CHAPTER-1

INTRODUCTION
Section-1
INDUSTRIAL GROWTH AND DEVELOPMENT

1.01 General

“Through out the world, industrialisation has indeed become the magic
word of the mid- twentieth century” (Bryce, 1960). It is not possible to achieve
economic development without industrialisation. Besides this, economic
development of a country depends upon the ability of its people to use new
techniques. This ability depends upon the various types of technical skills
required for the introduction of modem science and technolog)' but it also helps
in the expansion of technical knowledge by training facilities. Hence,
industrialisation sparks off innovation, which helps to accelerate economic
development through its impact on productivity. It has subtle effects on factors,
which ignite economic development (Bryce, M.D., 1960). The industrial
development brings with it a relatively easy access to modem technology
which is highly capital intensive and conducive to rapid capital accumulation.
Capital formation, in turn, provides the base for industrial development. The
spill over effect of industrialisation contributes to the growth in all sectors of
the economy and thus serves as a catalyst (Cheneiy H., et al, 1986).

Apart from the existing possibilities opened up by the industrialisation

for the extensive use of modern science and technology; it also leads to socio
economic changes, which are necessary for a country’s sustained economic
progress. Industry gradually transforms the life of the regions, influences the
aspirations and efforts of the people, their choices regarding training and
education. Industry trains and educates a whole set of new leaders, technicians
etc. (Bognor, J., 1969). Hence, industrialisation is indispensable for economic
development not only as a means of economic welfare and introductions of
modern technology but also as a harbinger of socio-economic change, which
activates the growth process.

With the increase in the economic development, per capita income rises;
people spend more on the consumption of non-agricuRural commodities. With
the shift in the aggregate consumption pattern, there is a gradual shift in
occupational pattern in favour of manufacturing industries. Since the
secondary-manufacturing sector contributes to the growth of the tertiary or
secondary sector, one would also expect the occupational structure to shift
towards latter (Clark, 1951).

Before 1947, Indian economy was typically a colonial economy with its
characteristics of underdevelopment such as mass poverty, chronic
unemployment and underemployment, lack of industrial base, income
inequalities, low level of productivity, high degree of dependence on
agriculture etc. The economy of India in the post independence period may be
described as one which made efforts for breaking chains of poverty,
unemployment, industrial backwardness, etc. (Rosen, G., 1988). Independent
India facing several economic problems realised the importance of the
development of an industrial base as an instrument to transform the uneven
economy towards the attainment of a self-sustaining economic growth.

1.02 Industrial Development in India

The importance of industrialisation as a means of achieving rapid

growth and prosperity has long been recognized in the thinking on
development strategy for India even before the formal process of economic
planning was launched in the economy. The atmosphere at the end of the war,
after independence and during the early plan period, was heady and
effervescent. But the expectations, discussions and actions resulted in various
proposals, policy resolutions, laws and plans, which set the broad framework
(Chaudhari, S., 1998). Industrial production during the pre-independence
period took place without a proper framework of policy and planning.
Industrial production during the period 1900-1946 is estimated to have grown
at a rate of 2% per annum. The post independence economy had a small
industrial base. Since independence, industrial growth, and development have
been guided within the broad framework of industrial policy resolutions
adopted during various years and the five-year plans. These policies and plans
have been supported by massive efforts to raise resources and invest them
productively by numerous rules, regulations and measures and by the
establishment of a number of agencies, departments and institutions and the
strengthening of the existing ones, all with a view to sub-serve the objectives of
industrial growth and other objectives laid down in the policy and plans
(Sandesara, J.C., 1982).

It is difficult to assess the performance with respect to broad objectives

of industrialisation. There are some dimensions along which the achievements
have been clearly significant. One such dimension is the substantial widening
of the industrial base and the consequent ability to produce a very broad range
of industrial products. Other positive aspects of industrialisation include the
fostering of entrepreneurship and the development of technological capabilities
and skills in the economy (Ahluwalia, I.J., 1985). On the industrial front, there
were major successes such as the development of public sector, which could
claim to occupy the commanding heights of the economy so as to provide
direction and leadership within a mixed economy framework. The foundation
of this had been laid down by the very substantial investment that was made in
the public sector. The establishment of heavy industries in public sector under
this strategy was combined with policies favouring import substitution, which
contributed towards widening of the industrial base of the economy
(Ahluwalia, I. J., 1985).

India now possesses a diversified modem industrial structure. The

process of industrialisation over the last decades has been quite varied and
diversified. There has been a definite shift in favour of basic and capital goods
viz., those engaged in manufacturing of heavy and light engineering products,

3
iron and steel, basic industries, chemicals, non-ferrous metals etc.
(Subramaniyam, K.K, 1985). India became one of the major capital goods
producers among the developing countries.

In many respects, India’s overall economic performance in the modern

period has been impressive even if inadequate to its needs. The rate of growth
of national income has significantly increased over the years. The growth and
industrialisation of India needs to be placed into historical perspective, which
played a major role in a massive effort of India's economic development
(Bagchi, A.K., 1981). While India has performed remarkably better than in the
period before it, we need to remember that tradition of economic growth,
entrepreneurship and industrialisation, which modern India inherited, was quite
impressive and this tradition certainly made the task of further planning of
Indian planner considerably easier (Bagchi, A. K., 1981).

In addition, there has been a major shift in the structure of

manufacturing. In the early 1950’s the share of the consumer goods sector was
close to 60% of the value added from manufacturing. By the late 1970’s the
share of consumer goods sector in the value added from manufacturing had
fallen to about 30.35%. Over the same period the share of basic and capital
goods sector rose from about 30% to almost 50% of the value added. During
1980’s, India was described as a country with widespread modem industries
making everything from nuclear reactor to textile machinery, from machine
tools to petrochemical plants (Ahluwalia, I. J., 1985). The period from 1951 to
the mid 1960’s was devoted to accelerating industrial growth.

