Home BCA/BTech JEE RAS RSCIT Blogs
Switch Language हिन्दी
RAS (RPSC) 21 min read

INDUSTRY

                                                              INDUSTRY

Types of Industries -

I. Cottage Industry -

  • Industries which are set up at the family level and family labor is used in them and investment in capital is low.

II. Village Industry -

  • These industries are established in areas where the population is less than 10,000 and per capita capital investment is less than 15,000.

III. Micro, Small and Medium Enterprises (MSME)

Type

Turnover

Micro

T.O. < 5 Cr.

Small

5 Cr < T.O. < 75 Cr.

Medium                              

75 Cr < T.O. < 250 Cr.


    • MSME Ministry has been formed to promote these industries.

    • Recently some announcements have been made to encourage MSME -

      1. Loan up to one crore rupees will be given in 59 min.

        • A web portal has been started for this - www.psbloanin59min.in

      2. Those MSMEs which are registered in GST will be given a 2% subsidy on interest.

      3. It is mandatory for Public Sector Companies to do 25% purchasing from MSME.

        • In this, 3% purchasing should be done from such industries which are operated by women entrepreneurs.

        4.Tool Rooms will be established to train workers.

    IV. Large Industry -

    • Where Turn Over is more than 250 Crores.

                                                                                   Industrial Policies -

  • So far 3 industrial policies have been issued.

I.  First Industrial Policy 

-> issued under the leadership of Dr. Syama Prasad Mookerjee.

  • Mixed economy was adopted in India.

  • Industries were divided into 4 categories -

    (i) Category 'A' -

    • No new private investment was allowed in this sector.

    • In future, only the government could invest in this.

    (ii) Category 'B' -

    • In this, those sectors were kept which were completely reserved for the government.

    (iii) Category 'C' -

    • In this, both government and private types of investments were allowed.

    (iv) Category 'D' -

    • This sector was open for private investment.

2. Second Industrial Policy -

  • Issued in 1956.

  • There was a special influence of Jawaharlal Nehru and P.C. Mahalanobis.

  • Through this, the Second Five Year Plan (1956-61) was implemented.

  • Model of Mixed Economy was adopted.                                                                                                                                                                          -->In this, there was more inclination towards Public Sector.

  • Industries were divided into three categories -

    (i) Category 'A' - In this, those sectors were kept which were completely reserved for the government.

    •          There were total 17 industrial sectors in this.

    (ii) Category 'B' - In this, those sectors were kept in which private sector investment was also allowed along with the government but license was required for private sector investment.

    • Quota policy was also implemented for private investment.

    • There were total 12 sectors in this.

    (iii) Category 'C' - Remaining industries were kept in this category.

    • Only private investment was allowed in this, although requirements of license and quota were kept.

Impact -

(i) Dominance of the government sector increased due to this policy

(ii) Monopoly was established in the market. 

(iii) Due to lack of competition, the quality of products was not good and the efficiency of government companies was also not good. 

(iv) Government sector was the sole employment provider, due to which employment opportunities were less, hence burden on agriculture increased. 

(v) Burden on government companies also started increasing, due to which government companies started going into loss.

(vi) Political interference was also high in government companies. 

(vii) License was required for private investment due to which private investment was discouraged. (viii) Bureaucracy became strong and corruption and red-tapism increased. 

(ix) In 1969, Monopolies and Restrictive Trade Practices Act [MRTP] was passed through which quota rules were made stricter, this affected entrepreneurship. 

(x) FDI was not allowed so foreign exchange reserves were extremely limited.

-> After the economic crisis of 1991, New Industrial Policy was issued.


3.Third Industrial Policy -

  • Issued by Manmohan Singh [with the help of IMF].

  • Industrial categories were abolished.

  • 8 sectors were reserved for the government.

  • Which has been reduced to 3 in present (Atomic energy, Atomic mineral and railways).

  • License Raj was abolished.

