2_Review of ECONOMICS-II(Draft 2)

The Indian vegetable oil industry achieved domestic turnover of above US $ 10,000 million during 1996-97. Its international trade in oil and oil meals annually accounted for US $ 1,850 million, The country further produced over 7 million tonnes of compound feed per annum, with an annual growth rate of 8-10 per cent. It is important to observe that with a record production of about 25 million tonnes of oilseeds from an area of nearly 27 million hectares and productivity of 931 kg/ha during 1996-97, the oilseeds area, production and productivity in India have increased nearly 2.5 times, 5 times and 2 times, respectively, since 1950-51. The role of technology in fostering and sustaining the production has been effectively realized. Further, the technology was economically viable and sustainable. It sustained the growth that was achieved in spite of different adverse factors, such as; the moisture and nutrient scarcity conditions, among others. Having achieved sustainability in growth is commendable particularly when the area under irrigation rallied around 25 per cent and the annual vegetable oilseeds are grown mostly under such conditions. The phenomenal growth in all sectors related to production and productivity of diverse oilseed crops is a sure success. Other countries in the region may harness similar opportunities depending upon the respective situations and technologies available for transfer. Above all, this success signals an important message in favour of possibilities to combine results of agro biodiversity, productivity and profitability. 3.3.2 Historical Perspective of Yellow Revolution The Technology Mission on Oilseeds: The turning point was the year 1986. The annual production of oilseed crops was virtually stagnating at about 10 million tonnes over a span of more than 15 years in spite of a considerable increase in area under oilseed crops from 10.73 m ha in 1950-51 to 19.02 m ha in 1985-86. Till mid-eighties, the growth in output also lagged far behind the growth in demand, thus forcing the government to resort to large scale import of edible oils (to the tune of US $ 1,100 million during 1981-86) to bridge the demand-supply gap. Realizing the fact, the Government of India appointed the Technology Mission on Oilseeds in 51 CU IDOL SELF LEARNING MATERIAL (SLM)

May 1986, with the objective to create/manage conditions that would harness the best of production, processing and storage technologies to attain self-reliance in edible oils in the foreseeable future. A target of producing 16-18 million tonnes of the nine annual oilseeds (groundnut, rapeseed- mustard, soybean, sunflower, safflower, sesame, Niger, linseed and castor) was fixed to substantially cut down the imports by the year 1990. The scope of the Mission and strategies to be adopted to achieve the objective were set well before the onset of the Mission in February 1986, which is elaborated in the excerpts from the then Prime Minister’s speech as given below – One of our biggest problems today in the agricultural sector is oilseeds. We are setting up a thrust Mission for oilseeds production. When we talk of a Mission, we mean an exercise starting from the engineering of the seeds and finishing with the finished products of the vegetable oil (and the byproducts like oil meal) which could be delivered to the consumer. The Mission started functioning as a consortium of concerned Govt. departments, namely, Agricultural Research and Education (DARE), Agriculture and Cooperation (DoAC), Civil Supplies (DoCS), Commerce (DoC), Science and Technology (DST), Biotechnology (DBT), Planning, Health, Irrigation and Economic Affairs. The Mission adopted a four-pronged strat-egy under the following Mini-Missions:  Mini-Mission-I: Improvement of crop production and protection technologies for realizing higher yields and profit to farmers  Mini-Mission-II: Improvement of processing and post-harvest technology to minimize the losses and increase the oil yield from both traditional and non- traditional sources of oil  Mini-Mission-III: Strengthening the input support system to ensure availability of right kind of seed, fertilizers, pesticides, irrigation, credit, etc. and to bring awareness among farmers about the potential of the farm worthy technology through massive transfer of technology programmes.  Mini- Mission-IV: Improvement of post-harvest operations for effective procurement, handling, disposal including price support system to farmers and financial and other 52 CU IDOL SELF LEARNING MATERIAL (SLM)

supports to processing industry. The nodal departments, participating organizations and their respective functional areas under different Mini-Missions were clearly defined to enable a smooth interaction, efficiency and effective output. Growth in Annual Oilseeds Production: Thanks to the Oilseeds Technology Mission, India witnessed a spurt in the annual oilseeds production. Area, production and productivity of main annual oilseed crops in India and farmer oriented programmes launched by the Mission along with better availability of crop production technologies, inputs, services and support price policy were together responsible for the achievements. During the past decade, soybean registered the highest compound annual growth rate of production followed by castor, sunflower and rapeseed-mustard. The simultaneous growth in area, production and productivity observed under rain fed crops has no parallel in the region/world. Presently, oilseeds occupy nearly 13 per cent of the gross cropped area and account for 5 per cent of the gross national product and 10 per cent of the value of all agricultural products. Among the oilseed crops, groundnut, rapeseed-mustard and soybean recorded a major share, in terms of both area (74 per cent) and production (84 per cent), of oilseeds in the country. In terms of growth in productivity, castor topped the list followed by sunflower, soybean and safflower during 1985-86 to 1995-96. The annual per capita availability of edible oils and vanaspati (hydrogenated vegetable oils) increased from 4.0 kg during 1960-61 to 8.2 kg during 1995-96. The annual vegetable oilseeds are cultivated in 14 states of which eight states, namely, Madhya Pradesh, Rajasthan, Andhra Pradesh, Gujarat, Karnataka, Maharashtra, Uttar Pradesh and Tamil Nadu accounted for nearly 90 per cent of the oilseeds area and production in the country. Madhya Pradesh state showed the highest area and production, followed by Rajasthan Andhra Pradesh and Gujarat. Among different oilseeds, rapeseed- mustard is represented as 53 CU IDOL SELF LEARNING MATERIAL (SLM)

major oilseed crop in 7 states, groundnut in 4 states, and soybean, sesame and Niger in one state each. Oilseed Trade: The oilseed sector has made very important contribution towards foreign exchange earnings. This was achieved from the export of soy meal, castor oil, oil cake/extractions, handpicked selection (HPS) groundnut and sesame seed. In addition, export of branded edible oil in small packs has also been done. A progressive increase in the value of exports of oilseeds, oil meals and minor oils has been clearly observed. The national export earnings from oilseeds crossed US $ 1,000 million during the year 1996-97 of which the contribution from exports of oil meals was US $ 900 million. Government of India allowed free import of edible oils under Open General License (OGL) at 20 per cent import duty with effect from 23 July, 1996 as against the prevailing duty of 30 per cent for private trade and 20 per cent for state agencies. This arrangement affected an increased import of edible oil Palmolein accounted for 80 per cent of the imports touching around 1.75 million tonnes during 1996-97, which was mainly due to liberal import policies, lower external prices rather than low production/availability. The increased requirement may be partly attributed to the increased economic access on part of the poor. Nevertheless, the tremendous growth in terms of oilseed production has been a very important national achievement. The rate of growth of production of vegetable oils during the past decade was 6.9 per cent whereas the corresponding demand has been increasing at the rate of about 6 per cent per annum, touching 9.23 million tonnes during 1996-97. With this substantial growth in production, the domestic supply of vegetable oils reached 7.28 million tonnes and the gap of 1.95 million tonnes in demand was filled through imports. The increase in the demand for edible oils was mainly attributed to socio-economic factors, such as the rise in income (purchasing power) of people (vis-a-vis demand) and the high liberalized imports (vis- a-vis supply). 54 CU IDOL SELF LEARNING MATERIAL (SLM)

Supplementary Sources of Vegetables Oils: Minor Crops and Tree Origin Oilseeds: A considerable oil potential occurred in this category, which contribute about 16 per cent of the vegetable oil consumption in India. Oil has been obtained from rice bran, cotton seed, corn and oil cakes besides seeds of underutilized plants like jatropha, tumba etc. or of tree origin such as sal, mango kernel, neem, mahua and several others. It has been estimated that the current level of availability of vegetable oils from these sources (1.38 million tonnes) could be further stepped up, given their tremendous potential (3.08 million tonnes). The production of rice bran oil, cotton seed oil, solvent extraction from oilcakes and the oils from minor crops and tree origin oilseeds has been estimated at 0.48 million tonnes, 0.45 million tonnes, 0.32 million tonnes and 0.13 million tonnes, respectively. Oil Palm – Another Prospective Source: Oil palm is an alternative and potential long term source of edible oil which is expected to contribute significantly towards meeting the growing edible oil demand. It can yield, on an average, four tonnes of vegetable oil per hectare as compared to less than half a tonne from other annual oilseed crops. Presently, the oil palm is cultivated in an area of 39,413 ha, as against the potential area of 0.8 million hectares spread across 11 states in the country. Nearly, one million tonne of palm oil production is expected in near future that will be about 10 per cent of the country’s demand. With the possible entry of oil palm in a big way, the cheapest oil source in the international market owing to its highest oil yield per unit area and low cost of cultivation, there is a likelihood of major changes in the market shares of different oilseeds. Nevertheless, an enhancement in the production of oil palm will further add to the success. In oilseed/oil production in India, which may be an experience well shared with other countries in the region. 3.3.3 Success Factors Research set up and Breeders’ Seed Production: 55 CU IDOL SELF LEARNING MATERIAL (SLM)

