CHAPTER-I

THE INDIAN INDUSTRIAL SCENARIO

1.1 INTRODUCTION

1.2 ORIGIN AND DEVELOPMENT OF MANUFACTURING INDUSTRY IN

INDIA: PRE-INDEPENDENCE SCENARIO

1.3 GROWTH OF MANUFACTURING INDUSTRY IN INDIA: POST­

INDEPENDENCE SCENARIO
1.3.1 Industrial Policies and their Impact on Manufacturing Industry in India
1.3.1.1 Industrial Policy Resolution, 1948
1.3.1.2 Industrial Development and Regulating Act, 1951
1.3. L 3 Industrial Policy Resolution, 1956
1.3.1.4 Industrial Licensing Policy, 1970
1.3.1.5 Industrial Policy Statement, 1973 •
1.3.1.6 Industrial Licensing Policy, 1975
1.3.1.7 The Industrial Policy Statement, 1977
1.3.1.8 The Industrial Policy Statement, 1980
1.3.1.9 The Industrial Policy Statement, 1990
1.3.1.10 The Industrial Policy, 1991
1.3.2 Various Governments and Development of Manufacturing Industry in India
1.3.2.1 Congress Government (August 1947-March 1977, January 1980-December
1989 and June 1991-May 1996)
Jawaharlal Nehru’s Regime (15th August, 1947 - 27th May, 1964)
Lai Bahadur Sastri’s Regime (9th June, 1964 - 11th January, 1966)
Mrs. Gandhi’s Regime (24th January, 1966 - 24th March, 1977)
Mrs. Gandhi’s Regime (14th January, 1980 - 31st October, 1984)
Mr. Rajeev Gandhi’s Regime (31st October, 1984 - 1st December, 1989)
Mr. P.V.Narasimha Rao’s Regime (21st June, 1991 - 16th May, 1996)
1.3.2.2 Janata Government (March, 1977 - January, 1980)
1.3.2.3 National Front Government (December, 1989 - June, 1991)
1.3.2.4 United Front Government (June, 1996 - March, 1998)

1.4 VARIOUS FIVE YEAR PLANS AND EVOLUTION OF

MANUFACTURING INDUSTRY IN INDIA

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1.1 INTRODUCTION

The industry is a part and parcel of the self-contained economy of India. But there

were many reasons such as social and economic conditions that are not favorable for the

speedy emergence of the capitalist industrial system in India. Demarcation of the stages

of the industrial evolution in India is not possible as one could do it in Europe or

England. Though this industry of India has not so developed and its existence in the

country in one form or other is as old as Indian Vedas.

1.2 ORIGIN AND DEVELOPMENT OF MANUFACTURING INDUSTRY IN

INDIA: PRE-INDEPENDENCE SCENARIO

The Indian handicrafts industry is well known for its workmanship skills and

these crafts are saleable not only through out country, but also has a ready market abroad

through the various merchandising channels. The references about the handicrafts

industry could be traced from the early ages of Vedas. £n Ramayana it was said that the

craftsmen were serving the industry, this gave a strong evidence that the Indian industrial

set up was in the form of handicrafts is as old as the Indian civilization itself. Indigo was

known and grown in India even in ancient times. Its use as die dates back to the first

century. The traces of modem industry in India can be traced back to as early as 1818

when the first cotton mill was established in Kolkotta the then was called Calcutta. The

first tanning factory also was established in 1885 at Madras and the first Jute mill at

Srirampur in the suburbs of Calcutta in 1852. In the nineteenth century many industries

such as manufacturing of the beverages and the tea, coffee, cotton units were setup in.

many parts of the country.

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 The intense requirement by the World War II gave the real push to the Indian

industry. The modem industries like ferrow-alloys, metal fabricating mechanical and

chemical industries were established as emergence with the new technologies. But the

disastrous effects of war namely over production and over working of national capital

equipment, inflationary trends, increased which exploitated the weaker sections which

were met counter balanced the production and the distribution of the industry in

India. The then foreign rulers hadn’t taken any interest in solving these problems in India.

. Besides this the selfish rich class never wanted to take apy risk in welfare and the

development L,. . of the country. All the above factors forced to be led the Indian

industry to the lowest production during the years and even after the World War II, where

the country’s need was a higher production of capital goods and consumer goods.

In addition to the ill effects of the war, the division of India and Pakistan further

affected the Indian industry very disastrously. The Indian industry was hampered to a

great level as some important minerals like Gypsum, Rock salt etc were found in the

areas that was parted with Pakistan which was the necessities for the important

ingredients for the heavy chemical industries. Cotton and Jute industries were also

severely affected by this act as 81 per cent of the raw jute and 40 per cent of the total raw

cotton were grown in the areas which went under Pakistan. Industries like cotton textile,

woolen, hosiery, glass, engineering, metal works etc., have also suffered a severe blow

from the shortage of skilled labour because most of the skilled labour working in the

above industries were happened to be Muslims and they migrated to Pakistan. On the

other hand some resident Pakistani entrepreneurs migrated to India before partition to

take advantage of the diversified industries. Whatever it may be, the pitiable state in

nineteenth century was a century of deindustrialization in India. The large and excellent

3
raw material base in coal, mineral wealth such iron ore, bauxite, salt from sea, vast forest

resources and existence of fairly large number of entrepreneurs are some of the potential

sources which are directly responsible of the present of the Industrial set of the present

times.

