Social Exclusion and Elderly Destitution: A Human Rights Perspective
Abstract
Ageing is an inevitable part of every human life. Ageing causes due to biological growth or changes in the human body. Very often elderly life is considered or assumed as a burdened life, predominantly, of struggle, illness, depression, exploitation and abuse etc. The elderly population is considered as an unproductive, non-contributing, redundant population. This paper traces the issues of elderly population both in urban and rural India under the purview of social exclusion. Elderly destitution is a process where factors of social exclusion will lead to deprivation and alienation which further push them to the state of homelessness and destitution. The major emphasize is given that, how old age care and support system becomes the need and necessity in addressing the issues of destitution in today’s context. Moreover, it identifies the social, economic and psychological reasons for deprivation, alienation and destitution among the elderly. By locating the forms of violations of elderly rights and nature social exclusion (Alienation and Neglection), it proposes an action plan to foster social support system at individual level, family level and community level which involves the prominent actors like government agencies, ngo’s and the youth generations.
9 July 2008
Industrialisation In India
Introduction
To discuss the topic "The Indian approach to industrialisation", this essay is divided into several parts. Firstly, the reasons for, and policies of industrialisation are discussed. The theoretical framework is finished by identifying indicators to be used in the evaluation of the success of such policies. The second section gives a rough overview of the development of industrialisation in India since independence. The third section goes into more detail and provides information about some specific and important areas for industrialisation. The fourth section uses the defined indicators to measure the success of India’s two main approaches to industrialisation and evaluates the results. The fifth section describes the main problems India faces today and in the future. Last but not least, the sixth section informs about current trends in Indian policy.
Theoretical Framework for Industrialisation
Before analysing the Indian approach, we want to introduce the aims of industrialisation, give a rough overview of the industrialisation strategies for Less Developed Countries (LDCs) and identify indicators for the evaluation of the success of industrialisation policies.
Why Industrialisation?
What are the ultimate objectives of economic development? Different governments may have different objectives in mind. Generally, however, they will include a faster growth of national income, alleviation of poverty, and reduction of income inequalities.
But how is industrialisation expected to contribute to these goals? The experience of industrial economies shows a close association between development and industrial expansion. But industry is also thought to provide certain spillovers which would benefit other activities: enhancement of skills, training of managers, dispersion of technology, etc. Moreover, pessimism about the prospects of food and raw materials made the substitution of domestic for imported manufactured goods seem the most promising route to development for many countries.
Industrialisation and foreign trade
Economists and policymakers in the developing countries have long agreed on the role of government in providing infrastructure and maintaining stable macroeconomic policies. But they have disagreed on policies toward trade and industry. The form of government intervention in this area is the distinguishing feature of alternative development strategies.
A convenient and instructive way to approach the complex issues of appropriate trade policies for development is to set these specific policies in the context of a broader Less Developed Countries strategy of looking outward or inward. Outward-looking development policies encourage not only free trade but also the free movement of capital, workers, enterprises, the multinational enterprise, and an open system of communications. By contrast, inward-looking development policies stress the need for LDCs to evolve their own styles of development and to control their own destiny. Within these two broad philosophical approaches to development, a lively debate has been carried out between the free traders, who advocate outward-looking export promotion strategies of industrialisation, and the protectionists, who are proponents of inward-looking import substitution strategies .
The advocates of import substitution (IS) – the protectionists – believe that LDCs should substitute domestic production of previously imported simple consumer goods and extend this later to a wider range of more sophisticated manufactured items – all behind the protection of high tariffs and quotas on imports. In the long run, IS advocates cite the benefits of greater domestic industrial diversification and the ultimate ability to export previously protected manufactured goods, as economies of scale, low labour costs, and the positive externalities of learning by doing cause domestic prices to become more competitive with world prices.
