Features and Deficiencies of Industrial Development in India

Features and Deficiencies of Industrial Development in India

• 1. Contribution to the Country’s Indebtedness

  • Import-intensive capital goods industries required large volumes of foreign aid to meet equipment and material needs.

  • Additionally, luxury consumption-led growth in the last two decades encouraged import-intensive industrialisation. As a result, India’s industrialisation remained financially non-self-reliant.

• 2. Increase in Technological Dependence

  • With financial aid came rising technological dependence, particularly on multinational corporations.

• 3. Negligible Impact on Unemployment or Sectoral Work-force Distribution

  • Industrialisation failed to reduce urban unemployment or absorb rural migrants.

• 4. Impact of Agricultural Growth

  • Despite a decline in the share of agro-based industries, agriculture still significantly influences industrial growth.

  • Fluctuations in industrial production typically follow those in agricultural production.

• 5. No Effect on Real Wages

  • While skilled jobs increased, real wages for most workers, especially the unskilled, have largely stagnated.

• 6. Environmental Costs of Industrialisation

  • Industrial pollution has strained ecosystems severely.

  • • 70% of India’s available water is polluted.

    • 73 million days are lost annually due to waterborne diseases.

    • Every second, half a hectare of forest is lost to wood consumption.

• 7. Neglect of Comparative Advantage

  • India invested in sectors lacking real comparative advantage due to a closed-economy planning mindset.

• 8. Growth of Family Business

  • Family-run conglomerates diversified without strategic coherence, often avoiding competitive tests.

  • Inefficiencies now hinder these firms amid growing competition and rapid obsolescence.

• 9. Neglect of Fundamental Research

  • Systematic R&D investment by major industrial groups has been minimal.

  • Most industries depend on foreign technologies, ignoring the implications of Intellectual Property Rights (IPR) regimes that now demand technological self-reliance.

  • Uncertain policy on innovation benefits further discourages research.

• 10. Regional Imbalances

  • Large Central sector investments failed to spark ancillary industrial growth in States like Bihar, Orissa, and Madhya Pradesh.

  • Entrepreneurs prefer regions with better infrastructure, market access, and services.

• 11. High Cost of Production

  • Many Indian products remain costlier than international counterparts, reducing export competitiveness.

  • India’s rank in the Global Competitiveness Report 2008: 50 out of 134 countries.

  • • Macro-economic environment: 109

    • Government waste: 127

    • Corruption: 80

    • Technology: 63

    • Company sophistication: 3

    • Business environment quality: 31

• 12. Underutilisation of Industrial Capacity

  • Important industries have reported capacity utilisation as low as 25% to 50%.

  • This underutilisation poses serious challenges to industrial growth.

• 13. Negligible Contribution to Social Development through Affirmative Action

  • Though some progress has been made, industry's overall contribution to combating poverty and deprivation is minimal.

  • Indian entrepreneurs are globally competitive, but they lack support from the government, NGOs, and public trust.

Suggestions for Rapid Industrial Growth

• 1. Goal of Economic Reforms

  • The ongoing economic reforms in India aim to make Indian industry more competitive by encouraging foreign competition.

  • This means domestic industry must now withstand increasing pressure from both internal and external competition.

• 2. Three Major Sources of Competition

  • a)Imported goods entering Indian markets freely due to reduced tariffs.

  • b)Foreign-controlled enterprises producing for the Indian domestic market using their trademarks and advanced technologies.

  • c)Domestic enterprises competing among themselves in a deregulated environment without previous licensing or regulatory restrictions.

• 3. Challenge of Export Performance

  • India’s industry must significantly boost exports despite multiple global challenges.

  • • i) Intense competition from other developing nations—especially from East Asia, Southeast Asia and Latin America—which adopted outward orientation earlier and became globally competitive faster.

    • ii) Presence of non-tariff barriers in industrialised countries, often disguised as environmental, health, safety, and technical standards.

• 4. Need for Urgent Action

  • In naval terms, Indian industry must “hit the decks running”—that is, act quickly and decisively to thrive under new competition.

• 5. Policy Priorities for Accelerated Growth

  • Accelerated industrial growth demands an overhaul of industrial structures and regulatory approaches.

  • Policies should strongly promote:

    • Modernisation of industrial operations;

    • Upgradation of technology to remain globally competitive;

    • Economies of scale to reduce cost of production and improve efficiency.

Actionable Strategies for Accelerated Industrial Growth in India

• 1. Foundation for Acceleration

  • Accelerated industrial growth is possible with restructuring and overhauling of current systems.