After 1965, there was an apparent deceleration of the rate of growth of

industrial output (Ahluwalia, I.J., 1985). A number of studies were carried out
in the 1970*s seeking to explain the deceleration of industrial growth in the mid
1960’s. The industrial performance since the mid sixties has been characterized
by a number of economists as a period of persistent industrial stagnation.1

4
 The Economic Survey, (1984-85) while mentioning that “the
explanation for this prolonged period of sluggish growth is complex”;
supplements by saying, “A number of factors have combined to result in the
low productivity of resources in industry, including protection in various forms,
inappropriate choice of scale and technology, poor rate of capacity utilization,
mismatches between capacity and demand and recurrent episodes of severe
infrastructure constraints, especially with respect to power”

According to V.P. Chitale (1980), kTJp to the mid-sixties, observed

investment values moved up and down around the trend line in a cyclical
pattern and upward thrusts were pronounced than downward drifts... But after
the mid- sixties, all the observed values of investments and the general drifts
are distinctly downwards and it is apparent that high levels of investment of the
earlier periods are no longer sustained in the later period”. Srinivasan and
Narayan, (1977) Chakravarty, (1979) Dalai and Lahiri, (1977) argued that the
slackening of real investment, particularly in the public sector from the mid
1960’s was one of the important factors behind the deceleration in the rate of
growth of industry. Industry being the major engine of economic development,
the growth of the entire economy has suffered consequently. Beyond doubt, the
public sector performance has not been up to the expectation, which has also
contributed to a slow growth rate considering the large share of the public
sector in organised industrial output. The public sector has not been able to
generate adequate surpluses resulting in constraints in resources available for
investment, and thus slowing down the growth process (Mohanty, B,, 1966).
Patnaik and Rao, (1977) also suggest that the stimulus for the development in
post independence industrialisation till about the mid 1960’s came primarily
from the extension of protection and stepping up of public investment.
Thereafter, the industrial growth rate suffered with the exhaustion of import
substitution possibilities and the decline in public investment. But growth
cannot be sustained by the initial rise in demand alone. Also, growth depends
not only on the rate of import substitution, but even on how, in the process of

5
meeting the initial demand, further demand and production are generated. In
other words, it depends on the structure of production, income and demand.
Mitra, (1977) Nayyar, D., (1979) Chakravarty, S., (1979) show that increasing
inequality in distribution of income has led to narrow based demand and has
thus resulted into retardation of industrial growth.

In the initial years of planning, industrial development was largely based

on import substitutions and had the advantage of a capital market... while no
single factor can be defined as having a significant bearing on the rate of
industrial growth, a close relationship could be identified between the trends in
total investment (particularly public investment) and industrial production
(GOI, Sixth Plan). Other factors, which have affected the growth rate from time
to time, are the shortage of infrastructure and other vital inputs, unremunerative
administered prices, disturbed industrial relations and to an extent inefficient
management.

Bhagwati and Srinivasan (1975) have stressed, “India's foreign trade

regime, in conjunction with domestic licensing policies in the industrial sector,
led to economic inefficiencies and impaired her economic performance. The
policy framework was detrimental, on balance, to the growth of the economy
by adversely influencing export performance, by wasteful inter-industrial and
inter-firm allocation of resources, by permitting and encouraging expansion of
excess capacity and by blunting competition”.

Ahlmvalia, I, J., (1987) has also referred to policy constraints on

industrial growth including the industrial licensing system and related import
licensing and trade policy regimes, price controls, policy towards foreign
investment and import of technology, etc. The economic consequences of these
policy aspects are administrative hurdles, restrictions and delays affecting
growth, barriers to entry, protection from foreign competition, implications for
uneconomic scale of production, sickness of industry, effect on
entrepreneurship and prevalence of outdated technology. The progressively

6
declining levels of productivity due to insufficient capacity utilisation, which in
turn, has resulted from inadequate supply of raw materials; infrastructure
constraints, particularly supply of power and coal and movement problems;
unsatisfactory industrial relations; inadequate and unscientific maintenance and
general inefficiency in management and poor worker productivity have also
contributed to a low and stagnant rate of growth in industry.

In more concrete terms, Raj (1979) and Vaidyanathan (1977) argued that
despite green revolution, the overall rate of growth of agriculture output did not
rise. Considering the over whelming importance of agriculture in the Indian
economy, private consumption demand depends to a large extent on the
conditions in the agricultural sector. If output and income do not rise rapidly
then the demand for industrial goods will also not rise adequately thereby
adversely affecting industrial growth. Where agricultural performance is
inadequate, industries are negatively affected from the supply side also through
reduced availability of raw materials. Of course, production of luxury goods
catering the needs of the rich is less dependent on agricultural raw materials. If
the income of the rich rises rapidly then one may think of a different pattern of
growth based on luxury goods. According to Raj, (1979) this is neither
desirable nor politically feasible as a strategy, considering the sharp
accentuation of inequalities of income it entails. A more broad-based
development is possible if the problems-such as poor agricultural growth is
tackled at their root.

A basic problem in India has been that whatever development has taken
place; the fruits have not been equitably shared. Massive unemployment and
extreme poverty continue. Some of the fundamental expectations of India’s
planners were not realised. “Far from the liquidation of unemployment, even
the newly created industry during the second and third plans was unable to
absorb the new extracts to the labour force, thus resulting in a growing backlog
of employment (Shetty, S.L., 1978).

