Structural Dimensions of Indian Economy

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MS-3Economic and

Social Environment

Indira GandhiNational Open UniversitySchool of Management Studies

Block

2STRUCTURE OF INDIAN ECONOMYUNIT 4

Structural Dimensions of Indian Economy 5

UNIT 5

Structure of Indian Industry 37

UNIT 6

Public Sector in India 50

UNIT 7

Private Sector in India 72

UNIT 8

Small Scale Industry in India 85

UNIT 9

Sickness in Indian Industry 103

Structure of IndianEconomy

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BLOCK 2 STRUCTURE OF INDIANECONOMY

In Block 1, we had discussed the Economic and Social Environment ofBusiness. We had also examined the changing role of the Government.In this block we discuss the structure of the Indian Economy and itsramifications.

This Block consists of Six Units.

Unit 4 Structural Dimensions of Indian Economy begins by explaining thedistinction between economic growth and economic development. The unit thendiscusses India’s growth experience. The basic structural changes in the Indianeconomy are reviewed. The trends in India’s savings and investment, and in themonetary and price spheres are examined. The unit concludes with a briefdescription about other structural dimensions and demographic trends.

Unit 5 Structure of Indian Industry presents an overview of India’sindustrial growth experience. The structural changes and ownership patterns ofIndian industry are discussed.

Unit 6 deals with Public Sector in India. The objectives, structure, growth,working and performance of public sector are discussed and issues areexamined.

Unit 7 focuses on Private Sector in India. The nature, scope, growth,problems and prospects of private sector in India are discussed and issues areexamined.

Unit 8 deals with Small scale Industry in India. Small Scale Industry hasalways occupied an important place in India’s economic development. The unitpresents some basic definitions and data about the structure of small scaleindustry. The industrial policies and programmes, institutional infrastructure,growth, problems and prospects in relation to small scale industry are discussed.

Unit 9 deals with Sickness in Indian Industry. The various factorsresponsible for sickness of Indian industry are examined and assessed. Whatmeasures can be taken to tackle the problem of industrial sickness are alsodiscussed.


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UNIT 4 STRUCTURAL DIMENSIONS OFINDIAN ECONOMY

Objectives

The main purpose of this unit is to help you to:

understand the significance of economic growth and economic development

analyse India’s economic growth experience

discover and explain structural changes in the Indian economy, and

understand the current economic situation in India.

Structure

4.1 Introduction

4.2 Economic Growth and Development

4.3 Indian Economic Growth Experience

4.4 Basic Structural Changes in the Economy

4.5 India’s Saving and Investment : Trends and Components

4.6 India’s Monetary and Price Trends

4.7 Other Structural Dimensions

4.8 Demographic Trends and Structure

4.9 Summary

4.10 Key Words

4.11 Self Assessment Questions

4.12 Further Readings

4.1 INTRODUCTION

The socio-economic environment of any country can be explained in terms ofan institutional framework and a physical framework, the economic policystatements of the government, economic plan documents, the politicalconstitution, economic regulations and controls, among others which define therole and status of private sector, public sector, multinationals, corporations, smallbusiness, etc. The critical elements which constitute the institutional frameworkof an economic environment. The trends in economic variables such as income,price, output, investment, foreign trade, labour supply and other factorendowments and the structural relation among these variables constitute thephysical framework of an economic environment.

Describing and analysing the economic environment is a difficult task.Discretion and personal judgement play an important part. Difficulties arise inthe context of both institutional and physical framework. Just as variousinterpretations of policy statements are possible various conclusions could alsobe drawn from the economic data.

The purpose of gathering (mainly from official sources) and analysing data is toobtain a clear picture of major economic trends and structural changes in theeconomy. The trends and structural coefficients together enable us to make aquantitative assessment of the economic environnment of a business/firm andthereby to outline strategies for macroeconomic management. A knowledge ofeconomic trends and structural changes thus helps the firm to plan out acorporate strategy and policy to cope with short-run and long-run challenges ofbusiness environment. This argument is particularly valid for a developingcountry.


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This unit attempts to present the relevant economic trends, and discuss thestructural changes. It then examines the implications of growth and structuralchanges that have occurrred. It also analyses the current economic trends, anddiscusses the impact of environment on business management.

In this unit, you may have to refer to additional statistical materials time andagain. Of course, you are not expected to remember the details of all suchdata. You should only take note of such trends which are useful to the analysisof the system-environment of your own business.

4.2 ECONOMIC GROWTH AND DEVELOPMENT

“Growth” and “development” are sometimes used synonymously in economicdiscussion. Though the two terms are used interchangeably, they have differentconnotations. Economic growth means more output, while economicdevelopment implies both more output and changes in the technical andinstitutional arrangements by which it is produced and distributed.

Growth may well involve not only more output derived from greater amounts ofinputs but also greater efficiency, that is, an increase in productivity or anincrease in output per unit of input. Development goes beyond this to implychanges in the composition of output and in the allocation of inputs by sectors.As with human beings, to stress “growth” involves focussing on height orweight (or national income), while to emphasize development draws attention tochanges in functional capacities — in physical coordination, for example, orlearning capacity (or ability of the economy to adapt).

Economic Growth

Economic growth may be defined as a significant and sustained rise in percapita real income. One must distinguish the “level” from the rate of economicgrowth, though these two concepts are obviously related. The level of economicgrowth of a country is measured by the size of national (or per capita) realincome. The percentage change in this level over a year is the annual rate ofgrowth. That is, if we denote the levels of real income in two years Y

1 and Y

2

and g as the rate of growth (expressed in percentage terms), then per capita

100g1

12×

−=

Y

YY

real income is supposed to be the least imperfect measure of economic growthof a country. It takes into account changes in national income, population andprice level. In this connection the following relationships are very useful:

Real national income = National income at current prices/General priceindex In symbols.

Y = (Y/P) x 100

Per capita real income = population

income national Real

In symbols

N

y=py

Real income growth rate = Growth rate of national income at currentprices — Inflation rate

In symbols

P–Yy =

Bar over a symbol signifies rate of growth of that variable

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Per capita real income growth rate = real income growth rate – populationgrowth rate

In symbols

NYy p −=

Inter-temporal (over a period of time) and international (over space)comparisons of economic growth can be made. For the first (for example acountry’s growth experience over a period of time), we use time-series data.For the second we use cross-section data relating to different countries.

When you are interested in comparison of levels of living, the per capitaincome measure is to be supplemented by a few other measures like per capitaconsumption of essential goods and services, per capita production, andavailability of certain items (for example electricity per capita), etc.

Labour productivity (output per worker) may be considered as an index ofgrowth and standard of living. If we denote real national income by y,population by n, working force by w, then we can rewrite real per capitaincome y

p as

W

y

N

W

N

yy p ×==

This definition suggests that the level of per capita real income (yp) is the

product of ‘labour force participation rate’ (W/N) and real income per worker.From the above equation it is obvious that given the labour force participationrate (W/N), the change in labour productivity (Y/W) reflects the growth trend inper capita income. An increase in labour productivity suggests economicgrowth, a decline in labour productivity suggests economic deterioration, and aconstancy of labour productivity signifies stagnation of the economy.

The labour productivity measure of economic growth is of crucial significancefor management in developing economies. In capital-scarce developing countriesthere is undoubtedly a need for optimum utilisation of plant and machinery.The preceding argument suggests that there is perhaps a more urgent need forefficient and optimum utilisation of labour in a developing country which islabour-abundant.

The task of management in this context is to maintain an industrial relationsclimate such that labour productivity can register rapid improvement. Thus‘productivity movement’ or ‘productivity revolution’ is a key to improvement inthe economic environment of developing countries.

Economic Development

‘Economic development’ is a broader concept than ‘economic growth’. As andwhen the economies grow in terms of national and per capita income levels,certain structural changes accompany the process of growth. Conceptually, thetrends in income and the structural changes together constitute economicdevelopment.

The structural changes which are quite fundamental in character are inherent inthe process of economic growth. The upward trend in per capita real income(that is, economic growth) implies, given the labour force participation rate, arise in product per worker or labour productivity. An increase in labourproductivity cannot result without capital accumulation and fundamental changesin the production function (functional relationship between flows of output and

Structural Dimensionsof Indian Economy


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corresponding flows of inputs) of the economy. A progressive shifts in theproduction function is the direct outcome of technological advancement, andscience is the base of modern technology.

As science and technology advance, innovations (new products, new productionprocesses and methods, new markets etc.) take place; inventions result and getspread. Such process of growth (scientific progress, invention and innovation)cannot be economically sustained for long unless it increases the productivity oflabour. The increase in the flow of material goods and service must also beabsorbed, otherwise the process of growth gets obstructed by market limitation.In other words, the changes in production structure must be synchronised andbalanced with the changes in the consumption structure. The structure ofsociety’s wants and preferences (in short, structure of demand) must change insuch a way as to induce or assist changes in production and productivity andthereby to accommodate the changes in science and technology. Similarly, theprogressive development through science and technology cannot come aboutunless the society manages to generate capital formation (through savings andinvestments) and to finance research and development of science. (The presentday developing countries can supplement their scientific research efforts withscience and technology transfer from more developed countries). Thus we findthat during the process of economic growth, an economy experiences manifoldchanges in its structure: social, political and economic. For an understanding ofthe changing economic environment in a developing country, we may examinespecifically the nature of some of the structural changes which are economic incharacter.

Structure of National Output

Studies of economic development of many present day “more developedcountries” (a phrase suggested by Everett E. Hagen) like the U.S.A., theUnited Kingdom, and Japan suggest that a change in the structure of nationaloutput is a concomitant feature of economic growth. As an economy grows, onthe one hand the level of national income increases, and on the other,composition of national income changes. The percentage contribution ofagriculture to gross domestic product declines and the contribution of industryand services to gross domestic product increases. This reflects positive incomeelasticity of deamnd for non-agricultural output. This means that a givenpercentage increase in the income will result in higher percentage increase indemand for non-agricultural output. As the ratio of non-agricultural toagricultural output increases during the period of economic growth, labourproductivity increases in both agricultural and non-agricultural sectors. The rateof growth of non-agricultural output is observed to be faster than that of non-agricultural employment and therefore, the labour productivity (output perworker), in mining, manufacturing and services registers improvement during theprocess of economic growth.

Structure of Employment

Economic growth is also associated with a chane in the structure ofemployment of people. It is generally accepted that one of the structuralchanges that occur in the course of economic growth is a progressive shift oflabour from agriculture and allied activities to secondary and tertiary sectors.Studies based on historical data of the industrialised economies of the Westhave amply demonstrated the validity of this Fisher-Clark thesis. The shift inoccupational pattern runs parallel to the shift in output pattern because thesame factor — positive income elasticity of demand for non-primary goods andservices — underlies the process of economic growth.

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Structure of Investment and Capital Formation

A change in the structure of investment and capital formation is anotherdevelopment during the process of economic growth and development. Withindustrialisation and consequent urbanisation, the structure of industries changes.Capital and producer goods industries grow in importance, and comsumer goodsindustries decline in relative importance. In developing countries (particularlythose with planning) in the initial stage of development, resources aredeliberately shifted from consumption goods to capital goods. Thus theinvestment structure changes. The investment in human capital (education andhealth) and in social overhead capital (like irrigation, transport, etc.) increasesvery rapidly in the early stage of development when the infrastructure ofdevelopment is laid stronlgy. Similalry, in the early stage of development, thedependence on foreign capital (aid, loans and grants) and foreign technologymay also be very high. This means that the ratio of gross (and net) domesticcapital formation to gross (and net) national capital formation is affected. Thepoint is that different capital formation proportions reflect the nature and tempoof economic growth.

While on the subject of capital formation, we may refer to an importantdeterminant of the rate of economic growth. This determinant is the capital-output ratio. We distinguish average capital-output ratio from marginal orincremental capital output ratio. Incremental Capital-Output Ratio (ICOR) is theadditional capital required to increase output by one more unit. The following isthe basic economic growth rate (g) equation.

ICOR

investment of Rateg =

In the above equation g is growth rate and ICOR is Incremental Capital-OutputRatio. In macro-economic planning process as well as micro-level managementdecisions, this ratio proves very useful. Consider, for example, the macro-economic planning process. If a planning agency wants to achieve an annualgrowth rate of 5% (growth rate of national income) and if the incrementalcapital output ratio is 4, then what should be the annual rate of investment?The above equation helps us in answering the question.

ICOR

investment of Rateg =

In our above example, g = 5% and ICOR = 4.

4

investment of Rate

ICOR

investment of Rate5% ==

Rearranging terms we get

Rate of investment = 5% x 4 = 20%

Changes in the capital-output ratio is a dimension of economic growth anddevelopment process.

Structure of Consumption

The upward trend in per capita income (economic growth in short) whichinitiates and accelerates changes in production, employment, factor proportion,skill and capital formation directly brings about a change in the structure ofconsumption. As income changes, the pattern of income distribution (betweenregions, between sectors and between persons) also changes. This is backed upby changes in relative price structure of the economy, the domestic terms oftrade between agriculture and non-agriculture change. It is through theinteraction of all these factors that the structure of consumption and the



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standard of living undergoes a fundamental change reflecting changes in socialvalues, beliefs and consumer preferences.

Finally, with changes in the structure of employment production, incomedistribution and consumption, there comes naturally a change in the structure offoreign trade. In the initial stage of development, an economy may have toimport metals and machinery for modernisation and industrialisation. But as theindustrialisation proceeds with economic growth, the acceleration in the patternof exports and imports change.

Structure of foreign trade, in short, changes (a separate block in this course isdevoted to the external sector) as economy changes from primary commodity-exporting to export of manufactures.

In the next section we give an outline of the Indian economic growthexperience. The remaining sections deal with major structural dimensions ofIndia’s economic development experience.

Activity 1

a) List the structural changes typical of economic development.

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b) If national income at current prices (Y) is Rs. 1,00,000 crores and generalprice index (P) is 250, find out national income at constant prices or realnational income (Y).

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c) If target growth rate is 6 per cent and ICOR is 3, find out the requiredrate of investment.

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Activity 2

Refer to the latest Economic Survey of the Government of India andformulate tables about: (a) Net availability of cereals and pulses,(b) Net availability, procurement and public distribution of foodgrains,(c) Per Capita availability of important articles of consumption.

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4.3 INDIAN ECONOMIC GROWTH EXPERIENCE

In this section we present an overview of the Indian growth experience. Theinterest is to map the broad contours of the Indian growth experience for theperiod of little over four decades. This is to enable you to get a perspective oncountry’s economic growth which has at the root of major structural changes inthe economy.

During the period 1950-51 and 1999-2000, the Net National Product (NNP) atfactor cost at constant (1993-94) prices (real national income) recorded anannual growth rate of 2.4 per cent and 6.2 per cent respectively, while percapita NNP growth rate was only 1.71 per cent. The per capita NNP atconstant (1993-94) prices (real per capita income) increased from Rs. 3687 in1950-51 to Rs. 10306 in 2000-01. Thus during the 41 years period, the percapita income more than doubled itself approximately.

Growth Rate of NNP and NNP Per Capita

The growth rates of NNP and NNP per capita during different plan periodsgive an overview of the Indian growth experience. During the First Five YearPlan period (1951-56) the NNP in real terms grew at an annual compoundrate of 3.6 per cent, while per capital income grew at 1.8 per cent. Theperformance of the economy during the Second Plan period significantlyimproved over the previous Plan period. The growth rates of national incomeand per capita income were 4.1 per cent and 2.0 per cent respectively, higherthan the first plan growth rates. The growth rates significantly fell during theThird Plan Period (1961-66). While the NNP grew at an average annual rateof 2.5 per cent, the NNP per capita grew at the rate of 0.2 per cent only.During the three annual plans (1966-69), income and per capita incomegrowth rates picked up significantly. They were 3.8 per cent and 1.5 per centrespectively. During the Fourth plan (1969-74) the growth rates fell again.While the NNP growth rate was 3.3 per cent, the NNP per capita grew atthe rate of 1.0 per cent. The growth rates improved significantly during theFifth Plan period (1974-79). The NNP during the Plan period grew at anannual compound rate of 5.0 per cent, while per capita NNP grew at 2.7 percent. During the annual plan 1979-80 both NNP and per capita NNPrecorded negative growth rates. The growth rates were -6.0 per cent and-8.3 respectively. During the Sixth Plan (1980-85) period the growth rateswere significantly high. The NNP and NNP per capita grew at annualaverage rates of 5.4 per cent and 3.2 per cent respectively. Growth ratesslightly increased during the subsequent Seventh Plan (1985-90) period. Theywere 5.8 per cent and 3.6 per cent respectively. In 1990-92 NNP at constant(1993-94) prices grew at 3.0 per cent, per capita income growth rate being0.9 per cent. During the Eighth and Ninth Plan period percentage incomegrowth rates were 6.7 and 4.6. Thus, growth rates significantly picked up andexceeded the average for the 1980s decade.

Income and Per Capita Rate

The above account shows that both income and per capita income growth ratesfluctuated significantly. Several factors explain fluctuations in respect of growthexperience during the last four and half decades. Fluctuations in weatherconditions (alternating droughts and floods and periodic unfavourable monsoons),



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unfavourable increase in capital-output ratio (aggergate), balance of paymentsproblems and the consequent foreign exchange crises, wars with China andPakistan dislocating the development efforts, international transmission ofinflation through foreign trade, exogenous shocks such as oil price hikes duringearly part of 1970s and later, and the structural imbalances which havedeveloped in the economy as development proceeded were some of the majorfactors to be noted in this connection.

While one can discern several dimensions of economic progress of the Indianeconomy in the post-independence period, the rate of economic growth has notbeen adequate enough to take care of the twin problems of unemployment andpoverty. Added to this are the problems of growing inequalities in incomedistribution and in regional development. India’s per capita income is very lowrelative to per capita income of more developed countries like the USA.

Despite low growth rate and low level of per capita income, India today hasone of the most diversified industrial structures in the world.

In the remaining sections of this unit we examine the structural changes in theeconomy.

Activity 3

a) List the structural features of India today as a low income economy.Collect relevant data from Table 4.1 and others (Appendix 1) to substantiateeach of your point.

Structural Features Supporting Data

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b) From Table 4.2 (Appendix-1) identify the high growth decade andexplain the reasons for high growth rates during that decade.