  • Except for five sensitive sectors, license is not required for others -                                                                                                       (i) Alcohol                                                                                                                                                                                                                                                                 (ii) Cigarette, Tobacco                                                                                                                                                                                                                          (iii) Equipments of aircrafts (Parts of airplanes) and electronic items.                                                                                                   (iv) Industrial Explosives                                                                                                                                                                                                                           (v) Hazardous Chemicals

  • Announcement to abolish MRTP - Act was made.

  • Private sector was promoted.

  • Disinvestment of government companies was announced.

  • Foreign investment was allowed.

  • Foreign exchange related laws were made flexible.

  • Exchange rate was made market based.

Problems of Industrial Sector -

  1. Land acquisition is complex.

  2. Ease of doing business is low.

  3. Cost of capital is high (high interest rate).

  4. Capital market is limited.

  5. Use of technology in industries is extremely low.

  6. Labor laws are complex.

  7. Lack of skilled workers.

  8. Lack of entrepreneurship.

  9. Weak infrastructure.

  10. Complex rules of environment.

  11. Low exports.

  12. Quality of products is not good and cost is high.

  13. Judicial activism.

  14. Corruption.

  15. Unavailability of raw material.

  16. Lack of policy stability.

  17. Low expenditure on research.

  18. Lack of awareness about Intellectual Property.

  19. Lack of foreign investment.

  20. NPA in banking sector.

                                                                    INFLATION 

  • Definition: Continuous rise in the prices of goods in an economy or continuous fall in the value of money is called inflation.

  • Inflation is a situation in which the purchasing power of money decreases.

  • Inflation is mainly divided into two parts -

① Demand Pull Inflation -

  • If the demand for goods increases in an economy, then the prices of goods also increase due to continuously increasing demand, which is called Demand Pull Inflation.

    Reasons for increase in Demand - i) Increase in population ii) Abnormal increase in income iii) Black money iv) Higher inflow of foreign investment v) Decrease in bank interest rates

② Cost Push Inflation -

  • If the prices of goods increase due to an increase in the cost of production factors of the good, then this is called Cost Push Inflation.

    Reasons for increase in Cost - i) Increase in prices of raw material ii) Increase in wages / labor costs iii) Increase in interest rates

# Core Inflation -

  • If inflation is calculated based on the prices of remaining goods by excluding food items and energy, then it is called Core Inflation.

  • Core Inflation = Inflation - Inflation due to external factors

  • The Central Bank keeps this Inflation in mind for policy-making.

  • External Factors - (i) Destruction of crops (ii) Increase in prices of crude oil

# Growthflation -

  • It is also called Targeting Inflation.

  • This is such a situation in the economy in which along with the increase in inflation, opportunities for employment and production also increase.

# Galloping Inflation -

  • If inflation spreads at an increasing rate, then it is called Galloping Inflation.

  • It is also called Runaway Inflation / Hyper Inflation.

# Disinflation -

  • Such a situation in which prices of goods increase but the rate of inflation decreases, is called Disinflation.

# Stagflation -

  • Such a situation in which both inflation and unemployment exist, is called stagflation.

  • In such a situation, unemployment increases and there is a continuous decrease in income.

  • Meaning, the rate of inflation is high and the rate of growth in the economy is low, is called Stagflation.

    e.g. If RBI increases the interest rate to control inflation, then investment is affected by this and due to low investment, the problem of low production and low employment arises.

# Bottleneck Inflation - [Structural Inflation]

  • It is also called structural inflation.

  • Even if there is no change in the level of demand, if there is a sudden change in the level of supply, then the inflation increased due to this reason is called Bottleneck inflation.

# Inflationary Gap -

  • If the government's expenditure is more than the government's receipts, then this is called Inflationary Gap.

    • Inflationary Gap = Fiscal Deficit

# Deflationary Gap -

  • If the government's expenditure is less and receipts are more, then it is called Deflationary Gap.

    • Deflationary Gap = Fiscal Surplus

# Inflationary Spiral -

  • In this situation, it is believed that if prices increase, then wages will increase due to them and if wages increase, then there will be an increase in prices.

