BBA MBA Indian Economy Important Developments Notes

BBA MBA Indian Economy Important Developments Notes

BBA MBA Indian Economy Important Developments Notes :-



Long Questions Answer

Q. 1. Explain the role of agriculture in an under-developed country like India.


“The key to economic development lies in agricultural development in India.” Examine this statement.

Ans. Indian agriculture had reached the stage of development and maturity much before the new advanced countries of the world embarked on the path of progress. At that time, there was a proper balance between agriculture and industry and both flourished hand in hand.

Indian agriculture has made a rapid stride, converting the country from food seare to sufficiency. Horticulture sector has received lot of patronage form all the stakeholders namely public-private sector and farmers alike in the yester years. India is the largest producers, consumers and exporter of spices and spice products in the world.
—India 2014: Reference Annual.

Role of Agriculture in Indian Economy

Agriculture is called the backbone of Indian economy, role and significance of agriculture in
Indian economy are :

1. Share in National Income : The share of agriculture in national income is often taken as an indicator of economic development Normally, developed economies are less dependent on agriculture as compared to underdeveloped countries, For example, only 2% of GDP is derived from agriculture in the USA and the U.R, Thus it seems that as the country progresses, the dependence on agriculture declines.  2. Largest Employment Providing Sector : In 1951, 69.5% of the working population was engaged in agriculture. This percentage fell somewhat to 60% in 1991. However. With rapid increase in population the absolute of people in has become exceedingly large. Development of other sect ors of the has not been sufficient to provide employment to the Increase additions to working population who are therefore, forced to fall back upon agriculture even if their marginal productivity on land is zero or nearly, So this gives rise to ‘the familiar problem of underemployment and disguished  unemployment,

3. Providing Raw Materials to Industries : Agriculture provides raw materials to various industries of national important sugar industry, jute industry, cotton, textile industry, vanaspati industry are examples of sonic’ such industries which depend on agriculture for their development. Many of our small scale and cottage industries also depend upon agriculture for their raw materials. This all together account for about 500/0 of total income generated in the manufacturing sector in ndia.

4. Supplier of Food : Agriculture feeds entire population of our country. It provides food for the people and fodder for the cattle. However, due to fluctuations in the production of food grains, we have been importing them from time to time but it constitutes only about 5% of our total food requirements.

5. Contribution to Capital Formation : There is general agreement on the importance of capital formation in economic development unless the rate of capital formation increases to a
sufficiently high degree, economic development cannot be achieved. Since agriculture happens to be the largest industry in developing countries like India.

6. Importance in Internal Trade : Agricultural products constitute main articles of India’s internal trade. Large number of traders deal in agricultural products only get their livelihood,

7. Importance in International Trade : Agriculture plays an important role in India’s international trade, Main agricultural items of export from India are tea, sugar, jute, oil-seeds tobacco, coffee, spices etc. Exports of these items constitute roughly 16% of our total exports. Exports of manufactured goods with agricultural content constitute another 20% or so. Thus, agricultural occupies a place of pride in India’s exports:

8. Main Support for India’s Transport System : Agriculture has been the main source of income of transport in India. Railway, roadways and truck owners secure bulk of their business from the movement of agricultural products.

9. Prosperity of Farmers is the Prosperity of Industries : Good crops increase the purchasing power of Indian farmers. It increases the demand for industrial products. Thus, the prosperity of Indian farmers is the prosperity of Indian industries.

10. Prosperity of Agriculture is the Prosperity of Indian Economy : As about 65% of total working population of our country depends upon agriculture : 16% of our total exports is made up Of agricultural products, 290/0 of our national income comes from agriculture and about 50% of our industries depend upon agriculture for the supply of raw materials, it can well be concluded that the prosperity of agriculture is the prosperity of Indian economy.

11. Low Capital Output Ratio : An important advantage of agriculture is that it enquires much less amount of capital than industries. Capital output ratio of agriculture is very low in comparison to that of industries.

The above discussion brings out clearly the role and importance of agriculture in the Indian economy, Infact, development of agriculture is a virtual precondition of sectoral diversification and hence of development itself, A growing surplus of agricultural produce is needed on the country to

1.    Increase supplies of food and agricultural raw materials at non-inflationary prices.

2.    Widen the domestic market for industrial goods through increased purchasing power within the rural sector.

3.    Facilitate inter sectoral transfers of capital needed for industrial development (Including infrastructure).

4.    Increase foreign exchange earning through agricultural exports commenting upon the importance of agriculture.

“Agriculture needs top priority. If agriculture is unsuccessful, both the government and nation will be unsuccessful.”          —Jawaharlal Nehru   Important Features of Policy : Strategy to Achieve these Objectives

1. Food and Nutritional Security

(i) Emphasis on the development of rained irrigation, horticulture, flouriculture medicinal plants, bee-keeping, exports and employment generation.

