statistics,
(6) to investigate possibilities of decentralising stages and processes of production with a view to encouraging the growth of allied small-scale and cottage industries ,
(7) to promote the training of persons engaged or proposing engagement in the industry in technical subjects and the retraining in alternative occupations of persons engaged in or retrenched from the industry, and
INDUSTRIAL DEVELOPMENT AND POLICY 425
(8) to undertake enquiries for the purpose of tendering advice to the Government on matters referred to the Development Council.
These Development Councils will need adequate administrative and technical staff which will be provided by the Government. This procedure will not only enable the Development Councils to function efficiently but will also assist the Government in building up a cadre of trained officials conversant with the economic and administrative problems of various industries and capable, if need arose, of undertaking managerial responsibilities. For meeting the expenditure involved, the Act provides for the levy of a cess on goods manufactured in any scheduled industry, the maximum rate of such a levy being annas two per cent. of the value of the goods. The proceeds of this cess would be utilised to meet, besides the administrative expenses of the Development Council, expenditure for the promotion of scientific and industrial research pertaining to the industry, for improvements in the design and quality of the products of the industry and for providing facilities for the training of technicians and labour in the industry concerned. Development Councils along these lines are to be set up immediately for seven industries, namely, heavy chemicals (acid) and fertilizers, heavy chemicals (alkali), paper including newsprint and paper board, leather and leather goods, bicycles and parts thereof, glass and ceramics, and internal combustion engines and power driven pumps. The question of setting up a Development Council for the textile industry is under Government's consideration. The establishment of Development Councils for other industries will have to be planned in the light of the experience, gained with the Councils now being set up.
INDUSTRIAL PRIORITIES IN THE PLAN
11. In defining the priorities for industrial development within the period of the Plan, it is necessary to take into account the immediate objectives in view, the resources available and the broad framework of policy in regard to the operation of the public and private sectors outlined above. In view of the fact that an increase in agricultural production has been accorded the highest priority in the Plan, the resources available in the public sector for the expansion of industries are necessarily limited. The Plan provides for completion of the various industrial projects already under implementation by the Central Government or by the State Governments. In addition, the Central Government has a special responsibility for establishing certain defence industries so as to safeguard and develop the defence potential of the country. Defence industries such as arms and ammunition and explosives, military aircraft and control instruments are in a class by themselves and although they have inevitably a high priority, no more than a modest provision can be made for them at the present stage. 12. In the light of these considerations, we suggest the following general order of priorities in the industrial field :
(1) fuller utilisation of existing capacity in producer goods industries like jute and plywood and consumer goods industries like cotton textiles, sugar, soap, vanaspati, paints and varnishes ,
426 THE FIRST FIVE YEAR PLAN
(2) expansion of capacity in capital and producer goods industries like iron and steel, aluminium, cement, fertilisers, heavy chemicals, machine tools, etc.,
(3) completion of industrial units on which a part of the capital expenditure has already been incurred , and
(4) establishment of new plants which would lend strength to the industrial structure by rectifying as far as resources permit the existing lacunae and drawbacks, e.g., manufacture of sulphur from gypsum, chemical pulp for rayon, etc.
13. The emphasis on fuller utilisation of existing capacity must necessarily be a prime consideration in policy, for where such capacity exists increased production can usually be secured at diminishing cost per unit. The increase in productivity per unit of resources already employed in such industries can make a vital contribution to the increase in total production so urgently needed at the present time. It is a matter of satisfaction from this point of view that considerable progress has been made in recent months in the direction of increasing the supply of raw materials for major industries with the result that significant improvement has been recorded in the index of industrial production in the country In so far as failure to utilise existing capacity fully is due to factors other than the availability of raw materials a careful analysis will have to be made of the difficulties pertaining to each industry and the necessary steps to obviate them will have to be taken expeditiously.
14. Expansion of capacity in industries which produce capital goods and producer goods is necessary, firstly, in order to meet the additional demands on them on account of the development of agriculture, irrigation and electricity during the period of the Plan and, secondly, for establishing a better balance in the industrial structure. Iron and steel are of basic importance to development whether in agriculture, industry, or in transport, and since they are also essential for defence, they have to be given the highest priority. This is now an accepted part of the Government policy and a scheme has been worked out for the establishment of an integrated pig- iron-cum-steel plant in the near future. Capital goods industries like locomotives, machine tools, textile machinery, heavy electrical machinery, etc. represent lines of development which must claim increasing attention immediately and in the years to come. Industries manufacturing agricultural implements, diesel engines, and pumps have a direct bearing on improvement of productivity in agriculture and there is scope for further development in this field. Among the producer goods industries, cement and fertilizers rank high in importance.
15. Since the end of the war, there has been, as mentioned earlier, considerable investment activity in the country and at the commencement of the period of the Plan, there were in the private as well as in the public sector several industrial units on which considerable capital expenditure had been incurred but which had not been completed. Early completion of such units is necessary in order that the country may get the benefit of these investments. The criteria which govern the commencement of a new industrial project must conform to the basic priorities in the Plan ; but in regard to units which have already been taken in hand and on which considerable sums of money have been spent, a measure of relaxation of these criteria is justifiable
INDUSTRIAL DEVELOPMENT AND POLICY 427
16. in addition, special efforts are necessary for the establishment of new plants for industries like the manufacture of sulphur from gypsum, or pulp for rayon and newsprint, or for refining ore or scrap for non-ferrous metals like zinc, copper and tin. The importance of these industries lies in the fact that they make a direct contribution towards an increase in the supply of key material, in which there is a world shortage and for which the dependence of the country on imports makes the position of the indigenous industry particularly vulnerable.
