Industrial Economics

Introduction
Industrial economics is also known as: Economics of Industries, Industrial Organization It all started in 1950s by the writing of R.W.S. Andrews in the USA There are 2 broad elements of industrial economics, namely: A) Descriptive Element B) Business policy & decision making element

Intro
The descriptive element is concerned with the information content of the subject This would enables to get full knowledge facilities such as: Transport & communication facilities, Supplies of power & energy, Urban infrastructure, Level of industrial development, Development of trade & commerce, Nature of competition prevailing in the industry, The taxation policy of the government

The industrial or business policy & decisionmaking It deals with such topics as: Nature of the competition prevailing in the market, Supply & demand conditions relating to the products of the industry, Pricing policy, Cost of production, Choice of the techniques or technology, Location of the plant, Investment planning

 Decision making is an important part of industrial economics. Every industrialist or businessman has to make important decisions in his industrial activity How do decision making problems arise in industries To answer the above question we need to answer the following question - What is the Root-cause in economics
The root cause in economics is the problem of satisfying unlimited wants with limited resources having alternative uses. Similarly, man as a producer, also faces with a problem of choice i.e., a problem of choosing b/w commodities to be produced. The resources like Land, RM, Labour, capital etc. are only scare but they can also be utilized for alternative purposes To maximization of gain or profit.

 While the main aim of the consumer is to maximize his satisfaction in consumption The main aim of a producer in production is to maximize his profit in production There are several basic issues on which a producer is to required to take decisions such as:

What products should be produced What should be the level of the production large scale or small scale What kind of technology should be adopted in production Where or at what place the production should be carried on What should be size of the plant What should be the price(s) to be fixed for his product(s) What is the nature of the competition prevailing in the market for his products How much should be spent on advertising & publicity What sources of finance should be selected for financing his industrial unit

Difference between Industrial economics & Micro Economics

Micro Economics Primary aim is profit maximization It is passive in its approach due to constraints It is abstract in nature The conclusions derived from it are not testable empirically It may ignore the public policy implications Industrial Economics More than profit maximization It is active in its approach as is tries to remove constraints It is concrete It is free from such limitations It takes care of the public policy implications

Industrial Economics & Industrial Management

Industrial Management is also know as managerial economics There are two main striking differences between the two: The first, Managerial economics starts with the assumption that the firm primarily aims at maximizing its profits & then, it proceeds to examine the manner in which it has to take decisions & formulate rules & procedures with a view to achieving its primary goal

Industrialization
Meaning: Industrialization is a process in which there is a sharp increase in the industrial share of GDP & of the labour force. It is thus the process by which the centre of gravity of the economy shifts from agriculture to industry Industrialization involves 2 things: 1.Adoption of technology 2.Application of modern techniques of management & organisation

According to P J Nehru

It is only when India has acquired the ability to design, fabricate & erect its own plants without foreign assistance than it will have become a truly advanced & industrialized country.

 Raising Peoples Incomes High Potential for growth Meeting ever-increasing demand Self-sustaining development Balanced regional development Terms of trade Rapid urbanization Development of services sector Development of science & technology Development of infrastructure

Importance of Industrialization in India

Factors influencing industrialization in India Extent & pace of industrialization Nature of industries Exports & Imports
consumer & capital

Order of priority Location of the industries Large & small scale industries

Factors Hindering Industrialization in Under Developed countries

Economic Factors :
Scarcity of capital Lack of adequate infrastructure Absence of industries to use the by products of existing industries. No proper institutions which can give education & training to work force Lack of repair facilities in another obstacles to a proper utilization of machinery Absence of sound banking to provide proper credit facilities Lack of appropriate technology

Factors Hindering Industrialization in Under Developed countries

Socio-Demographic factors:

Fast raising Population

Sharp increase in the labour force (adv or A4 adv) The social organisation & social attitudes in underdeveloped countries create the hindrance:

Sharp increase in the consumption in the economy Inadequate saving makes investment impossible

Influencing the supply of various productive factors like labour, capital & entrepreneurial ability Various social customs & attitudes puts a check on the mobility of labour as regards the supply of capital social factors reduce the accumulation of capital in UDCs Entrepreneurial ability also suffers on account of social rigidities & attitudes

Factors Hindering Industrialization in Under Developed countries

Administrative Factors: Various administrative factors

also adversely affect the level of productivity & output in the industrial sector: Inefficiency of administration generally leads to mismanagement & loss in PSUs Frequent change in the policies, foreign exchange rates, customs & excise, licensing policies create uncertainly in the minds of the investors Improper & faulty labour legislation in another element of the public administration which cause tension in UDCs

Factors Hindering Industrialization in Under Developed countries

International Factors:
Competition from the imported goods Imposition of custom barriers by the developed countries High costs of import of scarce raw-materials Technical know-how, Machinery & equipment

Underdeveloped Economy
Definitions of Underdeveloped Economy: According to planning commission An Underdeveloped economy is characterized, by the existence, in greater or less degree of unutilized of underutilized manpower on the one hand & unexploited natural resources on the other. This state of affairs may be due to stagnancy of techniques or to certain inhibiting socio-economic factors which prevent the more dynamic forces in economy from asserting themselves .