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4.4 BASIC STRUCTURAL CHANGES IN THEECONOMY

Economic growth has brought about a structural change (change in sectoralshares of the national income) in the economy. This is evident in the form of ashift in the sectoral composition of production (income), diversification ofactivities and a gradual transformation of a feudal and Colonial economy into amodern industrial economy. The composition of gross domestic product haschanged steadily during the planning era.

Historical Overview

While the share of agriculture and allied activities fell from 58.73 per cent to27.69 per cent during 1950-52 to 1998-2000, the share of manufacturingincreased from 13.29 per cent to 24.71 per cent during the same period. Theshare of tertiary or service sector increased from 27.98 per cent to 47.60 per cent.

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Thus a growth has been observed where the relative share of agriculture isdeclining, industry nearly constant and services rising in the GDP. Theexpansion of service sector has not only been conducive for employmentgeneration but also for better efficiency of the system and better quality of life.

Thus significant structural changes have taken place in the Indian economyduring the period 1950-2000 when we go by sectoral distribution of nationalincome. Thus by income criterion structural change in the Indian economy hasbeen very significant.

Now let us consider structural change by employment criterion. It is generallyaccepted (as we noted before) that one of the structural changes that occur inthe course of economic development is a progressive shift of labour fromagriculture and allied activities to secondary and tertiary sectors. Studies basedon historical data have amply demonstrated the validity of this Fisher-Clarkthesis.

While this broad trend in sectoral reallocation of labour as developmentproceeded is thus firmly established, the interesting fact about these structuralshifts in economic activity for our purpose is not so much the ultimate declinein the importance of agriculture (in relative terms) as the rate at which itoccurred. To quote Paul Bairoch, “the proportion of active persons inagriculture diminished at a rate of less than 0.4 per cent a year till 1860, about0.9 per cent from 1860 to 1950, but at 4 per cent from 1950 to 1970. Thechanges in the redistribution of the active population in Western developedcountries have thus been more important in the last twenty years.”

Indian Experience

The above historical experience tells us that the sectoral redistribution of theactive population is a time-taking process. Unlike structural change based onincome criterion, structural change based on employment is a slow process.This is demonstrated by the Indian experience also.

The share of Primary sector in total employment declined from 12.28 per centto 8.65 per cent during 1961-63 to 1998-2000. That is if we go by employmentcriterion structural change in the Indian economy has not been significant.

The share of secondary sector (mining and quarrying, manufacturing, andconstruction) declined from 36.7 per cent to 31.7 per cent during the sameperiod.

The share of tertiary sector (trade and commerce, transport, storage andcommunications and allied services) increased from 51.03 per cent to 59.65 percent during 1961-63 to 1998-2000.

Two structural features of the Indian economy emerge clearly from the aboveaccount:

1) Agriculture continues to be important in the Indian economy. A little morethan 30 per cent of national income originates in the agricultural sector.

2) There is only slight structural change in the economy if we go by theemployment criterion.

The underdeveloped nature of the Indian economy becomes evident when wecompare the employment structure of the Indian economy with that of a moredeveloped country U.S.A. Agriculture in USA in 1986 accounted for only 7 percent of total workforce. The industrial sector and tertiary sector accounted for36 per cent and 57 per cent respectively.



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In the remaining two sections of this unit we will consider some morestructural dimensions of the Indian economy. Structure and changes in foreigntrade are separately dealt within the Block dealing with “External Sector”.

Activity 4

a) Take the latest Economic Survey and update Table 4.3 in the Appendix.

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b) List some reasons for the slow growth of non-agricultural employment inthe Indian economy.

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4.5 INDIA’S SAVING AND INVESTMENT :TRENDS AND COMPONENTS

Given the supply of labour force and its annual rate of growth, economicgrowth is primarily a matter of rate of capital accumulation and resourceproductivity improvements.Capital accumulation in different sectors of a nationaleconomy takes place through investments in those sectors. To financeinvestment, saving from current income is necessary. Further a well-developedfinancial system is necessary for mobilising savings from net surplus units inorder to lend to the net deficit units largely to finance their investment activity.Financial intermediation is the core function of the financial system.

Savings Rate

In our country, the saving rate (net domestic saving as percentage of NNP atcurrent prices) was a mere 6.2 per cent in 1950-51. In the same year, thehousehold sector accounted for Rs. 441.3 crores of the total net domesticsavings of Rs. 572.2 crores or in percentage terms for 77.1 per cent of thetotal net domestic saving. Of the total household saving of Rs. 441.3 crores,about 96 per cent was held in the form of physical assets and about only 4 percent was held in the form of financial assets. This is one aggregative indicatorof economic underdevelopment, on the one hand, and financialunderdevelopment on the other, of the country at that time.

But during the last four decades the country has experienced significanteconomic and financial development. The saving rate has been recordingsignificant improvements. From 6.2 per cent in 1950-51, it rose to 9.3 per centby 1960-61. By 1990-91 it further rose to 14 per cent. By 1993-94 it stood at15.3 per cent.

Households, private corporate sector (inlcuding cooperatives) and public sectorare three sources of saving. Let us see what has been the trend in respect ofthe relative contributions to national saving of these sources? In 1980-81,household sector accounted for 75.9 per cent of the total net domestic saving.

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Next in importance was the private corporate sector (including cooperatives)which accounted for 8.0 per cent of net domestic saving and public sectoraccounted for the remaining 16.2 per cent of net domestic saving. By 1990-91the picture has changed significantly. Household sector accounted for 84.4 percent of the net domestic saving. The saving rate of the corporate sector fellsignificantly and was at the level of about 42 per cent. Public sector savingstood at 0.15 per cent of the net domestic saving. Thus the household sector(which includes apart from individuals, all non-government, non-corporateenterprises) accounts for most of the savings in the economy. The dissaving ofpublic sector was increasing from year to year during the period.

Table 4.5 (A) reveals that household sector saving provides the bulk of nationalsaving. The share of total household saving to total National saving is morethan three quarters. It does further suggest that the public sector saving ratedeclined but the corporate saving rate improved. This declining trend of publicsector saving rate is due to negative saving of government administration. Adecline in public savings was attributed to poor performance of governmentnon-statutory corporations, mounting government employment.

Household savings take broadly two forms. One is the form of physical assets.Savings in the form of physical assets comprise additions to ‘construction’‘machines’ and equipment and inventories. Savings in the form of financialassets comprises of currency, deposits with banks with corporate enterprises,provident/pension funds, claims on government, insurance and compulsorydeposits. In 1999-00 financial assets accounted for 10.5 per cent of the grosssavings of the household sector and 10.3 per cent savings were in the form ofphysical assets. By 2001-02 the saving in the form of financial assetsaccounted for 11.2 per cent, 11.3 per cent being accounted for by saving in theform of physical assets. Thus there took place significant financial developmentduring the three decades.

Financial-Asset Structure of the Household Sector

Let us now look at changes in the financial asset structure of the householdsector. The significant changes in the composition of assets of the householdsector indicate rapid strides made by the financial system of the country. Thecurrency component decreased in relative importance as its share in the totalgross saving decreased from 31.8 per cent in 1960-61 to 17.8 per cent in1987-88. The importance of deposits in the portfolios of household sectorincreased subtantially during the period from 2.4 per cent in 1960-61 to 27.9per cent in 1987-88. The phenomenal growth of banking facilities and otherfinancial intermediation and spread of banking habit among households becomesevident from this. There is still an untapped potential in respect of governmentsecurities, investments in UTI (Unit Trust of India) and life insurance business.Evolving an appropriate structure of interest rates and through LIC rationalisingits premium structure which helps in boosting its business, the potential can berealised.

Savings when invested results in capital formation. The share of thecommodity sector (agriculture, forestry, fishing etc. and mining andmanufacturing, construction, electricity and water supply) in gross domesticcapital formation improved from 56 per cent in 1980-81 to about 60 per centin 1989-90 and that of the non-commodity sector (services) declined fromabout 44 per cent to 40 per cent during the same period. Within thecommodity sector, the share of mining and manufacturing significantly roseduring the period from 37.5 per cent to 48.5 per cent. This is an indicator ofthe growing importance of mining and manufacturing in gross domestic capitalformation.



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Gross Domestic Capital Formation

Gross Domestic Capital Formation (GDCF) is classified on the basis of type ofassets into two components – (a) Gross Fixed Capital Formation (GFCF) and(b) changes in stocks or inventories. The share of the former improved fromabout 84 per cent in 1950-51 to 92 per cent in 1990-91. This was a healthytrend because it indicated that inventory accumulation was low.

Gross Domestic Capital Formation as a percentage of Gross domestic productincreased from about 81 per cent in 1960-61 to about 23 per cent in 1990-91.This shows significant improvement in investment effort. As for the division ofGDCF between public sector and private sector, in 1960-61 GDCF in publicsector was 38.9 per cent, while that in private sector was 61.1 per cent.By 1990-91 the percentages were 37.5 and 62.5.

The economic growth rate has not been commensurate with the rate ofinvestment. Among many reasons for this (such as under-utilisation ofproductive capacity, inefficiency in resource use, etc.), rising capital-output ratiohas been one (Table 4.6 in the Appendix). The ICOR (Incremental Capital-Output Ratio) rose from about 2.95 during1951-52 to 1955-56 to 4.36 during1985-86 to 1991-92. During Eighth Plan period it declined to 3.43 and againrose to 4.53 during Ninth Plan period.

Activity 5

a) Read again what we have discussed in this unit so far and list the growthfactors below :

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b) From the relevant Table (in the Appendix) indicate the trend in financialassets of the household sector.

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c) List the financial assets and indicate the differences among them from riskand return point of trend.

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4.6 INDIA’S MONETARY AND PRICE TRENDS

A serious concern for the Indian economy since the middle of the Second Planperiod has been the upward trend in the general price level. The price trendsare related to, among others, the trends in money supply and governmentbudget deficits. The imbalances between demand for and supply of wagegoods, particularly food, triggered the price rise in early 1960s and several otherfactors have made inflation a persistent feature of the Indian economy.

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Money Supply

Money supply has increased rapidly and regularly. The money supply with thepublic (currency plus demand deposits, plus other deposits with RBI, referred toas M

1 in RBI publications) during the 21 year period 1970-71 to 1991-92

increased at the annual average rate of 17.7 per cent. In only one year(1977-78) it registered a fall from Rs. 15609 crores to Rs. 14388 crores. In allother years, M

1 registered positive growth rates. One interesting fact is that

while the average annual growth rate of M1 during the 19 year period 1970-71

to 1987-88 was 13.12 per cent, during the subsequent four year period from1988-89 to 1991-92 it was 18.5 per cent. Thus, prior to the severe economiccrisis in 1991, M

1 was growing at a significantly high rate, higher than the

average for the period 1970-71 to 1987-88.

M3 is defined as M

1 plus time deposits. M

3 grew at an average annual rate of

20.8 per cent during the period 1970-71 to 1991-92. The high growth rateobservable in respect of M

3 is largely accounted for by the growth rate in time

deposits.

During 1995-2001 M1 increased from 192257 crores to 472827 crores, while M

3

increased from 527596 crores to 1725222 crores during the same period.

Growth Rate : Principal Factors

Money supply growth rate has been an important factor behind the Indianinflation experience. The three principal factors responsible for the expansion ofmoney supply are :

a) Bank credit to commercial sector, (b) Bank credit to government and (c) netforeign exchange assets of the banking sector.

Inflation rate based on Wholesale Price Index (WPI) averaged 9 per centduring the period 1970-71 to 1991-92. It reached high levels during the twoyears 1973-74 (20.2 per cent) and 1974-75 (23.2 per cent).

Inflation rate based on Consumer Price Index (CPI) numbers (urban non-manual employees) averaged about 9 per cent reaching the highest level of22.2 per cent in 1974-75. Besides the government deficits and the consequentmoney supply growth rate, several structural and institutional factors have beenat the root of inflationary rise in prices in India beginning from mid-1950s at aslow rate, accelerating from mid-1960s and recording considerably high ratesduring the first half of 1970s.

The following factors have been responsible for inflation:

The very plan strategy adopted for accelerating development and theconsequent trends in the composition of domestic output and foreign tradewith adverse influence on domestic output and foreign trade with adverseinfluence on domestic price level.

Closely related to the above is the forced pace of structural change withlittle regard for sectoral balance and price stability.

Role of expectations emanating from inflationary psychology.

Plethora of controls inspired by ideological fixation with no firmeconomic basis and ineffectiveness in operating them leading to thegrowth of parallel economy making monetary and fiscal measures almostineffective.

Ineffective institutional measures for redistribution of wealth and income.



18

Inflationary nature of the role of distribute trade prompted by the seller’smarket conditions.

Exogenous shocks such as wars and oil price hikes.

International transmission of inflationary pressures.

The rate of change in wholesale and consumer prices suggest that the overalltrend in prices has been on decline since 1992. One striking trend noticeable isthe growing divergence between the rate of inflation based on wholesale pricesand that for consumer price index since 1993-94. Until 1993-94 the two ratesgenerally converged. Since 1995-96, the consumer price index based rate ofinflation has exceeded the based on wholesale prices by a wide margin. Thedivergence trend in the wholesale and consumer prices has been explained interms of the change in the weighting scheme for the two indices.

In the Block dealing with “Economic reforms since 1991”, you will learn aboutthe “New Economic Policy” to tackle with the problems of Indian economy,including the problem of inflation.

4.7 OTHER STRUCTURAL DIMENSIONS

Some of the other structural dimensions of the Indian economy are :

1) As for the tax structure, heavy reliance on indirect taxes and decliningimportance of direct taxes, such as income tax, have been resulting inadverse consequences so far as the objectives such as price stability andreduction in inequalities in income and wealth distribution are concerned.

2) Growth in non-developmental government expenditure has been a significantfactor in several economic ills facing the economy.

3) Heavy reliance on debt financing of government expenditure has beenanother feature of the Indian fiscal system.

4) Rapid population growth largely because of fast decline in death rate andvery slow decline in birth rate is another feature of the country withadverse consequences.

Remember, from the standpoint of analysis of business environment, it isimportant for you to gain mastery over the structural dimensions we haveexamined in this unit.

Activity 6

a) As a student of management, how would you look at the problem of inflation.List 3 causes.

.....................................................................................................................

.....................................................................................................................

.....................................................................................................................

.....................................................................................................................

b) Refer to RBI Bulletin (a monthly publication) and clearly explain M1 and M

3.

M1................................................................................................................

.....................................................................................................................

.....................................................................................................................

.....................................................................................................................

19

M3................................................................................................................

.....................................................................................................................

.....................................................................................................................

.....................................................................................................................

c) What is the importance of consumer price index?

Answer in three to four sentences.

.....................................................................................................................

.....................................................................................................................

.....................................................................................................................

.....................................................................................................................

4.8 DEMOGRAPHIC TRENDS AND STRUCTURE

The main problem in India is the high level of birth rates of accompanyingfalling death rates. The rate of growth of population which was about 1.3 percent per annum during 1941-50 rose to 2.1 per cent during 1981-91. The chiefcause of the rapid growth of population was the steep fall in death rate from49 per thousand during 1911-20 to about 11 per thousand by the end of 1980s.But the birth rate declined from about 49 per thousand during 1911-20 to about31 per thousand by the end of 1980s.

The fast rate of growth of population, given the rate of growth of GNP implieslower per capita GNP growth rate. For example, if GNP growth rate is 5 percent per annum, and population growth rate is 2 per cent, then per capital GNPgrowth rate is 3 per cent annum. To maintain a rapidly growing population, therequirements of food, clothing, shelter, medical and educational facilities and soon will be rising. Therefore a rapidly rising population imposes greater economicburdens and, consequently, the society has to make greater efforts to acceleratethe process of economic growth. Moreover, rapidly rising population implieslarger additions to labour force and higher dependency ratio. In 1990, forexample, 36.9per cent belonged to 0-14 age group, while 58.7 per centbelonged to age group of 15-64 in India’s population. The rapid growth oflabour force creates a higher supply of labour than demand for it leading to theproblem of chronic unemployment.

One heartening feature is that over the last three decades there has beendeclining trend in population growth rates. During 1965-80 the average annualpopulation growth was 2.3 per cent. In subsequent 1980-90 period, it declinedto 2.1 per cent. With the government policies for population control and familywelfare it is expected that by the end of this century population growth ratewill come down. The annual growth rate of population declined to 1.73 by2002-03.

As for the sex composition of population, the sex ratio (females per 1000males) declined from 972 in 1901 to 933 in 2001. The explanation for adeclining sex ratio lies in the poverty of the Indian people. In a country whereeven after more than 40 years of planned economic development nearly 35 percent (the poverty estimates differ widely) of the population live below thepoverty line, high infant mortality, extremely poor or non-existent medicalfacilities, extremely unhygienic conditions of living and absence of pre-natal andpost-natal care, high death rate among women are all manifestations of anobject low level of living of the people. Preference for male children andattempts to avoid female children is rather a recent phenomenon whichcontributes to keeping sex ratio at the lower level.



20

Age structure of population is an important demographic dimension. As notedbefore, rapid population growth implies high dependency ratio. 0-14, and 60 andabove, age groups constitute dependent population. In 1911, 0-14 age groupconstituted 38.8 per cent of population. In the same year 60 and above agegroup constituted 1.0 per cent of population. Together they constituted 39.8 percent. By 2001, the first age group constituted 35.6 per cent of population andthe latter age group constituted 6.3 per cent. Thus the percentage of dependentpopulation increased from 39.8 per cent in 1911 to 41.9 per cent in 2001.A high proportion of children (0-14 age group) only reflects a large proportionof unproductive consumers. To reduce the percentage of non-productiveconsumers, it is essential to bring down the birth rate.

Rural-urban composition of population is an important demographic dimension,particularly from point of view of economic development. Along with economicdevelopment in general and industrialisation in particular the rural-urbancomposition of population has been changing in India. In 1901, 89 per cent ofIndian population was rural, the remaining 11 per cent being the urbanpopulation. By 2001 the percentage of rural population declined to 77.2 percent, while that of urban population increased to 22.8 per cent.

The quality of population can be judged from life expectancy, the level ofliteracy and the level of technical training attained by the people of a country.In respect of all the three indicators India achieved significant progress althoughthe country is still to go a long way in achieving the standards of more affluentcountries. The literacy rate has gone up from 18.2 per cent in 1951 to 65.4 percent in 2001. Life expectancy at birth has gone up from 41.2 per cent in 1951to 65.3 per cent in 2001.