By contrast, advocates of export promotion (EP) of both primary and manufactured goods cite the efficiency and growth benefits of free trade and competition, the importance of substituting large world markets for narrow domestic markets, the distorting price and cost effects of protection, and the tremendous success of the East Asian export-oriented economies of South Korea, Singapore, and Hong Kong .
The balance of the debate has swung back and forth, with the protectionists predominating in the 1950s and 1960s, and the export promoters gaining the upper hand in the late 1970s and in the 1980s and 1990s, especially among Western and World Bank economists.
Indicators for measuring economic development
Of course, any development policy has to be assessed by measuring the economic development it effects. India’s first Prime Minister Jawaharlal Nehru declared on the eve of the departure of the British, on 14 August 1947, that India’s task in the future included "the ending of poverty and ignorance and disease and inequality of opportunity".
These measures will be used to determine the success of the inward-looking policies he initiated, as well as to compare their success with the success of the reform policies. Therefore, growth of income per capita, alleviation of poverty and reduction of income inequalities are amongst the most important indicators.
To measure advances regarding inequality of opportunity and ignorance, several indicators pertaining to education and health will be used. These are two important public goods to which every individual is entitled; both for their intrinsic importance and for their enhancement of instrumental personal, social and process roles, and also empowerment and distributive roles.
History of Industrialisation in India
This section gives a rough overview of the history of industrialisation in India. Several areas will be discussed in more detail in the following section.
Colonial rule
Under colonial rule, India, as with most other developing countries, followed a non-industrial model. But many Indians believed that progress was retarded by this. It was believed that true economic progress lay in industrialisation; Smith’s and Ricardo’s ideas of international specialisation and mutually advantageous free trade were rejected, at least until India became an exporter of more sophisticated goods.
Industrialisation since Independence
India’s first Prime Minister, Jawaharlal Nehru, Premier from 1947 to 1964, saw industrialisation as the key to alleviating poverty. Industrialisation not only promised self-sufficiency for his nation that had just regained political sovereignty, but also offered external economies accruing from technical progress. Believing the potential of agriculture and exports to be limited, Indian governments taxed agriculture by skewing the terms of trade against it and emphasising import substitution, thus giving priority to heavy industry.
Nehru believed a powerful state with a centralised planned economy to be essential if the country was to industrialise rapidly. The Industries (Development and Regulation) Act (IDRA) in 1951 laid the foundations for this administrative control on industrial capacity. But, over time, the licensing requirements became increasingly stringent and were accompanied by a gamut of procedures that required clearance by a number of disparate and uncoordinated ministries.
In order to pursue IS, the Import Trade Control Order of 1955 subjected almost all imports to quantitative restrictions in the form of import licenses. These were supplemented by tariffs at rates that were among the highest in the developing world.
Indian state intervention in industrial development has been extensive. Unlike many East Asian countries, which used state intervention to build strong private sector industries, India opted for state control over key industries. At different times, nationalised industries included chemicals, electric power, steel, transportation, life insurance, portions of the coal and textile industries, and banking. To promote these industries the government not only levied high tariffs and imposed import restrictions, but also subsidised the nationalised firms, directed investment funds to them, and controlled both land use and many prices.
Under Prime Minister Indhira Gandhi (1966-77), two major shifts took place in the role of the state. First, the neglect of agriculture was reversed through state activism in subsidising new seeds and fertilisers, agricultural credit, and rural electrification. The green revolution took off and by the mid-1970s India was self-sufficient in grain. The second shift was the further tightening of state control over every aspect of the economy. Banks were nationalised, trade was increasingly restricted, price controls were imposed on a wide range of products, and foreign investment was squeezed.
In 1973, dealings in foreign exchanges as well as foreign investment came to be regulated by the Foreign Exchange and Regulation Act (FERA). The act virtually shut out the inflow of new technology from abroad in the 1970s and 1980s, particularly when these involved large equity participation.
