Report to the President of the International Bank for Reconstruction and Development and the International Development Association on India's economic development effort (Vol. 6 of 14) : Manufacturing industry with special reference to public sector enterprise

 PREFACE i. T h i s volume i n c l u d e s a main r e p o r t and f o u r appendices, t h r e e of which a r e c a s e s t u d i e s of important p u b l i c s e c t o r p r o j e c t s and one a d i s c u s s i o n of r e c e n t developments i n t h e f e r t i l i z e r i n d u s t r y . It i s based p r i n c i p a l l y on i n v e s t i g a t i o n s c a r r i e d o u t i n I n d i a by Kenneth A . Bohr, Jochen Kraske, Frank H. Lamson-Scribner and Romano P a n t a n a l i o f t h e Bank S t a f f during t h e w i n t e r 196h-65. D r . I .M.D. L i t t l e o f Oxford U n i v e r s i t y a l s o made a v a l u a b l e c o n t r i b u t i o n i n t h e form of a s t u d y f o r t h e mission of t h e Heavy E l e c t r i c a l P l a n t a t Bhopal. This appears a s Appendix I t o t h e main r e p o r t . ii . Kenneth Bohr wrote t h e main r e p o r t , i n p a r t from n o t e s and papers c o n t r i b u t e d by o t h e r members of t h e group. He a l s o wrote Appendix I1 and, w i t h Jochen Kraske, Appendix 1 1 Frank Lamson-Scribner wnote 1. Appendix I . I n i t s work t h e mission p r o f i t e d from t h e a s s i s t a n c e o f T P a u l G e l i and Harry P h i l l i p s of t h e Bank S t a f f , who w i t h t h e i r asso- c i a t e s were a p p r a i s i n g t h e Second I n d u s t r i a l Imports P r o j e c t while t h e mission was i n I n d i a , and, e s p e c i a l l y , from t h e c o o p e r a t i o n of t h e I n d i a n o f f i c i a l s , p a r t i c u l a r l y t h o s e i n t h e p l a n t s v i s i t e d . The con- c l u s i o n s drawn a r e , of course, t h e r e s p o n s i b i l i t y o f t h e a u t h o r s . iii. The r e p o r t does n o t a t t e m p t t o d e a l w i t h a l l important a s p e c t s of I n d i a n i n d u s t r i a l development. I t s purpose i s r a t h e r t o focus on some of t h e major problems encountered i n t h e e f f o r t t o c a r r y o u t t h e i n d u s t r i a l program of t h e Third Plan. A survey o f t h e performance of t h e s e c t o r during t h i s period has l e d us t o p l a c e p a r t i c u l a r emphasis on problems a s s o c i a t e d with p u b l i c s e c t o r i n d u s t r y . iv. It should be pointed o u t t h a t m a t t e r s of g r e a t importance t o t h e performance of t h e i n d u s t r i a l s e c t o r a r e a l s o d e a l t with i n o t h e r r e p o r t s of t h e mission. W would mention i n p a r t i c u l a r t h e volumes e on A d m i n i s t r a t i v e C o n t r o l s on Resource A l l o c a t i o n s and Investment which s me l b - a e d of Public F i n a n c i a l P o l i c y i n I n d i a , which i n c l u d e s an a n a l y s i s of company t a x a t i o n .  .................................. H ~ c c n tC h a n g ~ s . ................... P.ole of P u b l i c S e c t o r Incliis-try .... S i z e 2nd C o n c e n t r a t i o n i n t h e P r i v a t e 5 e c t . o ~ . V a r i a t i o n s i n Sz................ ie............... Th? Location o f Industry................... ...... ?)urrmary.... ...................................... 4. Thc S e c t o r a s a ldholc............................ ....................................... ~J~PI-J%.. Tnvestment..................................... Im~orts.......... .............................. ............................ U n u t i l i z e d Capacit,y P. Performance o f P u b l i c S e c t o r Tndustry.. .......... ... n Eumnnry o f Performance........................... ITT. C9ITICAL FACTORS I N THT;: DEV'ELOPIETT O THE INDUFTSIAL F ZECTOR... ............................................. 4. I~rlu:,rj 7 P l a n n i n g - Genernl.. ................... 9 ?. TIlp S e l e c t i o n and Appraisz11 o f P u b l i c Sect.or Indust,ri-ql Projects. ............................. C. The implementation o f P r o j e c t s ................... C3anges i n P r o j e c t s During Construction........ Procurement Problems. .......................... M a n a g e ~ e n..................................... t D. General I n d u s t r i a l Policies...................... A. I n d u s t r i a l Planning .............................. 9. P r e p a r a t i o n and S c r e e n i n g of Projects............ C. Management o f P u b l i c S e c t o r E h t e r p r i s e s . . . . ...... 1: N a t i o n a l Income by I n d u s t r i a l O r i g i n 59 2: Apparent Change i n I n d u s t r i < ? l S t r u c t u r e - 1956 - 1362 60 3: Imports o f Metals, Machinery and Equipment 61 4: Planned P a t t e r n o f I n d u s t r i a l Investment - T h i r d and Fourth P l a n s 5: Major I n d u s t r i a l and Commercial Undertakings of t h e C e n t r a l Government - C l a s s i f i e d by A c t i v i t y 63 6 : Non-Departmental Undertakings of t h e C e n t r a l Government i n Order of T o t a l C a p i t a l I n v e s t e d a s o f March 31, 1964 6h-67 7 : L a r g e s t P u b l i c Limited Compaliies i n Manufacturing Lndustry i n Terrns o f T o t a l A s s e t s 1963/61, 68 : 8 I n d u s t r i a s i n which over 'Two T h i r d s o f Value Added Comes from Large-Scale F a c t o r i e s 6?-70 9: Employ~~erit, a p i t a l and Output of Small R e g i s t e r e d C F a c t o r i e s by I n d u s t r y Group, 1960 71-72 10: I n d i c e s of I n d u s t r i a l Production - 1956 = 100 73-76 1 : Production i n S e l e c t e d I n d u s t r i e s 1 77-78 12: S e l e c t e d Production T a r g e t s and A n t i c i p a t e d Achicvenents - T h i r d Plan 79 13: T h i r d P l a n Imports - Estimated Requirements and Actual Imports Excluding PL 480 80 1 : Development of C a p i t a l Cost E s t i m a t e s : Selected Public Sector Enterprises 81 15: C l a s s i f i c a t i o n of I n c r e a s e s i n C a p i t a l C o s t s : Selected Public Sector Knterprises 82 16: Time Required f o r Implementation o f P u b l i c S e c t o r Indus- t r i a l Projects - Average Time between Various S t a g e s ( i n months) 83 17: S t a g e s i n t h e Implementation of S e l e c t e d P u b l i c S e c t o r Industrial Projects f3L1 -3b  F TABLE O CONTENTS TABLES (Contfd.) Page No. 18: Working Results of Central Government I n d u s t r i a l Enterprises Earning P r o f i t s of 10% or More on Capital Xmployed 87-08 19: Working Results of t h e 10 Largest Central Government I n d u s t r i a l Enterprises 89-91 20: Nangal F e r t i l i z e r Project - Statement Showing Delays i n Procurement of Replacement Parts f o r Electrolyzers 92 21: Chairmen and General Yanagers of Selected Central - Government I n d u s t r i a l Enterprises Number and Average Tenure since Incorporation 93 22: Duration of Tenure of Financial Advisors i n Public Sector Enterprises 94 23: Comparison between Inventories and Production f o r Selected Public Sector Enterprises, 1963-64 95  TABLE OF CONTEXTS APPEIJDICES I. Report on t h e Bhopal Heavy E l e c t r i c a l Factory 11. The Development of t h e Meyveli Lignite Project 111. The Development of t h e Projects of t h e Heavy Engineering Corporation IV. Notes on 3ecent Developments i n t h e F e r t i l i z e r Industry  I. H T E INDUSTRIAL SETTING 1. India has a long i n d u s t r i a l h i s t o r y and has achieved a sub- s t a n t i a l development of manufacturing production. For many years she has been one of the world's major producers of t e x t i l e s ; recently she has become the world's twelfth l a r g e s t s t e e l producer. The value of her i n d u s t r i a l output appears t o be roughly comparable t o t h a t of a moderately i n d u s t r i a l i z e d European country such aa Spain. However, within the vast Indian economy the contribution of manufacturing in- dustry t o overall output and employment is s t i l l r e l a t i v e l y small. It i s estimated t h a t in 1%3/64 factory industry produced only 1 % the 1 of national output and employed only a l i t t l e over 4% of the labor force. 1/ - 2. Modern factory industry a s d i s t i n c t from t r a d i t i o n a l handicraft industry, was f i r s t established in the l a t t e r part of the 19th century. The f i r s t modern f a c t o r i e s were in the t e x t i l e industry. B the e a r l y y p a r t of the 20th century iron and s t e e l , engineering, cement and paper industries had a l s o been developed. By 1911 over 500,000 persons were employed in cotton and jute m i l l s and t o t a l factory employment was about 1,300,000. The World W r of 1914-18 both stimulated domestic industry a and drew a t t e n t i o n t o the great dependence on imports f o r v i t a l indus- trial products. Following the war a more a c t i v e policy of encouraging i n d u s t r i a l development was pursued. The main instrunent was the t a r i f f ; the main objects of protection were consumer goods and such basic products a s iron and s t e e l and cement required f o r the domestic market. The r e s u l t was an increasing self-sufficiency i n consumer goods and a corresponding decline in t h e i r import. Recent Chanees 3 Since the Second World War and Independence a considerable change has taken place in the pace and pattern of i n d u s t r i a l development. The emphasis has s h i f t e d toward the production of c a p i t a l goods and basic i n d u s t r i a l materials. The f i r s t developments came s h o r t l y a f t e r the War a as the r e s u l t of p o l i c i e s adopted during the w r period. Further progress was made in t h i s d i r e c t i o n during the F i r s t Five Year Plan. In 1955 with the s t a r t of the Second Five Year Plan the process was g r e a t l y accelerated when the Government undertook t o a c t i v e l y romote t h e development of the S 1 metal, machinery and chemical industries. - Of the portion of plan ex- penditures allocated t o industry i n the Second and Third Plans (18% and 23% respectively) most of the funds were designated f o r the metal, ma- chinery and chemical industries (70% i n the case of the Second Plan and 80% in the case of the Third Plan). 1/ Traditional handicraft industries excluded; employment f i g u r e r e f e r s - t o 1961. See Table 1. - 2/ The term rlmachineryu is used here bo include machine tools, e l e c t r i c a l machhery and equipment, non-elec t r i c a l machinery and equipment, and transport equipment; wchemical industriesrr include o i l refining and the manufacture of f e r t i l i z e r . h. The heavy emphasis on "basic i n d u s t r i e s " which has c h a r a c t e r - ized Indian planning has brought about a marked change in t h e p a t t e r n of output. Whereas in 1956 textiles (mainly c o t t o n and j u t e ) and food proc- e s s i n g (mainly sugar and t e a ) contributed 60% of i n d u s t r i a l output, by 1962 t h e i r c o n t r i b u t i o n had dropped t o h0%. The corresponding increases were d i s t r i b u t e d among i n d u s t r i e s producing various types of machinery, chemical products, non-metallic mineral products and paper. See Table 2. 5 With t h i s change i n t h e p a t t e r n of investment and output t h e r e has been a corresponding change i n t h e p a t t e r n of imports. The r e q u i r e - ments of t h e i n d u s t r i a l programs have r e s u l t e d in a sharp i n c r e a s e i n t h e import of metals, machinery and equipment. Whereas t h e s e c a t e g o r i e s ac- counted f o r 28% of imports in 1950/51, t h e y reached a l e v e l of b3% i n 1955 and have averaged 50%during t h e period of t h e Third Plan. See Table 3 . Although an important goal of t h e Indian programs of i n d u s t r i a l development i s t o reduce f u t u r e dependence on imported machinery and equipment, t h i s p a r t i c u l a r prospect appears t o be s t i l l a long way o f f . 11 Role of Public Sector I n d u s t q 6. Within t h e framework of t h e Five Year Plans which l a y o u t pro- posed p a t t e r n s of investment and t a r g e t s f o r production, public s e c t o r industry has been given a very important r o l e . A s t h e s t r u c t u r e of in- d u s t r y has been s h i f t e d i n favor of t h e production of c a p i t a l goods and basic i n d u s t r i a l m a t e r i a l s , a major p a r t of t h e investment i n these favored f i e l d s has been assigned t o public s e c t o r e n t e r p r i s e . This follows t h e Governmentls declared policy of ( a ) reserving f o r i t s e l f t h e development of new u n i t s i n b a s i c tlheavylt i n d u s t r i e s such a s those producing i r o n and s t e e l , heavy forgings and c a s t i n g s , heavy p l a n t and machinery, and heavy e l e c t r i c a l plant; and (b) sharing w i t h t h e p r i v a t e s e c t o r t h e development of new capacity i n such i n d u s t r i e s a s those producing machine t o o l s , f e r r o a l l o y s and t o o l s t e e l s , b a s i c and intermediate chemical products, f e r t i - l i z e r , e s s e n t i a l drugs and aluminum. 21 Whereas p r i o r t o the s t a r t of t h e Second Five Year Plan t h e Government's p a r t i c i p a t i o n i n i n d u s t r i a l production was confined l a r g e l y t o t h e departmental operations of t h e railway workshops, today public e n t e r p r i s e is heavily involved in t h e production of s t e e l , chemicals, machinery and equipment. 7 . The Third Plan i l l u s t r a t e s t h e r o l e t h e public s e c t o r has been given. I n t h e published p l a n 54% of t h e investment planned f o r industry is assigned t o t h e public s e c t o r . Although t o t a l planned investment i s concentrated on t h e metal, machinery and chemical i n d u s t r i e s broadly de- fined, t h e public s e c t o r p o r t i o n is f u r t h e r concentrated on the "heaviern of t h e component i n d u s t r i e e . It is concentrated on s t e e l (92% of t o t a l planned investment in s t e e l ) , e l e c t r i c a l machinery (80%), i n d u s t r i a l ma- chinery (60%)and chemicals (50%). These four f i e l d s account f o r 80% of - 1/ For f h r t h e r diecuesion of t h i s problem s e e paragraphs 32-38. - 2/ Government of India h s o l u t i o n on I n d u s t r i a l ~ o l i c 30, April 1956. ~ +.ot;nl pl.ar?r~ed l l h l i r :jcctor invc-tmcnt i n i n d u s t r y . See T a b l e I.,. p Althoi~gh thctse fii;ur-cs do not, rc:prf>ocnt, :qct,ua.l xchievement,, they (lo i n d i c a t e t h e pocit,ion given t o t h e p u b l i c s e c t o r . 8. The p r e l i m i n a r y f i g u r e s f o r t,he Fourth Plan a s it was con- ceived i n l a t e 1961r, made a v a i l a b l e t o t h e mission, continue t h e same p a t t e r n , Again t h c r c i s heavy c o n c e n t r a t i o n o f t o t a l planned i n v e s t - ment i n i n d u s t r i e s producing c a p i t a l goods and b a s i c i n d u s t r i a l m a t e r i a l s . This time t h e p r o p o r t i o n o f investment, a l l o c a t e d t o metals and machinery i s even g r e a t e r than i n t h e Third Plan. Againpublic s e c t o r investment i s h e a v i l y concentrated i n metals, i n d u s t r i a l machinery, e l e c t r i c a l machinery and chemicals. Together w i t h f e r t i l i z e r s t h e s e f i e l d s account f o r 80% of t h e t o t a l investment planned f o r p u b l i c s e c t o r i n d u s t r i a l e n t e r p r i s e s . See Table 11. 9 The volume o f investment of C e n t r a l Government undertakings i n manufacturing i n d u s t r y w2s R s . 125'0 c r o r e s a s of March 1, 196.h. This 1 1 i? :onewhat more than t , h ~ government investment i n e l e c t r i c power (cz+,i- mated a t about, R s . 900 crore:; i n 1967-3) but perhaps only n l i t t l e more than h a l f t h e government investment i n railways (estimated a t R s . 2600 c r o r e s i n 1965-6). 3/ It would appear t o be about a q u a r t e r t h e vollme of investment i n p r i v a t e manufacturing i n d u s t r y . L/ 10. The Government's i n d u s t r i a l e f f o r t i s concentrated i n a small number of v e r y l a r g e e n t e r p r i s e s . Although t h e r e a r e 29 C e n t r a l 3overn- ment undertakings i n t h e f i e l d of manuf%cturing i n d u s t r y , t h e l q r g e z t , Hindustan S t e ~ l ,L t d . , accounts f o r 645 of t h e t o t a l investment and t h e f o u r l a r g e s t , Hindvr t,'ln S t pel, L,t,d. ; Heavy Engineering Corp., Ltd ; F e r t i l i z e r Corpor3tion of India, Ltd. ; and Heavy E l e c t r i c a l s ( India), . Ltd., account, f o r 85% o f t h e investment. Investments i n t h e f o u r range from R s , 7 2 c r o r e s ( ~ e a v y l e c t r i c a l s ) t o 9s. 80L c r o r e s (Hindustm E Steel). Thus, e t t h e p r e s p ~ tt ~m a , t h e performance ol" t h e c ~f o u r i e n t e r p r i s e s i s f o r a l l p r a c t i c a l purposes t h e performance o f p u b l i c s e c t o r industry. - 1/ This f i g u r e does n o t include Neyveli L i g n i t e Corp., a mixed mininc and manufacturing o p e r a t i o n , nor does it i n c l u d e departmental under- t a k i n g s such a s t h e r a i l w a y s f shops f o r t h e rnnni~fsctureo f l o c o n o t i v e s and r o l l i n g s t o c k . See Table 5. -/ 2 C a p i t a l a s s e t s o f E l e c t r i c i t y Boards end of 1 ~ 6 2 - 3 : "Report of t,hc Committee on t h e Working of t h e S t a t e E l e c t r i c i t y Boards" October 1961i. Investment i n railways a t end of 1955-66 a t h i s t o r i c a l c o s t s ; explan- a t o r y Memorandum on Budget 1965-6, Appendix 18. - 3/ Based on t h e e s t i m a t e s made by t h e Reserve Bank o f t h e n e t a s s e t s of p u b l i c l i m i t e d companies, l a r g e and small, p r i v a t e l i m i t e d companies and f o r e i g n branches c o r r e c t e d where possible f o r non-manufacturing a c t i v i t i e s . Reserve Bank B u l l e t i n s Jan., Mar., J u l y and Oct., 196.h. - 4/ F i g u r e s a r e f o r 1963-h. See Tables 5 and 6.  Size and Concentration i n t h e Private Sector 1.1 Large e n t e r p r i s e s a r e a l s o important in the p r i v a t e sector. It has been estimated t h a t about a t h i r d of t h e net a s s e t s of a l l public limited corporations a r e accounted f o r by t h e 51 l a r g e s t ones. About 5,500 companies account f o r the remaining two-thirds. 11 A s i n the case of t h e Government's companies, t h e l a r g e s t a r e in s t e e l and engineering. Tata Iron and S t e e l , by f a r t h e l a r g e s t , accounts f o r 13% of the t o t a l a s s e t s of the 51 and together with the second l a r g e s t , Indian Iron and Steel, accounts f o r 22% of a l l a s s e t s . Tata Ehgineering and Locomotive and Associated Cement a r e next in size. See Table 7. The s i z e of the corporation is not necessarily r e l a t e d t o t h e scale of individual p l a n t s a s tends t o be t h e case in t h e public sector. Associated Cement, f o r example, operates 20 plants. On t h e other hand, in terms of control of major management decisions the relevant u n i t is broader than t h e individual corporation in many cases. I f a corporate group is defined a s a group of e n t e r p r i s e s subject t o c o n t r o l by a common a u t h o r i t y i n matters of im- portant business decisions, it has been estimated t h a t t h e two l a r g e s t of such groups, Tata and Birla, control in one way o r another companies which account f o r almost one-fifth of the fixed a s s e t s in t h e p r i v a t e corporate sector. It has a l s o been shown t h a t t h e concentration of control in the hands of l a r g e corporate groups has increased between 1951 and 1958. 1 1 12. The concentration of economic power i n the p r i v a t e s e c t o r has been one of t h e more frequently a r t i c u l a t e d concerns of t h e Indian Govern- ment. Although a s a t i s f a c t o r y policy on t h i s matter does not appear t o have been developed yet, the concern has had i t s e f f e c t , p a r t i c u l a r l y on i n d u s t r i a l licensing policy. The 1956 Resolution on I n d u s t r i a l Policy points t o t h e urgent need "to prevent p r i v a t e monopolies and t h e concen- t r a t i o n of economic power in d i f f e r e n t f i e l d s in t h e hands of small numbers of individualsv. 11 The Third Plan is more e x p l i c i t though s t i l l vague. The c o n f l i c t between t h e efficiency of large-scale e n t e r p r i s e and t h e s t r a i n s and tensions t h a t "excessive economic power in r e l a t i v e l y few handstt would impose on t h e s o c i a l s t r u c t u r e is pointed out. i/An attempt is made t o emphasize the d e s i r a b i l i t y of promoting ''a p a t t e r n of i n d u s t r i a l organization which w i l l lead t o high l e v e l s of productivity and give f u l l ' - 1/ Economic Times, January 1 , 1965 1 - Based on 1 9 6 3 4 figures. - R. 2/ K. Hazari - The Structure of the Corporate P r i v a t e Sector, A Stud of Concentration, Ownership and Control, Report t o t h e Government o India, Research Programmes Committee, Planning Commission. 1963. - 3/ Government of India Resolution on I n d u s t r i a l Policy, 30 April 1956. - b/ Third Five Year Plan, p. 13. scope, within t h e framework of national planning t o new entrepreneurs, t o medium and small-scale e n t e r p r i s e s and t o cooperative organizations". This objective i s t o be achieved by t h e development of public s e c t o r e n t e r p r i s e s in f i e l d s where large-scale and heavy investment a r e required, by t h e control of p r i v a t e expansion through a system of licensing, by f i s c a l measures and by a s s i s t i n g the development of new firms through f i n a n c i a l and promotional i n s t i t u t i o n s . The expansion of t h e public s e c t o r i s seen as a means of establishing necessary production f a c i l i - t i e s and a l s o a s a means f o r reducing t h e sco e f o r accumulation of wealth and l a r g e incomes in p r i v a t e hands. -7 1 13. The problem is more r e a l i s t i c a l l y defined i n t h e recent r e p o r t of the Committee on Distribution of Income and Levels of Living g/which makes the necessary d i s t i n c t i o n between concentration i n terms of t h e share of the major prodtlcers i n the capacity of a p a r t i c u l a r industry - a position which may be strongly influenced by economies of s c a l e in the manufacturing process - and t h e more generalized concentration of economic power through the unified c o n t r o l of l a r g e groups of e n t e r p r i s e s . Whereas the former may be affected by i n d u s t r i a l licensing policy, dealing with the l a t t e r i s a much more complicated matter. The committee s t a t e s t h e dilemma a s follows: ftIndustrialization has its own logic, and n e i t h e r the economies of scale nor t h a t of full u t i l i z a t i o n of scarce t a l e n t can be ignored with impunity ...... the country is pledged t o t h e r e a l i z a t i o n of a s o c i a l i s t (yet) p a t t e r n of society; and diminution and eventual elimina- t i o n of concentration of economic power in p r i v a t e hands i s a p a r t of t h a t society. The task has t o be attempted in terms of harmonious progress toward these goals; and the sooner the Government s e t s up the necessary machinery f o r c o l l e c t i o n , examination and analysis of a l l relevant data on t h e subject, the e a s i e r it would be f o r it event- u a l l y t o formulate t h e necessary policy t h a t w i l l combine i n d u s t r i a l i z a t i o n with s o c i a l j u s t i c e and economic de- velopment with d i s p e r s a l of economic power." 21 - 1 Third Five Year Plan, p. 1b. / 2/ P a r t I - - Distribution of Income and Wealth and Concentration of Fconomir. 2/ Committee, page 55. 14. A t t h e time of t h e Mission's v i s i t a Monopolies Commission had been s e t up t o study t h e s u b j e c t f u r t h e r . The p o l i c y t o be pursued in t h e Fourth Plan i n t h i s matter awaits t h e suggestions of t h i s commission. 1/ - Variations i n Size 15 Although l a r g e corporations a r e n o t synonymous with l a r g e - s c a l e p l a n t s and t h e growth of l a r g e economic groups does n o t n e c e s s a r i l y imply a growth i n t h e s c a l e of i n d i v i d u a l i n d u s t r i a l operations, t h e r e i s some evidence t h a t t h e average s i z e of p l a n t i s increasing. 21 C e r t a i n l y t h i s might be expected, a s t h e more r a p i d l y growing i n d u s t r i e s i n t h e c a p i t a l goods, metals and chemicals f i e l d s tend t o be r e l a t i v e l y l a r g e s c a l e in t h e Indian context f o r basic economic reasons. It has been estimated t h a t about 60% of t h e value added by i n d u s t r y i s contributed by f a c t o r i e s with fixed a s s e t s of R s . 25 lakhs o r more. 21 In 16 of a t o t a l of 55 i n d u s t r y groups, f a c t o r i e s of t h i s s i z e c o n t r i b u t e more than two-thirds of value added, and thesc 16 i n d u s t r i e s c o n t r i b u t e about t h r e e - q u a r t e r s of a l l value added. See Table 8. 16. There a r e a l s o a g r e a t number of very small i n d u s t r i a l e s t a b - lishments. I n a d d i t i o n t o t h e 9,000 f a c t o r i e s included in t h e r e g u l a r enumeration of t h e Annual Survey of I n d u s t r i e s , t h e r e a r e some 31,000 1 r e g i s t e r e d f a c t o r i e s of smaller s i z e i n t h e so-called ltsample s e c t o r t 1 . 4 Taking both groups together it has been estimated t h a t 36,000 f a c t o r i e s have f i x e d a s s e t s of less than Rs. 5 lakhs. 21 These small u n i t s a r e of considerable importance in c e r t a i n i n d u s t r i e s such a s processing a g r i - c u l t u r a l products and v e h i c l e r e p a i r a s shown in Table 9. - 1/ The r e p o r t has s i n c e been submitted t o the Government recommending t h e establishment of a h o p o l i e s and R e s t r i c t i v e Trade P r a c t i c e s Commission and suggesting how t h e commission be organized and what i t 9 s p e c i f i c functions should be. o N a c t i o n has a s y e t been taken on t h e s e recommendations. - 2/ n A a n a l y s i s of 29 i n d u s t r y groups based on censuses of 1953 and 1958 shows a tendency f o r an increase i n average s i z e measured by employ- ment. Raj Krishna, "Changes i n t h e S i z e S t r u c t u r e of I n d u s t r i e s , Analysis of Census of Manufacturers , 1953-58'1. Economic Weekly, February, 196b. - 3/ For 1961, considering only f a c t o r i e s in t h e census s e c t o r , i.e those employing 50 o r more workers with power o r 100 o r more with- ., o u t power. See Table 8. - k / Registered f a c t o r i e s employing 1 0 4 9 workers with power, o r 20-99 workers without power. T r a d i t i o n a l , h a n d i c r a f t o r I1cottagett indus- t r i e s a r e not i n c l u d e d . Estimate i s f o r 1961. - 5/ Development of Small Scale I n d --s- r i e s i n India. . Report o f Interna- kional Perspective Planning Te u t ---A __am. Ministry of Industry 1 n e a l s o Table 9. 