1.3 GROWTH OF MANUFACTURING INDUSTRY IN INDIA:

POST-INDEPENDENCE SCENARIO

The independent India was ruled by Governments backed up by different political

parties originated from different schools of thought. These Governments have made very

sincere effort to put the industry on a growth path, realizing industrialization can

definitely improve wealth of the nation and at the same time the living standards of the

people. The Governments enunciated a number of policies, designed several Plans and

taken'numerous measure to see the industry to grow at rate that was envisaged in various

Plans.

Since independence, the Government of India enunciated two Industrial policy

resolutions and several industrial licensing policies to give impetus (to growth and

development of) to Indian Industry. The prime objectives behind enacting these policies

were to provide justice and equal opportunities (to improve standard of living, to meet the

needs of growing population) of the people and to prevent private monopolies and

concentration of economic power in the hands of small number of individuals. These

industrial policies are no doubt the brainchild of various political parties that formed the

Governments in Independent India. It was very obvious that the philosophy of these

political parties and their vision towards industriliasation of the State should have

certainly had its influence on framing these policy statements. The changes in the

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priorities experienced given to the political parties, reviewing the policies and Plans that

were enunciated and economic and financial crises were the various reasons that led to

enunciation of various industrial policy resolutions and licensing polices. Therefore, the

growth in industry in India can be looked from two facets and one from the side of

political party that formed the Government and the effect of various policies and Plans

from the other side.

1.3.1 Industrial Policies and their Impact on Manufacturing Industry in India

1.3.1.1' Industrial Policy Resolution, 1948

After attaining the independence on 6th April 1948, the Indian Government

enunciated its first ever-industrial policy resolution. Its main motive was to increase the

wealth of the nation through rapid industrialization, and thus raised the national and per

capita income. It also emphasized the need for accelerating production to meet the needs

of growing population and creating more employment opportunities. To fulfill these

objectives every policy had emphasized the progressive active role of the State in the

developing industries. The State was made responsible for establishing some important

industries in the interest of the public and nation at large. This policy made a separate list

of industries for the State and the private sector and a concurrent list for both

respectively.

The Industries namely Rail Transport, Arms and Ammunition and Atomic Energy

are under absolute monopoly of the State. Further, the development of principal basic

industries such as Iron and Steel, Coal Mining, Ship building, Air craft manufacturing,

manufacturing of telephone, telegraph and wireless apparatus which were already in the

private sector. The rest of industries were left open for private sector. However, in case

5
of certain industries are the key industries and one of great or national importance that the

State can step in and assume change if the private sector fails. This resolution assigned

the predominant role to Cottage and Small-scale Industries for the maximum utilisation

of the local resources and attaining the self-sufficiency in consumer goods. This

resolution stressed on the proportionate raise in the share of labour which will enable to

increase in the industrial production. This resolution wanted the Government to impose

some limits on the volume of foreign capital flow into the country and also emphasized

the great need for simultaneous use of foreign capital, technology and entrepreneurship.

Though the prime motive of this policy resolution was to control the capitalistic form of

industrial set-up in the country and introduced the mixed economy form of industrial set­

up; and the nationalization was the second category industries such as Coal, Iron and

Steel, Ship building, Air craft manufacturing, manufacturing of telephone, telegraph and

wireless apparatus were severely felt after reviewing their performance.

1.3.1.2 Industrial Development and Regulating Act, 1951

During 1951, the Indian Parliament passed the industrial development and

Regulation Act of 1951 providing the State with necessary power to regulate and control

the existing and new industrial things. According to this Act, it was mandatory to for all

industrial undertakings to get registered with the Government with in a specified period.

Licenses should be obtained form the Government by all new under takings and by

undertakings contemplating substantial expansion. The Act also empowered the

Government to order an investigation to any industry or undertaking. The Government

could take over the management of such industries, which failed to carry out directions

issued after such investigations.

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 That Act provided five types of licenses namely, (1) The New undertaking, (2)

The Substantial Expansion, (3) The production of new articles, (4) The Change of

location, and (5) Carrying on business. The Act further provided for the establishment

licensing Committee, Central Advisory Counsel and the Development counsels. The

licensing committee was set up with representatives of the concerned ministries, and the

Planning Commission. This was an advisory body and expected to make such

investigations in respect of any application and make a report to the Government.

The Development Counsel consists of representatives from the individual

industrial undertakings, employees and consumers. Its role is to act as a liaison between

the Public and the Private sectors, and also to ensure that the private sector is conformed

to the planned pattern of the development.

1.3.1.3 Industrial Policy Resolution, 1956

In the light of the developments that took place in the country since 1948, such as,

the successful completion of the First Five Year Plan and the need for introducing

immediately. The Second Five Year Plan with rapid industrial growth as its objectives,

the Government enunciated industrial policy in the year 1956 replacing the original

Industrial Policy Resolution of 1948.

The main objectives of the Industrial Policy resolution of 1956 were:

(1) To accelerate Economic growth and speed up Industriliasation.

(2) To develop heavy machine making industries.

(3) To expand public sector and build up a large and growing cooperative sector.

• (4) To reduce disparities in income and wealth.

(5) To prevent private monopolies and concentration of Economic power in

different fields in the hands of small number of individuals.