Activity 7

From 2001 census data, determine.

a) Sex ratio giving the details about sex composition of population.

b) Rural-urban composition of populatioin.

c) Age distribution of population.

d) Choosing suitable diagrams (barcharts, pie diagrams etc.) represent thedemographic profile of India according to 2001 census.

.....................................................................................................................

.....................................................................................................................

.....................................................................................................................

.....................................................................................................................

.....................................................................................................................

.....................................................................................................................

.....................................................................................................................

.....................................................................................................................

4.9 SUMMARY

In this unit, we talked about a conceptual framework to analyse and understandeconomic trends. We have exposed you to the data environment of the Indianeconomy. The trends and structural features indicated by way of dataenvironment provide a basis for describing and analysing varius economicproblems of India. In this unit we have given a macro-view. In the subsequentunits we go into the details of sectors and subsectors.

21

4.10 KEY WORDS

Economic Growth and Economic Development : Economic growth meansmore output, while economic development implies both more output and changesin the technical and institutional arrangements by which it is produced anddistributed. The trends in income and the structural changes together constituteeconomic development.

Structural Changes : Changes in the composition of national output, changesin the occupational pattern of labour and so on are referred to as structuralchanges.

4.11 SELF ASSESSMENT QUESTIONS

1. Distinguishing economic development from economic growth, explain themajor structural changes experienced by the Indian economy.

2. Keeping in mind the concept of capital intensity (capital-labour ratio), explainwhy structural change by employment criterion is not significant.

3. What are the major factors in India’s inflation problem?

4. After carefully going through this unit, give a brief account of economicenvironment of business in India.

5. “From the standpoint of analysis of business environment, a large size ofpopulation is both an asset and a liability” —Explain.

4.12 FURTHER READINGS

Economic Survey, Government of India (1996 and later issue)

Report on Currency and Finance of RBI (latest issue)

Dutt, Ruddar and Sundaram, K.P.M., Indian Economy,(latest Edition) (Chapters 1-7)

Lakshmana Rao, V. Essays on Indian Economy, New Delhi : AshishPublishing House, 1994 (Relevant essays about trends in money supply andprice level and India’s development and growth experience).



22

Appendix 1

List of Statistical Tables

Table 4.1 : Selected Indicators, 1950-51 to 1994-95

Table 4.2 : Annual Compound Growth Rates of NNP and Per Capita NNP

Table 4.3 : Sectoral Distribution of GDP and Employment

Table 4.4 (A) : Saving Rate in India

Table 4.4 (B) : Gross Domestic Savings and Investment

Table 4.5 (A) : Gross Domestic Savings and Gross Domestic Capital Formation(at current prices)

Table 4.5 (B) : Gross Domestic Savings and Gross Domestic Capital Formation(as per cent of GDP at current market prices)

Table 4.6 : GDP Growth, Rate of investment and ICOR

23

Tab

le 4

.1 :

Sel

ecte

d I

nd

icat

ors

1950

-51

to 2

001-

02

1950

-51

1960

-61

1970

-71

1980

-81

1990

-91

1991

-92

1995

-96

1997

-98

1998

-99

1999

-00

2000

-01

2001

-02

1

23

45

67

89

1011

1213

EC

ON

OM

ICIN

DIC

AT

OR

SG

DP

at

fact

or c

ost:

(i)

At

curr

ent

pric

es

(R

s. c

rore

)95

4716

220

4222

213

0178

5109

5458

9086

1073

271

1390

148

1598

127

1761

932

1917

724P

2094

013Q

(ii)

At

cons

tant

pric

es (

Rs.

cro

re)

1404

6620

6103

2962

7840

1128

6928

7170

1863

8995

6310

1659

410

8274

811

4844

211

9868

5P12

6542

9Q

Per

cap

ita

net

nati

onal

prod

uct,

at

1993

-94

pric

es (

Rup

ees)

3687

4429

5002

5352

7321

7212

8489

9244

9650

1006

810

306P

1075

4Q

Inde

x of

ind

ustr

ial

prod

ucti

on9

(Bas

e: 1

993-

94 =

100

)7.

9@15

.628

.143

.191

.692

.212

3.3

139.

514

5.2

154.

916

2.6

167.

0

Inde

x of

agr

icul

tura

lpr

oduc

tion

(B

ase:

trie

nniu

m e

ndin

g19

81-8

2)46

.268

.885

.910

2.1

148.

414

5.5

160.

716

5.3

177.

917

6.8

167.

317

7.1

Gro

ss d

omes

tic

capi

tal

form

atio

n(a

s pe

r ce

nt o

f G

DP

)8.

714

.415

.420

.326

.322

.626

.924

.622

.625

.224

.0P

23.7

Q

(Con

td...

) Structural Dimensionsof Indian Economy


24 Gro

ss d

omes

tic

savi

ngs

(as

per

cent

of

GD

P)

8.9

11.6

14.6

18.9

23.1

22.0

25.1

23.1

21.5

24.1

23.4

P24

.0Q

OU

TP

UT

(a)

Foo

dgra

ins

(mil

lion

ton

nes)

50.8

82.0

108.

412

9.6

176.

416

8.4

180.

419

2.3

203.

620

9.8

199.

521

2.0

(b)

Fin

ishe

d S

teel

(mil

lion

ton

nes)

$1.

02.

44.

66.

813

.514

.321

.423

.423

.827

.229

.330

.6P

(c)

Cem

ent

(mil

lion

ton

nes)

2.7

8.0

14.3

18.7

48.8

51.7

69.5

83.2

87.9

98.2

197

.610

6.9P

(d)

Coa

l (i

nclu

ding

lign

ite)

(m

illi

on

to

nnes

)32

.355

.276

.311

9.0

225.

524

3.8

292.

331

9.0

289.

9#29

9.0#

309.

6#32

2.6#

(e)

Cru

de o

il (

mil

lion

tonn

es)

0.3

0.5

6.8

10.5

33.0

30.4

35.2

33.9

32.7

31.9

32.4

32.0

P

(f)

Ele

ctri

city

gen

erat

ed

(u

tili

ties

onl

y)

(B

illi

on K

WH

)5.

116

.955

.812

0.8

264.

328

7.0

379.

942

1.7

448.

548

0.7

499.

551

5.2P

Who

lesa

le p

rice

ind

ex*

(Bas

e: 1

993-

94 =

100

)6.

87.

914

.336

.873

.783

.912

1.6

132.

814

0.7

145.

315

5.7

161.

3

Con

sum

er p

rice

ind

ex(B

ase:

198

2=10

0)@

@17

2138

8119

321

931

336

641

442

844

446

3

1950

-51

1960

-61

1970

-71

1980

-81

1990

-91

1991

-92

1995

-96

1997

-98

1998

-99

1999

-00

2000

-01

2001

-02

1

23

45

67

89

1011

1213

(Con

td...

)

Tab

le 4

.1 :

Sel

ecte

d I

nd

icat

ors

1950

-51

to 2

001-

02

— c

ontd

.

25Pla

n ou

tlay

(R

s. c

rore

)26

0##

1117

2524

1502

358

369

6475

110

7380

1297

5715

1580

1606

0818

5737

2163

49(R

E)

Cen

tre’

s bu

dget

ary

defi

cit/

Dra

w d

own

of C

ash

bala

nce

(Rs.

cro

re)

(-)3

3##

(-)1

1728

525

7611

347

6855

9807

(-)9

10(-

)209

864

1197

3803

(RE

)

FO

RE

IGN

TR

AD

E

(i)

Exp

orts

Rs.

cro

re60

664

215

3567

1132

553

4404

110

6353

1301

0013

9752

1595

6120

3571

2090

18

U

S $

mil

lion

1269

1346

2031

8486

1814

317

865

3179

735

006

3321

836

822

4456

043

827

(ii)

Im

port

s

R

s. c

rore

608

1122

1634

1254

943

198

4785

112

2678

1541

7617

8332

2152

3623

0873

2451

99

U

S $

mil

lion

1273

2353

2162

1586

924

075

1941

136

678

4148

442

389

4967

150

536

5141

3

For

eign

exc

han

ge r

eser

ves

(exc

lud

ing

gold

an

d S

DR

s):

Rs.

cro

re91

118

643

848

2243

8814

578

5844

610

2507

1254

1215

2924

1844

8224

9118

US

$ m

illi

on19

1439

058

458

5022

3656

3117

044

2597

529

522

3505

839

554

5104

9

SOC

IAL

IN

DIC

AT

OR

SP

opul

atio

n

Pop

ulat

ion

(mil

lion

)b35

943

454

167

983

985

692

896

498

310

0110

1910

37

Bir

th r

ate

(per

100

0)c

39.9

41.7

41.2

37.2

33.9

29.5

28.3

27.2

26.5

26.1

25.8

...

Dea

th r

ate

(per

100

0)c

27.4

22.8

19.0

15.0

12.5

9.8

9.0

8.9

9.0

8.7

8.5

...

1950

-51

1960

-61

1970

-71

1980

-81

1990

-91

1991

-92

1995

-96

1997

-98

1998

-99

1999

-00

2000

-01

2001

-02

1

23

45

67

89

1011

1213

(Con

td...


Tab

le 4

.1 :

Sel

ecte

d I

nd

icat

ors

1950

-51

to 2

001-

02

— c

ontd

.


26

1950

-51

1960

-61

1970

-71

1980

-81

1990

-91

1991

-92

1995

-96

1997

-98

1998

-99

1999

-00

2000

-01

2001

-02

1

23

45

67

89

1011

1213

Lif

e ex

pect

ancy

at

birt

h(i

n ye

ars)

d

(a)

Mal

e32

.541

.946

.450

.958

.659

.0...

62.3

a...

...63

.87h

...

(b)

Fem

ale

31.7

40.6

44.7

50.0

59.0

59.7

...65

.3a

......

66.9

1h...

Tota

l32

.141

.345

.650

.458

.759

.4...

......

......

...

Edu

cati

on L

iter

acy

rate

(pe

rcen

tage

)e

(a)

Mal

e27

.16

40.4

045

.96

56.3

864

.1...

6973

......

75.8

5...

(b)

Fem

ale

8.86

15.3

521

.97

29.7

639

.3...

4650

......

54.1

6...

Tota

l18

.33

28.3

034

.45

43.5

752

.2...

5862

63.1

...65

.38

...

Hea

lth

& F

amil

y W

elfa

ref

Reg

iste

red

Med

ical

Pra

ctit

ione

rs (

RM

P)

(All

opat

hic)

(tho

usan

d)(a

s on

31s

t D

ec.)

61.8

83.7

151.

126

8.7

393.

640

9.7

477.

6P51

4.8P

535.

6P55

5.1P

575.

6P...

RM

P p

er 1

0,00

0po

pula

tion

1.7

1.9

2.8

3.9

4.7

4.8

5.1P

5.3P

5.5P

5.6P

5.6P

...B

eds

(all

typ

es)*

*pe

r 10

,000

3.2

5.7

6.4

8.3

9.5

9.7

9.4P

9.3P

......

......

(Con

td...

)

Tab

le 4

.1 :

Sel

ecte

d I

nd

icat

ors

1950

-51

to 2

001-

02

— c

ontd

.

27PP

rovi

sion

al e

stim

ates

.

QQ

uick

est

imat

es.

@R

elat

es t

o th

e ca

lend

er y

ear

1950

.

@@

Fig

ures

for

the

per

iod

up t

o 19

88-8

9 de

rive

d by

con

vert

ing

indi

ces

on e

arli

er b

ases

int

o ba

se 1

982

= 1

00.

##R

elat

es t

o 19

51-5

2.

*F

igur

es f

or t

he p

erio

d up

to

1993

-94

deri

ved

by c

onve

rtin

g th

e in

dice

s on

ear

lier

bas

es i

nto

base

199

3-94

.

**In

clud

es b

eds

in h

ospi

tals

, di

spen

sari

es,

P.H

.Cs

clin

ics,

san

ator

ium

s, e

tc.

R.E

.R

evis

ed e

stim

ates

.

..N

ot a

vail

able

.

$In

clud

ing

seco

ndar

y pr

oduc

ers.

+S

RS

Bul

leti

n 20

02 A

pril

.

#L

igni

te is

exc

lude

d.

Not

es :

aP

erta

ins

to 1

996-

2001

.

bR

elat

e to

mid

-fin

anci

al y

ear

(as

on O

ctob

er 1

) ba

sed

on p

opul

atio

n fi

gure

s gi

ven

in t

he N

AS

, 20

02 o

f C

.S.O

.

cF

or c

alen

dar

year

. F

igur

e sh

ows

agai

nst

1990

-91

is f

or c

alen

dar

year

199

0 an

d so

on.

Sou

rce

: M

inis

try

of H

ealt

h an

d F

amil

y W

elfa

re a

nd O

ffic

e of

R.G

.I.

dD

ata

for

1950

-51,

196

0-61

, 19

70-7

1 an

d 19

80-8

1 re

late

to

the

deca

des

1941

-50,

195

1-60

, 19

61-7

0 an

d 19

71-8

0 re

spec

tive

ly,

cent

red

at m

idpo

ints

of

the

deca

de,

i.e.,

1946

, 19

56,

1966

and

197

6.T

he e

stim

ates

for

199

0-91

and

199

1-92

ref

er t

o th

e pe

riod

s 19

88-9

2 an

d 19

89-9

3 re

spec

tive

ly.

eD

ata

for

1950

-51,

196

0-61

, 19

70-7

1, 1

980-

81,

1990

-91

and

2000

-01

are

as p

er C

ensu

s of

Ind

ia 1

951,

196

1, 1

971,

198

1, 1

991

and

2001

. T

he f

igur

es f

or 1

951,

196

1 an

d 19

71 r

elat

e to

popu

lati

on a

ged

5 ye

ars

and

abov

e an

d th

ose

for

1981

and

199

1 to

pop

ulat

ion

aged

7 y

ears

and

abo

ve.

All

Ind

ia l

iter

acy

rate

s ex

clud

e A

ssam

for

198

1 an

d J&

K f

or 1

991.

Dat

a fo

r 19

95-9

6 an

d19

97-9

8 re

late

to

the

year

s 19

96 a

nd 1

998

resp

ecti

vely

and

are

bas

ed o

n N

SS

O s

urve

y, 5

3rd

Rou

nd u

pto

1997

. F

or 1

998,

dat

a is

bas

ed o

n N

atio

nal

Fam

ily

Hea

lth

Sur

vey

(199

8-99

) (+

6 ye

ars)

.D

ata

for

2000

-01

pert

ains

to

Cen

sus

2001

.

fR

elat

e to

cal

enda

r ye

ar e

.g.,

1950

-51

pert

ains

to

31st

Dec

embe

r 19

51 a

nd s

o on

.

gT

he I

ndex

of

Indu

stri

al P

rodu

ctio

n ha

s be

en r

evis

ed s

ince

199

3-94

.

hP

erta

ins

to 2

001-

2006

.

(con

td...

)



28

Table 4.2 : Annual Average Growth Rates (%) of NNP atFactor Cost at constant (1993-94) Prices and NNP Per Capita

Plan Period/Year NNP at Factor NNP Per CapitaCost

First Plan (1951-56) 3.6 1.8

Second Plan (1956-61) 4.1 2.0

Third Plan (1961-66) 2.5 0.2

Three Annual (1966-69) 3.8 1.5Plans

Fourth Plan (1969-74) 3.3 1.0

Fifth Plan (1974-79) 5.0 2.7

Annual Plan (1979-80) (-) 6.0 (-) 8.3

Sixth Plan (1980-85) 5.4 3.2

Seventh Plan (1985-90) 5.8 3.6

Two AnnualPlans (1990-92) 3.0 0.9

Eighth Plan (1992-97) 6.7 4.6

Ninth Plan (1997-2002) 5.5 3.6

Source: Economic Survey, 2002-03.

Table 4.3 : Sectoral Distribution of GDP and Employment

Primary Secondary Tertiary

Sectoral GDP/Total GDP

1950-52 58.73 13.29 27.98

1960-62 53.00 17.26 29.75

1970-72 46.56 20.38 33.06

1980-82 41.34 21.77 36.89

1990-92 34.40 24.06 41.54

1998-2000 27.69 24.71 47.60

Sectoral Employment/Total Employment

1950-52 – – –

1961-63 12.28 36.70 51.03

1970-72 9.61 35.72 54.67

1980-82 9.85 34.61 55.54

1990-92 9.50 31.92 58.58

1998-2000 8.65 31.70 59.65

Notes: GDP data is at 1993-94 prices; Employment data relates to the organised sector.

Source: NAS 2002 and Economic Survey.

29

Table 4.4 (A) : Volume ot Saving in India

Sector 1980-81 Percentage 1990-91 Percentage 1998-99 Percentage

HouseholdSaving 21848 75.9 109623 84.4 325456 82.7

Private Saving 2284 8.0 14940 11.5 67573 17.2

Public Saving 4654 16.2 5436 4.2 572 0.15

Total Saving 28786 100.0 129999 100.0 393601 100.0

Source: Economic Survey 1999-2000.

Table 4.4 (B) : Gross Domestic Saving and Investment

Item Per cent of GDP Amount in Rupees Crore(at Current Market Prices)

2001-02* 2000-01@ 1999-00 1995-96 to 2001-02* 2000-01@ 1999-00

1 2 3 4 5 6 7 8

1. Household Saving 22.5 21.6 20.8 17.9 5,15,565 4,53,641 4,02,36of which :

a) Financial assets 11.2 10.4 10.5 9.8 2,56,647 2,17,841 2,03,70

b) Physical assets 11.3 11.2 10.3 8.1 2,58,918 2,35,800 1,98,65

2. Private CorporateSector 4.0 4.1 4.4 4.3 92,060 86,142 84,32

3. Public Sector -2.5 -2.3 -1.0 1.0 -57,662 -48,022 -20,04

4. Gross DomesticSaving 24.0 23.4 24.1 23.3 5,49,963 4,91,761 4,66,64

5. Net Capital Inflow -0.2 0.6 1.1 1.4 -4,872 12,977 21,98

6. Gross DomesticCapital 23.7 24.0 25.2 24.7 5,45,091 5,04,738 4,88,62

Formation

7. Errors and Omissions 1.3 1.5 1.6 1.6 30,003 31,117 30,36

8. Gross CapitalFormation of which: 22.4 22.5 23.7 23.1 5,15,088 4,73,621 4,58,26

a) Public Sector 6.3 6.4 6.9 7.0 1,45,082 1,34,025 1,34,48

b) Private CorporateSector 4.8 4.9 6.5 8.0 1,11,088 1,03,796 1,25,12

c) HouseholdSector 11.3 11.2 10.3 8.1 2,58,918 2,35,800 1,98,65

* Quick Estimates.@ Provisional

Source: Central Statistical Organisation.



