ABM 502 Unit IV

LESSON 10
AGRICULTURAL SECTOR IN INDIA

Context:
Analysis of economic growth of a region clearly shows the significance
of agricultural and industrial sectors. In fact, it is agriculture and
industrial status of a region that determines the level of employment
and degree of utilisation of productive resources at a particular point of
time. Employment pattern of an economy changes owing to changes in
the overall pattern of development in industrial sector. Developed
economies of the world are heavily industrialized and less dependent
on agriculture. Whereas, underdeveloped (or developing) economies
are heavily dependent on agriculture. Subject matter that follows in
this unit will discuss the status of agriculture and industries in India.

Objectives:

Subject matter of the unit will make students aware about:

 The status and pattern of agricultural development in India

 Problems relating to agriculture sector
 pattern of industrial development in India, and
 Status of some major industries in India.

Agriculture Sector

Introduction

As a country moves on the trajectory of economic development, its

pattern of employment gradually changes and urbanization takes place
because of industrial development.

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Development economists all over the world are less sanguine about
the desirability of placing such heavy emphasis on rapid
industrialization. They have come to realize that far from playing a
passive, supporting role in the process of economic development, the
agricultural sector in particular and the rural economy in general must
play an indispensable part in any overall strategy of economic
progress, especially for the low-income developing economies.
(Todaro, Michael P. ‘Economic Development’ 8 th edition. P.P. 419).

The most important fact relating to world economy in general is that

over two-third of the world’s poorest people are located in rural areas
and engaged primarily in the subsistence agriculture. Traditionally, the
role of agriculture in economic development has been viewed as
passive and supportive. Based on the historical experience of western
countries, economic development was seen as requiring a rapid
structural transformation of the economy from one predominantly
focused on agricultural activities to a more complex modern industrial
and service society. This viewpoint is changing and agriculture is taking
dominant position in development strategies.

Agriculture in India

Agriculture is the stronghold of Indian economy. Agriculture is the

means of livelihood for around two thirds of the work force of India.
This makes it one of the most important sectors of the economy. India
is the largest producer of coconut, cashew nuts, ginger, turmeric and
black pepper and the second largest producer of groundnut, fruits and
vegetables. India accounts for 10 per cent of the world fruit production
with first rank in the production of banana, sapota and acid lime. India
is also the largest producer of milk, the fifth largest producer of egg and
the seventh largest producer of egg and the seventh largest producer
of meat. At the time of independence, the revenue from the agricultural
sector was quite low compared to what it is today. The main reason for
the increase in revenue is the increase in agricultural production that

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was brought about by the Green Revolution. The Green Revolution of

the 70's was responsible for bringing additional area under cultivation,
extending irrigation facilities, providing better quality seeds, improving
techniques of farming and plant protection. Over the years, agriculture
has emerged as one of the top priorities of the Central and State
Governments. Keeping this in mind, various schemes have been
launched to improve farm productivity and the standard of living of
millions of farmers who work to feed the nation. The green revolution
transformed India form a food deficient stage to a surplus food market.
In a span of 3 decades, India become a net exporter of food grains.
Remarkable results were achieved in these fields of dairying and oil
seeds through white and yellow revolutions.

History of Agriculture in India:

Indian agriculture began by 9000 BCE as a result of early cultivation

of plants, and domestication of crops and animals. Settled life soon
followed with implements and techniques being developed for
agriculture. Double monsoons led to two harvests being reaped in one
year. Indian products soon reached the world via existing trading
networks and foreign crops were introduced to India. Plants and
animals—considered essential to their survival by the Indians—came
to be worshiped and venerated.

The middle ages saw irrigation channels reach a new level of

sophistication in India and Indian crops affecting the economies of
other regions of the world under Islamic patronage. Land and water
management systems were developed with an aim of providing uniform
growth. Despite some stagnation during the later modern era the
independent Republic of India was able to develop a comprehensive
agricultural program.

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Agriculture during British Rule

Few Indian commercial crops made it to the global market under the
British Raj in In India. Cotton, indigo, opium, and rice were known in
particular. The second half of the 19th century saw some increase in
land under cultivation, and agricultural production expanded at an
average rate of about 1 percent per year by the later 19th century. Due
to extensive irrigation by canal networks Punjab, Narmada valley, and
Andhra Pradesh became centers of agrarian reforms.

Roy (2006) comments on the Influence of the world wars on the Indian
agricultural system:

“Agricultural performance in the interwar period (1918–1939) was

dismal. From 1891 to 1946, the annual growth rate of all crop output
was 0.4 percent, and food-grain output was practically stagnant. There
were significant regional and intercrop differences, however, nonfood
crops doing better than food crops. Among food crops, by far the most
important source of stagnation was rice. Bengal had below-average
growth rates in both food and nonfood crop output, whereas Punjab
and Madras were the least stagnant regions. In the interwar period,
population growth accelerated while food output decelerated, leading
to declining availability of food per head. The crisis was most acute in
Bengal, where food output declined at an annual rate of about 0.7
percent from 1921 to 1946, when population grew at an annual rate of
about 1 percent.”

The British regime in India did supply the irrigation works but rarely on
the scale required. Community effort and private investment soared as
market for irrigation developed. Agricultural prices of some
commodities rose to about three times between 1870-1920.

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Agriculture trend after Independence

India has made lot of progress in agriculture since independence in

terms of growth in output, yields and area under many crops. It has
gone through a green revolution, a white revolution, a yellow revolution
and a blue revolution. Today, India is the largest producer of milk,
fruits, cashew nuts, coconuts and tea in the world, the second largest
producer of wheat, vegetables, sugar and fish and the third largest
producer of tobacco and rice. The per capita availability of food grains
has risen in the country from 350 gm in 1951 to near about 400 gm per
day now, of milk from less than 125 gm to 226 gm per day and of eggs
from 5 to 30 per annum despite the increase in population from 35
crores to 95 crores. At present only 2330 per cent of the farmers are
able to derive any benefits of extension services provided by various
government agencies and every year about 20 per cent of the crop is
lost due to mishandling, spillage, floods, droughts and pests and
diseases. In fruits and vegetables the loss is around 30 per cent.

Self-Check Question

 Give your opinion relating to the importance of agriculture in

economic development of a region.
 Write a note on the historical development of Indian agriculture

Growth Status of Indian Agriculture

Agriculture is the dominant sector of Indian economy, which

determines the growth and sustainability. About 65% of the population
still relies on agriculture for employment and livelihood.

The share of agriculture in the gross domestic product has registered a

steady decline from 36.4 per cent in 1982-83 to 18.5 per cent in 2006-
07. India is ranked second in the world in terms of agricultural output.
India is the largest producer in the world of milk, cashew nuts,

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coconuts, tea, ginger, turmeric and black pepper. It also has the world's
largest cattle population (193 million). India ranks second worldwide in
farm output. It is the second largest producer of wheat, rice, sugar,
groundnut and inland fish. It is the third largest producer of tobacco.
India accounts for 10 per cent of the world fruit production with first
rank in the production of banana and sapota. Given below is a chart of
trend of output of cereals and major foodgrains as published [2]

Indian Agriculture is witnessing a phase of diversification. Attention has

been shifting to high-value crops from traditional crops. This is
expected to enable a desired transition in Indian Agriculture from its
stagnation to a growth path. The competitive advantages that Indian
agriculture processes are

a)       Favourable agro-climatic zones

b)       Large irrigated lands

c) Gap between present productivity and potential productivity.

d)     Availability of skilled, educated, technical and scientific

manpower.