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 This industrial policy resolution was very comprehensive and having various

salient features was to control the industrial undertakings and shape the pattern of rapid

industrialization in the country. This may be considered as the economic constitution

against its political counterpart Constitution of India.

Government of India conducted two different review studies about the operation

of the industrial licensing. During the year 1966, Prof. Hazari conducted a study with

one objective to review the operation of licensing under the Industries Act over the period

of six to seven years, and to suggest some modifications in the light of speedy economic

development that was to be achieved. During the year 1967, another committee (Dutt

Committee) was appointed to look into the basic questions regarding the functioning of

the licensing system; and the advantages obtained by some of the large industrial houses.

Prof. Thaker was made as the Chairman but soon he was succeeded by Sri Dutt in 1968.

1.3.1.4 Industrial Licensing Policy, 1970

On February 1970 in response to the various recommendations that were made by

the Administrative Reforms Committee (ARC), the Industrial Licensing Policy Enquiry

Committee (1968) i.e., known as the Dutt Committee and the Planning Commission, the

Government brought a change in the Industrial Licensing Policy. The aim of this policy

was to give greater freedom to private enterprise and to eliminate excessive concentration

of economic power in the hands of a few. A patent measure was taken in this policy to

achieve such a situation both by the modification of licensing policy with regard to the

large industrial houses. The Monopolies and Restrictive Trade Practices Act (MRTP Act)

came in to effective from June 1970, with an objective to prevention of concentrations of

economic power in few business houses^prohibition of monopolistic and restrictive

8
and unfair trade practices. Clearance under the MRTP Act was necessary before the

industrial license that could be granted to such firms as were already with in the ambit of

the Act or likely to be subjected to its provisions after the inclusion of the schemes for

which license are sought.

This policy was oriented towards providing greater opportunities to fresh entrants

and to small entrepreneurs. New undertakings as well as expansion of existing units

requiring one crores each or less had been exempted from licensing requirements. This

policy envisaged that there would be established a joint sector of enterprise.

1.3.1.5 Industrial Policy Statement, 1973

In 1973 Government of India once again made some changes in the Industrial

Policy with a prime objective to provide a greater clarity to the investment world and

with a view that this would facilitate the priorities and production objectives of the Fifth

Plan.

The basic changes mentioned in the statement were:

(1) The Core Industries were clearly classified as basic industries; those industries
having linkages with the core industries and those with substantial export
potential.

(2) There was no change in the list of industries preserved for public sector as per
1956 Industrial Resolution.

(3) Some reservations were made for small and medium sectors, and encroachment of
these sectors by large industrial houses was anticipated and resisted.

(4) Foreign concerns, their subsidiaries and the Indian branches of foreign companies
were made eligible to apply for licensed capacity.

(5) The Central and State Government in collaboration with the private sector could
promote an intermediate sector, which could be called as the joint sector.

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 This policy has made a renewed attractive invitation to the foreign resources. The

policy regarding the Joint Sector was derived from the Industrial Policy Resolution as

1956 with an objective of reducing the concentration of economic power in the hand of

the few.

13.1.6 Industrial Licensing Policy, 1975

Keeping abreast with the latest changes in the policies the government enunciated

some relaxations in the licensing policy. They were, de-licensing and unlimited

expansion of twenty industries, provided the products that were for exports or in

approved channels. The big industrial houses including monopoly houses and

multinational were given permission to do the needful. Industrial licensing was dispensed

with for small and medium entrepreneurs, not attracting the MRTP Act, upto Rs. 1 crore

for the new units, and upto Rs.5 crores for the expansion of the existing units. And

twenty five per cent excess expansion over the licensed capacity was condoned. As a

result of these relaxations there was an avalanche of applications for industrial licensing

and a plethora of licenses were given. But many of these licenses were purchased or

cornered by the multinationals and monopoly houses.

1.3.117 The Industrial Policy Statement, 1977

The Government of India promulgated-a new Industrial Policy on 23 December

1977. Though the policy statement concerns with the various aspects of the industrial

policy, but the government made it clear that the broad framework of industrial policy

given in Industrial Policy Resolution 1956 was still valid.

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 The Government felt that enforcement of the earlier industrial policies had not

yielded results up to the expectations. During the ten years period prior to the 1977 the

growth of percapita income was less than 2 per cent per annum. The unemployment had

increased and the rural-urban disparities had widened, and the rate of real investment had

stagnated. Industrial sickness had become wide spread.

In this policy statement, the main thrust was put to the upper small scale and the

Cottage Industries for their rejuvenation and growth. The role of large-scale industries

will be related to the programmes for meeting the basic minimum needs of the population

though a wider dispersal of small-scale and village industries, and strengthening of

agricultural sector. Large and monopoly business houses would have to generate their

own resources for expansion, and these units that would not be allowed to enter or

expand even indirectly into areas earmarked for cottage, small and medium sectors. The

public sector would function as a catalytic agent for the development of the entire

industrial field. Less reliance and dependence should be placed on foreign capital and

technology.

