Page 197 - DECO502_INDIAN_ECONOMIC_POLICY_ENGLISH

Unit 16: Industrial Sector in Pre-Reform Period

development through trade was diffused in outlying areas because the pattern of advance in the Notes
rising industrial countries happened to be such as to cause a rapidly growing demand for crude
products of the soils which those areas were well-fitted to supply. This traditional pattern of growth
through trade is out of place now. As rising levels of per capita consumption have gradually
transformed the composition of demand for goods and services and as technological changes have
resulted in the more economic use of new materials or the creation of synthetic substitutes, the growth
of import demand of the advanced countries for most primary products has lost the momentum of
the earlier period and, currently, it lags behind the growth in their domestic incomes and output. The
volume of exports from the underdeveloped countries expanded at a rate of 3.6 per cent per annum
while the exports from the developed countries rose at the rate of 6.2 per cent. This export lag is
accompanied by a deterioration in their terms of trade. Thus in view of unfavourable trends in world
trade of primary commodities, industrialisation is the only effective answer to the problems of under-
developed countries. They can no longer depend upon trade for their development; they have to
activise dynamic elements within their economies.
Table 1 : Percentage Industrial Distribution of Gross Domestic Product and
Per Capita Income (2009)

Country Per capita Industrial origin of
income in U.S. Dollar Domestic Product at
(2008) factor cost
(Percentages)

Agriculture Industry Services

U.S.A.* 46,436 1.3* 20.8* 77.3*
Belgium 44,429 .8* 23.1* 76.1*
U.K.* 35,164 .7* 23.7* 75.1*
Japan 39,726 1.4* 29.3* 69.3*
China 3,744 10.3 46.3 43.4
India 1,134 17.1 28.2 54.6

Source : World Bank, World Development Indicators, 2010 *2008
Besides the limitation of ‘trade gap’, these countries are facing a relentless increase of population
combined with a likelihood of diminishing returns in agriculture which is instrumental in creating
the trap of poverty. The essential precondition for development (and to break this vicious circle) is an
all-round rise in low productivity occupations to high productivity occupations. In general, the net
value of output per person is higher in industry than in agriculture. In industry, the scope for internal
as well as external economies is greater than in other sectors and certainly greater than in agriculture.
As industrialisation proceeds, economies of scale and inter-industrial linkages (complementarity)
become more pronounced. It also leads to the creation of economic surplus in the hands of industrial
producers for further investment.
The Pattern of Industrialisation
While there is now almost universal agreement on the importance of industrialisation, there is still
much debate regarding the proper pattern of industrial development. Historically, industrial
development has proceeded in three stages. In the first stage, industry is concerned with the processing
of primary products : “Milling grain, extracting oil, tanning leather, spinning vegetable fibres,
preparing limber and smelting ores.” The second stage comprises the transformation of materials
making bread and confectionery, footwear, metal goods, cloth, furniture and paper. The third stage
consists of the manufacture of machines and other capital equipments to be used not for the direct
satisfaction of any immediate want but in order to facilitate the future process of production. Hoffmann

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