30

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31

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29

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23

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67

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35

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51

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9

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33

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24

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19

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19

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90

15

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30

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91

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66

19

62

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16

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17

33

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20

32

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19

63

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20

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20

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53

72

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20

19

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5-6

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05

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15

31

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55

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85

19

23

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49

19

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13

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25

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32

35

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2-4

45

51

37

38

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31

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8-6

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51

75

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61

41

96

65

57

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26

34

54

27

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Ch

an

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in

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cks

Tab

le 4

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A)

: G

ross

Dom

esti

c S

avin

gs a

nd

Gro

ss D

omes

tic

For

mat

ion

(At

Cur

rent

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Con

td...

31

19

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50

53

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14

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52

19

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24

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17

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56

24

80

61

44

27

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44

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98

23

31

21

19

73

-74

79

85

10

83

19

31

10

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94

16

25

02

49

18

67

42

19

74

-75

80

80

14

65

28

35

12

38

04

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86

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11

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43

10

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35

20

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35

01

19

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19

76

-77

11

84

91

18

14

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74

08

72

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13

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53

6

19

77

-78

14

35

41

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52

01

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52

94

85

17

43

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19

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17

01

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36

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58

10

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19

15

07

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16

69

02

39

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22

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10

29

31

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92

21

58

51

84

4

19

80

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19

86

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33

94

92

92

71

36

12

03

11

45

87

26

61

87

4

19

81

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21

22

52

56

07

57

03

13

55

14

98

41

69

47

31

93

12

00

2

19

82

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23

21

62

98

08

17

23

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68

19

01

21

72

26

36

23

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12

7

19

83

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28

16

53

25

47

16

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85

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20

92

82

04

41

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36

93

37

19

84

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35

06

74

04

06

95

64

60

63

23

92

12

42

11

48

13

21

67

9

19

85

-86

39

79

55

42

68

94

65

41

67

28

07

42

92

37

57

31

11

91

6

19

86

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45

07

25

33

68

54

35

89

51

33

88

43

16

55

65

53

98

88

19

87

-88

59

15

75

93

27

81

97

29

08

35

26

94

07

40

76

00

9-1

51

2

19

88

-89

70

65

78

48

68

77

08

79

13

40

63

75

06

24

91

26

1-5

01

19

89

-90

86

95

51

18

45

81

79

10

69

79

44

70

16

41

78

10

88

79

17

04

19

90

-91

10

98

97

15

16

46

27

91

31

34

05

11

24

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27

71

30

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5

43

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70

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62

21

11

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41

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86

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28

3-4

38

78

45

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93

21

97

1-7

2

36

74

88

38

75

48

46

87

21

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28

16

95

39

47

19

72

-73

10

00

17

42

49

04

60

24

10

92

84

63

11

39

16

56

13

19

73

-74

17

61

30

46

57

53

84

39

14

19

2-1

15

91

30

33

77

47

91

97

4-7

5

31

62

29

97

80

67

99

41

58

00

-15

71

14

22

98

32

69

19

75

-76

10

91

64

58

82

28

32

21

71

44

-10

45

16

09

98

97

39

19

76

-77

13

93

15

42

81

01

10

87

81

89

79

-30

21

86

77

10

15

97

19

77

-78

21

84

36

91

10

16

51

26

45

22

81

09

94

23

80

41

10

13

31

97

8-7

9

23

95

42

39

12

13

71

36

87

25

82

4-9

30

24

89

41

20

84

11

97

9-8

0

17

62

50

12

10

51

47

63

26

86

82

36

22

92

30

14

37

64

19

80

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38

50

58

52

16

98

62

07

97

37

78

3-3

81

73

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66

16

86

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19

81

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34

21

45

48

20

13

92

06

47

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78

6-3

85

23

69

34

18

82

62

19

82

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14

90

18

27

21

26

52

19

31

43

19

6-2

09

24

11

04

21

94

96

19

83

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32

15

48

94

25

60

02

74

26

53

02

6-3

67

14

93

55

24

55

15

19

84

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65

76

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92

29

99

03

58

13

65

80

3-5

40

26

04

01

27

79

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57

76

66

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34

77

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31

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3-6

89

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11

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Tab

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A)

: G

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tic

For

mat

ion

—

con

td.

(At

Cur

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Pri

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32

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(12

+1

3)

&T

ota

la

t M

ark

etY

ea

rO

mis

sio

ns

(14

+1

5)

Pr

ice

s

10

111

21

31

41

51

61

71

8

Ch

an

ge

in

Sto

cks

19

91

-92

11

07

36

20

30

41

28

68

14

39

08

59

83

38

40

28

14

38

61

-22

00

19

92

-93

13

10

73

19

96

81

18

65

16

29

06

61

35

11

06

62

21

67

97

32

64

6

19

93

-94

15

83

10

29

86

65

44

51

93

62

16

88

53

11

54

40

18

42

93

19

81

19

94

-95

19

93

58

35

26

01

68

45

25

14

63

88

85

61

33

37

92

22

23

5-6

50

19

95

-96

21

61

40

58

54

22

40

65

29

87

47

91

59

51

97

81

42

89

40

9-6

18

19

96

-97

23

32

52

61

09

22

29

17

31

72

61

94

30

62

17

54

53

11

85

11

88

1

19

97

-98

26

84

37

63

48

62

02

55

35

21

78

97

07

92

33

34

03

30

41

93

57

4

19

98

-99

32

70

74

65

02

6-1

71

69

37

49

31

11

23

04

26

20

31

37

43

35

22

41

19

99

-00

40

23

60

84

32

9-2

00

49

46

66

40

12

03

89

30

15

14

42

19

03

14

09

5

20

00

-01

(P

)45

36

41

86

14

2-4

80

22

49

17

61

12

77

55

33

20

32

45

97

87

62

70

20

01

-02

(Q)5

15

56

59

20

60

-57

66

25

49

96

31

35

66

93

61

60

94

97

27

89

41

3

P :

Pro

vis

ion

al e

stim

ates

Q :

Qu

ick

est

imat

es.

So

urc

e :

Cen

tra

l S

tati

stic

al

Org

an

isa

tio

n.

15

99

-60

15

76

33

85

62

71

43

26

04

02

51

47

28

56

53

11

71

99

1-9

2

74

00

10

04

66

39

97

11

40

22

17

80

19

-12

97

17

67

22

74

83

67

19

92

-93

-36

55

-16

74

70

83

41

11

78

51

82

61

91

57

93

19

84

12

85

92

20

19

93

-94

15

19

91

45

49

88

20

61

48

57

82

36

78

42

65

72

26

33

56

10

12

77

01

99

4-9

5

26

38

82

57

70

90

97

72

24

20

23

15

17

94

34

83

19

52

71

18

80

12

19

95

-96

-15

87

0-1

39

89

96

18

72

01

67

52

97

86

23

71

37

33

49

99

13

68

20

81

99

6-9

7

97

19

13

29

31

00

65

32

43

05

93

43

71

23

07

68

37

44

80

15

22

54

71

99

7-9

8

-43

67

-21

26

11

45

45

25

76

64

37

22

09

20

81

23

93

02

11

74

09

85

19

98

-99

22

26

43

63

59

13

44

84

32

37

78

45

82

62

30

36

64

88

62

81

93

69

25

19

99

-00

75

64

13

93

41

34

02

53

39

59

64

73

62

13

11

11

75

04

73

82

10

42

98

20

00

-01

(P)

83

97

17

81

01

45

08

23

70

00

65

15

08

83

00

03

54

50

91

22

96

04

92

00

1-0

2(Q

)

Tab

le 4

.5 (

A)

: G

ross

Dom

esti

c S

avin

gs a

nd

Gro

ss D

omes

tic

For

mat

ion

—

con

td.

(At

Cur

rent

Pri

ces)

33

Gro

ss D

omes

tic

Sav

ings

Gro

ss F

ixed

Cap

ital

For

mat

ion

Y

ear

Hou

se-

Pri

vate

Pu

bli

cT

otal

Pu

bli

cP

riva

teT

otal

hol

dC

orp

orat

eS

ecto

r(2

+3+

4)S

ecto

rS

ecto

r(6

+7)

Sec

tor

12

34

56

78

19

50

-51

6.2

0.9

1.8

8.9

2.4

6.5

8.9

19

51

-52

5.5

1.3

2.5

9.3

2.6

6.6

9.2

19

52

-53

6.1

0.6

1.5

8.3

2.9

5.8

8.6

19

53

-54

5.8

0.8

1.3

7.9

3.1

4.9

8.0

19

54

-55

6.7

1.1

1.6

9.4

3.9

5.8

9.7

19

55

-56

9.6

1.2

1.7

12

.65.

16.

81

1.9

19

56

-57

9.1

1.2

1.9

12

.24.

97.

71

2.7

19

57

-58

7.5

0.9

2.0

10

.45.

07.

81

2.8

19

58

-59

6.8

0.9

1.7

9.5

4.9

6.7

11

.61

95

9-6

08.

31.

21.

71

1.2

5.8

6.2

12

.1

19

60

-61

7.3

1.6

2.6

11

.66.

46.

41

2.7

19

61

-62

7.0

1.8

2.9

11

.76.

37.

11

3.4

19

62

-63

7.8

1.8

3.1

12

.76.

96.

91

3.8

19

63

-64

7.2

1.8

3.3

12

.37.

27.

01

4.2

19

64

-65

7.2

1.5

3.3

11

.97.

27.

01

4.1

19

65

-66

9.4

1.5

3.1

14

.07.

67.

51

5.1

19

66

-67

10

.31.

42.

31

4.0

6.8

8.1

14

.91

96

7-6

88.

81.

12.

01

1.9

5.7

8.3

14

.01

96

8-6

98.

61.

12.

41

2.2

5.7

8.3

14

.0

Tab

le 4

.5 (

B)

: G

ross

Dom

esti

c S

avin

gs a

nd

Gro

ss D

omes

tic

Cap

ital

For

mat

ion

(As

per

cent

of

GD

P a

t cu

rren

t m

arke

t pr

ices

)

Ch

ange

in

Sto

cks

Gro

ss D

omes

tic

Cap

ital

For

mat

ion

Pu

bli

cP

riva

teT

otal

Pu

bli

cP

riva

teT

otal

Err

ors

&A

dju

sted

Yea

rS

ecto

rS

ecto

r(9

+10

)S

ecto

rS

ecto

r(1

2+13

)O

mis

sio

ns

Tot

al(1

4+15

)

910

1112

1314

1516

17

0.4

1.3

1.6

2.8

7.7

10

.5-1

.88.

71

95

0-5

1

0.4

1.2

1.6

3.0

7.8

10

.80.

21

1.7

19

51

-52

-0.2

0.4

0.2

2.6

6.2

8.8

-0.9

8.0

19

52

-53

-0.3

-0.3

-0.6

2.8

4.6

7.4

0.4

7.8

19

53

-54

-0.6

-0.3

0.3

4.5

5.5

10

.0-0

.49.

61

95

4-5

5

-0.3

0.9

0.6

4.8

7.7

12

.50.

41

3.0

19

55

-56

0.4

1.5

1.9

5.3

9.2

14

.50.

51

5.0

19

56

-57

1.4

0.4

1.8

6.4

8.2

14

.7-0

.81

3.9

19

57

-58

0.8

-0.7

0.1

5.7

6.0

11

.70.

31

2.0

19

58

-59

0.1

1.2

1.3

5.9

7.5

13

.4-0

.81

2.6

19

59

-60

0.5

1.4

1.9

6.9

7.8

14

.7-0

.31

4.4

19

60

-61

0.2

1.3

1.6

6.5

8.4

15

.0-1

.41

3.6

19

61

-62

0.7

1.2

1.9

7.6

8.0

15

.7-0

.71

4.9

19

62

-63

0.5

0.8

1.3

7.7

7.8

15

.5-1

.21

4.2

19

63

-64

0.5

0.9

1.4

7.7

7.9

15

.5-1

.31

4.2

19

64

-65

0.6

1.2

1.2

8.2

8.1

16

.3-0

.21

6.2

19

65

-66

0.3

1.7

1.7

7.1

9.5

16

.60.

31

6.9

19

66

-67

0.9

1.2

1.2

6.6

8.6

15

.2-1

.11

4.2

19

67

-68

0.1

0.4

0.4

5.8

8.6

14

.4-1

.11

3.2

19

68

-69

Con

td... Structural Dimensions

of Indian Economy


34

Gro

ss D

omes

tic

Sav

ings

Gro

ss F

ixed

Cap

ital

For

mat

ion

Y

ear

Hou

se-

Pri

vate

Pu

bli

cT

otal

Pu

bli

cP

riva

teT

otal

hol

dC

orp

orat

eS

ecto

r(2

+3+

4)S

ecto

rS

ecto

r(6

+7)

Sec

tor

12

34

56

78

Ch

ange

in

Sto

cks

Gro

ss D

omes

tic

Cap

ital

For

mat

ion

Pu

bli

cP

riva

teT

otal

Pu

bli

cP

riva

teT

otal

Err

ors

&A

dju

sted

Yea

rS

ecto

rS

ecto

r(9

+10

)S

ecto

rS

ecto

r(1

2+13

)O

mis

sio

ns

Tot

al(1

4+15

)

910

1112

1314

1516

17

19

69

-70

10

.41.

32.

61

4.3

5.4

8.6

14

.0

19

70

-71

10

.11.

52.

91

4.6

5.5

8.5

14

.01

97

1-7

21

0.7

1.6

2.8

15

.16.

08.

71

4.7

19

72

-73

10

.41.

52.

71

4.6

7.0

8.3

15

.31

97

3-7

41

2.2

1.7

2.9

16

.86.

37.

71

4.0

19

74

-75

10

.41.

93.

71

6.0

5.8

8.6

14

.4

19

75

-76

11

.71.

34.

21

7.2

7.0

9.2

16

.21

97

6-7

71

3.2

1.3

4.9

19

.48.

19.

21

7.3

19

77

-78

14

.11.

44.

31

9.8

7.8

9.3

17

.21

97

8-7

91

5.4

1.5

4.5

21

.57.

99.

51

7.4

19

79

-80

13

.82.

04.

32

0.1

8.5

9.3

17

.9

19

80

-81

13

.81.

63.

41

8.9

8.4

10

.11

8.5

19

81

-82

12

.61.

54.

51

8.6

8.9

10

.11

8.9

19

82

-83

12

.31.

64.

31

8.3

10

.19.

11

9.2

19

83

-84

12

.81.

53.

31

7.6

9.5

9.3

18

.81

98

4-8

51

4.3

1.6

2.8

18

.89.

79.

91

9.6

19

85

-86

14

.32.

03.

21

9.5

10

.11

0.5

20

.6

0.2

1.4

1.4

5.5

9.8

15

.3-0

.51

4.8

19

69

-70

0.9

0.9

1.8

6.4

9.4

15

.8-0

.41

5.4

19

70

-71

1.0

1.3

2.3

7.0

9.9

16

.9-0

.91

6.0

19

71

-72

0.2

0.7

0.9

7.2

9.0

16

.2-1

.01

5.1

19

72

-73

1.1

1.5

2.7

7.5

9.2

16

.70.

71

7.4

19

73

-74

1.7

2.3

3.9

7.4

10

.91

8.3

-1.5

16

.81

97

4-7

5

2.4

0.4

2.8

9.4

9.6

19

.0-1

.91

7.1

19

75

-76

1.7

0.1

1.8

9.8

9.3

19

.1-1

.21

7.9

19

76

-77

0.1

1.4

1.5

8.0

10

.71

8.7

-0.3

18

.41

97

7-7

81.

42.

03.

49.

21

1.5

20

.70.

92

1.6

19

78

-79

1.5

2.0

3.5

10

.01

1.3

21

.4-0

.82

0.6

19

79

-80

0.1

0.1

0.2

8.4

10

.31

8.7

1.6

20

.31

98

0-8

1

1.2

2.3

3.5

10

.11

2.3

22

.4-2

.32

0.1

19

81

-82

0.6

1.8

2.4

10

.71

1.0

21

.7-2

.01

9.6

19

82

-83

0.2

0.7

0.8

9.7

10

.01

9.7

-1.0

18

.71

98

3-8

40.

71.

32.

01

0.4

11

.22

1.6

-1.5

20

.11

98

4-8

5

0.7

2.4

3.1

10

.81

2.9

23

.7-1

.92

1.7

19

85

-86

Tab

le 4

.5 (

B)

: G

ross

Dom

esti

c S

avin

gs a

nd

Gro

ss D

omes

tic

Cap

ital

For

mat

ion

—

con

td.

(As

per

cent

of

GD

P a

t cu

rren

t m

arke

t pr

ices

)

35

Gro

ss D

omes

tic

Sav

ings

Gro

ss F

ixed

Cap

ital

For

mat

ion

Y

ear

Hou

se-

Pri

vate

Pu

bli

cT

otal

Pu

bli

cP

riva

teT

otal

hol

dC

orp

orat

eS

ecto

r(2

+3+

4)S

ecto

rS

ecto

r(6

+7)

Sec

tor

12

34

56

78

Ch

ange

in

Sto

cks

Gro

ss D

omes

tic

Cap

ital

For

mat

ion

Pu

bli

cP

riva

teT

otal

Pu

bli

cP

riva

teT

otal

Err

ors

&A

dju

sted

Yea

rS

ecto

rS

ecto

r(9

+10

)S

ecto

rS

ecto

r(1

2+13

)O

mis

sio

ns

Tot

al(1

4+15

)

910

1112

1314

1516

17

19

86

-87

14

.51.

72.

71

8.9

10

.91

0.2

21

.11

98

7-8

81

6.7

1.7

2.2

20

.61

0.0

11

.52

1.5

19

88

-89

16

.82.

02.

12

0.9

9.6

12

.02

1.6

19

89

-90

17

.92.

41.

72

2.0

9.2

13

.22

2.4

19

90

-91

19

.32.

71.

12

3.1

9.0

13

.92

2.9

19

91

-92

17

.03.