1.3.1.8 The Industrial Policy Statement, 1980

Another industrial policy was announced in July 1980 by the Government of

India. In the light of raise in the cost of the plant and machinery and to give stimulvts to

the development of small-scale industry the limits of investment was enhanced. This

policy 1980 was intended to foster regional balance, revamp the public sector and to

promote the rural sector as a support to agronomy. It also emphasises on the

modernization, expansion and development of backward areas in relation to both small

and large industries. This policy also made provision for the large units to expand 5 per

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cent per year or 25 per cent in five-year period. It realizes the need to improve the

efficiency of the public sector units, in a nutshell, this policy aimed at creating more

competitive environment for the operation of public sector units through appropriate

procedures and the development of a cadre of the professional management.

13.1.9 The Industrial Policy Statement, 1990

The Industrial policy statement 1990 was announced in 31st May 1990. But the

policy and the guidelines were not properly implemented. This policy was of great

historical importance; as this policy had enhanced the investment ceiling for the small-

scale and ancillary units. This policy emphasized also on the efforts that would make to

identify items for exclusive manufacture in the small-sector and encroachment and

violation by large-scale units into the areas meant for small-scale sector which would

seriously dealt with. A new scheme of central investment subsidy exclusively devoted

for small scale sector in rural and back-ward areas capable of generating a higher level of

employment with low capital investment that would be implemented, modernisation and

up-gradation of technology programmes in the small-scale sector which ought to be

implemented into.

1.3.10 The Industrial Policy, 1991

This Industrial Policy was introduces on 24th July 1991. The Government felt that

the policies adopted so far created a climate for rapid industrial growth, but a lot was to

be done to create a congenial environment for the inflow of foreign capital, foreign

technology and improvement of the public sector management. The main aim of this

policy was to liberate the Indian industry from various unnecessary bureaucratic hurdles

and allow India to grow as a part of the world economy. This policy also aimed at
removing the restriction on foreign direct investment. As per this policy the domestic

entrepreneur was set free from MRTP Act restrictions. The policy was also aimed to

reduce the burden of the State with respect to public enterprises. In order to fulfill these

aims the industrial policy led the government to take some initiative in respect of policies

in the areas of industrial licensing, foreign investment, foreign technology policy, public

sector policy and MRTP Act.

In the area of industrial licensing the role of government was to provide help and

guidance by making essential procedures fully transparent and by eliminating delays

besides excising its control. The industries related to security and strategic concern,

social' reasons, problems related to safety and overriding environmental issues,

manufacturing of product of hazardous nature and items and illicit articles of

consumption were needed licensing, and incase of other industries the licensing system

was abolished. In order to invite foreign investment in high priority industries it had been

decided to provide approval for direct foreign investment up to 51 per cent foreign equity

in such industries. With a view of infusing and injecting the desired level of technological

dynamism in the Indian industry, the government will provide automatic approval for

technology with the agreement relating to the high-priority given industries within the

specified parameters.

In this policy statement in order to solve some of the serious problems that

occurred that the public sector has been suffering from the Government adopted a new

approach to public sector enterprise. First and foremost it is to extend a greater support to

public sector enterprise, which is essential for the operation of the industrial economy.

Secondly, to take stricter measures to make these enterprises more growth-oriented and

13
technical dynamism, the government may provide automatic permission to foreign

technology agreements in high priority industries up to a lump sum payment of one crore

rupees and, several royalties were announced for domestic sales and exports. No

permission would be necessary not be granted for hiring of foreign technicians, foreign

testing of indigenously developed technologies.

1.3.2 Various Governments and Development of Manufacturing Industry in India

' In the 50+ years post independent India, deep traces of the political parties and

their ideology can be felt in promulgating industrial policies leading to growth in the

Indian industry. So far Governments led by the main political parties such as Congress

Party, Janata Party, National Front, Bharateeya Janata Party and the United Front who

had ruled the independent India.

1.3.2.1 Congress Government (August 1947-March 1977, January 1980-

Decemberl989 and June 1991-May 1996)

Congress party in one form or other was in the government for a larger tenure.

This government lead by several leaders was the responsible for shaping industrialization

in India in its early stage. Various stages of development of industry are briefly discussed

hereunder.

Jawaharlal Nehru’s Regime (15 August, 1947 - 27 May, 1964)

Jawaharlal Nehru was the first Prime Minister of Independent Indian from 15th

August, 1947 to 27th May, 1964. At the time of independence, the country was in deep

14
economic backwardness. As said by Bagachi, 19821, 2“In 1900, India, ‘the brightest jewel

in British Crown ’ was one of the poorest nations in the world”.

•j

• In his period Jawaharlal Nehru introduced the Industrial Policy Resolution 1948",

the enactment of the Industrial (Development and Regulation) i Act 1951, and the

Industrial Policy resolution of 19563. Inspired by the neighboring developed country the

idea of planning as a desirable means of accelerating the economic growth and

development in his regieme, the First, Second and Third Five Year Plans were promoted.

The objective of industrial planning as stated in the First Five Year Plan was to

over come the deficiencies in production of arms and ammunition, production and control

of atomic energy and ownership and management of railways, coal, iron and steel,

aircraft manufacturing shipbuilding etc., During Second Five Year Plan (1956-61),

agriculture was given less priority, and more thrust was laid on the development basic,

h&Qjty industries the economy for a more rapid growth.

With the goal of becoming “self-reliant and self-generation economy” the Third

Five Year Plan was launched in the year (1961-66) analyzing the results of Second Five

Year Plan. Thereafter, realizing that the growth rate of agriculture production was the

main limiting factor in India’s economic development, the Third Plan gave top priority to

agriculture besides laying adequate emphasis on the development of basic industries. The

section, which was neglected in the Second Five Year Plan, had its worst results on the

Indian economy as a result the agricultural production was almost remained at the same

level during 1960-61 to 1963-64.