7
 As regards constraints enervating from Government's own policies,
Bhagwati and Desai (1970) staled, ‘‘Indian Planning for industrialisation
suffered from excessive attention to targets down to product level, and a
wasteful
A
physical approach to setting and implementing thereof, along with a
generally inefficient framework of economic policies designed to regulate the
growth of industrialisation.” One of the official reviews of this picture with
respect to industry is contained in the Government of India’s Economic Survey
for 1984-85. The discussion of India’s Industrial performance ends with the
words “our industrial performance has been unsatisfactory and a large area of
the industrial sector has been facing chronic to structural problems. Such a
disappointing performance is not limited to the sixth plan period (1980-85). It
was also a feature of the last 15 years. If the economy is to enjoy sustained
growth then the long-term growth of industry must accelerate. The efficiency
of industrial enterprise will have to improve. The framework of industrial
policy may also require changes, but such reforms will only yield expected
results if industry responds with dynamism and responsibility”. Mundle (1982),
further argued that instead of stagnation, the industrial sector is restricting
itself; a reorganization of capital is taking place. He indicated that “once a
certain critical weighing balance between old and new industries is passed, the
growth rate of manufacturing sector as a whole should increase substantially”.

1980's have been an eventful decade for industrial development in India.

Changes in government policy, which had been initiated in the closing years of
the previous decade, were further reinforced and accelerated during the
eighties. The technological backwardness of the 1970’s was replaced by a spate
of technological collaborations and ambitious schemes for modernisation and
capacity rejuvenation. There are hints even of a reversal in the trends of
industrial efficiency as reflected in the estimates of total factor productivity.
The industrial sector in India during the eighties appeared to be moving
towards the intensive rather than the extensive margin on which it had operated
for the last three decades (Kulkar, V. K. and Kumar R., 1989).

8
 The overall growth rate of the manufacturing sector during the eighties
(1981/82 -1986/87) has been substantially higher than in earlier periods.
During these years, value added in the registered manufacturing sector, at
1980-81 prices grew at 10.13% per annum as compared to 5.5% during 1966-
67 to 1979-80 and 7.6 % during 1959-60 to 1965-66 (BICP, 1987). According
to Index of Industrial Production, the annual rate of growth was 7.12% as
compared to 8.14% estimated on the basis of Annual Survey of Industries value
addition data on registered manufacturing sector. The growth rate during 1981-
82 to 1987-88 of the registered manufacturing at 9.8% was significantly higher.
At the aggregate level, it is unambiguously established that the Indian industrial
sector achieved rates of growth during the 1980’s, which were markedly higher
than those, recorded in the earlier periods. Hence, the eighties have witnessed a
decisive reversal of industrial stagnation. On all accounts, thus, the industry has
moved on to higher path (Bhatia, R. and Goldar, B., 1988).

Section-II

STRUCTURAL REFORMS

1.03 Developing Countries and Structural Reforms

The recession of the early 1980's hit both the developed and the
developing countries. The slowdown in growth of output and trade have
resulted in a higher unemployment particularly in developed countries and
increased poverty in most developing countries (ILO, 1990). At least two-third
of the third world countries experienced a chronic economic crisis with major
imbalances especially in their external accounts. An increasing number of
countries have had resources from the IMF and World Bank. The borrowing
countries had to resort to structural adjustments. “Stabilisation” and
“adjustment” became key words” (World Development Report, 1980).

The adjustment process is better understood as an instrument for

realising certain goals. The basic idea behind this change is that rapid economic
growth is best achieved when economic decisions are left to the market. The

9
reason why markets are being allowed to bring an adjustment is that it
combines signals and incentives in response to change (Streetan, P.5 1987).
Streetan Paul, (1989) has explained the process of structural reforms in term of
six “in’s”, incentives, input, innovation, information, infrastructure, and
institutions- efficient market institutions. These are the six instruments in the
framework (Paul, S., 1987). The policy was sought to minimise government
intervention.

Over a period of time there has been a growing agreement over the issue
of the inefficiency of the public in the country and bureaucratic failures have
improved the scope for market friendly policy (Agrawal, S. 1994). However,
reforms are not ends in themselves. They are intended to promote more
sustainable economic growth and equity.

For the past several years, the countries of South East Asia are
developing fast and the success of these newly industrialized countries has
created a sharp sense of having being left behind among other developing
countries (Kohli, A., 1989). The fourth Industrial Revolution will assist the
developing countries in transforming their old industries, if they globalise their
economies. Integration with the global system would thus, help them to
develop rapidly (Rostow, W.W., 1985). Two reasons are given to explain why
developing countries though are late comers want to catch up with the
industrialized countries as fast as possible. Firstly, they are adopting short cut
for their industrialization. Secondly, the short-term rationality of the producer
has undermined the importance of research and development in the long run
(Agrawal, 1994).

The wave of economic reforms in the developing world is being seen as

a necessary consequence of a changed world economic system. Its key feature
is the element of the heightened economic globalisation, which provides new
external challenges as well as opportunities for development. Globalisation
became an important perception of policy makers and adjustment to it in the

10
form of economic liberalisation and the shrinking of the state has moved to the
forefront of their economic agenda (Nayar, B.R., 1997).

Not all agreed to the globalisation and liberalisation under structural

reforms. There are others who believe that the immediate impact of
liberalisation and openness might be the increasing debt burden of developing
countries, which are already under heavy debt. The mounting import bills will
lend them in a debt trap, from which it will be very difficult for them to
recover. Globalisation will lead the developing countries to cut throat foreign
competition which will weaken their political, social and economic
independence, which will prove detrimental to the interest of the poor nations
(Taylor, S, 1988).

1.04 Structural Reforms in India

What factors compelled India to adopt these reforms? Did it start on a

wrong track? Our economy failed to adjust policies and institutions to
emerging circumstances and opportunities. The second plan, which laid the
foundation of economic planning, stated that its objectives were “not rooted in
any doctrine or dogma...Economic and social policy has to be shaped from
time to time in the light of historical circumstances... It is neither necessary nor
desirable that economy should become a monolithic type of organisation.” But
our economy continued to follow policies and institution long after they served
their purpose, regarding them as the goal rather than as means (Dhar, P.N.,
1992). There was a time when India was regarded by some in the western
world as a new model for economic development and social change. During the
cold war period the Indian model of development was presented as a counter
part to the Chinese model of development for other developing countries. But
after mid 1960*s India lost that appeal, primarily because of its economy’s poor
performance. In the meantime East Asian Economies developed at spectacular
rate. However, since 1978, China too had charged its economic gears and

11
demonstrated how increased participation in international trade can boost
domestic economic growth even in a large economy (Dhar, P.N., 1992).