12.

02

2.0

9.2

12

.92

2.0

19

92

-93

17

.52.

71.

62

1.8

8.2

14

.22

2.4

19

93

-94

18

.43.

50.

62

2.5

8.0

13

.42

1.4

19

94

-95

19

.73.

51.

72

4.8

8.8

13

.22

1.9

19

95

-96

18

.24.

92.

02

5.1

7.7

16

.72

4.4

19

96

-97

17

.04.

51.

72

3.2

6.9

15

.92

2.8

19

97

-98

17

.64.

21.

32

3.1

6.4

15

.32

1.7

19

98

-99

18

.83.

7-1

.02

1.5

6.5

15

.12

1.5

19

99

-00

20

.84.

4-1

.02

4.1

6.2

15

.62

1.8

20

00

-01

(P

)2

1.6

4.1

-2.3

23

.46.

11

5.8

21

.8

20

01

-02

(Q)

22

.54.

0-2

.52

4.0

5.9

15

.72

1.7

P :

Pro

vis

ion

al e

stim

ates

.Q

: Q

uic

k e

stim

ates

.

No

te :

(i)

Bas

ed o

n d

ata

in T

able

4.5

(A

).(i

i)R

atio

s o

f sa

vin

gs

and

cap

ital

fo

rmat

ion

of

ind

ivid

ual

sec

tors

may

no

t ad

dto

to

tals

bec

ause

of

rou

nd

ing

off

.

So

urc

e :

Cen

tra

l S

tati

stic

al

Org

an

isa

tio

n.

0.3

1.9

2.1

11

.21

2.0

23

.2-2

.22

1.0

19

86

-87

-0.4

1.1

0.7

9.5

12

.62

2.1

0.4

19

.61

98

7-8

8

0.1

2.2

2.0

9.5

14

.22

3.7

0.1

18

.71

98

8-8

90.

40.

91.

39.

51

4.1

23

.70.

92

0.1

19

89

-90

0.3

0.8

1.1

9.3

14

.72

4.1

2.2

26

.31

99

0-9

1-0

.30.

2-0

.18.

81

3.1

21

.90.

62

2.6

19

91

-92

0.4

1.0

1.3

8.6

15

.22

3.8

-0.2

23

.61

99

2-9

30.

2-0

.4-0

.28.

21

3.0

21

.31.

82

3.1

19

93

-94

-0.1

1.5

1.4

8.7

14

.72

3.4

2.6

26

.01

99

4-9

5

-0.1

2.2

2.2

7.7

18

.92

6.5

0.4

26

.91

99

5-9

6

0.1

-1.2

-1.0

7.0

14

.72

1.8

2.7

24

.51

99

6-9

70.

20.

60.

96.

61

6.0

22

.62.

02

4.6

19

97

-98

0.1

-0.3

-0.1

6.6

14

.82

1.4

1.2

22

.61

99

8-9

90.

71.

11.

96.

91

6.7

23

.71.

62

5.2

19

99

-00

0.3

0.4

0.7

6.4

16

.12

2.5

1.5

24

.02

00

0-0

1(P

)

0.4

0.4

0.8

6.3

16

.12

2.4

1.3

23

.72

00

1-0

2(Q


Tab

le 4

.5 (

B)

: G

ross

Dom

esti

c S

avin

gs a

nd

Gro

ss D

omes

tic

Cap

ital

For

mat

ion

—

con

td.

(As

per

cent

of

GD

P a

t cu

rren

t m

arke

t pr

ices

)


36

Table 4.6 : GDP Growth, Rates of Investment and Incremental Capital-Output Ratio(ICOR) in Indian Economy (1951-90)

Sl. Period Growth in Investment ICORNo. GDP at Rate

1. 1950-51 to 1955-56 3.61 10.66 2.95

2. 1956-57 to 1960-61 4.27 14.52 3.40

3. 1961-62 to 1965-66 2.84 15.45 5.44

4. 1966-67 to 1970-71 4.66 15.99 3.43

5. 1971-72 to 1975-76 3.08 17.87 5.80

6. 1976-77 to 1980-81 3.24 21.47 6.63

7. 1981-82 to 1985-86 5.06 20.98 4.15

8. 1985-86 to 1989-90 5.81 22.70 3.91

9. 1985-86 to 1991-92 5.31 23.17 4.36

10. VIII Plan 6.54 3.43

11. IX Plan 5.35 24.23 4.53

12. X Plan 7.93 28.41 3.58

Source : Tenth Five Year Plan 2002-07, Vol. I.

37

UNIT 5 STRUCTURE OF INDIANINDUSTRY

Objectives

The main purpose of this unit is to help you to:

understand India’s Industrial sector

get an overview of India’s Industrial growth experience

analyse the various dimensions of the structure of Indian industry

discover and explain structural changes in the industrial sector, and

understand the ownership pattern of the industrial sector.

Structure

5.1 Introduction

5.2 Industrial Growth Experience: An Overview

5.3 Structural Changes in the Indian Industry

5.4 Ownership Pattern of the Industrial Sector

5.5 Summary

5.6 Key Words


5.8 Furthers Readings

5.1 INTRODUCTION

Before the rise of the modern industrial system in the world economy, Indianproducers (largely artisan classes) had a world-wide market. Indian muslim andcalicos were in great demand worldover. Indian industries not only supplied alllocal needs but also enabled India to export its finished products. Indian exportsconsisted chiefly of manufactures like cotton and silk fabrics, calicos, artisticware, silk and wollen clothing.

The impact of the British rule and the industrial revolution that took place inBritain led to the decay of the Indian handicrafts. Instead, machine-made goodsstarted coming to India. The gap created by the decay of Indian handicraftswas not filled by the rise of modern industry in India because of the britishpolicy of encouraging the imports of manufactured products into and export ofraw materials from India.

The British Government in India provided discriminatory protection to someselect industries since 1923. This protection was accompanied by the “mostfavoured nation” clause of British goods. Despite this factor, because of the“pioneering zeal” and “fostering care” (Prof. Lokanathan’s phrases) of the earlyIndian entrepreneurs, some industries such as cotton textiles, sugar, paper,matches, and to some extent, iron and steel did develop in the country. Butcapital goods industries were not fostered during the British period. Theindustrial pattern of India on the eve of planning (1950) was marked by lowcapital intensity, predominance of small enterprises, limited development offactory sector and imbalance between consumer goods and capital goodsindustries. This lop-sided pattern of industry with the predominance of consumergoods industries had to be corrected through economic planning in thepost-Independence period.


38

5.2 INDUSTRIAL GROWTH EXPERIENCE:AN OVERVIEW

The progress of industrialisation during the four decades and more since thebeginning of the planning era has been a significant feature of the Indianeconomic development. The process of industrialisation, initiated as consciousand deliberate policy under Industrial Policy Resolutions of 1948 and 1956involved heavy investments in basic and heavy industries besides those inconsumer goods industries. As a result of efforts for rapid industrialisation, afirm industrial base has been achieved. Industrial production grew by about 5times and India now is the tenth most industrial country in the world. India nowhas a well-diversified industrial sector covering the entire range of consumer,intermediate and capital goods industries. The progress the country has made inrespect of industrial sector is clearly reflected in the commodity composition ofIndia’s foreign trade. The share of imports of manufactured goods in foreigntrade has steadily declined, while industrial products, particularly engineeringgoods have become a growing component of India’s exports. Further, the rapidprogress in industrialisation has been accompanied by a corresponding growth intechnological and managerial know-how for efficient operation of the mostmodern and sophisticated industries and also for planning, designing andconstruction of such industries.

India could achieve self-sufficiency in consumer goods. Growth of basic andcapital goods industries has been particularly impressive. India can now sustainthe future growth of key sectors of the economy primarily through domesticproduction, with only marginal imports. Further, the infrastructure includingResearch and Development capability, consultancy and design engineeringservices, project organisation services and innovative capability to improve andadapt technologies to suit the domestic factor endowment have shown animpressive record of progress. Now we turn to industrial growth rates.

Table 5.1 gives industrial growth rates during various plan periods. The growthrates are annual percentage changes in general index of industrial production.

During the Third Plan period, but for the concluding year of the plan period,the annual growth rate exceeded 8 per cent. The average annual growth rateduring the period was 8.22 per cent. During the subsequent three annual plansthe growth rates fell significantly, except during 1968-69 when growth rate was6.7 per cent.

The period was marked by low growth rates, the average growth rate for theperiod being 2.83 per cent. The industrial growth recovered significantly duringthe Fourth Plan period but the average growth rate during the period (4.4 percent) was significantly lower than that during the Third Plan period (8.22 percent). The industrial growth performance during the Fifth Plan was a significantimprovement over the preceding years after the Third Plan period. The averagegrowth rate during the Fifth Plan period was 6.24 per cent. During the periodthe highest growth rate was recorded during the year 1976-77 (9.5 per cent)Subsequent to the Fifth Plan, the growth rate recorded during the annual plan1979-80 was negative i.e., -1.6 per cent. During the Sixth Plan period theindustrial sector not only recovered but registered an annual growth rate of 5.9per cent. During the subsequent Seventh Plan period (1985-90) the industrialgrowth proceeded at a substantial rate and the average annual growth rateduring the period was 8.5 per cent, the highest growth rate achieved since theend of the Third Plan.

39

Table 5.2 gives trends in industrial production during the period 1998-99 to2002-03. The base year for the index numbers is 1993-94. It can be seen fromthe Table that the general index of industrial production increased from 145.2 to176.6 during the period.

The industrial production has three components in it: mining manufacturing andelectricity. The index of production in mining increased from 125.5 in 1993-94to 139.6 in 2002-03. The index of manufacturing during the same periodincreased from 148.8 to 183.1 and the index of electricity generation increasedfrom 138.4 to 164.3.

Now, let us look at the manufacturing sector growth record. Manufacturing is amajor segment of the industrial sector.

Tables 5.3 (A) and 5.3 (B) give data relating to growth of manufacturingsector. At the aggregate level, the annual rate of growth of manufacturing hasfluctuated considerably in the 90s. Both the Index of Industrial Production andNational Accounts Statistics (NAS) figures on manufacturing value added showthat there was negative growth in 1991-92, the first year of reforms. Thereafterthe growth increased steadily and reached a peak of about 14 per cent in1995-96. The rate has decreased since reaching a growth of about 3 to 4 percent in 1998-99. The index however shows that there has been an improvementin 1999-2000 (7.1 per cent growth rate).

The rate of growth of gross value added by the manufacturing sector as awhole and its registered segment is remarkably similar in the 1990s. Afterregistering a decline in 1991-92, the value added of the registeredmanufacturing sector recovered steadily in the next few years but starteddecelerating in 1995-96.

The compound annual rate of growth of gross value added by the registeredmanufacturing sector was 5.91 per cent between 1990-91 to 1998-99. Thecorresponding rates between 1950-51 to 1965-66, between 1980-81 to 1990-91were 7.03 per cent and 7.66 per cent respectively.

Activity 1

a) Mention the components of the industrial sector.

b) From Table 5.2 compute the average percentage changes in indices ofmining, manufacturing and electricity during the period 1998-99 to 2002-03.

c) From Table 5.2 indentify the highest growth rates and attempt anexplanation.

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Structure of IndianIndustry


40

5.3 STRUCTURAL CHANGES IN THE INDIANINDUSTRY

In this section we will look at several dimensions of the structure of Indianindustry. As industrial development proceeds in an economy, several structuralchanges take place in the industrial sector. Historically, industrial developmenthas proceeded in three stages. In the first stage, industry was concerned withthe processing of primary products. Milling grain, extracting oil, tanning leather,spining vegetable fibres, preparing timber, and smelting ores. The second stagein the evolution of secondary industry comprises the transformation of materialsmaking bread and confectionary, footwear, and metal goods, cloth, furniture andpaper. The third stage consists of the manufacture of machines and othercapital equipment to be used not for the direct satisfaction of any immediatewant but in order to facilitate the future process of production W.G. Hoffman(The Growth of Industrial Economies, Oxford, 1958) gives operational criteriaof the degree of industrial development. He classified all industrial output intotwo categories, consumer goods and capital goods and classified various stagesin terms of the ratio of consumer goods to that of capital goods output. “In thefirst stage the consumer goods industries are of overwhelming importance, theirnet output being on the average five times as large as that of capital goodsindustries”. This ratio is 2.5:1 in the second stage and falls to 1:1 in the thirdstage and still lower in the fourth stage. This classification emphasises theincreasing role of the capital and producer goods industries in the economy asindustrial development takes place.

In the post-independence period economic planning for overall developmentsucceeded in laying firm foundations for future economic development. Theheavy-industry strategy formulated and implemented from begining from theSecond Five Year Plan helped in creating a strong industrial base. Capacities insubstantial quantities have been created in basic, key and heavy industries.Table 5.4 and 5.5 throw light on one dimension of structural change (changesin the composition of output) in India’s industrial sector.

One striking feature of the period of planning was that the structure of Indianindustries had changed in favour of basic and capital goods sector. The studyof structural transformation of the Indian industries reveals that there was aclear shift in favour of basic and capital goods sector. This group accounted forabout 50 per cent of productive capital in 1959 but in 1991-92, its share inproductive capital rose to nearly 79 per cent. In total employment, its sharerose from 25 per cent to 52 per cent between 1959 and 1991-92. Similarly, thecontribution in value added improved from 37 per cent to 56 per cent duringthis period. Basic industries which include iron and steel, fertilisers, chemicals,cement, non-ferrous metals have thus improved their position significantly underthe impact of industrialisation. Several capital goods industries hitherto unknownhave been brought into to existence and developed. On the other hand, duringthe same period the share of consumer goods industries such as textiles, sugar,paper, tobacco, etc., declined in terms of productive capital, employment andvalue-added.

Activity 2

a) Refer to RBI, Report on Currency and Finance and give the compositionof each of the following categories of Industries:

1. Basic goods

2. Capital goods

3. Intermediate goods

4. Consumer goods

41

b) Explain the meaning of intermediate goods.

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.....................................................................................................................

Activity 3

Read carefully Table5.4 and answer the following:

a) What is the average percentage change in index of basic industries during1981-82 to 2001-02.

b) Giving examples of consumer durables, find out the average percentagechange in the index of consumer durables during 1981-82 to 2001-02.

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Size of Industrial Units – Another Structural Dimension

The size of an industrial unit can be measured using different criteria. Output,total assets, fixed capital, and employment are some of the major criteria tomeasure size of the industrial units. Changes in the average size of theindustrial units represent an important structural change of the industrial sectorin an economy. We turn to this structural dimension in this section.

As future managers you must know about this important dimension of thestructure of industry. We may list the circumstances under which a large firmor a small one would be more efficient. Such synthesis provides guidance formaking the proper choice of the optimum size for the firm. A large firm wouldbe more efficient in situations where:

a) the product is standardized and can be produced on mass scale with longerproduction runs such as iron and steel, sugar, industrial chemicals andfertilizers;

b) the product and/or machines used in its production are large in size such asautomobiles, ships and electricity generation;

c) the economies of linked processes are significant as in the case of pulp andpaper industry and steel among others;

d) the markets for the product are concentrated and/or transport costs areconsiderably low in comparison to the price of the product;

e) there are occasional indivisibilities in different units or operations of the plantwhich are to be belanced; and

f) research activities are essential to compete in the market such as inchemical industries.



42

A small firm would be more efficient if all these above conditions are notsatisfied, that is, where:

a) the production factors, e.g., men and machines, are “divisible” or adaptable;

b) the product is to be made an individual specification or where varieties orproduct differentiation are required in the market for existence, i.e.,standardization and mass production is an economical. Examples areornaments and clothing;

c) the raw materials and markets for the products are geographically dispersedand transport costs are quite significant, e.g. bread and brick-making;

d) the demand conditions change frequently as a result of which quickadjustments are needed to adapt to such changes, e.g., garment making;

e) the nature of work done changes frequently due to technical conditions e.g.,agriculture and allied industries; and

f) the supplies of the raw materials and potential market for the product are small.

Complete seperation of situations for large scale and small-scale units is notpossible. There are many industries where small scale and large scaleproduction is carried on side by side. Examples are engineering industries,cloth making, shoe making and several consumer products. In fact, if we gothrough the industrial structure of a country, we will find such situation inmost of the industries. Small units in an industry exist along with larger onesmainly because (i) they may be relatively new and it is normal to grow largefrom small beginnings in due course of time, (ii) they may be supplyingfinished products to the larger units under some type of sub-contracting, and(iv) they may be producing a highly specific variety of products in adifferentiated product industry. All such small units may be equally efficientas the bigger units.

5.4 OWNERSHIP PATTERN OF THE INDUSTRIALSECTOR

After independence India wanted to adopt planned economic development. Wehave gone through several Five Year Plans. We opted for a mixed economywith both private and public sectors, complementing each other rather thancompeting. The scope of each sector was well-defined in the industrial policiesannounced from time to time by the Government. Industrial Policy Resolution of1956 was the major policy announcement. We will learn about these policies indetail in the next two units. Here our interest is to describe the structure ofIndia’s industrial sector on the basis of ownership pattern.

Table 5.6 gives structure of ownership of industrial factory sector in 1997-98.The public sector accounted for 7 per cent of total number of factories, 24 percent of employees, 32 per cent of net fixed capital and 28 per cent of netvalue added by the industrial factory sector. Public sector includes enterprisesof the Central Government, State and local governments.

The Private sector including cooperative sector accounted for 91 per cent oftotal number of factories, 69 per cent of employees, 55 per cent of net fixedcapital and 59 per cent of value added. This sector has four components:i) Corporate enterprises, ii) Partnerships, iii) Individual proprieterships, andiv) Cooperative enterprises.

Joint sector (enterprises owned jointly by private and public or governmentinterests) accounted for 1.8 per cent of total factories, 6.7 per cent ofemployees, 12 per cent of net fixed capital and 12 per cent of value added.

43

Regional distribution of industrial activity and industrial concentration are twomore dimensions of the structure of India’s industrial sector. You are advised totake down notes on these two aspects by going through the publications givenunder Further Readings.

We will learn about public and private sectors in detail in the next two units.

Activity 4

Refer to Table 5.6 and attempt the following:

a) List a few observations about the structure of public sector.

b) Comment on the size of: i) cooperative sector, and ii) joint sector.

c) Explain the organizational form in the private sector.

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.....................................................................................................................

