LESSON – 10
INDUSTRIALISATION
OBJECTIVES
After going through this chapter, you should be able to
- Understand the meaning and role of industrialisation
- Know the growth and problems of Iron and Steel Industry, Cotton Textile Industry and Sugar Industry.
- Understand the role and problems of small scale industries.
- Know the measures of government to develop small scale Industries.
- To know the meaning, causes and remedies for industrial sickness.
STRUCTURE
10.1. Meaning of Industrialisation
10.1.1 Role of Industrialisation
10.2. Major Industries
10.2.1 Iron and Steel Industry
10. 2.1.1 Progress of Iron and Steel Industry
10.2.1.2 Steel Authority of India Limited
10.2.1.3 Problems of Iron and Steel Industry
10.2.2 Cotton Textile Industry
10.2.2.1 Growth of Cotton Textile Industry
10.2.2.2 Problem of Cotton Textile Industry
10.2.3 Sugar Industry
10.2.3.1 Progress of Sugar Industry
10.2.3.2 Problems of Sugar Industry
10.3. Small scale and Cottage Industries
10.3.1 Definition of Small scale and Cottage Industries
10.3.2 Role of Small-scale and Cottage Industries
10.3.3 Problems of Small-scale Industries
10.3.4 Measures to Develop Small Industries
10.4. Industrial Sickness
10.4.1 Definition of Industrial Sickness
10.4.2 Causes of Industrial Sickness
10.4.3 Measures to Prevent Sickness
Unit Questions
10.1. Meaning of Industrialisation
Industrialisation does not mean merely starting of a few industries for producing consumption articles. Even before attainment of independence, India had Cotton-Textile industry, Jute Industry and Sugar Industry and also Iron and Steel industry. On this score, India could not be called an ‘industrialized’ country The development of net-work of infrastructure like transport, power, communication and starting of Key industries to produce capital goods for starting more industries in the economy constitute industrialisation.
10.1.1 Role of Industrialization
Indian economy with large manpower and varied resources has to be industrialized. The arguments for industrialization are as follows:
(a) Increasing the Income Substantially : Industrialisation of the country is the only means of raising the standard of living of people substantially and also permanently. Only industrial development could offer a secure base for rapid economic growth and income. Only in the sphere of industries, human efforts with improved technology would give rich dividends by means of large scale production of varied goods for consumption and export.
(b) Meeting High Income-elasticity of Demand: The income-elasticity of demand for agricultural products is low. Only in the initial stages of development the people will demand more of agricultural goods. Once agricultural production reaches a point where the demand for food is completely met in the economy the increased income will be utilised in demanding industrial products. In other words, the income- elasticity of demand for the manufactured goods is high and that of agricultural products low. To meet the increasing demands of manufactured industrial products, the economy has to produce more of industrial goods. For this, industrialization is essential.
(c) Earning Foreign Exchange and comfortable Balance of Payments position: Industrialization is essential for keeping the export trade vibrant and earning foreign exchange, so as to have comfortable balance of payments. It maybe argued that economy could produce more of agricultural goods for export and in turn import industrial goods without much industrialization. This argument is rather weak. There is no guarantee that the countries exporting primary agricultural goods may be able to do so regularly and permanently and earn foreign exchange in adequate quantities to import manufactured goods. In practice, agricultural countries face difficult situations due to vagaries of monsoon and natural calamities. Moreover, the demand for agricultural goods in advanced countries will be very low. On the other hand, demand for manufactured goods in the exporting agricultural country will be very high. That is to say, the income- elasticity of exportable agricultural goods will be low, while income-elasticity of imported manufactured goods will be very high. This disparity will lead to poor balance of payments position to the countries producing and exporting agricultural goods, as the terms of trade will not be favourable to them. So, it is imperative that countries producing and exporting agricultural goods should substitute manufactured goods also for export to have better balance of payments position. Industrialization is only a ‘rational consequence’ of low intensity of demand for agricultural commodities, after a certain stage, be it domestic consumption or export.
(d) Transferring Surplus Labour : Backward economies suffer much due to population pressure and excess of labour force in agriculture, leading to unemployment and underemployment. Further, with the technological improvement in agriculture, the existing superfluous labour force would become still more unnecessary, leading to disguised unemployment. Hence, it is essential to industrialize the economy, in order to absorb the excess labour force in agriculture, and transfer it to industries, By this, the unemployed and disguisedly employed agricultural labour force would become more productive in industries. Real industrialization lies in keeping the labour force in agriculture to the barest minimum.
(e) Providing Strength and Security to the Economy: The real strength of the economy lies in industrialisation, which would help in producing capital goods for industries and also goods for export. Further, it is only through industrialisation, the agricultural base could be strengthened and expanded by ensuring farm inputs like chemical fertilizer, implements and machines, storage and transport facilities, etc. Industrialisation envisages industrial environment, industrial culture and urbanisation, offering better economic security to the nation, when international crisis develops. Besides, in these days of war preparedness, only through industrial development, the national objective of self-reliance in defence could be achieved.