(ii) Encouragement to the cultivation of fodder crops to met the fodder requirements.

(iii) Special attention to the development of new crop varieties particularly food crops with higher nutritional value.

Some Special Features of Agriculture
Development in India During Planning Period

1.Conscription of fertilizers, chemicals and pesticides has increased survival times.

2. There is substantial improvement in the mechanisation of agriculture. Roughly there one
tractor for every 100 hectares of land under cultivation.

3. India is nearly self-sufficient in the production of food grains. As a result, import of food grams has been curtailed to almost nil.

4. Though agricultural production has increased to the level of self-sufficiency, yet the level of consumption (nutritional level) is very low.

5. An important negative feature of agricultural development in India is the imbalance in agricultural production, particularly food grains. It has been concentrated in a few regions where the farmers are resourceful.

6. Another important negative feature in the imbalance between the production of food grains and non-food grains. Food grains are grown on 750/0 of total cropped area while non-food grains are grown on only 25% of such area. Among food grains also cereals are grown about 80% of the area under food grains.

7. One more negative feature is the deteriorating land holding pattern. Average size of holding in India has declined from 0.41 hectares in 1970-71 to 0.24 hectares in 2002.

8. Whatever we have achieved is far below what we could achieve. It invites our planner, farmers and the nation as a whole to re-double their efforts of agricultural development

Q. 3. Explain the meaning and trends of productivity of agriculture in India. Why is it low an how can it be improved ?


“A great obstacle in the way of agriculture development in India is low productivity.” Explain and give your suggestion to improve agricultural productivity.


Explain the causes of low agricultural productivity in India.

Ans.  Meaning of Agricultural Productivity : For assessing the performance of the Indian agricultural sector, it is necessary to know the productivity trends in agriculture. Agricultural

productivity is the ratio of agricultural inputs and outputs. It indicates the efficiency with which the inputs have been utilized. It indicates how much production has been obtained from a given amount of inputs. It can be measured as:  Trends of Agricultural Productivity

BBA MBA Indian Economy Important Developments Notes

in India

I. Productivity of Land : A comparison of productivity levels in other countries show how low the productivity in Indian agriculture in following :

BBA MBA Indian Economy Important Developments Notes

BBA MBA Indian Economy Important Developments Notes


Information on India’s global rank in major agricultural crops is still more revealing. India happens to be one of the largest growers and producers of most of the agricultural crops but ranks very low in terms of yield. India is the world’s largest producer of pulsec, but in terms of productivity its rank is a lowly 138th of the world,

2. Productivity Per Worker : According to an estimate, productivity per worker in the field of agriculture is only one-third when compared with that of large industries and one-half when compared with that of small industries, In this important than that of man and capital but in industry, the role of man and capital is more important then that of nature, Secondly, investment of capital per worker in agriculture is much less than that of industry,

Causes of Low Productivity Or Problem in the Development of Agriculture in India

The causes of low productivity in Indian agriculture can be divided into the following three categories :

A.    General, B. Institutional, C. Technical.

A. General Causes

1. Social Environment : The social environment of villages is often stated to be an obstacle in agricultural development because the Indian farmer is illiterate, superstitious, conservative and unresponsive to new agricultural techniques,

2. Pressure of Population on Lands : There is heavy pressure Of population on land. In fact, since the non-agricultural sectors of economy have not been able to expand at a sufficiently rapid pace over the period of last five decades, this pressures has continuously increased. Increasing pressure of population on land is partly responsible for the Subdivision and fragmentation of holdings productivity on small uneconomic holding in low.

3. Land Degradation : Government of India has recently estimated that nearly half of the country’s 329 million hectares Of soil could be categorized as degraded. Almost 43% of the land suffers from high degradation resulting in 33-67% yield loss while 5% is so damaged that it has
become unusable.