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5.5 SUMMARY

In this unit we acquainted you with several aspects of India’s industrial sector.You have learnt about India’s industrial growth experience. We looked at thestructure of the Indian industrial sector from several dimensions: Composition ofoutput, size, and ownership pattern.

5.6 KEY WORDS

Industrial Sector : Industrial Sector has three components: Mining,Manufacturing, and Electricity.

Gross Value added in Manufacturing : It is the value of output ofmanufacturing minus the value of intermediate inputs. Gross value added isgross of depreciation.

Structural Changes : Changes in average size of the industrial units, inownership pattern of the industrial sector and so on.

5.7 SELF-ASSESSMENT QUESTIONS

1) Explain the major structural characteristics of India’s industrial sector.

2) “As industrialisation of a country proceeds, the relative important ofconsumer goods industries declines and that of capital goods industriesincreases” Justify this proposition by using the relevant data.

3) Going through the Unit-carefully, Comment on the “declaration of industrialgrowth thesis”.


Dutt Ruddar and Sundaram, K.P.M., Indian Economy.

Lakshmana Rao, V. Essays on Indian Economy, Essay No. 3,New Delhi: Ashish Publishing House, 1994.



44

Appendix 2


Table 5.1 : Industrial Growth Rates During Plan Periods

Table 5.2 : Trends in Index of Industrial production (Base 1993-94)

Table 5.3(A) : Annual Rate of Growth of Manufacturing Sector.

Table 5.3(B) : Annual Rate of Growth of the Registered ManufacturingSector

Table 5.4 : Industrial Production: Use Based Classification

Table 5.5 : Average Annual Growth Rate of Industrial Production

Table 5.6 : Ownership Pattern in Indian Industries (1997-98)

45

Table 5.1: Industrial Growth Rates During Plan Periods

Plan Year Index Growth Growth RateRate during

Plan Period

(Base 1970=100)

Third Plan 1960-61 55.81961-62 60.4 8.21962-63 66.1 9.5 8.221963-64 72.3 9.31964-65 78.6 8.81965-66 82.8 5.3

Annual Plans 1966-67 83.3 0.61967-68 84.3 1.2 2.831968-69 89.9 6.7

Fourth Plan 1969-70 96.8 7.61970-71 101.3 4.71971-72 106.4 5.0 4.41972-73 110.6 3.91973-74 111.5 0.8

Fifth Plan 1974-75 115.1 3.21975-76 122.8 6.71976-77 134.4 9.5 6.241977-78 140.0 4.21978-79 150.7 7.6

Annual Plan 1979-80 148.2 (-) 1.6

Sixth Plan 1980-81 154.1 4.0

(Base 1980-81 = 100)

1981-82 109.3 8.61982-83 113.9 4.1 5.91983-84 120.8 6.11984-85 129.0 6.8

Seventh Plan@ 1985-86 142.1 8.71986-87 155.1 9.21987-88 166.4 7.3 8.51988-89 180.9 8.71989-90 196.4 8.6

Annual Plans@ 1990-91 212.8 8.3 4.451991-92 214.0 0.6

Eighth Plan 1992-93 218.9 2.31993-94 232.0 6.0

(Base 1994-94 = 100)

1994-95 108.4 8.61995-96 122.3 12.81996-97 129.1 5.6 7.0

Ninth Plan 1997-98 136.6 5.81998-99P 143.0 4.7

@ Base : 1980-81 = 100; from 1990-91 onwards P Provisional

Source : Centre for Industrial and Economic Research, Industrial Databook, 2000-01.



46

Table 5.2 : Trends in Index of Industrial Production (Base : 1993-94 = 100)

Sector Mining & Quarrying Manufacturing Electricity General

Weight 10.47 79.36 10.17 100.00

Period Index Growth Index Growth Index Growth Index GrowthRate Rate Rate Rate

(per cent) (per cent) (per cent) (per cent)

1 2 3 4 5 6 7 8 9

1998-99 125.4 -0.8 148.8 4.4 138.4 6.5 145.2 4.1(-1.8) (86.9) (14.9) (100.0)

1999-2000 126.7 1.0 159.4 7.1 148.5 7.3 154.9 6.7(1.4) (87.9) (10.7) (100.0)

2000-01 130.3 2.8 167.9 5.3 154.4 4.0 162.6 5.0(4.9) (87.3) (7.7) (100.0)

2001-02 131.9 1.2 172.7 2.9 159.2 3.1 167.0 2.7(3.8) (85.3) (10.9) (100.0)

2002-03 P 139.6 5.8 183.1 6.0 164.3 3.2 176.6 5.8(8.4) (86.2) (5.4) (100.0)

P : Provisional

Note : Figures in brackets are relative contributions, computed as the ratios (in percentage terms) ofthe change in the index of the respective industry group to the change in the overall indexadjusted for the weight of the relative industry group.

Source : Central Statistical Organisation.

Table 5.3 (A) : Annual Rate of Growth of Manufacturing (Per cent)

Year Index of Industrial Gross Value Added of Gross Value Added ofProduction NAS Manufacturing Registered Manufacturing

(Manufacturing) at Constant Prices at Constant Prices

1990-91 9 6.1 5.0

1991-92 - 0.8 -3.7 -2.3

1992-93 2.2 4.2 3.1

1993-94 6.1 8.4 11.5

1994-95 9.1 10.7 13.2

1995-96 14.1 14.9 15.5

1996-97 7.3 7.9 8.1

1997-98 6.7 4.0 3.4

1998-99 4.4 3.6 3.9

1999-2000 7.1

Source : Economic and Political Weekly, January, 2002.

47

Table 5.3 (B) : Annual Rate of Growth of the Registered Manufacturing Sector

Gross Value Added of Registered ManufacturingYear Sector at Constant Prices

(Per cent)

1952-53 0.51953-54 4.41954-55 11.11955-56 12.31956-57 11.11957-58 4.71958-59 2.91959-60 10.11960-61 12.41961-62 9.11962-63 9.71963-64 11.31964-65 8.31965-66 3.31966-67 0.11967-68 -3.31968-69 6.81969-70 17.41970-71 2.41971-72 1.81972-73 3.21973-74 4.91974-75 11975-76 11976-77 12.51977-78 6.71978-79 10.91979-80 -2.11980-81 -1.61981-82 7.71982-83 9.61983-84 14.71984-85 8.41985-86 2.31986-87 5.81987-88 7.11988-89 10.61989-90 13.91990-91 5.01991-92 -2.31992-93 3.11993-94 11.51994-95 13.21995-96 15.51996-97 8.11997-98 3.41998-99 3.9

Compound Annual Rate of Growth of Manufacturing

Year CARG of Gross Value Added of RegisteredManufacturing Sector at Constant Prices

(Per Cent)

1950-51 to 1965-66 7.031955-56 to 1965-66 7.471980-81 to 1990-91 7.661990-91 to 1998-99 5.91

Source : CSO, National Accounts Statistics (various issues).



48

Table 5.4 : Industrial Production : Use Based Classification

Year Basic Capital Intermediate Consumer Consumer ConsumerGoods Goods Goods Goods Durables Non-durables

1 2 3 4 5 6 7

Base : 1980-81 = 100

Weight 39.42 16.43 20.51 23.65 2.55 21.1

1981-82 110.9 106.7 103.7 113.8 110.9 114.1

1982-83 118.7 110.6 107.7 112 121 110.9

1983-84 125.8 123.5 115 113.8 140.5 110.5

1984-85 139.8 127.2 126.2 122 178.8 116.1

1985-86 149.3 140.7 135.7 137.3 212.2 129.5

1986-87 163.2 166.3 141.2 145.7 241.3 134.1

1987-88 172.2 192.8 145 160 259.6 147.9

1988-89 189.2 206.4 161.5 166.2 317.5 148

1989-90 199.4 251.5 168.9 177 325 159.1

1990-91 213.1 291.7 176.9 189 359.7 168.3

1991-92 226.9 266.8 173.2 190.8 320.5 175.1

1992-93 232.9 266.4 182.6 194.2 318.1 179.3

1993-94 254.9 255.4 203.9 202 369.4 181.7

1994-95 269 318.8 211.4 219.6 407.2 196.9

1995-96 291.4 376 236.3 251 554.2 214.3

1996-97 315.1 398 259.5 261.3 584.4 222.2

1997-98 337.3 382.2 277.4 273.3 642 228.7

Base : 1993-94 = 100

Weight 35.57 9.26 26.51 28.66 5.36 23.3

1994-95 109.6 109.2 105.3 112.1 116.2 111.2

1995-96 121.4 115 125.7 126.5 146.2 122.1

1996-97 125 128.2 135.9 134.3 152.9 130.2

1997-98 133.6 135.6 146.8 141.7 164.9 136.5

1998-99 135.8 152.7 155.8 144.8 174.1 138.1

1999-00 143.3 163.3 169.5 153 198.7 142.5

2000-01 148.5 166.2 177.4 165.2 227.6 150.8

2001-02 152.5 160.6 180.1 175.1 253.7 157

Source : Central Statistical Organisation, Government of India.

49

Table 5.5 : Average Annual Growth Rate of Production

1974-79 1980-85 1985-90 1993-94to

2000-01

V Plan VI Plan VII Plan

Basic industries 8.4 8.3 7.4 5.8

Capital goods 5.7 7.1 15.7 7.5

Intermediate goods 4.3 6.2 5.5 8.5

Consumer goods 5.5 6.5 6.6 7.4

(a) Durables 6.8 15.2 12.1 12.4

(b) Non-durables 5.4 5.3 5.4 6.1

Source : Government of India, Ministry of Industry, Handbook of Industrial Statistics(1987) and RBI, Handbook of Statistics on Indian Economy, 2001.

Table 5.6 : Ownership Pattern in Indian Industries (1997-98)

Partners No. of Productive capital Employees Net value Wage perFactories Rs. Crores (*000) added Worker (Rs.)

Rs. Crores

Public Sector 9,516 1,88,032 2,387 44,358 62,936(7.0) (32.1) (24.0) (28.4)

Joint Sector 2,479 71,637 669 18,819 66,644(1.8) (12.2) (6.7) (12.1)

Private Sector 1,23,106 3,25,889 6,838 92,503 32,342(90.8) (55.5) (68.9) (59.3)

Unspecified 450 972 31 267(0.3) (0.2) (0.3) (0.2)

Total 1,35,551 5,86,530 9,925 1,55,947(100.0) (100.0) (100.0) (100.0)

Note : Figures in brackets are percentage of total.

Source : Annual Survey of Industries (1997-98).



50

UNIT 6—PUBLIC SECTOR IN INDIA

Objectives

The main purpose of this unit is to help you:

understand the nature and importance of public sector in India

understand the objectives of public sector

analyse the structure and growth of public sector, and

understand the functioning and performance of public sector.

Structure

6.1 Introduction

6.2 Objectives and Scope of Public Sector

6.3 Structure and Growth of Public Sector

6.4 Working of Public Sector

6.5 Performance of Public Sector

6.6 Summary

6.7 Key Words


6.9 Further Readings

6.1 INTRODUCTION

In India’s mixed economy, public sector occupies a pivotal positioin. Publicenterprises are expected to make significant contribution to growth in nationalincome, creation of employment opportunities, reduction in income disparitiesamong regions and groups, earning of foreign exchange and generation ofsurpluses for financing development efforts. Over a period of time, in the post-Independence period, the size of the public sector has grown rapidly, and thenumber of public enterprises as well as the areas of their operation haverecorded significant progress. Public sector was expected to achieve“commanding heights” in the economy and it did so over a period of fortyyears. However the quantitative growth of the public sector was not matchedby qualitative performance. Many public sector enterprises were incurringlosses. The performance of public sector in general was so discouraging that aspart of New Economic Policy announced by the Indian government in 1991 thescope and role of the public sector was sought to be reduced drastically. Anunderstanding and analysis of economic environment of business in India is notcomplete without an understanding and objective assessment of our publicenterprises. This unit attempts to explain the objectives of India’s public sector.It analyses the various aspects of structure and growth of public sector, andevaluates the performance of public sector. Finally, it discusses theshortcomings of public sector enterprises.

6.2 OBJECTIVES AND SCOPE OF PUBLICSECTOR

The public sector exists in contrast to the private sector. Any activity owned,controlled and managed by the government (Central, State and Local) comesunder public sector. After the attainment of independence and the advent ofplanning, there has been a rapid expansion of the scope of the public sector.

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The passage of Industrial Policy Resolution of 1956 and the adoption of thesocialist pattern of society as our national goal further led to a deliberateenlargement of the role of public sector. From the standpoint of organization,structure and management, there are four types of public sector enterprises inIndia:

1. Those which are departmentally managed (departmental enterprises such asthe Indian Railways).

2. Those which are managed by independent boards.

3. Those which are run as public corporations (which come into existence byActs of Parliament).

4. Those which are organised as companies (registered under the Companies Act).

The objectives of the public sector, can be briefly described as:

1. to accelerate the economic growth and industrialisation of the country bycreating the necessary infrastructure for development;

2. to promote fair distribution of income and wealth, interpersonal as well asinter-regional;

3. to promote balanced regional development;

4. to promote the growth of strategic defence-oriented industries;

5. to assist the development of small and ancillary industries;

6. to create employment opportunities;

7. to achieve socialist pattern of society;

8. to avoid and circumvent the limitations and abuses of the private sector; and

9. to generate forces of economic and technological self-reliance.

Let us elaborate these objectives of the public sector which inspired its rapidgrowth. In a developing country like India, some industries need to be broughtwithin public ownership and control in order to achieve rapid economic growth.Public enterprises became an essential part of the economic developmentprogramme in India. The justification for public enterprises in India is based onthe fact that the rate of economic development planned by the government ismuch higher than can be achieved by the private sector along. In other words,the public sector is essential to achieve the objective of accelerated rate ofeconomic development.

Heavy industry strategy initiated during the Second Plan period called for apattern of resource allocation which necessitated expansion of the public sector.The Public sector proved to be a means for rapid development of heavy andbasic industries.

The objective of economic equity, inter-regional and inter-personal, alsopromoted rapid growth of public sector. The anxiety for balanced regionaldevelopment found a means for it in public sector growth. Public enterprises ofthe Central goverment are to be set up in those regions which areunderdeveloped and where local resources are not adequate. A revealingexample is the setting up of the three public sector steel plants at Bhilai,Rourkela and Durgapur which were meant to help industrialise the regionssurrounding the projects.

Funds for financing development can be generated by way of surpluses frompublic enterprises. The surplus of government enterprises can be reinvested inthe same industries or can be used for the establishment and expansion ofother industries. No doubt, private sector industries can also plough back wholeor substantial amounts of their profits for expansion.

Public Sector in India


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However, profits in private enterprises are declared as dividends among share-holders. This would only create income inequalities among people. But surplusesof public sector enterprises can be directly used for capital formation topromote the objective of accelerated economic development.

Employment growth objective as well as the objective of promoting small andancillary industries to achieve several other objectives can be achieved throughthe means of public sector expansion. The objective of earning/saving foreignexchange is also fulfilled by the growth of the public sector.

Some public sector enterprises were started specifically to produce goods whichwere formerly imported in order to save foreign exchange. The entry ofHindustan Antibiotics Limited and the Indian Drugs and PharmaceuticalsLimited into the manufacture of drugs and pharmaceuticals were meant toremove the monopolistic stranglehood of foreign enterprises in the field andhave helped India to save foreign exchange used for importing these items.Likewise, the Oil and Natural Gas Commission and the Indian Oil Corporationare public enterprises which attempt directly to increase self-reliance of thecountry and reduce our dependence on imports. The Bharat Electronics Limitedhas saved foreign exchange by way of import substitution.

Most of the public sector enterprises were started keeping in mind therequirements of the Indian economy in the fields of production and distribution.However, some public enterprises have done much to promote Indian exports.The State Trading Corporation have done a good job of export promotion in allparts of the world. Considerable success has been achieved in pushing up theexports of Indian handicrafts, light engineering goods and many other new itemsof exports. Hindustan Steel Ltd., the Bharat Electronics Limited, the HindustanMachine Tools, etc. are some of the public enterprises which are exportingincreasing proportion of their output and earning foreign exchange.

Public sector growth, it was believed, contributes importantly to theachievement of the objective of socialistic pattern of society. The socialisticpattern of society calls for extension of public sector in two ways. Firstly,production will have to be centrally planned as regards the type of goods to beproduced, the volume of output and the timing of their production. It may becomparatively easy to achieve this through public sector rather than throughprivate sector. It is worth quoting from the Second Five Year Plan in thisconnection: “The adoption of the socialistic pattern of society as the nationalobjective, as well as the need for planned and rapid development require thatall industries of basic and strategic importance, or in the nature of public utilityservices should be in the public sector. Other industries which are essential andrequire investment on a scale which only the State, in present circumstances,could provide, have also to be in the public sector.”

Secondly, one of the objectives under the Directive Principles of State Policy inour constitution is to bring about reduction in the inequalities of income andwealth and to establish an egalitarian society. The Five Years Plans have takenup this as a major objective. The public sector may be used as an instrumentfor achieving this objective for the following reasons: 1. The surpluses of publicenterprises will go to the government unlike those of private enterprises whichenrich private pockets 2. There can be effective regulation of income of topexecutives in public enterprises (with steps to ensure managerial efficiency inpublic enterprises) 3. The public enterprises can adopt discriminatory pricing tobenefit poorer classes. 4. They make possible raising of wage income of thelow-paid workers. 5. They help to reduce income from imports for privateindividuals.

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It is worth mentioning in this connection the opinion of Prof. V.K.R.V. Rao:“sectors of economic activity which involve either monopoly conditions orstrategic economic power or possession of large resources in private handsshould be publicly owned and operated as public enterprises. It also means thatpublic enterprises should make themselves responsible for the building of theeconomic overheads like transport, power, fuel, and basic capital goods withoutwhich increase in the production of consumption goods and services either onthe required scale or necessary economic basis will not be possible, irrespectiveof whether it is to be in the private or public sector... without public enterprise,there can be no private enterprise. In fact, it is the former that enables the fullgrowth of the latter” (V.K.R.V. Rao, “The Public Sector in Indian Socialism” inP.R. Brahmananda and Other (eds.), Indian Economic Development andPolicy (1979), pp. 26-27.