10. 2 . MAJOR INDUSTRIES
10.2.1 IRON AND STEEL INDUSTRY
The history of iron and steel in India dates back to 1000 B.C. India possesses some of the world’s largest reserves of iron ore, mainly haematities and magnetites, with iron content ranging between 65 to 70 per cent. The iron ore reserves of India are assessed at one-fourth of the total world reserves and proven resources of iron ore of high grade at 22,000 million tons, the second largest in the world. In addition to this, low grade ores are estimated at four times this quantity. Rich deposits are found in Singhbhum and Manbhum. Extensive iron fields are found in Orissa, Bihar, Madhya Pradesh and West Bengal forming the iron ring of North East India. It is also found in Mysore, Maharashtra and Tamil Nadu.
Iron and Steel industry forms the base of all industrial activity. The most important among the industries, directly dependent on iron and steel industry are engineering industry, wagon building industry and other transport equipment industries. The development of agriculture is dependent on steel both directly and indirectly in the manufacture of agricultural tools, tractors, tube wells and in the manufacture of machinery for fertilizers and pesticides industries.
Steel production has a multiplier effect on the development of all other industries. Therefore, it has been rightly called a ‘Mother Industry’. This industry provides direct employment to thousands of workers. According to the Ministry of Labour and Employment, the industry provides livelihood for about 128.8 thousand people in private sector and 107.1 thousand people in the public sector, besides thousands of workers in ancillary industries.
The foundations of the modern iron and steel industry in India were laid in 1906 when rich deposits of high grade iron ore were discovered in Singhbhum, though the first attempts of iron and steel manufacture by modern methods were made in 1830 in South Arcot (Tamil Nadu). In 1874, Barakar Iron Works started work in Tharia in Bihar. The works were acquired by the Bengal Iron and Steel Company in 1889. The real beginning of modem iron and steel production started with the establishment of Tata Iron and Steel Works in 1906 at Sakchi (Bihar) now called Jamshednagar. It started production of pig iron in 1911 and of steel in 1913 Then came Indian Iron and Steel Company in 1918 at Hirapur (Asansol. Bengal) and Mysore State Iron Works (now Mysore Iron and Steel Limited) at Bhadravati in 1923. In 1916, Tata Iron and Steel Plant was in full production. Railway lines, heavy structurals, such as beams, angles, channels, etc., were manufactured in large quantities and exported to countries like Egypt, Mesopotamia, etc.
Another enterprise in private sector to undertake the production of steel was started by a foreign company, Messrs. Burn & Co., in 1918, at Hirapur near Asansol, with a sister concern, an iron foundry, at Kulti. The two concerns were merged into one in 1952 and given the name of Indian Iron and Steel Company, Burnpur. A third concern, the Mysore State Iron Works now known as the Visveswaraya Iron and Steel Works, Ltd., was started by the Mysore Government at Bhadravati in 1923.
10.2.1.1 Progress of Iron and Steel Industry
During the Planning period, the steel industry has made a very remarkable progress. Production of crude steel has increased from 1.5 million tonnes to 15 million tonnes. This rate of growth, though seems to be very impressive, cannot be considered as adequate, as India has to import steel from foreign countries. India is a leading importer of steel, on an average of Rs. 3000 crores per year.
Another important feature of the progress of steel industry in India is its growth in research and design and it is also self-reliant to set up new steel plants without depending on foreign countries. For instance, Bokaro steel plant was set up on its own without foreign hand.
Another important aspect of the progress of the industry is that the Government gave licences to set up electric arc furnace units, popularly known as Mini Steel Plants, producing mild steel and alloy steel. There are 179 mini steel plants with a total capacity of 5.6 million tonnes. Out of them 167 units were in operation and produced 2.7 million tonnes of steel.
The industry is performing well in recent years due to liberalisation measures, such as the abolition of Steel Development Fund, steady reduction of import tariff, the modernisation and upgradation of technology and a compulsory cost reduction through quality improvement.
The Government has liberalised the steel policy and issued a new set of guidelines from 1990 onwards. Under the new policy the private sector has been allowed to set up steel plants with a capacity of upto one million tonnes per annum and for this purpose, they are free to choose between the electric arc furnace and blast furnace processes. The Government abolished price and distribution controls on iron and steel items manufactured by integrated steel plants with effect from January 1992. The Freight Equalisation Scheme was also withdrawn. The iron and steel sector is now open entirely without any sectoral reservations, licensing, pricing, distribution and control.
This liberalisation is a radical departure for the industry which was experiencing near exclusive public sector monopoly and also canalised imports, protective import tariff and government regulated domestic prices.
The decontrol and liberalisation policy has led to sudden rise in steel prices of various items. Reduction in import duty on various items of steel has, now some moderating influence on the market price of steel.
10.2.1.2 Steel Authority of India Limited (SAIL)
To co-ordinate the development of the iron and steel industry both in public and private sectors, the Government of India set up the Steel Authority of India Ltd., (SAIL) in 1973.