The Indian system of state planning went far beyond the usual inward-looking industrialisation policies that most developing countries pursued after World War II. The government regulated the most basic business decisions for all firms above a certain size: borrowing, investment, capacity utilisation, pricing and distribution.
The over-restrictive, and often self-defeating nature of the regulatory framework, began to become evident by the late 1960s and early 1970s. Comprehensive planning was increasingly criticised as planned targets were not met and many plans were not even implemented. The lack of success in some dimensions led to a new and more restrictive set of regulations. One example is the attempt to reserve sectors for small industries and to restrict the growth of large firms.
Beginning in the early 1980s, a mild trend towards deregulation started. Economic reforms were introduced, starting to liberalise trade, industrial and financial policies, while subsidies, tax concessions, and the depreciation of the currency improved export incentives. These measures helped GDP growth to accelerate to over 5% per year during the 1980s, compared to 3.5% during the 1970s, and reduced poverty more rapidly. However India’s most fundamental structural problems were only partially addressed. Tariffs continued to be among the highest in the world, and quantitative restrictions remained pervasive.
Moreover, a significant government influence continued in the allocation of credit to firms and a discouragement of foreign investment. Relatively inefficient public enterprises, controlling nearly 20% of GDP, remained a drag on economic growth.
The government expanded antipoverty schemes, especially rural employment schemes, but only a small fraction of the rising subsidies actually reached the poor. Competition between political parties drove subsidies up at every election. The resulting fiscal deficits (8.4% of GDP in 1985) contributed to a rising current account deficit. India’s foreign exchange reserves were virtually exhausted by mid-1991 when a new government headed by Narasimha Rao came to power.
In July 1991, India launched a second major economic reform program. The government committed itself to promoting a competitive economy that would be open to trade and foreign investment. Measures were introduced to reduce the government’s influence in corporate investment decisions. Much of the industrial-licensing system was dismantled, and areas once closed to the private sector were opened up. These included electricity generation, areas of the oil industry, heavy industry, air transport, roads and some telecommunications. Foreign investment was suddenly welcomed.
Greater global integration was encouraged with a significant reduction in the use of import licenses and tariffs (down to 150% from 400%), an elimination of subsidies for exports, and the introduction of a foreign-exchange market. Since April 1992, there has been no need to obtain any license or permit to carry out import-export trade. As of April 1, 1993, trade is completely free, barring only a small list of imports and exports that are either regulated or banned. The WTO estimated an average import tariff of 71% in 1993 which has been reduced to 40% in 1995. With successive additional monetary reforms, the rupee, since 1995, can nearly be considered a fully convertible currency at market rates. India now has a much more open economy.
Special areas of economic policy
After giving a rough overview of the history of industrialisation, this chapter provides more detailed information about the areas of human factors for industrialisation, structure of foreign investment, and the process of privatisation.
Human Factors for industrialisation
A very necessary ingredient for promoting industrialisation and technological change is the investment in human capital. India’s current average adult literacy rate is low at 52%. There are large inequalities between males (literacy: 64%) and females (literacy: 39%), between urban and rural areas, and between different social classes. Low levels of female education in India are due to the gender division of labour. Females are expected to spend most of their life in domestic work and child rearing. Secondly, the practice of dowry and the ideology of hypergamous marriage can turn female education into a liability. An educated girl is likely to be more expensive to marry off, thus female education tends to be a threat to the social order. Illiteracy is widespread not only in older groups, but also among young boys and girls, particularly in rural areas.
The remarkable neglect of elementary education in India is all the more striking given the widespread recognition, in the contemporary world, of the importance of basic education for economic development. Primary education in India is not compulsory. However those who receive primary education and make it through secondary school have an excellent chance of getting a high-class University education. India has a huge supply of people with more education than they can use.
Amartya Sen argued that there were deep-seated class biases in the pressures that have determined Indian educational priorities, and that the inequalities in education are, in fact, a reflection of the inequalities of economic and social powers of different groups in India. India’s hierarchical, brahmin-dominated society has been noticeably casual about primary education; resources have been poured into the higher education that benefits the upper class.
