October 26, 1954
Industrial Policy and Employment
Under the Industrial Policy Resolution of 1948, Government has assumed a jar heavier responsibility
for development than it can possibly discharge.
developed by Government do not appear to be parts of a co-ordinated plan.
tion to defence industries—that these should be entirely State-owned
mulation of industrial development which defence needs ensure elsewhere.
These are. the factors which explain the relatively slow development in the industrial sector so far).
T H isO Uapproaching
G H the Five-Year
its last
Plan
year,
the rate of spending is falling far
short of anticipations and the impact
of the Plan on employment seems
anything but significant. In so far
as it relates to large-scale industry,
an assessment of Government's in-
dustrial policy would perhaps bring
out the shortcomings of the present
approach, particularly in the public
sector.
In the first place, under the Indus-
trial Policy Resolution of 1948, the
Government has assumed responsi-
bility for development far heavier
than it can possibly discharge. For
instance, the tremendous task of aug-
menting steel production beyond the
existing one million tons, apart from
some increase by the established pro-
ducers, is the exclusive responsibility
of the Government even though it
has neither the personnel nor orga-
nisation for carrying out that self-
imposed assignment. In conse-
quence, even in respect of new steel
undertaking promoted by the Gov-
ernment, very little progress has so
far been made, though large amounts
are seemingly set aside under the
Plan year after year, more to com-
fort than to spend. By thus absolv-
ing the private sector from all res-
ponsibility for new steel making
capacity, the rate of progress is
needlessly slowed down. Increased
employment which may otherwise
result is thereby rendered difficult, if
not impossible. The same holds
good in respect of other heavy in-
dustries included in the Policy Reso-
lution.
MACHINE TOOLS PRODUCTION
In the second place, the several
industrial undertakings that are being
developed by the Government in the
public sector are not only bewilder-
ing in their variety and form, they
do not appear to be parts of a co-
ordinated or integrated plan. The
Government machine tool factor) at
Bangalore involving heavy capital
expenditure of nearly ten crores is a
significant example of an industrial
undertaking by Government in total
disregard of the requirements and
claims of existing machine tool indus-
try. N o t only has the factory been
H T Parekh
Apart from that, the several industrial undertakings being
is disturbing and will prevent that sti-
set up without any consultation with
the industry on the ground that the
Government would be manufactur-
ing only highly specialised and
complicated machine tools but the
private industry is leading a preca-
rious existence and is even decay-
ing. Machine tool manufacturers
have protested all along against Gov-
ernment action causing serious in-
roads on a private industry. In an
article on " India's Machine fool
Industry " by Mr D S Mulla, Vice
President of the Indian Machine
Tools Manufacturers' Association in
the supplement to Capital of June
1954 it has been categorically stated
that not only the Government pro-
ject is unsound but that Govern
inent proceeded w i t h it in spite of
repeated protests by the industry and
that in the first stage of manufac-
ture of this project it is considering
production of 400 8½" centre lathes
which are already being manufactur-
ed by the industry. Both the pri-
vate industry and the State unit are
thus endangering each other's exist-
ence and not only huge, additional
capital is being sunk but capital in
both public and private sectors is
being considerably wasted. It is one
thing to have new productive capa-
city at. the right time and quite an-
other to have haphazard develop-
ment which involves wastage of capi-
tal through needless competition be
tween units in the public and pri-
vate sector, particularly when demand
for machine tools does not warrant
it.
DEFENCE REQUIREMENTS
Similar conditions are being creat-
ed perhaps in an aggravated form in
another direction. Defence require-
ments of Government are vast and
complex and very considerable deve-
lopment of industries in advanced
Western countries owes much to
large Government orders for defence
equipments- In India the declared
Government policy is to be self-
sufficient in the matter of essential
military stores and requirements. If
self-sufficiency implies dependence
on production in India, there will be
general acceptance of this principle.