B. Institutional Causes

1. Land Tenure System : Perhaps the most important reason of low agricultural productivity has been the zamindari system. Highly exploitative in character, this system drained out the very capacity, willingness and enthusiasm of the cultivators to increase production and productivity. Legislations passed for abolition Of intermediaries in the post-independence period did not break the stranglehold of the zamindars on the rural economy. They only changed their grab and become large Ian owners. Exploitation practices continued.

2. Lac of Credit and Marketing Facilities : The Indian farmer continues to produce the same agricultural output even on more attractive prices. However the facts are different. Frequently on account of lack of marketing facilities or non-availability of loan on fair rate of interest, the cultivators are not able to invest the requisite resource in agriculture. This keeps the level of productivity on land and per cultivator low. If the government can revitalise the credit co-operative societies and the regional rural banks to grant more credit to the small farmers, the level of productivity can undoubtedly increase.

3. Uneconomic Holdings : An important reason of low agricultural productivity in India is the small size of holding. Average size of holding is only 0.25 hectare in India. About 55% holdings are of less than one hectare. These holdings are neither convenient nor economical for agricultural production. Mechanised farming cannot be adopted on these holdings. Main causes of such a small size of holding are : increase in population and sub-division and fragmentation of land.

C. Technical Causes

1. Outdated Agricultural Techniques : Most of Indian farmers continue to use outmoded agricultural techniques. Wooden ploughs and bullocks are still used by a majority of farmers. Use of fertilizers and new high-yielding varieties of seeds is also extremely limited. In summary, Indian agriculture is traditional. Therefore productivity is low.

2. Inadequate Irrigation Facilities : Irrigation facilities are available on about 40% land area only. This shows that even now 60% of the gross cropped area continues to depends on rains. Rainfall is often insufficient, uncertain and irregular, Accordingly, productivity is bound to be low in all those areas which look irrigation facilities and are totally depends on rain.

Some Other Causes

1. Lack of improved seeds, fertilizers and pesticides etc.

2. Lack of Adequate Finance : It is one of the most challenging problem of Indian agriculture.

3. Lack of Adequate Agricultural Research : The results of these facilities do not reach the common farmers.

4. Lack of Safety of Crops : According to an estimate about 5% of total food production of the country is lost every year due to weeds, insects and crop diseases but no particular attention has yet been given to this problem.

5. Nature of Soil is Different : Some lands are more fertile whole some lands are less fertile.

6, Cropping Pattern : Adopted by most of the farmers in India is based upon their needs and estimates and not upon the suitability of their land.

Measures to Increase Productivity

Several programmes and plans were prepared and implemented for agricultural development. As a result, significant improvements has taken Place in almost all the sectors of agriculture but it is not satisfactory. Agricultural production and productivity of other counteract of world. It invites all the planners, scientists, farmers and the national as a whole to take some concrete measures to improve agricultural productivity in India, Important measures to improve agriculture productivity in India may be summarised as follows :

1. Implementation of Land Reforms : Land reforms programmes should be implemented effectively to eliminating the intermediary interests in land (specially zamindari).

2. Integrated Management of Land and Water Resources : As stated earlier half of the country’s 329 Million hectares of soil is degraded. There is huge loss due to water logging, salinization, human induced water erosion, etc. This proves the urgency Of an integrated and efficient management if our land and water resources.

3. Improved Seeds : After examining the soil conditions and availability of irrigation facilities in differentareas, farmers should be advised about what seeds are best in the area. They should also be educated in the method of sowing, manuring and irrigating the new high-yielding varieties of seeds,

4. Fertilizers : Improved varieties of seeds require heavy doses of fertilizers. It has been estimated by agricultural scientists that Indian farmers use only one-tenth the amount of manure that is necessary to maintain the productivity of soil.

5. Irrigation : Use of improved seeds and fertilizers requires proper irrigation facilities Irrigation can also make multiple cropping possible in a number of areas and hence enhance productivity.

6. Plant Protection : Agricultural scientists have estimated that approximately 5% of the crcps are damaged by insects, pests and diseases. Most of the farmers are unaware of the medicines and insecticides. Therefore, the government should maintain its own technical staff to carry out the spraying of pesticides and insecticides at nominal rates.

7. Farm Mechanisation : Supporters of mechanisation argue that it results in increase in productivity of land and labour, reduction of costs, saving of time and increase in economic surplus However, if should be born in mind that all estimates of productivity include the contribution of machines as well as other agricultural inputs like improved seeds, fertilizers etc.