Objectives
(i) Maximum utilisation of the installed capacity;
(ii) More production to bring down prices and black marketing;
(iii) to make India exporters of steel on a permanent basis; and
(iv) to ensure co-ordination between steel industry and industries associated with it like coal, iron and manganese.
The Steel Authority of India Limited (SAIL) is now the largest industrial enterprise in India accounting for an investment of Rs.6,304 crore and a work force of over 2.5 lakhs persons. The steel producing units under the ownership and management of the SAIL are Bhilai, Durgapur, Rourkela and Bokaro steel plants and also the Indian Iron and Steel Company. The SAIL has also one Alloy Steel Plant at Durgapur under it. Salem Steel Plant in Tamil Nadu was the latest plant under the SAIL. Hindustan Steel works Construction Limited, Bharat Coking Coal Limited and National Mineral Development Corporation Limited are also under the control of SAIL.
10.2.1.3 Problems of Iron and Steel Industry
1. Underutilisation of Capacity
Throughout the period of planning, this industry was suffering from poor utilisation of its capacity. During seventies, all the units were working far below the capacity. The average capacity utilisation during this decade was ranging between 64 per cent to 79 per cent only. Bhilai and TISCO were performing fairly well with capacity utilisation around 85 per cent, while others were below 60 percent. During eighties, the average capacity utilisation of units was around 82 per cent. Only in recent years, there was some improvement in capacity utilisation. The average has increased from 88 to 91 per cent. Capacity utilisation in TISCO reached the level of cent per cent and in 1994-95, it had reached to 107 per cent, while in SAIL plants, it reached to 92.5 per cent.
2. Gross Inefficiency
Almost all public sector units of this industry exhibited gross inefficiency with units losing continuously and also heavily due to heavy investment on social overheads, poor labour relations, inefficient top management and also undenitilisation of capacity. The top management often comprises of non-specialised and non-technical people. Appointment of officials of I.A.S. cadre at the top management level who are unequal to the task of providing the requisite managerial competence, resulted in very poor management and heavy losses. Those who had the competence, could not deliver goods, as they had to work under severe constraints like undue political interference, labour disputes etc.
3. Obsolete Technology
Some of the public sector steel plants are working with obsolete technology. In respect to blast furnace productivity, Indian blast furnaces are not even half efficient as that of steel plants in foreign countries. Many advanced countries, even some less advanced countries like Brazil have switched over to Oxygen Convertors, which is the best process, while India continues to use the old practices. Due to technological obsolescence, the energy consumption per tonne in India has been increasing, in addition to the increase in energy costs after oil crisis. Many developed countries have been successful in cutting down energy consumption drastically. It has been estimated that the energy consumption in Indian Iron and Steel company was around 16.8 gega calories per tonne of saleable steel, while it was less than 5 gega calories per tonne in Japan. Things have not improved.
4. Rise in Input Costs
In steel industry, cost of raw materials accounts nearly 35 to 40 per cent of the total cost, as it is material intensive industry. As such, even a small increase in price of raw materials of the industry will have heavy impact on the total cost of production. Pig iron is the most important raw material for the steel industry and the prices of pig iron have risen considerably over the years. Adding to this, the cost of coal and power has also increased leading to heavy increase in input costs As a result the steel units have to face difficulties.
5. Shortage of Raw Materials
The modern giant balst furnace needs high grade iron ore and good metallurgical coal. The industry is unable to get good quality coke and manganese-ore which are the principal raw materials next to iron-ore. Most of our manganese resources are of poor quality. Supply of adequate zinc for the continuous galvanizing line has also become a problem. Further, power shortages have affected the functioning of the steel plants adversely. For instance, inadequate power availability from Dainodar Valley Corporation has affected the performance of SAIL.
6. Problem of Administered Prices
The Government had been following a system of administered prices, and controlled distribution of steel among consumers. In the face of heavy demand for various items of steel materials, price control and distribution had led to heavy black-marketing and acute shortage of steel. Only the private distributors stood to gain and the main producers were denied of the high prices paid by the consumers. The prices for controlled and decontrolled categories of steel are fixed by the Government through a Joint Committee in which the producers have very little say. The Committee is fixing the steel prices, but at the same time, it is not regulating the prices of raw materials. With effect from 1973, a revised pricing policy called differential steel price policy for steel products were introduced. By this, the prices of certain items of products were increased by the Government, but the premium in the market due to enhanced price was not allowed to accrue to the producers. This amount was asked to be transferred to a fund called Steel Equalisalion Fund maintained by SAIL and withdrawals by the producers from it were permitted only in consultation of the Planning Commission and that too for purposes like plant rehabilitation and increasing production. This procedure was considered rather unjust by the producers. With the introduction of New Industrial Policy in 1991, the Government had announced the abolition of price control from January 1992 onwards. It abolished all price equalisation schemes.