Underdeveloped Economy
Definitions of Underdeveloped Economy:

An underdeveloped economy is characterized by high population growth rate, abundant but underutilized natural resources, a low rate of capital formation, a low standard of living accompanied by continuous & sustained efforts to raise it through a proper utilization of available natural resources, manpower, financial & entrepreneurial resources.

Characteristics of underdeveloped Economy

Low per-capita Income Inequitable distribution of wealth & income Predominance of Agriculture Deficiency of capital High rate of population growth Unemployment & underemployment A dualistic economy Technical backwards

Evolution of Industry in India

India was known as the nourishing mother of Asia & the industry workshop of the world. India was known for its traditional cottage & village industries. After the industrial revolution in Great Britain. Indian become plantation growing country In the 2nd half of 19th century, foundation of the modern industry laid in India Several consumer industries like cotton, textiles, Silk, Sugar, Jute, Leather etc. were started. After independence

Industrial Development since Independence:

At the time of independence, India did not have a balance & well developed industrial structure. There was a predominance of consumer goods industries, compared with capital goods. The following important changes have taken place
Strengthening of infrastructure Building up of capital goods industries Growth of elite, non-essential consumer goods industries Expansion of public sector Research & development

Problems of industrial development in India

Uneven Growth Under utilization of capacity Inefficiency Increasing capital-output ratio Insufficient production of Goods to mass consumption Inadequate generation of employment opportunities Poor performance of public sector Sectoral imbalances Regional Imbalances Industrial sickness

Small Scale Industries

SSI & cottage Industries are defined on the basics of their size, capital employed, labour force of the individual unit, their working & management. Cottage is carried out & runned whole & sole by the same family members full time or part time SSI mainly operated by hired labours, usually 10 to 50 men SSI sector covers a wide spectrum of industries categorized under:
Small scale industrial undertakings - 1 Crore Ancillary industrial undertakings - 75 lakhs to 1 Crore Tiny enterprises - not exceeding 25 lakhs capital Small scale service enterprises 25 lakhs Village & cottage industries - 5 lakhs to 25 lakhs

IMPORTANCE OF COTTAGE & SSI IN INDIA

Employment generation: Rural 3 urbanization Social & political

Ownership wide spread Greater employment potential

Flexibility starting anywhere, low capital, easy to

move

Efficiency Industrial disputes

PROBLEMS OF COTTAGE & SSI IN INDIA

Shortage of raw-materials
Problem of finance assistance Difficulties in marketing products Obsolete techniques of production Under-utilization of capacity Other Problems

Government Policy & Measures

Since 1947 IPR Industrial Policy Resolution 1948, 1956, 1977, 1980 Increase in the industrial expenditure on SSI
42 crs in 1st Plan 187 crs in 2nd Plan 1945 crs in 6th Plan 3249 crs in 7th Plan 7266 crs in 8th plan 8384 crs in 9th plan

Government Policy & Measures

Measures: Organisation:
Central Government Set-up the National Industries Corporation NSIC for the supply of
Raw materials, Components of organizing industrial estates

Small

All India Level Boards for the promotion of different industries

Khadi & village industries Board Cottage Industries Board All India Handloom Board All India Handicrafts Board Inventions Promotions Board

Government Policy & Measures

Technical Assistance
Central Small Industries Organization has set-up 16 Small Industries & services Institutions & 65 Extension centers These institutions render technical guidance & assistance & in planning their production to small units, Govt. has set up the central Institute for Industrial Design for the purpose of designing & adopting machinery suitable for Indian conditions. The Small Inventors Development Board has been set-up to assist inventor in Small units.

Government Policy & Measures

Financial Assistance:
SSI can borrow funds from state govt. at low rate of interest, under the state Aid to industries ACT. Every state has set-up a SFC State Financial Corporation to advance loans for long period National Banks Regional Banks Industrial Co-operative societies

Government Policy & Measures

Marketing Assistance:
NSIC plays a major role It has set-up whole sale depots, to sell their products The various boards have also set-up their own retail shops & show rooms form promoting the sale. Handloom & Handicrafts exhibitions

Government Policy & Measures

Industrial Estate:
Govt. acquired lands, develop it, constructed roads & put up factory buildings, the buildings will be let out for rent.