To leverage the global competitive advantage, Indian agriculture needs

intervention in the areas of policy, technology and market access.

Table 1

Average GDP growth rates of agriculture and other sectors at 1999-2000

prices (per cent)
Period Total Agriculture Crops & Non-
Economy & Allied Livestock Agriculture
Pre Green 1951-52 to 3.7 2.5 2.7 4.9
Revolution 1967-68
Green 1968-69 to 3.5 2.4 2.7 4.4
Revolution 1980-81
period

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Wider 1981-82- 5.4 3.5 3.7 6.4

technology 1990-91
dissemination
period

Early 1991-92 to 5.7 3.7 3.7 6.6

Reforms 1996-97
period
Ninth and 1997-98 to 6.6 2.5 2.5 7.9
Tenth Plan 2006-07
2005-06 to 9.5 4.8 5.0 10.7
2006-07

Agriculture & allied sector value added registered a growth rate of 9.1
per cent in 2003-04, reflecting the growth in physical production and
remunerative prices of agricultural goods. The growth rate of the sector
for 2003-04 was one of the highest in recent years, and only marginally
lower than the previous high of 9.6 per cent achieved in 1996-97.

Milestones of Indian Agriculture:

The many 'production revolutions' initiated from 1960s onwards

included Green Revolution in India, Yellow Revolution (oilseed: 1986-
1990), Operation Flood (dairy: 1970-1996), Blue Revolution (fishing:
1973-2002), Following the economic reforms of 1991, significant
growth was registered in the agricultural sector, which was by now
benefiting from the earlier reforms and the newer innovations of Agro-
processing and Biotechnology.

 Green Revolution

After independence, considering India's growing population, the

government took steps to increase the food production. Yields per unit

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area of all crops have grown since 1950. The 1970s saw a huge
increase in India's wheat production. This is known as the Indian Green
Revolution. Reasons for the growth are the special emphasis placed on
agriculture and steady improvements in irrigation, technology,
application of modern agricultural practices and provision of agricultural
credit and subsidies

 Operation Flood

Operation Flood was the name of a rural development programme

started by the National Dairy Development Board (NDDB) in 1970 with
the objective of creating a nationwide milk grid. This movement
followed the Indian green revolution and helped in alleviating poverty
and famine levels from dangerous proportions in India during the era. It
resulted in India becoming the largest producer of milk and milk
products, so it is also called the White Revolution of India.

The Indian Agricultural Research Institute (IARI) established in 1905,

was responsible for the research leading to the "Green revolution" of
the 1970s. The Indian Council of Agricultural Research (ICAR) is the
apex body in agriculture and related allied fields, including research
and education. The Union Minister of Agriculture is the President of the
ICAR. The Indian Agricultural Statistics Research Institute develops
new techniques for the design of agricultural experiments, analyses
data in agriculture, and specializes in statistical techniques for animal
and plant breeding. India is now trying to adopt organic farming, but as
per the survey conducted in the year 2006-2007, the total production
and the total requirement of organic manures and biofertilizers in India
was estimated approximately to be 12.2 million tonnes and 15.7 million
tonnes respectively. Hence, the research is now focussing towards
minimizing the gap between the supply and the demand of organic
manures and biofertilizers. Prof. M.S. Swaminathan is known as
"Father of the Green Revolution" and heads the MS Swaminathan
Research Foundation. He is known for his advocacy of environmentally
sustainable agriculture and sustainable food security.

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 Special programs were undertaken to improve food and cash

crops supply. The Grow More Food Campaign (1940s) and the
Integrated Production Programme (1950s) focused on food and
cash crops supply respectively. Five-year plans of India—
oriented towards agricultural development—soon followed. Land
reclamation, land development, mechanization, electrification,
use of chemicals—fertilizers in particular, and development of
agriculture oriented 'package approach' of taking a set of actions
instead of promoting single aspect soon followed under
government supervision. Due to the growth and prosperity that
followed India's economic reforms a strong middle class has
emerged as the main consumer of fruits, dairy, fish, meat and
vegetables—a marked shift from the earlier staple based
consumption. Since 1991, changing consumption patterns have
led to a 'revolution' in 'high value' agriculture while the need for
cereals is experiencing a decline. In fact, the per capita
consumption of cereals declined from 192 to 152 kilograms from
1977 to 1999 while the consumption of fruits increased by
553%, vegetables by 167%, dairy products by 105%, and non-
vegetarian products by 85% in India's rural areas alone. Urban
areas experienced a similar increase.
 Agricultural exports continued to grow annually through the
1990s. Contract farming—which requires the farmers to
produce crops for a company under contract—and high value
agricultural product increased. Contract farming led to a
decrease in transaction costs while the contract farmers made
more profit compared to the non-contract workforce. However,
small landholding continued to create problems for India's
farmers as the limited land resulted in limited produce and
limited profits.

 Since independence, India has become one of the largest

producers of wheat, edible oil, potato, spices, rubber, tea,
fishing, fruits, and vegetables in the world. The Ministry of

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Agriculture oversees activities relating to agriculture in India.

Various institutions for agriculture related research in India were
organized under the Indian Council of Agricultural Research
(est. 1929). Other organizations such as the National Dairy
Development Board (est. 1965), and National Bank for
Agriculture and Rural Development (est. 1982) aided the
formation of cooperatives and improved financing.

 The contribution of agriculture in employing India's male

workforce declined from 75.9% in 1961 to 60% in 1999–2000.
Dev (2006) holds that 'there were about 45 million agricultural
labor households in the country in 1999–2000. These
households recorded the highest incidence of poverty in India
from 1993 to 2000.

 The green revolution introduced high yielding varieties of crops

which also increased the usage of fertilizers and pesticides.
About 90% of the pesticide usage in India is accounted for by
DDT and Lindane (BHC/HCH).There has been a shift to organic
agriculture particularly for exported commodities.Agriculture &
allied sector value added registered a growth rate of 9.1 per cent
in 2003-04, reflecting the growth in physical production and
remunerative prices of agricultural goods. The growth rate of the
sector for 2003-04 was one of the highest in recent years, and
only marginally lower than the previous high of 9.6 per cent
achieved in 1996-97.

Future of Indian Agriculture

The Doha round of World Trade Organisation has put India in the
driving seat for agriculture trade. The drive will be a successful ride

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only if we identify the opportunities and challenges. The Doha

mandate is expected to bring in

 Substantial liberalisation of trade

 More market access opportunities
 More transparency and stability of global market.

Thus, it is essential to re-orient the agriculture system towards

enhanced competitiveness and make it more market driven.