17. Table 9 a l s o r e v e a l s t h e l a r g e number of small-scale u n i t s i n i n d u s t r i e s i n which most of t h e output i s produced by l a r g e r u n i t s , e.g., metal products, machinery, chemical products, e t c . In p a r t t h i s may be a t t r i b u t e d t o t h e broad c l a s s i f i c a t i o n s used which combine v e r y d i f f e r e n t a c t i v i t i e s i n t h e same category. However, t h i s i s a l s o a r e f l e c t i o n of t h e f a c t t h a t very small and very l a r g e , very o l d and very new, very e f f i - c i e n t and v e r y i n e f f i c i e n t e n t e r p r i s e s do e x i s t s i d e by s i d e i n t h e same i n d u s t r i e s . The wide v a r i a t i o n i n s i z e and performance and c o s t s w i t h i n t h e same i n d s t r y i s an important c h a r a c t e r i s t i c of Indian i n d u s t r y a t t h i s time. !? 18. The e x i s t e n c e of such d i v e r s i t y in i n d u s t r y i s not p a r t i c u l a r l y s u r p r i s i n g when one considers what is involved in t h e t r a n s i t i o n from small h a n d i c r a f t shops t o modern f a c t o r y industry. The s i z e of t h e country and the d u f i c u l t i e s of t r a n s p o r t a l s o tend t o f o s t e r l o c a l and regional markets which f o r c e r t a i n products may be q u i t e i s o l a t e d from one another. The extensive p r o t e c t i o n from t h e competition of imports, the buoyant domestic market demand and t h e system of a l l o c a t i n g s c a r c e foreign exchange and domestic products s o t h a t few r e c e i v e a l l t h e y want and none is completely deprived, a l l tend t o perpetuate a system i n which t h e rewar s f o r e f f i c i e n c y a r e weak and t h e t o l e r a n c e f o r i n e f f i c i e n c y strong. , 27 The Location of Industry 19. Another c h a r a c t e r i s t i c of Indian i n d u s t r y which has p a r t i c u l a r relavance f o r i n d u s t r i a l p o l i c y i s i t s geographical concentration. The f a c t t h a t i n d u s t r y i s n o t spread evenly among t h e regions of t h e country i s t o be expected. The t o t a l volume of i n d u s t r i a l a c t i v i t y i s small in terms of the s i z e of t h e economy and much of it i s concentrated about t h e o r i g i n a l and s t i l l major c e n t e r s of industry, Calcutta and Bombay. The j u t e m i l l i n d u s t r y grew up i n t h e Calcutta a r e a and has remained concen- t r a t e d t h e r e . Iron and s t e e l and c o a l a r e a l s o f o r t h e most p a r t concen- t r a t e d i n a r e a s n e a r Calcutta, and t h e r e has been a s u b s t a n t i a l development of engineering i n d u s t r i e s in t h e same a r e a . Bombay was and s t i l l i s t h e dominant c e n t e r o f t h e c o t t o n t e x t i l e i n d u s t r y though i t s r e l a t i v e impor- tance is l e s s than it once was and a v a r i e t y of o t h e r i n d u s t r i e s have be- come e s t a b l i s h e d t h e r e i n more r e c e n t times. Other important i n d u s t r i a l c e n t e r s a r e Delhi, Madras (automotive and t e x t i l e s ) and Bangalore (machine , t o o l s ) . I n d u s t r i e s such a s paper and cement have tended t o spread o u t from t h e a r e a s where t h e y were f i r s t e s t a b l i s h e d i n response t o t h e l o c a t i o n a l a t t r a c t i o n of raw m a t e r i a l s u p p l i e s . C e r t a i n l y manufacturing i n d u s t r y - 1/ This g e n e r a l i z a t i o n i s supported by t h e i n d u s t r i a l s t u d i e s of t h e T a r i f f Commission and t h e f i n d i n g s of t h e r e c e n t I D A missions ap- p r a i s i n g t h e i n d u s t r i a l import l o a n p r o j e c t . It is a l s o supported by the wide range observed i n the l e v e l of tax payments noted in Problems of Public F i n a n c i a l Policy i India, para. 15. n 2/ - For a d e s c r i p t i o n and a n a l y s i s of t h e system of c o n t r o l s , see Adminisir:) t i v e Contro1.s on Hesourc P Allocations and Inv~st,ment. e x i s t s i n a g r e a t many more l o c a l i t i e s than formerly b u t s t i l l t h e g r e a t 9 p a r t of it i s c l u s t e r e d in and about t h e g r e a t c i t i e s which in t emselves account f o r only a small f r a c t i o n of t h e c o u n t r y ~ spopulation. - 20. The Government i s concerned with t h e geographical concentration of industry. Its announced policy i s t o promote "b lanced development of i n d u s t r i e s i n d i f f e r e n t p a r t s of t h e countryIt. 27 This theme was ex- pressed in t h e I n d u s t r i a l Policy Resolution of 1956 and was t r e a t e d a t some length in t h e Third Plan document. Supporting t h e general aim f o r "balanced r e g i o n a l developmentn i s , of course, t h e pressure of s t a t e governments f o r t h e i r "share" i n t h e new i n d u s t r i a l development. The a f f e c t of t h i s p o l i c y can be observed in t h e l o c a t i o n of p u b l i c s e c t o r p l a n t s . Frequently p l a n t s have been e s t a b l i s h e d in a r e a s where l i t t l e i n d u s t r i a l a c t i v i t y e x i s t e d before. Some of t h e s e a r e a l s o q u i t e f a r from both e x i s t i n g markets and p r e s e n t sources of supply. The policy i s a l s o r e f l e c t e d in t h e l o c a t i o n c o n t r o l s applied t o p r i v a t e industry which have prohibited establishment of new p l a n t s in t h e immediate en- virons of Bombay and Calcutta f o r good and obvious reasons and have gen- e r a l l y favored more dispersed locations. A system of uniform delivered p r i c e s f o r s t e e l and cement has a l s o helped t o support t h e geographical dispersion of i n d u s t r i e s , in p a r t i c u l a r those which a r e heavy consumers of t h e s e products. Summary 21. Indian manufacturing industry i s extensive and varied. It i s a mixture of t h e old and new, very l a r g e and very small, modern and primi- t i v e . It i s growing f a i r l y r a p i d l y and it i s undergoing a s u b s t a n t i a l change i n s t r u c t u r e a s it grows. Investment resources a r e being concen- t r a t e d i n t h e metals, machinery and chemical i n d u s t r i e s , and public s e c t o r e n t e r p r i s e serves a s a major instrument of t h i s policy. The t o t a l i n v e s t - ment in public s e c t o r industry is s u b s t a n t i a l and may be roughly a q u a r t e r t h a t in p r i v a t e industry. The o l d e s t a b l i s h e d i n d u s t r i e s producing con- sumer goods from a g r i c u l t u r a l raw m a t e r i a l s f o r both domestic and foreign markets - - t h e t e x t i l e and food processing i n d u s t r i e s a r e l e s s important than formerly; imports of metals and machinery and equipment a r e account- ing f o r an increasing share of imports and of output. These changes r e - f l e c t a policy aimed a t achieving a high degree of s e l f - s u f f i c i e n c y i n the future . - The1961.e 1/ in fiv l a r g e s t c i t i e s accounted f o r l e s s than 3.5% of t h e population - 2/ Memorandum on t h e Fourth Five Year Plan, p. 53.  11. RECENT PERFORMANCE 22. In t h i s chapter we examine the performance of t h e i n d u s t r i a l e s e c t o r during t h e period of t h e Third Plan. W i d e n t i f y a s f a r a s pos- s i b l e t h e a c t u a l course of output and investment and we i n d i c a t e t h e nature of the c o n s t r a i n t imposed by t h e l i m i t e d supply of imports. W e a l s o make some rough estimates of t h e r a t i o of investment t o i n c r e a s e in output over t h e period a s crude measures of t h e s h o r t term e f f e c t i v e - ness of t h e investment program and we compare a c t u a l with planned per- formance where possible. Hecause information on p r i v a t e investment i s lacking, our a n a l y s i s r e l i e s heavily on t h e experience of public s e c t o r e n t e r p r i s e which accounts f o r about h a l f t h e planned investment i n in- dustry. A. The Sector a s a Whole Output 23 I n d u s t r i a l output in general has n o t been increasing as r a p i d l y a s planned. For the p a s t 9-10 years t h e output of manufacturing i n d u s t r y has been growing a t an average r a t e of about 7% a year. For t h e period of t h e Third Plan, i . e . , since 1961, t h e r a t e has been 7.5%; t h e planned r a t e was 11%.Although t h i s comparison may be appropriate, both planned and a c t u a l r a t e s would appear t o have been computed on t h e same index; it should be pointed out t h a t t h e index is based on 1956 weights which give a heavier weight t o t h e slow growing t e x t i l e and food processing t r i e s than t h e p a t t e r n of output i n recent years would warrant. , index bssed on, say, 1961 weights would show a more rapid r a t e of growth. lYd:z- 2h. Indian planning uses s p e c i f i c output t a r g e t s a s w e l l a s a gen- e r a l r a t e of growth a s goals. The two a r e presumed t o be roughly consis- t e n t . In terms of s p e c i f i c t a r g e t s , s h o r t f a l l s in t h e Third Plan Period a r e expected t o be q u i t e widespread, a s shown in Table 12. The s i g n i f i - cance of these s h o r t f a l l s i s not r e a d i l y apparent in a l l cases. I n some c a s e s t h e o r i g i n a l t a r g e t s w e r e e i t h e r too low o r t o o high. For example, it may be questioned whether the t a r g e t f o r cement, even granting t h a t production i s s t i l l somewhat s h o r t of t a r g e t , was an accurate r e f l e c t i o n of requirements in view of t h e c u r r e n t shortage and l i v e l y black market. 21 On t h e other hand, t a r g e t s may be t o o high in terms of domestic require- .merits and s h o r t f a l l s may not always r e s u l t i n shortages. This may be t h e - 1/ Table 10 shows the o v e r a l l index together with t h a t f o r t h e various individual i n d u s t r i e s . Table 2 shows t h e apparent change in s t r u c - t u r e between 1956 and 1962. - 2/ This r a i s e s t h e question of t o ,what e x t e n t requirements can be made t o d i f f e r from demand by c o n t r o l l i n g ttnon-priorityn uses p a r t i c u l a r l y where, a s in t h i s case, it is n o t being done successfully. c a m w i t h c c r t a i n gradcs of paper. Targcts a r c not b e i n g met, y c t t h c r c i s no real. short:l.ge and t h e presumption j.s t h a t requirements were over- esti-n.ltcd. A more dram.q.t,lc case i s c o a l , which i s n o t insJ.u.d~,d i.n +,he tab??. In t,hi; c a s e it has become c l e a r t h a t t h e target, wss s b o ~ t 30% t o o high. &/ 'The f a c t t h a t faihsrc. t o achieve a t a r g e t doc?s n o t give r i s c t o a shortage may a l s o be t h e r e s u l t of t h e slower rat,e of o v e r a l l growth. 25. Ass1.mi.ng t h a t t a r g e t s a r e reasonable representats.ons of reluj.re- ments, thcrc! s r e f u r t h e r problems of i n t e r p e t a t i c ~ n . Obzcrvcci s h o r t f a l l s m y u n d e r s t n t ~t h e importance of t h e p a r t i c u l a r shortage t o t h e economy because t h e t a r g e t s a r e n o t s u f f i c i e n t l y s p e c i f i c - a ton of s t e e l s l a b s .ri,l.l. be a. ton of t a r g e t achievement even i f s l a b s a r e i n good supply while t h e r e i s a c r i t i c a l shortage of c e r t a i n s e c t i o n s . Then too, s h o r t f a l l s by t h e end of t h e Plan period may not be an adequate measure of t h e i m - pact of lagging production over t h e period. This i s p a r t i c u l r ? r l y so where t h e product i n question i s an important input i n t h e c o n s t r u c t i o n and u t i - l i z a t i o n of c a p a c i t y i n o t h e r i n d u s t r i e s , e.g., s t e e l and cement. I n some cases it has been p o s s i b l e t o compensate, p a r t l y a t l e a s t , f o r lagging domestic production with imports. However, t h i s a l t e r n a t i v e has Seen s e v e r e l y l i n i t e d by t h e t i g h t f o r e i g n exchange p o s i t i o n which has been f u r t h e r aggravated by t h e c o s t overruns and delays i n t h e execution of many of t h e p r o j e c t s undertaken. 26. In many cases, t a r g e t s were not achieved because c a p a c i t y was not b u i l t a s planned. In o t h e r cases, production f e l l s h o r t because t h e c a p a c i t y t h a t was b u i l t was n o t f u l l y u t i l i z e d e i t h e r because of o p e r a t i n g problems o r shortago2 i n t h e supply of necess3ry p a r t s o r m a t e r i a l s . S t e e l , cenent and f e r t i l i z e r a r e examples of t h e f i r s t . The Third Plan s t e e l t a r - g e t assur.ied completion of t h e expansion of t h e t h r e e p u b l i c s e c t o r p l a n t s a-~dt h e production of one mill-ion t,ons from t h e f o u r t h p l a n t , Rokaro. Thc expmsions have been delayed and c o n s t r u c t i o n Ss j u s t now s t a r t t ' l g on Bokaro, which w i l l not, be producing s t e e l i n any q c m t i t y u n t i l well i n t o t h e Fourth Plan, i f then. / : I n t h e c a s e of cement investment l i c e n s e s irtlr-d t o various p r i v a t e groups have not been implemented. The same i s t r u e f o r f e r t i l i z e r and, i n a d d i t i o n , t h e c o n s t r u c t i o n of public s e c t o r p l a n t s i n t h i s i n d u s t r y i s m m i n g well behind schedule. I n o t h e r i n d u s t r i e s shortages of s t e e l , p i g i r o n qnd non-ferrous metals, imported components and spare p a r t s have l i m i t e d t h e output of many p l a n t s . This i s t r u e p a r t i c u l a r l y i n various metal-vsing industries. z/ On t h e b a s i s of d a t a c o l l e c t e d by t h e I D A mission studying - 1 Third Plan t a r g e t 98.6 m i l l i o n t o n s , r e v i s e d t a r g e t ( ~ o u r t h / Memorandum) 76 m i l l i o n tons. Plan - 2/ In t h e Spring of 1965 Bokaro was estimated t o be about 9 months behind schedule. - 3/ These l l s h o r t f a l l s l l a r e n o t a l l r e f l e c t e d i n Table 12 which d e a l s only with a l i m i t e d number of s p e c i f k c p h y s i c a l t a r g e t s . t h e maintenance requirements of t h e e l e c t r i c a l , automotive and machine t o o l i n d u s t r i e s , and fragmentary information from o t h e r i n d u s t r i e s , it would appear t h a t output of a l a r g e number of metal-using i n d u s t r i e s could be increased by 25-30% without a d d i t i o n a l investment i f required s u p p l i e s of m a t e r i a l s and components and, i n some cases, minor balancing equipment were a v a i l a b l e . I / 27 a There i s , of course, an intimate r e l a t i o n between t h e f a i l u r e t o construct c a p a c i t y on t h e one hand and t h e s h o r t f a l l s in output due t o supply shortages on t h e o t h e r . In many cases t h e s u p p l i e s t h a t a r e s h o r t were t o be produced by c a p a c i t y t h a t d i d n ' t m a t e r i a l i z e . This is t h e s t e e l case, where s h o r t f a l l s in capacity and output have not only l i m i t e d supplies required f o r c u r r e n t production in s t e e l - u s i n g indus- t r i e s but have a l s o l i m i t e d supplies of s t e e l and s t e e l products r e - quired f o r construction of o t h e r p l a n t s . This r e l a t i o n s h i p has been p a r t i c u l a r l y acute because of t h e o v e r a l l l i m i t a t i o n on imports imposed by the foreign exchange s i t u a t i o n . Furthermore, s h o r t f a l l s in imple- mentation have not n e c e s s a r i l y meant a reduction in resources used - which would r e l e a s e foreign exchange f o r imports t o compensate f o r t h e s h o r t f a l l s . 21 A s indicated below, what appears t o have happened i s t h a t fewer p r o j e c t s have been b u i l t but t h a t these have been constructed more slowly and have c o s t much more than had been planned. Investment 28. When t h e Third Plan was drawn up, t h e i n d u s t r i a l program was estimated t o r e q u i r e a n e t investment of Rs. 2,993 c r o r e s broken down a s follows : Private - Total Industry 1,330 1,125 2,455 Minerals - 478 - 60 - 538 Against these requirements t h e resources a v a i l a b l e were estimated t o be R s . 2,570 c r o r e s , R s , 1,470 c r o r e s f o r t h e public s e c t o r and Rs. 1,100 - a able 2 ) , an increase of 25% would increase t o t a l i n d u s t r i a l out- 1/ If it is assumed these i n d u s t r i e s r e p r e s e n t roughly 20% of output p u t by s%, whereas on present trends, i n d u s t r i a l output by t h e end of t h e Third Plan is l i k e l y t o be 15%lower than projected in t h e plan. This 25% increase does not include t h e a d d i t i o n a l output t h a t might be achieved a s a result of increased efficiency. - 2/ The reduced r a t e of growth has, of course, not been balanced i n such a manner t h a t s h o r t f a l l s would be matched by reduced demands.  - crores f o r the p r i v a t e s e c t o r an o v e r a l l s h o r t f a l l of Rs. 420 crores. These o r i g i n a l estimates were q u i t e rough a s project r e p o r t s did not e x i s t f o r many of the projects and even where they d i d , t h e i r c o s t estimates frequently were not r e a l i s t i c . 29 A t t h e time of t h e mid-term appraisal t h e estimated c o s t of t h e public s e c t o r programs was increased s u b s t a n t i a l l y t o Rs, 2,292 crores. While t h i s was p a r t l y the r e s u l t of changes in the scope of some projects and of p r i c e increases i n the intervening period, the major change seems t o have been a t t r i b u t a b l e t o a s u b s t a n t i a l increase in the basic c o s t estimates themselves. While the o r i g i n a l c o s t e s t i - mate f o r the t o t a l public sector i n d u s t r i a l program was increased by Rs. 300 crores, the new estimate appears t o have excluded projects costing more than t h i s amount which were deferred. 21 Since it does not appear t h a t they were replaced by new projects, t h e increased c ~ s t must r e l a t e e n t i r e l y t o the projects retained. 21 A t the same time t h a t the estimate of c o s t was increased, an estimate of expenditure was made (Rs. 1,754 crores) indicating a s h o r t f a l l f o r the plan period of about R s . 540 crores, Subsequently, t h e Planning Commission re- duced the estimate of expected investment expenditure t o R s . 1,662 crores, r e s u l t i n g a s h o r t f a l l o r "carry-over t o the Fourth Plan" of Rs. 630 crores. 'e The figures a r e a s follows: Third Plan Public Sector Program Estimated Cost Estimated Expenditlure Original Mid-term id-term e o M m on ES timate Appraisal Appraisal Fourth Plan Industry 1,330 1,630 1,225 n.a. Minerals - 478 - 662 30. There a r e no estimates of a c t u a l investment i n private s e c t o r industry. A s i n the case of the public sector, some programs a r e behind schedule, e.g., t h e planned capacity has not been b u i l t in the cement - The 1/ Third Plan Mid-Term Appraisal, Nov. 1963. - 2/ Bokaro S t e e l Plant R s . 200 crores, Neyveli High Temperature Carboniza- t i o n Plant R s . 25 crores, Heavy Compressors and Pumps Rs. 15 crores, e t c . - 3/ This i s a l s o supported by information on some of the public s e c t o r proj- e c t s themselves. See paras. &7, &8 and Tables 1& and 15. &/ Memorandum on the Fourth Five Year Plan, O c t . 1964. - The category "Organ- ized Industry" used In the memorandum' i s taken t o include i n d u s t r i a l and mlneral programs. There is no separate mineral category indicated. and f e r t i l i z e r i n d u s t r i e s . On t h e o t h e r hand, t h e r e is no doubt t h a t , a s i n t h e case of t h e public s e c t o r programs, c o s t s have turned o u t t o be higher than estimated in t h e Third Plan document. I f it i s assumed t h a t t h e volume o f investment i n p r i v a t e i n d u s t r y i s on balance about t h e volume o r i g i n a l l y estimated i n the Third Plan ( R s . 1,200 c r o r e s ) , then the t o t a l investment i n i n d u s t r y and mining i n t h e p l a n period would be about Rs. 2,800 c r o r e s - about 6-7% l e s s than t h e planned n amount. O t h e o t h e r hand, the annual r a t e of growth i n output f o r t h i s s e c t o r has averaged 7-7.5% d u r i n g t h e f i r s t 3-1/2 y e a r s o f t h e p l a n period, and it i s n o t expected t o change much i n t h e coming 1 8 months. Thus, while i n d u s t r i a l o u t p u t would have increased by 68% in 1 p t h e five-year period a t t h e planned r a t e of 1 % e r year, t h e a c t u a l i n c r e a s e is l i k e l y t o be only about h3%. It follows t h a t output w i l l have increased 36% l e s s than p r o j e c t e d while investment expenditure was only 6% l e s s than projected. For t h e s e c t o r a s a whole t h e s e con- c l u s i o n s a r e d i f f i c u l t t o support with d e t a i l e d evidence; however, a s i s developed in t h e following s e c t i o n , t h e record o f p u b l i c e n t e r p r i s e supports t h i s general observation, and i t s weight i n t h e s e c t o r i s very g r e a t . Also, it does n o t appear t h a t o t h e r l i k e l y e s t i m a t e s of p r i v a t e investment, o r p o s s i b l e changes in t h e investment r a t e t o t a k e i n t o ac- count p r i c e changes o r more r a p i d growth i n the f i n a l 1 8 months of t h e plan would much a l t e r t h e conclusion t h a t t h e r e l a t i o n of investment t o output i n c r e a s e s i n d u s t r y was s u b s t a n t i a l l y higher than a n t i c i - pated i n t h e plan. 31. The observed r a t i o of investment t o output over a given p e r i o d depends on t h e p a t t e r n of investment, t h e t e c h n i c a l investment-output r e l a t i o n s h i p s f o r t h e p a r t i c u l a r i n d u s t r i e s involved, t h e time required between t h e investment expenditure and t h e r e a l i z a t i o n of output, and t h e r a t e of change, i f any, in t h e o v e r a l l r a t e of investment ( a n a c c e l - e r a t i n g r a t e i n c r e a s e s t h e proportion of non-producing investment " i n t h e p i p e l i n e f 1 ) . The l e v e l of u t i l i z a t i o n of c a p a c i t y i n t h e s e c t o r and changes i n t h e r a t e of u t i l i z a t i o n a r e a l s o important. For the Third Plan period, t h e r a t i o should have been expected t o be high. C e r t a i n l y , many cf t h e p r o j e c t s undertaken i n t h e p u b l i c s e c t o r by t h e i r very n a t u r e required heavy investment in r e l a t i o n t o o u t p u t , and long g e s t a t i o n periods. In a d d i t i o n , t h e r e has been appreciable u n u t i l i z e d c a p a c i t y and an increase i n t h e r a t e of investment i n t h e s e c t o r . The f a c t t h a t t h e r a t i o appears t o have been even higher than a n t i c i p a t e d i s a r e f l e c - . t i o n of t h e problems of both planning and performance. - planned r a t e of growth 119, and using t h e value added i n i n d u s t r y 1/ Assuming t h e planned l e v e l of investment Rs. 3,000 c r o r e s , and t h e and mining i n 1960 a s a base, t h e r a t i o of new investment t o i n - creased output ( n e t ) f o r t h e planned period was expected t o be about 3 t o 1. The a c t u a l r a t i o w i l l probably be w e l l over Ir t o 1 and may be c l o s e r t o 5 t o 1. 32 I n t i m a t e l y r e l a t e d t o t h e program of investment and t h e t a r g e t s of production and growth a r e t h e requirements f o r imports. Imports of c a p i t a l equipment a r e required f o r new capacity, and i m - p o r t s o f i n d u s t r i a l m a t e r i a l s , spare p a r t s and components a r e r e - quired t o maintain t h e output of e x i s t i n g capacity. During t h e Third Plan period about one-half of a l l imports have consisted of metals, machinery and equipment. It is one o f t h e goals of t h e i n d u s t r i a l program t o reduce t h e economy's dependence on such products s o t h a t Itthe requirements f o r f u r t h e r i n d u s t r i a l i z a t i o n can be met within a period of t e n years o r s o mainly from t h e country's own resourcestr. 11 3.3. The short-term goals of import p o l i c y a r e expressed i n terms of estimated import requirements over t h e p l a n period. The evidence is t h a t even though output t a r g e t s have n o t been achieved, and perhaps t o some e x t e n t because of t h i s , import requirements have proved t o be considerably l a r g e r than had been estimated. I f t h e i n d u s t r i a l output t a r g e t s had been met, t h e a d d i t i o n a l o u t p u t would i n p a r t have s u b s t i - t u t e d f o r imports and thus reduced t h e import b i l l . On t h e o t h e r hand, t h e a d d i t i o n a l output i t s e l f would have required some a d d i t i o n a l imports. A c a r e f u l a n a l y s i s , beyond t h a t r e a d i l y p o s s i b l e with t h e e x i s t i n g d a t a , would be required t o determine t h e r e l a t i v e weights of t h e s e two counter- v a i l i n g e f f e c t s and t o permit a judgment a s t o whether in t h e Third Plan period, higher i n d u s t r i a l output would have, on balance, increased o r reduced import requirements. Our guess would be t h a t on balance t h e e f f e c t i n t h i s r e l a t i v e l y s h o r t five-year period would have been t o i n - c r e a s e import requirements. I n t h e long run, too, we would judge t h a t gross import requirements must increase with increased i n d u s t r i a l out- put, even allowing f o r s u b s t a n t i a l import s u b s t i t u t i o n , but t h a t with proper p o l i c i e s , export of p a r t of t h e a d d i t i o n a l output could more than o f f s e t t h a t i n c r e a s e so t h a t n e t imports could i n f a c t f a l l . 34. Imports during t h e F i r s t Five Year Plan (1951-55) averaged R s . 720 c r o r e s per year. This l e v e l was expected t o increase during t h e e a r l y years of t h e Second Plan and then d e c l i n e a s new i n d u s t r i a l c a p a c i t y came i n t o production. The average annual l e v e l of imports during t h e period was projected t o be R s . 868 c r o r e s . This proved t o be a gross u n d e r e s t i - mate. Imports increased during t h e e a r l y years of t h e Second Plan more ' s t r o n g l y than expected and t h e increase was h a l t e d during t h e l a s t years of t h e plan only by t h e a d m i n i s t r a t i v e r e s t r i c t i o n o f imports. The aver- age l e v e l turned out t o be R s . 1,072 c r o r e s . T o t a l imports i n t h e Second Plan period were R s . 