District Industries Centre: The government

set-up DICs to remove obstacles in the supply of raw-materials, training, credit facilities, support in acquiring machinery etc.

Large & Medium Industries

The Large industries made it real beginning with the establishment of the Tata Iron & Steel Company TISCO at Jamshedpur in 1907 In 1908 Indian Iron & Steel Company - IISCO Iron & Steel industry has made considerable progress From 1 million tones of finished steel in 1950-51 37 million tones in 2003 124 million tones by end of 2012 Expected to reach 275 million tones by 2020 From the point of view of total investment, iron & steel industry is accounting of Rs. 4000 crs. Exports of finished steel had gradually increased from 2.7 million tones to 4.8 million tones by 2003-04 It has been improved to 5.9 million tones in 2006-07

Problems of Iron & Steel Industry

Under-utilization of installed capacity:
Inadequate availability of Coal Power, transport facilities Lack of proper maintenance Defective & poor management Poor management & labour relationship

Inefficiency of Steel Plants in Public sector: The unsatisfactory

performance of PSU is due to factors like:

Disproportionately heavy investment in overheads Inefficient management- especially at the Top Mgt Poor management & labour relationship Strikes & Lock outs

Problems of Iron & Steel Industry

Problems of Administered Prices:
Middle men charging high prices Black marketing of Steel Government made a huge loses The govt. abolished the system of administered prices Formation of Joint Plant Committee

Sickness among mini-steel plants:

Shortage supply of inputs/raw materials Inadequate power supply Constraint of working capital Poor management

Problem of Metallurgical coal:

Shortage of high grade coal in India Demand is high as the expansion of steel industry

Sugar Industry
India is largest producer of sugarcane The Indian sugar industry ranks 4th in the world After Russia, Brazil, Cuba Capital Invested is Rs. 1350 Crs 3.25 lakhs workers are employed Besides that 45 million farmers of sugarcane To improve the situation of the sugar industries There are now 506 sugar factories in India. The most of sugar industries are in UP & Bihar Sugar Policy to benefit the Customer & farmers follows dual price policy

Problems of Sugar Industry

Shortage of Sugar Cane Supply Competition from Khandsari units High Cost of Production Old machinery Uses of By Products There are 2 important by products
Molasses - used for paper Bagasses - alcohol, cattle food, fertilizer

Cotton Textile Industry

Cotton Textile Industry is one of the oldest & well organized industry in India There are about 1100 mills accounting to 20% of the industry output Providing 20 million jobs, & millions more indirectly dependent on cotton textile industry It contributes 33% of the export earnings India stands 1st in production & 2nd in the cotton textile trade next to Japan The capital invested is estimated to be 1500 crores The 1st cotton textile mill was established at Bombay, Coimbatore, Ahmadabad & sholapur Most of the cotton industries are located in Bombay 33%, Ahmadabad -20%, coimbatore 27%

Problems of Cotton Textile Industry

Obsolete Machinery & need for Modernization
80% of the mills machinery are old & worn-out
leads to increase in the cost of production, raising prices & reduce productivity

The Govt. set up the Textile Modernization Fund of Rs. 750 crores in 1986 & asked the IDBI to it.

Problem of Raw-Materials Power Cut Competition from Synthetic fabrics Restrictions on Production nor of restrictions on production, price & quality Sick Mills Heavy Taxation Foreign competition

Jute Industry
Jute industry was started in 1885. It is important to the economy for its ability to earn the foreign exchange The total No. of the looms installed in 1969 units was about 44900 The Indian just industry accounts for 30% of the world output of jute. It has employed more than 2.5 lakhs in a straight line & more than 40 lakhs families derive their living form jute cultivation There is be the declining in production from 799000 tonnes to 2225000 tonnes in 1998 The govt. of India has set up the Jute Corporation of India in 1971 with the objective of
Giving price support to create buffer stock of raw jute To avoid price fluctuations To take measures to promote export of jute manufactures

Problems of Indian Jute Industry

Problems of Raw Materials:
As the result of partition of the country nearly 70% of the jute growing are went to East Pakistan ( Now Bangladesh) But the most of the mills remained in India

Competition from substitution:

Substitutes like paper, cloth, hemp products.

Problems of high Prices: Indian jute goods are being prices high in world jute market
Most of the mills are using old & worn out machinery The scarcity of raw jute Imposition of export duty is also responsible for raising prices Many of mills are inefficient management

Joint Sector
Joint sector can be defined as a form of partnership between government & the private sector By passing of the industry policy resolution in 1956 The government started number of companies in collaboration with the private sector by sharing the management, control & ownership Cochin refineries started in 1963 & madras refineries & Gujarat state fertilizer company started in 1965, Air India International provides another notable example

Role of Joint Sector

Social control over industries Better industrial growth Broad-basing of industrial entrepreneurship