Effect of Policies on Industrial Development
Whatever the Indian industrial sector had achieved during the first seven plans is very impressive. The GDP proportion contributed by the Industrial sector rose to 24.6% in 1990-91 from 11.8% in 1950. The 6% annual growth rate of the industrial sector and its increased share of contribution in the GDP is an important of the growth of our nation. By 1990, the Indian industry became very well diversified and was not restricted to just jute and cotton textile mills. Promoting the small-scale industries resulted in opportunities given to people who did not have sufficient capital to start an industry of their own. Protection against foreign competition promoted the growth of industries like electronics and automobiles which would not have grown otherwise.
Some economists still criticize the growth and performance of public sector enterprises, despite the contribution of the public sector in the growth of the Indian economy. Though, initially the hand of public sector was needed in a big way for the growth of economy, later on there was a wide spread view that the state owned enterprises continued to produce certain goods and services, enjoying monopoly although it was not required any more. An example of this was the telecommunication service, which the government monopolized long after private players came into the fray. This meant that till the late 1990s one had to wait for a long time for a telephone connection. Another example, is the establishment of a bread manufacturing firm called Modern Bread. This was sold to the private sector in the year 2001.
The point that these economists want to make is that there is no distinction between what the public sector alone can do and what the private sector can do. Even today, only the public sector can take care of the national security and render free medical service for the poor. Though the private sector can and does run hotels, the public sector does too. These economists felt that the government should come out of areas which the public sector can manage and should instead give more attention to important services which the private sector can not provide.
Many firms run by the government continue to function despite heavy losses because it is not possible to close a government organization. However this does not mean private sector industries do not incur losses, but if they do they do not run because private sector firms will not waste resources on a loss making industry. There are quite a few public sector enterprises which were originally privately managed and were taken over by the government when they started incurring heavy losses.
The policy of obtaining a license to start an industry was misused by big industrialists to prevent competitors from starting a new industry. Excessive regulation of what was later called permit license raj prevented a higher level of efficiency of certain firms. The industrialists started spending more time in lobbying with ministers and getting licenses than in improving the products.
The protection against import is also believed to have adverse effects because lot of people believe that it has a negative impact as the people of India are restricted to buying domestic products even if the quality may not be good. Since the producers knew that they had control over the consumer market and did not have much competition, they did not have any incentive to really try and improve the quality of the goods produced.
Scholars point out that the public sector should not concern itself with earning profits but should concentrate on promoting the welfare of the nation. Therefore, the evaluation of public sector firms should be done on the basis of their contribution to the welfare of the people of India and not on the revenues it earns. Again some experts pointed out that protection against import of goods should be done as long as developed nations continue to do so. Since there were a lot of conflicting views and ideas, the government was forced to introduce a new economic policy in 1991.