India has the largest research network for the development of location specific oilseeds crop production technologies. It includes the All India Coordinated Research Project on Oilseeds (AICRPO) and the Directorate of Oilseeds Research (DOR) at Hyderabad (Andhra Pradesh), three National Research Centre’s, one each for soybean at Indore (Madhya Pradesh) groundnut at Junagadh (Gujarat) and rapeseed-mustard at Bharatpur (Rajasthan). Besides, the State Agricultural Universities, other ICAR institutes and private/corporate sector have also been involved in oilseeds research and development programmes. A multitude of improved technologies have been generated and transferred on to farmers’ fields over the time through this network. The oilseed research set up in the public sector has about 500 well trained scientists engaged in research and technology generation purposes. Realizing the fact that quality seed is the most crucial, critical and vital input to enhance productivity of oilseed crops, separate breeders’ seed production units in these crops were also established. Consequently the breeder seed production, as a basic input to quality seed production, increased 3.7 folds. Improved Crop Production Technology: During the past two decades, over 240 improved varieties/hybrids have been developed in annual oilseeds, which have shown 9 to 38 per cent yield superiority over the local cultivars. A further scope is envisaged to capitalize on this potential area with the development 26 of varieties/hybrids which can out yield 50 per cent more or even higher than the existing varieties under farmers’ field. Hybrids and Improved Varieties: Development of two safflower hybrids in India is recorded as the ‘first’ in the world. The safflower hybrid DSH-129, developed by the Directorate of Oilseeds Research, Hyderabad and released for commercial cultivation for all safflower growing areas in the country, has an average yield potential of 1750 kg/ha. It offered 22 per cent higher seed yield and 29 per cent higher oil yield over the presently grown varieties during rabi/summer season in black soils. The development and release of hybrids in castor namely, DCH-32 and GCH-4 and a high yielding variety DCS-9 (Jyoti) 56 CU IDOL SELF LEARNING MATERIAL (SLM)

revolutionized castor production in the country. New hybrids in sunflower and castor that were brought out in series have provided new opportunities. A few more hybrids in rapeseed- mustard are round the corner. Efforts are also on to evolve hybrid in sesame. Breeding efforts in oilseed crops to meet the objectives such as the oil content in the seed, resistance to biotic and abiotic stresses, reduced crop duration etc. have been quite successful. Improved Packages of Cultivation Practices: To maximize yield gains from improved technology in terms of varieties/hybrids, agronomic packages for efficient crop management have been developed for different crops and situations, which assured better results. Plant Genetic Resources: Sustained utilization of the genetic resources in different oilseeds augmented through collection/introduction of native/exotic plant species and the genetic stocks developed by crop specific breeding programmes contributed effectively towards breeding of improved varieties. The exotic oilseed crops/varieties, particularly soybean and sunflower, have also helped produce good results. Support Price Policy: Considering the fact that oilseed crops being considerably influenced by market forces are prone to wide fluctuations in prices of oilseeds, a positive view was taken by the government, which resulted in increased support price of oilseed as compared with other crops over the years. The ruling open market prices had been about 20 per cent higher than the support prices during the harvest, times and about 50 per cent higher during the lean period. The announcement of support prices before sowing of crops provided the guaranteed market clearance and thereby geared up a switch over from cultivation of staple cereal crop(s) to market oriented non-food crops. As a part of the Market Intervention Operations (MIO) by the National Dairy Development 57 CU IDOL SELF LEARNING MATERIAL (SLM)

Board (NDDB), the imported oil (other than that released through the public distribution system) was channelized into the market and the vanaspati industry, and buying, stocking and selling of oilseeds/oils continued to be undertaken in the domestic market. The NDDB also introduced vegetable oil in the consumer packs under the brand name of ‘Dhara’, (meaning ‘The Flow’), which not only narrowed the range of prices of different edible oils ( thereby discouraging adulteration of costlier oils with cheaper ones, being an economically unattractive proposition) but also helped in popularizing blended edible oils. Extension and Training in Oilseeds Technology: Technology Transfer-Frontline Demonstrations: With a view to demonstrate under real farm situations the productivity potentials and profitability of a spectrum of improved oilseeds crop production technologies, evolved by the oilseeds research network in the country from time to time, on-farm demonstrations were organized through various technology transfer programmes of the Central and State Governments, State Agricultural Universities and voluntary organizations. Among the most successful of such programmes figured the “Frontline Demonstrations in Oilseeds” Project, a component of the Oilseeds Production and Development Programme (OPDP) of the Government of India that supplemented the Oilseed Technology Mission. During 1990-91 to 1996-97, more than 8,000 demonstrations were organized in different oilseed crops across various agro-ecological and crop growing situations. It has been unequivocally proved over years that the improved technologies offered yield advantage ranging from 24 per cent to 107 per cent over the prevailing farming practices, with the benefit – cost ratio varying from 1.35 to 3.33 across different crops, regions and situations. These demonstrations tremendously convinced the farmers of the efficacy of improved technologies, thereby promoting their on-farm adoption. Training and Education: Several short and medium term training programmes were organized and thousands of extension functionaries have been trained over the time by oilseeds research network 58 CU IDOL SELF LEARNING MATERIAL (SLM)

involving ICAR, SAUs and other development organizations. The trainees included officials from the State Departments of Agriculture of different states, such as subject matter specialists, Joint/Deputy/Assistant Directors of Agriculture, Project Officers of OPDP of State/GOI, scientists from SAUs, extension personnel of other voluntary organizations and progressive farmers. The untiring and sustained efforts by the oilseeds research and extension machinery to disseminate the knowledge on improved technology included- i. Publication and distribution of Package of cultivation practices for increasing production’ for each of the oilseed crops in English, Hindi and regional languages; ii. Publication and distribution of technical bulletins on specific weed/insect/disease management technologies, seed production and frontline demonstrations, iii. Use of mass media such as video films on improved crop cultivation practices, radio talks and television programmes by scientists, and iv. Organization of field days/farmers’ rallies etc., among others. Institutional Support and Linkages: Besides linking the Commission for Agricultural Costs and Prices (CACP), the National Agricultural Cooperative Marketing Federation (NAFED), the National Dairy Development Board (NDDB), Oilseeds Growers’ Societies (village level) and Oilseeds Growers’ Federations (state level) for implementing the support price policy, projects to evolve and perfect new technologies for oilseeds and transfer these on to farmers’ fields were initiated. A development project for groundnut was launched in 1980-81 and that for soybean in 1981- 82. Also, a programme for distribution of mini kits of improved seeds and fertilizers for oilseeds was started in 1980-81. Indigenous annual oilseed crops like sesame have got adequate attention for varietal development and seed production. Exotic soybeans have also drawn particular attention of breeders and seed producers in India In 1985-86, the National Oilseeds Development Project (NODP) was launched with a view to accelerating the production of four major oilseeds, namely, groundnut, rapeseed-mustard, 59 CU IDOL SELF LEARNING MATERIAL (SLM)

soybean and sunflower. Under this programme, seeds of improved varieties, plant protection chemicals, fertilizers and Rhizobium culture were made available to the growers at subsidized rates. The efforts of State Departments of Agriculture, ICAR institutes and SAUs were devoted towards demonstrating the potentials of improved technologies on farmers’ fields. Initially, the efforts were concentrated in potential areas of 12 states, but later the project was extended to 180 districts of 17 states in the country. While the interaction of remunerative prices and new technology started showing its positive impact on the production of oilseeds, the need for integrated efforts on harnessing the best of production, processing and management technologies of the oilseed economy was strongly felt. Towards this end, the Technology Mission on Oilseeds (TMO) launched in May 1986, “Oilseeds Production Thrust Project (OPTP)” initiated in 1987-88, covering 246 districts of 17 states and later extended to more areas, helped in attaining the developmental goals. To provide further operational teeth, in 1990-91, the NODP and OPTP were-merged under one programme, namely, the Oilseeds Production Programme (OPP). 3.3.4 Secrets of Success The following factors played their crucial role in bringing success to the oilseed mission and thereby the yellow revolution in India. i. Strong socio-economic and political will to become self-sufficient in vegetable oils, ii. Biodiversity and the matching diversity in agro-ecology and farming situations for various annual oilseed crops, in spite of the paucity of more prospective oil crops such as the oil palm. iii. Economically viable and sustainable improved oilseeds production technologies generated with the help of strong and vibrant oilseeds research network coupled with encouraging financial and policy supports to research. iv. Attractive incentives to the farmers in terms of minimum support prices and input subsidies. 60 CU IDOL SELF LEARNING MATERIAL (SLM)