17. It will be seen that in the scheme of priorities set out above, an increase in the supply of consumer goods, has, under present conditions, to come mainly from fuller utilisation of existing capacity. This means that the setting up of new plant and machinery for these industries has in the period of the Plan a low priority. By and large, the capacity of industries producing essential goods like cotton textiles, sugar, salt, matches and soap is adequate for present requirements. The emphasis of policy in regard to them must, therefore, be on increasing the efficiency of existing plants by renovation and modernisation and by securing a better balance in the plants. It might be necessary in special cases, such as the need for developing a backward area, to permit new capacity in these industries. Where such permission is given, undertakings organised on co-operative lines would naturally have special preference. In the case of consumer goods of secondary importance such as radios, bicycles., automobiles, electric fans, etc., the problem again is one of utilising existing capacity fully, of developing the units which have already been set up or are under construction to at least the mini mum economic size, and of promoting a progressive switch over of assembly plants to manufacturing.
18. It may be pointed out finally that the order of priorities stated above represents only in a general way the approach to be adopted to the problem of directing the flow of investment along various lines in the period of the Plan. In the nature of the case, no statement of priorities can be all inclusive or final. It might be necessary, for example., even in fields where existing capacity is generally held to be adequate, to permit investment on projects based on new techniques which might bring down the cost of production and stimulate domestic demand or exports. In such cases., the availability of raw materials must be carefully assessed and the sanction for investment should be preceded by a careful examination of the various related aspects of the industry in question. The licensing procedure prescribed under the provisions of the Industries (Development and Regulation) Act should ensure an impartial consideration of all the issues involved in a substantial expansion of existing units or establishment of new ones. To a great extent, each concrete proposition for investment that comes up raises a variety of considerations and is likely to secure high priority on certain grounds and relatively low priority on other grounds so that the problem always is to decide as to the relative weights to be attached to various considerations. Nevertheless, the considerations and priorities set forth above would, we consider, ensure a balanced allocation of resources as between different industries, and it is in the light of these that investment decisions should be taken.
428 THE FIRST FIVE YEAR PLAN
DEVELOPMENT IN THE PUBLIC SECTOR
19. Over the five year period, the total expenditure on the projects included in the Plans for the Central Government and for the States amounts to Rs. 94 crores*. The bulk of this expenditure-about Rs. 83 crores-is in respect of projects directly under the Central Government. The projects under implementation by the State Governments are estimated to involve an expenditure of about Rs. 11 crores, of which Rs. 4.8 crores will be advanced by the Central Government as loans. The industrial plan in the public sector envisages in respect of certain projects the participation of private capital, indigenous as well as external. The estimated contribution of such private capital is about Rs. 20 crores. 20. The major new industrial project included in the Plan is the one for iron and steel, estimated to cost Rs. 80 crores in all over a period of six years from the date of commencement. The expenditure projected upto 1955-56 is Rs. 30 crores, of which Rs. 15 crores will be provided by the Government and ;he remainder is to be secured through participation of indigenous and external capital. The estimated capacity of this project will be about 800,000 tons of pig iron, while the steel capacity (in regard to which a firm decision will be taken later) will be a minimum of 350,000 tons, with further additions if necessary in the light of the availability of pig iron supplies from the expanded capacity in the private sector in the next few years. By 1955-56, this project, it is expected, will be producing about 350,000 tons of pig iron. The completion of this project by 1958 as well as the projects for expansion in the private sector will raise the availability of pig iron and steel from domestic sources by about 100 per cent. The Sindri plant as completed in October 1951 is capable of producing 350,000 tons of ammonium sulphate a year, and it is hoped that the corresponding monthly rate of output will be attained shortly. Another project, at present under consideration, is the expansion of the Sindri factory for the production of urea and ammonium nitrate. The all-steel coach factory which is a part of the plan for railways is expected to cost Rs. 4 crores and to produce 350 units per annum by 1957 on single shift operation as against 50 units by 1955-56.
21. The Plan provides for the completion within the five-year period of all the industrial projects in hand in the public sector ; in fact, most of these projects will be completed by 1953-54. The Chittaranjan Locomotive Factory, the total cost of which on completion will approximate to Rs. 15.0 crores (cost within the Plan period Rs. 4.73 crores) has already commenced manufacturing some of the necessary components and it is expected that by 1957 the factory will be able to produce 120 locomotives a year without having to depend
*This is exclusive of the finance that might be allotted for industries out of the lumpsum provision of Rs. 50 crores for basic industries and transport referred to in Chapter IV. In the last years of the period of the Plan, it is proposed to provide for a project for the manufacture of heavy electrical plant and equipment out or the lumpsum. provision. This figure of Rs. 94 crores differs from the estimates of expenditure on industry in the public sector given in Chapter IV, since it has been prepared on a different basis and certain items, e.g., expenditure on small scale and cottage industries, and finance for the establishment of Industrial Finance Corporations and trading estates, has not been included.
INDUSTRIAL DEVELOPMENT AND POLICY 429
on imported components. This together with the output of 50 locomotives at TELCO will more or less meet the normal annual 'requirements of the railways. Work on the construction of the machine tool factory at Jalahalli in Mysore State has already commenced. The factory is estimated to cost Rs. 9.78 crores, and by 1955-56 it will produce 1,600 machine tools of the value of over Rs. 4 crores per annum. This factory will specialise in the production of high precision machine tools and will thus provide the basis for the subsequent expansion of heavy as well as light engineering industries. The provision of over Rs. 14 crores for ship-building includes the expenditure for the acquisition of the Vishakhapatnam Yard and its development besides the loans and subsidy to be given to the shipping companies for purchase of ships built in the Yard. The Plan provides for the manufacture of engines and boilers in the workshop at the Yard and also for expansion of berths for the building of ships so as to enable the Hindustan Shipyard Limited to bring down the cost of ships -constructed to the level of those built in the U.K. The operation of the Yard will enable coastal shipping in India to meet the bulk of its replacement requirements.
