Indian Economic Environment and Industrial Policies

Meaning and Definition of Environment

Environment is a wide-angle concept; all surrounding natural and man-made factors are included in the environment. Some of the factors in the environment are living (e.g., man, animals, trees) and some are non-living (e.g., land, metals, minerals, etc.). All such living and non-living factors collectively create the environment. 'The correlation between living and non-living things is called the environment.'

The concept of environment is relative to place and time. In a specific area, country, or part, available natural resources and man-made factors and their correlation determine the environment. The available natural resources and man-made factors decide the environment of Maharashtra. The environment of Maharashtra may be different than that of Punjab state. The reason is that, in both states, the available resources are different. Natural and man-made resources are making the environment in the various states of India and different countries of the world.

Types of Environment

Various methods are available to study the environment. Environment falls under two main classes:

1. Natural Environment

It includes the surrounding things available in nature. The country's geographical place in the world is considered for the environment. Weather of the country, structure of land, soil, natural vegetation, minerals, etc., are included in the environment. The mutual inter-relation among all natural constituents creates the natural environment. Key factors include:

• (A) Land availability and fertility
• (B) Standard of rainfall and its regularity
• (C) Sunlight
• (D) The structure of land
• (E) Changing atmosphere
• (F) The location of land

2. Cultural Environment

It is called the man-made environment. The surrounding cultural state of affairs is called the cultural environment. Man is a social animal. He stays in groups, through which villages, towns, and cities are developed. Along with such habitats, communication, transport, trade, technology, and culture are created; all these factors are included in the cultural environment.

Key Factors in the Environment

Detailed information regarding natural and cultural factors affecting the environment is important to learn. From this point of view, all these environmental factors create a supporting atmosphere for growth. In the following discussion, emphasis is given to these important factors:

Natural Elements

• (1) Place or Location: The specific geographical part of the world (e.g., country, state) is a natural gift. It determines the geographical personality of the area. In specific geographical areas, natural resources are abundant, while at some places they are less abundant. Countries on coastal areas conduct their trade transportation through waterways. Export and import to neighboring countries encourages development.
• (2) Atmosphere: In a specific region, the status of the atmosphere is studied according to temperature, air pressure, rainfall, humidity, wind direction, and sky conditions. Atmosphere affects animal life, vegetation, soil, and minerals. For agricultural trade, a suitable atmosphere is necessary. In manufacturing units, the working capacity of labor can be affected by atmospheric conditions.
• (3) Structure of Land: The structure of land means the topology of the land. Whether it is deep valleys or high mountain areas, it is taken into consideration for economic trade, transportation, and communication. In mountain areas, the population is often scanty.
• (4) Water: Water is a fundamental necessity of life. Rivers, streams, ponds, lagoons, oceans, and wells are rich sources of water. Water supply enriches the fertility of the land. The requirement for water is higher in agricultural trade than in manufacturing industries.

Factors of the Economic Environment

The presence of economic factors in the surroundings defines the economic environment. Production requires natural and human means as well as capital. Therefore, the availability of these factors is important, along with the nature of the economy, economic policy, stage of economic development, and technology.

• (1) Natural Resources: For production, the availability of different kinds of resources is important. Development of the agricultural sector depends on fertile land and climate, which in turn provides raw materials to industries.
• (2) Man-made Resources: While studying man-made resources, the total quantity and quality of the population are taken into consideration. Supply of energy (effort) to agriculture, industries, and business is made through the population.
• (3) Economic Conditions: This is a very important factor. Economies are broadly divided into three types: capitalistic, socialistic, and mixed.
• (4) Situation of Economic Development: In non-developed countries, agriculture, industries, and business sectors are often backward. Facilities like transport, infrastructure, and finance are not in progress, leading to lower national and per capita income.
• (5) Economic Policies: On a national level, various economic policies are adopted for agriculture, industries, banking, import/export, and finance.

Importance of the Economic Environment

Proper natural environment helps human beings maintain good health and efficiency. The importance of the economic environment includes:

• (1) Development Opportunities: Proper economic environment gives opportunities to businessmen, industries, agriculture, and investors. It motivates savings and increases investment, leading to higher production.
• (2) Proper Environment for Economic Transactions: It helps consumers get goods at reasonable costs and increases consumption levels.
• (3) Use of Production Capacity: Proper utilization of production capacity is necessary for economic development.
• (4) Increase in Production: A proper economic atmosphere leads to the development of agriculture, industry, and the service sector, increasing the standard of living.
• (5) Economic Development: Increasing production leads to economic growth and increased productive capacity.
• (6) Solving Economic Problems: Economic development helps solve problems like unemployment, poverty, and backwardness.

Features of Economic Planning in India

• (01) Predetermined Objectives and Targets: Objectives provide direction and include short-term targets for achieving long-term goals.
• (02) Wider Process: Planning is overall and not just for a part of the economy.
• (03) Determine Priorities: Since all objectives cannot be achieved at once, a list of priorities is necessary.
• (04) Estimating Resources: Resources like land and minerals are estimated to ensure optimum utilization.
• (05) Purposeful Decisions: Planning authorities fix production targets and address regional imbalances.
• (06) Implementing Programmes: Project work is done for agriculture, industry, and service sectors.
• (07) Time-management: Schemes are completed through yearly or five-year plans.
• (08) Planning for Particular Areas: Decentralization helps concentrate on state and district levels.
• (09) Control of Planning Authority: The Planning Commission controls activities to divert resources to expected areas.
• (10) Continual Process: Long-term objectives like employment generation require continuous effort.
• (11) Coordination: Success depends on the coordinated development of agriculture, industry, and services.