v. Institutional support for the overall oilseeds research and development by public, corporate and private sectors, particularly the setting up of the Technology Mission on Oilseeds by the Government of India. vi. Effective implementation, monitoring and periodical evaluation of the technology transfer programmes, especially the “Frontline Demonstrations in Oilseeds” Project. vii. Integrated, effective, efficient and transparent functional farmer-research- industry- policy interface. The achievement of self-sufficiency in vegetable oils in India that nullified the foreign exchange drain witnessed during eighties is a sure success. This could be an example to follow in the Asia Pacific region whereby other countries may achieve similar results. The holistic approach in the form of mission mode adopted by the Government of India to tackle the problem of burgeoning import bill on edible oil front is worth commendation. However, since the oilseed crops are sensitive to market forces and are mostly grown in moisture and nutrition scarce conditions, sustaining the success in the long run is not so easy a task. Sufficient rethinking has to be done in several spheres to sustain and flourish. Research funding by the Government needs to be continued/strengthened for oilseeds research and development in the era of liberalized world trade. All the research priorities/activities need to be organized/refined in a matrix mode of operation. The support price policy needs to be continued and strengthened. The market mechanism of offering higher price for quality oilseeds with higher oil content and of better quality may have to be searched for. Quality consideration of oilseeds is desired as a matter of principle. This would encourage and provide a sense of direction to the oilseed growers and researchers alike. The “seasonally variable import duty” may have to be continuously followed to safeguard the overall interests of oilseed sector. Owing to wide intra and inter seasonal fluctuations in commodity prices of oilseeds and vegetable oils, the move to allow “futures trading” in these commodities needs to be 61 CU IDOL SELF LEARNING MATERIAL (SLM)

hastened. Since oilseeds generally require less water as compared to many other crops, irrigation water charges should be commensurate with the water used rather than on flat area basis. India should strive to export value added products instead of exporting direct items like oilseeds, oil and oil cakes. Castor oil which forms the basis for many oleo-chemicals has a great potential. Hydrogenated castor oil, dehydrated castor oil, sebacic acid, undecylimic acid heptaldehyde are some important oleo-chemicals with high value and can earn larger foreign exchange. Similarly, mustard oil which is rich in erucic acid is a useful industrial raw material. Cultivation of varieties with low/zero levels of toxic constituents or adoption of some detoxification techniques can improve the export of some seeds and cakes. The existing farmer-research-industry-policy sectoral interface needs to be strengthened for achieving the overall development of the oilseed sector in terms of commercial exploitation of untapped yield reservoir, value addition to oilseeds and their products/byproducts, demand driven research agenda and congenial public policy environment. 3.4SUMMARY The agricultural revolution refers to the significant change in the agriculture that occurs when there are discoveries, inventions, or new technologies implemented. These change the production ways and increase the production rate. There are various Agricultural Revolutions occurred in India. SO, knowing about the agriculture news will help candidates who are preparing for competitive exams like UPSC-prelims, SSC, State Services, NDA, CDS, and Railways, etc. Apart from just the exam point of view, it is good that all the citizens of India are aware of innovations in the Agriculture field. So, here is the list of Agricultural Revolution in India. 3.5 KEY WORDS/ABBREVIATIONS  Food industry: The activities involved in growing, production and selling food locally and globally.  Food-like product: An item that is sold as food to be eaten but has little resemblance or nutritional value to the raw ingredients from which it was made. e.g., a Twinkie. 62 CU IDOL SELF LEARNING MATERIAL (SLM)

 Food miles: The distance between where food is grown to where it is consumed.  Food security: A situation where the continual supply of food to feed a population is stable.  Food shortage: The lack of sufficient food to meet demand. 3.6 LEARNING ACTIVITY 1. What is white revolution?_________________________________________________________________________ __________________________________________________________________________________ _________ 2. Discuss Yellow revolution in your own words. __________________________________________________________________________________ __________________________________________________________________________________ 3.7 UNIT END EXERCISES (MCQS AND DESCRIPTIVE) A. Descriptive Type Questions 1. Explain the features of Yellow revolution. 2. State the features of White revolution. 3. What are the phases of white revolution? 4. Comment on the Technology Mission on Oilseeds. 5. Write note on Minor Crops and Tree Origin Oilseeds. B. Multiple Choice Questions (MCQs) 1. Yellow Revolution is concerned with__________. (a) Oil seeds production (b) Woolen production 63 CU IDOL SELF LEARNING MATERIAL (SLM)

(c) Meat production 64 (d) Fruit production 2. White Revolution is concerned with _____________. (a) Cotton (b) Rice & Rice Products (c) Milk & Milk Products (d) Jute & Jute Products 3. Who is the father of White Revolution in the World? (a) Norman Borlaug (b) VargheseKurian (c) Raj Krishna (d) R.K.V Rao 4. Yellow revolution results was observed in the year ___________ (a) 1988-89 (b) 1994-95 (c) 1983-84 (d) 2000-01 CU IDOL SELF LEARNING MATERIAL (SLM)

5. White revolution began in the year __________ (a) 1990 (b) 2000 (c) 1970 (d) 1980 Answers: 1. (a), 2. (c), 3. (b), 4. (a) 5. (c) 3.8 SUGGESTED READINGS  Bajpai, P. & Bhandari, L. (2009). Social and Economic Profile of India. Hyderabad: Orient black Swan.  Datt, R. & Sundram, K.P.M. (2007). Indian Economy. New Delhi: S. Chand & Co.  Dhar, P.K. (1999). Indian Economy. Ludhiana: Kalyani Publishers.  Ghosh, A. (2004). Bhartiya Arth Vivstha. Patiala: Punjabi University.  Gill, J.S. (2004). Evolution of Indian Economy. New Delhi: NCERT.  Gupta, K.R. & Gupta, J.R. (2009). Indian Economy. New Delhi: Atlantic Publishers  Jalan, B. (2008). India's Economy in the New Millennium. New Delhi: UBS Publishers.  Misra, S.K. & Puri, V.K. (2006). Indian Economy. Mumbai: Himalya Publishing House.  Sen, R.K. & Chatterjee, B. (2008). Indian Economy. New Delhi: Deep & Deep Publications.  Singh, B. N. (2008). Economic Reforms in India. New Delhi: APH Publishers.  Singh, B.N. (2008). Indian Economy Today: Changing Contours. New Delhi: Deep & Deep Publications. 65 CU IDOL SELF LEARNING MATERIAL (SLM)

 Singh, C.G. (2005). Bharti Arth Shastar. Patiala: Punjabi University.  Soni, R.N. (2008). Leading Issues in Agriculture Economics. New Delhi: S. Chand & Co.  Tandon, B. & Tandon, K.K. (1998). Indian Economy. New Delhi: Tata McGraw Hills Pub. Co.  Vasudeva, P.K. (2009). India & World Trade Organisation: Planning and Development. New Delhi: APH Publishers. 66 CU IDOL SELF LEARNING MATERIAL (SLM)

UNIT 4:PROBLEMS OF INDUSTRIAL DEVELOPMENT Structure 4.0. Learning Objectives 4.1. Introduction 4.2. Public Sector 4.2.1 State Governments Public Enterprises: 4.2.2 Role of Public Sector in India: 4.2.3 Problems in Public Sector: 4.3. Private Sector 4.3.1 Relative Role of Private Sector in India: 4.4. Summary 4.5. Key Words/Abbreviations 4.6. Learning Activity 4.7. Unit End Exercises (MCQs and Descriptive) 4.8. Suggested Readings 4.0 LEARNING OBJECTIVES After studying this unit, you will be able to:  Explain the problems in industrial development in public sector  State the problems in industrial development in private sector 4.1 INTRODUCTION 67 CU IDOL SELF LEARNING MATERIAL (SLM)

