5.3 Structural Changes in The Indian Industry

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Q 2 . What are the various dimensions of the structure of Indian Industry?

Describe the industrial


structure on the basis of ownership pattern.

5.3 STRUCTURAL CHANGES IN THE INDIAN


INDUSTRY
In this section we will look at several dimensions of the structure of Indian industry. As
industrial development proceeds in an economy, several structural changes take place in the
industrial sector. Historically, industrial development has proceeded in three stages. In the first
stage, industry was concerned with the processing of primary products. Milling grain,
extracting oil, tanning leather, spining vegetable fibres, preparing timber, and smelting ores.
The second stage in the evolution of secondary industry comprises the transformation of
materials making bread and confectionary, footwear, and metal goods, cloth, furniture and
paper. The third stage consists of the manufacture of machines and other capital equipment
to be used not for the direct satisfaction of any immediate want but in order to facilitate the
future process of production W.G. Hoffman (The Growth of Industrial Economies, Oxford,
1958) gives operational criteria of the degree of industrial development. He classified all
industrial output into two categories, consumer goods and capital goods and classified various
stages in terms of the ratio of consumer goods to that of capital goods output. “In the first
stage the consumer goods industries are of overwhelming importance, their net output being on
the average five times as large as that of capital goods industries”. This ratio is 2.5:1 in the
second stage and falls to 1:1 in the third stage and still lower in the fourth stage. This
classification emphasises the increasing role of the capital and producer goods industries in the
economy as industrial development takes place.

In the post-independence period economic planning for overall development succeeded in


laying firm foundations for future economic development. The heavy-industry strategy
formulated and implemented from begining from the Second Five Year Plan helped in creating
a strong industrial base. Capacities in substantial quantities have been created in basic, key and
heavy industries.
Table 5.4 and 5.5 throw light on one dimension of structural change (changes in the
composition of output) in India’s industrial sector.

One striking feature of the period of planning was that the structure of Indian industries had
changed in favour of basic and capital goods sector. The study of structural transformation
of the Indian industries reveals that there was a
clear shift in favour of basic and capital goods sector. This group accounted for about 50 per
cent of productive capital in 1959 but in 1991-92, its share in productive capital rose to nearly
79 per cent. In total employment, its share rose from 25 per cent to 52 per cent between
1959 and 1991-92. Similarly, the contribution in value added improved from 37 per cent to 56
per cent during this period. Basic industries which include iron and steel, fertilisers,
chemicals, cement, non-ferrous metals have thus improved their position significantly under the
impact of industrialisation. Several capital goods industries hitherto unknown have been
brought into to existence and developed. On the other hand, during the same period the share
of consumer goods industries such as textiles, sugar, paper, tobacco, etc., declined in terms of
productive capital, employment and value-added.
Size of Industrial Units – Another Structural Dimension
The size of an industrial unit can be measured using different criteria. Output, total assets,
fixed capital, and employment are some of the major criteria to measure size of the
industrial units. Changes in the average size of the industrial units represent an
important structural change of the industrial sector in an economy. We turn to this
structural dimension in this section.

As future managers you must know about this important dimension of the structure of
industry. We may list the circumstances under which a large firm or a small one would
be more efficient. Such synthesis provides guidance for making the proper choice of the
optimum size for the firm. A large firm would be more efficient in situations where:

a) the product is standardized and can be produced on mass scale with longer production
runs such as iron and steel, sugar, industrial chemicals and fertilizers;

b) the product and/or machines used in its production are large in size such as
automobiles, ships and electricity generation;

c) the economies of linked processes are significant as in the case of pulp and paper
industry and steel among others;

d) the markets for the product are concentrated and/or transport costs are
considerably low in comparison to the price of the product;

e) there are occasional indivisibilities in different units or operations of the plant which are
to be balanced; and

f) research activities are essential to compete in the market such as in chemical


industries.

A small firm would be more efficient if all these above conditions are not satisfied, that is, where:
a) the production factors, e.g., men and machines, are “divisible” or adaptable;
b) the product is to be made an individual specification or where varieties or product
differentiation are required in the market for existence, i.e., standardization and mass
production is an economical. Examples are ornaments and clothing;
c) the raw materials and markets for the products are geographically dispersed and
transport costs are quite significant, e.g. bread and brick-making;
d) the demand conditions change frequently as a result of which quick adjustments are
needed to adapt to such changes, e.g., garment making;
e) the nature of work done changes frequently due to technical conditions e.g., agriculture
and allied industries; and
f) the supplies of the raw materials and potential market for the product are small.

Complete seperation of situations for large scale and small-scale units is not possible. There
are many industries where small scale and large scale production is carried on side by side.
Examples are engineering industries, cloth making, shoe making and several consumer
products. In fact, if we go through the industrial structure of a country, we will find such
situation in most of the industries. Small units in an industry exist along with larger ones
mainly because (i) they may be relatively new and it is normal to grow large from small
beginnings in due course of time, (ii) they may be supplying finished products to the
larger units under some type of sub-contracting, and
(iv) they may be producing a highly specific variety of products in a differentiated product
industry. All such small units may be equally efficient as the bigger units.

5.3 OWNERSHIP PATTERN OF THE INDUSTRIAL


SECTOR
After independence India wanted to adopt planned economic
development. We have gone through several Five Year Plans.
We opted for a mixed economy with both private and public
sectors, complementing each other rather than competing. The
scope of each sector was well-defined in the industrial policies
announced from time to time by the Government. Industrial
Policy Resolution of 1956 was the major policy announcement.
We will learn about these policies in detail in the next two
units. Here our interest is to describe the structure of India’s
industrial sector on the basis of ownership pattern.

Table 5.6 gives structure of ownership of industrial factory


sector in 1997-98. The public sector accounted for 7 per
cent of total number of factories, 24 per cent of employees,
32 per cent of net fixed capital and 28 per cent of net
value added by the industrial factory sector. Public sector
includes enterprises of the Central Government, State
and local governments.

The Private sector including cooperative sector accounted


for 91 per cent of total number of factories, 69 per cent of
employees, 55 per cent of net fixed capital and 59 per cent
of value added. This sector has four components:
i) Corporate enterprises, ii) Partnerships, iii) Individual
proprieterships, and
iv) Cooperative enterprises.

Joint sector (enterprises owned jointly by private and public


or government interests) accounted for 1.8 per cent of total
factories, 6.7 per cent of employees, 12 per cent of net
fixed capital and 12 per cent of value added.
Regional distribution of industrial activity and industrial concentration are two more
dimensions of the structure of India’s industrial sector. You are advised to take down notes
on these two aspects by going through the publications given under Further Readings.

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