5,360 c r o r e s compared with t h e estimate of Rs. b,3bO c r o r e s . The increase was l a r g e l y accounted f o r by c a p i t a l goods, indus- t r i a l raw m a t e r i a l s and components r e f l e c t i n g both investment and c u r r e n t production requirements. About 45% of imports during t h e period consisted of metals, manufactures of metals, machinery and equipment. This i s in c o n t r a s t t o 28% i n 1950. - 1/ Third Five Year Plan, p. 48. 35 The Third Plan projected import requirements i n the period a t R s . 6,350 crores o r an average of R s . 1,270 crores per year roughly 20% more than a c t u a l l e v e l of t h e previous plan. The estimate was broken - down as follows : Machinery and equipment f o r Plan projects..... .... 1,900 Components and intermediate products t o increase production of c a p i t a l goods ..................... 200 Maintenance imports (components, spare p a r t s , equipment f o r replacement, raw materials, . e s s e n t i a l consumer goods, e t c ) t o maintain ...................................... production 3,650 36 - The figure f o r "maintenance importsIr was s t a t e d t o be an under- estimate of requirements. "The requirements of such imports f o r securing adequate u t i l i z a t i o n of i n d u s t r i a l capacity a r e considered t o be d i s t i n c t l y larger." "An estimate of R s . 3,800 crores would not be too high. " 1! Similarly, the estimate of R s . 200 crores f o r c a p i t a l goods components ap- pears t o be a token estimate Itto highlight the f a c t t h a t the execution of Plan projects requires the import not only of complete machines but a l s o of materials t o f a b r i c a t e equipment i n t h e country. The components and intermediate products of various kinds required f o r maintaining the pro- duction of c a p i t a l goods a t f u l l capacity l e v e l add up t o a much higher figure, and these requirements w i l l grow a s machin6 b u i l d k g capacity develops . I f 31 It would thus appear t h a t t h e Third Planfs requirements of imports of balancing equipment and maintenance imports were d e f i n i t e l y and consciously understated. 37 Midway through the Plan the estimate of maintenance imports and components was revised upwards from Rs. 3,850 crores t o Rs. 4,222 crores, p a r t l y because of the prospects t h a t t a r g e t s would not be achieved f o r a number of products such a s pig iron, s t e e l , non-ferrous metals and 1 f e r t i l i z e r . 4 Actually t h e revised figure was s t i l l not an estimate of actual requirements e i t h e r a s r e f l e c t e d i n planned t a r g e t s , o r of revised - 1/ Third Five Year Plan, p. 134. - 2/ Ibid., p. 110. - 3/ Tbid., p. 1 1 1. - 4/ frReport on Maintenance Imports During t h e Third Plan (Revised June 30, 1964) n , Ministry of Finance. e s t i n a t , r s of a c t u a l demnnti. I n a number of important inzt,>.rlces, t h e e s t i m a t e s of "rc.quiremcnt,s1' wcre based on t h o assizrption that, import:; would bc l i n j - t e d by t h e s h o r t a : : ~ of f o r e i g n exchange. t/ 38. F.lrin5 t , h c Third Plan imports were c o n t r o l l e d , 2nd t h s 1-cvel of i n p o r t s was h e l d c l o s e t o t h e o r i g i n a l f i n a n c i a l estirnqt,? (3f requirc2- ments, ~ c t u a l - l y s below t h e e s t i m a t e i n r e a l terms. A shown i n Tab1.s 13, t h e o r i g i n a l e s t i m a t e of import requirements, excluding PL 1480 importc, FT'IS Rs. 5,750 c r o r e s . Thi.3 was r e v i s e d t o R s . 6,122 cror?r: when t h e P-ttl-natc of maint,enance import requirements was i n c r e a ~ c d . It i s now c.!:?ected t h a t t h e a c t u a l f i g u r e w i l l be R s . 5,650 c r o r e s g i v i n g 9 s h o r t - f a l l of Rs. h72 c r o r e s . However, in v l c n of t h e fact, t h a t puhlil: s e c t o r investment i.s expected t o be l e s s than o r i g i n a l l y planned, t h e a s s o c i - a t e d import requirements f o r publi-c s e c t o r p r o j e c t s w i l l probably be l n s s t h a n expected. But even i f t h i s r e d u c t i o n accounted f o r a l l o r most of : t h reduced i n p o r t s of machinery and equipment, / t h e s h o r t f q l l s i n qet91.c ~ - and f e r t i l i z e r s would s t i l l be s u b s t a n t i a l . i f measured a g a i n s t reqni rr-. ments t o merit p l a n t a r g e t s o r a c t u a l needs. The e s t i m a t e of l ~ f G / h 6n e t ~ l imports c o n s i s t e n t w i t h o v e r a l l imports of Rs. 5,650 c r o r e s ie Rs. 68 c r o r e s l e s s t h a n t h e p s t i r l n t e of a c t u a l requirements. A ' Similarly, the l e v e l o f f e r t i l i z e r imports f o r t h e p e r i o d i s some R s . 95 c r o r e z l s s c t h ? ? wh:it wou3.d have beer; r e q u i r e d i f t h e g o a l s of consumption were t o be met. 3 e n i f t h e goa1.s of consumption f o r t h e f i r s t t h r e e ye3rc r.rctre c o n ~ i d e r e c ! t, too o p t i ~ i s t ~ l r h e a d d i t i o n a l requirements t o meet t h e t . n r g e t s f o r the final. two years would have been about 2 s . 52 c r o r e s . 35'. O t h e basi.s of t h e above evidence it would appear thn.: the, r e - n :;uirements f o r llmaintenance inportsI1 were underestimated and t h a t even t h e underestimated requirements were not forthcoming during t h e Third Plan. It would appear t h a t t h e f a i l u r e of p r o j e c t s t o produce a s planned, e z p c c i a l l y i n t h e f i e l d s of metals and f e r t i l i z e r s , aggravated t h e s i t u a - t i o v and was i n p a r t r e s p o n s i b l e f o r t h e o v ~ r r l . 1i n c r ~ . ? s ei n r e q a i r e ~ e n t ~ s . The burden of t h e s h o r t a g e appears t o have been c a r r i e d by t h e l m d e r u t i - l i z a t i o n of c a p a c i t y and t o some e x t e n t by slowing down t h e implementation of c a p i t a l p r o j e c t s . - 1/ For example, i n t h e c a s e of n i t r o g e n f e r t i l i z e r , requirements were estimated on t h e baqis t h a t it would n o t be p o s s i b l e t o import Inore t h a n 300,000 t o n s i n 1965/66 becauss of t h e f o r e i g n exchange s i t u a - t i o n . 500,000 t o n s would have been r e q u i r e d t o meet Plan t a r g e t s . - 2/ R s . 756 c r o r e s . See Table 1 3 . - 3/ Memorandum f o r t h e I n d i a Consortium, 1965. Unutilized C a ~ a c i t v The existence of a s i g n i f i c a n t amount of u n u t i l i z e d c a p a c i t 40. in Indian industry has been noted f o r some time by industry groups -7 1 and by t h e Government, This has been confirmed f o r a number of spe- c i f i c i n d u s t r i e s by recent IDA missions. 3/ The amount of capacity t h a t i s not being used i s extremely d i f f i c u l t t o determine as i s t h e question of whether it has become g r e a t e r o r l e s s i n recent years. However, r e - gardless of whether o r not t h e u n d e r u t i l i z a t i o n of capacity has become more s e r i o u s , i t s importance i s unquestionable. To a considerable e x t e n t t h e existence of unused capacity seems t o be an i n e v i t a b l e r e s u l t of a c e r t a i n s e t of circumstances and p o l i c i e s . The problem i s intimately bound up with t h e system of i n d u s t r i a l l i c e n s i n g , import c o n t r o l s and materials allocation. 41. There a r e s e r i o u s t e c h n i c a l problems i n estimating p l a n t capac- i t y in many i n d u s t r i e s - questions of product mix, number of s h i f t s and e f f i c i e n c y of p l a n t operations. For these reasons alone, it i s n o t pos- s i b l e t o determine capacity i n any p r e c i s e way. On t h e o t h e r hand, t h e system of c o n t r o l s and, in p a r t i c u l a r , t h e l i c e n s i n g of new capacity and of imports depends on t h e use of some kind of capacity estimates. Leav- ing a s i d e t h e n i c e t i e s of the problem, a r a t h e r fundamental i s s u e is whether capacity i s measured on a s i n g l e o r m u l t i - s h i f t basis. The p a s t - p r a c t i c e f o r most i n d u s t r i e s which a r e n o t continuous process, a s a r e cement, chemicals and primary metals, was t o a s s e s s c a p a c i t y on t h e b a s i s of s i n g l e - s h i f t operations. The need f o r new capacity was assessed on t h i s b a s i s , and t h i s was t h e b a s i s on which i n d u s t r i a l l i c e n s e s were issued and t h e b a s i s on which scarce m a t e r i a l s were a l l o c a t e d t o individual firms. Thus, in a gross sense, t h e system tended t o perpetuate s i n g l e - s h i f t opera- t i o n s even i n cases where t h e economics of m u l t i - s h i f t operations were &/ " A t t h i s very moment firms engaged in defense work and on important Government p r o j e c t s ... a r e operating a t only 50% capacity although t h e i r o r d e r books a r e f u l l f o r t h e next two years o r so.lf President of Indian Engineering Association, March 29, 1963. "&en on a s i n l e - -9 s h i f t b a s i s 50% of t h e c a p a c i t y i n most engineering i n d u s t r i e s fis i d l e . l1 Regional Chairman, w o r t Promotion Council f o r Ehgineering Goods, Madras, October 12, 1964. - 2/ An aim of Third Plan: I1fuller u t i l i z a t i o n of e x i s t i n g i n s t a l l e d ca- pacity.!' Third Five Year Plan, p. 458. T h e r e s t i l l remain many im- p o r t a n t s e c t o r s of industry in which s i z e a b l e increases in production can be quickly secured i f more comvonents and raw m a t e r i a l s were. a v a- l - - i able. ~emorandumf o r t h e India cbnsortium 1965, p. b7. llMaximum ... u t i l i z a t i o n of e x i s t i n g plant f a c i l i t i e s should have t h e h i g h e s t p r i o r i t y . " Memorandum on t h e Fourth Five Year Plan, pp. 51-52. - 3/ I n d u s t r i a l Maintenance Import C r e d i t , India 1964. Appraisal of a Second I n d u s t r i a l Import P r o j e c t , Ind'ia, May 1965. superior. Recently, t h e decision was taken t o make c a p a c i t y e s t i m a t e s on a more r e a l i s t i c b a s i s . This i s being done, but t h e process of re- v i s i o n has n o t y e t been completed. 42. In a d d i t i o n t o t h e b i a s in t h e c o n t r o l system t o c r e a t e more c a p a c i t y than estimated requirements and/or more c a p a c i t y than can be f u l l y employed with estimated a v a i l a b i l i t i e s of m a t e r i a l s and f o r e i g n exchange, t h e r e a r e o t h e r more s p e c i f i c reasons why output from t h e ex- i s t i n g i n d u s t r i a l p l a n t is s u b s t a n t i a l l y l e s s than could be obtained. I n some cases t h e l i m i t a t i o n s a r e on the demand s i d e . The requirements have been overestimated in general, o r some developments on which de- mand depends have not taken place. There is now a considerable over- c a p a c i t y f o r t h e production of e l e c t r i c meters and low tension c a b l e s . This may be accounted f o r s o l e l y by a s h o r t f a l l i n t h e development of e l e c t r i c power c a p a c i t y , but t h i s i s not c l e a r . Present overcapacity in t i r e s would seem t o be a s i m i l a r case. O t h e o t h e r hand, t h e excess n c a p a c i t y i n wire g l a s s and hardboard, and i n sulphuric a c i d appears t o be more d i r e c t l y r e l a t e d t o a slower growth of construction a c t i v i t y ( a f f e c t e d by cement shortage) and f e r t i l i z e r production than expected. 43 I n general, however, market l i m i t a t i o n s do not appear t o be a c o n s t r a i n t of major importance; t h e l i m i t a t i o n s in t h e supply of mate- r i a l s and components and t h e g e n e r a l l y low l e v e l of p l a n t e f f i c i e n c y a t t r i b u t a b l e t o various reasons a r e t h e more important f a c t o r s . Furth- ermore, t h e supply problem i s not simply a matter of an o v e r a l l shortage i n t h e supply of imported m a t e r i a l s , components and spares; i t is a l s o a matter of t h e i n a b i l i t y t o supply s p e c i f i c types of m a t e r i a l s t o par- t i c u l a r p l a n t s a t s p e c i f i c times. I n s h o r t t h e m a t e r i a l s supply problem is s e r i o u s l y aggravated by t h e operation of t h e a l l o c a t i o n system. The r e c e n t d i f f i c u l t i e s a r i s i n g from an acute shortage of welding e l e c t r o d e s and of matching s t e e l s e c t i o n s i s more a problem of e f f i c i e n t use of foreign exchange resources i n t h e l i g h t of c u r r e n t p a t t e r n s of produc- t i o n than a simple problem of a need f o r more imports. It i s , of course, t r u e t h a t a l a r g e r volume of imports of c r i t i c a l raw m a t e r i a l s and com- ponents could r e l i e v e t h e pressure on t h e system and make possible, though not i n s u r e , e a s i e r , quicker and more e f f i c i e n t a l l o c a t i o n . 4b. The e f f i c i e n c y problem is a l s o r e l a t e d t o the c o n t r o l problem. Under t h e present conditions of a p r o t e c t e d s e l l e r ' s market in which important production m a t e r i a l s a r e c o n t r o l l e d with t h e aim t o provide a share f o r a l l , t h e pressures f o r increased e f f i c i e n c y cannot be strong. Material a l l o c a t i o n s r a t h e r than competitive e f f i c i e n c y determine market shares. E f f o r t t h a t might be devoted t o management is and must be used t o d e a l w i t h t h e c o n t r o l a u t h o r i t i e s . The pay-off from an increased a l - l o c a t i o n tends t o be g r e a t e r than t h a t from an improvement i n p l a n t e f f i - ciency. Under t h e s e conditio s it i s not l i k e l y t h a t much improvement in e f f i c i e n c y can be expected. , 17 - 1/ The e f f e c t of t h e c o n t r o l system on p l a n t e f f i c i e n c y i s d e a l t with i n g r e a t e r d e t a i l in Administrative Controls on Resource Allocations and Investment.  Perforn1;lnce o f P u b l i c S e c t o r I n d u s t r y 45. I s al.rcacly poin?;od o u t ( p > r : ~ ~ r : ~7 )h more t h a n h a l f t , I e j n- p, duzt,ri8-i3. pro ir-~vest~rrc~nt.. j e c t e d f o r t h e T h i r d Plan was a s s i g n ~ dt o t h e p u b l i c s e c t o r . T t i s now est,imated t h a t t h e a c t d a l vol?lme of i n v e s t - ment w i l l f a 1 1 short of t h e o r i g i n a l p l a n and c o n s i d e r a b l y e h o r t of t h e r e v i s e d estintiltr: made a t t h e time o f t h e m i d - t e n a p p r a i s a l . It has been p o i n t e d o u t t h a t what appears t o have happened i s t h a t fewer p r o j - e c t s h,-ive bcen undertaken but t h e s e have c o s t c o n s i d e r a b l y more thzn o r i g i n a l l y est,imnted ( p a . r a g r ~ p h s28, 2 9 ) . It has a l s o been i n d i c a t e d t h a t p r o j e c t s h3ve taken l o n g e r t o constru.ct t h a n planned. These and o t h e r points a r e developed f u r t h e r i n t h i s s e c t i o n . LA The Third Plan documents c o n t a i n no e x p l i c i t e s t i r a t e of t h e expected growth of o u t p u t of p u b l i c s e c t o r i n d u s t r y a s a c a t e g o r y d u r i n g t h e T h i r d Plan. Neverthelos?, t h e r e i s no doubt t h a t t h e growth has been l e s s t h a n was expected. The a c t u a l i n c r e a s e i n n e t o u t p u t f o r has been on t h e o r d e r of R s . C e n t r a l Government i n d u s t r i a l e ~ t e r p r j s e s 75 c r o r e s i n t h e y e a r 1961/62 through 1963/64. I f we gssume a s o n t i n - u a t i o n of t h e same r a t e of gro~d-bhd u r i n g t h e f i n a l two y e a m of t h e Plan, t h e t o t a l i n c r c a r ~w i l l s t a n d a t about Rs. 150 c r o r e s . The e s t i m a t e d investment during t h i s p e r i o d i s R s . 1,663 c r o r e s , i n d i c a t i n g t h e v e r y high r a t i o of investment t o i n c r e a s e d o u t p u t of 1 t o 1. Since about h a l f 1 of 211 i n d u c t r i a l invcstment i n t h e p e r i o d i s accounted f o r by t h e p u b l i c s e c t o r , it i z t o be e ~ p e c t e dt h a t t h e r a t i o f o r t h e i n d u s t r i a l s e c t o r as 1 whole would be high, a s our e a r l i e r rough e s t i m a t e s i n d i c a t e d . 1 1 47. P a r t of t h e r e l a t i v e l y low i n c r e a s e j n o u t p u t can he a t t r i b u t e d d i r e c t l y t o d i f f i c u l t i e s encountered i n t h e implementation of p r o j e c t s - cost overruns, d e l a y s i n design, procurement and c o n s t r u c t i o n , and prob- l e m ~of g e t t i n g a c t u a l o u t p u t up t o h i g h l e v e l s , once operation: have a c t u a l l y begun. A s i n d i c a t e d below, t h e s e d i f f i c u l t i e s have been sub- s t a n t j q l . and no douht a r e r e s p o n s i b l e f o r a c o n s i d e r a b l e l o s s o f output, d u r i n g t h e Plan p e r i o d . On t h e o t h e r hand, t h e c h a r a c t e r o f t h s p r o j e c t s undertaken h 3 s a l s o c o n t r i b u t e d t o t h e high r a t i o of investment t o net output. Most o f t h e p u b l i c s e c t o r investment has been made i n c n p i t a l - i n t e n s i v e undcrt,,~kingswhich under any circumstances r e q u i r e heavy i n - vestment,^ i n r e l a t i o n t o output. Perhaps even more important,, hecause th o f t h s i r s i z e and c o m p l e ~ i t ~ y , e nerd t o a d s p t t o t h e u s e of 1oc.l r e - s o u r c e s (e.g., o r e 2nd c o a l ) , t o t r a i n a l o c a l l a b o r f o r c e i n new s k i l l s , and t o develop e f f e c t i v e l a r g e - s c a l e o r g a n i z a t i o n , t h e y a r c f a c i l i t i e s which r e q u i r e long p e r i o d s of time f o r c o n s t r u c t i o n and s t a r t - u p opera- t i o n s . I n a d d i t i o n , s i n c e many of t h e s e p l a n t s were s t a r t e d a t roughly s i m i l a r times, t h e r e has b e ~ na p e r i o d of v e r y heavy investment c o i n c i d i n g roughly with t h e l a t t e r p a r t of t h e Second Plan and t h e e a r l y yearc of t h e Third Plan during which v e r y l i t t l e has been produced. T h i s s i t u a t i o n has n o t bqcn r n a t e r j ~ a l l ya l t e r e d by t h e i n c r e a s i n g o u t p u t o f s t e e l i n r c c e n t ynqrr. - 1/ p a r s . 30. 48. The a c t u a l c o s t s of p u b l i c s e c t o r p r o j e c t s have f r e q u e n t l y exceeded o r i g i n a l e s t i m a t e s by s u b s t a n t i a l amounts. / ; This i s i l l u s - t r a t e d i n Table 14 which r e c o n s t r u c t s t h e changes i n c o s t e s t i m a t e s f o r p r o j e c t s r e p r e s e n t i n g a v e r y s u b s t a n t i a l p a r t of p u b l i c s e c t o r i n v e s t - ment i n i n d u s t r y . A s noted, some of t h e s e i n c r e a s e s can be a t t r i b u t e d t o changes in the scope of t h e o r i g i n a l p r o j e c t s , but a f t e r allowing f o r such changes, t h e average i n c r e a s e has been 65%. Most of t h i s seems t o be a t t r i b u t a b l e t o inadequate o r i g i n a l e s t i m a t e s . This i s c e r t a i n l y t r u e i n t h e c a s e of t h e N a n g a l f e r t i l i z e r p l a n t and t h e Neyveli l i g n i t e p r o j e c t . I n n e i t h e r c a s e were t h e o r i g i n a l e s t i m a t e s based on a s e r i o u s study of t h e c o s t s of c o n s t r u c t i n g t h e p r o j e c t . There a r e o t h e r s i m i l a r cases. 49 .Inalysis of t h e d a t a a v a i l a b l e f o r some of t h e s e p r o j e c t s i n - d i c a t e s t h a t t h e c h i e f reason f o r t h e inadequacy of t h e o r i g i n a l e s t i - mates was t h e omission of important items from t h e e s t i m a t e s . See Table 15. Among items commonly omitted were: f e e s and c o s t s of c o n s u l t a n t s and f o r e i g n e x p e r t s , t r a i n i n g expenses, import d u t i e s , working c a p i t a l and c o s t s of township. 2/ Such omissions may be a t t r i b u t a b l e t o l1lack of experience in p r o j e c t engineeringf1 a s t h e Planning Commission main- t a i n s 21 but it i s hard t o c l a s s i f y them a s %navoidablen. SO. Some of t h e c o s t i n c r e a s e s a r e probably t h e r e s u l t of u n r e a l - i s t i c o r i g i n a l e s t i m a t e s of t h e c o s t of imported equipment d e l i v e r e d t o t h e s i t e . I n some cases t h e c o s t of c i v i l works has been sub t a n t i a l l y underestimated a s a result of inadequate s i t e i n v e s t i g a t i o n . In ad- d i t i o n t h e r e a r e some c o s t i n c r e a s e s which may f a i r l y be termed unavoid- a b l e . Some a r e a t t r i b u t a b l e t o r i s e s i n p r i c e s between t h e time t h e estimates were made and the time, o f t e n much l a t e r , when equipment was procured; some may be a t t r i b u t a b l e t o changes in the source and condi- t i o n s of supply. A s h i f t from procurement on t h e b a s i s of i n t e r n a t i o n a l bidding t o procurement through b i l a t e r a l agreements may i n c r e a s e p r o j e c t c o s t s s u b s t a n t i a l l y e i t h e r because t h e supplying country tends t o be high c o s t i n t h e p a r t i c u l a r f i e l d involved o r because t h e p a r t i c u l a r - 1/ This experience i s n o t confined t o t h e public s e c t o r ; the c o s t s of p r i v a t e s e c t o r p r o j e c t s have a l s o been s u b s t a n t i a l l y underestimated. -/ 2 Though n o t a l l t h e s e c o s t s should be included i n an economic a p p r a i s - a 1 of a p r o j e c t , f i n a n c i a l provision must be made f o r them i f t h e p r o j e c t i s t o be implemented. - 3/ Third Five Year Plan, page h55. - 4/ The i n c r e a s e in c o s t of foundation work, a t Foundry Forge P l a n t of Heavy l h g i n e e r i n g Corporation was about Rs. 1 c r o r e over t h e o r i g i n a l estimate. I n t h e c a s e o f t h e Barauni r e f i n e r y t h e corresponding i n - c r e a s e was over Rs. 2 c r o r e s . s u p p l . i r r mny b r 3hl.c t o chari;r "monopoly p r i c e r " . L/ A s h i f t t,o domes- t i c procurement mny a l s o i-nvolve a subst,ant,ial i n c r e a s e 3.r) p r i c r p a i d , n o t t o ment,ion possit:le extrtr c o s t s nssocia t e d with i n f e r i o r c!uali-l-,y o r materia1.s o r workmanship. O f t h t,otzl. i n c r e a s e s observed, it, would np- ~ p e a r t h a t i n c r e a s e s i n f o r c j g n exchange c o s t s n.ccounted f o r 30$ t o 50%. 51 ' D i r e c t l y associ.ated with t h e cost, i n c r e a s e s a n d i n fact, an i~~portsnt element i n such i n c r e a s e s hqr been t,he ext,ended time r e q u i r e d t o implement p r o j e c t s . P r o j e c t s pass t.hrough a nunher of stay?:: b ~ t ~ h i e e r , t h e time t h e y a r e . f i r s t s e r i o u s l y proposed and t h e time they rcach f u l l production. Some of t h e s e a r e s t a g e s of p r e p a r a t i o n and r e p r e s e n t t h e time r e q u i r e d t o develop a s e r i o u s proposal i n t o a s p e c i f i c p r o j e c t ready t o be built,. The more important s t a g e s i n terms of t h e j r effect, nn c o s t z a r e t h o s e which f o l l o w between t h e comit,ment of resources t o t h e p r o j e c t and achieving f u l l production from t h e p r o j e c t . The a c t u a l process h2s not been uniform f o r a l l p r o j e c t s and t h e s t a g e s a r e n o t a1.wa.y: e s s y t o i d e n t i f y , nor a r e t h e y complet,ely comparable a s a.mong p r o j e c t s . It i s o f t e n p o s s i b l e to i d e n t i f y t h e beginning of t h e process by som? actdion taken by t h e government such a s commissioning a f e a s i b i l i t y s t u d y o r p r e - l i m i n a r y p r o j e c t r e p o r t . The d a t e t h e p r o j e c t was approved ca.n a.lso us1.1- a l l y he i d e n t i f i e d though it appears t h a t approval does not, jmyly t h e same s t a g e of p r e p a r a t i o n i n a l l c q s t s . The d a t e s const,nict.ion and pro- duction were s t a r t e d a r e l e s s ambiguous while t h e d a t e " f u l l production" of t h e o r i g i n a l p r o j c c t was f i r s t nc?!i.~vedi s f r e q u e n t l y d i f r i o u l t t n ~ determine because of changes made i n t h e c a p a c i t y of t h p r o j c c t d u r S r g c o n s t r u c t i o n . Hotrever, i n :pitie of such d i f f i c u l t , i e , c , t h e rough ?:ti- mates it, i s p o s s i b l e t o make . i n d i c a t e t.???o r d e r s of magnit,l:d~involved. 4 e ~ of ruch est,imates i s p r e s ~ n t ~ si d Table 16. The t a b l e shows t h e t n cstim.ited ti.~c:required f o r each of Tour s t a g e s i n p r o j e c t i r v p 1 ~ ~ ~ r , t , a - t i o r ~ . Where full c a p a c i t y had n o t y e t been achieved a t t h e time of t b e mission's v i s i t , e s t i m a t e s a v a i l a b l e a t t h a t time were used. The d a t z cover a l a r g e number of p u b l i c s e c t o r project,^; t h e d e t z i l s on a p r o j c c t - by-project b a s i s a r e shovm i n Tab1.e 17. 52. As shown i n Table 16, t h e average time r e q u i r e d f r o n first, s e r i o u s proposal o r conception t o f u l l . capacit,y o p e r ~ t ~ i o n boon t c n bns y e a r s , w i t h t h e l a r g e r p r o j e c t s t z k i n g somekhat l o n g e r . I f thp ~ r r i o d p r i o r t o approval i s ignored, t h e time i s reduced t o e i g h t y e a r s and i f o n l y t h e time from beginning of c o n s t r u c t i o n t o achieving c a p a c i t y opera- . t i o n s i s considered, t h e f i g u r e i s seven y e a r s , For t h e s m a l l e r p r o j e c t s , t h e time has been much s h o r t e r (based on a small sample) and f o r tt-.c more - 1/ It i s a l l e g e d t h a t t h e s h i f t of t h e Trombay f e r t i l i z e r p l a n t t o TlS procurement increased i t s c o s t s about R s . 1 . 8 c r o r e s . Trl + h c a s e ~ of t h e Gorakhpur f e r t i l i z e r p r o j e c t t h e c o n d i t i o n s of procurement provided f o r a s i n g l e Japanese b i d which, t h e mission was t o l d , r e - s u l t e d i n p r i c e s w e l l above t h e l e v e l of i n t e r n a t i o n a l compet,itivc bidding. recent p r o j e c t s t h e time i s a l s o l e s s , b u t only s l i g h t l y . Even taking i n t o account t h a t the implementation of l a r g e i n d u s t r i a l p r o j e c t s might be expected t o be slower i n India than i n more i n d u s t r i a l i z e d countries, the times a c t u a l l y taken a r e very long. 53. The excessive c o s t s and time required t o c o n s t r u c t and place p r o j e c t s i n operation a r e d i r e c t evidence of poor performance and strong support f o r t h e observation previously made i n regard t o t h e s e c t o r a s a whole. With a s e t of very l a r g e p r o j e c t s requiring more than 1-1/2 times t h e volume of resources they were o r i g i n a l l y estimated t o r e q u i r e and taking much longer t o become productive, it is not s u r p r i s i n g t h a t fewer p r o j e c t s could be undertaken than planned and t h a t t h e pressure on foreign exchange resources was g r e a t e r than o r i g i n a l l y estimated. Not only were p r o j e c t foreign exchange requirements increased but a n t i c i p a t e d import saving was delayed. 