The persistence of endemic illiteracy and educational background in India generally limits the freedom and well-being of the Indian masses and has a direct role in the relative deprivation of women in particular. Elementary education is extremely important for a successful integration in the world market and if the process of growth were more ‘participatory’ it could raise the income-earning power of large parts of the nation. Even if India’s high technology industries, such as modern computer software or engineering products had an accelerated growth, the bulk of the Indian population would benefit only marginally.
Foreign Investment Policy Instruments
Since independence, new foreign investment has been rigidly controlled in line with established development thinking. Investment was mostly restricted to industries where it was felt that the acquisition of foreign technology was important, or where the promise of exports was convincing. The FERA was a landmark. In most industries, foreign shareholdings in rupee companies had to be reduced to 40%. The relative importance of foreign ownership in the private corporate sector fell significantly in the next decades. The attitude towards foreign investment began to change in 1985 as a part of Ghandi’s drive for advanced technology. Despite this, looking at 1988 shows how poorly India fared in attracting private foreign investment. Net Private Foreign Investment to India (in million US$) was $280. This is compared to her Asian competitors with figures of $2344 (China), $1093 (Thailand) and $986 (Philippines).
Since the liberalisation in, mid-1991 India has become a magnet for foreign investment. A noteworthy feature is the dramatic speed of approvals, some taking only a week. Automatic approval of projects in 34 industrial sectors is permitted. The constraint that foreign investment should reach only 40% was relaxed to 51%. In certain sectors, such as infrastructure and computer software, the ownership can also be as high as 74%. In some sectors such as transport infrastructure, full foreign ownership is permitted and even encouraged.
Foreign direct investment rose from $170 million in 1991-92 to $1.3 billion in 1994-95. India is targeting foreign direct investment of at least $10 billion annually by the turn of the century. It attracted a total of $2.4 billion in 1996-97 and $3.4 billion in 1997-98. Foreign direct investment is nearly 25 times higher than it was before the economy was liberalised.
The government in New Delhi is continuing to work toward reforming long-standing policies to make the country more "investor friendly"; a move that continues to heighten US interest in the country. A growing number of US companies, motivated by an increasingly favourable investment climate and the country's huge reserves of both human and natural resources, have seriously begun to consider investing there. US investment has been more than 24% of the total investment since 1991. In 1995 approximately $3.5 billion of US foreign investment flowed into India.
The US continues to be the leading investor in India. The US is followed by other more ‘traditional’ investors like the U.K. (6.4%), Israel (5.9%), Mauritius (4.6%), Japan (4.2%) and Germany (4.1%). Most of the investment interest has been in the telecommunications, oil refining, automobile and transportation sectors, with other projects developing in the electronics, software and electrical equipment industries.
Revitalisation of the Indian Private Sector
India has always been a trading nation. Centuries of alien rule and decades of socialism did not stamp out the Indian entrepreneurial spirit. The Statement of Industrial Policy 1991 reduced the list of industries reserved for the public sector from 17 to 6. In 1992/93, 104 out of a total of 237 central public sector enterprises made losses. With few exceptions, the inefficiency of public enterprises, which generate 17% of GDP, has continued to be a serious issue. It is clear that there is a prima facie case for privatisation on grounds of efficiency. However, the strength of the case for privatisation varies with the type of industry.
Now exposed to international competition, Indian companies are forming alliances with each other to face the challenges of the future. It is now even possible for Indian firms to merge with other companies. Procter & Gamble merged its operations with Godrej Soaps. Coca Cola acquired Parle, its erstwhile competitor, thus extending the cola wars to new exotic lands. Companies are enjoying the benefits of economies of scale and synergy. As larger and stronger groups emerge, they will have the resources necessary to invest in upgrading technology and will become more competitive.