Self-Check Questions

 Write a note on the growth pattern of the Indian agriculture

Problems of Indian Agriculture:

Despite the fact that agriculture in India is the mainstay of Indian

economy and provides livelihoods to around 62 percent of the country’s
population, the agriculture sector has not received as much attention
as other sectors in services and manufacturing. The emerging areas in
agriculture like horticulture, floriculture, organic farming, genetic
engineering, food processing branding and packaging have high
potentials of growth. Development of rural infrastructure, rural
extension services, agro-based and food processing industries are
essential for generating employment and reducing poverty. India is
moving at a very slow pace to address these concerns. Despite the
major structural transformations, the agriculture sector continues to
accommodate the major share of the workforce. The sector is prone to
output fluctuations even after establishing better input facilities and
technology like irrigation, High yielding seeds, changes in cropping
pattern etc. India is yet to emerge as significant trade partner in the
world agriculture market. India holds around 1% of the global trade-in
agri commodities. With the ongoing trade negotiations under the WTO,
Indian Agriculture needs to reorient its outlook and enhance
competitiveness to sustain growth from a demand side. With India

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being a major negotiator on world agriculture trade, it can be expected

that Indian agriculture trade will expand in the years to come. This
process started with the India signing the Agreement on Agriculture
(AOA) during the Uruguay Round. Now that the fourth Ministerial of
WTO at Doha has mandated further negotiations on agriculture trade to
improve market access India can look forward to a bright trade
prospects in agriculture with proper policy support.

The low productivity in India is a result of the following factors:

 Illiteracy, reforms and inadequate or inefficient finance and

marketing services for farm produce.
 The average size of land holdings is very small (less than
20,000 m²) and are subject to fragmentation, due to land ceiling
acts and in some cases, family disputes. Such small holdings
are often over-manned, resulting in disguised unemployment
and low productivity of labour.
 Adoption of modern agricultural practices and use of technology
is inadequate, hampered by ignorance of such practices, high
costs and impracticality in the case of small land holdings.
 Irrigation facilities are inadequate, as revealed by the fact that
only 53.6% of the land was irrigated in 2000–01, [4] which result
in farmers still being dependent on rainfall, specifically the
Monsoon season. A good monsoon results in a robust growth
for the economy as a whole, while a poor monsoon leads to a
sluggish growth.[5] Farm credit is regulated by NABARD, which is
the statutory apex agent for rural development in the
subcontinent.

In the last few decades several farmers have committed suicide

especially in the states of Andhra Pradesh, Maharashtra, Karnataka,
and Kerala. Combating this has become a major challenge for these
governments. Some of the causes for the deaths include indebtedness
of small and marginal farmers and repeated crop failures.

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Some significant concerns that need to be addressed immediately to

improve the conditions of farmers in India and to improve the quality of
agricultural productivity are:

 Indian agriculture suffers from a mismatch between food crops

and cash crops, low yields per hectare except for wheat,
volatility in production and wide disparities of productivity over
regions and crops.
 Domestic production of pulses and oilseeds are still below the
domestic requirements and India imports pulses and edible oils
to satisfy domestic demand.

 India is the second largest producer of rice and wheat in the

world, first in pulses production and fourth in coarse grains. A
distinct bias in agricultural price support policies in favour of rice
and wheat has distorted cropping pattern and input usage.

 Market for farm output continues to be subject to heavy

procurement interventions. A shift from minimum support price
system and developing alternative product markets are essential
for crop diversification and broad based agricultural
development.

 In recent years there has been considerable emphasis on the

development of horticulture and floriculture through the creation
of critical infrastructure for cold storage, refrigerated
transportation, processing, packaging and quality control.. It is
necessary to improve cold storage and transportation facilities
and develop efficient marketing and export networks to optimize
the production and export potentialities in respect of these
products.

 Food management is inefficient with unsustainable level of food

subsidies imposing heavy burden on Government finance. The
rural economy and the private sector lack the basic

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infrastructure to build up sufficient buffer stocks and the country

remains vulnerable to weather shocks.

 The enhanced availability of bank credits through priority lending

to agriculture and agro based industries, favorable terms of
trade, liberalized domestic and external trade for agricultural
products attracted private investment in agriculture in recent
years. It is likely that with the appropriate policy initiatives, this
process will accelerate in the future

 Due to the geographical differences, only states like Punjab;

which were well managed with irrigation and fertile soils, reaped
the benefits. Moreover, wealthier farmers were in a better
position to invest in new technology and profit from it, but the
smaller farmers lacked capital and most of them were displaced
from their farms. Therefore, the Green Revolution became
region-specific and widened income disparities between smaller
poor farmers and the richer big farmers.

 Agricultural subsidies provided by government of India to

improved the condition of marginalized and small farmers
brought greater inefficiencies in farming. They led to
environmental and production distortions. The subsidy on
fertiliser caused serious nutrient imbalances in the soil through
untenable fertilizer application. Moreover, the subsidies on
fertilisers benefited fertiliser manufacturers at the cost of the
small farmers. Other subsidies on irrigation and rural power
distorted cropping patterns by promoting crops that needed a lot
of water in dry regions or those with low groundwater tables.

Problems of Indian Agriculture can be summed up in following points:

 Poor productivity.
 Falling water levels.
 Expensive credit.
 A distorted market.

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 Many intermediaries who increase cost but do not add much

value.
 Laws that stifle private investment.
 Controlled prices.
 Poor infrastructure.
 Produce that does not meet international standards.
 Inappropriate research.
 Tax evasion by unorganised sector leading to the lack of a level
playing field.

Resolution of problems of Indian agriculture- an opinion

If India's agricultural productivity needs to be enhanced, policy-making

must explore past policies like removing the ceiling on agricultural
interest rates, reducing the excise duty on pesticides and giving
benefits to the private sector and encourage them to invest in irrigation,
water harvesting and management , storage, transportation, etc. These
investments should be exempted from tax on profits which is similar to
the investments in infrastructure. The yield gap in agriculture can be
best bridged through an integrated package of technology and
agricultural policies to reach the untouched production potential,
particularly, in rain-fed and other low productivity areas. A great deal
still remains to raise Indian agriculture to global standards of
productivity.

National Agriculture Policy:

In 2000, the government announced the first-ever National

Agriculture Policy. The main aims of this policy are to:
 Actualize the vast untapped growth potential of Indian
agriculture
 Strengthen rural infrastructure to support faster agricultural
development
 Promote value addition, accelerate the growth of agro business
 Create employment in rural areas

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 Secure a fair standard of living for all agriculturalists

 Discourage migration to urban areas and face the challenges
arising out of economic liberalization and globalization.

Summary

The most important fact relating to world economy in general is that

over two-third of the world’s poorest people are located in rural areas
and engaged primarily in the subsistence agriculture. Traditionally, the
role of agriculture in economic development has been viewed as
passive and supportive. Based on the historical experience of western
countries, economic development was seen as requiring a rapid
structural transformation of the economy from one predominantly
focused on agricultural activities to a more complex modern industrial
and service society. This viewpoint is changing and agriculture is taking
dominant position in development strategies.

Home Assignment

 Gather and make a note on important government policies to

resolve problems facing Indian agriculture

Suggested Readings and References

 Registrar General and Census Commissioner, India, Census of
India 2001:
 Provisional Population Totals, Paper 1 of 2001 (New
Delhi:Government of India, 2001).
 http://finmin.nic.in/
 http://mines.nic.in/
 http://powermin.nic.in/
 Datt, Ruddar & Sundharam, K.P.M. (2005). "2". Indian
Economy. S.Chand. ISBN 81-219-0298-3.
 Sankaran, S (1994). "3". Indian Economy: Problems, Policies
and Development. Margham Publications.
 Kumar, Dharma (Ed.). "4". The Cambridge Economic History of
India (Volume 2).