Reasons for Low Indian Agricultural Productivity

Despite the rise in cultivation area and modern technology, productivity per hectare and per worker remains low due to:

• (1) General Reasons: Adverse social environment (illiteracy, superstition) and the burden of population (per capita land reduced from 0.44 hectare in 1921 to 0.22 hectare in 1999).
• (2) Institutional Reasons: The tenancy system, inadequate credit supply, inefficient marketing, and uneconomic size of holdings.
• (3) Technological Reasons: Outdated farming implements, lack of mechanization, and inadequate irrigation or electricity.

Productivity showed signs of improvement after the 1965 Green Revolution due to better seeds, fertilizers, and irrigation.

Industrial Policy of 1977

After the 'emergency' in 1977, the Janata government declared a new industrial policy:

• (01) Protection and reservation of output for the small-scale sector.
• (02) Classification of the small sector into cottage industries, tiny units (investment up to Rs. 1 lakh), and small/ancillary industries (up to Rs. 10-15 lakh).
• (03) Reservation of 807 products for the small sector.
• (04) Establishment of District Industries Centers (DIC) in each district.
• (05) Reorganization of the Khadi and Village Industries Commission (KVIC).

Industrial Policy Resolution of 1956

Modified in April 1956, this resolution contained:

• (1) New Classification: (a) Government-reserved industries (17 sectors like defense, atomic power, iron and steel); (b) Industries where the government leads new capacity (12 sectors like chemicals, fertilizers); (c) Remaining industries for the private sector under the 1951 Act.
• (2) Equal Treatment: Private sector to be treated indiscriminately regarding raw materials and taxation.
• (3) Small Industries: Reservation of products for small and village industries.
• (4) Regional Balance: Policies to reduce industrialization imbalances.
• (5) Worker Welfare: Improving working conditions and treating workers as partners.
• (6) Foreign Investment: Encouraging advanced technology and managerial expertise.

Industrial Policy Resolution of 1948

• (1) Assumed a mixed economy divided into public and private sectors.
• (2) Arms, ammunition, atomic energy, and railways were completely public.
• (3) Basic industries were planned and controlled by the government.
• (4) Remaining industries were open to the private sector.

Understanding Economic Holding in Agriculture

Prof. Keating defined economic holding as: "A holding which allows a man a chance of producing sufficient to support himself and his family in reasonable comfort after paying his necessary expenses."

Factors Determining Economic Holding

• (i) Quality of Soil: More fertile land allows for a smaller economic holding.
• (ii) Irrigation: Holdings can be smaller in irrigated areas.
• (iii) Method of Cultivation: Modern techniques require larger farm sizes.
• (iv) Type of Crop: Vegetables can be grown on small farms (less than 2 hectares), while food grains need 8-10 hectares.

Factory Acts, Wages, and Bonus Regulations

The Factory Act of 1948 was a comprehensive Act applying to units with 10+ persons (with power) or 20+ persons (without power). It mandated safety, ventilation, light, meals, and first aid. It included provisions for working hours, holidays, and child/female labor. Other protections include the Payment of Wages Act and restrictions on closing factories without government permission, though policies shifted after 1991 to allow the closure of unsatisfactory units.

Structure and Problems of Electricity Supply

At present, there are three sources of electricity supply in India.

Table 6.6 shows that while the absolute supply of thermal and hydroelectric power has increased, the relative share of hydroelectricity is declining. Atomic energy remains constant in percentage terms.

Problems of the Electricity System

Permanent shortage is a major problem as demand outpaces generation. Issues include repeated interruptions, distribution leakages, inefficiencies of state boards, theft, corruption, and wrong pricing. Losses in 2000-2001 amounted to Rs. 23,240 crore.

Evolution of Indian Labour Policy

Before Independence, the British followed laissez-faire. Early laws included the Factory Act (1881), Workmen's Compensation Act (1923), and Trade Unions Act (1926). British industrialists pressured for legislation to counter low labor costs in Indian textiles. Post-independence, the policy shifted toward protecting worker interests through the I.L.O. conventions.

Fifth and Tenth Five-Year Plans

Fifth Five-Year Plan (1974-78)

• (1) Growth with social justice and poverty eradication.
• (2) Progress toward self-sufficiency.
• (3) Increasing national income and improving distribution.
• (4) Improving the saving rate.

Tenth Five-Year Plan (2002-2007)

• (1) Increasing growth rate from 5.5% to 8%.
• (2) Reducing poverty from 26% to 21%.
• (3) Generating 1 crore new jobs annually.
• (4) Providing drinking water to all villages and raising literacy to 75%.

Measures included raising the tax-to-GDP ratio, reducing non-plan expenditure, obtaining $7.5 billion in foreign investment annually, and disinvestment of public sector enterprises.

The Communication System in India

India's communication system includes Post, Telegraph, Telephones, Radio (Akashwani), and Television.

• Indian Postal Service: The largest in the world with 1.5 lakh post offices. The Panchayat Sanchar Seva Scheme helps reach remote villages.
• Indian Telegraphs: One of the oldest public utilities, now including Telex and Fax services.
• Telecommunication: India has the largest network in Asia. By 2001, there were 35 million telephone lines. Technologies like Optical Fiber and Microwave networks have been largely extended.

Fiscal Policy and Economic Stability

Fiscal policy relates to government income and expenditure. In India, the policy serves as an instrument of planned development with goals to:

• (1) Increase the rate of economic growth.
• (2) Restrict the rate of inflation.
• (3) Reduce inequalities in income and wealth.

Historically, the policy shifted from the British laissez-faire approach to a more interventionist welfare state model post-1947 to achieve stability and growth.