22. Details regarding expenditure and additional capacity for the projects in the public sector are given in appendix 1. It will be seen that most of the projects in this sector relate to the manufacture of capital goods or of intermediate products which are of vital importance not only from the point of view of immediate needs but also in terms of future economic development. Their completion will correct to some extent the present lopsidedness of the industrial structure. The penicillin and D.D. T. factories which do not fall in the category mentioned above have a special importance at this juncture from the point of view of improvement in public health. Among the projects of the State Governments, mention must be made of the Madhya Pradesh newsprint project and the expansion of the Mysore Iron and Steel Works. The former will produce about one-third of the country's requirement of newsprint, while the latter introduces for the first time the technique of electric smelting of iron ores.
23. The increasing participation of the Government in industrial development raises the question of the appropriate Organisation for enterprises in the public sector. The criteria of successful operation for private or public enterprises are basically the same ; the public must get the service of requisite quality at minimum cost, and the interests of the worker and the shareholder or the tax payer must be adequately safeguarded. Indeed, the standards of performance expected of public enterprises have to be more rigorous. It is, therefore, of the highest importance that industrial units in the public sector should be so organised as to secure the advantages of flexibility in operation generally characteristic of private enterprise with technical efficiency and responsiveness to public need, shortterm as well as long-term, which form the raison d'etre of government initiative and management in this field.
24. The principal questions which arise in this connection and our approach to them have been indicated in an earlier chapter. The drawbacks of departmental management of public enterprises are well known. Successful conduct of such enterprises requires a great
430 THE FIRST FIVE YEAR PLAN
deal of initiative and the power to take quick decisions on the part of the executives in charge, and these can hardly be secured if the enterprise is directly under a government department. On the other hand, the extent of autonomy which can be insisted upon for such enterprises at the present stage is a matter on which a definite judgment cannot be hazarded except in the light of further experience. Several of the industrial undertakings directly under the Central Government have already been organised as joint stock companies with boards of directors vested with powers of management in the same manner as in any undertaking in the private sector. Recent enquiries into the working of industrial enterprises in some of the States reinforce the desirability of organising these enterprises as entities independent of day-to-day governmental control. We recommend, therefore, that industrial undertakings under the Stat Governments should also be organised as joint stock companies and operated on business lines with the internal management entirely under the control of the board of directors. The main principle to be followed is that such enterprises should not be subject to governmental control in their day-to-day administration but should, nevertheless, be accountable to the public which is their ultimate owner as well as beneficiary. What organisational structure and administrative procedures will answer these requirements best has to be determined in the light of experience. For the immediate present, the problem is to see that the right conventions in these matters are evolved. To a great extent, this is a matter of securing the right personnel for the boards of directors, the top executives and the technicians.
DEVELOPMENTS IN THE PRIVATE SECTOR
25. While the emphasis of industrial expansion in the public sector during this five-year period is on initiating and promoting investment in certain basic lines and on completing the projects in hand., the initiative and responsibility for securing the necessary expansion over the bulk of the field of industry rest with private enterprise. The expansion programme in the private sector is set out in appendix II. For convenience of reference, we give a table summarising the more important expansion programmes in this section :- Expansion Programme in Certain Major Lines in the Private Sector
1950-51 1955-56
Unit Rated Produc- Rated Produc-
Capacity tion Capacity tion
(i) Agricultural Machinery :-
(a) Pumps, power-driven. Numbers 33,460 34,310 69,400 80,000
to
85,000
(b) Diesel engines Numbers 6,320 5,540 39,725 50,000
(2) Aluminium. Tons 4,000 3,677 20,000 12,000
(3) Automobiles (manufactur- Numbers 30,000 4,077 30,000 30,000
ing only).
INDUSTRIAL DEVELOPMENT AND POLICY 431 1950-51 1955-56
Unit Rated Produc- Rated Produc-
Capacity tion Capacity tion
(4) Bicycles Numbers 120 99 530 530
(5) Cement Tons '000 3,194 2,692 5,016 4,550
(6) Electric Transformers KVA '000 370 179 485 450
(7) Fertilizer :
(i) Ammonium sulphate Tons 78,670 46,528 131,270 120,000
(ii) Superphosphate Tons 123,460 55,089 192,855 164,000
(8) Glass Industry :
Sheet glass Tons 11,700 5,850 52,200 26,000
(9) Heavy Chemicals :
(i) Caustic soda Tons '000 19 11 37 33
(ii) Soda ash Tons '000 54 45 86 78
(iii) Sulphuric acid Tons '000 150 99 213 192
(10) Iron and Steel :
(i) Pig iron Tons '000 1,850 1,572 2,700 1,950
(ii) Steel (main producers) Tons '000 975 976 1,550 1,280
(11) Paper and Board Tons '000 137 114 198 188
(12) Petroleum Refining
(i) Liquid petroleum
products Gals.
Million N. A. N. A. N. A. 403
(ii) Bitumen Tons N. A. N. A. N. A. 37,500
(13) Power Alcohol Gals.
Million 13 5 21 18
(14) Locomotives Numbers .. .. 50 50
(15) Rayon :
(i) Rayon filament Lbs. Million 4 .. .. 1818
(ii) Staple fibre Bales '000 .. .. 28 28
N.A.-Not available.
* This is exclusive of the estimated expenditure of Rs. 150 crores on replacement and modernisation. 432 THE FIRST FIVE YEAR PLAN
lines such as rayon, paper and drugs and pharmaceuticals. In the programme for the textile industry, moderate expansion of capacity for yarn, both cotton and woollen, is included. The development programme for vegetable oils relates mainly to the establishment of solvent extraction plants and the crushing of cotton seed.