Until 1980, economic policies of the country were often driven by inter­
group and inter-regional equity considerations rather than improvement in the
performance of the economy. Though the country had created all,the building
blocks and institutions of a capitalist free market economy including a strong
entrepreneurial class, it used them to serve the goal of a centrally planned
growth process (World Bank, 1992). So our economy combined the socialist
model of economic development with the capitalist model of the west.
However, the socialist system is in deep crisis and fundamental compromises
are being made, since the external assistance is inevitable in the development
process. The collapse of socialist block brought the shock of finding
alternatives for development. Structural adjustment programs are being
recognized as alternative model and free market model (Sundersan, S., 1993).
But whatever socialism has meant in practice in India, it has never meant, anti­
capitalism but rather state guided capitalism involving planning (Kohli, A.,
1989).

Following the unprecedented economic crisis of 1991 the Government

of India announced a package of major economic policy reforms aimed at
macro-economic stabilisation and restoration of the growth momentum to the
economy. A three-pronged approach has been followed to achieve stabilisation,
restructuring, and globalisation of Indian economy (Basu K., 1993). This
adjustment was undertaken with a view to balance the aggregate demand and
supply by reducing the mounting budget deficit of the central government, to
make Indian industry internationally competitive through industrial and foreign
trade policies and to globalise Indian economy through reduction in custom
tariffs, allowing free flow of foreign capital, devaluation of Indian rupee
(Prakash, B.A., 1997). The structural reforms program adopted in India is one
of the most major policy changes since independence. As Michael M., (1995)
remarked "... After wasteful decades, India is set to scale new heights.

12
Unfortunately, the planners preferred to build a wall around Indian economy
for forty years, isolating her from the global economies. I call these the wasted
decades.”

The structural reform was adopted as an essential remedy for the ailing
economy. It was meant to enhance the competitiveness of Indian Industry,
ensure rapid growth, innovation and efficiency and curb the power of the
inefficient domestic industry and free economic activities from the shackles of
bureaucratic control, inefficiency and corruption (Kumar, B.G., 1992). During
the post reform years, government has vigorously pursued a strategy of import
liberalisation and custom tariff reduction, resulting in a large inflow of
imported manufactures into Indian market. This might have adversely affected
manufacturing production because of the ‘reindustrialisation effect’ of increase
in manufactured imports (Vachin, S.I., 1998).

The aim of policy was to achieve sustainable acceleration in industrial

gross domestic growth. But during the early years of structural reforms Indian
industry is pushed to a peculiar environment to which it was not exposed
earlier. Almost for a half century, it could learn to survive under such favoured
protection. The industrial units faced less or little competition, cared little about
the product, quality and techniques of production. This seems to be the ‘basic
character’ of the Indian Industry. There is a threat to this character and our
industry is finding it difficult to carve a way out. Moreover, Indian industry
cannot be expected to become competitive overnight

1.05 Structural Reforms and Technology

We live in the midst of one of the major technological revolutions in

history characterized by two main features-information and process orientation.
High technology became a key element in the competition for world markets
conditioning developmental process. Once the national economy globalises, it
becomes difficult to ignore technological advancements (Soete, L., 1985).
Thus, import of sophisticated capital-intensive technology for industrialisation

13
is another objective of structural adjustment. When countries or firms are not
able to integrate and use these technologies, they lag in performance, being
forced to focus their comparative advantages on low production costs linked to
low wages and to the lack of protection of human health and natural resources.
The modernisation of industrial sector has been a permanent objective of the
developing countries/ Without considering the domestic adaptability, it was
believed that foreign technology would solve the problem of industrialisation
(Dieter, E., 1990).

However, a blind adoption of modem technology may have another

adverse impact as well. The rapidity of technological change, an increase in the
number of suppliers, and the faster diffusion of technology have all tended to
shorten the life span of new technologies. There is pressure to cash in the
profits from each new product as quickly as possible before it becomes
obsolete (Perumal V. S., 1995). Structural adjustment program aims at
integrating our economy with the world economy by opening it up to the
inflow of latest technology and knowledge. Increased automation and the
greater emphasis on product design, development, and marketing are the order
of the day.

1.06 Structural Reforms and Production

This drive towards structural reform as far as production is concerned,

has been motivated by three principal expectations. First, that foreign
competition in the domestic market will stimulate local producers to minimise
their production costs; second, with reduced cost and free access to import,
India’s export can rapidly be increased, and third, with freedom of access to
foreign investment, the economy will benefit greatly from the inflow of modern
technology and "knowledge” (Krishnaswamy, K.S., 1992). As far as the
production under liberal trade policies are concerned, Bhagwati, Jagdish (1978)
has established a direct link between productivity and liberal trade policies.
Some of the other scholars who have undertaken studies in different countries

14
have also found that productivity growth is significantly higher in the period of
liberal trade policies. For instance, Krueger and Tuner, (1982) on Turkey,
Nishimizue, Paze (1982) on Yugoslavia and Kim (1987) on Korea, Singapore
and Taiwan in the early sixties have shown that these countries went in for
outward oriented policies and achieved tremendous success.

1.07 Structural Reforms and Labour

Changes in the composition of industrial output can lead to immediate

changes thereby involving decline of certain industries in absolute terms. This
gives rise to redundancies and job losses (ILO, 1998). The problem is likely to
be more serious for a country like India that has been suffering from industrial
sickness and over sized public sector much before the structural reforms began.
(Agrawal and Patel, 2001).

The employment intensity of the development process has been

declining over the years, particularly in the 1980s. With the structural reforms,
employment scene is likely to deteriorate further (Datta R., 1993).