8. Provision of Credit and Marketing Facilities : The commercial banks should be encouraged to lend more to small farmers. Regional rural banks can play a special role in this regard, The marketing structure also needs a reorientation to serve the small and marginal farmers in better way. Co-operative marketing societies should be promoted to ensure better prices to small farmers.

9. Incentives to the Producer : Incentives to the agriculturalists can go a long in encouraging them to increase productivity. Incentives can be in the following forms :

(a) Implementing land reforms rigorously and vigorously.

(b) Ensuring timely availability of agricultural inputs.

(c) Guaranteeing remunerative prices of produce to the farmer.

(d) Implementing crop insurance scheme to cover the risk of damage to crops, and other risks in agriculture.

(e) Social recognition and conferment of awards, merit certificates etc,

10.  Agricultural Research : Research and development facilities should be developed and expanded. Adequate arrangements should be made to popularise the result of these programmables among farmer.

Q. 4. Give problerus and prospects of large scale industries.

(l) Iron and Steel Industry (2) Sugar Industry (3) Textile Industry.

Ans.        (1) Iron & Steel Industry

The earliest successful attempt to manufacture iron and steel by modern methods was made in the country at Barakar in 1875 for the production of pig iron. This was taken over by the Bengal Iron Company in 1889, However the first effort at large scale production was made when Tata Iron & Steel Company (TISC()) was set up in Jamshedpur in 1907. The Indian Steel Company (IISCO) was set up But unpur in 1919. The first unit in the public sector, now known as the Visvesvaraya Iron & Steel Ltd. started functioning at Bhadravati in 1923.

Progress in tho Post Independence Period

After independence, special attention was paid to the development of iron and steel industry. The second plan which aimed at laying strong foundation of industrial development naturally gave top priority to the development of iron and steel industry. The three steel plants of one million tonnc.s capacity set up in the public sector at Bhilai, Rourkela & Durgapur, came into operation in stages between 1959 & 1962. Third plan placed emphasis on expansion of these plants and the setting up of a new steel works at Bokaro, The fourth plan steel programme was based on the maximurn utilisation of steel capacity and preparation of plans to set up three new plants at Salem in Tatnilnadu, Vijayanagar in Karnataka and Vishakhapatnam in Andhra Pradesh.

The Bokaro Steel Plant was commissioned on Feb 26, 1978 with this the total installed irgot capacity with stood at 13.9 million tonnes on March 31, 1974 increased to 11.6 million tonnes as on March 31, 1980.

Prior to 1973, at the four steel plants in the public sector the plants at Bhilai, Rourkela and Durpapur were owned and managed by the Hindustan Steel Ltd, (HSC) and the Bokaro Steel lant by Bokaro. Steel Limited (BSC) became the wholly owned subsidiaries of SAIL, the government set up the Steel Authority of India (SAIL) in 1973. Visvesvaraya Iron and Steel Ltd. was taken over by SAIL in August 1989, the rnanagement of IISCO is also under SAIL. Thus SAIL is not the main integrated steel cornpany.Other important players in the private sector are Essar, Mukund (having the biggest mini steel plant in the country) LLoyds, Jindal, Nippon, Dentro Ispat Ltd. Mahindra Ugine Steel Company Ltd.,FACTOR, Mardia Steel Ltd., etc. India is now the eighth largest steel producing country in the world. This sector represents around 90,000 crore of capital and directly provides employment to over five lakh people.

Liberajissation of Steel Policy : Iron and steel industry was reserved for the public sector the 1956 industrial policy resolution. Due to acute shortage of steel in 1960s and 1970, Increase In the denjand of steel by the re-rolling and engineering industries, the government liberalised the steel policy, T be process of liberalisation initiated in 1982 has been progressively extended. In Feb 1988, expansion of units was permitted within an overall capacity willing Of upto 2’50’000 tonnes per annum.

To liberalise and rationalise the manufacture of steel and steel-based products remove unnecessary restrictions and promote minimum economic scales of production’ the g0Vernment issued a new set of guidelines on June 6, 1990. Under the new policy, the Private sector was allowed to set up steel plants with a capacity of upto one million tonnes per annum and for this Purpose, they were allowed the freedom to choose between the electric arc furnace and blast furnace processes. In July 1991, the government removed the iron and steel industry from the list of industries reserved for the public sector and also exempted it from the provision of compulsory licensing.