# Skewflation -

  • If there is no equal price rise in all goods, but price rise occurs in a special group of goods, then it is called Skewflation. e.g. Protein inflation

  • e.g. - Increase in the price of food items even while the prices of all goods in the entire economy are stable.

Measurement of Inflation -

WPI (Wholesale Price Index)

CPI (Consumer Price Index)



① This index is issued by the Ministry of Industry and Commerce.

① It is issued by the Ministry of Statistics and Programme Implementation (MOSPI).

② WPI is generally issued in 4 types -

② Under MOSPI, this work is done by CSO.

(i) WPI of Primary Articles: Total 117 items are included in this.

③ Mainly 3 types of CPI are issued :-

(ii) WPI of Fuel: 16 items are included in this.

(i) CPI for Rural Area

(iii) WPI of Manufactured Products: Items like TV, Refrigerator are included in this.

(ii) CPI for Urban Area

(iv) Main WPI: 697 items are included in this.

(iii) CPI of Rural + Urban Areas

③ In the calculation of WPI, only goods are included.

④ It is issued region-wise, therefore generally it is different for every state.

④ Comparatively low weight is given to food items {~ 20%}.

⑤ In its calculation, both goods and services are included.

⑤ Maximum weight is given to manufactured goods.

⑥ In this, comparatively more weight is given to food items {approx 60%}.

⑥ It is issued on the 14th of every month.

⑦ Its base year is considered 2011-12.



 ⑦For calculation, 2011-12 is considered as the base year.

⑧ Since 2014, CPI is considered the main index.

⑧ Until 2014, this was considered the main index of the country.

⑨ It is issued on the 11th of every month.

⑨ This index was used by RBI for making monetary policies.

⑩ Dearness Allowance of government employees, wages under MGNREGA etc. are determined on the basis of CPI.


Reasons for making CPI the main index in place of WPI -

  1. The effect of inflation falls most on the final consumers.

  2. Consumers always purchase goods at Consumer Price (Retail Price).

  3. Generally, a person spends comparatively more on food items.

    Due to the above reasons, CPI was made the main index.

  4. CPI is based on both goods and services whereas WPI is based only on goods and in India's economy, more than 50% part of GDP comes from the service sector.

  5. CPI is considered the inflation index by developed countries.

# Effects of Inflation -

  1. There is a loss to the saver due to inflation.
  2. Due to low savings, there is low investment, low investment leads to low production, low production leads to low employment generation.
  3. Due to inflation, the poor are most affected and economic inequality increases.
  4. There is an increase in interest rates.
  5. There is an increase in fiscal deficits due to inflation.
  6. Due to inflation, exports are less and imports are more, due to which Balance of Payment disequilibrium arises.
  7. This increases the trade deficit.
  8. Possibilities of foreign investment decrease.

# Phillips Curve -

  • This concept was given by A.W. Phillips, according to which if inflation [dearness] increases, then unemployment decreases due to it and if inflation decreases, then unemployment increases.

  • Meaning, there is a negative relationship between inflation and unemployment.

  • This concept was criticized and it was said that this relationship remains only for the short term.

# GDP Deflator -

{GDP Deflator} = {Nominal GDP}/{Real GDP}

  • where Nominal GDP = GDP at Market Price

  • Real GDP = GDP at Constant Price (GDPCP

e.g.

  • Nominal GDP = GDPMP = 250

  • (-) Inflation starting from Base year = 150

  • GDPCP (Real GDP) = 100

GDP Deflator = 250/100 = 2.5

# Base Effect -

  • The rate of inflation is calculated in comparison to previous years which appears to be decreasing due to the price effect, whereas in reality, comparing with the base year shows an increase in the inflation rate, which is called Base Effect.

# Causes of Inflation -

  1. Increase in cost of production factors.

  2. Increase in demand for goods.

  3. Obstruction in supply of goods.

  4. Having Revenue Deficit.

  5. Increase in Production and salary.

  6. Excess of foreign investment.

In this Chapter

INDUSTRY
No other notes in this chapter.