Unemployment due to restructuring is expected to arise from three

sources: closure of some of the economically non-viable enterprises, down­
sizing of the workforce in other weak units and adjustments in labour force in
perfectly healthy enterprises necessitated by changes in market conditions
2
and/or technological changes [mainly imported] (Agrawal and Patel, 2002) . A

UN study carried out in 1984 in regard to technological change also reveals

that ineffectiveness of the institution of R&D and technology remained
divorced from the genuine problem of productivity and employment.Thus, the
import of new technology will have labour displacement effect and the country
will be devoid of employment generation capacity (Archibugi D. and Michie J.,
1997).

Government decision to follow an outward oriented economic policy

was expected to have positive effect on labour market. However, new policy

15
contemplated a radical transformation of the existing structure in favour of
privatisation, which had negative impact on labour. Newly industrialised
countries of South East Asia could succeed in their process of industrialisation
by adopting capital-intensive technology. The situation in India is different and
the addition to the labour force has been quite high but the generation of
employment opportunities has been low (Kishor A., 1996). Capital-intensive
technology is likely to generate employment in the organised industrial sector
only imperceptibly, and that too, for highly skilled personnel only. The sector
will continue becoming more and more labour saving rather than labour using.
A large majority of population joining labour market during, at least, the
coming few years will have to remain either unemployed or self-employed in
the non-industriai activities (Kundu, A., 1996).

The effect of structural reforms on employment can be seen in short,

medium and long term perspective. In the short-term, it is generally feared that
employment growth may slow down primarily due to a slow down in economic
growth caused by policies to stabilisation forming an essential and often the
first step in the process of structural adjustments. In the medium term, when
reform measures are implemented in different sectors of the economy, creating
favourable climate for accelerating investment and output growth, employment
is expected to grow faster. But since the dualistic nature of the labour market
continues, a major part of the new employment takes place in the unorganised
sector. In the long term, however, removal of distortion in the factors and
product markets is expected to lead to better integration in the labour market
and employment. Growth is likely to be accompanied by overall improvement
in the quality of employment (Mundle, S., 1992).

Under new economic policy, adopted for structural reforms in the

economy, there is no specific employment policy for increasing the
employment elasticity. Also, no human resource development programs have
been framed to increase the capability of the present and future labour force
participation (Kaur, K. and Bawa, R.S., 1999). This is evident from the

16
experience of Latin American countries that have followed structural reforms
where there has been a rise in the underutilisation of labour force, which
increased, from 40% to 42% during 1980 and 1990. There has also been
deterioration in the quality of employment. Structural reforms resulted in more
instability in employment, part-time jobs and contractualisation of the labour.
In Peru, Labour legislations were modified to allow easy dismissal of the
workers to minimise labour cost during structural adjustments, there was a
decrease in the real earning, decline in purchasing power and compression in
informal sector earning in 1990 (Chossudovsky M., 1992). The experience of
Asian countries clearly points out that quick adjustments to policy change can
be facilitated only with adaptable human resource having appropriate skills to
face the new situation. The fact that the National Renewable Fund (NRF) has
been established in India is a clear indicator of the rise in unemployment at
least in the short run. This has been established for the workers who will be
rendered jobless due to restructuring. It is argued that employment may
increase in medium and long run but much of it will be in the unorganised
sector- characterized by the poor conditions of work, low earnings and lack of
social security (Papola, T.S., 1994). The National Renewable Fund addresses
itself basically to those who are likely to become unemployed in the course of
structural reforms in the organized sector of the economy (Prasad, M. and
Prasad, M., 1992).

Section-Ill

TECHNOLOGICAL CHANGES

1.08 Background

In the sphere of globalisation and liberalisation, a new breeze is blowing

across the world. The world has become a global village. Changes that have
occurred during the past few years all over the world have established very
clearly that no nation can isolate itself completely from the rest of the world
and survive for too long. Government and business sector can no longer afford

17
to neglect the technological advancement and its commercial application
(Banerjee, D. 1998).

Schumpeter long back identified the forces of innovations as “spark

plug” to growth. Technical progress plays an important role in the process of
economic growth. The importance of technology has two aspects: First, it helps
in the process of producing new things with existing resources or uses the
existing resources in new ways for increasing the productivity of different
resources. Schumpeter in analysing the importance of technology in the process
of economic development points out, “development consists primarily in
employing existing resources in a different way, in doing new things with
them, irrespective of whether those resources increase or not”(Schumpeter,
J.A., 1949).

According to Schumpeter technological change covers five main types

of technological dynamism in an economy. These are: new processes, new
products and new sources- of types of raw materials available; new markets,
and new organizational method. This shows technological change can take
several forms (Schumpeter, J.A., 1942).

Technology is an instrument of development. It is a vehicle of change

and a crucial variable influencing the pace and pattern of development in all
countries. Developed countries are positively endowed with favourable
conditions for technological development whereas the developing countries are
unfavourably placed in this regard. Consequently, there is a technological
distance between developed and developing countries is terms of initial
endowment which further seems to be increasing (Bhalla, A.S., 1984). Often it
is argued that technologies are too costly and their use results in perpetual
dependence and hence developing countries are not in a position to embark
upon a policy of technological development taking place in other parts of the
world. The future development of these countries depends on technological
progress. The dilemma of the third world estimates from the realisation that

18
technological development has become a compulsion for the survival in the
present (Varghese, V.N., 1983).

After structural reforms, Indian economy is all set for rapid

technological growth. The emphasis, today in industrial sector, is on creating
efficiency, competitiveness and upgradation of technology to match
international business competition (Lall, S., 1998).

The important motives which lead firms to give priority to technological

changes are, “the search for new markets and business opportunities;
development of an in-house technological capability; enhancement of quality
for product and services; rationalisation and modernisation of production
facilities; and enhancement of the technical and managerial skills of personnel.
The expectations underlying all these motives are that sales will increase along
with market share enabling the firm to become more competitive as a result”
(Marcovitch J., 1991).