54. The c o s t increases and extended g e s t a t i o n periods r a i s e the question of t h e v i a b i l i t y of the p r o j e c t s themselves. In some cases t h e econcmics of the o r i g i n a l proposals even before t h e c o s t s increased and t h e time dragged out were q u i t e poor. This i s t r u e of the heavy e l e c t r i c a l p l a n t a t Bhopal a s i s brought out i n Appendix I. I n o t h e r cases t h e prospects f o r s u b s t a n t i a l r e t u r n s indicated i n t h e f e a s i b i l i t y s t u d i e s made a t the time t h e p r o j e c t was approved have a l l but vanished by t h e time construction has been completed. This p a t t e r n a s it r e l a t e s t o the Neyveli Lignite P r o j e c t is described in Appendix 11. In o t h e r cases even rough economic appraisals of t h e o r i g i n a l schemes do n o t ap- pear t o have been made a t t h e time of t h e i r approval while according t o present estimates t h e r e i s l i t t l e prospect f o r any r e t u r n on t h e invest- ment unless p r i c e s a r e maintained appreciably higher than the c o s t of comparable imports. Appendix I11 describes a case of t h i s s o r t , t h e p r o j e c t s of t h e Heavy Engineering Corporation. In addition t o low r e t u r n s , the foreign exchange savings associated with p r o j e c t s of t h i s s o r t , an important reason given f o r undertaking them, appear t o be r e a l i z e d only a f t e r a f a i r l y long period of time. The heavy i n i t i a l investment i n foreign exchange combined with continuing requirements f o r current operations produce t h i s r e s u l t . This i s i l l u s t r a t e d by some c a l c u l a t i o n s made on t h e p r o j e c t s of t h e Heavy Engineering Corpo- r a t i o n . 11 Similar c a l c u l a t i o n s made f o r t h e Bhopal p l a n t i n d i c a t e an even g r e a t e r delay before any n e t foreign exchange savings is achieved. - g e sit s t highly u n l i k ofl y 7-8a tyears. investment programs on t h e Fourth e c t 1/ It a i o n periods e th past Preliminary work assumed p r o j Plan has been based on t h e assumption t h a t public s e c t o r p l a n t s w i l l y i e l d a r e t u r n of 10%two t o four years from t h e year of i n i t i a l investment expenditure. Notes on Perspective of Development India : 1960-61 t o 1975-76, Perspective Planning Division, Planning Commis- sion, April 196L1, page 33. - 2/ Appendix 111. 55 Perhaps a more systematic way t o appraise t h e performance of public s e c t o r industry i s t o examine t h e r e t u r n s earned by e n t e r p r i s e s . These may n o t always be an accurate measure of t h e value of t h e i n v e s t - ment t o t h e economy s i n c e s e l l i n g p r i c e s may be d i s t o r t e d by high pro- t e c t i o n o r p r i c e c o n t r o l , In a d d i t i o n t h e o v e r a l l record is heavily weighted by investment i n p r o j e c t s which a r e n o t y e t f u l l y i n produc- t i o n . Nevertheless, t h e record of t h e p r o f i t a b i l i t y of public e n t e r - p r i s e s is a rough i n d i c a t o r of performance t h a t i s r e a d i l y a v a i l a b l e f o r many of t h e e n t e r p r i s e s involved. 56. Public policy now favors a r e t u r n of a t l e a s t 10% on i n v e s t - ment i n public e n t e r p r i s e s . L/ A of March 31, 1961r, 13 o u t of t h e t o t a l s of 27 i n d u s t r i a l e n t e r p r i s e s of t h e Central Government c l a s s i f i e d a s "running concernstf showed gross p r o f i t s on c a p i t a l employed of 10% o r more. See Table 18. These 12 were a l l comparatively small e n t e r p r i s e s , only two of them having c a p i t a l investments of more than Rs. 10 c r o r e s . Their combined investment of R s . 55.8 c r o r e s was only 3% of t h e t o t a l investment of t h e Central Government in i n d u s t r i a l undertakings. Of t h e 12, nine a r e manufacturing e n t e r p r i s e s (including processing of minerals), one i s engaged in mining, one i n construction and one i n shipbuilding. The manufacturing e n t e r p r i s e s a r e producing machine t o o l s , l i g h t e l e c t r i c a l equipment, instruments, a n t i b i o t i c s , i n s e c t i c i d e s and paper and processing minor minerals. 57. Certain common c h a r a c t e r i s t i c s of t h e p r o f i t a b l e manufacturing e n t e r p r i s e s may be noted. With t h e exception of Hindustan Machine Tools and Indian Telephone I n d u s t r i e s , a l l have t o t a l c a p i t a l employed of l e s s thanRs.10 c r o r e s , and seven have c a p i t a l employed of l e s s than R s . h crores. A l l have been e s t a b l i s h e d f o r a t l e a s t t e n years. I n cases where the present e n t e r p r i s e has been established more r e c e n t l y , it has taken over operations s e t up some years e a r l i e r , None appear t o be heavily dependent on o t h e r p r o j e c t s f o r supplies o r markets, a number a r e engaged i n manufacturing operations which do not represent r a d i c a l departures from Indian i n d u s t r i a l experience, and none a r e s u b j e c t t o p r i c e control. 58 By c o n t r a s t t h e l a r g e s t e n t e r p r i s e s which account f o r most of the Government investment in i n d u s t r i a l undertakings a r e e i t h e r not y e t f u l l y i n production o r i f producing near capacity, with one exception, - quate p r o f i t s . There a l s o appears general consensus t h a t t h i s r a t e 1/ "There i s general agreement t h a t public e n t e r p r i s e s should y i e l d ade- should not generally be l e s s - than 10%. Notes on Perspective of De- If velopment India: 1960-61 t o 1975-76, Perspective Planning Division, Planning Commission, April 196b, p. 29. I1A r e t u r n of 12% on t h e i n - vested c a p i t a l would bk an a p p r 6 G i a t e c r i t e r i o n f o r determining t h e p r i c e policy of most public undertakings.lf - Memorandum on t h e Fourth Five Year Plan, Planning Commission, p. 21. not y e t earning a 10% return. The working r e s u l t s of t h e 10 l a r g e s t e n t e r p r i s e s a r e shown i n Table 19. Together t h e y account f o r 95% o f investment i n public s e c t o r industry. Four of them a r e s t i l l considered by t h e Government a s llundertakings under c o n ~ t r u c t i o n ~ ~ ,seven earned 11 some gross p r o f i t in 1961r and only one, Hindustan Machine Tools, earned a gross p r o f i t of over 10%. Most of these e n t e r p r i s e s a r e not a s old a s those in t h e p r o f i t a b l e group, they a r e many times t h e s i z e of t h e p r o f i t - able ones and they a r e g e n e r a l l y engaged in more complex operations, many of which have never before been performed in India (e.g., Neyveli Lignite, Heavy E l e c t r i c a l s and Heavy Ehgineering) . In a d d i t i o n those producing s t e e l and f e r t i l i z e r s were s u b j e c t t o p r i c e c o n t r o l . 59 I t appears it w i l l be very d i f f i c u l t f o r some of these l a r g e e n t e r p r i s e s t o earn a 10% r e t u r n on investment unless s e l l i n g p r i c e s a r e s e t a t l e v e l s considerably above those of comparable imported prod'lcts. It i s n o t s u r p r i s i n g t h a t some margin would be required e s p e c i a l l y when t h e pressure on t h e e x i s t i n g exchange r a t e and i t s apparent overvaluation i s considered, but i n cases such a s Heavy E l e c t r i c a l s , Ltd., t h e margin required may be very l a r g e . 60. e W have noted t h e c o s t overruns and t h e lagging implementation of some of t h e most important p r o j e c t s a s c o n t r i b u t i n g f a c t o r s . I n com- parison with t h e more i n d u s t r i a l c o u n t r i e s c a p i t a l c o s t s tend t o be higher. Lower c o s t s of construction l a b o r do not o f f s e t t h e a d d i t i o n a l c o s t s im- posed by t h e longer construction times, t h e s p e c i a l d i f f i c u l t i e s of pro- curement and t h e c o s t s of d e l i v e r i n g imported equipment t o t h e s i t e . I n addition t h e terms under which p r o j e c t s a r e financed frequently r e s u l t in higher p r i c e s f o r t h e equipment i t s e l f . These disadvantages may not be compensated by lower operating c o s t s . Management i s generally inexperi- enced and the pressure t o i n f l a t e employment appears t o be strong. Any advantzge of low wages can only be r e a l i z e d i f t h e l a b o r f o r c e can be organized and l e d so a s t o produce in t h e required q u a n t i t y and q u a l i t y and i f it is not allowed t o expand t o many times t h e s i z e of t h a t used f o r comparable operations in i n d u s t r i a l countries. 61. Under these conditions it i s necessary t o e x p l o i t every pos- s i b l e means t o more economical operations if i n d u s t r i a l p r o j e c t s a r e t o be roughly competitive with imports. Certainly t h e r e i s room f o r b e t t e r design and s e l e c t i o n of p r o j e c t s and f o r improved management of p l a n t s . In addition s u b s t a n t i a l gains may be possible from t h e more e f f i c i e n t e x p l o i t a t i o n of domestic raw m a t e r i a l s . Easy access is not enough. W e have noted t h i s point i n connection with the operations of t h e s t e e l industry. Under present p r a c t i c e t h e g r e a t investment in b l a s t furnace p l a n t y i e l d s much l e s s outppt than would be possible i f the raw m a t e r i a l s were s u i t a b l y prepared before charging. While considerable work has been going on i n India f o r some time on raw m a t e r i a l preparation, t h e endeavor t o determine t h e most economic s o l u t i o n f o r each s t e e l p l a n t , and t o t r a n s - l a t e them i n t o a c t u a l i n s t a l l a t i o n s , s t i l l has a long way t o go. - 1/ Neyveli Lignite Corp., Heavy lkgineering Corp., Heavy E l e c t r i c a l s , Ltd., and Indian Refineries, Ltd.  C. Summary of Performance 62. During the Third Plan industrial output grew at an average annual rate of 7-7-1/2%. The index used tends to understate the actual increase, but the performance is still well below the rate planned. Although investment in the sector appears to have been maintained at only slightly less than the planned rate, the cost of projects was much greater than anticipated so fewer, more expensive projects were under- taken than planned. In addition it has taken much longer to construct projects and place them in production than expected. Because of this n and because many of the projects undertaken, especially i the public sector, were by their nature large and slow maturing in the first place, a large portion of the investment made in the sector produced no output during the period. 63 An important factor limiting the effectiveness of investment has been the restriction on imports during the period. The import re- quirements of the industrial program were underestimated. The failure of planned output to materialize was partly due to shortages of imported materials and it contributed in turn to further shortages. Since actual imports were limited to about the originally projected level, the deficit n was considerable and has resulted i the maintenance of a fairly high level of unutilized capacity.  1. F 1 1 CRITICAL FACTORS I N THE DEVELOPMENT O THE INDUSTRIAL SECTOR 1. 6r The problems inherent in building a broadbased, i n t e g r a t e d in- d u s t r i a l establishment in India in a comparatively s h o r t time a r e formid- a b l e . The e x i s t i n g industrial experience is t h i n , t h e r e s i s t a n c e of t r a d i t i o n t o change i s strong. In f o r c i n g i n d u s t r i a l i z a t i o n t h e Govern- ment not only must deal with these problems but must a l s o come t o terms with t h e c o n f l i c t i n g claims of regions and c l a s s e s i n a nation seeking t o achieve development by democratic means. The choice of the p u b l i c s e c t o r f o r a leading r o l e in i n d u s t r i a l development has a l s o created s p e c i a l problems. The pressure from p o l i t i c a l j u r i s d i c t i o n s t o d i v e r t investment from i t s most d i r e c t l y productive use i s p a r t i c u l a r l y strong in t h e case of public investment. This i s seen most c l e a r l y i n t h e de- s i r e of each s t a t e t o receive its Rshareflof t h e new i n d u s t r i a l p l a n t s . Another problem i s r a i s e d by t h e need t o operate a l a r g e and growing i n d u s t r i a l establishment with c i v i l s e r v a n t s t r a i n e d in a t r a d i t i o n which i n important r e s p e c t s i s f o r e i g n t o t h e nature of t h e t a s k involved. These a r e problems of Government. The Government has a l a r g e measure of d i r e c t r e s p o n s i b i l i t y f o r t h e success o r f a i l u r e of t h e i n d u s t r i a l program. The following comments a r e focused on p a r t i c u l a r a r e a s of Gov- ernment r e s p o n s i b i l i t y . 65. Given t h e f a c t o r s which m i l i t a t e a g a i n s t an easy s o l u t i o n t o I n d i a ' s i n d u s t r i a l problems, t h e r e a r e s t i l l important a r e a s i n which. s u i t a b l e a c t i o n can g r e a t l y improve performance. In t h i s chapter w e p o i n t o u t what we consider t o be t h e main a r e a s where improvement must be made, and what s o r t of a c t i o n may be p o s s i b l e and e f f e c t i v e . There a r e many f a c t o r s which have combined t o l i m i t t h e performance of i n d u s t r y during t h e recent p a s t . Some a r e associated with t h e process of planning and a p p r a i s a l of p r o j e c t s , some with t h e implementation of plans espe- c i a l l y on t h e p r o j e c t l e v e l and some a r e a s s o c i a t e d with t h e Government's general i n d u s t r i a l policy. B c h i s considered i n turn.  A. Tndustrjal. Plnnninrr - General 66. The f a c t t h a t t h e go:ilc of t h e Third Plan j.ndust,riaI pracr?rn werc: not r a c h e d may Sc t a k e n t o i n d i c a t e t h a t t h e Plan w a s overazhi- t i o u c . The Plan was a l s o i n c o m p l e t ~ . The t a r g e t s p ~ o v e dt o be t o o high p a r t l y because t h e nccessc7ry planning a t t h e i n d u s t r y and project, l e v e l had n o t been done. Thi.s d e f i c i e n c y r e s u l t e d i n commit,ting t h e Government t o l a r g e p r o j e c t s with inadeqilate knowledge of t b cost,s i n - ~ vol.ved. I n a sense t h e d e f j - c i e n c i e s i n Plan performance ca.n be a t t r i - buted t o f a i l u r e s of "implementation". The Plan may have been f i n e b u t t h e implementation was poor. However, it shou1.d be s t r e s s e d t h a t i m - plementation cannot be e n t i r e l y divorced from planning. I f planning i s l t o be e f f e c t i v e , it must be s u f f i c i e n t l y complete t o provide r ~ a a s s i s t - ance f o r t h e implementation s t a g e . Planning t h a t i s not c l o s e l y r e l a t e d t o what e x i s t s , what has been done and what has t o be done ma.kes good implementation impossible. 67. Import,ant f e a t u r e s of I n d i a ' s i n d u s t r i a l development a r i s e from t h e p a r t i c u l a r s t r a t e g y adopted by t h e Indian p l a n n e r s . T h i s s t r a t e g y has a l s o given r i s e t o c e r t a i n prob1.ems. The essence of t h e appropch can be d e s c r i b e d q u i t e simply. Future demands f o r i n d u s t r i a l products a r e e s t i - mated on t h e b a s i s o f p r o j e c t i o n s of planned income growth. These demands a r e c l e a r l y f a r i n excess of what can be financed by expected e x p o r t earn- i n g s e s p e c i a l l y when import requirements of i n d u s t r i a l matcrj.:ls which c a n ' t be produced i n I n d i a a r e taken i n t o account. Therefore, I n d i a w i l l have t o produce a l a r g e p o r t i o n o f h e r own requirements. Furthermore, i f t h e econolriy i s t o reduce i t s dependence on f o r e i g n a i d by some p a r t i c u l a r t a r g e t d a t e (1975)~ i t i s necessary t o undertake a massive buildup of i n - d u s t r i a l c a p a c i t y , p a r t i c u l a r l y i n t h e i n d u s t r i e s producing c a p i t a l goods and b a s i c i n d u s t r i a l m a t e r i a l s , Only i n t h i s way can t h e d e ~ p n d e n c eon imports f o r f u t u r e i n c r e a s e s i n t h e consumption of i n d u s t r i a l products be r ~ d u c e d . Since t h e market i s l a r g e , t h e r e should be no b a s i c economic reason f o r excluding any i n d u s t r y ; a l l can e v e n t x a l l y be developed i n eco- nomical s i z e d u n i t s . It i s t h i s g e n e r a l approach t h a t has l e d t o t h e heavy emphasis on metals, machinery and c h e ~ j c a 1 . si n t h e Second and Third Plans and t o t h e proposals t o continue t h e emphasis i n t o t h e Fourth Plan. 68. This approach has a l s o l e d t o a p a r t i c u l a r way of looking a t p r o j e c t s e l e c t i o n and a p p r a i s a l . The emphasis on t h e need t o b u i l d i n d u s - t r i a l c a p a c i t y t o meet p r e s e n t and f u t u r e requirements and t h e awareness of t h e g r e a t magnitude of t h e t a s k have tended t o d i v e r t a t t e n t i o n from t h e sequen'ce i n which p r o j e c t s a r e undertaken, t h e choice among a l t e r n a - t i v e s , and o t h e r short-run problems involved. P r o j e c t s e l e c t i o n i s o f t e n considered obvious - simply a m a t t e r of meeting requirements. Considera- t i o n ? of c o s t s a r e o f t e n secondary and any d e t a i l e d a n a l y s i s of a l t e r ~ a t , i v e s superfluous.  5. 6) While we hold no b r i e f Yor t h e rrtfi-nement, of appr:!.i::al pro- cedures f o r t h e i r own sake ::nd c ~ r t a i n l y recongizc t h a t sr:n:;i.hle p r o j e c t may ~ e l r c t ~ i o n indeed r e q u i r e a minimum of economic :l.n..il.ysi:; i l l many c a s e s , we do b e l i e v e t h a t i n g e n e r a l t h e n e g l e c t of apparent short,-term ~ r o b l c r n sn a y s e r i o l i s l y c n d a n g ~ rlong-trrm g o a l s . It i s u n l i . k r l y Indi,? cnn f i n a n c e and a d m i n i s t e r a l l t h e i n d u s t r y t h e planner3 bel.icvf: t o be necesyary by 1975. The l i m i t a t i o n s of f o r e i g n exchange and o f dome~t,ic s k i l l and experience impose t h e n e c e s s i t y f o r c h o i c e , and t h e correct, econ0mi.c c h o i c e i s n o t always obvious. klhile we do n o t d i s n ~ r e o with t h o aim of' developing c a p i t a l goods i n d u s t r i e s a t t h i s t i v e , Lrn ? r c i:-.- , ~ _ ' ~ with~ t d e need t o h e more selective qntl t o g i v e w ~ c h;;rr:?.tcr - ~ h rhrnight t o ec,ono~?icc o n s i d e r a t i o n s . This advice i s most re7.e-r:~.nt, o t h e t 7 e l e c t t o n and a p p r a i s a l o f p u b l i c s e c t o r i n d u s t r i a . 1 pro,jects. B. The S e l e c t i o n a and A ~ ~ r a i s ofl Public S e c t o r 1 n d u s t r i a . l Pro.iccts 70. The process of t h e s e l e c t i o n and a p p r a i s a l of p u b l i c s e c t o r i n d u s t r i a l p r o j e c t s h a s been n e i t h e r uniform among p r o j e c t s nor s t n t i c over time. P r o j e c t s have o r i g i n a t e d and have been s a n c t i o n 4 i n d i f - f e r e n t ways i n t h e p a s t and as experience hac accumulated n ! l r ; ?roSlernr a t t r i b u t a b l e t o p a s t p r a c t i c e have become a p p a r e n t , t h e r e ha: h e w a growing awareness of t h e need t.o improve t h e procesc. I n e m p of t h e more r e c e n t p r o j e c t s t h e r e i s evidence of t h i s concern a.5 e r o V ! ~ ~ if-a c - c t o r s have been given more en~phasirt h a n formerly. Other evidence of change i s t h e e f f o r t now underway t o e z t , a b l i s h a uniform procedure f o r 1 conduct,ing and e v a l u a t i n g f e a s i b i l i t y s t u d i e s . 1 However, :.ctual. chanzes i n t h e process hlve n o t y e t heen e x t e n s i v e and we b e l i ~ v et h ~ following d e s c r i p t i o n , based on t h e m i s c i o n ' s o b ~ e r v a t i o n s2 t t h e time of i t s v i s i t , i s s t , i l l substant,ialljr c o r r e c t . 71. b h i l e t h e process of s e l e c t i o n and a p p r a i s a l t e n d s t o v a r y from c a s e t o c a s e , t h e main l i n e s a r e f a i r l y c l e a r . P r o j e c t s genera7ly o r i g i n a t e from a c o n s i d e r a t i o n of p h y s i c a l requirements and a r e f r e - q u e n t l y a l t e r e d before completed 2 s t h e e s t i m n t e r of requirements >.re changed. A l t e r n a t i v e s a r e seldom considered s y s t e m a t i c a l l y and r a r e l y considered a t a7.1. P r o j e c t r e p o r t s v a r y g r e a t l y i n scope. Technical a s p e c t s a r e u s u a l l y covered though o f t e n incompletely, and t h e economic? of t h e p r o j e c t a r e r a r e l y considered. The l o c a t i o n of p r o j c c t s i s i n - fluenced more ofton by n p o l i c y of spreading p r o j e c t s among t h e S t a t e s than by an economic a p p r a i s a l . Approval i s o f t e n given b e f o r e n d ~ t l i l e d p r o j e c t r e p o r t has been prepared. - 1/ : ' F e & s i b i l i t y S t u d i e s f o r Public S:.ctor project^" - Committee on Plan P r o j e c t s , Planning Commission, January 1966 ( D r a f t ) . 72. The major emphasis i n p r o j e c t s e l e c t i o n i s on meeting physical requirements. The existence, present o r prospective, of a need f o r c e r - t a i n products seems t o be generally considered s u f f i c i e n t evidence of t h e economic d e s i r a b i l i t y of e s t a b l i s h i n g t h e necessary production f a c i l i t i e s . It appears t h a t l i t t l e o r no account i s taken of t h e f a c t t h a t t h e r e t u r n on investment ( b a s i c a l l y t h e value produced i n r e l a t i o n t o c o s t ) might vary widely from case t o case and t h a t consequently, given any p a r t i c u l a r s e t of prospective product needs, t h e investment choices, or, a t t h e very l e a s t , t h e i r time phasing might be q u i t e d i f f e r e n t i f r e t u r n on investment r a t h e r than physical need were t h e c r i t e r i o n of choice. Ln e f f e c t , an input-output t a b l e in purely physical terms appears t o have been t h e guide t o investment planning without reference t o t h e r e l a t i v e values and c o s t s of t h e i n p u t s and outputs involved. P a r e n t h e t i c a l l y , it i s a l s o apparent t h a t given such an i m p l i c i t o r e x p l i c i t frame of reference, possible export demand o r import supply could hardly f i g u r e i n t h e choices except possibly a s an afterthought. 73. Estimates of requirements a r e made by s p e c i a l Government cornmit- t e e s , m i n i s t r i e s , consulting groups and, more recently, by planning groups including members from Government and industry ( p r i v a t e and p u b l i c ) s e t up t o work out d e t a i l e d projections within t h e general framework of t h e Fourth Plan. This work has, a t l e a s t i n recent years, been coordinated by t h e Planning Commission. 74. Long-term projections of s p e c i f i c requirements a r e d i f f i c u l t t o make under any circumstances. This is e s p e c i a l l y t r u e i n a r a p i d l y chang- ing i n d u s t r i a l environment, so it i s not s u r p r i s i n g t h a t estimates have been revised frequently. On t h e o t h e r hand, it i s our impression t h a t i n t h e p a s t many estimates were made on a f a i r l y s u p e r f i c i a l basis. I f tech- nique has improved, t h e necessary information required t o make reasonable f o r e c a s t s i s s t i l l inadequate. In t h e case of recent estimates made by Planning Groups f o r t h e Fourth Plan we have noted t h a t limiked a v a i l a b l e information about e x i s t i n g capacity o f t e n made it v i r t u a l l y impossible t o make a r a t i o n a l a p p r a i s a l of f u t u r e requirements. A s t h e i n d u s t r i a l eco- nomy grows more complex, t h e r e w i l l be an increasing need f o r b e t t e r i n - formation on e x i s t i n g and planned c a p a c i t i e s on which t o base investment plans f o r individual p r o j e c t s . P a r t i c u l a r l y where heavy investments with long g e s t a t i o n periods a r e involved, it w i l l be necessary t o consider industry-wide developments with more care t an has been t h e p r a c t i c e i f serious misallocations a r e t o be avoided. 19 , - 1/ An example might be t h e development of heavy forging capacity t o meet s p e c i f i c demands of e x i s t i n g and planned p r o j e c t s a s they come i n t o production. The f o r e c a s t of f u t u r e demand f o r f l a t r o l l e d s t e e l products would be another example. 75. Al.t,hough some t y p e of p r o j e c t r e p o r t i s prepared f o r a t l e a s t , t h e i n i t i a l s t a g e s of a l l p r o j e c t s , t h e r e i s no uniform prn.r,ti.ct?. The r e p o r t s v a r y considera.bly i n scope a d ri.gor, and dcc.i.si.ons t o proceed w i t h a p r o j e c t do n o t appear t o depend on any s e t s t a n d a r d s of p r o j e c t a p p r a i s a l . I n some c a s e s on1.y a rough f e a s i b j . 1 j . t ~s t u d y i s made b e f o r e embarking on t h e p r o j e c t ; i n o t h e r c a s e s t h e d e c i s i o n followc t h e prPp- a r a t i o n of f a i r l y d e t a i l e d though o f t e n incomp3 et,e report)s. 76. The circumstances under which t h e r e p o r t s a r e p r e p a r ~ dv a r y c o n s i d e r a b l y from c a s e t o c a s e . I n a number of c a s e s d e t a i l e d r e p o r t s have been prepared f o r p r o j e c t s t o supply s p e c i f i c p a t t e r n s of produc- -- t i o n - t h e p a t t e r n u s u a l l y being determined by some ad hoc 5overnmtnt commit,tee. T h i s was t h e c a s e w i t h t h e Heavy E l e c t r i c a l p l a n t a t Rhopal. The Heavy E l e c t r i c a l Equipment Committee (195,!1/55 ) s u r v e g ~ de x i s t i n g c a p a c i t y and requirements and determined what t h e proposed S t a t e e n t e r - p r i s e should produce. The c s u l t a n t s , A E I ( u K ) , t h e n designed a p r o j e c t t o meet t h e s e requirements. S i m i l a r l y t h e r e q u i r e m c r t . ~Tor machine t o o l s were determined by t h e Engineerj ne Capacity L;uncjr 'hmmittec 11954) and a review of t h i s corrrr~iittee'~ work on heavy machiqe t o o l r e q u i r c i n e ~ + ~ ~ (1961) provided a b a s i s f o r t h e d e s i e n of t h e heavy machine t o o l plsnt, o" t h e Heavy Engineering Corporation. More r e c e n t l y t h e Corunittce on t h e Establishment of a Second C e n t r a l Foundry Forge P l a n t (1963) determined t h e need f o r a d d i t i o n a l c a p a c i t y f o r l a r g e f o r g i n g s and a p r o j e c t t o meet t h i s need was designed by a c o n s u l t i n g group - i n t h i s c a s e Heavy Elec- t r i c a l ~( ~ t d . ) . In a l l t h e s e c a s e s t h e need t o meet requirements zppears t o have been t h e dominant c o n s i d e r a t i o n . The c o s t s involved and t h e a l t e r n a t i v e of importing a t l e a s t some of t h e r e q u i r e d p r o d u c t s were n o t s e r i o u s l y considered a t t h e time t h e p r o j e c t s were drawn up. / ; Certzinly requirelnents a r e a v a l i d c o n s i d e r a t i o n b u t n o t a b s t r a c t e d from c o s t s arid a l t e r n a t i v e means of s a t i s f y i n g them. 77 I n t h e c a s e of f e r t i l i z e r t h e requiremen.ts had been e s t i m a t e d by a s p e c i a l committee and by t h e m i n i s t r y . 