7. Sickness of Mini-steel Plants:
According to ‘Report on Currency and Finance’ of the Reserve Bank of India the mini-steel plants were faced with sickness. According to the report, “The main problem faced by these units included short supply of inputs and sharp increase in prices of inputs like electrodes and scrap, inadequate power supply constraint of working capital and poor management.” In order to retrieve the mini-steel plants from sickness and make them viable, the Government provided the following facilities: (i) Liberal import of melting scrap and sponge iron without import duty; (ii) free diversification of production into all grades of carbon and alloy steels, including stainless steel; (iii) Installation of captive rolling mills; and addition of balancing facilities like continuous casting machines, heat treatment furnaces, etc. With the help, the mini-steel plants were rehabilitated and they are now working fairly well.
8. Problem of Metallurgical Coal
Indian Steel Plants are frequently faced with the problems of getting adequate quantities of good quality of metallurgical coal. With the expansion of the industry, the demand for coking coal is on the increase. India’s supply of high grade coal for making coke for the smelting of iron is quite low. In addition to this, Indian coking coal has a high ash content because of the sedimentary nature of their origin. In fifties, the steel plants were designed for using coal with 17 per cent ash content. Over the years, as mining proceeded deeper and to lower seams, the ash content increased to 25 per cent. It has been estimated that every one per cent increase in ash content of coal brings down the production of blast furnaces by three per cent Consequently, the steel units have to import coal from foreign countries with lesser ash content, to keep the blend at 15 per cent, The share of imported coal is increasing.
10.2.2 Cotton Textile Industry
The cotton textile industry, the largest single industry in India, holds second place among the countries of the world in cloth production. With an invested capital of over Rs.3000 crores in 1,175 mills in India, the industry provides direct employment to nearly 20 million workers. It also provides indirect employment to many millions like the cotton growers, processors. handloom and powerloom weavers who are estimated to be over three million and innumerable cloth dealers and shopkeepers. The industry contributes in increasing measures to the Centre and State Governments by way of taxes and duties.
10.2.2.1 Growth of Cotton Textile Industry
The birth of this industry dates back to 1818 when the first cotton mill was established at Fort Gloster near Calcutta with English Capital. The real growth of the industry, however, started with the setting up of the Bombay Spinning and Weaving Mills in 1856 with Parsi Capital. The Swadeshi Movement and the First World War helped in the expansion of the industry to meet the growing demands of the local market. During 1920s and 1930s, the industry faced stiff competition from Japan. High cost of production on account of over capitalization, foreign competition and world wide depression put this industry into serious difficulties. After 1930, the situation improved as a result of bilateral trade agreements with Japan and preferential empire tariffs. When protection was granted in 1927, the Industry began to make rapid progress. Till the outbreak of the Second World War, only 10 per cent of the internal demand of cloth was being met from imports. The real spurt for the industry came from the Second World War. The War Period was a blessing in disguise. The competition from Japan ceased and the industry increased its productivity enormously to cater for war demands. At the same time the industry had to face difficulties like over work and excessive wear and tear of machines, lack of technological improvement and complacency of proprietors due to boom conditions. The postwar years and granting of Independence put the industry in doldrums. Because of the partition of the country, the supply position of raw cotton became very difficult.
Most of the mills are concentrated in four States, viz., Maharashtra, Gujarat, Tamil Nadu and west Bengal. Maharashtra and Gujarat alone account for 50 per cent of the total spindles installed and 70 per cent of total looms in the cotton textile industiy Reasons for the location are: (a) Availability of raw material (b) Cheap and developed transport facilities, including ports like Bombay and Kandla (c) Suitable climate (d) Availability of commercial and financial facilities; and enterprising capital.
In recent years, this industry has also spread to a number of other States as well, like Madhya Pradesh, Bihar, Kerala, Uttar Pradesh, Andhra Pradesh and Tamilnadu. The reasons for this decentralization are: (i) Cotton fibre could be shifted to long distances without increasing the cost structure too much; hence entrepreneurs preferred to locate their mills at market centre; (ii) Availability of raw materials in all these States; (iii) Development of transport and communication facilities in these States; and (iv) Government encouragement for decentralization.
There are three sectors in cotton textile industry; (i) The Mill Sector (ii) The Powerloom sector; and (iii) The Handloom sector. The latter two are jointly considered under the heading decentralised Sector. Since independence, over years, the Government has been granting several concessions and also incentives to the decentralised sector (i.e., powerloom and handloorn sectors). As a result of this, the share of the decentralised sector in total production has increased considerably. Of the two sub- sectors of the decentralised sector, the powerloom sector’has grown at a faster rate.
The reasons for the fast growth of powerloom sector are: (i) Government’s favourable policies on synthetic fabric industry; (ii) Ability of the sector to introduce flexibility in the product mix in line with the market situation; (iii) Low labour cost due to flexible use of labour, giving competitive strength; and (iv) Increase in exports from the powerloom sector.
10.2.2.2 Problems of Cotton Textile Industry
The cotton textile industry in India is facing many problems.