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LESSON 11
INDUSTRIES IN INDIA

Introduction

Industries and Services have acted as twin engines propelling overall

growth in an economy. They are attracting large inflow of capital and
foreign investments into the country from all over the world. They play
a vital role in accelerating socio-economic development of a nation,
thereby providing several categories of goods and services (both
tangible and intangible) and catering to the diverse needs of the
masses. These sectors are the largest generator of employment
opportunities in the country and a facilitator of trade and commerce
with other countries. In other words, besides agriculture, they are the
basis of almost all the major policy initiatives, incentives and schemes
as well as programmes and plans, both at the National and the State
level.

The industrial sector majorly consisting of heavy and light engineering,

steel, automotive, biotechnology, drugs and pharmaceuticals, food
processing, mines and minerals, fertilizers, etc. provide immense
potential for developing adequate market infrastructure in the economy.
These industries are involved in production of several good quality and
skill intensive products, in bulk quantities and at much reasonable
prices. They are governed and administered by their respective
Ministries/ Departments. However, the 'Department of Industrial Policy
and Promotion (DIPP)', under the Ministry of Commerce and Industry,
is the main agency for monitoring the entire industrial growth and
production in general. It plans for modernization and technological
upgradation of the Indian industry in order to keep pace with the
international developments in industrial technology on a continuing
basis. It also studies, assesses and forecasts the need for
technological development in some specific industrial sectors like

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cement, light engineering sectors, etc. DIPP has been announcing

industrial policy, from time to time, to foster and facilitate the growth of
Indian industry. Such policy framework set certain limits and norms for
the conduct of business in the country.

Services sector has always been an attractive investment option for the
corporate world. It has facilitated the creation of several infrastructural
facilities in the country as well as enhanced the productivity of various
industries. It not only helps in economic upliftment of the society, but
also promote political and social well-being among the masses. The
service industry comprising of information technology (IT), education,
health, media, tourism, etc. helps to shape the people's opinion about
various national and international issues as well as increase their
awareness by giving them participative role in formulation of policies/
schemes/ programmes/ plans . In other words, a country cannot
achieve a higher growth rate without a larger proportion of services in
gross domestic product (GDP). Accordingly, the concerned authorities
have been making all efforts to strengthen the pace of development of
the sector in a sustainable manner.

An important segment of Indian industrial set up has been the micro,

small and medium enterprises (MSMEs), which have been accepted
worldwide for promoting equitable growth in the economy. The 'Ministry
of Micro, Small and Medium Enterprises' is responsible for overall
development of India's small and medium sectors. It has accorded the
sectors a top most priority and have, accordingly, undertaken several
policy initiatives for protecting their interest such as reservation of items
for exclusive manufacture by them. The major advantages of the
industry are its labour intensive nature, generating highest rates of
employment growth as well as production at low capital cost. MSMEs,
constituting larger number of total enterprises in the economy, account
for a major share of industrial production and exports.

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Status of Pattern of Industrializations in India: Industries

Industrial development plays a crucial role in India's development

strategy. It aims at achieving various socio-economic objectives such
as reducing debt burden, promoting foreign direct investment (FDI)
inflow, enhancing self-reliant production and distribution as well as
diversifying and modernising the existing economic set up. The
industrial base has been widely expanded, covering broadly the entire
range of consumer, intermediate and capital goods. It has made
considerable achievement in terms of output and employment. The
Government of India has been undertaking several policy measures
and incentives, from time and time, in order to promote rapid
industrialization in the country. The major step in this direction has
been the announcement of Industrial Policy Resolution, initially passed
in 1948 and then in 1956 and thereafter in 1991. Such industrial
policies have been designed to accelerate the development process in
the Indian industry. Their broad objectives are to:-

 Maintain a sustained growth in productivity

 Enhance gainful employment

 Achieve optimal utilisation of human resources
 Attain international competitiveness and to transform India into a
major partner and player in the global arena.

They focus on deregulating Indian industry as well as allowing it

flexibility in responding to market forces.

Automotive, being one of the largest industries, facilitates the

improvement in various infrastructure facilities like power, rail and road
transport. 'Ministry of Heavy Industry and Public Enterprises' is the
main agency for promoting the growth and development of the
automotive industry. The policy incentives like implementation of auto
policy and Automotive Mission Plan, along with establishment of world
class testing, homologation and certification facilities, have made India

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as the world's second largest manufacturer of two wheelers, fifth

largest manufacturer of commercial vehicles as well as largest
manufacturer of tractors.

Over the years, the engineering industries, both light and heavy
engineering, have registered an impressive growth rate and are having
a strong base in production of various capital and consumer durable
products. 'Department of Heavy Industry' is concerned with the
development of heavy engineering industry in the country, which are
the basis for power projects, cement plants, steel plants, mining
equipment, petro-chemical plants, etc. and includes boilers, electrical
furnace, material handling equipments, metallurgical machinery, rubber
machinery, oil field equipment, etc. While, light engineering is a diverse
industry with the number of distinctive sub-sectors such as medical and
surgical instruments; ferrous castings; seamless steel pipes and tubes;
process control instruments, welding equipments; etc. It is of high
importance to the Indian economy and is the basis of almost all
productive and business activities in the country.

The Department of Industrial Policy and Promotion (DIPP), under the

Ministry of Commerce and Industry, is the nodal agency for the
development of entire industrial sector in general and of cement, light
engineering industries, etc. in particular. Cement is one of the core
infrastructure industries showing impressive growth over the years and
has found ready markets in Bangladesh, Indonesia, Malaysia, Nepal,
Middle, East countries, Burma, Africa and South East Asian countries.
India is the second largest manufacturer of cement in the world.

Biotechnology is among the fast growing knowledge-based industrial

sectors which has the immense potential to revolutionize agriculture,
healthcare, industrial processing and environmental sustainability. The
'Department of Biotechnology (DBT)' is an apex authority for the
development of biotechnology sector in the country and is accordingly
setting up biotech parks and incubators centres in various States and
organizations. While, the rapid build-up of fertilizer production capacity

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in the country has been achieved as a result of a favourable policy

environment. The 'Department of Fertilizers' is a nodal agency for
planning, promoting and developing the fertilizer industry in India.

Due to globalisation and rising demands of infrastructure, real estate

and auto sectors, Indian steel has become one of the fastest growing
industry. The 'Ministry of Steel' is a nodal authority for the overall
development of iron and steel industry in India. Price and distribution 
controls have been removed as well as foreign direct investment upto
100% (under automatic route) has been permitted in the sector.
Whereas, the 'Ministry of Mines' is responsible for overall development
of minerals and mining sector in the economy. It is involved in the
matters like survey and exploration of all minerals (other than natural
gas and petroleum); mining and metallurgy of non-ferrous metals like
aluminium, copper, zinc, lead, gold, nickel etc.; and administration of
the Acts relating to mines and minerals (other than coal and lignite).