1 Bagachi, A.K. (1982). The Political Economy of Underdevelopment, Cambridge.

2 Opting for a centrally planned development strategy with the state playing a major role (6th April, 1948)

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Lai Bahadur Sastri’s Regime (9 June, 1964 - 11 January, 1966)

Nehru died in May 1964, and Lai Bahadur Sastri was elected as Prime Minister.

There was a drought in 1965. During the Prime Minister Lai Bahadur Sastri’s period, the

real GDP of manufacturing sector factory prices was 6.9 is 1964-65 and has fallen to 0.9

in 1965-66 34 And he died in January 1966 and then Mrs. Gandhi was elected as the Prime

Minister after Lai Bahadur Sastri in the year 1966 and also reelected in the year 1967

elections,

Mrs. Gandhi’s Regime (24 January, 1966 - 24 March, 1977)

Mrs. Gandhi the Prime Minister of India during 1966-77 and also was again

reelected in the year 1980 to 1984 till her assassination on 31st October, 1984. During her

first spell of rule i.e. 1966-77, a Plan holiday was declared from the year 1966 to 1969 for

a period of three years. In this period, green revolution received rapid official acceptance

and encouragement leading to a recovery in agriculture production, which rose by 35 per

cent. GDP also recovered in these years growing at 6 per cent per year, however, the

industrial performance was sluggish. The Fourth and Fifth Five Year Plans were initiated

in her regime. The objectives set before Fourth ' i Five Year Plan/, were aimed at

“Growth with Stability and Progressive Achievement of Self Reliance”, while the

objectives of the Fifth Five Year Plan were “Removal of Poverty and Attainment of Self-

reliance”.

3 Reiterating its intension to give a socialist direction to the economy.

4 Vijaya Joshi and Dlittle, I.M. (1998). Indian Macro-Economics and Political Economy (1964-1991),
Oxford University Press, Delhi, p.927.

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 During her period, the government promulgated an Industrial Licensing Policy

(1970), with a basic intention to restrict the future growth and economic power of the

large industrial houses by strengthening the public sector and small-scale sectors. The

Principal . joint sector comblw'w^rivate and public sectors investment . was

introduced. The medium sized industries, with investments ranging between Rs. 10

million and Rs. 50 million were to be established by entrepreneur other than large

industrial houses except where efficiency and exports demanded it. The list of small-

scale industries were enlarged. This policy empowered the Government’s financial

lending institutions to convert their loan into equity in the future. In order to restrict

foreign investment FERA (Foreign Exchange Regulatory Act) government gave a

statutory form though (FERA) and restricted the normal foreign investment to 40 per cent

or below unless the foreign companies are engaged in priority, sophisticated

technological-based, or substantially export orient industries. However, all foreign

companies were required to bring down foreign equity to 74 per cent.

Mrs. Gandhi’s Regime (14 January, 1980 - 31 October, 1984)

Mrs. Gandhi lost elections in the year 1977 but returned to power in the beginning

of 1980. Her government was recognized the inefficiency of public sector to generate

economies surpluses for new investment and perceived no longer as engine of growth. In

this circumstance some modification such as liberalization of the economy and a tougher

attitude toward performance in the public sector and resistance to take over the sick firms

in the private sector. The Industrial policy statement in 1980 was introduced keeping the

above points in view. Moreover, the government adopted liberal policy on imports of

raw material, spare parts and technology. Her government extended the facility of

automatic expansion of capacity by five per cent annually or twenty five per cent over a

17
period of five years which was allowed for only fourteen industries in 1975 to other core

industries such as chemicals, drugs, ceramics and cement. Her government declared the

year 1982 as the year of productivity. The private sector was allowed to participate in the

industrial activities such as power and oil exploration, which were closed to it earlier.

Moreover, the government adopted a liberal policy on the import of raw materials, spare

parts and technology.

Mr. Rajeev Gandhi’s Regime (31 October, 1984 -1 December, 1989)

Following the assassination of Smt. Indira Gandhi, Rajeev Gandhi was her

successor in October 1984. His administration seemed to launch India on new economic

course which accelerated the liberalization policies. His government had shown deeper

commitment to liberalization sliding of India’s rank as an industrial nation in the world

from tenth to twenty sixth place and coming down in the country’s share in the world

trade from 2.4 per cent in 1950 to 0.5 per cent made Rajeev Gandhi to reinterpret! .the

concept of self- reliance. The Government realized the root cause for the marginalization

as the malfunctioning of the mammoth public sector. As a consequence, the government

decided to relay on private sector as a mechanism for economic growth. The public sector

was supposed to play a complementary and subsidiary role and the private sector,

concentrating on the core sector, primarily on the infrastructure. Regarding the licensing

his government raised the upper limit of assets to bring the business houses under the

MRTP Act from Rs.200 million to Rs. 1,000 millions drastically reduced the number of

the firms that came under the MRTP Act. The government also had delicensing of

twenty-five broad categories of industries and eighty-two bulk drugs and related drug

formulations industries. Not only this, the government extended automatic permission to

expand capacity by one-third per year and removal of virtually any upper limits on

18
capacity in non-consumer electronic, and permission for liberal import of technology and

foreign collaboration in electronics. Thus the economy experienced a slight acceleration

in the growth rate from 5.4 per cent to 5.8 per cent during Seventh Plan (1985-90) under

Rajeev Gandhi leadership.

