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Industrial Development

Public sector, IPR 1956, licensing, and small-scale industries.

Notes

Why Public Sector Led Industrialisation

At independence, variety of industries was very limited — mostly cotton textile and jute. Only two well-managed iron and steel firms (Jamshedpur and Kolkata). Strong need to expand industrial base.

1

Shortage of Capital with Private Sector

Private entrepreneurs did not have capital for industrial ventures required for Indian economy's development. At independence, only Tatas and Birlas were well known. Government had to invest through PSUs.

Example:

Today, a startup founder in India can raise ₹10 crore from VCs in 6 months. In 1950, there were no VCs — only the government had that kind of money.

2

Lack of Incentive for Private Sector

Indian market not big enough to encourage private industrialists for major projects, even if they had capital. Limited market size → low demand for industrial goods.

Example:

In 1950, only 15% of Indians could afford a car. Why would a private company build a car factory for such a small market? The government had to step in.

3

Objective of Social Welfare

Equity and social welfare objectives could only be achieved through direct state participation in industrialisation. Profit-driven private sector wouldn't build schools and hospitals in remote villages.

Example:

BSNL (government) put phone lines in 600,000 villages where no private company would go. That's social welfare — not profit — driving infrastructure.

Exam point: Three reasons = (1) Capital shortage, (2) Market limitation, (3) Social welfare objective.

Industrial Policy Resolution 1956 — Classification

Industrial Policy is a comprehensive package covering various issues connected with different industrial enterprises. On 30th April 1956, second Industrial Policy Resolution adopted — formed basis of Second Five Year Plan. Emphasised need to expand Public Sector.

Exam point: Schedule A = exclusively state; Schedule B = progressively state; Schedule C = private with licence control.

Industrial Licensing & Small-Scale Industry

Industrial Licensing

An industrial licence = written permission from government to manufacture goods. Industries (Development and Regulation) Act, 1951 empowered government to issue licences for setting up of new industries, expansion of existing ones, and diversification of products.

1.No new industry allowed unless licence obtained from government
2.Easier to obtain licence if unit established in economically backward area + concessions (tax benefits, lower tariff electricity) — purpose: promote regional equality
3.Licence needed even for expanding output or diversifying production — given only if government convinced of need for larger quantity
Licence Raj: No new industry without licence, regional equality promotion, expansion also required licence. This system was later criticised for creating bureaucracy and slowing down industrial growth.

Small-Scale Industry (SSI)

In 1955, Village and Small-scale Industries Committee (Karve Committee) recognised SSI potential for rural development. Defined by maximum investment on assets: ₹5 lakh (1950) → ₹1 crore (present).

Employment Generation

More labour-intensive than large-scale → generate more employment. After agriculture, SSI provides employment to largest number of people in India.

Need for Protection

Cannot compete with big firms. Flourish only when protected. Government reserved production of certain products for SSI and gave lower excise duty, bank loans at lower interest rates.

Karve Committee (1955)

Recognised the possibility of using small-scale industries to promote rural development. The investment limit defining SSI has changed from ₹5 lakh (1950) to ₹1 crore (present).