31 The q u e s t i o n a t i s s u e was t h e l o c a t i o n of new c a p a c i t y . The F e r t i l i z e r Production Committee was e s t a b l i s h e d i n 13SL t o suggest l o c a t i o n s f o r new c a p a c i t y i n c l u d i l g e s t i m a t e s of economlc c a p a c i t i e s a t each l o c a t i o n and rough c o s t s of pro- duction. These rough l l f e a s i b i l i t y " s t u d i e s a p a r e n t l y provided t h e h ? s i s f o r p r o c e c d i l g with t h ? p r o j e c t s recommended. ~ u h s e q n m t ~ay o t h e r n 1_/ See Appendix I. - 2/ This appears t o be l e s s t r u e i n t h e r e c e n t c a s e of t h e Second Foundry Forge p r o j e c t . - 3/ The Standing Committee on Manure and F e r t i l i z e r s of t h e Government of I n d i a 1954, and t h e M i n i s t r y of A g r i c u l t u r e . / '(angal, IJoyveli and Trombay. D e t a i l e d r e p o r t s on t h e l a s t two were prepared a f t e r p r o j e c t s were approved i n p r i n c i p l e . In t h e c a s e of Trornbay f i n a n c i n g by U a i d made a d e t a i l e d r e p o r t necessary. S croup, t b c Fcrt.il.i :>cr T ~ c h n i c : r l Clool~,.il-t.rrs(1953), r.ap:: gi.vrn tr1lr> ; : k of +:. det,crmi r.ing t,hc best, 1-ocati.on f o r n f c r t , i l i zer plant w i t , k . i n cnch 7t;itc. i :Iy n 1-t.su7.t. p r o j c c t , ~ d c r c rt-.conl~cndrd n loca.t.i9nr wi.t,houi; ?cc:r?:.r: t.0 r ci.t.her rnr.1 m 2 t ~ r i n l . ro r markpts. Thc pro,nrrFs i n imp7 ~ m c 7 n tn g t,hr pr0.j - ~j t ect,s has been slorr :!nd r - ~ i t h h e ~ r o w i n grecognit,ion o f t,hr irrport,:j.-rr' o f t h c econon!ricc involved j.t, i.:: urll' kcl;l. t,h:lt. t,hose w i t h poor Iocnt,.ior:: not, a l r c a d y rtori-cd w i l l b r b u i l t .$ Thc I\Inyveli L i g n i t c project, i s ~ r o i : , l l e r c a s e whorc a rough prel.iminary f c a . s u ) i j t y .st,~ldjrprovided t l - ~ 5 h?ri c f o r l ~ i p p r n v i n ~ ; project.. I n thj.s c n ~ c h e consul.tants, Porrca! l - D l l f f r , ~ (TTY) t,?!c t , x c r c ;i::ked ho7.1 b e s t t,o develop t,hc l i g n i t , e r c s o u r c r s nl; TJc:,ve1.S.; po:;ci.bl~ a l t . e r ~ . - l t i v e a o Neyveli were not at. i s s u e . 21 t 78. J u s t 3s p r o j e c t s have f r e q u e n t l y been select,ed t o f u l f i l l r e - cpirc,ments w i t h o u t s c r i o u s consic'eration of c o s t s o r a l t , e r n a . t i v e s , s o t h e l o c a t i o n of p l a n t s has o f t e n been chosen s o a s t o s p r e a d puillic s e c t o r i n - d u s t r y amon2 t h e i n d i v i d u a l s t a t e s with only a secondary concern, i f ' any, f o r t h e c o s t s involved. The s t u d i e s of t h e F e r t i l i z e r Tech!-ii.c\il. ,-ornrri!;tec have been c i t e d . The f i r s t heavy e l e c t r j - c a l . pla.nt wa.s lor?.tcd a t Rhopal r a t h e r t h a n a t a more economical1.y d e s i r a b l e s i t e hecause of th.: preference g i v e n t o Madhya Pradesh. I n s e l - e c t i n g tJie -;St,es f o r t h e three: ncw heqv-y el.ect.rica1 p l n t s , tlie Techr.i c a . 1 Cornl??ittec OT, Heavy E l c c t r j < - n lP r o j a r t s was direc+,ed t o conform t o t h c Government (iecjsj.ol? t.hat, "pu.bl?c ~ e c t ~ o r o l e c t s pr s!::o~;ld, t o t h e maximurn est.cnt p o s ~ i - h l e ,be 1oc:tted i n a r c a s i r ! which indus- ?~f r r . devel.opmcrrt, has hccr: l ? ~ - i Szhir~dand a r e a s which a r c i n d u s t r j . a . 1 1 ~ tj! 3/'" congested should be ?voided. 'I , T h p l o c r ~ t i o r !of H i n d u ~ t ~ aI%chine Tools n p l a n t 171 was qovfined t o t h e S t a t e of Punjab. In t h e c a s e of t,lic s h o p a l p l a n t a l o c a t i o n s t u d y was made by t h e consult,~.nt,s who estin?at,ed t h a t r e - aLuired w o r k k g c.~-pit.ql would hc? i n c r e a s e d 10-205 because of t h e selectLon . of t h e Ehopa7. ~ i t ~ e A f a i r l y c o m ~ l e t ~1oca.tion s t u d y was made f o r !!indust,zn e I-lachine Tools p l a n t I 7 1 which showed t h a t 1. 1 0 c a t ~ i o ni n t h e Poona area would have been prefer9-Slc b u t t h a t t h e a d d i t i o n a l t r a n s p o r t , c o s t ? ir~volvcc? n 51-:c i l o c q t . i o n s e l e c t e d a t P i n j o r e w r r n o t i n themselves v e r y s i g n i f i c a n t j.n r e l a - t i o n t o t h e v a l u e of t h e product t o be produced. 4/ of Tn t h e ~ . - r c t h e t h r p r new heavy e l e c t r i c a . 1 p l a n t s t h e mission i s n o t awa.re t h a t any ?conomic st,ud-?'~es were made of t h e l o c a t i o n s s e l e c t e d . 79. Tf t h o report,s a r e l i m i t e d by i n t e n t i o n i n some r r s p r c t s , t h e y r a r e o f t e n d e f i c i e n t i n o t h ~ r e s p e c t s f o r reasons n o t conipletely c l e a r . Some, i n c l u d i n g a11 t h o s e we have seen o r i g i n a t i n g i n E a s t e r n Ehrope, a r e - I/ For a d i s c u s s i o n of r e c e n t developments i n t h e f e r t i l i z e r i n d u s t r y , s e e Apperldix I V . - 2/ See Appendix 11. - 3/ Technical Committee on Heavy E l e c t r i c a l P r o j e c t s . Report, on t h e l.ocat,ion of t h e two heavy e l e c t r j - c a l p r o j e c t s and t h e High P r e s s u r e F o i l e r Planl; (1960). - 1 Report on t h e S e l e c t i o n o f a S i t e f o r a Machine Tool F a c t o r y i n t h e Punj ab, FI5 ndustan Machine Tools, 1961. 5/ Hardrrar (u.P. ), Hyderabad (Andhra ) and T r j c h i n o p o l y (Madms) . purely engineering reports and include no f i n a n c i a l analysis. It may be presumed t h a t these have been supplemented by some s o r t of f i n a n c i a l appraisal, but t h i s i s not clear. In other cases f i n a n c i a l runouts and calculations of r e t u r n are included and i n more recent cases we have noted t h a t some a t t e n t i o n hnr a l s o hccn given t.n forci;:n exchange s:~ving:. 80. e On the basis of what w have been able t o observe w would e have t o conclude t h a t t h e standards of project preparation have not been adequate. Reasonable e f f o r t has been devoted t o the preparation of the technical aspects of projects. Mistakes i n t h i s area have been made and must be expected. A s experience grows, s o w i l l the a b i l i t y t o improve technical evaluation. On the other hand, the managerial, f i n a n c i a l and economic aspects of p r o j e c t s have generally been neglected and t h i s has been in p a r t responsible f o r d i f f i c u l t i e s subsequently en- countered. An inadequate project report does not ensure f a i l u r e any more than an excellent report ensures success but it c e r t a i n l y makes successful implementation more d i f f i c u l t . When such large sums a r e in- volved as i n many of t h e public s e c t o r projects, it i s only sensible t o take a l l reasonable care t o appraise t h e probable consequences of the investment before making it. 81. The process of approving a project appears t o vary from case s t o case. A already mentioned t h i s is sometimes done on t h e b a s i s of only a rough preliminary report; i n other cases a detailed report i s used though it i s not c l e a r t o what extent the commitment may have already been made by the time the report i s commissioned. On the other hand, t h e approval in principle t o proceed with a p r o j e c t should not imply t h a t there a r e no important decisions l e f t as t o product mix, s i z e and l e v e l of costs. In f a c t , a major c r i t i c i s m of what we have observed of the approval process is t h a t even given t h e incompleteness of many project r e p o r t s there has been a f a i l u r e t o make f u l l use of the material t h a t i s prepared. In the case of the most complete proj- e c t report we have seen, t h e report f o r the Heavy E l e c t r i c a l Plant a t Bhopal, the extremely poor f i n a n c i a l r e s u l t s were s e t down i n d e t a i l . The need t o import a s u b s t a n t i a l amount of current needs was a l s o pointed out. That the project was not rejected, o r a t l e a s t substan- t i a l l y a l t e r e d can only mean t h a t the Government was not s r i o u s l y con- &? cerned with f i n a n c i a l o r economic c r i t e r i a a t t h a t time. . 82. Similarly i n t h e case of the Neyveli Lignite project t h e rough preliminary report prepared by Powell-Duffryn provided the basis f o r questioning the decision t o go ahead with an integrated project on economic grounds. What is more, members of the Technical Committee s e t up t o review t h i s report raised many relevant questions regarding the assumptions used f o r prices and costs. Yet these were never followed up. 21 One can only conclude t h a t a t l e a s t a t the time t h a t these and other large projects were being analyzed there was f e l t t o be no need t o be concerned about f i n a n c i a l and economic aspects. These would - 1/ See Appendix I. - 2/ See Appendix 11.  - apparently take care of themselves given time and t h e s i z e of t h e Indian market. The need t o reduce dependence on imports was s u f f i c i e n t j u s t i - fication. 1 7 83. Some of the d i f f i c u l t y would seem t o l i e i n the nature of the approval process i t s e l f , Final approval of new projects o r s u b s t a n t i a l investments must be obtained a t the Cabinet l e v e l . In some cases approval in principle is given t o proceed with the development of a project subject t o subsequent approval of detailed project plans. Such an approve1 may be based on a rough pre1imina.r-y appraisal. This was the case when t h e Heavy Industry Committee of t h e Cabinet approved t h e proposed plan f o r develop- ment of t h e Neyveli Lignite Project as described in Appendix 1 . / 1 : Ap- provals a r e a l s o given t o proceed with projects according t o plans and estimates developed in more d e t a i l . This is probably t h e more usual case. 81r. The s t a f f work on which these decisions i s based appears t o be - carried out by various ad hoc committees s e t up f o r the purpose. Some are composed of t e c h n i c a and i n d u s t r i a l experts given t h e task of assess- ing the f e a s i b i l i t y of s p e c i f i c project proposals. The Standing Panel of Technical Experts which reviewed t h e Powell-Duffryn report on Neyveli i s one example; the Ghandy Committee s e t up t o evaluate t h e a l t e r n a t i v e pro- posals f o r the establishment of a heavy engineering p l a n t i s another. However, perhaps more t y p i c a l a r e committees made up of representatives of the ministries involved and t h e Planning Commission, including some technical members. Such was the Lignite Project Coordinating Committee which reviewed the report of the Panel of Technicdl Experts on the Neyveli project and approved the plans t o proceed with the project. A more recent exanple i s the committee s e t up i n 1963 t o review t h e proposals f o r estab- l i s h i n g a second foundry forge project. I n addition t o the committee re- view and possibly in connection with it, it i s necessary t o obtain approval of t h e Planning Commission and, recently, t h e Project Coordination Division of the ITmistry of Finance before a p r o j e c t i s f i n a l l y approved. 85. It appears t o us t h a t t h e system i s more s u i t e d t o obtaining con- sensus among the ministries involved than t o analyzing the projects under review in any depth. The secretary members of the dornmittees are very busy o f f i c i a l s and the s t a f f support would seem t o be r a t h e r ljmited. It a l s o appears t h a t although administrative o f f i c i a l s and, t o some extent, technical people are well represented in the committees, the economic s i d e tends t o be neglected. The Planning Commission seems more concerned about whether projects conform t o t h e plan than with the economics of t h e proj- e c t s themselves. It i s possible t h a t t h i s aspect i s being given increasing a t t e n t i o n by the Project Coordination Division of the Ministry of Finance. - 1/ Yet t h e import savings aspect of projects does not appear t o have always been considered with p a r t i c u l a r care. For example, considering gestation time and heavy requirements f o r current imports of components it will take many years before t h e heavy e l e c t r i c a l plant a t Bhopal produces any n e t import savings. This prospect was not obscure a t the time the proj- e c t was approved. - 2/ Appendix 11, para. 15. $6. Tlorc! in?ort,xnt, tlim t h r ' procr,(lure i t s s e l f ic t h e C:jr:t t!::,t, :j:: f : r no hn.vc? \>eel! :? 1.1 P t,o tl~t.ern75 tJli.rre ;?.rc: agrc:c-!d !; :),-: I . J ~ r!? ' 71.1.vr i 7 7 qr' cconorn3.c ::.t~,;ir~ri:?rCj:> :i::r7inc.t r.lkic:h p r o j c c t s ?rc7 jutlgcd. '?!I j.,. ,;:i ,i-,1~,jt:.or. may be i n t h e process of change. C e r t a i n l y t h e r e i s an announced policy t h a t p r o j e c t s should earn a r e t u r n of 10% or more. However, it i s our impression t h a t t h i s c r i t e r i o n i s not y e t being g e n e r a l l y applied t o investment decisions. In t h e cases we have observed decisions seem t o have been made l a r g e l y on t h e b a s i s of t h e assumed need t o manufacture t h e product i n t h e country and an assurance t h a t t h e p r o j e c t i s techni- c a l l y f e a s i b l e . There has generally been a minimum of concern with f i n a n c i a l o r economic aspects. Although economic a n a l y s i s i s c e r t a i n l y no assurance of r a t i o n a l decisions, without a s e r i o u s a p p r a i s a l of t h e economic and f i n a n c i a l aspects of p r o j e c t s t h e weighing of such c o n f l i c t - i ing considerations a s l o c a t i o n , s i z e , product mx and e f f i c i e n c y i s bound t o be done i n a haphazard manner and t h e r a t i o n a l comparison of a l t e r n a t i v e expenditures is impossible. 87. The emphasis on physical need and t h e secondary i!q;~ortance given t o c o s t s leads t o p r a c t i c e s t h a t tend t o increase c o s t s above the l e v e l s t h a t might be a t t a i n a b l e under Indian conditions. The r o l e of p r o j e c t s as employers, operators of model communities, c a r r i e r s of i n d u s t r i a l i z a - t i o n i n t o t h e more deprived a r e a s and an o b l i g a t i o n of t h e Central 3overn- ment t o provide f o r each S t a t e tend t o c o n f l i c t with t h e i r r o l e as pro- ducers. This i s n o t t o say t h a t these o t h e r r o l e s a r e not important but r a t h e r t o poiilt out t h a t any s y s t e m a t i c a l l y based judgment of t h e i r r e l a - t i v e importance i s hardly possible unless they can be weighed i n terms of t h e i r e f f e c t s on t h e output produced and i t s c o s t s of production. It i s our observation t h a t i n t h e absence of t h e d i s c i p l i n e of the market, o r s t r i c t l y imposed c r i t e r i a of p r o f i t a b i l i t y , the secondary importance given t o c o s t s has permitted p l a n t s t o be designed more e l a b o ~ a t e l yand l o c a t e d more disadvantageously than necessary and t o produce a wider range of products than necessary i n an attempt t o make them f i l l estimated product needs, save imports and d i s t r i b u t e income a l l a t t h e same time. W would e suggest t h a t these purposes can be served more e f f i c i e n t l y i f g r e a t e r em- phasis i s placed on t h e c o s t of a l t e r n a t i v e ways t o meet t h e d e s i r e d goals.  The Implementation of Projects 88. P r o j e c t s a r e o f t e n approved i n p r i n c i p l e with t h e i r Lrple:mta- t i o n s u b j e c t t o 'ladequate foreign exchange being a v a i l a b l e f f . problem of securing finance and arranging f o r procurement of equipment has often involved prolonged negotiations and changes in t h e c o s t and content of t h e p r o j e c t i t s e l f . A s already noted, t h e o r i g i n a l e s t i m a t e s of c o s t s a r e o f t e n very rough and it i s n o t u n t i l a c t u a l procurement i s attempted t h a t r e a l i s t i c f i g u r e s a r e a v a i l a b l e ; also, a s noted, in some cases c o s t s have been increased because of t h e p a r t i c u l a r conditions of procurement. 21 Major changes i n t h e p r o j e c t may a l s o be made a t t h i s stage. Designs f o r t h e Trombay f e r t i J . i . z e r project, f o r example, had t o be s u b s t a n t i a l l y revised when it was decided t o finance t h e p r o j e c t through U a i d which involved procurement i n t h e US. The recent experi- S ence with t h e Boknro s t e e l p r o j e c t i s another example. I n t h e case of Heavy Engineering Corporation t h e whole concept of t e p r o j e c t was a l t e r e d mainly a s a r e s u l t of t h e a v a i l a b i l i t y of finance. , 33 89. The delays, c o s t increases and changes i n p r o j e c t s r e l a t e d t o t h e source of finance a r e l a r g e l y beyond t h e c o n t r o l of t h e Indian Gov- ernment - but not e n t i r e l y . An important source of delay i s t h e f a c t t h a t p r o j e c t r e p o r t s a r e r a r e l y up t o t h e standards required by foreign lenders. Also t h e procedures involved i n obtaining import l i c e n s e s a f t e r financing i s approved a r e f r e q u e n t l y sources of delay. 90. A s noted i n t h e previous chapter a considerable time o f t e n passes between the acceptance of t h e p r o j e c t r e p o r t and t h e s t a r t of construction. This would seem t o be r e l a t e d i n p a r t t o t h e time required t o arrange f o r financing but t h e r e a r e no doubt o t h e r causes f o r delay - organization of work force, delivery of equipment a t s i t e , possible problems with l o c a l o clearance, complicated procurement procedures. N doubt b e t t e r planning could c u t t h e time considerably and i n f a c t it would seem t h a t i n t h e more recent p r o j e c t s the time taken has been much s h o r t e r (Table 16). It i s t h e long time required t o construct and place i n f u l l operation t h a t should be t h e cause f o r g r e a t e s t concern. - 1/ For instance, Neyveli f e r t i l i z e r p r o j e c t ( ~ p p e n d i x11). - 2/ See paragraph 50. - 3/ Although t h e Ghandy Commi.btee (1957) had recommended acceptance of t h e UK r a t h e r than t h e USSR plan f o r t h e development of a heavy en- gineering industry, t h e Government chose t h e USSR o f f e r . A key f a c - t o r was t h e l a r g e r mount of a s s i s t a n c e t h e USSR was prepared t o give a t t h a t time ( ~ p p e n d i x111). 91. Inadequate preparation and planning has been responsible f o r delays i n project execution. Reference has already been made t o t h e generally loose standards of project r e p o r t s , The complexity and s i z e of many of the l a r g e public s e c t o r p r o j e c t s require thorough prepara- t i o n and a c a r e f u l scheduling of a c t i v i t i e s well in advance i f c a p i t a l and time and manpower are not t o be wasted - and in t h e s e cases t h e scope f o r waste i s very large. In t h e case of t h e public s e c t o r s t e e l plants the deficiency i n t h e preliminary studies of s i t e conditions and raw material sources and i n t h e arrangements f o r a n c i l l a r y f a c i l i t i e s were causes f o r delay. L/ "It was not r e a l i z e d t h a t it takes somewhat longer t o develop mines and quarries and t o e s t a b l i s h f u l l y serviceable t r a f f i c l i n k s than t o construct t h e s t e e l plant proper." 2/ 92 Recent studies made by t h e Committee on Plan Projects of the Planning Commission have emphasized the need an scope f o r t h e more e f f i - c i e n t programming of construction a c t i v i t i e s . 23 The National Product - i v i t y Council has a l s o provided t r a i n i n g i n modern techniques. There i s the beginning of a r e a l i z a t i o n t h a t project implementation i s a complex technical problem. It i s not c l e a r t h a t t h i s r e a l i z a t i o n has as y e t spread very widely. Changes i n Projects During Construction 93 Another f a c t o r a f f e c t i n g performance has been the p r a c t i c e of frequently changing t h e project while it i s s t i l l under construction. Some of these changes a r i s e from deficiencies i n the o r i g i n a l p r o j e c t report - items a r e omitted, raw materials found t o be inadequate, l i m i - t a t i o n s of s i t e underestimated, etc. Some a r i s e from material shortages t h a t necessitate redesign - cement i s b s t i t u t e d f o r s t e e l as i n t h e case of the Neyveli f e r t i l i z e r plant. !? These changes a r e the r e s u l t of technical and procurement problems and generally do not a f f e c t t h e s i z e and the capacity of t h e project. Another frequent type of change i s the a l t e r a t i o n of the stages of construction. It i s common p r a c t i c e t o plan a f a c i l i t y i n a s e r i e s of stages. In the cases of t h e Heavy E l e c t r i c a l Plant a t Bhopal and t h e Heavy Machine Building Plant a t Ranchi, t h e o r i g i n a l schedules were r a d i c a l l y changed a f t e r construction was - 1/ Programmes of I n d u s t r i a l Development 1961-66, Planning Commission, page 2 and page 1 .1 - 2/ S i r Jehangir Ghandy, "Steel Output Lagging Behind Capacityft, Capital - Survey of Indian Industries, 1962, June 28, 1962. - 3 / See, f o r example, the following s t u d i e s by the management group, COPP, A review of the Trombay Project, December 1964; and Heavy E l e c t r i c a l s , Ltd. (India), A review of Programming and Reporting, November 196h. - 4/ Changes a r i s i n g from changes i n the sources of supply a s i n t h e case of the Trombay f e r t i l i z e r plant generally take place before the s t a r t of construction though undoubtedly t h e r e a r e exceptions. s t a r t e d . I n t h e f i r s t c a s e t h i s was a p p a r e n t l y +,he r e s u l t of a r e n s s c s s - ment of r e ~ l u i r ~ m e n t si ;n t h e second t h e a v a i l a b i l i t y o f additional. c r e d i t , from t h e USSR w:ls perhaps t h e key f a c t o r . A t h i r d t y p e of change a n d perhaps t h c most disrupting of a31 i s n change i n t h e product which t,he p l a n t i s t o produce and i n i t s c a p a c i t y t o produce i t made a f t e r t h e p l a n t i s under c o n s t r u c t i o n . Tn tho c a s e of t h e Bhopal p l a n t where such a change was madc ?/ t has been e s t i m a t e d t h ? t completion of t h e p l a n t was delayed i from s i x months t o a y e a r . 21 The c a p a c i t y of t h e Foundry Forge P l a n t of t h e Heavy Engineering Corporation was . ? l s o changcd d u r i n g c o n s t r l ~ c t i o n , n ; was t h e c a p a c i t y of t h e mine a t Neyveli. I n nonp of t h e s e cases was 2 nev p r o j e c t r c p o r t o r a reassessment of t h e economics of t h e p r o j e c t made. Tn t h e case o f t h e Trombay f e r t i l i m r plant, t h e product was changed off,er ten- d e r s had been i n v i t e d . 94. This p r a c t i c e has been s t r o n g l y c r i t i c i z e d by t h e E s t i n a t e s Corn- m i t t e e and t h e r e c e n t l y e s t a b l i s h r d Corrmi t t e e on P u b l i c U d e r t a k i n g s . 21 The Committee on t h e U t i l i z a t i o n of E x k r n a l Assistance 49 considered thj.s , of s u f f i c i - e n t importance t o i n c l u d e among i t s recommendations t h a t " o n ~ ea p r o j e c t r e p o r t has been prepared and approval and a s s i s t a n c e have Seen s e - cured it i s importan5 t h a t t h e s i z e of t h p p r o j e c t should no': h r n l t c r e d . " ; 5 This, it i s recognized, r e q u i r e s b e t t e r a p p r a i s a l work i n t h e f i r a t i n s t a n c e . Indeed, changes can o f t e n be a t t r i b u t e d t o inadequate a p p r a i s a l of t h e mar- k e t i n terms o f t y p e of product o r i t s quant,it,y - o r t o inadequat,c s t u d y of t h e s i t e o r of t h e raw m a t e r i a l s a s t o q u a n t i t y and q u a l i t y . They may a l s o be t r a c e d i n some c a s e s t o t h e g e n e r a l p o l i c y of t r y i n g t o supply 2 p o r t i o n . of requirements from a given source w i t h o u t p a r t i c u l a r regard t o t h e condi- t i o n s of production ( ~ h o p a l )and t o an e f f o r t t o "improve t h e e c o n o m i ~ s t of l an expensive p r o j e c t by spreading t h e overhead ( ~ e y v e l i ) . - 1/ O r i g i n a l p l a n vrss s e t up i n t h r e e phases i n 1958; i n 1959 it was de- tided t o combine t h r e e i n t o a s i n g l e phase, double o u t p u t and t r i p l e t h e s i z e of t h e h y d r a u l i c t u r b i n e s and t r a n s f o r m e r s t o be produced; i n 1960 it was decided t o f u r t h e r expand p l a n t and i n a d d i t i o n t o produce a new product - steam t u r b i n e s ( ~ p p e n d i xI ) . - 2/ Estimates Committee 1962-63. T h i r t y - f i f t h Report. M i n i s t r y of S t e e l and Heavy I n d u s t r i e s , Heavy E l e c t r i c a l s , Ltd. ( ~ n d i a ) ,Rhopal, page 23. - 3/ For i n e t a n c e , Estimates Committee, op, c i t . Committee on P u b l i c Undertakings, 6 t h Report. F e r t i l i z e r Corporation of I n d i a , Ltd., A p r i l 1965. - 4/ Chairman V. K. R. V. Rao, Report d a t e d March 196l.4, - / Committee Report, page 15, Procurement Prohlems 9s. Another important cause f o r d e l a y i n t h e implementation of p r o j e c t s h a s been t h e problem of procuring m a t e r i a l z 2nd equipment when needed - i n p a r t i c u l a r s t e e l and imported equipnnnt. T h i s i s a. reflection of t h e g e n e r a l f o r e i g n exchange s h o r t a g e and t h e e f f e c t i v c - n e s s of t h e measures taken t o cope with i t . It i s t o be expectcd t h a t when t h e r e i s a s h o r t a g e , someoncls requirements must be c u t . W have e noted c a s e s where t h e c o n s t r u c t i o n of p u b l i c s e c t o r p l a n t s was a p p r e c i - a b l y dela:red because of a l a c k of s t e e l , and c a s e s where l a c k of a f o r - 2ign exchange a l l o c a t i o n f o r s p a r e p a r t s has c u t o u t p u t f a r more t h a n t h e c o s t of t h e s p a r e s . These a r e c e r t a i n l y c a s e s tillere t h e v a l u e of t h e use of f o r e i g n exchange was v e r y high. It i s conceivable t h a t t h e a l t ~ r n a t i v eu s e t o which it was being p u t a t t h e time of t h e s e s h o ~ ~ t a g e s was even more v a l u a b l e , b u t t h i s was c e r t a i n l y n o t t h e c,ase, f o r example, with t h e f o r e i g n exchange used f o r b u i l d i n g up excess i n v e n t o r i e s o f spareF a t S i n d r i , Nangal, Bhopal and Indian A i r l i n e s . It i s no doubt a d i f f i c u l t problem t o a s s e s s need a c c u r a t e l y and a l l o c a t e s c a r c e r e s o u r c e s e f f e c t i v e l y , h u t t h e c o s t of f a i l u r e i s high. !