Drugs and pharmaceutical is another significant industry showing

considerable progress over the years. India holds fourth position in
terms of volume and thirteenth position in terms of value of production
in pharmaceuticals. The Department of Chemicals and Petro-
Chemicals, under the Ministry of Chemicals and Fertilizers, is
responsible for planning, developing and regulating the industry.
Several policies have been announced like drug and pharmaceutical
policies, which aim to ensure abundant availability, at reasonable
prices, of essential life saving and prophylactic medicines of good
quality.

Also, the Indian food processing industry is one of the largest in the
world in terms of production, consumption, export and growth
prospects. Automatic approval for foreign equity upto 100 per cent is
available for most of the processed food items, excepting alcohol and
beer and those reserved for small scale sector. The 'Ministry of Food
Processing Industries' is the nodal agency for developing a strong and
vibrant food processing sector in the country. Many new items like

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ready-to-eat food, beverages, processed and frozen fruit and vegetable

products, marine and meat products, etc. are being produced as well
as cold storage facilities, food parks, packaging centres, etc. are being
set up.

Thus, industries are the mainstay of the Indian economy. They help to
promote regional development, eradicate poverty as well as uplift the
standard of living of the people. India's vast domestic market, skilled
and technical manpower as well as low production and R&D costs
have been making India a manufacturing hub.

Self-Check Question
 Elucidate the role of industries in the economic development of
Indian economy.

Summary

Industries and Services have acted as twin engines propelling overall

growth in an economy. They are attracting large inflow of capital and
foreign investments into the country from all over the world. They play
a vital role in accelerating socio-economic development of a nation,
thereby providing several categories of goods and services (both
tangible and intangible) and catering to the diverse needs of the
masses. These sectors are the largest generator of employment
opportunities in the country and a facilitator of trade and commerce
with other countries. In other words, besides agriculture, they are the
basis of almost all the major policy initiatives, incentives and schemes
as well as programmes and plans, both at the National and the State
level.

Suggested Readings and References

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 http://finmin.nic.in/
 Datt, Ruddar & Sundharam, K.P.M. (2005). "2". Indian
Economy. S.Chand. ISBN 81-219-0298-3.
 Sankaran, S (1994). "3". Indian Economy: Problems, Policies
and Development. Margham Publications.
 Kumar, Dharma (Ed.). "4". The Cambridge Economic History of
India (Volume 2).

LESSON 12

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STATUS OF SOME IMPORTANT INDUSTRIES IN

INDIA

Steel Industries

Steel plays a vital role in accelerating growth and development of a

nation. It is used as a basic material in the manufacture of metal
products, electrical machinery, transport equipment, textile, etc and
thus considered to be the backbone of the human civilisation. It is a
product of large and technologically advanced industry having strong
forward and backward linkages in terms of material flow and income
generation. In other words, the production and per capita consumption
of steel is a major contributor to a country’s gross domestic product
(GDP) and an indicator of its industrial and economic strength. Iron ore,
manganese ore and chrome ore are the critical raw material inputs for
the steel industry. Their timely and assured availability in adequate
quantity and quality, on long term basis, is a prerequisite for the rapid
and orderly growth of the sector.
India is the eighth largest crude steel producing country in the world. It
is endowed with richest iron and coal ore mines. Its cost of production
of steel is comparatively much lower than that in other countries. It has
several advantageous features which gives the dominant position to its
steel industry on the world map. Some of these are:-

I. Establishment of new state-of-the-art steel plants in the country

with lesser dependence on external aid

II. Continuous modernization as well as implementation of de-

bottlenecking and technology upgradation schemes in the older
plants
III. Improvement in energy efficiency of the plants in terms of coke
rate and power consumption

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IV. Utilisation of better quality raw materials, such as imported

coking coal, accessed from global sources
V. Optimum processing of raw materials like washing of coal,
beneficiation and sintering of iron ore etc.

The global integration of the economy as well as the rising demands by

sectors like infrastructure, real estate and automobiles, both at home
and abroad, has made Indian steel as one of the fastest growing
industry. As per the available information, the production of finished
(carbon) steel, during the period April-December, 2006, has been
estimated at 35.60 million tonnes, which is up by 9.6% over the
corresponding period of the last year. During the same period, the
merchant production of pig iron has been estimated at 3.45 million
tonnes (up by 3.6%). Besides, India has potentialities of becoming a
great exporter of steel. During April- December, 2006, the total volume
of finished (carbon) steel exported has been estimated at 3.50 million
tonnes, which is up by 10.9% over the corresponding period of the last
year. While, its import has been estimated at 2.70 million tonnes, which
is lower by 6% over the corresponding period of the last year. During
this period, the apparent consumption of steel rose by 9.3% so as to
reach the level of 31.30 million tonnes.

The 'Ministry of Steel' is a nodal authority for the overall development

of iron and steel industry in India. It plays the role of facilitator,
providing broad directions and assistance to new and existing steel
plants, in the liberalized scenario. Its major activities include:-

 Coordinating and planning for the growth of the industry,

including re-rolling mills, alloy steel and ferro alloy industries,
refractories, etc both in the public and private sectors

 Formulating policies in respect of production, pricing,

distribution, import and export of iron and steel, ferro alloys and
refractories

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 Developing input industries relating to iron ore, manganese ore,

chrome ore and refractories etc, required mainly by the steel
industry;
 Identifying infrastructural and related facilities required by steel
industry so that their absence does not lead to bottlenecks in its
future growth;
 Making presentations to the financial institutions and banks
highlighting the emerging scenario and technological issues
involved in the development of the steel industry; etc.

Several Public Sector Undertakings (PSUs) are functioning under the

administrative control of the Ministry for the expansion and progress of
the industry. These are:-

 Steel Authority of India Limited (SAIL)

 Rashtriya Ispat Nigam Limited (RINL)

 National Mineral Development Corporation Limited (NMDC)
 Kudremukh Iron Ore Company Limited (KIOCL)
 Manganese Ore (India) Limited (MOIL)
 MSTC Limited
 Sponge Iron India Limited (SIIL)
 MECON Limited
 Hindustan Steel Works Construction Limited (HSCL)
 Bharat Refractories Limited (BRL)

The economic reforms initiated by the Government since 1991 have

added new dimensions to the industrial growth in general and the steel
industry in particular. Accordingly, several policy changes have been
announced for the sector, from time to time, by the Government of
India. The major being, the New Industrial policy which had opened up
the iron and steel sector for private investment by:-

I. Removing it from the list of industries reserved for public sector

II. Exempting it from compulsory licensing.

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Since then, the private sector have been playing an important and
dominant role in production and growth of the steel industry. They not
only enhance the productive capacity of primary and secondary steel,
but also contribute substantial value addition in terms of quality,
innovation and cost effectiveness. During the period April-December,
2006, 20.5 million tonnes of steel has been produced by private sector
steel units, out of the total production of 33.15 million tonnes in the
country. The private sector units consist of major steel producers like
Tata Steel Ltd., Essar Steel Holdings Ltd., Jindal Steel and Power
Ltd. (JSPL), Ispat Industries ltd. (IIL) etc. as well as relatively smaller
and medium units such as sponge iron plants, re-rolling mills, electric
arc furnaces and induction furnaces.