Evaluation of Industrialisation in India
The indicators named above will be used to evaluate the success of Indian industrialisation policies. A distinction will be made between the period from Independence until 1980, characterised by inward-looking policies such as IS, and the period from 1980 until today, characterised by reforms and the opening up of the Indian economy. The following analysis with indicators compares the achievements of these two periods only. Absolute statements of Indian achievements follow later on.
It must be emphasised that the analysed data conceals sharp disparities within India between development-oriented states and laggards, between women and men, between adults and children, and between city and countryside. Different states have progressed at differing paces and, even within states, different regions have achieved markedly varied results. Even more noticeable than geographic differences in poverty reduction are the inequalities that persist across gender, caste and ethnic groups. Social indicators for women – literacy, for example – are distinctly lower than for men, and the level of scheduled castes and tribes in both economic and social achievements is still well below the national average.
Growth of national income
Growth of national income in GNP per capita in India was about 1.4% in the years from 1960 to 1980. The effects of the reforms of the 1980s are reflected in growth figures: the average GNP per capita growth increased to 3.25%. And with further opening up in the 1990s, the GNP per capita reaches new heights with 3.8% average growth in the period from 1987 to 1997.
Alleviation of poverty
In the early 1950s, about half of India’s population was living in poverty. Since then, poverty has been declining slowly. The poverty reduction was given new impetus by the reforms: falling from around 55% in 1974 to just under 35% in 1994 by a headcount index. In the 1980s and 1990s, poverty reached historically low levels. Still, because of India’s rapid population growth rate, the relative reduction of poverty has not been sufficient to reduce the absolute number of poor which increased from about 164 million in 1951 to 312 million in 1993-94.
Reduction of income inequalities
The reduction of income inequalities has only made slight advances. The biggest advances were made mostly before the reforms. On the other hand, one of the biggest increases in inequality happened in the late 1970s, and the developments for the late 1980s / early 1990s in Figure 1 look promising. Compared to other low-income economies, the inequality is relatively low.
Education
From 1960 to 1977 the reduction of illiteracy was only 11%. From 1978 to 1995, it was 25%, thus much higher. Of course, there are also long-term developments involved here, so that the higher reduction in the second period might be partially due to actions taken in the first period.
Health
Life expectancy, used as an indicator of health, has increased constantly since independence. During the period from 1960 to 1980, it increased from 43 years to 52 years, which is an increase of 21% in 20 years. From 1980 to 1995 it grew to 62 years, which is a 19% increase in only 15 years. This means that the growth of this indicator has increased by a rate of 24% compared to the previous period.
Even clearer is the improvement in the reduction of infant mortality. This was reduced by 25% in the period 1960 to 1995 and a further reduction of 45% took place from 1980 to 1995. This is partially due to better education of mothers, as well as to an improved economic situation of parents.
Summary
Independence - 1980
The system of state planning constrained growth of the private sector by allowing it to expand only with government permission. But despite the massive interventions, economic progress was made during the period following independence. The per capita GDP grew at a respectable rate of 1.4% per annum from the late 1940s into the 1970s. Both famine and poverty were significantly reduced during this period. Nevertheless, most economists argued that the interventions lowered India’s economic growth rates to a level which was not adequate for a country that saved and invested over one-fifth of its GDP. With few major producers of many key industrial products, the concentration of domestic production was very high, inviting monopolistic pricing. Moreover, as the world economy grew and as beneficial opportunities for growth through trade expanded, India paid an increasing price for its economic isolation.
The Indian system of state planning has been described as combining "the worst of socialism and capitalism, by suppressing growth while failing even to deliver the social welfare that communist systems provided".
1980 – mid-1990s
The liberalisation that started in the 1980s and gained further momentum in mid-1991 proved the critics of the old system right.