1. Shortage of Cotton Supply: Shortage in the supply of raw cotton is a serious problem of the industry. Of the land devoted to cotton production in the world, 25 per cent belongs to India but the total production of Indian cotton is not even one tenth of world production. Due to poor productivity and shortage in the supply, we have to import long-staple cotton from foreign countries. The Cotton Corporation of India, setup in September 1970, is entrusted with the work of import of cotton. The crash programme to increase cotton production and the high yielding “wonder Cotton” have not yet made any appreciable record of success. The trend of cotton production in India has been highly unstable and erratic. Production lags behind the country’s requirements.
2. Hike in Prices: Shortage in production of cotton has pushed up the cotton prices to new peaks which in turn has contributed to the upward trend in price levels in the country. The industry is suffering from cost inflation. Raw cotton accounts for about 40 per cent of the cost of cloth and 65 per cent of the cost of yarn. Wages are the most important item accounting for nearly 30 per cent of the total cost of producing cloth. In view of the persistent cost inflation and the heavy loss on controlled cloth, the finances of the cotton mills have deteriorated and the margin of profit has been very little and poor.
3. Modernization Problem: Almost the entire machinery in this industry is very old, worn-out, obsolete, requiring replacement and modernization. A large number of units still remain in a state of poor technology. Consequently, the productive efficiency has gone down considerably and the cost of production has increased, placing us in a poor position in the field of competition in the foreign market, Modernization of the industry requires more than Rs. 1,000 crores which is a problem of finance.
4. The Problem of Competition, Export and Substitution: Our export market in cotton cloth is declining year after year in the face of stiff competition from Japan, Pakistan, \Vest Germany, Italy, Spain and Netherlands. These countries have better competitive strength, as they use up modernized automatic machinery which can produce finer varieties to suit consumer’s taste. Further rapid strides in the field of science and technology resulting in a variety of synthetic materials are giving a stiff competition for cotton textiles. Emergence of substitutes like Nylon, Terylene and synthetic fibres has reduced the demand for pure cotton fibres.
5. Problem of Controlled Cloth and Competition from Decentralised Sector: The conditional stipulation by the mills to produce a certain quantity of coarse varieties of cloth is another formidable problem for the mills. In the production of controlled cloth, the industry is losing at a rate of 80 paise per square metre. The industry’s plea for increasing the price of the controlled cloth has not been looked into. The competition from decentralised sector has been increasing year after year making several mills sick. Being a small scale sector the Government allows lot of concessions and privileges to the decentralised sector.
6. Power Cut: Another important problem faced by the industry is the frequent power cuts which impede the progress of the industry. Adequate and unfailing supply of power has become the vital need for any industry and more so for this industry in which many units are financially very poor having lost their capital and reserve.
7. Heavy Taxation: The industry is also largely affected by steep increase in excise duties. These financial burdens inflate the cost of production considerably.
8. The Control Problems: The industry is subject to variety of controls. Price control, production control, quality control etc., hinder the progress of the industry.
9. Labour Problems: This industry has been faced with frequent labour problems. In 1982, the mills of Bombay were rocked by a labour strike which continued for nearly 8 months. In most of the cases, the cotton textile mills have become a testing ground for personal rivalries and political bickerings.
10.2.3 Sugar Industry
The Sugar Industry in India is the best agro-based industry occupying a pre-eminent position in the economy of the country. Next to textiles, it is the biggest industry employing about three lakh skilled and unskilled workers and 50 thousand technicians, besides providing employment to about 25 million cultivators. In addition to this, there are many thousands of people engaged in sugar trade, transport of sugar and cane and also in its byproducts such as alcohol, plastics, paper, synthetic rubber, fibre board, etc. The sugar industry in recent years has begun to export sugar, thus earning valuable foreign exchange. Besides, it provides Rs.3,000 crores in the form of taxes to the exchequer. With an invested capital of over Rs. 1,350 crores, sugar industry is one of the best organised industries in India which had a spectacular growth since 1930.
in India, almost all States enjoy the benefit of having sugar factories However, it is concentrated in large measure in the States of Maharashtra, Andhra Pradesh, Bihar, Karnataka, Uttar Pradesh and Tamil Nadu. Indian sugar is of three forms-jaggery, Khandasari and white sugar. The first two are prepared by indigenous methods while white sugar is directly produced in the factories.
10.2.3.1 Progress of Sugar Industry
The area under sugarcane has been nearly doubled during the planning period and production of sugarcane increased by three times, The productivity of cane in terms of yield of cane per acre has also doubled during the planning period.
Number of Factories and Production of Sugar
Year | Number of Factories in Operation | Total Sugar Produced (Million tonnes) |
1951 – 52 | 140 | 1.40 |
1955 – 56 | 143 | 1.80 |
1960 – 61 | 174 | 3.00 |
1965 – 66 | 200 | 3.50 |
1970 – 71 | 215 | 3.70 |
1973 – 74 | 229 | 3.90 |
1980 – 81 | 315 | 5.10 |
1984 – 85 | 338 | 6.10 |
1990 – 91 | 341 | 11.9 |
1994 – 95 | 400 | 14.6 |
1997 – 98 | 420 | 12.7 |
10.2.3.2 Problems of Sugar Industry
The sugar industry in India faces many problems. The main problems are competition from gur production, low yield of sugarcane, short crushing season, low milling efficiency, defective structure of the industry, high cost and price of sugar, failure of the Government to follow a consistent policy, obsolete machinery, mounting losses and the problems of by-products.