Under the industrial policy, iron and steel has been made one of the
high priority industries. Price and distribution  controls have been
removed as well as foreign direct investment upto 100% (under
automatic route) has been permitted, with a view to make the steel
industry efficient and competitive. The trade policy has been liberalised
making import and export of iron and steel items freely allowable, with
almost no quantitative restrictions on them. Other policy measures 
such  as  convertibility of rupee on trade account, permission to
mobilise resources from overseas financial markets and rationalisation
of existing tax structure have also benefitted the Indian steel industry.
Apart from this, the Government has envisaged considerable additions
to capacity in the steel sector specially from the sponge iron segment.
It has also given licences for setting up electric arc furnace units (mini
steel plants), which account for 30% of the steel production in the
country, producing mild steel as well as alloy steel. Further, all efforts
are being made to ensure that the sector continues to meet the
requirements of small scale industries, exporters of engineering goods
and North-Eastern region of the country, as well as that of strategic
sectors such as defence and railways.

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Another important initiative, undertaken by the Ministry, has been the

announcement of the 'National Steel Policy' in 2005 which set out the
Government's vision for future growth of the sector. The policy largely
aims to develop a modern and efficient steel industry of world
standards, catering to the diversified steel demands. It focuses on
achieving global competitiveness not only in terms of cost, quality and
product-mix, but also in terms of global benchmarks of efficiency and
productivity. It seeks to enhance indigenous production of steel to 110
million tonnes (mT) per annum by 2019-20 from the 2004-05 level of 38
mT. This implies a compounded annual growth of 7.3 percent per
annum.

The increasing presence of the Indian steel companies in the world

market with a wide-ranging export basket, including technologically
sophisticated products, is a pointer to the enhanced competitiveness of
this industry. They are having an efficient and strong base, with rising
level of per capita consumption, which is promoting massive
industrialisation in the country as well as improving standard of living of
the people. Further, there has been an increase in the research, design
and development activities, largely carried out by the existing iron and
steel plants; national research laboratories; academic institutions; etc.
The significant improvements have been made in the areas of iron and
steel making processes, upgradation of raw materials, product
development, increase in productivity as well as reduction in energy
consumption. All this shows that there exists innumerable investment
opportunities in the sector both for domestic and foreign investors.

Self-Check Question

 Write a note on the status of steel industries

Cement

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Cement is one of the core industries which plays a vital role in the
growth and expansion of a nation. It is basically a mixture of
compounds, consisting mainly of silicates and aluminates of calcium,
formed out of calcium oxide, silica, aluminium oxide and iron oxide.
The demand for cement, being a derived one, depends primarily on the
pace of activities in the business, financial, real estate and
infrastructure sectors of the economy. Cement is considered preferred
building material and is used worldwide for all construction works such
as housing and industrial construction, as well as for creation of
infrastructures like ports, roads, power plants, etc. Thus, it can said to
be a significant contributor to the Government's revenue collection and
a pillar of overall planned development of an economy.

In India, the foundation of a stable Indian cement industry was laid in

1914 when the Indian Cement Company Ltd. manufactured cement at
Porbundar in Gujarat. In the initial stages, particularly during the period
before Independence, the growth of the sector had been very slow.
The indigenous production of cement was not sufficient to meet the
entire domestic demand and accordingly, the Government had to
control its price and distribution statutorily. Also, the large quantities of
cement had to be imported for meeting the deficit in the economy.
However, with liberalisation and introduction of several policy reforms,
the cement industry has been decontrolled which gave impetus to its
pace of growth. It has made rapid strides both in capacity/ production
and process technology terms. Today, it is one of the most advanced
and pioneering sectors in the country. Cement is a basic material input
which facilitates the promotional and developmental efforts, at a fast
pace, in the areas of infrastructural set up and other construction
related works. Since it is a decontrolled commodity, its production and
prices are largely governed by economic factors, like, demand and
supply, cost of raw materials and other inputs, production as well as
distribution costs.

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The Indian cement industry is extremely energy intensive and is the

third largest user of coal in the country. It is modern and uses latest
technology, which is among the best in the world. Only a small
segment of industry is using old technology based on wet and semi-dry
process. Also, the industry has tremendous potential for development
as limestone of excellent quality is found almost throughout the
country. In other words, it is experiencing a boom on account of overall
growth of the Indian economy, cost control continuous technology
upgradation, etc. This has immensely helped it to conserve energy and
fuel as well as to save materials substantially.

In India, the Department of Industrial Policy and Promotion (DIPP),

under the Ministry of Commerce and Industry, is the nodal agency
for the development of cement industries, that is, it is involved in
monitoring their performance at regular intervals and suggesting
suitable policy incentives, as per the requirement. The Department is
responsible for formulation and implementation of promotional and
developmental measures for growth of entire industrial sector in
general and of some selected industries like cement, light engineering,
leather, rubber, light machine tools, etc. in particular. It is involved in
framing and administering overall industrial policy and foreign direct
investment (FDI) policy as well as promoting FDI inflow into the
country. It plays an active role in investment promotion through
dissemination of information on investment climate and opportunities in
India as well as by advising prospective investors about various
policies and procedures.

Some of the rules and orders, administered by DIPP, relating to the

cement industry are:-

 Cement Control Order, 1967

 Cement Cess Rule, 1993

 Cement (Quality Control) Order,1995
 Cement (Quality Control) Order, 2003

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India is the second largest manufacturer of cement in the world. It is

engaged in the production of several varieties of cement such as
Ordinary Portland Cement (OPC), Portland Pozzolana Cement (PPC),
Portland Blast Furnace Slag Cement (PBFS), Oil Well Cement, Rapid
Hardening Portland Cement, Sulphate Resisting Portland Cement,
White Cement, etc. They are produced strictly as per the Bureau of
Indian Standards (BIS) specifications and their quality is comparable
with the best in the world. At present, the Indian cement industry
comprises 130 large cement plants with an installed capacity of 163.45
million tonnes and about 332 mini cement plants with an estimated
capacity of 11.10 million tonnes per annum. Cement production during
the year 2006-07 (April to December, 2006) has been 117.37 million
tonnes registering a growth of 9.87% over the corresponding period of
2005-06. During the same period, India exported 6.07 million tonnes of
cement and clinker.

The industry has been actively pursuing various avenues to improve its
productivity and energy efficiency. There has been all-around
upgradation of technology in all sections of the plant like mining,
process, equipment and machinery, packaging and transportation.
Adoption of modern techniques like photogrammetry and remote
sensing has enabled the industry to discover virgin limestone.
Advanced equipments like hydraulic excavators, surface miners, large
wheel loaders and mobile crushers have helped the industry in
increasing its productivity considerably. Several large and small
cement companies are also actively considering their expansion plans
in order to accelerate the growth and demand for the sector. The major
players in this area are ACC, Gujarat Ambuja Cement Limited, Grasim
Industries and Ultratech, India Cements Limited, Jaiprakash
Associates, JK Cements, etc. Improvement in cement industry has
found ready markets in Bangladesh, Indonesia, Malayasia, Nepal,
Middle, East countries, Burma, Africa and South East Asian countries.

