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Indian Economy

Notes associated sectors of the economy. As a result of these factors, any successful transfer of labour
from agriculture to industry results in economic development. Industrialisation is hence
inseparable from substantial, sustained economic development as it is both a consequence of
higher incomes and a way of higher productivity. With the increase in income levels people
tend to bestow more on manufactured goods than on food. The differential income elasticity of
demand confers an advantage on the manufacturing countries in the form of providing expanding
market higher productivity makes it an appealing occupation to influence population transfer
so as to arrest the tendency of diminishing returns in agriculture. Industrialisation serves as an
instrument both of developing capacity to absorb surplus labour power and of catering for the
diversification of the market needed at higher stages of economic development.
In many situations, the diversion of underemployed rural labour to non-agricultural occupations
is an urgent need for development. But it does not depict that industrial development can be
dissociated from progress in the agricultural sector. Enhancement in productivity in agriculture
develops surplus which can be used to support increasing labour force in industries. Besides
offering a large portion of the sustenance for the growing urban population, the agricultural
sector supplies a market for manufactured goods out of greater real incomes and a source of
foreign exchange to pay for imported capital goods for industry; it also offers a source of capital
for industry via the medium of capital accumulated by traders and results in the growth of an
exchange economy – all such factors promote the growth of manufacturing industry. In fact,
unless agriculture is modernised substantially, industrial expansion is likely to proceed at a
slow speed because of lack of purchasing power in the hands of the bulk of population. The issue
confronting the less developed countries is, hence, not one of choosing between primary and
secondary activities but instead one of ensuring the balanced expansion of all proper sectors of
the economy.

7.1.2 Pattern of Industrialisation

It is important to understand that while there is now nearly universal agreement on the
significance of industrialisation, there is still much debate related to the proper pattern of
industrial development. Historically, industrial development has proceeded in three stages. In
the initial stage, industry is involved with the processing of primary products: milling grain,
extracting oil, tanning leather, spinning vegetable fibres, preparing timber and smelting ores.
The second stage consists of the conversion of materials making bread and confectionery,
footwear, metal goods, cloth, furniture and paper. The third stage comprises of the manufacture
of machines and other capital equipment to be utilised not for the direct satisfaction of any
instant want but in order to enable the future process of production. Hoffmann grouped all
industrial output into two categories, consumer goods and capital goods output and grouped
various stages with relation to the ratio of consumer goods output to that of capital goods
productivity. “In stage one the consumer goods industries are of overwhelming importance,
their net output being on the average five times as large as that of capital goods industries.” This
ratio is 2.5:1 in the second stage and declines to 1:1 in the third stage and still lower in the fourth
stage. Both these kinds of classifications stress on the increasing role of the capital goods industries
in the economy as industrial development occurs.
You may already be aware that although the general development of industry itself has advanced
from consumer goods to the capital goods, there are several variations of this pattern, both with
relation to time taken to attain later stages and in terms of comparative importance of each of
the stages. Soviet pattern of industrialisation includes a straight jump from the first to the third
stage while British pattern is that of a slow evolution. Likewise, underdeveloped countries may
also develop a different pattern of industrialisation appropriate to their economic conditions. It
has been advised that the pattern of industrialisation in under-developed countries should be
directed primarily by considerations arising from the comparative scarcity of capital. Since

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