Mr. P.V. Narasimha Rao’s Regime (21 June, 1991 -16 May, 1996)

Mr. P.V. Narasimha Rao was made the leader of the Congress Party government

that had formed after the United Front Government lost its majority in the Parliament.

He took over the _ - strings of the Government when the country was in the

midst of dismal economic situation of massive macro-economic imbalances. Therefore,

the government was compelled to take some hard decisions not to stabilize the situation

of country but to restructure the economy as a whole. The New Economic Policies were

launched as a remedial measure to the existing crisis in the year 1991. The launching of

the new economic reforms through a deliberate planned phased manner was adopted by

the leadership towards the goal of a deregulated and globalized economy as suited Indian

political system. Several committees such as, the Tax Reform Committee, the

Committee on Financial System and the Insurance Reforms Committee were constituted

to make recommendations on the reforms before they were enacted. As per the reforms,

the private sector had been provided with several incentives for growth and development.

Interest cheap and ample finance was made available to private firms through the public

financial institutions such as ICICI and IDBI either in the form of equity or loan finance.

Beyond the public finance the state imposed quantitative restrictions and steep customs

duties under the state’s inward oriented economic strategy for the growth and the

expansion of the firms in the private sector. Ultimately, it made the Indian firms not to

face any competition from global economy.

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 Honourable N. Rao’s government introduced on 24 July 1991, a New Industrial

Policy to create a congenial environment for the inflow of foreign capital, foreign

technology and improvement of the public sector management. The main objectives of

this policy were to liberate the Indian industry from various unnecessary bureaucratic

hurdles and allow India to grow as a part of the world economy, removing the restriction

on foreign direct investment, to set free the domestic entrepreneur from MRTP Act

restrictions. The policy was also aimed to reduce the burden of the State with respect to

public enterprises. In order to fulfill these objectives the industrial policy led the

government to take some initiative in respect of policies in the areas of industrial

licensing, foreign investment, foreign technology policy, public sector policy and MRTP

Act respectively.

His government also adopted a new approach towards the Public Sector

enterprise, so as to extend a greater support to public sector enterprise, to take measures

to make these enterprises more growth-oriented and technically dynamic by providing the

automatic permission to foreign technology agreements in high priority to industries up to

a lump sum payment of one crore rupees and several royalties for domestic sales and

exports. No permission would be necessary for hiring of foreign technicians, foreign

testing of indigenously developed technologies.

The facet of the MRTP AetAtfas changed in this policy to controlling and

regulating monopolistic, restrictive and unfair trade practices rather than making it

necessary for the monopoly houses to obtain prior approval of Central Government for

expansion, establishment to new undertakings, merger amalgamation and take-over and

appointment of certain directors.

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 The economic reforms that were introduced had created a slow momentum for

piecemeal reform in one sector or another, but a concerted attack on abroad front seems

unlikely in the absence of an economic crisis. Though the reforms were stretched over

the point of half-decade, they were part of a larger design to decisively shift the economy

from a highly insulated and controlled regime to one that was integrated with the world

economic system and relied primarily on the market.

1.3.2.2 Janata Government (March, 1977 - January, 1980)

The Janata Government was in office for a short period of about two years or so.3

In its short tenure in the office it took some important actions that effected the Indian

industry. The Industrial policy statement of 1977 was introduced in its tenure period. The

major actions were the spectacular enhancement of list of industrial products reserved for

the small-scale sector, from 180 to 504, the ouster of IBM and Coca-Cola from India and

substantial shift of resources to agriculture and Rural development, as a consequence the

most critical sectors such as power, transport and coal were neglected drastically.

1.3.2.3 National Front Government (December, 1989 - June, 1991)

The National Front, when came into power in 1989 as a coalition government,

was unstable and divided over issues of economic policy. This government promulgated

the industrial policy statement in 1990 but this did not come into force because of lack of

Fronts support. However, it may be concluded' from their act that the government had a

strong impulse towards the liberalisation of the Indian industrial policy.56

5 Mr. Morarji Desai (24 March, 1977 - 28 July, 1979) and Mr. Choudary Charan Singh (28 July 1979 - 14
January, 1980) were acted as Prime Minister’s in the Janata Government.
6 Mr. Viswanadh Pratap Singh (2 December, 1989 - 10 November, 1990) and Mr. Chandrashekar (10 Nov.
1990 - 21 June, 1991) were acted as Prime Ministers in National Front Government.

21
1.3.2.4 United Front Government (June, 1996 - March, 1998)

Congress Party was defeated in the elections held in 1996 and no political party

having required majority could farm a single party government. As a consequence the

United Front coalition consisting of several major regional and the Left Front of the

Communist Parties United and assumed office on June 1996. The United Front

government7 reduced the number of industries requiring prior license scheme from 15 to

9. This government also opened coal and lignite mining to the private sector, which were

under the public sector during the Congress rule. Instead of disinvestments in public

sector enterprises, United Front government was determined to make the public sector

strong and competitive, at the same time to withdraw from the public sector from non­

core and non-strategic areas without curbing the interest of the workers. The United Front

government established a Disinvestments Commission to assume transparency in the

decisions making and implemented in respect of disinvestments policy in the public

sector.