From writings of Shri Mahavir
Tyagi, Minister for Defence Orga-
1203
Government policy in rela-
nisation, it appears that underlying
the concept of self-sufficiency is a
notion that the needs of defence
should be met largely from Govern-
ment-owned undertakings, that is,
they should even be independent of
the private sector within the coun-
try. If true, this is a dangerous doc
trine. For instance, the Minister for
Defence replying to a question in
Lok Sabha indicated that Govern-
ment had been considering the
manufacture of armoured fighting
vehicles in India. Armoured vehicles
are akin to automobiles and if Gov-
ernment were to set up separate
factories for tanks, etc, while pri-
vate automobile manufacturing firms
manufactured cars and trucks for
civilian needs, there would be dupli-
cation of productive capacity, waste
of capital and continued idle capa-
city in both the public and the pri-
vate sector. W h e n Shri Tyagi writes
that there are at present 20 Govern-
ment factories producing a variety
of anus and equipment and that
plans are in hand for the establish-
ment of more factories for the pro-
duction of modern complicated
equipment, the implication is dis-
turbing if Government sets up new
factories, irrespective of the private
factories being ready and able to
supply such equipment. Even thing
connected with defence is held back
from public scrutiny and therefore
there is a greater danger of capital
being frittered away needlessly, with-
out due examination of what the
private sector can supply with greater
ease and much less capital cost.
At present ordnance factories
often take non-defence orders in
order to keep themselves fully em-
ployed and in so far as they must
exist, no valid objection can be rais-
ed against this practice. But if Gov-
ernment goes on setting up new
factories for manufacture of all
varieties of products without regard
to existing factories' who can supply
such products, the result can only be
more idle capacity and misdirection
of capital by Government itself.
AIRCRAFT MANUFACTURE
Government is now showing evi-
dence of extending its activities in
uncharted fields, involving the
October 26, 1954 THE ECON0MIC WEEKLY
investment of enormous sums in new are 'being made by Government justify itself but there is no such
industrial undertakings. T h e public without any effort at justification. compulsion in the public sector.
is denied information relating to the It is "true that "the country must have The danger "of fitful development in
working of the Hindustan Aircrafts rapid industrialisation but unless it is the public sector is therefore greater
L t d , a state concern, which has been proved that a given capital expendi- and chances of extravagant capital
in existence for. nearly a decade. ture on an undertaking is the most expenditure more numerous, parti-
For reasons best known to Govern- appropriate in the existing stage of cularly in the absence of informed
ment, the factory is probably under industrial development, the mere and organised public opinion.
the Defence Department and there- setting up of a new unit ipso facto
fore even its financial results are kept does not justify i t . NEED FOR CO-ORDINATION
back from the people, though an Moreover public spending in pro-
crafts manufacturing companies in SCRUTINY OF STATE: VENTURES jects such as those described above
other countries always give out such Instances of such state ventures has large import content and there-
results without giving away any are multiplied when we note the fore low capacity for creating direct
secrets. Whether such a large state- proposals to set up a heavy electrical new employment. If increasing and
venture is making profit or loss must equipment factory, a synthetic oil greater employment were the goal,
be made public regularly. When plant, and a ferro-manganese plant perhaps far more would be possible
one reads that the Hindustan Air- each probably involving sums exceed- through greater encouragement to
craft is now manufacturing railway ing ten crores of rupees. Unless private investment. If in the Plan
wagons, the presumption naturally there is a thorough survey regarding greater spending had been envisaged
arises that perhaps the undertaking is the nature of market, the likely tor private investment, the spend-
otherwise losing. W h e n one further cost of production, the possibility ing programme would not have
learns that in as backward a country of running such units on economic shown such a great shortfall as it
as India where even automobile basis, promotion even by the state is has done and its fulfilment would
manufacture has made very little not necessarily justified. It is desir- have meant much larger employ-
progress. Government is embarking able that all such large capital con- ment. If the second Plan now in
on setting up a factory for manu- suming ventures arc put to the inde- preparation is to avoid the pitfalls
facturing aero-engines and is enter- pendent scrutiny of public bodies of the first, not only greater empha-
ing into an agreement with the such as the Federation or the Indus- sis on the development of industry
Rolls-Royce Company for that pur- trial Advisory Council before . Gov- will be necessary but also it will
pose, the least that is expected of ernment commits itself to their exe- have to be accepted that quicker in-
Government is to disclose the capital cution. Otherwise Government, in dustrialisation and therefore greater
expenditure involved and give expla- disregard of cost and market factors, employment is possible by encourag
nation how far the undertaking is uniy commit the country to heavy ing in every way private investment.
justified on economic as well as other capital waste. Industrial develop It is inevitable that public and .pri-
grounds. The disturbing conclusion merit in the public sector no less vate investment expenditure should
the public is left with is that it is than in the private sector must be be harmonised and made to fall in
being deliberately kept in the dark coordinated and integrated, if scarce line, if we are to put capital to the
and so is the Parliament, and com- capital is to be put to the best use. best use and create conditions for
mitments involving crores of rupees Capital in the private vector must fuller employment.

1204