Limitations of and abuses by the private sector also necessitate public takeoveror government initiative. When initial capital requirements are large, privatesector fails to come forward in a big way. In such cases, public sectorenterprise is the answer (example, steel industry). When risks involved arelarge, private sector may be reluctant to take up the activity. For developmentreasons, public sector may have to fill the gap (e.g., fertilizer units). Thesickness of private sector units necessitates take over by the public sector (e.g.,sick textile units in Private Sector formed into National Textiles Corporation(NTC). In the interests of workers/employees, consumers or in the interest ofsociety in general, nationalisation may be warranted (e.g., nationalisation of lifeinsurance and major commercial banks).

To conclude, the establishment and expansion of public sector was aimed at thefulfillment of our national goals such as the removal of poverty, the attainmentof self-reliance, reduction in income inequalities, expansion of employmentopportunities, removal of regional imbalances, acceleration of the pace ofeconomic development, reduction of concentration of economic power and ofmonopolitic tendencies. By acting as an effective countervailing power (aphrase of Professor Kenneth Galbraith, American Capitalism: The Concept ofCountervailing Power) to the private sector, it would hopefully make thecountry self-reliance in modern technology and create professional, technologicaland managerial cadres so as to ultimately rid the country from dependence onforeign aid.

We have noted above the important objectives of the public sector. Now weturn to the understanding of the role of public sector in the Indian economy. Tounderstand the role and importance of public sector in the economy, we have toget quantitative idea about it. Public sector expanded rapidly only since 1960.The size of the public sector is to be understood through several indicators suchas employment, investment, and value of output. You will learn the details aboutpublic sector growth and structure in the later sections. Here it is sufficient tonote the importance of public sector in the Indian economy by the size of theindicators mentioned above.

In 1992-93 public sector accounted for 6.1 per cent of total number offactories. If we go by the employment criterion, public sector had 26.5 per centof total workers in the factory sector and 28.1 per cent of total employees.Public sector accounted for 55.1 of net fixed capital, and more than 50 percent of fixed capital in the factory sector. As for the gross output criterion,public sector accounted for 26.2 per cent of the gross value of output of thefactory sector. Public sector accounted for 32.1 per cent of net value added bythe factory sector. Net value added is the gross value of output minus thevalue of intermediate inputs minus depreciation. These figures bring out clearlythe role and importance of public sector in the Indian economy.



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It may be noted in this connection that public sector provides many producerand capital goods to the private sector (e.g. steel for all economic activities andfertilizers for the agricultural sectors). Public sector has entered into a widespectrum of industries. Its operations involve basic and capital goods like steel,coal, copper, zinc, and other minerals, and heavy machinery. We find publicsector important in drugs and chemicals, fertilizers, consumer goods like textiles,hotel services, watches, bread etc. Most of these industries have strategicimportance in the Indian economy since they have high linkages.

Activity 1

In 1966, the then Prime Minister proclaimed the objectives of public sector inIndia as follows: “We advocate a public sector for three reasons: to gaincontrol of the commanding heights of the economy; to promote criticaldevelopment in terms of social gain of strategic value rather than primarily onconsiderations of profit; and to provide commercial surpluses with which tofinance further economic development.” (Quoted in Lok Udyog, June 1976)

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Explain in about 50 words each of the objectives announced by the PrimeMinister.

Activity 2

a) Quite a few of our public enterprises have long names. We often useabbreviations (called acronyms) to identify them. Can you spell them out?You may like to extend the list yourself.

Acronym Full name

BHEL

BEL

CIL

DVC

HAL

FCI

HSL

HMT

IDPI

ITI

MMTC

ONGC

IOC

NIDC

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b) Now that you know that our public enterprises produce goods (such asmetals, oil, consumer goods etc.) as well as services (transport, trade,finance etc.), can you broadly classify the enterprises listed above in (a) intothe two groups; as indicated below:

Goods Public Enterprises Services

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6.3 STRUCTURE AND GROWTH OF PUBLICSECTOR

During the last five decades, the share of the public sector in net domesticproduct (NDP) has shown a steady improvement. Measured at current prices,public sector accounted for 7.5 per cent of NDP in 1950-51, its share in 1999-2000 had risen to 24.1 per cent. Public sector, therefore, accounts for aboutone-fourth of national output. This is largely due to a rapid expansion of thepublic sector enterprises.

There is a big increase in the share of public administration and defence from4.5 per cent to 10.1 per cent between 1950-51 and 1999-2000. The share ofpublic sector enterprises, however, rose from 3 per cent in 1950-51 to 13.2 percent in 1999-00. Despite this fact, the private sector still occupies a dominantposition in the economy. There are some sectors such as agriculture and small-scale sector in which the share of the state is almost zero. However, ininsurance, civil aviation, defence equipment, indigenous, crude oil production,etc., government ownership is cent per cent. Increasingly, industries of strategicand national importance are being brought under state ownership.

Table 6.2A gives the employment structure of the public sector.

The share of public sector in total employment reveals that in transport andcommunications, electricity, gas and water supply, and construction, the share ofthe public sector exceeded 90 per cent. After nationalisation of coal mines andmajor banks a major part of employment in these areas is accounted for by thepublic sector.

Employment in the public sector increased from 107.0 lakhs in 1971 to 191.4lakhs in 2001 (See Table 6.2). The public sector accounted for 61.1 per cent oftotal organised sector employment in 1971. This share went up to 68.9 per centby 2001.

Thus the private sector accounted for only 31.1 per cent of total organisedsector employment. During the period 1976-1995 the average annual growthrate of employment in the public sector worked out to be 1.8 per cent. Duringthe same period the growth rate of employment in the private sector was 1.1per cent, significantly lower than the public sector employment growth rate.Public sector thus has been an important source of organised sectoremployment.



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As you know, capital is an important factor of production. Capital formationtakes place through ivestment. Net investment during a year is an additionmade to the capital stock. In other words, capital stock in an economyincreases through net investment. Savings out of current income when investedadd to the capital stock of the economy. Let us now look at trends in savings,capital formation and capital stock of the public sector. Table 6.3 givesinformation on savings and capital formation in public and private sectors.

Gross domestic capital formation increased from 10.7 per cent of GrossNational Product (GNP) during the First Plan period to 28.4 per cent during theTenth Plan period. As for the capital formation in public sector, it increasedfrom 3.5 per cent of GNP during the First Plan period to 8.4 per cent duringthe Tenth Plan period. The share of public sector in capital formation increasedfrom 33 per cent during the First Plan period to 47 per cent during the SeventhPlan period. The rapid growth of public sector is evident from this.

However, the rate of savings of the public sector fell short of the rate ofcapital formation. The share of the public sector savings in total gross domesticsavings decreased from 17 per cent during the First Plan period to 11 per centduring the Seventh Plan period. The public sector has been financing its capitalformation through incurring debt. This debt financing increased substantiallyduring the 1980s decade.

Let us consider the share of the public sector in capital stock. The term‘capital stock’ refers to the total stock of plant and machinery, equipment andtools and other capital goods available at a point of time for further production.Capital stock represents produced means of production. The term investment(or gross capital formation) refers to annual flow of installation of goods partlyto meet the needs of depreciation of capital stock and partly to increase thesize of the total capital stock on a net basis. Data given in table 6.4 reveal thatgross fixed capital formation (GFCF) during 1950-51 to 1960-61 was of theorder of 12.1 per cent per annum. This was the natural consequence of theenthusiasm generated in the Second Plan to undertake the massive developmentof heavy and basic industries. However, this process of acquiring new plantsand undertaking investment in hither to unexplored areas did continue upto1965-66 when GFCF shot up to the peak level of Rs. 7,870 crores, but thedrought of 1965-66 and the recession that followed in 1966-67 reversed thetrend and the annual growth rate slumped to 2 per cent during the 1960s. Laterit picked up to 6.3 per cent during Seventies and 6.1 per cent during theEighties. Thus public sector has made a tremendous contribution in improvingGross Fixed Capital Formation, more especially in the capital goods sector andthus laid the foundations of a strong industrial base in India. During 1993-94and 1999-2000, however, GFCF growth rate was of the order of 2.5 per centat 1993-94 prices.

In this connection it may be noted that capital intensity (capital per unit ofoutput) of production in public sector is significantly higher than that of privatesector. This is largely due to the differences in the nature of investment in thetwo sectors.

The important differences are listed below:

1) A good part of the investment in the public sector goes into economicoverheads such as roads, buildings and communications which are essentialfor economic development but do not contribute to output in the normalsense of the term.

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2) The public sector has played a significant role in developing the keyindustries of the economy and these industries such as iron and steel andpower by their very nature are areas of high capital intensity.

3) Many projects in the public sector have longer gestation periods. Capitaloutlays are large and take time to yielding results.

4) Areas of higher output-capital ratios fall mainly in the private sector.Examples are consumer goods industries, small-scale and cottageenterprises.

An eloquent measure of the dynamic expansion of the public sector in India isthe growth in sales of public enterprise. The sales have grown at the rate of18.2 per cent per annum during the period 1970-71 to 1987-88. During theperiod 1980-81 to 1990-91, the gross product of public sector increased fromRs. 24,171 crores to Rs. 1,24,923 crores. In 1987-88, percentage of sales tocapital employed (CE) was 146 and this ratio declined to 123 per cent in2001-2002. Between 1987-88 and 2001-2002, the annual average growth rate ofsales was 13.5 per cent, while that of capital employed was 14.9 per cent.

Despite many criticisms against the public sector enterprises, there is nodenying the fact that rapid industrialisation of the Indian economy in the post-Independence period was mainly due to the growth of the public sector. Astrong and well-diversified industrial base has been laid and in many respectsIndian has achieved self-reliance.

Public Sector in the Present Scenario

Public sector which was expected to achieve “Commanding heights” of theeconomy did grow very rapidly during the planning era. But inefficiencies ofvarious kinds have become the hallmark of the public sector. Debt financing ofpublic investment became quite common during 1980s decade. In 1976-77 publicsaving financed 49 per cent of gross public investment. In 1981-82 the ratiocame down to four-fifths of public investment thus was financed by borrowingfrom domestic private and external sectors. Public enterprises have shown verylow rate of return on the huge capital invested. This has reduced their ability toregenerate themselves in terms of new investment and technology development.The result is that many of the public enterprises have become a burden ratherthan being an asset to the Government.

In the national economic scenario resulting from the Economic reforms of 1991the scope of public sector is reduced and is confined only to intrastructure andstrategic industries. The priority areas for growth of public enterprises in futurewill be the following:

1) Essential infrastructure goods and services.

2) Exploration and exploitation of oil and mineral resources.

3) Technology development and building of manufacturing capability in areaswhich are crucial in the long term development of the economy whereprivate sector investment is inadequate.

4) Manufacture of products where strategic considerations predominate such asdefence equipment.

The disinvestment in the public sector units has been going on. Through thedecade of 1990s, there has been an increasing consenses on the merits ofprivatisation.



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According to the data (Economic Survey, 2002-03), the aggregate balance sheetassets of all public sector companies amounts to roughly Rs. 22 lakh crorewhich suggests that relatively modest improvements in the efficiency of theirfunctioning would have a significant impact upon GDP growth.

Activity 3

Make use of Table 6.1 and calculate annual average percentage change inproducts originating in public sector during the period 1960-61 to 2000-01.Find the average annual change.

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6.4 WORKING OF PUBLIC SECTOR

Working of private enterprises is largely governed by the profit motive. Allmanagerial decision in the working of private enterprise thus are geared to earnas much profit as possible. These decisions are, of course, constrained by theenvironment within which an enterprise is to operate. The behaviour of anenterprise working in a competitive environment differs from that operating in(say) oligopolistic environment. But the prime motive in the case of the privateenterprise is maximization of profits.

In the case of public enterprises social good is the main goal and working ofpublic enterprises is governed by this goal. Higher utilization of capacity (toproduce as much output as possible given the capacity constraint), efficiency inrunning the enterprise, being accountable to public and following proper pricingpolicies are some of the norms public enterprises need to satisfy in theirworking. We have to pay attention to two aspects of working of publicenterprises. One is public accountability. The second is pricing policies.

Public Accountability

A difficult problem faced by public enterprises is to reconcile the demands ofaccountability and autonomy. Autonomy in managing and running the concern isneeded to ensure a high degree of efficiency. Without such a freedom to themanagement in choosing it policies (e.g., wage policy and the like) decisionmaking is delayed, flexibility in management is lost, and efficiency in its diverseaspects cannot be ensured. On the other hand, since public undertakings are(a) using public funds and (b) are meant to work for social good, it isnecessary that the independence of the management must be subjected to theaccountability constraint. It is necessary to strike a proper balance betweenautonomy and accountability.

Three major constituents of public enterprise accountability are :

Accountability to Parliament

Accountability through Audit

Accountability in Annual Reports.

Parliamentary control is essential through a number of ways such as questions,short discussions, the work of Committees on Public Undertakings (CPU),approvals and reporting about investment and loans, public enquiry based on therecommendations of CPU etc.

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Auditing (financial efficiency and propriety) is an important instrument ofaccountability. There are also systems of Supplementary Audit and Social Audit.Each Audit has its own purpose and justification. However, sometimes toomany audit objections may hinder managerial initiative and efficiency and theymay come in conflict with the principle of autonomy.

Finally, there is accountability through the system of annual reports. The Bureauof Public Enterprises (BPE) has issued guidelines about the coverage in AnnualReports. Among other aspects, Annual Report must cover a summary offinancial results, changes in accounting methods, changes in price policy,important events affecting production and productivity, staff welfare activitiesetc. In parliamentary democracy these several instruments of publicaccountability go some way in ensuring that public enterprises serve public needin a responsible manner.

Price Policy in Public Enterprises

In public enterprises, the pricing function is “diffused over the minister, thedepartment and the managers”. Even when the government, through theminister concerned, decides about the general price-profit policy, the actualdetails of the price structure will have to be worked out by the management ofthe undertaking. In general so far as the public enterprises are concerned, thegovernment decides the pricing policy while the managers of particularenterprises decide the price structure within the general framework of theGovernment’s price policy.

Activity 4

Of the following options for pricing products of public sector which one wouldyou consider as the best and why?

1) Marginal Cost Pricing

2) Average Cost Pricing

3) Import Parity Price

4) Mark-up Pricing

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6.5 PERFORMANCE OF PUBLIC SECTOR

Prior to 1991 when New Economic Policy was announced, while thegovernment has been pushing ahead with more and more public sectorundertakings, there has been considerable criticism about the poor performance,and in some cases utter failure of government undertakings in the country.

For the reasons mentioned earlier the performance of public enterprises cannotbe judged solely on the basis of profit criteria. Some of the public enterpriseswere running on profit while many others were running on losses. The over-allpicture reveals that between 1960-61 and 1977-78 percentage of profit after taxto total paid-up capital and reserves had ranged between 0.2 to 4.6 per cent.Thus by the criterion of “profit after tax” the performance of the public sectorhas been poor.



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In Table 6.5 select profitability and performance indicators of the workingenterprises is shown. A few points may be made about the financialperformance of public enterprises.

Since 1991-92, gross profit as a ratio of capital employed (rate of return oncapital) has shown a distinct improvement. It increased from 12 per cent in1991-92 to 16 per cent in 1995-96. In the subsequent years it has been inthe range of 13 to 15 per cent. Reviewing the situation it was mentioned:“In absolute terms net profits (after tax) of Central government publicenterprises rose substantially from Rs. 2,400 crores in 1991-92 to Rs. 9600crores in 1995-96. The rate of return as measured by net profits to capitalemployed rose to 10 per cent in 1995-96, which is the highest in thedecade. However, as in previous years, the petroleum sector enterprisescontributed the overwhelming bulk of these profits- Rs. 2899 crores out ofthe total 3789 crores in 1989-90 (76.6% of total). Thus, the 200 odd non-petroleum enterprises contributed a meagre sum of Rs. 883 crores. Whilethis reflected an improvement over the net profit of Rs. 431 crores in1988-89, the ratio of net profits to capital employed in non-petroleum sectorenterprises was barely 1.3 per cent in 1989-90.” Clearly there is substantialscope for improving financial performance of non-petroleum Centralgovernment enterprises.

During 1992-93 gross profit as a proportion of capital employed declined to11 per cent. Net profit of public enterprises declined from Rs. 3789 crores in1989-90 to Rs. 2272 crores in 1990-91. The net rate of return declined from4.5 per cent in 1989-90 to 2.2 per cent in 1990-91, the lowest since 1984-85.During 1991-92 it declined further to 2.1 per cent. The petroleum sector, asin the earlier years, accounted for bulk of the net profit Rs. 1779 crores outof the total of Rs. 2475 crores. But 1991-92 being a year of foreignexchange crisis, resource crunch and a year of general slackening ofindustrial production, the public sector also suffered the impact of overalleconomic deceleration.

As noted before, it is not appropriate to treat profits as the sole criterion ofefficiency of the public sector. The gains to employees and welfareexpenditures on employees in public enterprises are to be noted in thisconnection. The real emoluments per employee in the public sector went upfrom Rs. 11210 in 1978-79 to Rs. 17339 in 1991-92. The annual growth rate ofreal emoluments works out to 3.43 per cent during this period. Further, asagainst Rs. 420 in 1968-69, the average annual expenditure per employee onwelfare activities increased to Rs. 4427 in 1988-89. A total sum of Rs. 974crores in the form of houses, educational facilities, medical care etc., was spentin 1988-89 for the benefit of employees.

The public sector by assuming responsibility of rehabilitation of sick units(example, textile mills in private sector) had to bear a considerable burden inorder to save 1.6 lakh employees from the spectrum of unemployment. Thissocial responsibility explains to some extent the lower profitability of publicsector.

By the criterion of capacity utilization also, the public sector performance isfound to be better (relative to the private sector) by some studies. Theforeign exchange earnings of public enterprises also constitute aperformance indicator. The value of exports of central public sectorenterprises increased from Rs. 502 crores in 1972-73 to Rs. 6366 crores in1989-90. Physical productivity measures also are to be used as perfomanceindicators.

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Privatisation

Through the decade of the 1990s, there has been an increasing consensuson the merits of privatisation. The aggregate balance sheet assets of allpublic sector companies amounts to roughly Rs. 22 lakh crore, This suggeststhat relatively modest improvements in the efficiency of their functioningwould have a significant impact upon GDP growth. Hence, policies onprivatisation are an important component of policies for efficiency andproductivity.