The Industrial Revolution, now also known as the First Industrial Revolution, was the transition to new manufacturing processes in Europe and the United States, in the period from about 1760 to sometime between 1820 and 1840. This transition included going from hand production methods to machines, new chemical manufacturing and iron production processes, the increasing use of steam power and water power, the development of machine tools and the rise of the mechanized factory system. The Industrial Revolution also led to an unprecedented rise in the rate of population growth. Textiles were the dominant industry of the Industrial Revolution in terms of employment, value of output and capital invested. The textile industry was also the first to use modern production methods. The Industrial Revolution began in Great Britain, and many of the technological innovations were of British origin. By the mid-18th century Britain was the world's leading commercial nation, controlling a global trading empire with colonies in North America and the Caribbean, and with major military and political hegemony on the Indian subcontinent, particularly with the proto-industrialised Mughal Bengal, through the activities of the East India Company. The development of trade and the rise of business were among the major causes of the Industrial Revolution. The Industrial Revolution marks a major turning point in history; almost every aspect of daily life was influenced in some way. In particular, average income and population began to exhibit unprecedented sustained growth. Some economists have said the most important effect of the Industrial Revolution was that the standard of living for the general population in the western world began to increase consistently for the first time in history, although others have said that it did not begin to meaningfully improve until the late 19th and 20th centuries. GDP per capita was broadly stable before the Industrial Revolution and the emergence of the modern capitalist economy, while the Industrial Revolution began an era of per-capita economic growth in capitalist economies. Economic historians are in agreement that the onset of the Industrial Revolution is the most important event in the history of humanity since the domestication of animals and plants. The precise start and end of the Industrial Revolution is still debated among historians, as is 68 CU IDOL SELF LEARNING MATERIAL (SLM)

the pace of economic and social changes. Eric Hobsbawm held that the Industrial Revolution began in Britain in the 1780s and was not fully felt until the 1830s or 1840s, while T. S. Ashton held that it occurred roughly between 1760 and 1830. Rapid industrialization first began in Britain, starting with mechanized spinning in the 1780s, with high rates of growth in steam power and iron production occurring after 1800. Mechanized textile production spread from Great Britain to continental Europe and the United States in the early 19th century, with important centres of textiles, iron and coal emerging in Belgium and the United States and later textiles in France. An economic recession occurred from the late 1830s to the early 1840s when the adoption of the Industrial Revolution's early innovations, such as mechanized spinning and weaving, slowed and their markets matured. Innovations developed late in the period, such as the increasing adoption of locomotives, steamboats and steamships, hot blast iron smelting and new technologies, such as the electrical telegraph, widely introduced in the 1840s and 1850s, were not powerful enough to drive high rates of growth. Rapid economic growth began to occur after 1870, springing from a new group of innovations in what has been called the Second Industrial Revolution. These innovations included new steel making processes, mass- production, assembly lines, electrical grid systems, the large-scale manufacture of machine tools and the use of increasingly advanced machinery in steam-powered factories. Major problems and obstacles that are being faced in the process of industrialization of the country: 1. Poor Capital Formation: Poor rate of capital formation is considered as one of the major constraint which has been responsible for slow rate of industrial growth in India. 2. Political Factors: During the pre-independence period, industrial policy followed by the British rulers was not at all favourable for the interest of the country. Thus, India remained a primary producing country during 200 years of British rule which ultimately retarded the industrial development of the country in its early period. 69 CU IDOL SELF LEARNING MATERIAL (SLM)

3. Lack of Infrastructural Facilities: India is still backward in respect of its infrastructural facilities and it is an important impediment towards the industrialization of the country. Thus in the absence of proper transportation (rail and road) and communication facilities in many parts of the country, industrial development could not be attained in those regions in-spite of having huge development potentialities in those areas. 4. Poor Performance of the Agricultural Sector: Industrial development in India is very dependent on the performance of the agricultural sector. Thus, the poor performance of the agricultural sector resulting from natural factors is also another important factor responsible for industrial stagnation in the country. Agriculture provides not only raw materials and foodstuffs hut also generates demand for the goods produced by the industrial sector. Thus, this poor performance of the agriculture retards the development of industries in India. 5. Gaps between Targets and Achievements: In the entire period of planning excepting 1980s, industrial sector could not achieve its overall targets. During the first Three Plans, against the target of 7, 10.5 and 10.7 per cent industrial growth rate, the actual achievements were 6, 7.2, 9 per cent respectively. Since the Third Plan onwards, the gap between the targets and achievements widened. It is only during the Sixth and Seventh Plan, the industrial sector could achieve its targets. Again in first part of 1990s the industrial sector again failed miserably to achieve its target. This trend is all along against the smooth industrial development of the country. 6. Dearth of Skilled and Efficient Personnel: The country has been facing the problem of dearth of technical and efficient personnel required for the industrial development of the country. In the absence of properly trained and skilled personnel, it has become very difficult to handle such highly sophisticated computerized machineries necessary for industrial development of the country. 70 CU IDOL SELF LEARNING MATERIAL (SLM)

Moreover, inefficiency and insincerity of those personnel engaged in industrial sector has been resulting in huge wastage of resources of the industrial sector. Moreover, social factors like immobility of labour and capital and lack of proper initiative and enterprises on the part of people of India are also highly responsible for this slow pace of industrialisation in the country. 7. Elite Oriented Consumption: In recent years, a strong tendency to produce rich men’s goods has been established among the large industrial houses. Accordingly, the production of “white goods” like refrigerators, washing machines, air conditioners etc. expanded substantially along with the other luxury products. But the production of commodities for mass consumption has recorded a slow growth rate. This clearly reveals a ‘distortion of output structure’ of Indian industries, resulting in a recessionary tendency in the market of these luxury products in recent years. 8. Concentration of Wealth: The pattern of industrialisation in the country has been resulting in concentration of economic power in the hands of few large industrial houses and thus flailed to achieve the objective of planning in reducing concentration of wealth and economic power. As for example, Tatas with 38 companies substantially increased their assets from Rs. 375 crore in 1963- 64 to Rs. 14,676 crore in 1991-92. The assets of Birla’s also increased from Rs. 283 crore in 1963- 64 to Rs. 6,775 crore in 1990-91. Similarly other large business houses are also multiplying their assets at a very faster rate and are tightening their stronghold on the economy. 9. Poor Performance of the Public Sector: In-spite of attaining a substantial expansion during the planning period, the performance of public sector enterprises remained all along very poor. A good number of such enterprises are incurring huge losses regularly due to its faulty pricing policy and lack of proper management necessitating huge budgetary provision every year. Thus, the public sector 71 CU IDOL SELF LEARNING MATERIAL (SLM)

investment failed to generate required surpluses necessary for further investment in industrial sector of the country. 10. Regional Imbalances: Concentration of industrial development into some few states has raised another problem of imbalances in industrial development of the country. Western region comprising Maharashtra and Gujarat attained maximum industrial development whereas the plight, of the poor states are continuously being neglected in the process of industrialisation of the country in-spite of having a huge development potential of their own. Although a huge investment in the public sector has been made in the backward states like Bihar, Orissa and Madhya Pradesh, but the ‘trickling down effects’ of such investment were not also visible. Various fiscal incentives, capital subsidies and other facilities introduced for industrial development of backward area were mostly channelized to develop industries in backward areas of developed states leading to a gross neglect of the demand of backward states. 11. Industrial Sickness: Another peculiar problem faced by the industrial sector of the country is its growing sickness due to bad and inefficient management. As per the RBI estimate, a total number of sick industrial units in India were 1,71,316 as on 31st March, 2003 and these sick industrial units had involved an outstanding bank credit to the extent of Rs. 34,815 crore. The RBI estimate further disclosed that every seventh small scale unit in India was sick at the end of December 1983. Thus, this growing sickness of industrial units has resulted in a huge problem in the path of industrial development of the country. 12. Regime of State Controls: Lastly, industrial inefficiencies resulting in perpetuation of regional state controls and regulatory mechanism are standing in the path of industrialisation of the country. In recent years, the Government has undertaken some serious measures to make necessary economic reforms in the industrial structure of both the public as well as private sectors of the country. 72 CU IDOL SELF LEARNING MATERIAL (SLM)