1. Competition from Gur and Khandsari Units: Indian sugar is produced in three fonns, namely Gum (Jaggery), Khandsari and white sugar. The first two, i.e., Gur and Khandsari are prepared by indigenous methods with little capital and low overhead costs. White sugar is produced in the modern sugar factories with heavy capital investment and other overheads. Since the cost of production of gur and Khandsari units are low, they are able to pay comparatively high prices to sugarcane and corner the supplies of sugarcane. Attracted by good prices received from gur and khand units, the farmers prefer selling their sugarcane to indigenous units, rather than factories. Thus, the sugarcane gets diverted from modern sugar mills to gur and Khand units.
2. Mounting losses and accumulation of arrears of sugarcane dues to the farmers: Sugarcane prices have been increasing year after year and the cost of production of sugar is mounting up, since 60 per cent of the cost of production of sugar is accounted by the raw material, i.e., sugarcane. However, the realisation from the sale of sugar is not rising adequately to meet the cost of paying increased prices to sugarcane and other incidentals, including overhead charges. This results in heavy losses to sugar mills.’ As a result of this, most of the sugar factories could not pay the sugarcane price to farmers and the arrears of sugarcane due to farmers are mounting up.
3. Low Yield of Sugar Cane: Sugar cane productivity is very low in India, perhaps lowest in the world with only 17.1 tons of cane per acre whereas in Hawaii it is 80.4 tons of sugar cane per acre. The climatic conditions of India cannot be the best suited to sugarcane. Unless adequate irrigational facilities, manning, and the proper variety are provided, the productivity will not be improved. This low yield of sugarcane has created problems of shortage of supply to the industries as there is keen competition from khandsari and gur manufacturing units.
4. Short Crushing Season: Another problem is the short crushing season of the industry which makes the mills remain idle for more than 200 days in a year. The crushing season starts as soon as the harvest of sugarcane commences and it lasts for about 100 days only. This is one of the reasons for high cost of production.
5. Low Milling Efficiency: The milling efficiency and recovery of sugar is very poor in Indian mills. The average percentage recovery of Indian mills is only 10 producing only 1.8 tons of sugar out of sugarcane produced in one acre. In Indonesia the percentage recovery is 12.5 producing 4.4 tons of sugar out of the cane in one acre. The low milling capacity is due to obsolete and old machinery requiring replacement.
6. Defective Structure of the Industry: In the case of the sugar industry, there is a wide gap between the manufacturing unit and the production of sugarcane so to say, divorce between agriculture and manufacture. The manufacturing units do not have the plantations of their own, and as such do not have any control over the quantity and quality of the sugarcane grown by independent farmers. Hence there will not be any co-ordination between the farm and the factory to ensure adequate supplies and the proper quality of sugarcane.
7. High Cost and Price of Sugar: Inefficient and outmoded machinery, low productivity poor recovery in crushing, transport cost, high taxation have put the cost of production of sugar at a very high level and Indian sugar is sold at a very high price.
8. The Problems of By-products: The important by-products of sugar industry are ‘bagasse’ and ‘molasses’, which are not properly utilized. The Bagasse is utilized as fuel and molasses creates health hazards.
10.3. Small scale and Cottage Industries
10.3.1 Definition of Small-Scale and Cottage Industries
According to the definition of the Fiscal Commission in 1950 “A cottage industry is one which is carried on wholly or primarily with the help of the members of the family, either as a whole or a part-time occupations. A small-scale industry, on the other hand, is one which is operated mainly with hired labour, usually 10 to 50 hands.”
10.3.2 The Role of Small-Scale and Cottage Industries
The small-scale and cottage industries of India have a decisive role to play in the economic development of the country. By and large, small enterprises have certain definite advantages.
1. Contribution to National Income and Larger Output: The small enterprises of India were contributing a larger share of National Income when India became independent. Out of the total national income of Rs.8,500 crores in the share of small industrial units was Rs.870 crores as against the share ofRs.610 crores by large industries. Although there has been considerable development of large scale industries during the period of planning, even now, India remains mainly a country of small-scale production. The growth and output of small-scale industries are very credit-worthy.
2. Employment Potential: The Small scale industries are labour intensive Labour investment ratio in their case is quite high. A given amount of capital invested in small scale industrial undertakings is likely to provide more employment, at least in the short run than the same amount of capital invested in large scale industries. This is a very important factor for a country like India where millions of people are unemployed and under employed. The handloom industry alone employs nearly 50 lakh people or nearly as many as employed in all organised industries. So it is a solution to the unemployment problem. The rapid growth of small-scale sector and its employment has great relevance in our national economic policies. The growth of the small- sector improves the production of the non-durable consumer goods of mass consumption. As such, it acts as an anti-inflationary force.
3. Capital Light: Small industries require only a smaller amount of capital than required by large scale industries. Where there is scarcity of capital and economising capital is essential. Small scale industry is the only effective solution.