  • Policies must support modernisation, technology upgradation, and achieving economies of scale.

• 2. Scales of Production

  • In a liberalised economy, economies of scale and financial strength are crucial for survival and expansion.

  • Mergers or acquisitions can enhance capitalisation and competitiveness.

• 3. Change in Business Strategies

  • Increased output requires market expansion, customer focus, and cost reduction through strategic changes.

  • Shift from competition to co-opetition, which involves:

    • i) Collaborating with competitors to grow markets.

    • ii) Partnering with complementors for enhanced customer value.

    • iii) Helping suppliers reduce development costs via joint efforts.

    • iv) Alliances with complementors to lower input prices.

• 4. Realistic Projections

  • Projections by state agencies must be more accountable and reliable, especially for infrastructure planning.

  • Despite high projected demand, private investors remain unconvinced due to credibility gaps.

• 5. Viable Technology Policy

  • Policy actions should include:

    • i) More in-house R&D spending, especially on basic research.

    • ii) Stronger links between industry and research bodies.

    • iii) Regular dialogues between technology users and creators.

    • iv) Focus on frontline technologies like micro-electronics, biotech, space and satellite tech.

    • v) Application of existing tech breakthroughs.

    • vi) Support for upgrading tech in management, renewable energy, fertilizers, water, and minerals.

• 6. Quality Focus

  • Indian industry operates in a buyers’ market and must produce quality products at competitive prices.

  • Capital and technology are mobile; quality is key to seizing new opportunities.

• 7. Cost of Production

  • High costs stem from capital burden, indirect taxes, poor infrastructure, and low productivity.

  • These areas need immediate policy and industrial action.

• 8. Entrepreneurial Development

  • Develop entrepreneurs-cum-managers through a revitalised Entrepreneurship Development Programme.

• 9. Regional Economic Blocks

  • Encourage states to form regional economic blocks for development synergy.

  • They should harmonise tax policies, build shared infrastructure, and remove interstate trade barriers.

• 10. Flexibility in Factor Use

  • Indian firms need flexibility in labour, land, and capital usage to compete globally.

  • Capital has been liberalised since July 1991, but land and labour markets remain restricted.

  • ULCRA 1976 and Industrial Disputes Act, 1947 (Sections 25N & 25O) hinder efficient labour and land use and need restructuring.

• 11. Industrial Relations

  • Over-protection of labour and rigid management rules reduce productivity and raise costs.

  • Management should have authority to reorganise human resources and link wages to productivity.

• 12. Production for Domestic Market

  • The Indian domestic market offers vast opportunities, especially at the lower economic end.

  • Focus on non-elite needs via manufacturing employment and localised, affordable goods is essential.

• 13. Management and Control

  • i) With rising institutional shareholding, support should be tied to management performance, not ownership dilution.

  • ii)Family-run firms must embrace proactive restructuring and partnerships before viability declines.

Government’s Role in Industrial Development and Market Facilitation

• Government Intervention in Market Economies

  • Industrial success in the long run requires better institutions, low transaction costs (or costs of doing business), markets that respond to price changes, and access to efficient and appropriate technology.

  • In developing countries, these conditions cannot be generated exclusively through the market because factor and product markets are often missing, public goods (including infrastructure) are underprovided, and market failures in technology and R&D are acute.

• Role of Government in a Liberalised Environment

  • In the liberalised environment for Indian industry, the role of government remains even greater and not less.

  • What is to be changed is the nature of government intervention—from being a patronising agent trying to develop and regulate every aspect of business activity to an active and responsive catalyst for industry.

  • The government’s primary objective should be to provide the necessary physical and financial infrastructure.

• Policy Framework and Infrastructure Commercialisation

  • To facilitate industrial growth, a policy framework should focus on increased commercialisation of infrastructure services.

  • There is a need for appropriate legal, regulatory and administrative frameworks to support both foreign and domestic private sector investment.

  • Additionally, the introduction of new and innovative financial price cuts for infrastructure funding is essential.

• Complementary Economic Policy Actions

  • Complementary action is required in fiscal, monetary and trade policies.

  • The key words of the desired strategy should be dynamism and accelerated growth.

• Urgency and Risk of Inaction

  • The range of solutions available to a well-meaning government is somewhat limited, and steps have to be taken promptly.

  • Inaction or a delayed response to industry’s problems will hurt not only the owners of industry but also the economy as a whole.