/ 96. Once 3 p r o j e c t has been a p p r o v ~ d , i t s l e g i t i m a t e r e q u i r p n e n t s of s c a r c e r e s o u r c e s a r e approved i n p r i n c i p l e . However, with t h e excep- t i o n of items d i r e c t l y provided under arrangements f o r f o r e i g n firlancing, procurement f o r each item under a l l o c a t i o n ( g e n e r a l l y speaking, s t e e l p r o d u c t s and imported i t e m s ) must proceed through t h e u s u a l c h a n n e l r . Sach e n t e r p r i s e i s r e q u i r e d t o submit t o i t s a d m i n i s t r a t i v e n i n i s t r y a l i s t of a l l items r e q u i r e d f o r t h e coming s i x months r e q u i r i n g f o r e i g n exchange expenditures. These r e q u e s t s a r e c o l l e c t e d by t h e m i n i s t r i e s and submitted t o t h e M i n i s t r y of Finance which h a s t h e r e s p o n s i b i l i t y f o r ~ l l o c a t i n g h e f o r e i g n exchange. The r e q u e s t s a r e p r c m n a b l y ex- t amined t o determine ( a ) whether t h e items 2re needed, and ( b ) whpt,hpr t h e y can be procured domestically. To some e x t e n t it i s p o s s i h l e t o equ3te need t o t h e items l i s t e d i n t h e Det,ailed P r o j e c t Report - i f one e x i s t s f o r t h e p r o j e c t . There may a l s o be some rough i n v e n t o r y norms accepted i n some cases, b u t g e n e r a l l y primary r e l i a n c e w i l l have t o be placed on t h e opinion of t h e e n t e r p r i s e . The second problem can i c v o l v e c o n s i d e r a b l e time and i s extremely d i f f i c u t t o determine w i t h f u l l rp- gard t o d e l i v e r y time, q u a l i t y and c o s t . C ! In a number of c a s e s t h a t have come t o our a t t e n t i o n s t e e l was determined t o b e a v a i l a b l e from domestic sonrces, whereas e i t h e r t h e p a r t i c u l a r t y p e of s t e e l was n o t - m i n i s t r a t i v e C o n t r o l on Resource A l l o c a t i o n s and Investment. 1/ For a d i s c u s s i o n of t h e problems of a l l o c a t i n g r e s o u r c e s , s e e Ad- - -/ 2 Clearance from t h e indigenous angle. I b i d , Chapter 2. being manufactured o r t h e l e v e l of output was n o t s u f f i c i e n t t o supply a l l demands s o t h a t d e l i v e r y was delayed beyond any reasonable period. 11 97. When requests have passed t h i s s c r u t i n y , a foreign exchange allotment is presumably made and t h e e n t e r p r i s e i s permitted t o seek bids on t h e items it wishes t o import. On t h e r e c e i p t of bids it then a p p l i e s f o r an import l i c e n s e a g a i n s t i t s a l l o c a t i o n . Problems of t h e a v a i l a b i l i t y of p a r t i c u l a r currencies may come i n a t various s t a g e s . Allocations may be made with o r without r e f e r e n c e t o p a r t i c u l a r curren- c i e s . In some cases bids an e n t e r p r i s e has heen prepared t o accept, e.g., German conveyors f o r t h e Neyveli mine, have had t o be r e s e c t e d and new bids sought from another source f o r currerlcy reasons. , 1/ 98. In p r a c t i c e it would appear t h a t bids a r e sought before t h e a l l o c a t i o n i s assured although t h e r e may be good reason t o assume it w i l l be forthcoming on t h e b a s i s of t h e need f o r t h e p a r t i c u l z r items. e W have a l s o observed c a s e s where t h e time required t o o b t a i n confirma- t i o n of a l l o c a t i o n was s o long t h a t t h e v a l i d i t y of t h e o r i g i n a l quota- t i o n s had expired and new b i d s had t o be sought. 99. The requirement f o r an e n t c r p r i c e t o cuhait t h ~ lizt of itoms r e q u i r i n g foreign exchange it w i l l need over t h e next six months may be a d i f f i c u l t one when p r o j e c t s a r e l a r g e and complex, when u n i t s a r e going i n t o production a t d i f f e r e n t times, when d i f f i c u l t i e s w i t h equip- ment cannot be a n t i c i p a t e d on t h e b a s i s of experience and when r e q u i r e - ments f o r spares must thus be l a r g e l y guess work. N doubt p r o j e c t o planning has n o t been of high q u a l i t y , but it i s a l s o c l e a r t h a t t h e problems have been d i f f i c u l t . To ease t h e procurement emergencies which i n i t i a l l y a r i s e , blanket import l i c e n s e s were given some public e n t e r p r i s e s covering a small portion of t h e i r usual requirements. These a l l o c a t i o n s could be used in emergencies f o r t h e import of any type of normally imported items. The usefulness of t h i s type of l i c e n s e a t t h e Nangal f e r t i l i z e r p l a n t i s i l l u s t r a t e d i n Table 20. The items - 1/ Hindustan Shipyard was forbidden t o import a p a r t i c u l a r s t e e l order because t h e domestic i n d u s t r y should be a b l e t o supply it. After 1 8 months, it was determined t h a t i t would n o t be supplied domestically a f t e r all. The s t e e l was f i n a l l y received from abroad t h r e e years a f t e r t h e d a t e of t h e o r i g i n a l order. The Neyveli f e r t i l i z e r p l a n t went through a s i m i l a r experience. Con- s t r u c t i o n was delayed 27 months because of l a c k of s t e e l . I n a d d i t i o n t h e company had t o make a penalty payment t o t h e c o n t r a c t o r of R s . 72 lakhs (including R s . 42 l a b s foreign exchange) t o compensate f o r e x t r a c o s t s . F i n a l l y permission t o import t h e required s t e e l was given; i t s c o s t was R s . 27 lakhs; t h e value of t h e l o s s in production was many times t h i s . The construction of Heavy Engineering Corporation foundry p r o j e c t and Heavy E l e c t r i c a l s , Ltd., Bhopal, was a l s o delayed by l a c k of s t e e l under s i m i l a r circumstances. - 2/ The IJS conveyors f i n a l l y purchased c o s t Trombqy f e r t i l i z e r p l a n t i s s i m i l a r . 15%more. The case of t h e shown were u r g e n t l y needed f o r r(!p;\ir o f t,hc! major prodi~cj.ngunit.s i n t h e hydrogen p3 a n t . 1di t h o u t t.hc r e p a i r , i t w a s i m p o s s i b l ~t o ,qpt, t,hri unit,c ur? t o f u l l c a p q c i t y p r o d u c t i o n . T1-1 adrlitior: they w c . r r con:;i~njng rn an apprcci:)Sly l a r g e r amount of imported p o t ~ ? s s i ~ i hydrox-ide th2.n norm:.11. The forr.i.gn exchnngr c o s t of t,he r c q u i r c d r e p a i r equipment, l%!ouldS:!VF! many t i m e s i t s valilc i n fertilizer p r o d u c t i o n , and t h e r e 1-rac no r ; u ~ , i f . j ~ n of g e t t i n g t h c Governmcnt t o ic::uc n l i c t ? n s e eventual1.y. R F ~ C : . U S ~ 9 "t h r , 1 i n e v i t a b l e : ~ d l ; ~ i n i s t r n t i v c l a y involved, t h e management d c c i d ~ ~t.9~ i r r l - de c p o r t a g a i n s t i t s b l n n k e t l i c e n s e . It. i s our urldcrstanding t h z t t h e p r x - t . i c e of i::suinc sucli b l a n k e t l i c e n s e s h ~ 's oecri disr:ontinucri. '.!(> would wonder whether t h e efficiency i n t h e use of f o ~ e i g nexchange c o u l d be i~iiproved.by such a change. I f t h e v i s f e a r t h a t t h i c small. rip[;rce o f freedom. w i l l b e misused by t h e mantlgernent of p u t l i c e n t e r p r i s t . ~ by irn- portil-lg what might be procured d o m e s t i c a l l y , o r what i s n o t a b s o l u t e l y p p e s s e u t , i a l , t h i . s o ~ l y o i n t , s t o t h e c r i t i c a l n a t u r e of t h e rnan~g~rr.,(:?t,r o b l r . : ~ . 100. The procuremenl; problem h2s definitely slowed t h implemeni,ation ~ of ; number o f ' p ~ ; . ? : : , ~ ' c t , o r . : r r+,,- i rb ?ya.+ G . ' r~of,eri,t h e r e have !)cc-::-, c:< rt.:clll- t i e s 21?:1 d e l n y s i n ?rocllring needed ec]ui.pmc?nt and rn?.tcrial.; from ;rbro:ld. Local. p r o c ~ l r e m e n thas a l s o f r e q u e n t l y 3ecn (:;iff-icult p s r t l y l~ec;j.useo f t h e i n a b i l i t y o f domestic s u p p l i e r s t o o b t a l n imported m a t e r i a . l s , componept; and p a r t s when necded. Some of t h e s e d i f f i c l l l t , i e s may h e i d ~ n t i f i l ~ di t h w g e n e r a l s h o r t a g e s 01 s p e c i f i c p r o d u c t s such a s s t e e l i n t h e e a r l y l?'G1s and, more recent.l.y, cement. O t h e r s may be r e l . ? t e i l t o -:he i n ~ i l . l i 1 i . t :o f t h e~ c o n t r q l system t,o a l l o w s u 2 p l i e s t o s d j u s t q u i c k l y t o s p c c i - f i c dern:1.~3s. Recent examplzs of t h e l a t t e r a r e p i g i r o n , welding e l e c t r o d e s and, p a r + ? ? - ularljr, s u p p l i e s of s p e c i f i c p a r t s , component.^ 2nd equi?ment r e l p i r e d f r o n abroad f o r p r o j e c t s o r f o r doi?estic s u p p l i e r s o f e:!?li?n'letlt, f o r proj<:cLs r 101. The v:.irious prohlems encountered i n t h e inpl~rnent,~-ibion t h e of p u l l l i c s e c t o r i n d u s t , r i F l prozrnm p o i n t t o t h e problem of managr,ne!it, it,- car, se3.f. T O .:one e x t e n t t h e answer t o many o f t h e s e ~ r o l ~ l e n s i:c pllt, i n t 5 r n s ol improving t h f ? qanagencnt o f t h c program - t h e p l a n n i ~ gn:ld n l l t h a t t h i s e n t a i l : ,..tth c l e v e l of t,hc Pl.:inning Commission and t;:c ~niniz- t t r i e s - an6 more e s p e c i s l l y improving t h e msnage~acnto f the p r o j e c t s themselves. 117t h i z s e c t i o n we s h a l l d c ? l w i t h t h i z l z t t e r :~c'pcc$. 102. 'v'hc11 major emph:-tsis was pl::ced on i n d u s t r i a l invc,:-t.:7nnt t,he p i b l i c r r ~ t o r t thr: s t a r t o f t h e 7econd P l a n i n 1.355, b o a t t h e o r ~ l ~ r a p u b l i c s e c t o r employees w i t h any e x p e r i e n c e i n industri.11 i . ~ ~ ~ : l ~ r ? , : ~ k . i ~ i ; i ; were t h o s e i n +h? r a i l w a y workshops and t h e ordnance f ? c t , o r i e ~ . '!ic need f o r t h e e x t e n s i v e t r a i n i n g of e n g i n e e r s ,anti tcchnjrirln:; w l i ~cIt?:ln, t h e pace of t e c h n i c a l t r a i n i n g W:JS i n c r e a s e d :lnd l a r g e t r a i n j . 7 ~t'c!la?c, were undcrt.xk~:n i n c o n n e c t i o n w i t h t h e 1 , 1 r ~ e pu1)li.c p r o j e c t s . .?L con- s i d e r a . b l 2 rn*iri;~erof young rnen were s e n t abroad f o r t r a i n i n g i n t h c chop:: of t h e tec'nnicxl c o l l a b o r s t , o r s , and l a r g e t r a i n i n e f a c i l i . t , i e . - wpre set, up a t t h e p l m t s i t e s t o t r a i n o t h e r s . 103. The problem of meeting t h c requirements f o r ndministr:it,ive - C m1 m a n a g e r i a l p e r c o n n c l was r a t h e r d i f f e r e n t . With t h e g q n n s i o n of t h r public s e c t o r t h e needs would grow r a p i d l y and t h e r e would obviously be an acute shortage of experienced s e n i o r people. This dimension of t h e problem was no doubt recognized. That t h e nature of t h e t a s k of managing l a r g e complicated i n d u s t r i a l e n t e r p r i s e s was i n e s s e n t i a l respects q u i t e d i f f e r e n t from t h e usual administrative t a s k s of Government does n o t ap- pear t o have been s o e a s i l y grasped. Whereas t h e need t o t r a i n young engineers and technicians was accepted, no comparable e f f o r t was made f o r t h e senior s t a f f a t t o p and upper middle management l e v e l s , and t h e t r a i n i n g of personnel f o r what might be considered i n d u s t r i a l and finan- c i a l c o n t r o l and c o s t accounting was completely neglected. Management was n o t considered s o much a t e c h n i c a l s k i l l a s a matter of "sound judg- ment and executive a b i l i t y " and these, of course, can only come from ex- perience. There appears t o have been a widespread view t h a t t h e usual administrative machinery could be s t r e t c h e d t o t a k e i n t h e operation of t h e new e n t e r p r i s e s and t h a t a l l t h a t was needed was a supply of good general administrators. A s noted l a t e r by t h e Planning Commission t h e r e was a lrconsiderable underestimation of t h e management implications of l a r g e p r o j e c t s . If lob. O t h e other hand, under t h e e x i s t i n g s a l a r y s c a l e s , it was n and c o n t i n l ~ e st o be very d i f f i c u l t t o a t t r a c t experienced managers from t h e p r i v a t e s e c t o r . The higher s a l a r i e s and t h e opportunities i n an ex- panding p r i v a t e s e c t o r a r e generally f a r more a t t r a c t i v e t o t h e l i m i t e d supply of experienced managers in p r i v a t e industry. The problem of em- ploying e x p a t r i a t e managers was a l s o d i f f i c u l t f o r t h e same reason i n addition t o a n a t u r a l reluctance t o use foreign personnel i n o t h e r than t e c h n i c a l c a p a c i t i e s . So it would seem t h a t because a l t e r n a t i v e s were not r e a d i l y a v a i l a b l e and because t h e problem was n o t considered s u f f i - c i e n t l y urgent t o make t h e necessary concessions t o procure managers from other sources, t h e burden of managing t h e public s e c t o r p l a n t s has been placed i n l a r g e p a r t on r e g u l a r s e n i o r c i v i l servants of t h e C e n t r a l and S t a t e administrative services and t h e Railway Board. 21 It was r e - c e n t l y estimated t h a t Itout of about 800 top posts i n 54 public undertakings ... over 190 a r e held by serving o r r e t i r e d o f f i c e r s of t h e Central Serv- ices.!' 31 This does not include an unknown a d d i t i o n a l number of posts - 1/ Third Five Year Plan, page 283. - 2/ Recent exceptions have been t h e appointment of a B r i t i s h general manager f o r t h e Durgapur s t e e l p l a n t and a general manager f o r t h e Heavy Engineering Corporation from t h e p r i v a t e s e c t o r . - 3/ Estimates Committee (1963-6b) 52nd Report (Third h k Sabha), Personnel P o l i c i e s of Public Undertakings, March 196b. h e l d by o f f i c c r s oi" t h r St,2tc Sovcrninc,nt,s. Tn a s i g n i f i c , ? n t nlm11,cr of c a s e s t h c Gcneral Manager himself i s a gt-nernl a d m i n i s t r a t i v e o f f i c i a l of t h e Central Govcrnmcnt and 35 p u b l i c undertakings employ s e r v i n g o f f i c e r s of t h e A l l - I n d i a o r S t a t e S e r v i c e s f o r t h e p o s t of' F i n a n c i a l Adviser. &/ 105. It i s c e r t a i n l y understandable t h a t i n t h e e a r l y s t a g e s o f t h e development o f n g r e a t p u b l i c s p c t o r i n d u s t r y t h ? major burden of management i s c a r r i e d by t h e only e x i s t i n g body of s e n i o r o f f i c i a l s a v a i l a b l e . On t h e o t h e r hand, t h e p e r s i s t e n c e of t h e pra.ct,ice of run- n i n g l a r z e i n d u s t r i a l e n t e r p r i s e s w i t h g c n e r n l a d m i n i s t r a t o r s subject, t o p e r i o d i c reassignment i c i t s e l f a s e r i o u s d e t e r r e n t t o t h e develop- ment of a reasonably e f f i c i e n t p u b l i c s e c t o r i n d u s t r y . The i d e a t h a t managers of l a r g e complex i n d u s t r i a l p r o j e c t s need special. s k i l l s and h o w l e d g e i s j u s t beginning t o be recoenized and a s yet h a s had l i t t l e e f f e c t on a c t u a l p r a c t i c e . There i s s t i l l l i t t l e I T . . . p r o f e s s i o n a l i s m i n t h e ( c i . v i l ) s e r v i c e . The t r a d i t i o n of t h e i n t e l l i g q n t amateur d i e s hard.. l1 21 106. The prohlems c r ~ a t , s d u s i n g general a d m i n i s t r a t o r s f o r corn- by p l i c n t e d i n d u s t r i a l t a s k s are i n c r e s s e d by t h e p r a c t i c e of f r e q u e n t l y t r a n s f e r r i n g managers. This makes it almost impossible f o r them t o l e a r n enough of each p a r t i c u l a r job t o have a t l e a s t t h e chance t o hc- come reasonably competent. A s was p o i n t e d out i n t h e Third Plan: I'Work i n p r o j e c t s a s w e l l a s i n important programmes has f r e q u e n t l y s u f f e r e d because of r a p i d t r a n s f e r s of o f f i c i a l s . For t a s k s of any importance, it i s e s s e n t i a l t h a t t h e r e s p o n s i b l e o f f i c i a l s s h o ~ l l dn o t o n l y be se- l e c t e d with c a r e and s u i t a b l y t r a i n e d , b u t should a l s o remain l o n g eqough t o grow t o t h e f u l l measure of t h e i r r e s p o n s i b i l i t y . I n any major key assignment, a p e r i o d of l e s s than f i v e t o t e c yc.rs i s r a r e l y s u f - f i c i e n t f o r producing l a r g e r e s u l t s . 2/ 1_/ Op. c i t . , pages 1 9 and 20 General Planagers of Rourkela and R h i l a i S t e e l p l a n t s , Rarauni Refinery, K i r i b i r u P r o j e c t o f N a t i o n a l Min- e r a l Development Corporation and s e v e r a l u n i t s of F e r t i l i z e r Cor- p o r a t i o n of I n d i a included ( a s of March 1964). - 2/ H. K. Paranjape: " P o l i t i c a l and Administrative Problems of Im- plementing t h e I n d i a n P l a n t f , Development Plans and Programmes, Development Centre of OECD, 1964, p , 102. - 3/ T h i r d Five Year Plan, page 238. 107. Sane idea of t h e frcquoncy of' changc:: i n t o p of'fici-l!s c,:n I-,.. g a i n ~ dfrom T a 5 l . q ~ 71 nn:l 2?, in:iic,?t.i.n;: t h e tl-rerage lr.nzt,h. of servicc. fay c:hsj.rnl .ti, -;dvi L T , l ~ r . r l r anu:-in:i;~c,r:: rind firl~r~c,i.-:l.. :cr.r;. 3 Tt .I:ou.?.c' i-lr. r-iot:-d t h a t :I gr.ent rn:>ny o* t.he chnngr,:, I'.r~djcat,ed n Tnh3.c 23. took p?.:!:? i d~a.irg porlocl.:: o.? c o n s t r u c t i o n , ~ h c c , ns nnt.ed a h o m , major changes Frcre often b e i ~ g mad2 i.n t,he s i z e , n a t u r e 2nd echeduling of t h e p r o j e c t s them- s e l v e s . I n some c a s w o f f i c i ~ 1 . ewere changed on t h e grounds of '1.acking e f f i c i e n c y , b u t it i s our impression t h i s i s n o t t h 3 g e n e r a l case. Yost of t h e o f f i c i s l s involved were on deputtaf.ion from t h e i r otm s ~ M ~ ~ c Ptto :; s e r v e f o r lj.mit>edp e r i o d s of time. idhen t h e v e r y d i f f i c u l t . problems f r c c d by many of t h e s e e n t e r p r i s e s a r e considered, it i s n o t s u r p r i z i n g t h a t t h e E s t i m a t e s Comml.ttee should complain t h a t " o f f i c e r s a r e n l i t t l e casual. i n t , h e i r approach t o work because, i f t h e v a.re n o t s u c c e s s f c l , t h e y can ? I . W D ~ P / go back t o the3.r p a r e n t departments. ! Ye f i n d t h e s e view- mozt :iensit.,le. 108. The Government recognized t h e s e r i o u s problems z r i s i n g from t h e s h o r t a g e of management p e r s o n n e l a s e a r l y as 1956 when a n e f f o r t w a s made t o reduce t h e dependence on deputed o f f j c i . ~ . l sfrom t h e e s t a b l j - s h e d s e r v i c e s . I n 1957, an a t t e m p t was made t o e s t a b l i s h an I n d u s t r i a l Mm-agement Pool. The e f f o r t w2e n o t a s u c c e s s . The Pool was t o recru?.t*200 c a n d i d a t e s with manageriz.1 e x p e r i e n c e t o f i l l p o s t s i r public. s e c t o r ilndcrt?kS.r,nf. Fror o v e r 18,000 appl.ica1:-t;; Z I P trert: s e l e c t e d f o r appoir,tment t o t h e Pool i n 1959. Of t h e s e , however, o n l y 130 accepted t h e o f f e r and a f t e r S u r t h e r dropouts o n l y 105 a c t u a l l y h e l d jobs under t h e program. The Pool had d i f - f i c u l t i e s i n p l a c i n g even t h i s number, and no rtcruii;nlents t o thc2 Pool were.? made a f t e r t h e i n j . t , i a l recruitment, i r 1959. The Pool. f a i l e d t.o a t - t r ~ c s u i t a b l e ex?~ri:n~c.' m.nrzeri?? t 2 l c r . t from w e l l - r n ? ~ : ~ , "?~ d? ? T ' ! . C C t ~~ in th.c p r i v a t e s e c t o r because of t h e low pay o f f e r c d ; 3s an a l t e r n a t i v e , o f f e r s were made t o o f f i c e r s of t h e c e n t r a l s e r v i c e s and even many of t h e s e d i d n o t accept, because t h e terms o f employment f r e q u . e n t l y comp?l.ed imfavorably w i t h t h o s e of t h e i r p a r e n t s e r v i c e s . The e n t e r p r i s e r , on t h e ou o t h e r hand, were r e l c c t , ~ n tt o a c c e p t men who were c o n e i . d ~ r ~ d t e i d e r s and who d i d n ' t show any p a r t i c u l a r q u - l l . i f i c a t i o n s . I n an a p p r a i s a l . o f t h e experiment,, P r o f e s s o r ?. K. Paranjape has p o i ~ t e do u t t h a t t h e scheme " s u f f e r e d fror~rmost of t h e r i g t d i t i e s a n d o t h e r d e f e c t s of' a Governvent s e r v i c e wit,hout p r o v i d i n g any of i t s advantages. O t h e o t h e r hand, it, n d i d n o t have t h e f l e x i b i l i t y t h a t recruitment, by i n d i v i d u a l p u b l i c e n t e r - 1 p r i s e s can have. 1 He recommended p l a c i n g t h e l l r e s p o n s i h i ~jlt y f o r r e - c r u i t i n g , t r a i n i n g , developing and promoting managerial p e r s o n n e l (except, , a t higher levels) e ... s q u a r e l y on t h e t o p managements of t h e undertakri.r.gs." M ?.loo p o i n t e d t o t h e need t o develop procedures f o r !'recruitment and promotions and b a s i c p l a n s f o r s a l a r y and o t h e r remuneration ... laid down of Government ( b u t ) modeled mainly on b u s i n e s s pract,icc m d n o t on t h x t i n t h e c i v i l service.I1 2 1 -- - -- &/ . 3stimat)cs Committee, op. ~ i tpages 17 and 1.8. - 7/ 9. K. Paranjape - The I n d u s t r i a l Management Pool., A Admir.istr:lti.ve n Experiment, I n d i a n I n s t i t u t e o f P u b l i c Administration, New Delhi, p. 113. - 3/ B i d , page 118. 1.00. Crant,ed t h ~ tt h c syctcm o f providing manager.: i:: of' cz.it,ic:i.il. import,ancc, ~ J C ' t u r n next t o t>hc rcla.t,cd questi.on of t,he orr_..?ni.z?tion o f - t h c managemen-t, of St,at,e e n t c ~ ~ p r i s c s t h e zyst,t?m unclcr ~r?ii.chm ~ n a g e m ~ n t t,:llent i:l 1.1t~il.izcrl n d ~ clcrvel.onc~d. There. i.s no doubt, thqt, t,l:c impY.t:mcnt,~- ti on c C t h s p u h 1 . i ~s?ct,or i n d u s t r i a l . program has :;uffcrc.d bec:.r~:'c, of t h c s h o r t a g e of ~ . x p e r i e n c e dand competent managers. 'This was pro'.?I)ly i n - evi.t,ahl.e a.nd even tri-th t h e b e s t i n t e n t i o n s and e f f o r t s i t . w i l l t a k e ti.me t o develop t h e t a l e n t , needed. However, t h e r e i s morc t o t h proh!~m % 5 a r ~ t h i s . It socms c l e a r t h a t t h e s y s t e n wider which t.he t:nterprizes a r e b e - i n g operated - t h e Fray i n which a u t h o r i t y and r e s p o n s i b i l i l - , y a r c alJ.ocated and performance i s judged - i s i1;sel.f p a r t l y t o bl.amc f o r t h e 1ngl:jng p e r - formance. Furt,hermore, t h c sgr~temt e n d s t,o S.nhibit t h e dcvelnprncnt, oi' t h r addi1,ionnJ m:-~nngcment, -t,alent needf.? pow 2nd in t h e fi!t,i:~rc. 110. The e s s n n t i a l d e f e c t of t h e p r e s e n t r;:rr+t.n i s tke manner i n which rr>:-ponaihil.it,y ant1 autJlor5 t,y a r e d i f fuzed. a M c t i . o n ~ r e not c l e a r l y ci~>,"11,cd,rc!sponsibi.lit,y i s n o t focused where i t c a n he rest, e f - f e c t i v e and a u t h o r j t y i n many important matters a.ppears 'o d e p e ~ don ? consensus. IJnder t h e system jmportant, dcc?'.zions a r e made sl.or\rly - t h e a u t h o r i t y of managers i s circumscribed by rul-es, r c g u l a t i o ~ ?and t:kc ~ f ~ e e d o r concurrent? i n many m a t t e r s . The system, i ~ n~ h o r t . ,diff1l::es t h e f ~ m c t i o n so f manngcment throughout a f a i r p o r t i o n of t h e hurs7uc- x c y - a bureaucr.?cy, it n i g h t bc added, in whi-ch t j c c h n i c n l kno7r;l~d:;c ly i s y e t t o r e c e i v e f u l l . r t c o g n j . t i o n . The system i s c ~ r t ' a i ~ n e t onc which irlduces productive e f f i c i e n c y . 1-17 . On t h n o t h c r hand, t h e r e i s an u n d e r s t a n d a b l e tendency f o r o p u h l i c i n d u s t r y t o hc 311 t h i r . g s t o a l l men. N doubt t h e : ~ i mt,o have nn " e f f i ~ i e n t 'S t a t e i n d u s t r y which can e a r n even a 1 0 3 r < : t . u r r , i: E m - ~ .: e r a l l y accepted - a t v e r b a l l y . Many of t h e i m p l i c a t i o n s of such a g o a l a r e not. The need f o r f a v o r i n g more bnchararcl r e g i o n s , t.hc p r e s - z u r e f o r empl.oyinz p e r s o n n e l from t h e S t a t e wherc: t h e pl;.nt i s l o c a t e d ?nd, i n f a c t , f o r t h c employment o f a. l a r g e r work f o r c e than act,ua.lly nerded, t h e d e s i r e t o bui3.d modcl communit,ies - a l l t h e r c t . w d t o redyxc t h e economic c f f i c i c n c y of t.he o p e r a t i o n . In n.ddition " i n rr?t.tcr:; J i kc r e c r u i t m e n t , promotions, purchases and t h e award of contract,^, t h c ern- p h a s i s i s on maximum f a i r n e s s t o a l l . r a t h e r t h a n on quick and e f f c c t , i v e s o l u t i o n s . There i s an i n s i s t e n c e on aiming at, a vague. s t a n d a r d of p e r - f e c t i o n and j u s t i c e and t h i s i n v o l v e s procedure:: which tend on bal.ancc t o be disadvantageous ( t o e f f i c i e n t o p e r a t i o n ) . " / : It i s t h i s confv- s i o n about aims - t h i s need t o r e c o n c i l e ~ o n f l i c t ~ i n g a l s i n a l o o ~ c go compromise t h a t seems t o be i n p a r t r e s p o n s i b l e f o r t h e f e a t , u r e s of the syst,em which a r e most i n i m i c a l t o e f f i c i e n t operat,ions. 112. T h e d i f f i c l i l t i e s i n a c h i e v i n g s u c c e s s f u l opc.,r:!t,ion of rindl~:;- t , r i x l c n t e r p r i s e s under t.hc c o ~ ? t r ? i n t simposed on p l a n t mana.:c~~rt by the sy:;t,c.rn o f proc~iremen personnel p o l i c y , fina.ncia1 conl;rol 3 r d . ~ l ~ l ! i . t , t,, l)!.v-?n ,s h . 3 ~ ~ d c s r r i h ~ di n d c t s i l i n p ~ i h l i cd o c ~ ~ m m t over A pv?j.od 0:' t,irnr?. r _ * m S~ n w f- o~ e i g n consl.