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However, the industry still faces a number of constraints in terms of

high cost of power; high railway tariff; high incidence of State and
Central levies and duties; lack of private and public investment in
infrastructure projects; low quality coal and inadequate growth of
related infrastructure like sea and rail transport, ports and bulk
terminals. In order to overcome such obstacles and utilize excess
capacity available with the cement industry, the Government has
identified the following thrust areas for increasing its demand, namely:-
(i) Housing development programmes; (ii) Promotion of concrete
highways and roads; (iii) Use of ready-mix concrete in large
infrastructure projects; and (iv) Construction of concrete roads in rural
areas under Prime Ministers Gram Sadak Yojana.

The Department has been undertaking several measures like setting

up of institutes/ councils for enhanced development of the industry. For
instance, the National Council for Cement and Building Materials
(NCB) has been constituted as an apex body dedicated to continuous
research, technology development and transfer, education as well as
scientific, technological and industrial services for the cement, related
building materials and construction industries. It acts as a preferred
technology partner to such sectors in the sustainable development of a
better infrastructure and housing. NCB carries on its activities through
its units located at Ballabhgarh, Delhi, Hyderabad, Ahmedabad and
Bhubaneswar. NCB's activities are channelised through its following six
programme centres:

 Cement Research and Independent Testing

 Mining, Environment, Plant Engineering and Operation

 Construction Development and Research
 Industrial Information Services
 Continuing Education Services
 Quality Management, Standards and Calibration Services

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Another important being, the setting up of a 'Development Council for

Cement Industry' under the Industries (Development & Regulation)
Act, 1951. The Council promotes the development of the cement
industry in India, through various measures, by providing funds for
developmental projects. The source of funding the activities of the
Council is the cess collected by it from the cement manufacturers in
terms of Cement Cess Rules, 1993. The various projects of this
Council are:-

 Base Level activities of NCB and R&D projects initiated by it for

the development of the cement industry.

 Projects for improvement of the productivity of the industry by

reducing cost.
 Projects for optimum utilisation of raw materials.
 Projects for modernisation of cement plants.
 Projects for improvement of environment.
 Projects for standardisation and quality control programmes.
 Projects for development of bulk supply and distribution of
cement.
 Projects for training and upgradation of the skill of the personnel
in the cement industry.
 Projects for development of National Data Bank and information
Services.

Besides, in order to improve and supplement the industry's

performance, the Department has constituted a 'Working Group on
Cement Industry' for the formulation of the 11th Plan. The report of this
working group emphasizes the importance of bulk cement
transportation, use of ready mix concrete and reduction of taxes and
levies on cement. It also seeks regulatory support for creating
framework for co-processing of wastes, co-generation of power and
enhanced support to R&D activities to align the technology regime with
the best of the world. As per the working group report on the industry,
the cement demand is likely to grow at 11.5 per cent per annum during

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the 11th Plan and cement production and capacity by the end of the
11th Plan are estimated to be 269 million tonnes and 298 million
tonnes, respectively, with capacity utilisation of 90 per cent. To attain
the targeted capacity addition, an investment of Rs. 52,400 crore would
be required during the 11th Plan.

Thus, the Indian cement industry has strong capacity base and
produces quality cement which meets the global standards. It has
achieved a tremendous success in technological upgradation and
assimilation of latest technology. There is also great scope for increase
in export of cement. More importantly, the gap between its demand and
supply has been reduced to a very large extent and the sector is likely
to witness higher growth in the coming years. All this indicates that the
cement industry has an important role to play in the Indian economy.
Owing to booming housing sector, global demand and increased
activity in infrastructure development such as State and National
highways, there exists ample investment opportunites in the industry. It
has been attracting the top cement companies from all over the world
and promoting more mergers and acquisitions for its overall growth.

Self-Check Question

 Elucidate the pattern of development of cement industry in

India.

Micro, Small and Mini Industries

Micro, small and medium enterprises (MSME) sector has been

recognised as an engine of growth all over the world. The sector is
characterised by low investment requirement, operational flexibility,
location wise mobility, and import substitution. In India, the Micro,
Small and Medium Enterprises Development (MSMED) Act, 2006 is
the first single comprehensive legislation covering all the three
segments. In accordance with the Act, these enterprises are classified
in two:- (i) manufacturing enterprises engaged in the manufacture or

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production of goods pertaining to any industry specified in the first

schedule to the Industries (Development and regulation) Act, 1951.
These are defined in terms of  investment in plant and machinery; (ii)
service enterprises engaged in providing or rendering of services and
are defined in terms of investment in equipment.

India has a vibrant micro and small enterprise sector that plays an
important role in sustaining the economic growth, by contributing
around 39 per cent to the manufacturing output and 34 per cent to the
exports in 2004-05. It is the second largest employer of human
resources after agriculture, providing employment to around 29.5
million people (2005-06) in the rural and urban areas of the country.
Their significance in terms of fostering new entrepreneurship is well-
recognized. This is because, most entrepreneurs start their business
from a small unit which provides them an opportunity to harness their
skills and talents, to experiment, to innovate and transform their ideas
into goods and services and finally nurture it into a larger unit.

Over the years, the small scale sector in India has progressed from the
production of simple consumer goods to the manufacture of many
sophisticated and precision products like electronics control systems,
micro wave components, electro medical equipments, etc. The process
of economic liberalisation and market reforms has further exposed
these enterprises to increasing levels of domestic and global
competition. The formidable challenges so generated for them has led
to a novel approach of cluster development for the sector. As a result,
private and public sector institutions, both at the Central and State
levels are increasingly undertaking cluster development initiatives.

Clusters are defined as sectoral and geographical concentration of

enterprises, particularly, small and medium enterprises, faced with
common opportunities and threats which give rise to external
economies; favour the emergence of specialized technical,
administrative and financial services; create a conducive ground for the
development of inter-firm cooperation to promote local production,

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innovation and collective learning. Clustering and networking has

helped the small and medium enterprises in boosting their
competitiveness. India has over 400 SME clusters and about 2000
artisan clusters.

It is estimated that these clusters contribute 60 per cent of the

manufactured exports from India. Almost the entire gems and jewellery
exports are from the clusters of Surat and Mumbai. Some of the small
scale enterprise clusters are so big that they account for 90 per cent of
India's total production output in selected products. For example, the
clusters of Chennai, Agra and Kolkata are well known for leather and
leather products.

The Government has been encouraging and supporting the sector

through policies for infrastructural support, technology upgradation,
preferential access to credit, reservation of products for exclusive
manufacture in the sector, preferential purchase policy, etc. It has been
offering packages of schemes and incentives through its specialized
institutions in the form of assistance in obtaining finance; help in
marketing; technical guidance; training and technology upgradation,
etc.

The Ministry of Micro, Small and Medium Enterprises is the nodal

Ministry for formulation of policies, programmes and schemes, their
implementation and related co-ordination, for the promotion and
development of small scale industries in India. The role of the Ministry
is to assist the States in their efforts for the growth of the small scale
sector, by enhancing their competitiveness in an increasingly
liberalised economy. It is assisted by an attached office and two public
sector enterprise, namely:-

 Small Industry Development Organisation (SIDO) :- the

Office of the Development Commissioner (Small Scale
Industries) [DC (SSI)] is also known as the Small Industry
Development Organisation (SIDO). It is the apex body for

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assisting the Government in formulating, coordinating,

implementing and monitoring policies and programmes for
micro, small and medium enterprises (MSMEs) in the country.
SIDO provides a comprehensive range of common facilities,
technology support services, marketing assistance,
entrepreneurial development support, etc.