Although these measures are quite challenging in nature but these are expected to do much headway in removing various obstacles mentioned above and also in attaining industrial development of the country further in the years to come. 4.2 PUBLIC SECTOR The public sector (also called the state sector) is the part of the economy composed of both public services and public enterprises. The public sector of an economy is the sector that provides a range of governmental services, including infrastructure, public transportation, public education, health care, police and military services. Public sectors include public goods and governmental services such as the military, law enforcement, infrastructure (public roads, bridges, tunnels, water supply, sewers, electrical grids, telecommunications, etc.), public transit, public education, along with health care and those working for the government itself, such as elected officials. The public sector might provide services that a non-payer cannot be excluded from (such as street lighting), services which benefit all of society rather than just the individual who uses the service.[1] Public enterprises, or state-owned enterprises, are self-financing commercial enterprises that are under public ownership which provide various private goods and services for sale and usually operate on a commercial basis. Organizations that are not part of the public sector are either a part of the private sector or voluntary sector. The private sector is composed of the economic sectors that are intended to earn a profit for the owners of the enterprise. The voluntary, civic or social sector concerns a diverse array of non-profit organizations emphasizing civil society. The organization of the public sector can take several forms, including:  Direct administration funded through taxation; the delivering organization generally has no specific requirement to meet commercial success criteria, and production decisions are determined by government.  State-owned enterprises; which differ from direct administration in that they have 73 CU IDOL SELF LEARNING MATERIAL (SLM)

greater management autonomy and operate according to commercial criteria, and production decisions are not generally taken by a government (although goals may be set for them by the government).  Levels of Public sector are organized at three levels: Federal or National, Regional (State or Provincial), and Local (Municipal or County).  Partial outsourcing (of the scale many businesses do, e.g. for IT services) is considered a public sector model. A borderline form is as follows:  Complete outsourcing or contracting out, with a privately owned corporation delivering the entire service on behalf of the government. This may be considered a mixture of private sector operations with public ownership of assets, although in some forms the private sector's control and/or risk is so great that the service may no longer be considered part of the public sector (Barlow et al., 2010). (See the United Kingdom's Private Finance Initiative.)  Public employee unions represent workers. Since contract negotiations for these workers are dependent on the size of government budgets, this is the one segment of the labor movement that can actually contribute directly to the people with ultimate responsibility for its livelihood. While their giving pattern matches that of other unions, public sector unions also concentrate contributions on members of Congress from both parties who sit on committees that deal with federal budgets and agencies. Prior to 1947, there was virtually no “public sector” in India. The only instances worthy of mention were the Railways, the Posts and Telegraphs, the Port Trusts, the Ordnance and Aircraft Factories and a few state managed undertakings like the Government Salt factories, Quinine factories, etc. The idea that economic development should be promoted by the State actually managing industrial concerns did not take root in India before 1947, even though the concept of planning was very much discussed by Congress Governments in the Indian provinces as far back as 1931. However, in the post-independence period, the expansion of public sector was 74 CU IDOL SELF LEARNING MATERIAL (SLM)

undertaken as an integral part of the Industrial Policy 1956. Central Public Sector Undertakings: There were 236 Central public sector undertakings excluding banks in 1996-97. The growth of investment in Central public sector undertakings has also increased. Since 1951, the number of industrial and commercial undertakings of the Central Government has increased from 5 units in 1950-51 to 236 units in 1996-97 and the Capital investment has increased from Rs. 29 crores to Rs. 2020.2 billion in 1996-97. 4.2.1 State Governments Public Enterprises As on March 31, 1986, there were 636 State level Public Enterprises (SLPEs) functioning in 24 states. The investment in SLPEs as on March 31, 1986, was of the order of Rs. 10,000 crores as against. Rs. 2,860 crores, as on Mach 31, 1977. While inclusive of State Electricity Boards and State Road Transport Corporations total investment stood at Rs. 25,000 crores in 1986, as against Rs. 9,576 crore in 1977. The average rate of growth of investment in State level enterprises during 1977-86 period was of the order of 20 percent per annum. Organizationally, there are four types of public sector enterprises: (1) Departmentally Managed; (2) Managed by independent boards; (3) Run as public corporations; and (4) Organised as Companies. The company form of organisation is the most common. 4.2.2 Role of Public Sector in India After the attainment of independence and the advent of Planning, there has been a progressive expansion in the scope of the Public Sector. The passage of Industrial Policy Resolution of 1956 and the adoption of the Socialist Pattern of Society as our national goal, 75 CU IDOL SELF LEARNING MATERIAL (SLM)

further led to deliberate enlargement of the role of public sector. To understand the role of the Public Sector, we must have an idea about its size in the context of the Indian economy. For a comprehensive view of the entire Public Sector, we should cover besides autonomous corporations, the departmental enterprises. While doing so, not only the enterprises owned and run by the Central Government be covered but the enterprises run by the State Governments and local bodies should also be included. Secondly, it would not be appropriate to use any single measure to estimate the size of the public sector; rather it would be desirable to use quite a few indicators, e.g., employment, investment, value of output, national income generated, savings, capital formation and capital stock. Share in National Income: An important contribution to the National Income is Public Sector. During the period 1960 to 1999, the public sector has doubled its share in the national income in real terms and account for 25 percent of the total income of the economy. This is, undoubtedly, a significant change in the structure of economy in terms of the increased importance of the public sector in domestic activity. Share in Capital Formation: Another most important contribution of public sector in India has been in respect of capital formation. Investment in the private sector producing goods for rich people mainly should be evaluated lower than similar type of investment in the public sector which is engaged in the provision of essential infrastructural services to the economy as a whole. This is true even though the commercial profitability of the private sector is being rated high. Growth of Ancillary Industries: Public Sector enterprises are helping the growth of ancillary industrious in numerous ways. These are as follows: 76 CU IDOL SELF LEARNING MATERIAL (SLM)

(1) They take responsibility for providing managerial and technical guidance on 77 production process and equipment selection etc. (2) Public Sector enterprises give long-term contracts to small ancillary industries. (3) Public enterprises guide for sources of financing and procedure for obtaining them. (4) Public enterprises have made efforts to purchase items from ancillary units. 4.2.3 Problems in Public Sector Even though the public sector is going in a correct path, some problems and short comings are there. The main short comings are as follows: (1) Heavy losses. (2) Influence of political factors. (3) Work delays. (4) Over-capitalization. (5) Pricing policy. (6) Use of Manpower Resources. (7) Control over employees. (8) Inefficient Management. (9) Higher capital intensity leading to lower-employment generation. (10) Capacity utilization. Suggestions to Improve the Performance of Public Sector Enterprises (PSEs): (i) Controlling the cost at every level of public sector enterprises. (ii) Increase the production, (iii) Reforms in capital base. CU IDOL SELF LEARNING MATERIAL (SLM)

(iv) Increase the standard of public sector enterprises to manage the competition from both domestic and foreign competitors. (v) Identifying redundant manpower and dealing with it through means a retraining, redeployment and encouraging self-employment etc. 4.3 PRIVATE SECTOR The private sector is the part of the economy that is run by individuals and companies for profit and is not state controlled. Therefore, it encompasses all for-profit businesses that are not owned or operated by the government. Companies and corporations that are government run are part of what is known as the public sector, while charities and other nonprofit organizations are part of the voluntary sector.  The private sector consists of all privately owner, for-profit businesses in the economy.  The private sector tends to make up a larger share of the economy in free market, capitalist based societies.  Private sector businesses can also collaborate with government run agencies in arrangements called public-private partnerships. 4.3.1 Relative Role of Private Sector in India: India, being a mixed economy, has assigned a great importance on the private sector of the country for attaining rapid economic development. The Government has fixed a specific role to the private sector in the field of industries, trade and services sector. The most dominant sector of India, i.e., agriculture and other allied activities like dairying, animal husbandry, poultry etc. is totally under the control of the private sector. Thus private sector is playing an important role in managing the entire agricultural sector and thereby providing the entire food supply to the millions. Moreover, the major portion of the industrial sector engaged in the non-strategic and light areas, producing various consumer goods both durables and non-durables, electronics and 78 CU IDOL SELF LEARNING MATERIAL (SLM)

electrical goods, automobiles, textiles, chemicals, food products, light engineering goods etc., is also under the control of the private sector. Private sector is playing a positive role in the development and expansion of aforesaid group of industries. Besides, the development of small scale and cottage industries is also the responsibility of the private sector. Finally, the private sector is also having its role in the development of tertiary sector of the country. The private sector is managing the entire services sector providing various types of services to the people in general. The entire wholesale and retail trade in the country is also being managed by the private sector in a most rational manner. Moreover, the major portion of the transportation, especially in the road transport is also managed by the private sector. With the growing liberalization of Indian economy in recent years, the private sector is being assigned with much greater responsibility in various spheres of economic activities. Problems faced by private sector in India. 1. Regulatory Procedure and Related Delays: Too many regulatory measures imposed by the Government on the private sector has resulted in lengthy procedure and delays in getting final clearance of a new industrial project. On the Government level, decision making system is so poor that it normally takes 7 to 8 years for large investment project to complete its gestation period. Delegation of decision making in the Government bureaucracy is so poor that even the simple decisions are rolled back to the top level leading avoidable procedural delays, huge cost escalation, increasing interest burden and higher burden on consumers. 2. Unnecessary Control: From the beginning, the private sector of the country is subjected to unnecessary Government control. Price controls imposed by the Government on certain goods has resulted in disincentive to increase production. Rather competition among the rival producers can enlarge the production base and thereby can reduce the prices automatically. 79 CU IDOL SELF LEARNING MATERIAL (SLM)