Problems of Iron and Steel Industry : Let us now consider some Of problems that the steel industry has had to face :

1. Rise in Input Costs : Raw material costs account for about 35% of the total cost in the steel industry. Since the industry is material intensive, a small like in input costs has a widespread impact on the cost of production. Over the years, the prices of pig iron (which is the most important raw material consumed by the industry), coal and power have risen considerably. As a result, the steel units had to face difficulties.

2. Shortage of Coal and Power : The steel plants-frequently face problems in obtaining adequate quantities of the desired quality of cooking coal. This has often forced the steel plants to restrict the pushing of cook ovens. In addition Indian cooking coal has a high ash content mainly because of the sedimentary nature of its origin. Power shortage also affect the functioning of steel plants adversely.

3. Technological Obsolescence : Some public sector steel plants the today victims of
technological obsolescence. In respect of blast furnace productivity, consumption of coke and tap-to-tap time in convertors, most of the integrated steel plants are half as efficient as the steel plants in the rest of world. Not only in material value productivity, even in terms of labour productivity, Indian steel industry lags considerably behind the developed countries. It is also due to technological obsolescence the energy consumption in Indian steel mills still continues to be considetably higher than in steel mills of the developed countries.

4. Inefficient Management : The management and control of steel plants leaves much to be desired. The top management often comprises, non-specialised, non-technical people who are often unequal to the task of providing the requisite managerial competence in the complex and capital intensive projects as the •steel plants. Iiåfact, are the management also works under severe constraints like undue political interference frequent labour disputes etc.

5. The Demand Constraint : The steel industry has faced rough time during a number of recent years due to a stump in demand following reduction in government is planned expenditure lack of investment in the housing and infrastructure sectors and additional capacity creation based on assumed growth in consumption which did not materialise. As a result, there was huge piling LIP of inventories resulting in downward pressure on prices and deep erosion in the profitability of the steel produces.

6. Menace of Dumping : Already in distress over the failure of domestic demand to increase the misery of the Indian steel industry was compounded by the alarming downtrend in international price during the late 1990s. In respect of certain steel products, the decline in prices was as much 30 to 40 per cent. This led to unhealthy practices like dumping which Pulled down domestic price5f and eroded the bottom line of the local steel makers. The lower tariff regime in the current era of liberalisation and the unrestricted import of all iron and steel material under the new export import policy made things worse for the domestic producers of steel what is more worrying it; the fact that seconds and defective grades of steel were dumped into the Economy, There were no match to the quality products turned out by the Indian steel mills but spoiled the market of domestic Steel makers.

(2) Sugar Industry

Sugar industry is the second largest agro-based industry in the country. About 45 million sugarcane farmers their dependent and a large agricultural force, constituting 7.5 per cent of the rural population is involved in sugarcane cultivation. Harvesting and ancillary activities. Besides,  about 0.5 million skille and semi-skilled workers, mostly from rural areas, are engage in the sugar industry. The sugar industry in India has been a focal point for social economic development in the rural areas by mobilising rural resources, generating employment and higher income, transport and communication facilities.

The history of sugar industry in India begins in 1903 when a sugar factory was set up in Bihar and U.P. each. In 1932, there were 32 factories operating in the country, In that year tariff protection was granted to the industry as a result, the number of factories shot upto 137 by 1937 and India became self-sufficient in sugar. Because of the extensive cultivation of sugarcane as a commercial crop in northern India, the sugar industry was localized for quite some in U.P. and Bihar, However, in the last four decades, the industry has developed at a fast rate in Maharashtra, Andhra Pradesh, Karnataka and Tamilnadu. Since, the sugar mills in these states have been set up in recent decades their production efficiency is greater and costs of production lower as compared to the mills in U.P. and Bihar. As on March 31, 2004 there were 500 installed sugar factories in the country as against 138 during 1950-51.

Sugar Policy of Government : The sugar economy in the country has traditionally been a highly controlled one and the industry was delicensed only recently in September 1998. The Janta Government way back in 1977 did try to decentral sugar but this decontrol proved to be short lived as sugar prices crashed in the absence of a monthly quota release mechanism. Therefore controls were reimposed soon. Since 1979, the government has been following a policy of dual prices through which a specified percentage of total production of each sugar factory is procured as levy sugar at notified prices for distribution through the Public Distribution System (PDS)i

In January 1997, the sugar industry was brought under a regime of free licensing, which entailed the time-bound grant of licenses without a due-deligence exercise or a ministerial revaluation of the project. As a result of this policy, there was a scramble for the creation of additional capacity. On the eve of delicensing in September 1998 the number of licenses granted for new mills stood at 236 while those for capacity expansion stood at 1000,

The biggest draw for the setting up new capacity was the incentives offered with the licenses : exemption from the supply of levy sugar for a period ranging from 5 to 10 years, A mill recover its cost in 5 years make profits in the remaining 5 and conveniently, turn stick once the incentive expired.