1.09 Technological Change and Production

Most critics attribute lack of competitiveness, low product quality and

deteriorating standards largely to the unhealthy protectionism and isolation of
Indian industry from the global scenario. In fact, the economists had recently
used the metaphor of a ‘caged tiger’ to describe the over protected Indian

economy.

After 1991, scenario has changed completely. Now, for the management
of a firm operating in a competitive environment, product strategies have to
follow both product design, competition (market) pressures for low production
costs, and work organisation has to be fitted to the adopted technology so that
the resulting products can optimally exploit the opportunity structure of the
market (Teru, T., 1984). Only those who can compete in domestic market as
well as global market, who can produce and deliver goods and services of high
quality by making best use of the latest technology at competitive cost, will be

19
able lo survive. It is based on Darwinian selection and survival of the fittest
theory (Pandey, A., 1992).

Technological change in spite of the problems connected with its

acceptance has its positive effects on product standardisation. Technological
change affects industry output by providing new or improved products or
services that stimulate the demand for a particular industry’s products (Tulpule,
B., 1990).

1.10 Technological Change and Labour

The implications of introducing new technology increasingly in many

industries, has been debated continuously for the last two decades. There have
been two ends to the spectrum of this debate. On the one hand, it has been
argued that technological advancement is beneficial since it increases
production thereby reducing labour cost, eliminates repetitive and jobs
demanding physical presence of the labour, improves working conditions,
allows functional flexibility and creativity, enhances skills, gives a sense of
pride to the employees in operating sophisticated equipments, and provides
chances for higher pay, better promotion, more jobs, better quality goods and
lower prices. On the other hand, it has been argued that the worker is not able
to cope with the increasing pace of technological change and therefore
experiences fear of job loss, alienation, powerlessness, professional
obsolescence, anxiety and fear towards changes (O.S.T. 1980). Technological
change and unemployment seems to have become synonymous. Many labour
leaders maintain that technological change has destroyed more jobs then it has
created (Francois, W., 1964). They argue that automation is not only a threat to
a particular class of employed but also to certain professional skills and that
this may consequently undermine the social status of many workers in industry.
Only a privileged few, they argue, can be considered safe in their jobs (Pollock,
F., 1957). Much of the debate on technical change and employment has
identified potential deskilling and employment displacement effects as both a

20
cost of and a barrier to technical change. The cost is one of high and prolonged
unemployment tor displaced workers and for those unable to enter employment
(Jahoda, M., 1982). The evidence from the U.S.A shows that when
technological progress coincided with an increase in country's labour force, it
resulted in serious problem in the labour market (Moss, S., 1966). Moss, S.,
(1966) noted that in the period 1950-53 employment dropped to 2.5%. In the
period 1958-63 unemployment rose to 5%.

‘Restructuring’ and rightsizing’ was the industrial slogan in the 1990’s

in Indian companies. In 1880’s and 1890’s it was the case in the U.S.A. It was
supposed to be the fastest and easiest way to cut business costs, be more
competitive and raise profits. Some analysts have described the growth profile
of 1990's as one of ‘‘jobless growth” and views have been expressed about
phenomenon of rapid technological changes as the possible cause of the loss of
jobs during this period (Panchamukhi, V.R. 1998).

On the other hand many business leaders take the opposite view. They
argue that technological progress means more output per unit of input. This
increase in productivity through either lower prices and/or higher income
results in greater purchasing power and eventually into demand for the
increased output. The outcome is thus an expansion in alternative employment
opportunities sufficient to absorb the workers displaced by technological
changes (Jequire, N., 1976). Not only this but also in the economy as a whole
there will be substantial increase in demand for scientists, engineers,
technicians and skilled maintenance and repairman. Thus, an over-all skill and
educational requirement in the economy can be expected to rise steadily
(Diebold, J., 1959). The impact of technological development on employment
is positive when the rate of increase in the level of output exceeds productivity.
This need not be the general case. At successive stages of technological
development, it is observed that the quality of labour required for a given
output declines, leading to an overall declining demand for labour units. Even
when there is a general decline in employment, the demand for higher

21
personnel personal may increase (Katrak, H., 1985). But if a country were
involved both in the production as well as in the use of technology, a
substantial proportion of the loss in employment would be offset by the
employment generated as a result of production of technology. However, such
may not be the case with developing countries, which to a great extent depend
on imported technology (Pandit, B.L. and Siddharthan, N.S., 1997).

Section-IV

1.11 Rationale of the Study

Various studies have been carried out related to industry, industrial

relations, industrial workers, wages, welfare facilities, absenteeism, accidents
and safety, health measures for employees, industrial disputes, etc. To
understand the process of industrialization and impact of economic policies on
industry and labour these aspects need to be studied in totality.

However, no study covering all aspects has been carried out at the micro
level. The present study is an attempt in this direction to fill the gap.

1.12 Chemical Industry

Chemicals worldwide are 50,000 billion industries. Its growth in the last
two decades has been one and a half time the world GDP. Addition to output
each year is Rs. 1000 billion (Chandra, R., 1997). It is believed that Asia
Pacific region will emerge as a key player in the global chemical business. The
Asia Pacific region consumes up to 30% of global chemicals, which is
expected to increase to 40% by 2000 AD. By the same year it will become a
net exporter of chemical. The faster growing with largest share will be China
and India.

The chemicals industry in India is young, large, and growing very

rapidly. The first chemical factory in India was a soap factory established in
Meerut about a century ago. Apart from this there was very little chemical

22
production until independence. However, the dawn of independence heralded
a new era in the affairs of the Indian chemical industry. Today, the Indian
chemical industry is highly technology-oriented, capital intensive and
heterogeneous in character (Jha, J.B. and Sahani, B.S., 1994).