But in India, under the conditions of shortage, price controls, Dual pricing etc. has resulted in black marketing and hoarding of such commodities. Moreover, the system of licensing of capacity as a capacity restraint has also resulted in undesirable effects on the investors instead of preventing monopolistic tendencies. It is only since 1980, unnecessary controls on the utilization of excess capacity and on the creation of new capacities have been either abolished or liberalized. 3. Inadequate Diversification: The private sector has been suffering from inadequate diversification as the Government did not allow them to participate in those basic, heavy and infrastructural sectors which were earlier reserved for the public sector. It is only in post-1991 period, some of these areas are now opened for the private sector participation. 4. Reservation for the Small Sector: From the initial stage of development, the Government is providing necessary support to the small industrial sector in the form of reservation of certain products exclusively for the small sector so as to save it from unfair competition of large units and also by providing excise exemption or lower excise duties on the goods produced by the small sector. But for the proper development of the small sector, modernization of their production techniques, proper product-mix, updating of designs must be given adequate priority. 5. Lack of Finance and Credit: Although the large scale industrial corporate units of the private sector are mobilizing their fund from banks, development financial institutions and from the market through sale of their equities or debentures but the small scale units are facing acute problem in raising fund for their expansion. 6. Low Ratio of Profit: Another important problem of the private sector enterprises is the declining trend in its net profit ratio. Accordingly, the net profit to turnover ratio of these total Indian private sector enterprises has been declining from 6.1 per cent in 1994-95 to 3.2 per cent in 1996-97 and 80 CU IDOL SELF LEARNING MATERIAL (SLM)

then to 2.3 per cent in 1997-98. Moreover, the net profit to net worth (NP/NW) reflecting on return on investment, of the total private sector enterprises also declined considerably from 15.2 per cent in 1994-95 to 6.5 per cent in 1996-97 and then to 4.7 per cent in 1997-98 as compared to that of 5.4 per cent of the Central Public Sector Enterprises (CPSEs). 4.4 SUMMARY Industry has developed elite oriented pattern. Concentration of economic power in the hands of few, regional imbalances, sickness of industries, loss in public sector industries, unsatisfactory labour relations, lack of capital and industrial raw materials, chang-ing policy of the government, and defective licens-ing policy are some of the problems which are hindering the overall industrial development in the country. 4.5 KEY WORDS/ABBREVIATIONS  Cottage industry - An industry where the manufacture of products is primarily in homes by people using their own tools and equipment  Division of labor - When each worker has a specific task or role they perform.  Textile - A textile is a type of cloth or woven fabric.  Urban - Referring to town or the city. Working class - A group of people that work for wages, usually in factories or doing manual labor.  capitalism - an economic system based on private ownership of assets  industrialization - the development of commercial enterprise 4.6 LEARNING ACTIVITY 1. State the problems of industrial development in India __________________________________________________________________________________ __________________________________________________________________________________ 81 CU IDOL SELF LEARNING MATERIAL (SLM)

2. Note on the industrial development in India __________________________________________________________________________________ __________________________________________________________________________________ 4.7 UNIT END EXERCISES (MCQS AND DESCRIPTIVE) A. Descriptive Type Questions 1. Discuss the problems in public sector. 2. Explain the problems in private sector. 3. Write a short note on private sector. 4. Write a note on public sector. 5. State the role of public sector in India. B. Multiple Choice Questions 1. Infrastructure development is an obstacle in the industrial development of India (a) True (b) False 2. Which of the following is the type of public sector (a) Departmentally Managed; (b) Managed by independent boards; (c) Run as public corporations (d) All of these 3. Profit earning is one of the problems of the private sector 82 CU IDOL SELF LEARNING MATERIAL (SLM)

(a) True (b) False 4. Which of the following is not a reason for the problems in industrialization (a) Lack of infrastructure (b) Lack of finance (c) Political factors (d) Availability of skilled labor 5. Prior to 1947, there was virtually no “public sector” in India (a) True (b) False Answers: 1. (a) 2. (d) 3. (a) 4. (b) 5. (a) 4.8 SUGGESTED READINGS  Bajpai, P. & Bhandari, L. (2009). Social and Economic Profile of India. Hyderabad: Orient black Swan.  Datt, R. & Sundram, K.P.M. (2007). Indian Economy. New Delhi: S. Chand & Co.  Dhar, P.K. (1999). Indian Economy. Ludhiana: Kalyani Publishers.  Ghosh, A. (2004). Bhartiya Arth Vivstha. Patiala: Punjabi University.  Gill, J.S. (2004). Evolution of Indian Economy. New Delhi: NCERT. 83 CU IDOL SELF LEARNING MATERIAL (SLM)

 Gupta, K.R. & Gupta, J.R. (2009). Indian Economy. New Delhi: Atlantic Publishers  Jalan, B. (2008). India's Economy in the New Millennium. New Delhi: UBS Publishers.  Misra, S.K. & Puri, V.K. (2006). Indian Economy. Mumbai: Himalya Publishing House.  Sen, R.K. & Chatterjee, B. (2008). Indian Economy. New Delhi: Deep & Deep Publications.  Singh, B. N. (2008). Economic Reforms in India. New Delhi: APH Publishers.  Singh, B.N. (2008). Indian Economy Today: Changing Contours. New Delhi: Deep & Deep Publications.  Singh, C.G. (2005). Bharti Arth Shastar. Patiala: Punjabi University.  Soni, R.N. (2008). Leading Issues in Agriculture Economics. New Delhi: S. Chand & Co.  Tandon, B. & Tandon, K.K. (1998). Indian Economy. New Delhi: Tata McGraw Hills Pub. Co.  Vasudeva, P.K. (2009). India & World Trade Organisation: Planning and Development. New Delhi: APH Publishers. 84 CU IDOL SELF LEARNING MATERIAL (SLM)

UNIT 5:ROLE AND PROBLEMS OF SMALL AND LARGE SCALE INDUSTRIES Structure 5.0. Learning Objectives 5.1. Introduction, 5.2. Role of Small Scale Industries 5.3. Problems of Small Scale Industries 5.4. Role of Large Scale Industries 5.5. Problems of Large Scale Industries 5.6. Summary 5.7. Key Words/Abbreviations 5.8. Learning Activity 5.9. Unit End Exercises (MCQs and Descriptive) 5.10. Suggested Readings 5.0 LEARNING OBJECTIVES After studying this unit, you will be able to:  Explain the role & problems associated with small scale industries  List the role & problems associated with small scale industries 5.1 INTRODUCTION A business can range from a single proprietor enterprise to a large corporation which employs thousands of workers across multiple countries. Based on the scale of business, organizations 85 CU IDOL SELF LEARNING MATERIAL (SLM)

are classified as micro-enterprises, small-scale enterprises, large scale industries, public enterprises, and multinational corporations. Small scale industries are industries which produce goods or provide services on a small scale with the help of machines, hired labour and power.Small businesses face various problems because of their small size. They have limited capital for expansion.They are unable to take advantage of economies of large scale production and also lack motivation for expansion as they are unable to take benefit of the government schemes and incentives. As a result, the business units may become sick or even close down their operations. 5.2 ROLE OF SMALL SCALE INDUSTRIES Small scale industries play an important role for the development of Indian economy in many ways. About 60 to 70 percent of the total innovations in India comes from the SSIs. Many of the big businesses today were all started small and then nurtured into big businesses. The roles of SSIs in economic development of the country are briefly explained below. a. Small Scale Industries Provides Employment 1. SSI uses labour intensive techniques. Hence, it provides employment opportunities to a large number of people. Thus, it reduces the unemployment problem to a great extent. 2. SSI provides employment to artisans, technically qualified persons and professionals. It also provides employment opportunities to people engaged in traditional arts in India. 3. SSI accounts for employment of people in rural sector and unorganized sector. 4. It provides employment to skilled and unskilled people in India. 5. The employment capital ratio is high for the SSI. b. SSI Facilitates Women Growth 1. It provides employment opportunities to women in India. 86 CU IDOL SELF LEARNING MATERIAL (SLM)