Problems of Sugar Industry

1. Problem of Mounting Losses : Sugarcane prices have been increasing over the years, as the cost o production have been rising on -the one hand, and on the other hand, the government feels that a remunerative prices policy is a must for growers so that the incentive to grow more remains,  Since cane prices account for as per cent of the cost of producing sugar this’ in turn’ implies the of producing, sugar has been increasing year after year. However the realisation from the Sale of sugar arc not rising adequately to meet these increasing costs resulting in heavy losses to Sugar unit, naturally the arrears of sugarcane due to famous arc rising,

2. Fixation of High Sugarcane Prices by the State Government : The pricing Of Sugarcane is affected by a Number of factors, the most important being the Statutory Minimum Price (SMP) and the State Advised Price (SAP). SMP is the prices for sugarcane fixed by the state government on the basis of cost of production of sugarcane, SAP is fixed by the state government taking into the specific recoveries and conditions in that particular state sugarcane pricing has become a highly Policised issue and it has been observed that the basis of fixing SAP is quite arbitrary and has no bearing with the increase in the cost of production. As a result, the difference between SAP & SMP has been growing.

3. The Question of Minimum Economic Size : The minimum economic size as it exists in India, is 2500 tonnes of cane crushed per day (tpcd). This is much loss than the minimum economic size in other countries. For instance, according to some experts, the sheer size makes us lose out on the economics of scale, Also the small MES makes efficient use of by products impossible,

4. Old Machinery ] Like jute and cotton textiles, some-sugar factories also require replacement of old machinery and modernisation of production techniques. The need is particularly great for the qsugar factories in (J.P. and Bihar,

5. Low Sugar Recovery : The sugar recovery from the canes, as also the yield of cane crop, has been ,stagnant for a long time for want of any major break through in breeding better verities of sugarcane, the average recovery (extraction) rate for the Indian sugar mills in just 9.5 to 10 per cent, against 1?’ to 14 per cent in same other sugar producing countries.

6. Failure to Follow a Consistent Policy : The government has not followed a consistent long-term policy for sugar, It has varied between complete control, partial controls and total decentral. In 1067-68 the sugar factories were required to supply 60% of output to government at ‘levy’ or control prices while the remaining output could be sold in the market at market price. The proportion of levy sugar was later raised to 70 per cent, The Janta Government removed all controls in 1976 but with the return of the congress government to power, partial controls with dual pricing were again imposed. Presently the sugar producers are required to supply 10 per cent in the form of  ‘levy’ sugar while the remaining 9()% is the free sale quota.

7. Competition from Cheaper Imports : Stiff competition from cheap ‘imports is causing problem for the sugar industry, Sugar imports in recent years have been due to ample global availability and heavy exports subsidies in several countries including Pakistan, Brazil and the European Union, The competitive disadvantages forced the sugar industry to demand a level playing field between imported and indigeneous sugar.

(3) Textile Industry

Textile industry is the largest industry of modern India. It contributes about 4.00/0 of GDP 140/0 of total industrial output and provides employment to about 35 million people. Together with allied Agriculture it provides employment to over 82 million people, The contribution of this industry to the gross export earnings of the country is over 20 percent while it adds only 2-3 per cent to the gross import bill of the country, It is the only industry which is self reliant, from raw material to the highest value added products, viz. garments, made-ups.

The first cotton mill was set up in Mumbai. Outside Mumbai City, some mills were located in sholapur, Baroda and other minor local centres in Mumbai State. In the United Provinces (Uttar pradesh), Kanpur had 5. large mills and dominated the industry of U.P. in the post independence period, important centres of industry have been Mumbai, Ahmedabad, Sholapur, Kanpur, Kolkata, Indore, Coimbatore. India’s textile industry continues to be predominantly cotton based, more than 58 per cent of fabric consumption in the country being accounted for by cotton (as against the world over of 46%).