1.4 VARIOUS FIVE YEAR PLANS AND EVOLUTION OF MANUFACTU­

RING INDUSTRY IN INDIA

Prior to the implementation of the First Five Year Plan (1951-56) the emphasis

was laid on the Industrial development in India which was more on the consumer goods

industries, rather than on producer goods industries. As a result the capital good

industries had lagged behind during this period. No sincere efforts were made towards

industrialization during the First Five Year Plan (1951-1956). Some emphasis was laid to

7 Mr. H.D. Deva Goud (1 June 1996-20 April, 1997) and Mr. I.K. Gujral (21 April, 1997 -March 1998)
were the Prime Ministers in United Front Government.

22
set up on some basic industries in order to provide power, and irrigational facilities,

which was a fulcrum to rapid industrial development.

A real drive to enhance the industriliasation which began earnestly only with the

Second Five Year Plan (1956-1961). Particular emphasis was laid on the development of

basic and heavy industries so as to strengthen the industrial base of the country for more

rapid economic growth. Iron and steel, non-fenrous metal, cement, heavy chemical and

other important industries were given high priority. A Second Industrial Policy

Resolution was adopted in April 1956. In this high priority was given for the expansion

of Iron and Steel industry as it was felt that the productivity of this industry determines

the tempo and progress of the economy as a whole. Out of the total public outlay of

Rs.4600 crores, an amount Rs.1749 crores was invested in the industry. Most of the

investments were on basic metal, machine building and other heavy industries. This

initiated a rapid transformation of the structure of the Indian industry. The most

impressive achievement were made during this Plan period was the establishing of the

three new steel plants. A remarkable progress was also made in the growth of machine-

building industry. This Plan increased a major diversification in the industrial set-up by

further strengthening the developmental programmes of oil exploration and coal, and

made a wise beginning in the development of the Atomic Energy. This Plan saw a good

progress in modernization and re-equipment of industries especially in Jute, Cotton

Textile and Sugar. Substantial progress was also recorded during this Plan period in the

village and small-scale industries also.

The Third Five Year Plan (1961-66) helped to push further the tempo of

industriliasation to a higher degree. Ground was prepared for the same over the next

23
fifteen years in this Plan period. To achieve the target levels of national income and

employment, the Plan emphasized the establishment of basic, capital and producer goods

industries with special stress on machine-building programs and acquisition of the related

skills, technical know-how designing capacity. It was also considered that the public

sector and private sectors are supplementary and complimentary to one another and

provided sufficient safeguards to prevent the concentration of economic power in the

hands of a few industrialists. In the first four years of the Plan, the conditions were

relatively favorable for investment and growth. It lead for a significant progresses on

industrial front in the Indian economy. After that, many difficulties in financing the

projects arouse due to heavy expenditure incurred on defence during the conflicts with

China (1962) and Pakistan (1965). In back drop of this scenario, several policy and

administrative measures were taken in response to the changing economic conditions.

Bringing new financial institutions into existence increased the availability of

institutional finance. Some of the major financial institutes such as' IDBI to provide

financial assistance to new industries and UTI to channelise the savings of middle and

small income groups to investment in risk capital. During this Plan period, engineering

industries progressed according to the set targets and petroleum products, heavy

chemical, cement, mining and extractive industries also made considerable progress.

Further, the Three Annual Plans were adopted prior to the Forth Plan, which was

considered as “Plan Holiday” period. During these Annual Plans emphasis was given to

the speedy completion of projects which were well under way and on which substantial

investments was already made in a view trap the benefits of these projects as early as

possible. After two yeas of stagnation the calendar year 1968 indicated vigorous

expansion in the industrial production with six to seven per cent increase. This revival in

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industrial production along with high level of agricultural output had achieved a great

deal to dispel the psychology of recessions and despondency, which prevailed in the

country during the last two years or so.

While the economy was recovering from a period of recession and from the state

of under-utilized capacity in the capital goods and engineering industry, the Fourth Five

Year Plan (1969-74) was launched. During the Fourth Five Year Plan main emphasis

was on revising the trend of earlier years and accelerating the tempo of industrial growth

with the condition of stability and reduced uncertainties. Much importance was given to

a speedy move towards self-sufficiency in the industrial sector and to raise the production

of raw materials and manufactured goods in a view to reduce their import and increase

substantially their exports by seven per cent a year in order to secure an overall balance

on foreign account.

The performance of the industry was far short of the targets of the Fourth Five

Year Plan. The growth rate in industry was around five per cent that was much below the

targeted growth rate of eight per cent as envisaged in the Plan. Several negative factors

contributed for the slow pace of industrial development. Lack of integrated planning,

operational problems and deficiencies in the design, strikes and unsatisfactory industrial

relations were the main causes for the slow pace of the iron, steel, fertilizer industries.

Inadequate investment results in reduced, demand for capital goods industries as result

production of capital goods industry was seriously affected.