4. Skill Light: The large scale industries require high degree of skill and managerial talent of engineers, technicians, accountants and managers. In our country the supply of qualified personnel is very much limited and economising the services of these people is also essential. Small scale sector provides the training ground for industrial experience.
5. Import Light: Small scale industries require mostly indigenous machines and equipment and they need not depend too much on imported materials In the case of large industries, heavy engineering equipment, machines, technical skill and even raw materials have to be imported which would create problems of foreign exchange earnings. Small industries reduce the need for foreign capital or foreign exchange earnings.
6. Quick Yielding and Decentralization: The time lag between investment and return in the case of small industries is very short and as such the project would give quick returns. Further the small industries being distributed throughout the country there will be no regional imbalance.
7. Better Distribution of Wealth: The decentralization of industries in the small scale sector secures even distribution of income and wealth. Further, small scale industry will not create slums, housing problems, sanitation, disease and squalor as in the case of large scale industries.
8. Contribution to Exports: Growth of small-scale industries in the post-independent era has contributed a lot towards export earnings. Bulk of export earnings come from non-traditional items produced by small enterprises.
9. Less of Labour Unrest and Disputes: Generally, in small units production will not be hampered due to labour trouble and the labour relationship in small units will be comparatively good and amiable. In the small-sector, the labourers are not well organised like large-scale sector, and as such they could not express their resentment through strikes and other similar tools of intimidation.
10.3.3 Problems of Small-Scale Industries
The small-scale and cottage industries arc facing many problems and difficulties in connection with procurement of raw materials, effective techniques of manufacture, marketing facilities, finance etc.
1. Raw Materials: Most of the small-scale industries are plagued with the shortage of raw materials. They could not get neither sufficient quantity nor of requisite quality and that too at a very high cost. Being small purchasers, small units cannot have staff for liaison with government agencies to get their applications considered on a priority basis, to get adequate quota of scarce raw materials, particularly metals, chemicals and extractive raw materials.
2. Shortage of Power Supply: The problem of shortage of power is widespread throughout the country and the small units are hit hard by this. They cannot afford to have their own method of generating power like large-scale units. Periodical notified shut-downs and unscheduled shut downs by the Electricity Boards, low voltage transmission, poor maintenance of installations and consequent breakdown of power, etc., cause lot of hindrances in adhering to the production schedules of small-scale units. This leads to poor productivity of the units.
3. Low-level of Technology: Almost all units in small-scale sector carry on production with outdated and obsolete technology. They do not have the facilities of research and training to increase the output with modern technology. In advanced countries, modern technology has revolutionised the small-scale industries. There is little scope in India for transmitting better technology to the producers in the small-scale units, as there is no proper delivery mechanism of better technology.
4. Problem of Marketing: For small-scale and cottage industries products, marketing has become one of the biggest problems. These problems arise due to lack of standardisation of the product, competition from efficient units, insufficient holding capacity, poor demand and absence of market intelligence. Even in the available markets, the products do not get fair price.
5. Export Problems: India has an excellent potential in the export market of small-scale and ancillary industries. In spite of it, the small-scale sector faces the problem of poor support from the government. There are no organised linkage liaison of exporting small-scale unit’s products.
6. Problem of Finance: The crux of all problems is, however, the problem of finance. Small-scale units require finance for the purchase and stocking of raw materials, finance for holding finished products till they are sold out and finance for paying wages. Small-scale producers are very poor who have very little to offer as security. Getting institutional finance by the small units is beset with many difficulties and problems. The credit will not commensurate with the needs of the unit for fixed and working capital; further the credit may not be forthcoming timely when required. Hence, the small-units have to depend on money-lenders for finance or they have to make ‘distress sales’ of their products. Lack of finance has been the principal reason for sickness in small units.
7. Underutilisation of Capacity and Other Problems: Another important problem facing small-enterprises is underutilisation of the installed capacities in most of the units. It has been pointed out that capacity utilisation, on an average, ranged about 50 per cent only during the last decade and early parts of this decade. More than half of the capacity in small-scale units is not utilised. Further, small units are plagued with the problems of inefficient management, non-availability of cheap power, burden of local taxes etc., besides competition from large- scale industries.
10.3.4 Measures to Develop Small IndUstries
Cottage and small industries form an integral part of Indian Industrial Economy and their contribution to the economy is of vital importance. Considering the vast unemployment problem in our country, encouraging and expanding small-scale units of production will be the only answer to solve this problem. Hence, the Government, through its policy measures has given a unique position for small units in the economy of the country. We shall discuss briefly the measures adopted by the Government to develop small-scale units of production.
Industries (Development and Regulation) Amendment Ordinance, 1984
One of the important policy measures adopted by the Government to improve the competitive strength of small-scale sector is to reserve specific items for exclusive production by the small scale industrial undertakings. Such reservation is being made since 1970.