Expansion of the Textile Industry

There are three sectors in textile industry :

1.    Mill sector, 2. Powerloom sector, 3. Handloom sector.

The later two are jointly considered under the heading decentralised sector. Over the years, the government has granted many concessions and incentives to the decentralised sector with the result that the share of this sector in total production has increased considerably.

of the two sub sectors handloom and powerlooms in the decentralised sector, it is the powerlooms sub sector that has grown at a faster pace.

There are many reasons for the fast development of the powerloom subsector.

(i) Governments favourable policies on synthetic fabric industry.

(ii) Ability of this sub-sector to introduce flexibility in the product mix in line with the market situation.

(iii) Low labour costs achieved indirectly through the flexible use of labour itself resulting in lower cost of production and ‘providing an edge in the market.

(iv) Increase in exports from the powerloom sub-sector,

With the aim of developing the three sectors of the industry viz, mills, powerlooms and handlooms in an integrated manner, the government announced a new textile policy in June 1985. The main objective of this policy was to enable the industry to increase production of cloth of good quality at reasonable prices for the vast population of the country as well as for export purpose.

Problems of Textile Industry

1.    Availability of Raw Materials : The Indian textile industry continues to be predominantly cotton based. This would be clear from the fact that cotton accounts for more than 73 per cent of the total fibre consumption in the spinning mills and more than 58 per cent of the total fibre Consumption in the textile sectors Naturally, in those years when the production of raw cotton is small, the cotton textile industry faces a serious problem. There were extreme shortfalls in some other plans as well. Such shortfalls in the production of raw cotton as compared to the targets affected the expansion programmes of the textile industry adversely. The cause for concern now is the fluctuating and highly volatile prices of cotton month after month. such large fluctuations adversely affect the decentralised sector and handloom weavers in particular.

2.    Poor Quality and Low Productivity of Cotton : Productivity Of cotton in India ‘is very Infact, cotton yield is only around half of the world average in comparison with China, the productivity is just one-third). Not only this cotton cultivation is done in India by small farmers With very small farms and with improper technology and methodology. outdated farm practices and Poor maintenance of the market yards have earned Indian cotton the label of the World’s most contaminated cotton. This poor quality of cotton is creating for the spinning industry,

3.    Outdated Plant and Machinery : Since the cotton textile industry is fairly Old in India and a number of mills were set up long back, the machinery and equipment have grown Old and Outdated a need fast replacement. Production with the help of such outdated machinery’ results in higher costs and poor quality of product.

4.    Fiscal Structure Skewed Against Modern, Integrated Mills : The fiscal structure in India has been biased against the modern, integrated mills with the results that the organized textile industry has not been able to attract much investment in modernisation in the last three-four decades. Both in weaving and processing are have small and tiny units dominating the sector with outmoded technology of sub-optimal scales. In the process of typing to protect what should be marginal segment of an expanding industry in which India has traditionally had competitive advantage, fiscal policy has been billing the industry itself. The net result is that India is left without domestic production of quality textiles needed by the largest and most lucrative segment of the garment trade.

5.     Interest Burden and NPAs : With study erosion in their profits most mills find it difficult to repay their loans. Most of these loans date back to early 1990s when interest rates ranged from 16 to 18 per cent. Today the textile industry accounts for a significant portion of the NPAs (Non-Performing Assets) of the banking sector in the country (in fact it has the dubious distinction of having mode the maximum contribution to the NPAs of the banking sector.) For a large number of technically viable mills, the pressure of unbearable interest burden has been the limiting factor to growth (expansion and modernisation) and even to survival.

6.    Labour Problems : The cotton textile industry has been faced with frequent labour problems While some problems of labour are genuine it is no doubt true that the cotton textile mills have become the playground for personal rivalries and the testing ground for some poplitical groups. Protects from labour have also come in way of modernisation of textile mills due to fear todisplacement and unemployment. The problem is aggravated by the fact that due to stagment demand conditions, there is little possibility of the displaced labour being employed elsewhere in the sector. 7.    Eroding Cost Competitiveness : India suffers from a competitive disadvantage vis-a-vis its competitors like China, Pakistan and Taiwan. For example, compared with China & Pakistan, Indian salaries and wages are higher by 30 to 60 per cent. It is also estimated that Indian spinners pay 100-150 per cent more than their competitors for their power, making Power cost 12 per cent of the production cost as against 5-7 per cent of the competition.

