Industrial Production and Credit Policy

CONTENTS

PREFACEÐŽKÐŽKÐŽKÐŽKÐŽKÐŽKÐŽKÐŽKÐŽKÐŽKÐŽKÐŽKÐŽKÐŽKÐŽKÐŽKÐŽKÐŽKÐŽKÐŽKÐŽKÐŽKÐŽKÐŽKÐŽKÐŽKÐŽKÐŽKÐŽKÐŽKÐŽK2

ACKNOWLEDGEMENTÐŽKÐŽKÐŽKÐŽKÐŽKÐŽKÐŽKÐŽKÐŽKÐŽKÐŽKÐŽKÐŽKÐŽKÐŽKÐŽKÐŽKÐŽKÐŽKÐŽKÐŽKÐŽKÐŽKÐŽK...3

INTRODUCTIONÐŽKÐŽKÐŽKÐŽKÐŽKÐŽKÐŽKÐŽKÐŽKÐŽKÐŽKÐŽKÐŽKÐŽKÐŽKÐŽKÐŽKÐŽKÐŽKÐŽKÐŽKÐŽKÐŽKÐŽKÐŽKÐŽKÐŽK...4

PRODUCTION LEVELÐŽKÐŽKÐŽKÐŽKÐŽKÐŽKÐŽKÐŽKÐŽKÐŽKÐŽKÐŽKÐŽKÐŽKÐŽKÐŽKÐŽKÐŽKÐŽKÐŽKÐŽKÐŽKÐŽKÐŽKÐŽK..7

CREDIT ALLOCATIONÐŽKÐŽKÐŽKÐŽKÐŽKÐŽKÐŽKÐŽKÐŽKÐŽKÐŽKÐŽKÐŽKÐŽKÐŽKÐŽKÐŽKÐŽKÐŽKÐŽKÐŽKÐŽKÐŽKÐŽK..18

CONCLUSIONÐŽKÐŽKÐŽKÐŽKÐŽKÐŽKÐŽKÐŽKÐŽKÐŽKÐŽKÐŽKÐŽKÐŽKÐŽKÐŽKÐŽKÐŽKÐŽKÐŽKÐŽKÐŽKÐŽKÐŽKÐŽKÐŽKÐŽKÐŽK..24

BIBLIOGRAPHYÐŽKÐŽKÐŽKÐŽKÐŽKÐŽKÐŽKÐŽKÐŽKÐŽKÐŽKÐŽKÐŽKÐŽKÐŽKÐŽKÐŽKÐŽKÐŽKÐŽKÐŽKÐŽKÐŽKÐŽKÐŽKÐŽKÐŽK..26

PREFACE

By this project I have made and attempt to study the industrial production and credit allocation to the manufacturing sector of our country over the years. The industrial policy analyzed since the independence and surge of planning in India. The main emphasis has been given to the production level of the manufacturing sector and the relation between the lending rates and the credit allocation to the sector.

In India the manufacturing sector has been given the importance since independence and the importance of the manufacturing sector in the progress of the country is no more to be exaggerated. The industrial sector forms the backbone in the development of a country. Government was the major investor in the sector in India but after 1980ÐŽ¦s the liberalization policy was slowly ushered in India. The liberalization process was carried on more significantly after 1990ÐŽ¦s and the overall sector growth with the help of private sector was encouraged.

Suggestions for further improvement of the project from professors and fellow friends are most welcome.

September 30th 2004.

INTRODUCTION

Industrial growth is very much important for a country if overall growth is aimed. Industry forms the backbone for a development plan of a country. In India this fact was much emphasized from the second plan, first government was the major investing agency through direct investment in the industrial activities in the country to create start and help the overall growth plan. Private investment were not emphasized in the beginning as the investment was very high and thus government decided to come forward and invest in the industrial sector. Industrial scene at the time of independence can be further described as below:

„X Industrial sector was extremely underdeveloped with very weak infrastructure.

„X Government intervention in favor of the industrial sector was an important cause of underdevelopment.

„X Export orientation was against countryÐŽ¦s interest.

„X Structure of ownership was highly concentrated.

„X Technical and managerial skills were in short supply.

The industrial sector was licensed and the entry for private sector was restricted and controlled keeping in mind the socialistic and nationalistic aspirations of some of the founding fathers of the country. The private entry was restricted through the following measures:

„X Import and export controls

„X Control of capital issue

„X Control of foreign exchange

„X Transport control including allocation of raw materials

„X Price controls

„X Allocation of credit

The licensing policy failed to implement in the right way and many setbacks were noted in the policy, they are:

„X It was doubtful that the licensing was serving as channel to channelize the investment in the desired direction.

„X Balanced regional growth and wider distribution of entrepreneurship were at best moderate.

„X Little follow up of licensing to see that approved projects fructify in time.

„X Attempt to cover whole range of large scale large scale industrial licensing.

The year 1991 is landmark in the history of the Indian economy as our country underwent a severe economic crisis triggered by a serious balance of payment situation; this crisis was converted into an opportunity and some fundamental changes were introduced in the content and approach to economic policy.

Industrial growth has been stressed from independence; but the real growth was triggered by the policy formed under the congress government in 1991, after that the output has increased substantially. But the increase was not steady for the rest of the years and the production level came down at a faster rate and the trend is still continued except of few increases in the level of production.

All this is of relevance when we seek to explain the process of growth and industrial deceleration during the 1990s. When launching the 1990s reforms, the impression conveyed by the advocates of reform was that in course of time the "animal spirits" of private entrepreneurs would respond adequately to the incentives created by liberalization. Various elements of the liberalization program were aimed at facilitating private investment: the dismantling of government controls on capacity creation, production and pricing practices of even large firms and groups; improved access to imported capital equipment, raw materials and intermediates; easier possibilities