The chemical industry occupies a pre-eminent position in the national

economy and materially contributes to the national efforts towards planned
development. It also plays a key role in the country’s defensive and offensive
capabilities and any program of self-reliance has to provide for flourishing
chemical industry base. Chemical products indeed are substituting other
materials in every sector of the economy and are serving almost every industry.
The increasing consumption of chemical products in place of traditional
material has been an important factor in maintaining the momentum of
chemical products during a period of general industrial stagnation. It can make
very valuable contributions in augmenting food production, conservation of
water resources, provision of newer fibres to substitute cotton, provision of
improved construction materials to substitute scarce metals, in organising an
effective program of population control, in meeting the needs of health of the
population and creating self-reliance in strategic areas by effectively
substituting import of chemical raw-materials, better utilisation of waste
products and creating more employment opportunities for the qualified
scientists and engineers. The industry also has an important role to play in
promoting exports and in the development of the backward region of the
country (Santa, N., 1994).

Apart from its importance to other sectors of the industry, the chemical
industiy has been notable in meeting the domestic needs such as apparels,
furnishings, electrical goods, deodorants, talcum powder, detergents, shoes,
flavouring agents, preservatives, creams, toothpastes, brushes and utensils,
house hold remedies and disinfectants.

23
 Chemical industry which covers a wide range of industries starting from
giants petrochemicals and fertilizer complexes to the smaller and light
industries such as paints and varnishes is closely linked with most of the other
segments of the large and medium scale industries in the broad industrial
spectrum of the nation. This industry ranks fourth (after iron and steel,
engineering and textiles) amongst the top indigenous industries in India
(NCST, 1981). Among the major industries of India, the chemical industry
recorded the highest growth rate during the sixties gross sale (440%) and total
assets (384%) It now contributes 7.2% to the national capital and 7.4% in the
gross industrial output and nearly 8% to the net output. The total investment in
the Indian chemical industry has risen from Rs. 304 crores in 1961 to Rs. 877
crores 1966 and to Rs. 2000 crores in 1970-71. In 1998, Indian chemical
industry represented 12% of manufacturing output and accounted for 10 % of
total export. The sales turnover of chemical industry in India exceeded Rs.750
billion and produced wide spectrum of products in the large, medium and
small-scale industries. To take care of additional small-scale industries
requirement, an investment of Rs 40,000 crores has been planned (Rao, D.V.,
1995).

According to Annual Survey of Industries, total number of chemical

factories shows an increase over a period of time.’ In 1960-61 there were 378
factories, which increased to 879 in 1970-71 to 2033 in 1980-81 and further to
2483 in 1984-85.

Chemical industries play a vital role in providing employment

opportunities. The employment in chemical industry has increased
continuously. In 1960-61 it was 4.02%, which increased to 5.98% in 1970-71,
7.80% in 1980-81 and to 9.49% in 1984-85.

In the post liberalisation scenario, competitiveness is the first and

foremost task of industry. The industry has been restructuring to meet
competitiveness through cost cutting, by means of energy conservation,

24
technology upgradation and expansion, even through mergers and acquisitions
take place (Roy, S., 1995). Global competitiveness has become a function of
day-to-day operation of chemical units especially due to progressive and high
cost factors affecting the industry. Achieving competitiveness is a complex
exercise and a sound business environment supported by a suitable industry
friendly policy framework is required. If India has to enter into the world
market as an important player, the maturity of the industry and our democratic
political system should find out workable solution before it is too late.

1.13 Chemical Industries in Gujarat

Gujarat is perhaps the first of the regional economies of India to have

modernised itself in a substantive structural sense. The benefits of the process
led to change in the structure of work and employment with jobs expanding
faster outside agriculture (Alagh, Y.K., 1995). Gujarat has been categorised as
an industrially developed state along with Maharashtra. Total number of
working factories in Gujarat has increased from 3649 in 1960 to 18532 in 1995.
Similarly average number of workers employed in working factories has
increased from 346462 lakhs in 1960 to 822200 in lakhs in 1995.

As far as chemical industries in Gujarat are concerned, there were 1108

chemical industrial units in 1980, which increased to 1767 in 1990 to 2500 in
1995. Employment in chemical industries stood at 58557 lakhs in 1980 that
increased to 100869 lakhs in 1990 and further to 121000 lakhs in 1995 (GOI,
1997).

After structural reforms many changes have taken place in chemical

industries too. Industrial belt running from Vapi to Mehsana is known as the
“Golden Corridor”. After structural reforms there is a change in the location
pattern of the industrial investments in the state from south Gujarat to
Saurashtra and Kutch. That is, after the golden corridor from Vapi to Mehsana
industries seem to be moving to a silver corridor on the coastal Saurashtra
(Shah, A., 1995).

25
1.14 Profile of Vapi

1.14.1 Growth of Vapi as an Industrial Estate

Vapi is an industrial estate developed by Gujarat Industrial Development

Corporation. It came into existence three decade ago i.e., in 1967-68. The
estate, which was developed in phases, now spreads over 1140 hectares and
houses over fifteen hundred industries. Industrial area is spread over 580
hectares and commercial over 30 hectares.

Vapi is on the Western Railway on Delhi-Baroda-Mumbai route. Vapi

also falls on the Western Railway on Ahmedabad-Baroda-Mumbai Route. It is
168 kilometres in north of Mumbai and 324 kilometres from Ahmedabad
towards Mumbai. The Vapi railway station is a major railway station due to a
centre between the union territories of Dadra Nagar Haveli and Daman. It has
become more important after the development of a big industrial estate at Vapi.
Vapi GIDC Estate is centrally located on the National Highway (Ahmedabad-
Mumbai) with the union territories of Dadra and Nagar Haveli on either side.

Basically a “declared” chemical estate, about 70% of the industrial units

are chemical and chemical related such as dyes and dyes intermediates,
pigments, pesticides, fine chemicals and pharmaceuticals, etc. The remaining
30 % units are paper mills, packaging (both paper and plastic based),
engineering plastics, textile, food processing, paints, printing inks and other
products.