27. In the formulation and assessment of the programmes in the private sector, it is necessary to keep in mind the fact that in an economy which is not completely centralised, government can influence but not determine the actual course of investment. Nevertheless, the programmes of development as now presented are in the nature of best judgments as to what is feasible and desirable. The Commission has worked out these programmes in close consultation with representatives of the industries concerned and of the Central Ministries as also with independent experts and technicians, and has tried to assess carefully the need and scope for expansion in various fields in conformity with the order of priorities set out in earlier paragraphs. The results of this detailed examination which covers 42 organised industries are being published separately in a special volume devoted to this subject. The field of industry covers a wide variety of undertakings with large differences in financial resources, organisational set-up, scale of operations and background of experience. In many cases, the data necessary for arriving at an appropriate judgment of needs and possibilities are not satisfactory, and in some cases, the fall facts regarding even the present position of the industry cannot easily be ascertained. Nevertheless, it has been possible in that volume to survey briefly the growth and present position of the major industries in the country and to work out broadly the lines along which expansions in these may be expected to take place in the five year period. The industries thus studied cover between them about 80 per cent. of the investment in the large and medium scale industries in the country. The studies brought together in that volume may have certain lacunae but it is hoped that those will be made good in the near future. In this connection we may point out that with the coming into force of the registration and licensing procedures laid down under the Industries (Development & Regulation) Act, a mass of valuable information pertaining to scheduled industries will become available and it is necessary that arrangements be made for systematic and expeditious analysis of the same.
28. We should like in this connection to mention the limitations of the estimates regarding annual rated capacity and of the level of demand presented in the volume outlining the programmes of development in the 42 industries studied. Rated capacity is a complex technical concept which should take into account the design of the plant, the number of shifts per day in the case of plants adopting batch or discontinuous processes and the number of working days per annum. Rated capacity has also to take into account the balance between the different sections in a given unit, the age of the plant and its condition. There have been no expert technical surveys of rated capacity in various lines so that estimates of the divergence between rated capacity and actual production have to be used with caution. In view of the importance of a more precise assessment of the existing position and future possibilities in this regard, it is desirable to initiate surveys of rated capacity through competent and unbiased personnel. The limitations in regard to the estimates of demand arise from the difficulty of assessing with reasonable certainty the requirements of consumption in various lines) particularly where there
INDUSTRIAL DEVELOPMENT AND POLICY 433
is uncertainty about the availability of competing commodities. Estimates of demand over a period of years can only be approximations stating broadly the requirements that might be expected to develop on the assumption that relative prices do not change violently. It is also to be borne in mind that given the requirements of consumption for a particular product, the extent to which it will be- met from imports can be indicated only roughly. Estimates of current and future consumption have been taken wherever possible from the reports of the Tariff Board, and official publications have been relied upon for estimating imports. In several cases, however, imports of commodities like sulpha compounds, penicillin, D.D.T. and several engineering products are not shown separately in the official publications, and in some cases since figures are stated in terms of value it was difficult to get an idea of the categories and quantities imported. The demands of a planned economy will necessitate conti- nuous improvement in the compilation of industrial statistics, and it will be necessary to ensure that regular data are available on a comprehensive basis and with the minimum time lag. Official data cannot, however, be adequate for all purposes, and certain types of data can only be compiled accurately by associations of commerce and industry in the country. Such associations play in countries like the U.K. a very useful role and it is customary for them not only to maintain such data up-to-date on the basis of information received regularly from members, but also to present from time to time a picture of the conditions prevailing in the business sector. The possibility of similar developments in this country deserves consideration by the various Chambers of Commerce and other associations of business and industry in this country.
INDUSTRIAL DEVELOPMENT, 1951-56 : RESUME
29. An examination of the pattern of investment in industries in the public and private sectors during the period of the Plan shows that about 26 percent of the total is to go into the metallurgical industry (iron and steel and aluminium) ; 20 per cent. into petroleum refining ; 16 per cent. into engineering industries and 8 per cent. into the manufacture of heavy chemicals, fertilizers and pharmaceuticals. Relatively smaller investments are envisaged in other industries, the textile industries (cotton, jute, rayon and wool) accounting for about 6 per cent., cement for about 5 per cent., and paper, board and newsprint for about 4 per cent. As a result of these developments, appreciable increases in the production of producer and intermediate goods would be achieved. The considerable gap between actual production and annual rated capacity in 1955-56 in certain lines that is shown in the summary table in paragraph 25 above is explained by the fact that the expansion schemes of those industries would be completed somewhat after the completion of the period of the Plan and will not make a full contribution to production during 1955-56. The expansion of the iron and steel industry extending over a period of 5-6 years will be in an intermediate stage by 1955-56 and in the case of the aluminium industry, the manufacturing programme is divided into two definite stages, viz., electrolytic reduction of alumina into metal and manufacture of alumina from bauxite. The former is expected to be completed towards the end of 1955 so as to keep step with the programme for the supply of power from the Hirakud power system which will commence operations at the same time. The second phase of the aluminium expansion scheme would be 434 THE FIRST FIVE YEAR PLAN
completed in the subsequent period. Until then, the manufacture of aluminium at Hirakud would be based on imported alumina. Investments in petroleum refineries will probably show full results in 1956-57 or the subsequent year. In the case of engineering industries manufac- turing producer and capital goods, the Plan provides for a progressive changeover from assembling to manufacturing programmes, comprising within them the production of functional and other components of the commodities involved. The production of major producer and capital goods are expected to register increases as shown under :-
1. Heavy Chemicals Tons '000 156.0 (Sulphuric acid, caustic soda and soda ash) 2. Fertilizers Tons '000 528.6 (Ammonium sulphate and super phosphate) 3. Iron and Steel (a) Pig iron (available for foundaries) Tons '000 310.0 (b) Steel Tons '000 394.0 4. Aluminium Tons '000 8.3 5. Cement Tons '000 2,108.0 6. Locomotives Numbers 150 (Plus 50 boilers) 7. Diesel Engines Numbers '000 44.5 8. Power-driven Pumps Numbers '000 45.7 to 50.7 9. Carding Engines Numbers 600 10. Spinning Ring-frames Numbers 440 11. Plain, semi and automatic Looms Numbers 4,100 30. In respect of consumer goods, substantial increases in production are expected in cloth, sugar, paper and paper board, soap and sheet glass. Production of cloth is scheduled to rise by 1,872 million yards, of sugar by 340,000 tons, of salt by 429,000 tons, of paper and paper board by 86,000 tons, and of sheet glass by 20,150 tons over the level of 1950-51. The output of vegetable oils, which are an important constituent of a balanced diet, is to increase by about 182,000 tons. Considerable increases in production are expected in respect of durable consumer goods like bicycles and sewing machines. Larger supplies of anti-malarials (benzene hexachloride and D.D.T.), antibiotics (penicillin, aureomycine, etc.) and other synthetic drugs (sulpha compounds, anti-T.B. drugs) from domestic sources will assist considerably the campaign against disease and the protection of health in the country. These developments in the pharmaceutical field together with the programmes for the manufacture of dyestuffs in the country which has been referred to in the Development Plan for Drugs and Pharmaceutical Industries will pave the way for the early establishment of coal-tar distillation and the synthetic organic chemicals industry.