 National Small Industries Corporation Ltd (NSIC) :- was

established by the Government with a view to promoting, aiding
and fostering the growth of micro, small and medium enterprises
in the country, with a focus on commercial aspect of their
operations. It implements several schemes to help the MSMEs
in the areas of raw material procurement, product marketing,
credit rating, acquisition of technologies, adoption of improved
management practices, etc.

Also, a National Commission on Enterprises in the Unorganised

Sector (NCEUS) has been set up for addressing the wide range of
issues affecting the productive potential of the unorganised micro and
small productive units.

Besides, there are three national level 'Entrepreneurship Development

Institutes (EDIs) for the development of training modules, undertaking
research and providing consultancy services for entrepreneurship
development in the small scale sector. These include:-

 National Institute of Small Industry Extension Training (NISIET)

renamed as the National Institute for Micro, small and
Medium Enterprises (NIMSME) at Hyderabad

 National Institute of Entrepreneurship and Small Business

Development (NIESBUD) at Noida
 Indian Institute of Entrepreneurship (IIE) at Guwahati.

The “Micro, Small and Medium Enterprises Development

(MSMED) Act, 2006” is the first single comprehensive legislation in

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India, covering micro, small and medium enterprises. Under the Act, the
terms "medium sector" and "micro enterprises" have been defined for the
first time.Also, the concept of ‘Industries’ has been widened to that of
‘Enterprises’. Enterprises have been classified broadly into two categories,
namely, enterprises engaged in the manufacture/production of goods
pertaining to any industry; and enterprises engaged in providing/rendering
of services. The term "enterprise" has been defined in terms of investment
in plant and machinery/ equipment (excluding land & building).
Accordingly, the definition of micro, small and medium enterprise is:-

Investment in plant and machinery/ equipment

 
(excluding land and building)
  Manufacturing Enterprises Service Enterprises
Micro Up to Rs. 25 lakh Up to Rs. 10 lakh
More than Rs 25 lakh and up to RsMore than Rs. 10 lakh
Small
5 crore and up to Rs 2 crore
More than Rs 5 crore and up to Rs More than Rs. 2 crore
Medium
10 crore and up to Rs. 5 crore

In order to protect, support and promote small enterprises as also to

help them become self-supporting, a number of protective and
promotional policy measures have been undertaken by the
Government. The promotional measures cover:- (i) industrial extension
services; (ii) institutional support in respect of credit facilities; (iii)
provision of training facilities; (iv) supply of machinery on hire-purchase
terms; (v) assistance for domestic marketing as well as exports; (vi)
technical consultancy and financial assistance for technological
upgradation; etc.

The Reservation Policy is the most important policy of the

Government for the sector. It has the twin objectives of ensuring
increased production of consumer goods in the small scale sector; and
expanding employment opportunities through setting up of small scale
industries. Reservation of items for exclusive manufacture in SSI sector
is statutorily provided for in the Industries (Development and
Regulation) Act, 1951 . The overwhelming consideration for

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reservation of an item is its suitability and feasibility for being made in

the small scale sector without compromising the quality aspect. But,
with a view to providing to the sector, opportunities for technological
upgradation, promotion of exports and economies of scale, items so
reserved have been dereserved from time to time. The issue of
reservation/de-reservation of product is examined on a continual basis
by an Advisory Committee on Reservation constituted under the Act.
During the year 2006-07, 180 items reserved for manufacture in small
scale industries have been dereserved. As on March, 2007, 114 items
have been reserved for exclusive manufacture in the small scale
sector.

Recognising the role of credit for the small scale sector, a focused
credit policy has been in place since the early days. Priority sector
lending is its most important component. Under it, banks are
compulsorily required to ensure that defined percentage of their overall
lending is made to the priority sectors, which includes small industries.
As a part of the institutional arrangement, Small Industries
Development Bank of India ( SIDBI ) has been set up as the apex
refinance bank. Term loans are provided by State Financial
Corporations (SFCs) and Scheduled Banks.

The other important policies for the sector relate to:- (i) excise duty; (ii)
foreign direct investment approval;and labour laws.

Besides, several schemes and programmes have been undertaken by

the Government with the aim of facilitating access to:- (i) adequate
credit from financial institutions; (ii) funds for technology upgradation
and modernisation; (iii) integrated infrastructural facilities; (iv) modern
testing facilities and quality certification laboratories; (v) modern
management practices, entrepreneurship development and skill
upgradation through appropriate training facilities; etc. The schemes so
announced include:-

 Tax Holiday Scheme

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 Composite Loan Scheme

 Industrial Estate Scheme
 Scheme for International Cooperation
 Scheme of Surveys, Studies and Policy Research
 Scheme of Fund for Regeneration of Traditional Industries
(SFURTI)
 Scheme of Product Development, Design Intervention and
Packaging (PRODIP)
 Scheme of Khadi Karigar Janashree Bima Yojana for Khadi
Artisans
 Scheme of Interest Subsidy Eligibility Certification (ISEC)

Small Industry Development Organisation also operates a number of

schemes for the sector:-

 Credit Linked Capital Subsidy Scheme for Technology

Upgradation

 Credit Guarantee Fund Scheme for Small Industries

 ISO 9000/ISO 14001 Certification Reimbursement Scheme
 Scheme for reimbursement of fees to adopt barcoding
 Integrated Infrastructure Development (IID Scheme)
 Scheme for setting up of Mini Tool Rooms
 Scheme for setting up of testing centres
 Scheme for Market Development Assistance (MDA) for SSI
exporters
 Assistance for Strengthening of Training Infrastructure of
existing and new Entrepreneurship Development Institutions
 Scheme of Micro Finance Programme

National Small Industries Corporation Ltd (NSIC) schemes for small

scale industries relate to:-

 Bill Financing

 Working Capital Finance

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 Export Development Finance

 Equipment Leasing Scheme
 Raw Materials Procurement Support
 Marketing Assistance Programme & Exports Assistance;
 Stores Purchase Programme
 Single Point Registration Scheme

Self-Check Question

 Write a note on the MSME in India and its contribution in

economic development of India.

Summary
Industries and Services have acted as twin engines propelling overall
growth in an economy. They are attracting large inflow of capital and
foreign investments into the country from all over the world. They play
a vital role in accelerating socio-economic development of a nation,
thereby providing several categories of goods and services (both
tangible and intangible) and catering to the diverse needs of the
masses. These sectors are the largest generator of employment
opportunities in the country and a facilitator of trade and commerce
with other countries. In other words, besides agriculture, they are the
basis of almost all the major policy initiatives, incentives and schemes
as well as programmes and plans, both at the National and the State
level.

Home Assignment
 Give a detailed account of the state of medium enterprises in
India.
 Give your opinion relating to the problems faced by large as well
as small industries in India.

References and Suggested Readings:

 http://finmin.nic.in/

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 http://planningcommission.gov.in/
 Datt, Ruddar & Sundharam, K.P.M.. . Indian Economy
 Kelegama, Saman and Parikh, Kirit. "Political Economy of
Growth and Reforms in South Asia
 Kumar, Dharma (Ed.) (1982). The Cambridge Economic History
of India (Volume 2) Penguin Books.

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