~lt,:rnt,s and I n d i m scholar:; have exprerl-ctl grzvc: con- 7-3 c e r n w i t J l -t2hic 1)roblcrn; s p e c j a l c o m i t t ~ e s h7.w r e p o r t e d on it,. T h s Planning Conrnicsi or1 has pronounced whn t chould hc, and t,he E,t i v n f e . : : Committee and t,be r e c e n t l y estnhli.shec! Commi.ttec on Puh1i.c TTndert,:~.kiy~ h,2vr s t , r o ~ l g l ycri.t,icized r . r h n t i s rind chided t h e Governmcnt, f o r .lot i n - pZement,ing rcforms t o which it had agreed. Throughout t h c theme I ! n s becn t h e urger.t need t o s t r e n g t h e n p l a n t management and t,o p l a c e t h e o y ~ ~ l t i o n p l a n t s g e ~ e r a l l y a b a s i r much morc r e s e n b 1 i . n ~comler- of on c i e l operoti.on-: thrin t h o s e of Government depart rent,.^. It i s rot. oiir purpose t o go 3vcr t h e ground a l r e a d y covered so completely hy ot,hrrr. ' 1 Xot~ever, we would l i k e t o draw a t t e n t i o n t o t,hp following f e a . t u r e c 02 t h e p r e s e n t system which from our observation? seemed t o 5 ? v n ? pert,ic- u l a r l y seri.ous e f f e c t on performance. s. !?anagemen5 has generally n o t Spcn t i e d c l o ~ e l ye r ~ o l ~ gth o t h e f o r t u n e s of t h e e n t e r p r i s e . The p e r i o d i c changcr; of s e n i o r o f f i c i a l s have a l r e a d y been mcrtimc.'.. "7 do n o t s e e hovr it i s p o s s i b l e t o o p e r a t e 1-argc. cornplzx i n d u s t r i a l p l a n t s with any d e g r e e of p f f i c i c n c y i f a- important p a r t of t h e management r o t n t e s Dvery f c r ~ c 7 r r . y I n ~ d d i t l o n ,it has n o t h e m t h e g e n e r a l p r a c t l c e t,o i n - volv? those who wil.1 have r e s p o n s i b i . l i t y f o r o p c r n t i n g a p r o j e c t with t h e planning and cieveloprr.on+, of t.he pro:- e c t f o r which t h e y w i l l l a t e r be r e s p o n s i b l e . It ~,-ollld seem t h a t t h e e a r l y s t a g e s i n t h e developmen5 of 2 p r o j - e c t a r e u s u a l l y handled b t h e m i n i s t r y , and mnn?gendnt, y with t h e p o s s i b l e exception of n ch.?.irman, i s no2 d z z - i g n a t e d u n t i l l a t e r . Managers seem o f t e n t o be handcd problems which might be p a r t l y avoided i f t h e y 5ad 35 l e a s t h ~ e n o n s u l t e d when t h o p r o j e c t was beinc con- c ceived and designed. In r e c e n t yez-s t h e p r a c t i c e has changed t o some e x t e n t 3 s e x i s t i n g P - t , e r p r i ~ c sh n v e been given r e s p o i l s i b i l i t y f o r designing, c o n s t r u c t i n g For instamce, Paul H. Appleby - Re-examination of I n d i a ' s Adrniniztrn- s pe ~eferenc t i v e System w i t h Sp e c i a l -Reference eto Administration of Governmrrlt,Is I n d u s t r i a l and Commercial E n t e r p r i s e s - G O I , 1956; H. K. Paran,inpe, " P o l i t i c a l and Administrative Problems of Implementing t h c l n d i i ~ n Imlementinz n d ?n Planu ..., op. c i t .  7nd o p ~ r a t i n f :new p l a n t s . R u t w e n i n <-nrlc: oi' t t l r s e ~ c a s e s t h e d c l a g i n t h 2ppoirt,ment, of manngcmcnt Tor a new p r o j e c t has been cause f o r c r i t i c i s m s . - 3/ h. 'Che a i i t h o r j t y of t h e general. manager it1 m a t t e r s i.nt,i- mately concerned w i t h t h e management o f h i s p l a n t i s c o n s t r a i n e d by r u l e s , procedures and r e g u l a t i o n s , with r e g a r d t o personnel, procurc!mcnt and fina.nce. Irie h ? v ~ , sclcn i.nst:nces where an a g g r e s s i v e management has b c o n a b l e t o s u s t a i n exceptions t o t h e r u l e s i n p a r t i c u l a r circumstances t o t h e apparent b e n e f i t of t h e e n t e r p r i s e . However, t h e p o s s i b i l i t y of c r c e p t i o n z is not a s u f f i - c i e n t reason f o r m a i n t a i n i n e r u l e s which have t h c e f f ~ c t of reducing t h e e f f e c t i v e n e s s of management. W would e p o i n t e s p e c i a l l y t o t h e l i m i t a ~ t 5 . 0 imposed on t h e man- ~~ a g e r by t h e requirement t h a t any e x p e n d i t , u r ~over a v e r y small amount r e q u i r e s t h e approval of h i s f i n a n c i a l ad- v i s o r , who i s g e n e r a l l y a temporary employee n o t d i r e c t l y r c s p o n s i b l e t o t h e g e n e r a l manager and w i t h h i s own s c - c e s s t o t h e M i n i s t r y of Pinnncc from which he has f r e - q u e n t l y been deputed. Not only does t h i s reduce t h e a u t h o r i t y of t h e mlnager i n a. v i t , a . l a r e a b u t it d i v e r t s n t , t e n t i o n from t h e use of f i n a n c e a s a management t o o l t o a concern wit11 t h e cont.ro1 of p e t t y expendlt,urc?s. The requirement of t e n d e r s f o r t h e procurement of even m:ir:or items would appear t o i n c r e a s e c o s t s 31 g u t of p r o p o r t i o n t o t h e p o s s i b l e benefitas of such a procedure and may a l s o f r u s t r a t e t h e development of indigenous . 1 supply of s p e c i a l items. b Thc 1 i r l i t a . t i o n on t h e man- n g e r l s author it,^ t o promote and compensate h i s s t a f f - 1/ IIindustan Machine Tools appears t o be doing t h i s v e r y comprehensively and s u c c e s s f u l l y ; F e r t i l i z e r Corporntion of I n d i a and Veavy E l e c t r i c 3 l s ( b e f o r e q h a r a t Spnvy E l e c t r i c c was s e t up) have a l s o been r e s p o n s i b l e f o r designing new p l a n t s . - 2 ?or i n s t a n c e , i n t h e c a s e s of t h e Trombay, Gorakhpur and Namrup pla11ts of t h e F e r t i l i z e r Corporation, t h e time elapsed between Gover~ment, aF- p r o v a l of t h e p r o j e c t and appointment of a g e n e r a l manager has been 1 0 1 8 and 8 months, r e s p e c t i v e l y . This d e l a y has been c r i t i c i z e d by 1, t h e Committee on Public Undertakings, op. c i t . , page 6 5 . - 3/ A t t h e Nangal f e r t i l i z e r p l a n t , t h c mission was t o l d t h a t every pur- chase exceeding Rs. 25 had t o b e purchased from t h e lowest of s e v e r a l bids. It was estimated t h a t t h i s procedure added Rs. 15 t o t k e cost, of a R s . 25 item. k/ Sec Appendix I, para. i n g system. 64-5, f o r D r . L i t t l e ' s comments on t h e t e n d e r -  and i n p a r t i c ~ l l a rt h e l i m i t a t i o n s t o t h e prompt d i n - c i p l i n e of t h e work f o r c c make t h e problcm o f b u i l d i n g a n e f f i c i c l n t o p c r n t i o n an e~t~rcme3.y dif'ficu1.t onc. c. i The system o f Government, a i ~ d i t , s canother inhi.bit;ing f a c t o r . I n additi-on t,o 8 normxl. c o m e r c i a 1 a u d i t c a r - r i e d o u t by c h a r t e r e d p u b l i c ~ c c o u n t ~ a n t r ,o v ~ r ~ r w n ? . , S e n t e r p r i s e s a r e c u b j e c t e d t o a second audit, by t h e Auditor G e n e r ~ l . T h i s a u d i t i s c o n c e r ~ e di.r-i.l,h t h e proprjety of e ~ p e n d i t ~ u r c s made, n o t j l ~ r t .thc f a c t t h a t t h e y were made and accounted f o r p r o p e r l y . I n e f f n c t it, i s an evalu;rt,jon o f p a s t b u s i n e s s decisj-ons mad? by t h e e n t e r p r i s e from a viewpoint which i s p r i ~ m a r i l y concerned w i t h t h e c o n t r o l of expendiLures r q t h e r t h a n o v e r a l l performance. Management': concern w i t h t h j c audit, and t h c c r i t i c i s m t h a t can a r i s e from i t n o t 0n3.y t a k e s v a l u a h l e time from o p e r a t i o n s but a l s o d i - v e r t s a t t e n t i o n from e s s e n t i a l problems o f performance. d. The l e v e l of management s a l a r i e s i n p u b l i c s e c t o r e n t e r - p r i s e s i s a p p r e c i a b l y 1-ower t h a n t h o s e i n p r i v a t e s e c t o r p l a n t s . T h i s c r c a t e s a problem i n r e c r ~ i t ~ i n g h o l d i n g and t h e t a l e n t r c q u i r e d t o o p e r a t ? t h e s e g r e l t complex nnt,er- prises. 1 3. 1 I n a d d i t i o n t o t h e above p o i n t s concerned w i t h t h e orgm,iz;!t.inn. of management we have n o t i c e d i n p a r t i c u l a r t h a t d i f f i c u l t i e s i n ?,be f o l - lowing f i e l d s of management ~ c t i v i ~ y appear t o h?ve had inrportant r e p e r - c u s s i o n s on performance: a. Planning of c o n s t r u c t i o n , p r o d u c t i o n and procurement. With t h e i n i t i a t i o n of a g r e a t program of i n d u c t r i a l - - investment, where p a s t e x p e r i e n c e i s an inadequate guide, problems of a n t i c j . p a t i n g rcquiremenl;:: 2nd co- o r d i n a t i n g act!.ons a r e bound. t o occur - and they s u r e l y have. Recent work o f t h e Mana~ernentqroup o f t h e Committee on Plan P r o j e c t s of t h e Planning ? o r - mission i s d i r e c t e d t o t h i s problem. T h i s i s 2 bc- g i n n i n g of a wider r e c o g n i t i o n of t h e t e c h n i c ? l s i d e of t h e management problem and a n a t t e m p t t o h r i n c modcrn t e c h n i q u e s t o b e a r on it. b. Cost c o n t r o l , I t i s commonplace t o s a y t h a t 1ndi:ln public s e c t o r industry i s not s u f f i c i e n t l y c o ~ t - conscious. There a r e r e a s o n s f o r t h i s which among o t h c r t h i n g s come o u t of t h e emphasi:: on p h y s i c a l t a r g e t s and some vague d i ~ t r u s t s t r i c t b u s i n e s s of c r i t e r i a . R e l a t e d t o t h i s i s t h e hachard s t a k e of c o s t a c c o u n t i n g and g e n e r a l t e c h n i q u e s o f f i n a n c i a l c o n t r o l . Without knowledge o f t h e c o s t of t h e r e - s o u r c e s used and t h e o p e r a t i o n s performed i n some  d e t a i l , it i s n o t p o s s i b l e f o r a management t o a c t rnt,ionaJ.ly t o make t h e b e s t u s e of i t , s f a c i l . i t i c s and I.ahor f o r c e . c. Personnel p r a c t i c e and l a b o r r e l a t i o n s . Achieving high l e v e l s of p r o d u c t i v i t y r e q u i r e s t h e dcvelop- ment of a well-organized l a b o r f o r c e %nt,h an incen- t i v c t o produce. This j s morr tAan a matt,nr oC pay. It involves t h e r e l a t i o n s h i p s between l a b o r and management, t h e o r g a n i ~ ~ a t i oof l a b o r i t s e l f , systems n f o r recognizing o u t s t a n d i n g performance and d i s c i p l i n e s e f o r i n f r a c t i o n s of working r u l e s . W have been i m - p r e s s e d by t h e d i f f i c u l t l a b o r problems i n some p u b l i c s e c t o r e n t e r p r i s e s we have seen. There i P O doubt ? t h a t some of t h e l a g i n performance can be a t t r i b u t e d t o them.  TI. General I n d u s t r i a l P o l i c i e s 11. 11 The comments of t h e previous s e c t i o n have d e a l t ~ x c l u z i v c l y w i t h p ~ t b l i cscct.or i n d u s t r y . I n t h e c?Ee of t h e priv:~t*es ~ c t o r ,1Govr:rn- of ment, a c t i o n i s l e s s d i r e c t b u t , n e v e r t h e l e s s , v e r y important b e c a i ~ ~ r t h e c o n t r o l exercised over investment,, p r i c e s ( i n some ca.scs) and over t h c a l l o c a t i o n of f o r c i g n exchange and sca.rce domestic m a t e r i a l s . The syct.cm of physical c o n t r o l s i s described i n d e t a i l i n another papi:,. Our purpose h e r e i s p o i n t t o s p e c i f i c p o l i c i e s and proccdilres t h a t tre have observed t20 have a pronounced a f f e c t on t h e recent, p e r f o r n i ~ n co f~ ~ i n d u s t r y and on t h e p r o s p e c t s f o r f u t u r e p e r f ~ r ~ a n c e . 11.5. The f i r s t i s import p o l i c y . Fle have a l r ~ a d y mentioned t h ~ problem of u n u t i l i z e d c s p a c i t y a r i s i n g from t h e shortage of f o r e i g n ox- change f o r t h e import of raw m a t e r i a l s and components. This hay obvi- o u s l y had. a considerable a f f e c t on performance. liot only ha.ve supply d i f f i c u l t i e s d i r e c t l y c u r t a i l e d output, but t h e y have i d s o l e d t o t h c p r a c t i c e of maintaining r e l a t i v e l y high i n v e n t o r i e s bcc::use o f tile u n - e c e r t a i n t y of procurement. W would consider t h e shortage of 'lmairlte- ndnce importsll a s t h e most important i.miediate problem of Indian induskry. 1e woald a l s o p o i n t o u t t h a t it i s n o t simply a matter of the volwle of J : m a t e r i a l s , co~nponents and s p a r e s t h a t can be i ~ n p o r t e dbut a l s o a queztion th of' t h e speed w i t h ~ ~ h i c h e process i s carri.ed out,. J.?e have been impressed t 5 ~ i t . h h e conlplexi.ty anti slowness of t h e procedures, eve!: i n casco w h r e !,hc it?-is, c o n ~ o n c u t ,o r s p a r e s , were srnxll anti ::,heir vr,la~: t o out~11.t ~ c;:- Lremely g r e a t - where f a i l u r e t o o b t a i n t h e item would keep id1.e : . zub- s t a t i a l j-nvestment, of s c a r c e c a p i t a l . Even given t h e l i ~ i t a t i o n sof t h e o v e r a l l supply p o s i t i o n , it i s c e r t a i n l y conceivable t h a t more productive use could have been made of t h e r e s o u r c e s i n s c a r c e supply. 116. e W a r e very much aware of t h e d i f f i c u l t y of achieving t h e most e f f e c t i v e use by a d m i n i s t r a t i v e means. I n a d d i t i o n t o t h e l i m i t a t i o n - e a r i . s i n g from inadequate k r i o ~ ~ l e d gof c a p a c i t i e s a n d r e q u i r e c ~ c n t r t k r e i:: t h e c o n f l i c t between c o n s i d e r a t i o n s of e q u i t y - a l l o c a t i n g each producer h i s f a i r s h a r e , and e f f i c i e n c y - a l l ~ c ~ i t i n g more t o t h e more e f f i c i f n t . However, even t r i t h i n such c o n s t r a i n t s , t h e r e seeme l i t , t l ? rc.:son f o r : : concentra.t,ion on de-L,iil o u t of a l l p r o p o r t i o n t o t h e value of i o r e i ~ nex- change involved. iIJe have noted t h e f r u s t r a t i o n of t h e producer who ~ u s t devote much of t h e v a l u a b l e time of h i s t o p people t o a t t e r , ~ p t s o spccd t up t h e procurement of t h e n a i l f o r t h e shoe of t h e horse wj.thout, i i h i ~ h t h e b a t t l e i s l o s t . C e r t a i n l y t h e volume of maintenance imports shou1:i be increased even i f t h i s must be a t t h e expense of r e d u c i ~ gimpo-ts of c a p i t a l goods. In any case, higher p r i o r i t y and f a s t e r a c t i o n sl?o~tlci be given t o minor items of spare!: and components where procurqment frn~:ucnt,?.3- appears t o be t h e f i n a l s t e p necessary t o a c t i v a t e a plant, o r a m,achi?c. 117. The problem of achieving higher c a p a c i t y u t i l i z ? t , i o n i s not j u s t a q u e s t i o n of supply; it i s a l s o a m a t t e r o f i n c r e a s i n g t h e e f f i - c i e n c y of p l a n t o p e r a t i o n s . There a r c a number of f a c t o r s which i . ~ ? ~ i h i t - 1/ Administrative Control on Resource A l l o c a t i o n s and I~lvcstment. t h e i111provc:men-l; e f f i c i e n c y . Management i s f r e q u e n t l y inexperienced of and i n many ca.ses simply docs n o t knotr how t o i n c r e a s e e f f j c i e n c y . I n a.ddit,ion, e n t e r p r i s e s o p e r a t e i n a s e l l c r f - market p r o t c c t , ~ r l frorl f o r - eign conipet.ition hy iniport c o n t r o l s and froni domestic compnti1;ion by t h e syst:.? nf nll.ocat,ing s c a r c c m a t e r i a l s ::r,d f o r e i g n exchange-T and cont,roll.j-r12 a d d i t i o n s t o c a p a c i t y . P r o f i t s a r e generpllly good n.nd t a x c c c r c h i g h ..-t, t h e margin. Increased plant, e f f i c i e n c y i s g e n e r a l l y n e i t h e r n e c e s s a r y f o r s u r v i v . i l nor p a r t i c u l a r l y , 2 t t r a c t i v e i n t h e l i g h t o f a l t e r n n . t i v e u s e s of e f f o r t . A more rrproductivcllus? i s o f t e n t o be found J.n working up t h e j u c t , i f S c s t i o n f o r a n incre?.aed a l l o c a t i o n of s c a r c e m a t e r i a l e perhapz through t h e a c q u i s i t i o n of more c a p a c i t y . Although t h e i n c r e a s e d a v a i l a b i l i t y of s u p p l i e s would e a s e t h e s i t u a t i o n by t a k i n g p r e s s u r e o f f t h e ? l l o c a t i . o n s system, it ir n o t t h e whole answer t o t h e p r o h l o ~of a.chievinz !ligher u t i l - i z a t i o n of cc;p.xit.p. 113. Ot,her f a c t o r s which have a f f e c t e d both 2chicvcrnent 2nd efficiency have heen t h e manner i n which Government, anti-monopoly and b2lancrJ r e g i o n a l dcvclopment p o l i c i e s hzvc been implemented. These p o l i c i e s have g e n e r a l l y involved I i ~ i t ~ i n h e s i z e of p l a n t s , f a v o r i n g t h e a p p l i c a t i o n s of t h e tg smaller and newer firms over those of t h e o l d e r and b e t t e r esta6lizhecl ones, t p:~.rtici.ilnrly h o s e c o n t r o l l i n z c? l a r g e shc?re of t h e o u t p u t of t h e i n d u s t r y , and ~ p r e a d i n gi n d u s t r i e s about t h e c o u n t r y w i t h p a r t i c u l a r a t t e n t , i o n t o t h e riem2;?cls of i n d i v i d u a l s t a t e s and t h e need t o develop t h e more backward a.reaz. \I= would n o t argue t h a t t h e underlying aims of t h e s e p o l i c i r s s r e n o t i ~ . p o r t - ~ n t v q l i d , b u t we r..!o1,7.d quest,ion r.~:?cthcrt h e p r i c e h a s n o t been high i n if* term?, of l o s s in o u t p u t . W would x l s o q u e s t i o n hotr e f f e c t i v e t h e a c t i o n s e t a k e n have been i n achieving t h e s e o b j e c t i v e s . 119. These p o l i c i e s have been implemented through t h e system of indus- t r i a l l i c e n s i n e . New unit,? h u e o f t e n been l i c e n s e d with l i t t l e regard t o of e ~ o : ~ . q r i e s s c a l e , market requirements, o r l o c a t i o n . As A r e s u l t i n sone cases a number of small uneconorniczl p l a n t s ha.ve been c o n s t r u c t e d , i n o t h e r s , t o o many p l a n t s of economical s i z e have been b u i l t . . L/ On t h ? o t h e r hend, +,he e f f c c t i v e n e s ~of t h e p o l i c y i n prornotiv:; balanced r ~ ~ i o n 2 dev?lopment, .l appc:ars q u e s t i o n a b l e , and it seems d o u b t f u l whether t h e c o n c e n t r a t i o n of ?conomic power has been reduced. 1/ - l, The q3uminum i n d u s t r y provides an e?:?mple of s m a l l u n e c o n o ~ i c a lp l a n t s ; t h e Thir6 Plan p o l i c y on t h e paper i n d u s t r y a l s o sought, t o promote s m a l l u n i t s . In t h e case of some automotive a n c i l l a r i e s it appn??? t h a t t h e l i c e n s i n g of s e v e r a l p l a n t s of economical s i z e t o limit market c o n t r o l has r e s u l t e d i n c a p a c i t y s u b s t a n t i a l l y i n excess of rcquircmcnts. - 2/ I n h i s study, Professor Hazari concluded t h a t t h i s p o l i c y had n o t been s u c c e s s f u l i n d i s p e r s i n g economic power d u r i n g t h e p e r i o d 1?51-58. It, seems l i k e l y h i s conclusion would a l s o a p p l y t o t h e more r e c e n t periocl. T ; ~ T ; me:aziire of economic power i s based on c o n t r o l s t t h c c o r p o r - t c l e v e l ; t& government p o l i c y i s d i r e c t e d p r i m a r i l y a t r e = ; ~ ~ l a t i nh e s h a r e of i n - d i v i d u a l producers i n t h e market f o r p a r t i c u l a r products. R. K. Hazari, op. c i t . 130. Anot,,hcr rc:r!rlt o f t,hj 7 pol.iey h a s been t,hc f r ~ . i l . i ~ t e mevt ro c a p a c i t y t a r g e t , ? . Tn Yornc case:; t,he ncv e n t , e r p r i : i ~ : ;d 7 i p h . l r q r c ! J.n- of t e n d e d -to r c d u c c t.hc ~ h : ~ r e t h e market of t h e existi.?!: producrr: f a i l e d t o impl.emcnt, t,hci.r projr2cts. I n p a r t , t h i c opperlrc t o bnvn been ':>ecn.unc t h e y were inexperienced and .Tolmd f a r grr,nt,r;r d i f fi.clll.- t i e s t'11sn t.he c?~t-iblj.shc.d producer:: 7.m.1!-' ".~r? i r t k . 7 S T : : ;::i.t,~l:iti.~n. Th-I.r l.ml?l.rJ h c t r u e in ?.he c n s r of c,c.mrlnt 2nd ~ J . i i r l - i rliirn. T*-1 - b , b ~ > l.-~t,+,er r a s e t h e new p r o d u c e r s were t o be p u h l i c ~ ~ q t , o r pl%r!ts. 123.. Another p o l i c y which h a s d i r e c t l y a f f e c t e d t h e implementatiori of t h e i n d u s t r i a l progr<-m d u r i n g t h e T h i r d l'1;in has hccln t h ? corit,rol. o f p r i c e s i n a rn~mber o f i n d u s t r i - e s where t h e burden of t?:cpc.ncion ha:: i!r_.sn e x p e c t e d t o b e c a r r i e d by t h e p r i v a t e s e c t o r . I n p a r t j c l r l n r t,hg. cont,rol of t h e p r o d u c e r s ' p r i c e s o f cement, f e r - t i l i . 7 , e r m d p i 2 i r o r l 'nns reducr-.ri t h e a t t r a c t . - i v e n e s s of t h + - ? ~icn d u s t r i e s r e l a t i v e t,o 0t.hc.r.z ?nT! ?I,?: no 3 doubt becn p a r t l y r e s p o n s i b l e f o r t h n 1: i n t h e i r r x p a n c i o n . 122. Performance has a l s o becn 9-Tfected by t h e w?y j.n which ',be g e i l e r a l p o l i c y of i r n ~ o r t .::libstjtut,ion has becn c a r r i e d o u t . ?,Je h . ? v e r a l r e a d y r e f e r r e d t,o t h e g e n e r a l u n d e r s s t i n a t e s o f i ~ p o r t e q u i r c n c n t c , t o t h e l a c k of any s e r i o u s eva7.uation o f i m p o r t s a v i n g ? i r , ~ o n n e c t i o r . w i t h t h e a p p r a i s a l of p u b l i c s o c t o r project.^ and t o t h c gr!:er?l 11.~1cler- e s t i m a t e of t h e f o r e i g n exchanze cost,.: of p u b l i ? s e c t o r project,:. F.11 t h c c e f a c t o r s have had s e r i 3 u c r r : ~ c r c u s s i o n s on t h c ovailrl!\t.7:i t.>r of f o r e i g n exchangc f o r t h e ixnport o f mat,c?ri?l.s, c o m ~ o n c n ,and s p a r c z t,r . n I t h e c a s e of t h e p r i v a t e ? , c c t . o ~ t.h- s i t ~ l ~ t , i oi n r;-il ?n. 7lhryr.l r coem t o he no c l e a r ccononic c r i t e r i a 11r.ecl t o judge t h e s u . i t a h i l i . t y of n r o j e c t ; 1dxic11 w i l l substitir-t,e f o r ir?port,s. The main conccrn i s v i t h rl p h y ~ i c ~ q e q u i r e m e n t s . There i s a b i a s i n f a v o r of r e d u ? i n ~c i c ? ~ ? - e n c y or! i m p o r t s r e g a r d l e s s o f c o z t . T h i s p o l i c y hxr r ~ c l l l t , n +i? hi-g11.v~ i n v n s t m e n t c o s t s , h i = ; h e r p r i c e s xnd 1c:c f o r e i ~ n exchance z.lvin;c t t l ' ~ ? m i ~ h thave becn t.he c a s e i f cconomi.? c r i t , r r i a hn.d becn ~ i v c n morr w~ight. i n t h e d.eclslons. 1.33. A s l o n g a s I n d i a i s s h o r t o f p r o d u c t s t h a t can b c mq?11?,1c5llrtj e c o n o m i c a l l y i n I n d i a , t h e d e v e l o p ~ c nof c a p a c i t y t o produce i t e m s t h . ? t ~ a r e bound t o b c f a r more e x p e n s i v e t h a n c o r r e s p o n d i n g i m p o r t s f o r t h e purpose of n o t b e i n g "dependent on importsIt i s a v e r y wnst,cfirl p o l i c y . W r e c o g n i z e t h a t it i s n e c e s s a r y t o take a l o n g view o f t h c c v o l v i n g e p a t t e r n of development,. But t h i s i s a m a t t e r of cnph3zis. T70r example, when p i g i r o n , cement and f e r t i l i z e r a r e i n s h o r t s u p p l y , t h c n f f o r t t o d e v ~ l o p h e p r o d u c t i o n o f b e a r i n g s , which a r e bound t o be h i g h c o s t 2nd t u n l i k e l y t o b e of h i g h q u a l i t y , s o t h q t a g r e a t e r p r o p o r t i o n of t h r con- p o n e n t s f o r motor v e h i c l e s manufactured i n I n d i ? c a n be p r o c u r ~ drlor~cz- t i c a l l y , does seem t,o r e p r e s e n t , a micuse o f r e s o u r c e s i n t h e f n c c of t h c , e x i s t i n g l i m i t a t i o n s i n f o r e i g n exchange. : more d i s c r i x i n n t . i . 7 ~appro:>ch t o i m p o r t s u b s t i t u t i o n would hnvrt r e s u l t e d i n greater rnvingr o f f o r e i ~ z n exchange nnd a more e f f e c t i v e u s e o f c a p i t a l . 12k. It should a l s o be added, however, t h a t t h e Mission d i d s e e evidence of change i n t h e a p p l i c a t i o n of some of t h e s e p o l i c i e s . There has been a change i n p o l i c y towards p l a n t s i z e i n t h e case of aluminum and cement, and t h e policy of promoting small-scale paper p l a n t s has been abandoned. In t h e c a s e of cement, t h e need t o expand c a p a c i t y more r a p i d l y appears t o h a v e i n f l i ~ e n c e d t h eGovernment t o s t r o n g l y sup- p o r t t h e expansion of t h e l a r g e s t producer, whereas t h e e a r l i e r but only p a r t ' a l l y s u c c e s s f u l p o l i c y favored t h e development of new pro- ducers. 1 The aluminum case i s s i m i l a r . The need f o r l a r g e r p l a n t s ,) has been accepted, and e a r l i e r r e s t r i c t i o n on t h e expansion of t h e major p r i v a t e producers have been l i f t e d . ! / These changes do n o t appear t o be an abandonment of t h e previous llanti-monopolyll p o s i t i o n but r a t h e r a s h i f t i n emphasis t o give more weight t o t h e need t o achieve production goals. How f a r t h e s e changes i n d i c a t e a g e n e r a l tendency t o f a c e i n d u s t r i a l problems more pragmatically i s s t i l l hard t o say. - 1/ Since t h e mission's v i s i t , p r i c e c o n t r o l has been removed, and t h e system of d i s t r i b u t i o n has been assigned t o t h e i n d u s t r y i t s e l f . Another s i m i l a r r e c e n t a c t i o n has been t h e l i f t i n g of t h e p r i c e c o n t r o l s on f e r t i l i z e r produced by p r i v a t e s e c t o r p r o j e c t s . - 2/ A notable exception i s t h e r e c e n t approval of a 10,000-ton aluminum smelter in Madras which i s w e l l below t h e minimum economic s i z e .  . CONCLUS IONS AND RECOMMEND AT IONS 125. t I n t h e preceding c h a p t e r s we have <~.t,temptedo mrl3.yze t h e r e c e n t performance of Indian i n d u s t r y and t o focus a t t e n t i o n on f a c t o r s which we considered t o be of c o n s i d e r a b l ? importance i n l i ~ i t i n g h i z t performance. O r emphasis has been on a r e a s where Government a c t i o n u may be most e f f e c t i v e i n d e a l i n g with t h e problem, i n p a r t i c u l a r where t h e Sovernment i s t h e o p e r a t o r of e n t e r p r i s e . O r conclilsions may be u ~ summqrized a s f o l l o ~ ,: ~ s a. Output t a r g e t s were n o t reached because: Fewer p r o j e c t s were undertaken t h a n planned. In t h e p u b l i c s e c t o r , t h i s was because t h e p r e p a r a t i o n o f p r o j e c t s lagged; i n some cases, t h e r e were financing d i f f i c u l t i ~ s . In t h e p r i - v a t e s e c t o r , investment was n o t undertzken in a number o f cases because l i c e n s e holder: ~.r?re not capable of implementing p r o j e c t s . Disin- c e n t i v e s , such a s c o n t r o l l e d p r i c e s , were a l s o a factor. (2) The p r o j e c t s undertaken i n t h e p u b l i c s e c t o r g e n e r a l l y c o s t more and took much longer t o c o n s t r u c t than expected u l d a l s o were slower and c o s t l i e r than t h e y should have been by any standard. Thc i n c r e a s e i n c o s t and $he delays i n completion of t h e s e p r o j e c t s were a l s o f a c t o r s i n slowing t h e development of o t h e r pro,j ec t s. E x i s t i n g c a p a c i t y was n o t f u l l y u t i l i z e d he- cause of shortages of i n d u s t r i a l raw m a t e r i a l s , components and s p a r e s . These s h o r t a g e s a r o s e from an inadequate supply o f maintenance i m - p o r t s and were qggravated by t h e slow imple- mentation o f p r o j e c t s which were intended t o reduce demand f o r imports and t h e higher c o s t of t h e s e p r o j e c t s i n terms of f o r e i g n exchange. In some cases, u n d e r - u t i l i z a t i o n of c a p a c i t y can be a t t r i b u t e d t o t h e l i c e n s i n g of more c a p a c i t y t h a n required. b. I n a d d i t i o n t o t h e f a i l u r e t o meet o u t p u t t a r g e t s , t h e o v e r a l l e f f e c t i v e n e s s of investment i n t h e public s e c t o r a s measured by t h e r a t i o of investment t o output was v e r y low during t h e Third Plan period. This was due both t o t h e increased c o s t of p r o j e c t s and, in p a r t i - c u l a r , t o t h e long p e r i o d s r e q u i r e d f o r t h e i r execution.  . Large invest,ments have been nndc i n t h e p u 1 ) l . i ~::r:ct,or witshout, : Ffici.cnt, n t t c n t , i o n t o t h c i r ccono.nic c h n r a c - u ; t o r i s t i c s w i t h t h c r e s u l t t h 3 t i n some c a s e s invc::;tm!:r~l; resource:; have c l e r l y n o t been. irscd a:; effecti-vc!-y 3 s t h e y mi;;ht have been. I n some c a s e s expected ,qnvings i n f o r e i g n exchange a s t h e r e s u l t o f import s u h s t i t u t l o n have been l o n g de1.a.yed and w i l l o n l y be achieved 7f h i z h c o r t . In & h e r c a s e s , a l t , e r n a t i v e methods of p r o d ? ~ c t i . o n , n o t s e r i o u s l y considered a t t h e t i n e t h e investment bras made, would probably have r e s u l t e d i n s a v i n g s of s c y r c c r e s o u r c e s . I n s t i l l o t h e r c a s e s , a high p r i c e has been ?aid f o r l o c a t i o n intended t o f a v o r t h e developnent of some p a r t i c u l a r r e g i o n . 126. The t a s k of developing a f u l l range o f modern induskry i n r e l . t i v e l y s h o r t ?pace of t i n e i s a formidable oqc. Thc ?ccon?lishment,s th.11: f a r a r c i:rlpressive. Eut, t h e c o s t has becn extremely high, and it i s i m p e r a t i v e t h ~ tth c e f f i c i e n c y of r e s o u r c e use be g r e a t l y improved -- t h a t investment be more p r o d u c t i v e i n terms of o u t p u t -- i f t h e s u c c e s s of t h e whole c f f o r t i s n o t t o be j e o p a r d i z e d . 127. 4 number of reasons can be suggested f o r t h e laggi.n@ perform- ance. In a g e n e r a l s e n s e , one can s a y t h a t t h e t a s k proved. t o 5 e ~,u:l: nore d i f f i c u l t than expected, and t h a t t o o much was attempted i n v i m o f t h e lirnita-Lions on t r a i n e d and experienced t e c h n i c a l ,and managerial t z l e n t and on f o r e i g n exchange r e s o u r c e s . More s p e c i f i c a l l - y , one can poi.1': t o i d e f i c i e n c i e s i n t h e s e v e r a l s t e ~ c n t h e p r o c e s s o f planning and e x e c u t , i ~ ~ i . A t t h e most g e n e r a l l e v e l poor performance can be a t t r i b u t e d to poor o r i n - adequate plnnr?ir.g i n t h e s e n s e t h a t t h e process of achieving t h o t a r g e t s was not f u l l y i n c o r p o r a t e d i n t o t h e p l a n . The t a r g e t s were n o t c o n s i z t x t , w i t h t h e means a v a i l a b l e f o r reaching them. Such e c o n s i s t e n c y r p l u i r e r a c e r t a i n measure of planning a t t h e i n d u s t r y l e v e l gn.4 i n p a r t i c u l a r a t t h e l e v 9 1 of conceiving, designing and s a n c t i o n i n g p r o j e c t s . A t t h i s l e v e l and a t t h e l e v e l o f p r o j e c t implementation i t s e l f t h e r e were many d i f f i c u l t , l e s . 125. Undqrlying t h e s e problems it i s p o ~ s i b l et o p o i n t 50 c e r t ? i n a t t i t u d e s and p o i n t s of view. Here we would mention t h e emphasis on ph;rs- i c n l pl-innin;: w i t h zecondary r e g a r d t o c o q t c o n s i d e r a t i o n s , r~nd +,he rcY.9- t i o n t i o n s h i p of r e t u r n t o c o s t s , t h e focus on s p e c i f i c l o n g - t e r n g o a l s t o t h e r e l a t i v e n e g l e c t of s h o r t - t e r m e f f e c t s , a c e r t a i n confusion b e t w ~ e ns o c i a l and economic g o a l s and an exaggerated f a i t h i n t h e competence of " t h e i n - t e l l i g e n t amateur1' t o d e a l s u c c e s s f u l l y ~ r i t h h e problems of indi1-+ri,37 t planning and management. 129. IJe c e r t a i n l y do n o t b e l i e v e t h a t t h e r e i s anything i n e v i t a b l e i n t h e record of performance -- t h a t t h e p r e s s of custom and t r a d i t i o n a r e unchangeable. I n f a c t we have been impressed by t h e high s t n n d ~ r d pub- of l i c analysi*~ given many of t h e problems with which we have becn concerned. The need f o r achieving g r e a t e r economic e f f i c i e n c y i n t h e p u b l i c s e c t o r i s w e l l a r t i c u l a t e d by Indian s c h o l a r s and o f f i c i a l s , and many e x c e l l e n t suggcs t i o n s of how t h i s should be done have been p r e s e n t e d . Although argument i s g e n e r a l l y f a r ahead of implementation, understanding i s 3 p r e r e q u i s i t e f o r i n t e l l i g e n t action. 130. Our recommendations a r e confined t o i n d u s t r i a l planning and t h e implementation and operation of public s e c t o r p r o j e c t s . O r em- u phasis i s on t h e need t o c a r r y out c e r t a i n well defined functions more e f f i c i e n t l y . Although we do not r a i s e new i s s u e s , a new f o m ~ ~ l a t i o n may have some merit. A. I n d u s t r i a l Planning 131. Planning a t t h e i n d u s t r y l e v e l needs t o be g r e a t l y strengthened. I n f a c t , i n many cases s e r i o u s planning a t t h i s l e v e l needs t o be insti- t u t e d . This does not mean t h a t every i n d u s t r y needs equal a t t e n t i o n -- t h e need depends on t h e industry. In cases where new capacity can be brought i n quickly and t h e market i s well defined, o r d e r l y growth may be regulated by t h e market i t s e l f and t h e planning function confrined t o l i m i t i n g capacity expansion t o t h e e x t e n t made necessary by t h e s c a r c i t y of foreign exchange. In cases where investments a r e l a r g e and l e a d times long, where f u t u r e markets and sources of supply depend on complementary developments and where t h e whole process r e q u i r e s a l a r g e amount of f o r - eign exchange, good planning a t t h e i n d u s t r y l e v e l i s a necessary require- ment f o r achievement. 132. A b a s i c requirement f o r good planning i s good information. There should be d e t a i l e d lmowledge of e x i s t i n g capacity, c a p a b i l i t i e s , l o c a t i o n and ease of expansion. There should be estimates of f u t u r e requirements by type of product and region. And, t h e r e should be estimates of c u r r e n t inputs required t o maintain e x i s t i n g capacity and c u r r e n t c a p i t a l inputs required f o r expansion t o s p e c i f i e d l e v e l s . There should be d e t a i l e d analyses of a l t e r n a t i v e ways t o meet r e q u i r e m n t s . In some cases t h e choice may be not only among a l t e r n a t i v e p r o j e c t s , and among a l t e r n a t i v e p r o j e c t shapes, but a l s o among d i f f e r e n t repercussions on o t h e r producers and on imports. Finally, a t t e n t i o n should be given t o balance in t h e o v e r a l l program -- balance among p r o j e c t s in terms of t h e time required f o r r e t u r n s t o accrue and balance i n terms of implementation r i s k s . 133- To c a r r y out t h e i n d u s t r i a l planning function, it i s recommended t h a t planning groups with.permanent s t a f f s be s e t up f o r t h e most impor- t a n t i n d u s t r i e s . These should work i n cooperation with p r i v a t e industry groups, public e n t e r p r i s e s and t h e m i n i s t r i e s concerned. The present system of ad hoc working groups i s q u i t e inadequate. It i s necessary t o c o l l e c t a n h a n a l y z e a s u b s t a n t i a l body of m a t e r i a l and t o r e v i s e estimates of c a p a c i t i e s and requirements constantly. This can only be done with a permanent s t a f f . Preparation and Screening of Projects 13&. Within t h e framework of t h e i n d u s t r y plans, t h e necessary supply of p r o j e c t s must be conceived, designed and engineered. Project prepara- t i o n i s at present a bottleneck in t h e process of i n d u s t r i a l expansion. A s pointed out by t h e Planning Commission,  "The major shortcoming i n t h e p u b l i c s e c t o r i s t h e absence of t e c h n i c a l organizations f o r planning, designing, engineer- ing and constructing complex e n t e r p r i s e s i n t h e many f i e l d s of v i t a l importance mentioned above. It i s difficu1.t t o imagine how b i g t a s k s i n t h e p u b l i c s e c t o r can be conceived, planned and executed without bringing i n t o p o s i t i o n very e a r l y t h e r e q u i s i t e t e c h n i c a l i n s t i t u t i o n s and organization on t h e v e r y l a r g e s c a l e and s p e c i a l i z a t i o n u r g e n t l y c a l l e d f o r . These d e f i c i e n c i e s a r e being made good, b u t a more de- termined p u r s u i t of t h e s e o b j e c t i v e s i s necessary." 1 1 135. A s t a r t has been made with t h e establishment of development groups i n some of t h e l a r g e public s e c t o r e n t e r p r i s e s , e.g., Hindustan S t e e l and t h e F e r t i l i z e r Corporation. There a r e o t h e r p r i v a t e firms i n t h e f i e l d , some with f o r e i g n c o l l a b o r a t i o n , some without. This should be encouraged. 21 W would suggest t h a t an appropriate way t o promote e t h i s development would be t o s e t out more c l e a r l y and e x p l i c i t l y than h e r e t o f o r e t h e standards t h a t a p r o j e c t must be required t o meet i n order t o receive financing. This i n t u r n should be enforced by a much more rigorous screening of p r o j e c t s than has been t h e p r a c t i c e i n t h e past. 136. The above comment r e f e r s t o both p u b l i c and p r i v a t e s e c t o r s . The e x i s t i n g mechanism f o r screening p r i v a t e p r o j e c t s is through t h e various public o r semi-public investment i n s t i t u t i o n s -- supplemented in a general way by t h e l i c e n s i n g procedures and, of course, t h e market i t s e l f . W see no need t o make any basic change i n t h i s system; a t t h e e same time it would be d e s i r a b l e f o r t h e i n d u s t r i a l l i c e n s i n g a u t h o r i t i e s t o r e s t r i c t t h e i r screening operations t o t h e genuinely public considera- t i o n s , r a t h e r than t o t h e s p e c i f i c i n t e r n a l c h a r a c t e r i s t i c s of p r i v a t e p r o j e c t s and f o r t h e f i n a n c i a l i n s t i t u t i o n s (ICICI, IFC, IDB) t o p l a y an i n c r e a s i n g l y responsible r o l e i n t h e screening of p r o j e c t s which r e q u i r e t h e i r assistance. 1_/ Notes on Perspective of Development, India: 1960-61 t o 1975-76, ~ p r i 1964, Perspective Planning Division, page 25. See a l s o l r Memorandum on t h e Fourth Five ~ e a Plan, page 56. / e W note t h a t , s i n c e t h e Mission's v i s i t , a committee has been e s t a b l i s h e d t o i n v e s t i g a t e t h e c o s t s and a v a i l a b i l i t y of i n - digenous capacity f o r design, development and engineering s e r v i c e s , under t h e chairmanship of S. C. Barve, i n d u s t r i a l member of t h e Planning Commission. 137. lin the case of the public s e c t o r t h e present procedure seems much l e s s s a t i s f a c t o r y . Such screening as e x i s t s appears t o be done - l a r g e l y by high l e v e l ad hoc committees dealing i n terms of vague gen- e r a 1 c r i t e r i a without %e support of s u f f i c i e n t s t a f f work. W think e t h e screening function should be c a r r i e d out i n a more rigorous way, imposing c l e a r l y defined r a t e of r e t u r n c r i t e r i a on p o t e n t i a l p r o j e c t s . This can only be done e f f e c t i v e l y i f put 5n the hands of a strong and technically competent s t a f f . The important thing i s t o enforce t h e sys- tematic appraisal of public s e c t o r p r o j e c t s according t o an agreed s e t of c r i t e r i a which include technical, f i n a n c i a l and economic aspects, and which provide a b a s i s f o r ensuring t h a t p r o j e c t s have been reasonably well prepared and a r e economically worthwhile. C. Management of Public Sector Enterprise 138. It i s urgent t h a t everything possible be done t o strengthen and improve t h e management of plants i n t h e l a r g e and expanding public sector. Failure t o use resources e f f e c t i v e l y i s always serious but i n the case of the huge concentration of c a p i t a l represented by t h e l a r g e public enterprises t h e consequences of s p e c i f i c f a i l u r e s a r e very great. 139. There can be no simple prescription f o r success. Neither can much be added t o t h e advice given on t h i s subject by t h e numerous experts and expert committees. However, w should l i k e t o emphasize several points e which seem t o us of p a r t i c u l a r importance i n guiding policy action i n t h i s f i e l d s: a. In appraising t h e operations of p l a n t s much more emphasis should be placed on o v e r a l l performance -- the quantity and q u a l i t y of output, the l e v e l of costs and t h e r e t u r n on investment, much l e s s on t h e d e t a i l s of p a r t i c u l a r expenditures. The r o l e of the auditor i n judging t h e p l a n t ' s opera- t i o n s should d e f i n i t e l y be reduced. Excellence of o v e r a l l performance should be given g r e a t e r public recognition. b. The management of an enterprise, its rewards and its penalties, should be more closely t i e d t o t h e fortunes of t h e enterprise. There should be a g r e a t e r continuity of management. The key members of the management group which w i l l have responsi- b i l i t y f o r managing a p l a n t should be involved i n the e a r l y stages of planning and developing t h e project. Those responsible f o r making it run e f f i c i e n t l y and p r o f i t a b l y should have some r e - s p o n s i b i l i t y in seeing t h a t it is designed t o do e so. W a r e aware improvised management was un- a v o i d a b b during the e a r l y stages of public s e c t o r  growth; on t h e other hand, we see l i t t l e planning f o r a f u l l t r a n s i t i o n from t h i s s t a t e of a f f a i r s . The i n d u s t r i a l management pool has apparently not been the answer it was a t f i r s t thought t o be. Perhaps more consideration should be given t o en- couraging each l a r g e public s e c t o r e n t e r p r i s e t o develop i t s own managerial t a l e n t r a t h e r than t o the development of a management service o r pool. c. Greater authority should be given t o management a t the p l a n t l e v e l . There i s c e r t a i n l y nothing e new i n t h i s recommendation. W recognize t h a t t h i s involves a considerable departure from the t r a d i t i o n a l administrative procedures of the c i v i l service. W believe, however, it i s of v i t a l i m - e portance t o break the c o n s t r a i n t s imposed on man- agement by the e x i s t i n g system i f strong and e f f e c t i v e management i s t o develop. Some degree of c e n t r a l planning and control i s necessary, along with de- centralized authority and responsibility, but t h e e balance, w believe, needs t o be s h i f t e d f u r t h e r toward the l a t t e r . d. Greater emphasis should be given t o the development of special management s k i l l s and techniques. W e r e f e r i n p a r t i c u l a r t o such important management t o o l s as cost accounting and f i n a n c i a l control, the programming of construction, production and procure- ment, inventory control and personnel and labor r e - e l a t i o n s . W a r e aware of work being done i n some of e these f i e l d s . W believe p o t e n t i a l benefits j u s t i f y even g r e a t e r e f f o r t .  Table 1 Table 1: NATIONAL INCOME BY INDUSTRIAL ORIGIN Percentage Distribution 1950-51 1955-56 1962-63- /1 AGRICUL'IU&E Agriculture Forestry Fishing MINING, IIANUFACTURING AND SMALL ENTERPSISES - 16.1 - 18.5 - 20.1 Mining 0.7 1.0 1.3 Factory establishments 5.8 7.8 11.0 Soall enterprises 9.6 9.7 7.8 COMMERCE, TRANSPORT AND COMMUNICATION - 17.7 - 18.9 - 17.0 Communication (Post, Telegraph and Telephone) . 04 0.5 0.5 Railways 1.9 2.5 2.8 Organised banking and insurance 0.7 0.9 . 14 Other commerce and transport 14.7 15.0 12.3 OTHES SERVICES Professions and liberal arts Govt. services (administration) Domestic services House property Net domestic product at factor cost Net earned income from abroad Net national output at factor cost = national income -1 / Preliminary . - Souroe: Estinatss of National Inorme, February 196L, Central Statistical Organisation.  w:APPARENT W O - 1962 1996 E IN INDUSTRIAL STRUCTURE % o f Net Output - 19 56 - 1962 Declining Shares Textiles Food Manufactures Total Increasing Shares Machinery and Metal Products Metal Products Machinery e l e c t r i c a l Machinery non-elec t r i c e 1 Transport equipment Chemicals and A l l i e d I n d u s t r i e s Chemicals Non-metallic minerals Paper Total Others Grand Total Source: - 1956 Industrial Output Index omitting "mining and quarrying". S Monthly S t a t i s t i c s of the Roduotlon of Selected Industries, CO 0 9 ovlsional Results), CSO.  Tab 1e 3 : IMWRTS O F METALS, MACHINERY A M ) EQUI PKENT (Ra. c r o r e a ) 1. Metals - 48.3 - 92.0 123.1 169.9 157.3 144.2 145.2 157.0 154.0 ( a ) I r o n and S t e e l 20.0 66.5 84.3 122.5 107.8 89.0 89.6 9 5.0 90.0 2. Manufactures o f M e t a l s 4.9 7.8 24.9 22.9 18.0 26.9 15.6 18.0 18.0 3. M a c h i n e r y a n 3 Components - 91.4 131.3 208.0 260.6 302.9 315.3 360.8 465.0 565.0 ( a ) Non-electrical 67.7 93.8. 154.8 203.4 237.0 250.6 277.3 (b) Electrical 23.8 37.6 53.2 57.2 65.9 64.8 83.4 4. T r a n s p o r t Equipment 40.7 63.5 71.4 72.3 64.6 72.1 60.8 95.0 90.0 I Total Hatala and Equipaent 1 85 . 3 294.6 427.4 525.7 542.8 558.5 582.4 735.0 827.0 o\ + T o t a l A11 I m p o r t s 659.2 678 8 960.8 1139.9 1107.1 1135.6 1149.0 1540.0 1510.0-/1 I 3 r ? l e t a l s and Equipment a s Z o f T o t a l Imports 28:; 4 3 :0 44% 6; 4: 4 9 ;0 49% 50% 4% 5% /1 5 - - /1 Total includes c e r e a l imports consistent with "balance a v a i l a b l e under current PL &80 agreementst'. I f c e r e a l imports are assumed t o be same a s 196&/65 t o t a l would be R s . 1677 crores and "Metals and Equipnent" would be h9% of t o t a l . Source: 1950-51 t o 1 9 6 3 4 Indian Economic S t a t i s t i c s , Ministry of Finance, Aug. 196&. 19&/65 - 1965/66 - Memorandum f o r the I n d i a Consortium 1965, Ministry of Finance.  Tabla 4 Table 4 FUNNED PAITERN OF INDUSTRIAL I N V E S M N T : THIRD AND POURTH PLANS THIRD PLAN FOURTH PLAN Total Public Total Pub1 ic - - Sector - Sector s ~iletal Iron and steel Non-ferrous Total P of total investment Machinery Machine tools Industrial machinery & equipment 286 174 707 245 Electrical machinery & equipment 136 108 332 190 Transport equipment - 119 -35 188 -22 Total 581 337 1347 522 % of total investment 24% 25% 29% 20% Chemicals and Fertilizers Chemicals Fertilizer Total k of total investment Other Cement Paper /1 All others- / -1 Includes textiles, food processing, timber and miscellaneous. source: Third Plan- Programmes of Industrial Development 1961/66 - Planning Commission. Fourth Plan - Estimates of Industry and Mineral8 Div. of Planning Commission. Investments in mining and mineral development excluded)classifications adjusted for comparability as far as possible.  Table 5 ;able si MAJOR LNDUSZRIAL AND C M R C I A L UEIDERMINa OF ZWB CENTRAL O)WRNMSWf CLASSIFLED BY ACTIYL'lY Investment Percent Activity (Rs . c r o r e e ) of t o t a l investment ;.Ianufac t u r i n g I n d u s t r y S t e e l - Hindustan S t e e l (Ltd. Engineering Heavy E n g i n e e r i n g Corp. ( L t d . ) Heavy E l e c t r i c a l s ( I n d i a ) ( L t d . ) Hindustan A i r c r a f t (Ltd. ) H i n d u s t a n Machine T o o l s ( L t d . ) Other Cheznicals F e r t i l i z e r Corp. o f I n d i a L t d . lndian Refineries F e r t i l i z e r s & Chemicals T r a v a n o r e Ltd. Lndian Drugs & P h a r m a c e u t i d s L t d . Others Shipbuilding i\lining Neyvel i L i g n i t e Corp. ~ational Coal Development Corp. L t d . N a t i o n a l M i n e r a l Development Corp. L t d . Promotion and Development O i l and N a t u r a l Gas Commission N a t i o n a l I n d u s t r i a l Development Corp. L t d . 11 N a t i o n a l Small I n d u s t r i e s Corp. L t d . 11 0 ther 10 'rranspor t A i r India ShLpping Corp. o f Lndia Indian Airlines Other Financial I n s t i t u t i o n s I n d u s t r i a l F i n a n c e Corp. o f I n d i a Others Co.nnercia1 and C o n s t r u c t i o n - ITnhvee s19meenntt e ir n r terms l iosf t ee q uai tr ye at hnod s lao nwithe rimn v leos at m se notn8 ebxocoekes dofn gt hHes . e 1 0e cr por ir sees s i n1963-64. Note: t p ises d g-t n i nt r 1963-64. 'Ihe t o t a l number o f e n t a r p r i s e a 18 60. Source: Annual R e p o r t o f t h e Working o f I n d u o t r i a l a n d Commercial U n d e r t a k i n g s o f t h e C e n t r a l Government f o r the year 1963-64. M i n i r t r y o f F i n a n c e , Dept. o f E x p e n d i t u r e ( P r o j e c t 8 C o o r d i n a t i o n Division).  Table 6 T a b l e 6: NON-DEYAR'IMENTAL UNDEHTAKINGS OF THE CENTRAL 0 0 V E i W E N ' r I N U.XIER OF TOTAL CAPITAL INVESTED AS OF MA1tCH 3 1 , 1 9 6 4 Category Investment E n t e r p r i s e and D a t e o f I n c o r p o r a t i o n ( i n Rs. Crotes) Hindustan S t e e l Limited (1954) Steel Neyveli L i g n i t e C o r p o r a t i o n L t d . (1956) Heavy E n g i n e e r i n g C o r p o r a t i o n L t d . ( 1 9 5 8 ) N a t i o n a l Coal Development C o r p o r a t i o n L t d . ( 1 9 5 6 ) Oil and N a t u r a l Gas Commission ( 1 9 5 6 ) F e r t i l i z e r Corporation of I n d i a Ltd. (1961) I n d u s t r i a l Finance Corporation o f I n d i a (1948) Heavy E l e c t r i c a l s ( I n d i a ) L t d . (1956; Lndian R e f i n e r i e s L t d . ( 1 9 5 8 ) A i r India (1953) S h i p p i n g Corporation o f I n d i a Ltd. (1961 Lndian A i r l i n e s C o r p o r a t i o n ( 1 9 5 3 ) Hindustan A i r c r a f t Ltd. (1940) F e r t i l i z e r s and C h e m i c a l s T r a v a n c o r e L t d . ( 1 9 4 3 ) H i n d u s t a n Machine T o o l s L t d . ( 1 9 5 3 ) N a t i o n a l Mineral Develoynent C o r p o r a t i o n Ltd. (1958) l n d i a n Drugs and P h a r m a c e u t i c a l s L t d . ( 1 9 6 1 ) N a t i o n a l I n d u s t r i a l Developmental C o r p o r a t i o n L t d . ( 1 9 5 4 ) National Small I n d u s t r i e s C o r p o r a t i o n L t d . (1955) I n d i a n Oil Company L t d . ( 1 9 5 9 ) Bharat E l e c t r i c a l s Ltd. (1954) l n d i a n Telephone I n d u s t r i e s L t d . ( 1 9 5 0 ) Cochin R e f i n e r i e s L t d . ( 1 9 6 3 )  Table 6 page 2 Table 6 (cont. ' d . ) Investment d n t e r p r i s e and Date of I n c o r p o r a t i o n Category ( i n Hs. Crores) b/F~d. Xindustan Shipyard Ltd. (1952) S N a t i o n a l N e w s p r i n t a n d P a p e r Mills L t d . ( 1 9 4 7 ) E H i n d u s t a n P h o t o F i l m s M a n u f a c t u r i n g Co. L t d . ( 1 9 6 0 ) CH L i f e Insurance Corporation o f I n d i a (1956) F C e n t r a l Warehousing C o r p o r a t i o n ( 1956) D Hindustan C a b l e s Ltd. ( 1952) E National P r o j e c t s Construction Corporation Ltd. (1957) Con Hindustan A n t i b i o t i c s Ltd. (1954) CH Praga Tools L t d . (1943) E d e h a b i l i t a t i o n I n d u s t r i e s Corporation Ltd. ( 1959) i 4 i n e r a I s and P l e t a l s T r a d i n g C o r p o r a t i o n o f I n d i a L t d . (1963) S t a t e Trading C o r p o r a t i o n of I n d i a L t d . (1956) National Buildings C o n s t r u c t i o n Corporation L t d . ( 1960) Con Ashoka H o t e l s L t d . ( 1 9 5 5 ) C 2iazagon Dock L t d . ( 1 9 3 4 ) S Hindustan S a l t s Ltd. (1958) Hindustan T e l e p r i n t e r s Ltd. (1960) 'Aeronautics I n d i a Ltd. ( 1963 Hindustan Organic Chemicals Ltd. (1960) G a r d e n Heach Workshops L t d . ( 1 9 3 4 ) National Instrument8 Ltd. (1957) Hindustan I n s e c t i c i d e s Ltd. (1954)  Table 6 page 3 Table 6 (cont.'d.) Investment. Enterprise and Date of Incorporation Ca tegory - (in I<S. Crores) b/Fud. 1-logulLine Ltd. (1938) T Indian dare Earths Ltd. (1950) CH Hindustan Housing Factory Ltd. (1953) Con Film Finance Corporation Ltd. (1960) Pyrites and Chemicals Ltd. (1956) Travancore Minerals Ltd. (1956) Export Credit & Guarantee Corporation Ltd. ( 1957 F National Research Development Corporation of India (1953) D Central Road Transport Corporation Ltd. (19641 T Nahan Foundry Ltd. (1952') E National Seeds Corporation Ltd. (1963) D Handicrafts and Handlooms Exports Corporation of India Ltd. (1958) D Janpath Hotels Ltd. (1963) C Rehabilitation Housing Corporation Ltd. ( 1951 ) D Instrumentation Ltd. (1964) E TOTAL Key to Categories C = Commercial Enterprises CH = Chemical and Petroleum Industries Con = Construction Enterprimem D = Promotional and Developental Undertakings  Table 6 Page 4 Tabled (cont.ld.1 Key t o C a t e g o r i e s E = Engineering Induatriea F = Financial I n s t i t u t i o n s M = Mining Induatriea S = Shipbuilding Industries T = Transport E n t e r p r i s e s Source: Annual Report on t h e Working o f I n d u s t r i a l and C o m e r c i a 1 Undertakings o f t h e Central Government f o r the year 199  Table 7 Table 7: LARGEST PUBLIC LIMITED COMPANIES I N MANUFACTURING INDUSTRY I N TERMS OF 'IOTAL ASSETS 1963/64 T o t a l Assets Rs. crores T a t a I r o n Rr S t e e l I n d i a n I r o n and S t e e l T a t a E n g i n e e r i n g and Locomotives A s s o c i a t e d Cement D e l h i C l o t h Mills Burmah-She1 1 I m p e r i a l Tobacco Premier Automobiles Esso O r i e n t Paper Dunlop Rubber I n d i a n Aluminum Hindustan Motors Vol t a s Hindu s t a n L e v e r T o t a l f o r 51 l a r g e s t companiesL1 1106 - /1 3 s h i p p i n g companiar and 3 powar companies i n c l u d e d i n t h e 51. S o u r c e : The Economic Times, J a n . 1 1 , 1965. NO. Industry Number of F a c t o r i e s Large-scale Proportion of _ Value Added ( K s . c r o r e s l Large-scale Total I n d u s t r y ---- --- Proportion - Total Factories i !) 2 ) of t o t a l 207 Sugar 220 Tobacco nanuf a c t u r e 231 S p i n n i n g , weaving and finishing t e x t i l e s 271 P u l p , paper and p a p e r b o a r d 25 .3i) 15 15.5 .81 300 :<lanu