PROGRESS IN THE ACHIEVEMENT OF TARGETS
31. In the course of the last 18 months there has been a general increase in industrial production as a result of: (a) the coming into operation of new industrial units which were under construction or in the early stages of production at the commencement of the period of the Plan, (b) the beneficial effects of replacements of plant and machinery carried out by some of the industrial establishments in the post-war-period, (c) fuller utilisation of the installed capacity of some industries owing to raw materials becoming more available, (d) improvements INDUSTRIAL DEVELOPMENT AND POLICY 435
in the application of import policies and their administration, and (e) improvement in the transport facilities provided by the railways. A statement showing the total additional capacity and production envisaged by the end of the period of the Plan together with the achievement of some of the industries in 1951-52 is given as Appendix III. This statement shows that the increase in capacity registered in 1951-52 in the more important industries when expressed as a percentage of the total expansion envisaged was: cement 30 per cent. ; spindleage for yarn 46 per cent. ; nitrogenous fertilizers 87 per cent. ; phosphatic fertilizers 60 per cent. ; sulphuric acid 20 per cent. ; caustic soda 20 per cent. It must, however, be pointed out that in the important basic industries visualised in the Plan like iron and steel, petroleum refining, aluminium production, the investments so far made have been negligible when compared with the investments to be made in future years. As regards the actual production in different sectors, the output of yarn and cloth by mills has shown a substantial increase particularly in the last six months and at the current rate of monthly production, the production of cloth by mills might nearly touch the target recommended in the Plan, viz., 4,700 million yards. On the other hand, there has been no progress in the handloom sector, which emphasises the need for concentrating attention in coming years on measures which would enable this important sector of the textile industry to achieve its production target. Increases in production have also been recorded by the sugar, power alcohol, cement, paper, rayon, plywood and some of the engineering industries. On the other hand, in the manufacture of sulphuric acid, electric cables and wires and A.C.S.R. conductors, there has been no appreciable progress owing to difficulties in procuring raw materials and their high prices. It is expected that, broadly speaking, the upward trend in production will be maintained in 1952-53 since a large number of industrial projects included in the Plan are expected to be completed and to go into production during the year. Special efforts are necessary for assisting industries manufacturing sheet glass, diesel engines, etc., which have recorded a decline in production in the six months ending September 1952, on account of accumulation of stocks in the country.
CONTROLS AND INCENTIVES FOR DEVELOPMENT
32. The fulfilment of the targets set forth above will depend, in the main, on the ability of the private sector to implement the programmes scheduled. A major factor relevant in this context is the availability of finance. The competing demands on the limited savings available in the country are so large that a major objective of policy during the period of the Plan must' be to canalise the available capital into lines which have been accorded high priority. It is necessary for this purpose to control capital issues as also to regulate the uses to which the accumulated funds with industry are put. Control over capital issues has been in operation for several years, but it has played so far a somewhat negative role. The Plan now provides a scheme of priorities and a set of programmes which will make it possible to operate this control with a clearer perspective. With the enactment of the Industries (Development and Regulation) Act the establishment of new industrial units as well as the substantial additions to existing ones will require Government's permission. It will thus be possible to regulate the investment of available capital whether it flows through new capital issues or is found out of reserve funds. However, while a system of controls is effective for preventing what might be considered under given conditions undesirable or less desirable uses of the resources available, by itself it might not ensure the flow of capital into more preferred lines, To secure this result, 436 THE FIRST FIVE YEAR PLAN
a system of specific incentives might become necessary. For instance, in the case of projects involving heavy capital investment and the use of new techniques, it might be desirable to extend, after preliminary examination by the Tariff Commission, an advance assurance of protection. For the development of industries consuming minerals or of industries based on forest produce, long-term leases might be granted. Certain new industries might require the supply of power at concessional rates and others might need special Government assistance for securing the technical know-how through international organisations. Capital goods and certain raw materials might be allowed to be imported duty free or at concessional rates. In other words, there are various fiscal and other incentives which can be given by the Government for promoting industrial development along particular lines and these have to be used with judgment according to the requirements of each case.
FINANCIAL REQUIREMENTS AND SOURCES
33. The total investment necessary for financing the expansion plan in the public and the private sectors is estimated at Rs. 327 crores, Rs. 94 crores for the public sector and Rs. 233 crores for the private sector. In addition, the expenditure on replacement of plant and machinery and modernisation in the various industries which have a large backlog of arrears of depreciation to make up may amount to about Rs. 150 crores* during the five year period. The aggregate requirements by way of finance for fixed capital thus work out at Rs. 477 crores. The industries would also require over the period of the Plan a considerable sum by way of working capital and for covering current depreciation. Rough estimates of the orders of magnitude involved and the sources of finance are given below :- Estimated Requirements and Sources of Finance of Industries, 1951-56
Rs. crores Rs. crores (i) Investment in the public sector 94 (i) Resources of the public sector invested directly. 74 (ii) Investment in the private (ii) Foreign investment 100 sector on expansion, modern- (iii)Resources of domestic private isation and replacement 383 industry 533 (iii) Investment in working (a) Savings of corporate enterprises capital 150 in the industrial sector 200 (iv) Current depreciation (b) New issues 200 xpenditure not covered (c) Assistance from the public sector 5 normal income-tax allowances. 80 (d) Industrial Finance Corporations. 20 (e) Refunds of Excess Profits Tax deposits. 60 (f) Banks and other sources of short- term finance 158 TOTAL 707 TOTAL 707
*This is only a rough estimate based on certain preliminary studies undertaken in the Commission. So far as we are aware, no systemtic enquiry has been undertaken so far in regard to the needs of the industry for replacement and modernisation. Only in regard to the Indian Textile Industry, the question of replacement and modernisation has been examined by the Working Party for the Cotton Textile Industry. In view of the limitation of resources and the high cost of machinery and capital goods, it might not be possible within the period of the Plan to make up all the arrears of replacement and to carry through modernisation to the full extent.