2. It promotes entrepreneurial skills among women as special incentives are given to women entrepreneurs. c. SSI Brings Balanced Regional Development 1. SSI promotes decentralized development of industries as most of the small scale industries are set up in backward and rural areas. 2. It removes regional disparities by industrializing rural and backward areas and brings balanced regional development. 3. It promotes urban and rural growth in India. 4. It helps to reduce the problems of congestion, slums, sanitation and pollution in cities by providing employment and income to people living in rural areas. It plays an important role by initiating the government to build the infrastructural facilities in rural areas. 5. It helps in improving the standard of living of people residing in suburban and rural areas in India. 6. The entrepreneurial talent is tapped in different regions and the income is also distributed instead of being concentrated in the hands of a few individuals or business families. d. SSI Helps in Mobilization of Local Resources 1. It helps to mobilize and utilize local resources like small savings, entrepreneurial talent, etc., of the entrepreneurs, which might otherwise remain idle and unutilized. Thus it helps in effective utilization of resources. 2. It paves way for promoting traditional family skills and handicrafts. There is a great demand for handicraft goods in foreign countries. 3. It helps to improve the growth of local entrepreneurs and self-employed professionals in small towns and villages in India. 87 CU IDOL SELF LEARNING MATERIAL (SLM)

e. SSI Paves for Optimization of Capital 1. SSI requires less capital per unit of output. It provides quick return on investment due to shorter gestation period. The payback period is quite short in small scale industries. 2. SSI functions as a stabilizing force by providing high output capital ratio as well as high employment capital ratio. 3. It encourages the people living in rural areas and small towns to mobilize savings and channelize them into industrial activities. f. SSI Promotes Exports 1. SSI does not require sophisticated machinery. Hence, it is not necessary to import the machines from abroad. On the other hand, there is a great demand for goods produced by small scale sector. Thus it reduces the pressure on the country’s balance of payments. 2. SSI earns valuable foreign exchange through exports from India. g. SSI Complements Large Scale Industries 1. SSI plays a complementary role to large scale sector and supports the large scale industries. 2. SSI provides parts, components, accessories to large scale industries and meets the requirements of large scale industries through setting up units near the large scale units. 3. It serves as ancillaries to large Scale units. h. SSI Meets Consumer Demands 1. SSI produces wide range of products required by consumers in India. 2. SSI meets the demand of the consumers without creating a shortage for goods. Hence, it serves as an anti-inflationary force by providing goods of daily use. 88 CU IDOL SELF LEARNING MATERIAL (SLM)

i. SSI Ensures Social Advantage 1. SSI helps in the development of the society by reducing concentration of income and wealth in few hands. 2. SSI provides employment to people and pave for independent living. 3. SSI helps the people living in rural and backward sector to participate in the process of development. 4. It encourages democracy and self-governance. j. Develops Entrepreneurship 1. It helps to develop a class of entrepreneurs in the society. It helps the job seekers to turn out as job givers. 2. It promotes self-employment and spirit of self-reliance in the society. 3. Development of small scale industries helps to increase the per capita income of India in various ways. 4. It facilitates development of backward areas and weaker sections of the society. 5. Small Scale Industries are adept in distributing national income in more efficient and equitable manner among the various participants of the society. 5.3 PROBLEMS OF SMALL SCALE INDUSTRIES a. Shortage of Funds: Small business entrepreneurs don’t have enough long- term or short-term funds. These are, therefore, short of both fixed assets as well as working capital. Even the banks do not come to their help in a big way. Financial institutions like ICICI, IDBI and IFCI help only large scale industries. b. Lack of Latest Technology: Small business lacks funds. Latest technology is not used because it is expensive. Only old 89 CU IDOL SELF LEARNING MATERIAL (SLM)

methods and techniques are being used. Due to this they earn less margin of profit. c. Shortage of Raw Materials: There is shortage of raw material because of less working capital. They can’t buy in bulk during the season and cannot enjoy the economies of large scale. d. Shortage of Power: Because of shortage of power, the small business enterprises are not able to use full capacity of the plant at their disposal. They cannot afford to have their own power generators. (e) Labour Problem: The labour is mostly unskilled. Small business doesn’t have resources to provide good training. Labour are also not paid well. There is no motivation for professional growth. Small business is incapable to bargain with powerful trade unions. (f) Marketing Problem: Small business cannot face the competition with large scale units in marketing and selling. They cannot afford to spend much on advertising and proper distribution of goods. They have to depend on middlemen, who pay low prices and even the recovery from the middlemen is very slow. (g) Managerial Skills: Only individuals or a small group of people own and operate the small business units. They don’t possess professional managerial skills required to run a business successfully. (h) Quality: Small business finds it difficult to come up to global standards of the quality. They also don’t have funds for research in order to improve upon the quality. The product quality is their weakest point as compared to the standards of the large scale units. (i) Sickness: 90 CU IDOL SELF LEARNING MATERIAL (SLM)

It is painful to see most of the small units going sick. There is a lack of planning. Skilled and trained personnel are another hurdle. They have to sell on credit. Their customers do not pay them in time. There are large scale bad debts. Thus, they fall short of working capital to keep the production process going. This leads to sickness. 5.4 ROLE OF LARGE SCALE INDUSTRIES 1. Lack of capital For the establishment of medium and large scale industries huge amount of capital is required which is very difficult to be formed in the context of Nepal. So, lack of capital is the problem of medium and large scale industries. 2. Lack of infrastructure Infrastructures such as transportation, communication and electricity are the most essential elements for an industry to be operated. In our country all there mentioned infrastructure are not available in adequate number or are not sufficient. 3. Lack of skilled–manpower Generally, medium and large scale industries need skilled manpower for handling the delicate task but there is a situation of Brain Drain in our country. So, there is scarcity of skilled manpower. 4. Lack of competitiveness Most of the Nepalese industrial products are of low quality. Such low quality products pose a formulate difficulty to complete in both domestic and international market. Car telling is the major problem of Nepalese market. 5. Limited Market The domestic market for Nepalese industrial products is very limited due to low purchasing power of the people. There is lack of transport and communication facilities to sell the commodity throughout the country. 91 CU IDOL SELF LEARNING MATERIAL (SLM)

5.5 PROBLEM OF LARGE SCALE INDUSTRIES The medium and large scale industries play a significant role in the overall economic development of a nation. The establishment of organized industries was started in Nepal in 1993 B.S. But there are very few large scale industries which can’t be achieved in expected level of development in Nepal up to now. Medium and large scale industries are suffering from various problems, which are as follows: 1. Lack of capital: Large amount of capital investment is required for the establishment and development of medium and large scale industries, but Nepalese entrepreneurs don’t have such sufficient amount to invest. Even the people who are able to invest are not interested to invest in these sectors due to the lack of favourable industrial policy. 2. Lack of raw material: Medium and large scale industries require raw materials in large amount in regular way. But most of the raw materials in Nepal are in remote areas and their availability is not at right time. So, these industries can’t manage raw materials easily which hampers productivity. 3. Lack of energy: Medium and large scale industries require the high level of power energy like coal, petrol, diesel, electricity, etc. But these energy are not available in sufficient amount to these energy are not available in sufficient amount to these industries regularly. Due to this reason, some of these industries are closing down. 4. Lack of technical knowledge: High levels of technology and skill man power are essential for establishment and operation of these industries. But Nepal doesn’t have sufficient technical manpower. Therefore, foreign experts have to be imported, who are comparatively expensive and are no available when required. 5. Limited market: 92 CU IDOL SELF LEARNING MATERIAL (SLM)

The medium and large scale industries produce large amount of goods. Therefore, the market for these goods should be also large. But the domestic market for Nepalese industrial products is very limited due to the low purchasing power of the people. The market expansion is also made more limited by the causes of land locked country. 6. Lack of appropriate government policy: Sound and stable industrial policy is needed for the industrial development of the country. But the policy changes frequency due to the unstable government. There is lack of proper coordination between political parties. Investors hesitate to invest their capital due to such unstable policies and uncertain environment. There are other problems of medium and large scale industries such as lack of transportation and communication facilities, unable to compete with foreign goods, lack of industrial security, and lack of sufficient research. 5.6 SUMMARY Cottage and small-scale industries occupy an important place in Indian Economy. These industries are contributing half of the total industrial production in India and provide gainful economic activity to more than five times the number of people employed in the large and medium sized industries in the country. Their contribution to India’s export earnings has reached significant proportions during the past few years. The development of cottage and small-scale industries holds solutions to many side problems of Indian economy. The economy reeling under excessive population pressure, on agriculture subject to the vagaries of nature, a people oppressed by massive unemployment and the consequent misery and a nation struggling to stand up and build its economy, has much to gain from the development of cottage and small-scale industries. 5.7 KEY WORDS/ABBREVIATIONS  Cash flow - The amount of money being transferred in and out of a business, affecting liquidity. 93 CU IDOL SELF LEARNING MATERIAL (SLM)