Q. 5. What is the role of small scale industries in Indian economy.

Ans. Small scale industries have an important role in India’s industrial and economic development, these are :  1. Expansion of SSI Sector and its Share in Industrial Output : The number of units in the SSI sector stood at 79.6 lakh in 1995 (of this 11.6 lakh were registered and 68 lakh unregistered), As far as output of units in the SSI sector is concerned, it was 1,22,210 crore in 1994-95 and this rose considerably to crore in 2003-04 (at current prices). At constant (1093-94) prices the output of small-scale sector rose from 1,09,118 crore in 1994-95 to crore in 2003-04. Out of 10 years the rate Of growth of output exceeded 10 per cent in three years 1994-95, 1995-96 and 1996-97.

2. Employment Generation : Within the manufacturing sector itself small and decentralised sector contributes about four-fifth of manufacturing employment in India. Given the acute unemployment problem in India, creation of employment opportunities will depend crucially an the development of small scale and cottage industries. As far as future prospects are concerned, the rural non-farm sector accounting for about 22 per cent of rural employment can play a crucial role in the further expansion of employment opportunities-in the rural areas,

3. Efficiency of Small-scale Industries : A controversy has raged in this country over the issue of efficiency in the small-scale industries are more efficient, others point out that large-scale industries are more efficient. One of the earlier studies on the relative efficiency of small scale industries in India was undertaken by Dhan and Lyndall. They concluded that modern small-scale industry is fairly capital intensive, that is, these units do not generate more employment per unit of capital than large-scale industry.

4. Equitable Distribution of National Income : One of main arguments put forward in support of the small-scale industries is that they insure and more equitable distribution of national income and wealth. This is accomplished because of the following two considerations :

(i) The ownership of small scale industries is more widespread than the ownership of large scale industries and

(ii) They posses a much larger employment potential as compared to the large industries. Dhan and Lyndall have the pointed out that this argument is wrong. According to them, workers in small scale and village industries are unorganized and cannot fight for their rights. As such wages paid to them are much less than the waged paid to workers in large industries. We must not forget that the small-scale industries have a high employment potential and consequently they enable a vast majority of people to share the fruits of economic development. In their absence, the only option before these people would be to remain unemployed or seek still less remunerative jobs.

5. Mobilisation of Capital and Entrepreneurial Skill : The small-scale industries are at a distinct advantages as far as the mobilisation of capital and entrepreneurial skill is concerned. A number of entrepreneurs are spread over small towns and villages of the country. Large scale industries cannot utilize them as effectively as the small-scale and village industries distributed over the entire length and breadth of the country. Similarly, large scale industries cannot mobilise the savings done by people in areas far flung from the urban centres. But this task can be effectively accomplished by setting up a network of small scale industries. In addition, a large number of other resources spread over the country can be put to an effective use by small-scale industries. The rapid development of small scale industries in the post independence period is a proof that given the necessary credit, power and technical knowledge, a large quantity of latent resources of the economy can be mobilised for purpose of industrial development.

6. Regional Dispersal of Industries : The small scale industries are mostly set upto satisfy local demand and they can be dispersed over all the state very easily. They can also effect a qualitative change on the economy of a state. The most glorying example of this phenomenon is the economy of Punjab which has more small-scale industrial units than even the industrially developed state of Maharashtra.

7. Less Industrial Disputes : Supporters of small-scale industries frequently argue that large scale industries are ridden with more industrial disputes than the small-scale industries. Because of the ‘tensions’ in the relations between workers of large-scale industries and the mill-owners, such industries frequently face strikes and lockouts, Against this, the small-scale industries are free from such hazards and there is consequently less loss of output. However, this viewpoint is not totally correct, In capitalistic form of production whether the unit is large or small, the mill owner does exploit the workers. This does lead to tensions and conflicts. However, whereas the labourers working in large-scale industries are organized and have no way of expressing their resentment. Any worker who gives a vocal expression to his resentment is immediately thrown out. Therefore, apparently the relations between the employers or employees in a small scale unit seem to be harmonised while actually they are not.

8. Contribution to Exports : With the establishment of a large number of modern small-scale industries in the post independence period, the contribution of the small-scale sector in export earnings has increased by leaps and bounds. What hear thing to observe is that the bulk of the exports of the small-scale industries (in fact around 93 per cent) consists of such non-traditional items like ready made garments, sports-goods finished leather, leather products, woollen garments and knitwear, processed foods, chemicals and allied products and a large number of engineering goods.


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Montey Parjapati




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