+ Excludes provision for current depreciation covered by normal income-tax allowances.
INDUSTRIAL DEVELOPMENT AND POLICY 437
34. The overall requirements for finance, it- will be seen, thus amount to about Rs. 707 crores. The investment in the public sector i.e., Rs. 94 crores will be met out of its own resources supplemented by a measure of foreign investment and domestic private resources. The estimated foreign investment in industries is placed tentatively at Rs. 100 crores. In the private sector, the profits of corporate enterprises engaged in industries assessed to income-tax in 1950-51 were about Rs. 98 crores. Of this, after allowing for tax and dividend payments, about Rs. 34 crores is estimated to have been ploughed back. With the greater availabilities of raw materials and the higher level of production envisaged in the Plan, the undistributed profits of corporate enterprises are likely to go up. For the five year period, these savings have been estimated at Rs. 200 crores. Agreed price increases in selected lines and restraint in dividend policies are essential elements in this programme of financing. The savings of corporate enterprises will be supplemented by new issues of the order of Rs. go crores, loans from the Government and from Industrial Finance Corporations to the extent of about Rs. 25 crores, and refunds of excess profits tax deposits of the order of Rs. 60 crores.
35. According to the Census of Manufactures, the working capital employed in 29 groups of industries in 1949-50 was about Rs. 280 crores. Making allowance for the industries not covered by the Census, the total working capital employed in industries is likely to have been of the order of Rs. 370 crores. Roughly, 40 per cent. of this was financed by scheduled bank advances. In the period of the Plan, the working capital requirements may be assumed to go up in about the same proportion as output. On this basis, additional working capital requirements by the end of the Plan have been roughly placed at Rs. 150 crores per annum. These may be expected to be financed largely from banks and other sources such as private deposits on which industry has been relying.
36. The above estimates, it must be emphasized, are in the nature of approximations for illustrating in broad outline the pattern of finance we visualise in the industrial sector. Within the larger,framework of increases in national income and savings visualised in the Plan, the targets indicated by these estimates are capable of achievement. In practice, the availability of finance from time to time as well as the precise amounts required for items like working capital is subject to a variety of influences like trends in foreign trade, the mobility of funds within the money markets, the degree of activity in the speculative markets, and other factors which affect relative prices and the flow of funds. The adjustments necessary on this account are part of the wider problem of financial policy and management.
FOREIGN CAPITAL
37. In securing rapid industrial development under present conditions, foreign capital has an important part to play. A free flow of foreign capital should be welcome because it will ensure the supply of capital goods and of technical know-how. The Government's policy in this regard gives the following assurances to foreign capital :- (a) there will be no discrimination between foreign and Indian undertakings in the application of general industrial policy
438 THE FIRST FIVE YEAR PLAN
(b) reasonable facilities will be given for the remittance of profits and repatriation of capital, consistently with the foreign exchange position of the country, and
(c) in the event of nationalisation fair and equitable compensation would be paid.
38. The availability of external capital is at present limited by the heavy demand of resources for domestic investment in surplus countries. There is also a tendency for investible funds to flow into certain limited regions and into extractive industries rather than into industries producing goods for local consumption. It has been estimated, for instance, that of the total flow of private capital from the United States in 1947-49 about 78 per cent. went to under- developed countries but go per cent. of this was directed to investment in extractive industries working for export to the advanced industrial countries. The rate of return to capital in some of the industrially advanced countries is higher than that obtainable in India. In view of all these considerations, it is of the highest importance to ensure to the foreign investor the prospects of a fairly good return and the certainty of fair and equitable treatment. The conditions which should govern the investment of foreign capital in the country were stated in the Draft Outline Report and we should like to reiterate them here. In view of the fact that the investment of foreign capital necessitates the utilisation of indigenous resources and also that the best use of foreign capital is as a catalytic agent for drawing forth larger resources for domestic investment, it is desirable that such investment should be channelled into fields of high priority. The broad principle to be followed is that foreign investment should be permitted in spheres where new lines of production are to be developed or where special types of experience and technical skill are required or where the volume of domestic production is small in relation to demand and there is no reasonable expectation that the indigenous industry can expand at a sufficiently rapid pace. The system of joint enterprises under which a number of foreign concerns have established new industries in the country in collaboration with Indian industrialists appears to be suitable for securing the employment of equity capital. Agreements for such joint participation between foreign and Indian concerns should be subject to the approval of the Government. The share of national capital in joint enterprises, the facilities for the training of Indians, the disclosure of patented processes to Indian associates, etc., are matters which have to be decided with due regard to the facts of each particular case.
39. The flow of equity capital from abroad has great advantages but it will also be necessary at the same time to obtain fixed interest capital through official or quasi-official institutions such as the International Bank for Reconstruction and Development and the Export-Import Bank in the United States. The International Bank was recently invited to consider the financing of specific industrial schemes of high priority requiring a large amount of foreign exchange for purchasing machinery and equipment, and it is to be hoped that suitable assistance from the Bank will be forthcoming.