 Liability - A company's debts that arise during its business operations, e.g. loans.  infrastructure - basic facilities needed for the functioning of a country  invention - a creation resulting from study and experimentation  invest - lay out money or resources in an enterprise  labor - productive work, especially physical work done for wages  mass production - the production of large quantities of a standardized article 5.8 LEARNING ACTIVITY 1. Note on small scale industries __________________________________________________________________________________ ____________________________________________________________________________ 2. Note on large scale industries __________________________________________________________________________________ ____________________________________________________________________________ 5.9 UNIT END EXERCISES (MCQS AND DESCRIPTIVE) A. Descriptive Questions 1. Write a note on role of small scale industries. 2. Describe the problems associated with large scale industries in your own words. 3. Explain the problem associated with SSI 4. Discuss role of large-scale industries 5. Explain the SSI B. Multiple Choice Questions (MCQs) 94 CU IDOL SELF LEARNING MATERIAL (SLM)

1. Which of the following is part of Village and Small Industries Sector? (a) Handicrafts (b) Sericulture (c) Handlooms (d) All of these 2. _____ is defined as one in which the investment in fixed assets of plant and machinery does not exceed rupees one crore. (a) Limited Companies (b) None of these (c) Small Scale Industry (d) Large Scale industry 3. Which among the following does not belong to India's major large scale industries? (a) Cotton textile industry (b) Iron and steel industry (c) Jute industry (d) Khadi and village industry 4. Name the institution which is set up as an apex bank to provide direct or indirect financial assistance under different scheme to SSI. (a) SIDBI 95 CU IDOL SELF LEARNING MATERIAL (SLM)

(b) NSIC (c) RSBDC (d) None of these 5. Which of the following is not a problem of SSI (a) Shortage of funds (b) Shortage of Power (c) Availability of Technology (d) Shortage of Raw Material Answers: 1. (d) 2. (c) 3. (d) 4. (d) 5. (c) 5.10 SUGGESTED READINGS  Bajpai, P. & Bhandari, L. (2009). Social and Economic Profile of India. Hyderabad: Orient black Swan.  Datt, R. & Sundram, K.P.M. (2007). Indian Economy. New Delhi: S. Chand & Co.  Dhar, P.K. (1999). Indian Economy. Ludhiana: Kalyani Publishers.  Ghosh, A. (2004). Bhartiya Arth Vivstha. Patiala: Punjabi University.  Gill, J.S. (2004). Evolution of Indian Economy. New Delhi: NCERT.  Gupta, K.R. & Gupta, J.R. (2009). Indian Economy. New Delhi: Atlantic Publishers  Jalan, B. (2008). India's Economy in the New Millennium. New Delhi: UBS Publishers.  Misra, S.K. & Puri, V.K. (2006). Indian Economy. Mumbai: Himalya Publishing House. 96 CU IDOL SELF LEARNING MATERIAL (SLM)

 Sen, R.K. & Chatterjee, B. (2008). Indian Economy. New Delhi: Deep & Deep Publications.  Singh, B. N. (2008). Economic Reforms in India. New Delhi: APH Publishers.  Singh, B.N. (2008). Indian Economy Today: Changing Contours. New Delhi: Deep & Deep Publications.  Singh, C.G. (2005). Bharti Arth Shastar. Patiala: Punjabi University.  Soni, R.N. (2008). Leading Issues in Agriculture Economics. New Delhi: S. Chand & Co.  Tandon, B. & Tandon, K.K. (1998). Indian Economy. New Delhi: Tata McGraw Hills Pub. Co.  Vasudeva, P.K. (2009). India & World Trade Organisation: Planning and Development. New Delhi: APH Publishers. 97 CU IDOL SELF LEARNING MATERIAL (SLM)

UNIT 6:ROLE OF FDI IN INDUSTRIES SECTOR IN INDIAN, BALANCE OF PAYMENTS Structure 6.0. Learning Objectives 6.1. Introduction, 6.2. Role of FDI in Industries Sector in India 6.2.1 Growth in India’s manufacturing sector 6.2.2 Reasons for Dissatisfaction 6.3. Balance of Payments 6.3.1 Current and Capital Account 6.4. Foreign Direct Investment 6.5. Summary 6.6. Key Words/Abbreviations 6.7. Learning Activity 6.8. Unit End Exercises (MCQs and Descriptive) 6.9. Suggested Readings 6.0 LEARNING OBJECTIVES After studying this unit, you will be able to:  Explain the role of FDI  Describe in details about the Balance of Payments 98 CU IDOL SELF LEARNING MATERIAL (SLM)

6.1 INTRODUCTION Balance of Payment (BOP) is a statement which records all the monetary transactions made between residents of a country and the rest of the world during any given period. This statement includes all the transactions made by/to individuals, corporates and the government and helps in monitoring the flow of funds to develop the economy. When all the elements are correctly included in the BOP, it should sum up to zero in a perfect scenario. This means the inflows and outflows of funds should balance out. However, this does not ideally happen in most cases. BOP statement of a country indicates whether the country has a surplus or a deficit of funds i.e when a country’s export is more than its import, its BOP is said to be in surplus. On the other hand, BOP deficit indicates that a country’s imports are more than its exports. Tracking the transactions under BOP is something similar to the double entry system of accounting. This means, all the transaction will have a debit entry and a corresponding credit entry. As the name suggests, it is an investment by foreign individual(s) or company(ies) into business, capital markets or production in the host country. Foreign direct investment policy in India is regulated under the Foreign Exchange Management Act (FEMA) 2000 administered by the Reserve Bank of India (RBI). The balance of payments (BOP) is a statement of all transactions made between entities in one country and the rest of the world over a defined period of time, such as a quarter or a year. The balance of payments (also known as balance of international payments and abbreviated B.O.P. or BoP) of a country is the difference between all money flowing into the country in a particular period of time (e.g., a quarter or a year) and the outflow of money to the rest of the world. These financial transactions are made by individuals, firms and government bodies to compare receipts and payments arising out of trade of goods and services. The balance of payments consists of three components: the current account, the capital account and the financial account. The current account reflects a country's net income, while the capital account reflects the net change in ownership of national assets. 99 CU IDOL SELF LEARNING MATERIAL (SLM)

 The balance of payments includes both the current account and capital account.  The current account includes a nation's net trade in goods and services, its net earnings on cross-border investments, and its net transfer payments.  The capital account consists of a nation's transactions in financial instruments and central bank reserves.  The sum of all transactions recorded in the balance of payments should be zero; however, exchange rate fluctuations and differences in accounting practices may hinder this in practice. 6.2 ROLE OF FDI IN INDUSTRIES SECTOR IN INDIA FDI plays an important role in the economic development of a country. The capital inflow of foreign investors allows strengthening infrastructure, increasing productivity and creating employment opportunities in India. Additionally, FDI acts as a medium to acquire advanced technology and mobilize foreign exchange resources. Availability of foreign exchange reserves in the country allows RBI (the central banking institution of India) to intervene in the foreign exchange market and control any adverse movement in order to stabilize the foreign exchange rates. As a result, it provides a more favourable economic environment for the development of Indian economy. Foreign direct investment (FDI) has risen considerably in post-reform India. The work and category of FDI has changed significantly since India has opened up to world markets. This has fueled high prospect that FDI may serve up as a channel to advanced economic growth. However, it turns out that the development effects of FDI differ extensively across sectors. FDI stocks and production are equally reinforcing the domestic manufacturing sector. India is ranked second in the world in terms of manufacturing capability, according to the “2010 Global Manufacturing Competitiveness Index’” by Deloitte Touche Tohmatsu and the US Council on Competitiveness. India’s workforce of scientists, researchers, and engineers, together with its English-speaking workforce and democratic regime, the report says, make it an attractive destination for manufacturers. In 2010, the indicator of the overall condition of 100 CU IDOL SELF LEARNING MATERIAL (SLM)