The performance of development in the industries and the Mining mineral sector

during the Fifth Five Year Plan (1974-78) had been formulate keeping in view the twin

objectives of self-reliance and growth with social justice. The Plan aimed at an annual

25
growth rate of eight per cent in the industrial and mineral sector. More emphasis was laid

on the rapid growth of core sector industries by giving than a high priority to steel, non-

ferrous metal fertilizers, mineral oils, coal and machine building. Priority was also given

to the development of industries, which promise rapid diversification, and growth of

Cs

exports. More over, the impetus was given to increase the production of mass

consumerable goods, and to restrain on the production of inessential goods, except for the

exports. The inflationary pressures, unfavorable balance of payment position due to the

steep rise of import oil prices and other material, and sore economic condition in some

neighbouring countries and unstable international monetary condition, escalating in costs,

higher outlays on public consumption and non-development expenditure led to the

erosion of Plan targets and results. These constraints hampered the process of growth in

the earlier period were removed to considerable extent by the annual Plan 1974-75 by

revising the Fifth Plan. However, the industrial growth rate was at about 5.3 per cent

during 1974-75 to 1977-78, where as it was just 2.5 per cent earlier during 1974-75.

With a view to work within the overall development strategy mainly with regards

to the objectives of structural diversification, modernization and self-reliance the Sixth

Five Year Plan (1980-85) was formulated and successfully launched. Emphasis was

given to substantial enhancement of manufacturing capacities. With the special attention

paid to the capital goods, industry in general and the electronics industry in particular

realizing their potential to support the growth of wide range of economic activity. Priority

was given to speed up the export of engineering goods and industrial products, to meet

foreign exchange requirements. A judicious blend of permitting import of contemporary

technology and promoting the development of indigenous know how through domestic

26
research and development. New strategies were devised for the development of

backward regions.

Paying attention to the various slipshots and short falls that marred for the slow

growth rate of industrial production in Sixth Plan much emphasis was given to achieve

growth with social justice, and improving productivity while formulating the Seventh

Plan (1985-90). In this Plan emphasis was given to maximize the utilization of existing

facilities through restructuring, improved productivity and up gradation of technology.

The plan also aimed to the development of industries with large domestic market and

export potential as main objective and to emerge as world leaders in them. The Plan also

intended to evolve an integrated policy to words self-reliance in strategic fields and

opening up of avenues for employment of skilled and trained manpower. The Seventh

Plan laid emphasis easing the infrastructural constraints, liberalization of industrial

licensing policy and other regulations and provision of incentives for rapid development

of key areas like electronics to stimulate the industrial production. The industrial growth

rate during the Plan was 8,5 per cent slightly less than the targeted growth rate of 8.7 per

cent. The manufacturing sector of electrical machinery and chemical and chemical

products only contributed 61 per cent of the industrial growth in the manufacturing

sector.

The Eighth Five Year Plan (1992-97) was introduced in a new environment when

a number of reforms in the industrial, fiscal, trade and foreign investment policies were

introduced in the economy. New Industrial Policy of 1991 was introduced reviving the

role of public and private sector. Consequent to the introduction of New Industrial Policy

private sector had come to limelight and had developed considerable entrepreneurial,

27
managerial, technological, financial and marketing strengths. Thus the private sector was

envisaged to play a greater role in process of development. Some broad guide lines were

given in the New Industrial Policy relating to growth of the size of individual companies,

through expansions, amalgamations, merges. Joint ventures abroad were also planned to

exploit the complementarities of resource endowments in India and in the concerned

foreign country. During this Plan period a robust growth rate of 11.7 per cent was

recorded by industry in 1995-96, but only 9.6 per cent growth was recorded in the year

1996-97. Capital goods industries experienced a very low growth rate and industrial

groups namely cotton, textile, jute, leather products, rubber, basic metal and alloys

manufacturing industries have experience a negative growth rates.

The Ninth Five Year Plan launched in 1997-2002 was framed with four important

policy dimensions viz., Quality of life, Generation of productive employment, Regional

balance and Self-reliance. The focus of the Ninth Plan was “Growth with Social Justice

and Equality" and priority to agriculture and rural development with a view to generate

employment and eradication of poverty, accelerating the growth rate of the economy with

stable prices, providing basic minimum services such as clean available drinking water,

primary health and facilities, universal primary education, shelter to all and strengthening

effort to build self-reliance. With regards to industry it evolved a development strategy

continuing the role of the government but with change of functioning and content. It also

felt the need to remove the remaining vestiges of the licensing policy particularly in

consumer goods. This insisted on the necessary intervention of the Government in the

markets to promote the degree of competition, by enacting MRTP and provide

institutional mechanism for adjusting and enforcing such discipline. This Plan

accentuated the concept of cooperative federalism by giving more freedom to states. It

28 -
felt the need of de-regularizing the financial sector accompanied by relatively more

stringent prudential norms and improved monitoring by the government. It was resolved

to streamline the industrial and the financial framework to promote rapid expansion of

foreign investment flows in order to support domestic investment and reduce reliance on

external borrowings. Further, it committed to evolve a technology policy to ensure

adequate growth in productivity and quality, and enhance the competitiveness of Indian

products in the international market.

It may be concluded that the industrial development in India has a long history

particularly based upon the party in power and the plan in progress. Different political

parties have played a variant role in the development of industrial front causing

diversification in direction which ultimately led for a slower growth. A continuous and

single directed policy not influencing the ideology of party in power has really starter

only after globalization which efforted the industrial growth through out the world.

A brief note on the objectives of the present study, the concerned literature

survey, the data and methodology followed are given in the next chapter.

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