The privatisation process began in 1991-92 with sale of minority stakes in somePSUs. From 1999-2000 onwards, the focus shifted to strategic sales. Table 6.6summarises the transactions which have taken place in 2002-03, which havegiven proceeds of Rs. 3,342 crore.

One of the major concerns often expressed with respect to privatization is thatwith a transfer of management into private hands, the interest of employeesmight suffer. Government has chosen to put in requirements into theshareholder agreements, executed as a part of strategic sales, to ensure thatthere is no retrenchment of employees at least for a period of one year afterprivatisation, and even thereafter, retrenchment to be possible only under theVoluntary Retirement Scheme (VRS) as applicable under Department of PublicEnterprises (DPE) guidelines or the Voluntary Separation Scheme, which wasprevailing in the company prior to disinvestments, whichever is more beneficialfor the employee. These provisions have been included to enhance employeeswelfare.

It is interesting to note that while much is made of the likely adverse impactof disinvestments on employment, in fact, over the last 10 years, as reportedby the PSE Survey 2000-01, public sector undertakings have seen a netreduction in employment from a level of 2,179 million employees in 1991-92 toa level of 1,742 million in 2000-01, or a reduction of 20 per cent over thisperiod. Till March 31, 2001, 3.69 lakh employees had opted for VRS. Incomparison, the retrenchment of employees after disinvestment has beenmarginal.

In eight disinvested PSUs and five disinvested ITDC Hotels, against an initialemployee strength of 27,967 at the time of disinvestments, only 2,119employees were retrenched through VRS, and another 910 for other reasons.As against a total of 3,029 post disinvestment separations, 855 freshappointments have been made resulting in a net reduction of 2,174 employeesor about 7.8 per cent employees, compared to the employment level at thetime of disinvestments.

Activity 5

a) Use data in Table 6.5 to compute:

i) Gross Profit-Turnover ratio, and

ii) Turnover-Capital employed ratio and comment on the trends in theseratios.

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b) Graph the two rates of return (Table 6.5) measuring years on X-axis andrate of return on Y-axes, and comment on the emerging profiles.

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6.6 SUMMARY

The public sector in India has grown very rapidly. There are important reasonsfor promoting public sector. Public sector growth has helped in achievinginfrastructural development on the one hand and a strong and well-diversifiedindustrial base on the other. Criteria of operational efficiency show that there isneed for improving substantially the performance of public sector enterprises.This is a managerial challenge, given the economic environment within whichpublic enterprises have to function.

6.7 KEY WORDS

Public Sector : Any activity owned, controlled and managed by theGovernment (Central, State, Local).

Autonomy and Accountability : Autonomy in managing and running theconcern is needed to ensure a high degree of efficiency. Without such freedomto the management in choosing its policies, the decision-making processes, wagedetermination and the like, the flexibility for management is lost and efficiencyin its diverse aspects cannot be ensured. On the other hand, since publicundertakings are using public funds and they are meant to work for socialgood, it is necessary that the independence of the management must besubjected to the accountability constraint. It is necessary to strike a properbalance between autonomy and accountability.

6.8 SELF ASSESSMENT QUESTIONS

1) State and explain the major objectives of the public sector. In your opinionwhich of them are more important.

2) Give different criteria, evaluate the performance of public enterprises.

3) Using different criteria, evaluate the performance of public enterprises.

4) Refer to recent Public Enterprises Survey and update data in Table 6.5.

5) Explain the following concepts:

a) Gross Investment

b) Net Investment

c) Capital

d) Gross value added

6) As a prospective manager in a public enterprise how would you resolve thepossible conflict between autonomy and public accountability of publicenterprises?

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Basu, Prahlad Kumar, Performance Evaluation for PerformanceImprovement, Allied Publishers 1991.

Gouri, Geeta (Ed.) Privatisation and Public Enterprises,Oxford and IBH Publishing, 1991.

Mathur, B.P., Public Enterprises Management, Macmillan, 1993.

Shrivastava, M.P., Problem of Accountability of Public Enterprises in India,Uppal Publishing, 1987.

The following are regular annual publications of the Government of India.Make sure that you get the latest issue of each. You may also update thestatistics given in various tables.

CSO, National Accounts Statistics, Latest Issues.

GOI, Economic Survey, Latest Issue

Bureau of Public Enterprises, Public Enterprises Survey,Vol. 1 Latest Issue.



64

Appendix 3


Table 6.1A : Gross Domestic Product from Public Sector by Industry ofOrigin

Table 6.1B : Gross Domestic Product from Public Sector at Factor Cost

Table 6.1C : Domestic Product in Public Sector

Table 6.2 : Employment in Organised Public and Private Sectors

Table 6.2A : Employment in the Public Sector by Industry in 2001

Table 6.3 : Share of Public Sector in Gross Domestic Saving and Capital

Table 6.4 : Gross Fixed Capital Formation in Public Sector

Table 6.5 : Profitability of Central Public Enterprises.

Table 6.6 : Disinvestment Proceeds during 2002-03.

65

Table 6.1 (A) : Gross Domestic Product from Public Sector by Industry of Origin

At Current Prices (% share in PSGDP)

1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01

Public sector grossdomestic product(PSGDP) 100.0 100.0 100.0 100.0 100.0 100.0 100.0

Administrativedepartment 30.70 31.56 33.08 33.75 36.25 38.12 40.15

Departmentalenterprises 14.63 14.19 14.55 14.35 14.11 13.55 11.60

Non-Departmentalenterprises 52.73 52.24 50.31 49.66 47.19 44.98 45.86

Agriculture, forestryand fishing 3.35 3.35 3.43 3.18 3.10 2.86 2.83

Industry 35.82 33.75 32.06 33.24 32.04 29.04 29.30

Mining and quarrying 9.70 9.13 8.73 8.16 7.16 7.62 8.41

Manufacturing 11.96 10.80 9.27 11.01 10.17 7.79 7.06

Electricity, gas andwater supply 10.97 10.58 10.78 10.71 11.20 9.93 10.03

Construction 3.19 3.24 3.28 3.36 3.52 3.71 3.80

Services 60.83 62.90 64.51 63.58 64.86 68.09 67.87

Trade, hotels,transport, storageand communication 15.58 15.58 15.59 14.99 14.00 13.25 13.65

Trade, hotels andrestaurants 2.31 2.17 1.99 1.82 1.45 1.28 1.34

Trade 2.22 2.05 1.87 1.73 1.38 1.22 1.26

Hotels andrestaurants 0.09 0.12 0.12 0.09 0.07 0.07 0.08

Transport, storageand communication 13.27 13.41 13.60 13.17 12.55 11.97 12.32

Railways 4.78 4.66 4.46 4.10 3.46 3.48 3.49

Other transport 3.61 3.65 3.56 3.44 3.30 3.07 3.15

Storage 0.11 0.13 0.11 0.10 0.10 0.11 0.12

Communication 4.76 4.98 5.47 5.54 5.69 5.31 5.56

Financing, Insurance,real estate andbusiness services 15.12 16.40 16.50 15.45 15.24 16.65 14.73

Banking insurance 14.97 16.25 16.35 15.31 15.11 16.52 14.60

Real estate, ownershipof dwell, and businessservices 0.14 0.15 0.15 0.14 0.13 0.13 0.14

Community andpersonal services 30.14 30.92 32.43 33.13 35.62 38.19 39.49

Public administrationand defence 20.75 21.22 21.93 22.69 24.49 25.99 26.48

Other services 9.38 9.70 10.50 10.44 11.14 12.20 13.01

Source: National Income Statistics, Centre for Monitoring Indian Economy, January2004.



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Table 6.1 (B) : Gross Domestic Product from Public Sector at Factor Cost

At Current Price At Constant Prices

Rs. crore % change % share Rs. crore % change % sharein GDP in GDP

1970-71 5802 12.46 13.74 45805 8.98 15.46

1971-72 6482 11.72 14.43 48516 5.92 16.21

1972-73 7170 10.61 14.51 51631 6.42 17.31

1973-74 8460 17.99 13.97 56891 10.19 18.24

1974-75 10908 28.94 15.30 58184 2.27 18.44

1975-76 12936 18.59 17.09 63313 8.82 18.41

1976-77 15090 16.65 18.54 69958 10.50 20.09

1977-78 16673 10.49 17.95 73525 5.10 19.65

1978-79 18534 11.16 18.57 78888 7.29 19.98

1979-80 21344 15.16 19.59 82283 4.30 21.98

1980-81 25525 19.59 19.61 88791 7.91 22.14

1981-82 31270 22.51 20.56 93206 4.97 21.93

1982-83 37795 20.87 22.29 102535 10.01 23.41

1983-84 43907 16.17 22.10 109445 6.74 23.20

1984-85 50985 16.12 22.89 117738 7.58 23.93

1985-86 60354 18.38 24.19 127845 8.58 24.87

1986-87 70996 17.63 25.51 138862 8.62 25.89

1987-88 81679 15.05 25.85 147945 6.54 26.57

1988-89 96873 18.60 25.59 158483 7.12 25.77

1989-90 112276 15.90 25.63 171575 8.26 26.14

1990-91 128398 14.36 25.13 176720 3.00 25.51

1991-92 153632 19.65 26.08 187758 6.25 26.75

1992-93 175320 14.12 26.04 192708 2.64 26.12

1993-94 202512 15.51 25.92 202512 5.09 25.92

1994-95 234395 15.74 25.56 216995 7.15 25.89

1995-96 270129 15.25 25.17 230051 6.02 25.57

1996-97 297443 10.11 23.92 240452 4.52 24.79

1997-98 352518 18.52 25.36 269001 11.87 26.46

1998-99 406640 15.35 25.44 288939 7.41 26.69

1999-00 448894 10.39 25.48 305160 5.61 26.57

2000-01 468187 4.30 24.41 309766 1.51 25.84

Source: National Income Statistics, CMIE, January 2004.

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Table 6.1 (C) : Domestic Product in Public Sector(at current prices)

Administrative Department Departmental Enterprises Non-DepartmentalEnterprises

Rs. crore % change Rs. crore % change Rs. crore % change

1980-81 8940 3933 11688

1981-82 10379 16.10 4620 17.47 15163 29.73

1982-83 12431 19.77 5734 24.11 18392 21.30

1983-84 14460 16.32 6594 15.00 21453 16.64

1984-85 16765 15.94 7495 13.66 25163 17.29

1985-86 19726 17.66 9451 26.10 29458 17.07

1986-87 22827 15.72 10799 14.26 35439 20.30

1987-88 27414 20.09 12989 20.28 39116 10.38

1988-89 32198 17.45 14982 15.34 47284 20.88

1989-90 37934 17.81 16869 12.60 54815 15.93

1990-91 43670 15.12 18902 12.05 62838 14.64

1991-92 50220 15.00 21714 14.88 78221 24.48

1992-93 57702 14.90 25192 16.02 88499 13.14

1993-94 64138 11.15 29102 15.52 105097 18.76

1994-95 71965 12.20 34281 17.80 123596 17.60

1995-96 85243 18.45 38341 11.84 141107 14.17

1996-97 98405 15.44 43275 12.87 149642 6.05

1997-98 118962 20.89 50579 16.88 175063 16.99

1998-99 147424 23.93 57395 13.48 191899 9.62

1999-00 175603 19.11 60818 5.96 201894 5.21

2000-01 187993 7.06 54315 (-) 10.69 214701 6.34

Source: National Income Statistics, CMIE, January, 2004.



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Table 6.2 (A) : Employment in Organised Public and Private Sectors

(In Lakhs)

Year Public Annual Private Annual Total Publicsector Change Sector Change Sector Share

(%) (%) (2)+(4) (2) as % of (6)

(1) (2) (3) (4) (5) (6) (7)

1971 107.0 — 68.0 — 175.0 61.1

1976 133.2 4.9 68.4 0.1 201.6 66.1

1981 154.8 3.2 73.9 1.6 228.7 67.7

1986 176.8 2.8 73.7 (-) 0.2 250.5 70.6

1991 190.6 1.6 76.8 0.8 267.3 71.3

1992 192.1 0.8 78.5 2.2 270.6 71.0

1993 193.3 0.6 78.5 0.0 271.8 71.1

1994 194.5 0.6 79.3 1.0 273.8 71.0

1995 194.7 0.1 80.6 1.6 275.3 70.7

1996 194.3 (-) 0.2 85.1 5.6 279.4 69.5

1997 195.6 0.7 86.9 2.1 282.5 69.2

1998 194.2 (-) 0.7 87.5 0.7 281.7 68.9

1999 194.2 0.0 87.0 (-) 0.6 281.1 69.1

2000 193.1 (-) 0.6 86.5 (-) 0.6 279.1 69.1

2001 191.4 (-) 0.9 86.5 0.0 277.9 68.9

Note: (1) Includes all establishments in the public sector irrespective of size ofemployment and non-agricultural establishments in the private sectoremploying 10 or more persons.

(2) Excludes Sikkim, Arunachal Pradesh, Dadra & Nagar Haveli andLakshadweep.

Source: Economic Survey, Various Issues.

Table 6.2 (B) : Employment in the Public Sector by Industry in 2001(Lakh persons as on March 31)

Industry Public Sector Private Sector Total (2) as % of (4)

(1) (2) (3) (4) (5)

1. Agriculture, huntingforestry and finishing 5.02 9.31 14.33 35.0

2. Mining & Quarrying 8.75 0.79 9.54 91.7

3. Manufacturing 14.30 50.13 64.43 22.2

4. Electricity, gas andwater 9.35 0.52 9.87 94.7

5. Construction 10.81 0.57 11.38 95.0

6. Wholesale and retailtrade 1.63 3.39 5.02 32.5

7. Transport, storageand communications 30.42 0.76 31.18 97.6

8. Finance, insurance,real estate, etc. 12.81 3.70 16.51 77.6

9. Community, socialand personal services 98.30 17.34 115.64 85.0

Total 191.38 86.52 277.90


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Table 6.3 : Share of Public Sector in Gross Domestic and Capital Formation

(In Crores)

Plan Periods Plan Period averages % share As % of GNP

Public Private Total Public Private Public Private Totalsector sector sector sector sector sector

Gross Domestic Savings

First Plan (1951-56) 169 874 1043 17 83 1.7 8.7 10.4

Second Plan (1956-61) 273 1368 1641 16 84 2.0 10.4 12.4

Third Plan (1961-66) 679 2185 2864 24 76 3.4 10.9 14.3

Annual Plans (1966-69) 731 3838 4569 16 84 2.4 12.5 14.9

Fourth Plan (1969-74) 1341 6579 7920 17 83 3.0 14.4 17.4

Fifth Plan (1974-79) 3830 14182 18192 21 79 4.6 17.0 21.6

Sixth Plan (1980-85) 6609 30062 36671 18 82 3.6 16.5 20.1

Seventh Plan (1985-90) 7815 62620 70435 11 89 2.3 18.1 20.4

Ninth Plan (1997-02) — — — — — -0.8 24.1 23.3

Tenth Plan (2002-07) — — — — — 0.4 26.4 26.8

Gross Domestic Capital Formation

First Plan (1951-56) 358 724 1082 33 67 3.5 7.2 10.7

Second Plan (1956-61) 871 1154 2025 43 57 6.6 8.8 15.4

Third Plan (1961-66) 1687 1662 3349 50 50 8.4 8.3 16.7

Annual Plans (1966-69) 2212 3084 5296 42 58 7.2 10.1 17.3

Fourth Plan (1969-74) 3324 4957 8281 40 60 7.2 10.9 18.1

Fifth Plan (1974-79) 7791 9799 17590 45 55 9.5 11.7 21.2

Sixth Plan (1980-85) 20122 19165 39287 51 49 11.1 10.5 21.6

Seventh Plan (1985-90) 36868 41794 78662 47 53 10.7 12.1 22.8

Ninth Plan (1997-02) — — — — — 7.2 17.1 24.3

Tenth Plan (2002-07) — — — — — 8.4 20.0 28.4

Source: CMIE, Basic Statistics Relating to the Indian Economy, Vol. I, All India, August 1991.



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Table 6.4 : Gross Fixed Capital Formation in Public Sectorat 1980-81 Prices

Value in CompoundYear Rs. Crores Annual Growth Rate

(Per cent per Annum)

1950-51 1,640

1960-61 5,160 12.1

1970-71 6,330 2.0

1980-81 11,770 6.3

1993-94* 68,853

1998-99 110,289 9.9

* At 1993-94 prices

Source: CSO, National Accounts Statistics, (1998) and (2001).

Table 6.5 : Profitability of Central Public Sector Undertakings

(Rs. in crore)

1991-92 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00

1. Number of units 237 239 240 241 239 236 236 235 232

2. Paid-up capital 53,000 59,300 63,500 65,300 67,100 69,800 72,000 76,900 82,400

3. Net Worth 60,300 70,500 79,500 90,000 99,200 1,13,900 1,35,100 1,48,100 1,61,100

4. Capital employed 1,18,000 1,40,100 1,59,800 1,62,500 1,74,000 2,31,200 2,49,900 2,65,100 3,03,400

5. Gross profits 13,700 16,000 18,600 22,600 27,600 30,900 37,200 39,700 42,400

6. Profit before tax 4,000 5,100 6,700 9,800 13,600 15,400 19,200 19,700 22,300

7. Profit after tax(PAT) 2,400 3,300 4,600 7,200 9,600 10,200 13,700 13,200 14,600

8. Gross margin toCapital employed(per cent) 19 18 17 21 23 19 21 21 21

9. Gross profit toCapital employed(per cent) 12 11 12 14 16 13 15 15 14

10. Pre-tax profit toCapital employed(per cent) 3 4 4 6 8 7 8 7 7

11. PAT (Net profit) toNet Worth (per cent) 4 5 6 8 10 9 10 9 9


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Table 6.6 : Disinvestment proceeds during 2002-03

Sl. Name of PSUs Percentage of equity Proceeds realised/No. disinvested to be realized

(Per cent) (Rs. crore)

1. Hindustan Zinc Ltd. 26 445

2. Maruti Udyog Ltd. 4.2* 1,000

3. IPCL 26 1,491

4. Modern Food Industries (India) Ltd. 26 44

5. Indian Tourism Development Corporation(Ten hotels) 100 273

6. Hotel Corporation of India-One Hotel 100 83

7. Hindustan Zinc Ltd. 1.46 6

Total : 3342@

* 4.2 per cent reduction from 49.74 through rights offer renunciation and Controlpremium. @ Till January 31, 2003.



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