Small Scale Development Organisation (SIDO)
The Small Industries Development Organisation (SIDO) under the Central Ministry, headed by Development Commissioner (Small-Scale Industry) through its network of field offices, helps small-scale units by providing marketing counselling, consultancy services and conducting product oriented market survey. It had launched various technology support programmes for the small-scale units.
National Small Industries Corporation
The National Small Industries Corporation another Central Agency, was established in 1955 with the view to assist, promote, develop and finance small-scale industries in the country. The main functions of the Corporation are (a) to secure Government orders for the small industries, (b) to provide loans, (c) to provide technical assistance, (a) to secure co-ordination between small-scale and large-scale industries, so that the former produce goods required by the latter, and (e) to underwrite and guarantee loans from banks and other sources.
District Industries Centres (DICs)
The District Industries Centres (DICs) programme was launched in 1978 with the objective of providing all the services and support facilities to small industries under one roof.
National Institute for Entrepreneurship and Small Business Development (NIESBUD)
The NIESBIJD was established in July 1983 for organising and conducting training for entrepreneurs and for co-ordinating the activities of various institutes and agencies engaged in training programmes.
Awards for Small Scale Entrepreneurs
In order to encourage the entrepreneurs and give them proper recognition in small-scale sector, a scheme for national award has been introduced since 1983-84. The awards carry a cash prize of Rs.25,000/ Rs,20,000/-, Rs. 15,000/-besides special awards of Rs. 10,000/-.
The Industrial Development Bank of India (1DBI) provides funds to the commercial banks and the State Finance Corporations (SFCs) through its scheme of refinancing. Another significant development has been the setting up of Small Industries Development Fund by the IDBI on May 20, 1986 with a fund of Rs.2,500 crores. The IDBI has taken a number of refinancing measures to small-scale units.
Fiscal Incentives
In order to promote the growth of small-scale industries, both the Central and State Governments have extended a number of fiscal incentives. They are: (a) Tax holiday for new industrial undertakings; (b) Capital subsidy to industries started in backward areas; (c) Investment allowance; (d) Exemption from excise duty; (e) A price preference of 15 per cent over medium and large industries.
10.4. Industrial Sickness
10.4.1 Definition of Industrial Sickness
An industrial unit is considered to be sick if the unit has (i) incurred a cash loss in the previous accounting year and was likely to continue with losses in the current year and erosions on account of cumulative cash losses to the extent of 50 per cent or more of its peak net worth during the last five years; and/or (ii) continuously defaulted in meeting four consecutive instalments of interest or two half-yearly instalments of principal on term loan and there were persistent irregularities in the operation of its credit limits with the bank. For tiny units it would suffice to satisfy either (i) or (ii).
10.4.2 Causes of Industrial Sickness
There are diversified causes for industrial sickness. It may be managerial, technical, financial and political. The causes are generally classified as Internal Causes and External Causes.
Internal Causes: (a) Lack of experience of the promoters in the line of activity; (b) An improper choice of technology; unsuitability of product mix; wrong location of industry; and on of fixed assets, particularly machinery in the context of diversified manufacturing set up; (c) Improper demand estimation of the product; (d) Defective capital structure and inability to raise adequate financial resources to adjust operational losses; shortage of working capital; (e) Failure to purchase the raw material at the right time; (t) Under-utilisation of capacity due to labour problems; (g) Faulty control and financial planning and managerial inefficiency.
External Causes: (a) High cost of manufacture and low sales turnover, (b) High prices non-flexibility raw materials and non-availability of materials and other inputs; (c) Transport bottlenecks; marketing problems and poor supply of power, (c) Lack of demand for the product; general recession in business and change in government’s policy.
4.3 Measures to prevent sickness
(i) The Reserve Bank should issue guidelines for the operation of small units and thus make professional management expertise available for the guidance of small entrepreneurs. The management expertise should acquaint the small entrepreneur with the need for a better equity base, prescribe norms for allocation of their surplus to depreciation, retained profits and expansion programmes so as to build their internal financial strength.
(ii) Since a majority of sick units die in the second or third year of their existence, a programme of monitoring and nursing them during infancy is very essential. In this way, the misuse of funds for purposes other than specified, and the factors leading to low capacity utilisation can be examined and quick remedial action taken.
(iii) The Government can accord priority in allocation of scarce raw materials, extending marketing assistance and granting certain rebates and concessions to small units and more so to such units which show better record of performance.
(iv) Sickness of small units should be treated at par with scarcity in agriculture and thus concessional rates of interest be charged at par with those loans, that are granted in scarcity, famine conditions in agriculture. The maximum rate of interest should be 7 per cent for small sick units to enable them to secure soft credit.
(v) The Government should take penal action against the principals for non payment for the delivery of goods by small units.
UNIT QUESTIONS
1. Analyse the role of industrialisation in Indian economy.
2. What are the problems of Iron and Steel industry?
3. Enumerate the problems of cotton textile industry.
4. Discuss the main problems of sugar industry.
5. Describe the role of small scale and cottage industries.
6. Analyse the problems of small scale industries and discuss the measures taken by the government to develop small scale industries.
7. Examine the causes of industrial sickness. Suggest remedies.