The first industry that was established in Vapi was Mutual Plastics in
1968. Government of Gujarat in order to encourage industries in Vapi gave
15% subsidy on land. Water based industries were encouraged as the town was
provided with twenty- four hour water facility and electric facility. Thus,
chemical and chemical product industries and paper mills were the first to
develop in this area. Other industries were established later on. Vapi G.I.D.C.

26
industrial area is divided into four phases and in all, there are 1200 industries
spread in these four phases.

The estate which, over the years, has energized as a major cosmopolitan
industrial township is now equipped with all amenities like hospitals, blood
banks, schools, community centres, fire stations, water filtration plant, post
office, telephone exchange (Electronic), police station, Banks (Major
Scheduled and Co-Operative banks), treasury, hotels, guest houses and a
common effluent treatment plant, biggest in the country

Being a major commercial centre, it caters to other industrial estates like

Sarigam, Umergam, Daman, Silvassa, Gondlav, etc., which are located on the
periphery of Vapi.

1.14.2 Self-Governance

Vapi GIDC estate is a Notified Area and the Notified Area Authority
administered by the Notified Area Advisory Committee, which has equal
representation from GIDC and the industries, performs all civic functions. The
Notified Area Tax paid by the industries meets the expenditure incurred by
Notified Area.

Vapi Industrial Association, popularly known as VIA, is the most

vibrant organ of the Industrial Township. As an integral part of the Notified
Area Administrative Committee, VIA has been instrumental in all development
activities that have gone into bringing up the township to what it is today. The
Association, which took shape in 1971 with a handful industrialists, now has
strength of over thousand members. VIA renders invaluable services to its
constituents in all spheres of industrial activities and performs a catalytic role
in implementing various policies and programs of the Government.

27
1.14.3 Service to the Surrounding Villages

Towards fulfilment of social responsibility, drinking water is supplied to

the Vapi Town and some of the surrounding villages free of charge for the last
20 years at a capital cost of Rs 136 lakhs. But, together the industries of Vapi
GIDC Estate contribute an aggregate sum of Rs 400 lakhs per annum towards
supply of water and other development costs for the villages. It has also given
impetus to organising several programs like free health camps, eye camps, etc
for the benefit of villagers. Some of the industries, on individual capacity, have
adopted some backward villages for development and provide schools,
dispensaries and other amenities.

Section - V

1.15 Hypotheses

The study has been undertaken to test the following hypotheses:

1. Structural reforms bring significant technological changes.

2. Human resources development is an essential ingredient of

industrial growth and change.

3. Technological changes not only alter the production structure but

also the human resources requirements of the industrial sector.

4. Technological changes influence the industrial relations.

1.16 Objectives

The objectives of the study are:

1. What kind of technological changes have taken place in chemical

industry after New Economic Policy was adopted in India?

28
 2. Whal kinds of changes have taken place in sales, marketing,
profit, etc. of the chemical industrial units after the introduction
of structural reforms and globalisation?

3. Are there any difficulties faced by the industry after the

introduction of New Economic Policy?

4. How these technological changes have affected the employment

structure of the industry?

5. What has been the change in the pattern of employment in

chemical industry in the wake of structural reform?

6. Is there any change in the manpower requirements of the

chemical industry after structural reforms?

7. What measures have been adopted by the industry for the

development of its personnel and manpower?

8. Is there any change in labour- management relations after the

adoption of the technological changes?

9. How does the management perceive these economic changes

taking place as a result of the structural reforms?

1.17 Research Methodology

There are 400 chemical industrial units in and around Vapi engaged in
the manufacturing of chemical and chemical products. The list of these
industrial units was collected form VIA directory. Through systematic
sampling method, 25% of the units were then selected for a primary survey.
That means every fourth unit was included in the sample of 100 industrial
units. These industries were visited personally for a formal interview. The
management of the unit (various personnel at different levels) being surveyed
was interviewed through a pre-tested structured questionnaire. Primary data

29
 pertaining to general information about the unit, sales and marketing,
replacement and modernisation, capacity utilisation, credit facilities, industry
and environment, general information about workers, recruitment and training,
absenteeism, wages and salaries, welfare activities, health measures for
employees, industrial disputes, impact of structural reforms on trade unionism,
etc., was collected from the units. This data was then tabulated using SPSS
software. Various statistical tools used in the study are measures of central
tendency; compound annual growth rate, etc.

1.18 The Chapter Scheme

The thesis is divided into six chapters. Chapter one deals with
introduction. Chapter two with review of literature on Human Resource
Development and Industry. An attempt is also made to review some case
studies related to HRD and industry. Chapter three deals with chemical
industry in Vapi. Various aspects studied are general information about
workers, sales and marketing, replacement and modernisation, capacity
utilisation, credit facilities, industry and environment. Chapter four on workers
in Vapi chemical industry deals with general information about workers,
recruitment and training, absenteeism, wages and salaries, welfare activities,
health measures adopted by industry for employees, industrial dispute, and
v impact of structural reforms on workers, employment and trade unionism.
Chapter five deals with structural reforms and its impact on industry and
perception of the employers about the structural reforms in industry. Chapter
six deals with summary, conclusions and recommendations.

Foot Note:

1 Several studies were carried out by Chitale, V.P. (1980),

Srinivasan and Narayan (1977), Chakravarty (1979), Dalai and
Lahiri (1977), Mohanty (1966), Patnaik and Rao (1977), Mitra
(1977), Nayyar, D. (1979), Chakravarty (1979), Bhagwati and
Srinivasan (1975), Panchmukhi (1978), Wolf (1982), Ahluwalia
(1987), Raj (1979), Vaidyanathan (1977), Shetty (1978), Desai
(1970), Mundle (1982).

30
 2 For details see Agrawal and Patel, 2002.

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