ADDITIONAL DEMANDS FOR RAW MATERIALS, FUEL AND POWER
40. Agricultural raw materials-The Plan of industrial development will create additional demands for raw materials. For example, the consumption of cotton in the textile industry would increase from 3.5 million bales to 4.9 million bales ; of jute from 4.45 million bales INDUSTRIAL DEVELOPMENT AND POLICY 439
to 7 minion bales ; of oilseeds other than cotton seed (expressed as kernel) from about 3.1 million tons to about 3.37 million tons ; of sugarcane from about 11.4 million tons to 15.5 million tons. Expansion of production of paper and newsprint would increase the consumption of cellulosic raw materials from forests by about 80 per cent. Similarly, the production of matches and plywood would raise the requirements of timber in these industries by 21 per cent. and 79.5 per cent. respectively. With the exception of cotton and jute, the demand for which would continue to be met partly by imports, despite the expansion of their production during the period of the Plan, other raw materials would be made available from domestic sources of supply. The plans for the timber industries also visualise the exploitation of forests in the Andaman Islands.
41. Minerals-The principal minerals whose consumption is expected to increase as a result of industrial expansion are : limestone, gypsum, iron ore, glass sand, china clay, ilmenite, monozite sands, rock phosphate, sulphur and crude petroleum. By 1955- 56, the consumption of the principal minerals is estimated to register the following order of increases : iron ore 50 per cent.; limestone 67 per cent.; gypsum 797 per cent.; sulphur (imported) 93 per cent.; rock phosphate (imported) 209 per cent.; glass and other kinds of sand 70 per cent.; and bauxite 130 per cent. Consumption of crude petroleum will rise by 1.7 minion tons.
42. By-products and waste products-Trends of industrialisation in the advanced countries have shown that there is considerable scope for the realisation of lower costs in industry through diversification of production and utilisation of by-products and waste products. Ordinarily this phase in industrial development is reached in a country's economic progress after a certain quantum of industrialisation is achieved as a result of which by-products and waste products are thrown out in industrial operations. With the perfection of newer processes and techniques, outlets have been found for converting waste into wealth. In the industrial plan will be found proposals which make a beginning with measures for utilisation of such resources, the most important of which are
(1) increased production of power alcohol from molasses,
(2) production of calcium lactate from molasses,
(3) utilisation of calcium carbonate sludge from the Sindri fertilizer factory and the blast furnace slags of the iron industry for the manufacture of cement,
(4) increased utilisation of bagasse in board 'making and for paper manufacture from mixtures of bagasse pulp with other types of pulps,
(5) solvent extraction of oil cakes for recovery of residual oils present in them,
(6) increased utilisation of spent lyes from soap factories for the manufacture of glycerine, and
(7) recovery of sulphur dioxide from waste gasses at the Indian Copper Corporation, Ghatsila.
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43. Fuel (coal)-The consumption of coal in the country was of the order of 30 million tons in 1949 and 1950, and industries accounted for about 10 million tons out of this total. By 1955-56, additional consumption in the industrial sector is expected to be of the order of 4 million tons on the basis of production targets. Coal has not hitherto been used in this country as a raw material for chemical industries, an outlet which has expanded considerably in countries where the Haber-Bosch process for ammonia synthesis, hydrogenation of coal for producing synthetic petrol and manufacture of synthetic methanol have been extensively developed. The Sindri fertilizer factory will be the first to make use of coal as a raw material of chemical industry in the country. The estimated increases (in percentages) in consumption of coal over the 1950-51 level in some of the important industries are shown below :-
Iron and steel 20 to 25 per cent. Cement 80 per cent. Heavy chemicals and fertilizers 450 per cent. Paper 100 per cent. 44. Electric power-Electric power would also assist in industrial development during the period of the Plan. With the implementation of the industrial programme, the consumption of electricity would increase from an estimated figure of about 4,000 million kW-hr in 1950 to about 6,500 million kW-hr in 1955-56. The more important projects which would be consumers of power in considerable bulk are as under :-
Additional Power Requirements of Major Industrial Projects by 1955-56
KW (1) Mysore Iron & Steel Works, Bhadravati 50,000 (2) Aluminium smelter at Hirakud 25,000 (3) SCOB-Iisco expansion, Burnpur, Hirapur 35,000 (4) Sindri Fertilizer Factory, Sindri 35,000 (5) Petroleum refineries 13,500 (6) Rayon factories 10,000 (7) New iron and steel project 10,000 45. The successful implementation of the industrial programme will depend, to a great extent, on the adoption of a liberal policy by the State Governments in regard to lease of sources of supply of raw materials, such as, forests for bamboo, sabai grass, etc., and mineral deposits such as iron ore, limestone, manganese ore, etc. As regards timber for plywood, match and other industries, it is necessary to have a proper procedure of negotiated rates instead of the auction system as at present, if these industries are to carry out their plans for additional output. Similarly, industries consuming large quantities of power involve heavy financial investments for their development and unless the authorities in charge of power supply provide reasonable and firm rates and long range contracts for the supply of power, it would be difficult to facilitate the flow of investment into these industries. Timely decisions on these matters as well as the completion of power projects according to schedule are necessary for facilitating the programme of important industries consuming large power,
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RESEARCH INTO DEVELOPMENT OF NEW PROCESSES
46. Development of industries through utilisation of local resources has to be planned on a long term basis. During the period of the Plan,. attention has been concentrated on achieving industrial expansion by using well-established manufacturing processes although they might involve an increasing dependence on imported raw materials, primary as well as manufactured ; for instance, expansion of sulphuric acid industry would increase dependence on external supplies of sulphur. For facilitating industrial development by an increasing utilisation of domestic raw materials and by-products, it is necessary to have investigation and research into (a) Processes for the production of substitute materials which can replace products whose manufacture is based on either imported materials or materials in short supply within the country. Investigations on the manufacture of dicalcium phosphate, kotka phosphate, and nitrophosphate in the field of fertilizers are cases in point. In this connection, research has also to be undertaken into various aspects of utilisation of these alternative materials such as field experiments on the efficacy of such fertilizers under different soil conditions.
