Industry and Trade
It has been found by economists that poor nations can develop only if they have a good industrial sector. The employment provided by industry is much more stable than that provided by the agricultural sector. It also helps in modernization and overall prosperity. This was a major reason because which the five year plans gave a lot of importance to industrial development. During the time of independence, the number of industries was very low and was mainly concentrated in jute and cotton textiles. There were just two good and well run steel and iron firms one in Kolkata and the other in Jamshedpur. The government had to expand the industrial base by adding more industries if the economy had to grow.
Role of State and Market in Indian Industrial Development
The role to be played by the government and the public sector in the industrial revolution was the main question confronting the policy makers of newly independent India. During that time, neither did the industrialists have enough capital to invest in industrial ventures required for economic development nor was the market encouraging enough for the financially sound industrialists to invest in big ventures. These were the main reasons which prompted the state to play a big role in fostering the growth of the industrial sector.
Apart from this, since it was decided that the Indian economy was to be developed in socialist lines, it led to the policy of the state controlling the commanding heights of economy as the Second Five Year plan states. This resulted in the state controlling the industries which would be instrumental in the growth of the economy while the private sector would adopt policies which would be complimentary to those adopted and practiced by the public sector.
Industrial Policy Resolution (IPR 1956)
IPR 1956 was adopted keeping the goal of the state controlling the commanding heights of the economy. This resolution was the basis of the Second Five Year plan. This plan tried to build a foundation for a society based on the socialist pattern. It categorized industries into three categories namely,
- First category: Industries which are completely owned by the state
- Second Category: Industries in which the public sector can be supported by the private sector
- Third Category: The remaining industries which were in the private sector.
For the expansion of outputs and diversification of production, existing units had to get a license. This policy was to make sure that the quantity of goods produced did not exceed the requirement of the economy. License for expansion in production was given only if the government believed that the economy required more quantities of the goods whose production was to be expanded.
Small Scale Industry
In 1955, a committee called as the Village and Small scale industries committee also known as the Karve committee pointed out the possibility of promoting rural development through small-scale industries. A small sale industry is defined with reference to the maximum investment allowed on the assets of a unit. Over a period of time, this limit has changed. In 1950, a maximum investment of 5 lakhs was set in order to call an industry a small-scale industry. Today, the limit is Rs. 1 crore.
The general belief was that small scale industries employ more labour and hence generate more employment opportunities than the large scale industries which are less labour-intensive. The small-scale industries could not compete with the large-scale firms and hence in order to protect them, the production of a lot of goods is restricted to small scale industries only. Further, they were given concessions like lower excise duty and ban loans at a lower rate of interest.