(b) Processes for production of the same material by using Alternative raw materials and processes. Research investigations have been suggested into the possibility of production of caustic soda and sulphuric acid from sodium sulphate ; of sulphur from magnesium sulphate and by bacterial processes; of paper pulp and newsprint from bagasse.
47. Research has played a valuable part in the United States and Germany in the field of substitutes, and it should be possible so to direct industrial development that the economy will increasigly draw upon domestic raw materials thorough the establishment of industires based techniques and processes.
MEASURES FOR INCREASING INDUSTRIAL PRODUCTIVITY
48. In planning for industrial development, it is necessary to emphasise the need for a continuous improvement in standards of productivity, that is, for securing the maximum of output for a given amount of resources. Productivity is a function of several variables such as the size of the plant, the quality of the raw material used, the efficiency of the technical processes employed, the quality of the labour force and the efficiency of the management in the matter of coordinating to the best advantage the various factors of production utilised. As productivity improves, it becomes possible for the country with the amount of resources at its disposal to step up production continuously and thereby to secure an improvement in living standards. This is the very essence of technical progress. Since productivity is the resultant of all the factors which co-operate in production, it is not possible to allocate to each of these its specific share of responsibility for any gain or loss in productivity that might be observed. The customary measure of productivity is the amount of total production divided by the number of workers employed and judged in terms of this measure, industrial productivity in India has gone down substantially since 1939-by about 20 to 30 per cent. in certain lines. This means that 442 THE FIRST FIVE YEAR PLAN
the cost of production per unit in terms of real resources has increased. The strain on machinery and equipment during the war, the irregular supplies as well as inferior and non-uniform quality of raw materials, the- setting up of a number of inefficient units under pressure of war time demands, and a measure of deterioration in the standards of management and of discipline among the workers-all these have contributed to this result. The subject of industrial produc- tivity has received considerable attention in industrially advanced countries in recent times and it is desirable that productivity studies are undertaken in India along similar lines. The Development Councils to be established under the Industries (Development and Regulation) Act are expected to examine this problem and to recommend measures for increasing productivity in the industries within their purview. Simultaneously, efforts should be made to promote standardisation of raw materials, producer goods and finished goods, so as to secure for manufacturers as well as for consumers a guarantee of quality in terms of nationally accepted standards. A beginning in this direction has been made by the Indian Standards Institution in co-operation with industry and independent technical experts. The techniques of quality control designed to bring about a reduction in the consumption of materials and an increase in operational efficiency should also be widely applied in the industrial field. Finally, in this context, we should stress the need for industrial and scientific research. The Government has a part to play in this field and it is satisfactory that the activities of the Council of Scientific and Industrial Research have been expanding steadily to cover a wide field. A great deal must, however, depend on the interest and initiative which private industry show's in organising and promoting industrial research, not only from the point of view of increasing efficiency and reducing costs in particular lines but in the interest of overall industrial advance.
LOCATION OF INDUSTRIES
49. Industrial development in India has so far been on an unplanned basis and it has been concentrated in a few select areas. Although there has been a trend towards wide dispersion of some industries like cotton textiles and cement, industrial development in some parts of the country has lagged behind seriously. The excessive concentration of industries brings in its train certain economic and social disadvantages and a wider diffusion of industry is desirable from this larger point of view. Further, if industrial development in the country is to proceed rapidly and in a balanced manner, increasingly greater attention will have to be paid to the development of those States and regions which have so far remained backward. Under the Industries (Development and Regulation) Act, the Government has powers to regulate locations. The extent to which the pattern of industrial location in the country can be changed within a short period is undoubtedly limited. For any industrial undertaking to operate profitably, it must have easy access to raw materials, to labour, to power and to markets. The tendency for industries to concentrate around certain areas where industrial development has already taken place is explained by the availability in those areas of a large number of "external" economies on account of the prior development of ancillary services and facilities like banking, transport and communications. It is difficult, therefore, in the initial stages to induce private industry to choose a new location where such facilities are inadequate. A INDUSTRIAL DEVELOPMENT AND POLICY 443
considerable proportion of the industrial development envisaged in this five year period is by way of expansions of existing industrial units. The question of the location of the new iron and steel plant is at present under consideration. The generation of electric power by the major multipurpose projects envisaged under the Plan will open out large possibilities of industrial development in Punjab, Bihar and Orissa. There are large potentialities of industrial development in several other States, and it is desirable in order to secure a balanced regional development in the country, to give increasing preference to such areas in the matter of location of new industrial undertakings.
INDUSTRIAL MANAGEMENT
50. For ensuring the industrial development of the country on sound lines, it is necessary., in addition to the various measures suggested in the course of this chapter, to make certain improvements in the present system of industrial management. A majority of the industries in the private sector are, at the present time, operated and managed through managing agents who are-responsible for a large measure of the industrial development that has so far been achieved in the country. Though the managing agency system had certain advantages in the early days of industrial development, it has been subjected to severe criticism in recent years on account of widespread abuses having come to light in matters such as the purchase of raw materials, sale of finished products and inter-locking of financial transactions. Also a number of managing agency firms have failed to make improvements in their administrative set-up, factory management, purchases and sales Organisation, system of accounting, etc. 51. The system is one of the matters which has received consideration from the Company Law Committee. They think that it can still play a useful role in present circumstances provided that measures are adopted to eradicate the evils mentioned above. They have made various recommendations in this regard as well as regarding other matters affecting the revision of the India Companies Act. These recommendations are at present under Government's consideration, but we think that they should be generally acceptable. Industrial management in a planned economy has to satisfy more rigorous steps than under conditions of unregulated private enterprise. In the last analysis, the responsibility of management is not merely to the shareholders but also to the public at large. It seems desirable that the Central Government should set up at once an agency for ensuring a better administration of the company law as well as for the discharge of other related functions. The question whether this agency should be a statutory body might be considered after it has functioned for some time. It is hoped that with the reform in the company law suggested by the Committee and with the establishment of the agency mentioned above, industrial management will conform more and more to the standards of a profession or a service, playing its legitimate part in the fostering of industrial development.
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