Per capita GNP reached historically high growth rates; industrial output-growth averaged 8.4% in 1994-95; exports were up by 27%; inflation dropped below 10%; the current account deficit is below 1% of GDP; foreign-exchange reserves are high at $20 billion; and food stocks have hit an all-time high of 37m tonnes.
The long neglected private sector today generates two-thirds of India’s GDP. The World Bank describes the change of the state’s role from that of principal investor to that of facilitator of entrepreneurship. Thus, over the course of a few years, the old national consensus on socialism has given way to a new consensus on liberalisation.
India – a perspective
It should not be forgotten, that despite all mentioned advances, India is still a low-income, developing country. It has an economy slightly smaller than Belgium’s with a GNP per capita of $390. Only about half of its 960 million people can read. Only 14% of the population has access to clean sanitation - a lower proportion than anywhere else except for parts of Sudan and Burkina Faso. According to the World Bank, 63% of India’s under-five-year olds are malnourished. The infant mortality rates of two Indian states is above the sub-Saharan average. About 40% of the world’s desperately poor live in India.
India’s progress in fighting poverty is modest when compared with some of its Asian neighbours. Between 1970 and 1993, the proportion of Indonesia’s population living in poverty dropped from 58% to 8% – a greater decline in a shorter period of time. According to the World Bank,
"it is through rapid growth that India will be able to reduce poverty and generate the resources to invest in the health and education of its people who will in turn sustain this growth, [as] overall growth accounted for the lion's share of poverty reduction: 80% of the decline in the number of households below the poverty line between 1951 and 1970, and almost 100% since 1970".
But India, like many developing countries that adopted a philosophy of government intervention with import substitution policies, is finding that economic reform can often be a slow, incremental process. Complications continue. Domestic producers will resist tariff reductions that subject them to increased competition. Government bureaucrats will try to maintain the power and influence they acquired during periods of substantial government involvement in economic decision making. The reforms so far are a positive step but must be extended and accelerated if India is to catch up with the East Asian tigers.
It is not possible to condemn the inward-looking policies as totally wrong. Some advances were made and no one can say what would have happened if India had followed another strategy. In our opinion, the idea that industrialisation was important for India in the 1950s was right, as the share of commodities in world trade is constantly decreasing. However, the view that exports are not important and that India could go its own way was wrong. By protectionism and interventions, India fostered the establishment of industries. India didn’t create an efficient private sector but a huge, inefficient public sector, and protectionism lowered the competitiveness of India’s economy. Furthermore, the neglect of exports led to the fact that India’s share of world trade decreased from 2% in 1950 to 0.5% in 1990.
In our opinion, India should have followed an EP-strategy as the Asian tigers did and shouldn’t have created the system of state planning and such a large public sector; both of which led to huge inefficiencies. The success of the recent opening up of the economy illustrates the potential India has. Therefore, India should proceed in this direction to encourage further economic growth.
Still, economic growth alone is not enough. Amartya Sen emphasises that growth must be "high and participatory". But even today, India’s "have-nots are treated virtually as are-nots" due to the caste-system and are neglected. Sen toured India in January 1999 to communicate his message that Indians are woefully underfed, undereducated and sickly, even by the standards of poor countries. The impact remains to be seen. India’s biggest current problems will be covered in the following section.’
India’s current problems regarding industrialisation
After evaluating important indicators for industrialisation and giving a summary of industrialisation since independence, we will now take a more detailed look at some specific areas for future industrial development in India.
Infrastructure
Perhaps the biggest problem for doing business in India is the woeful state of its infrastructure. Consider this: it takes four days for a truck to travel the 900 miles between India’s national capital New Delhi and its commercial capital Bombay. It takes months to get connected to the power supply in any Indian city, and several years to get a telephone connection in large cities.
Poor infrastructure is acting as a drag on the Indian economy, and the Indian government is now attracting private domestic and foreign investment to build the backbone of a modern economy. A recent report estimated that investment in infrastructure would rise from 5.5% of GDP in 1997, to about 7% in 2000/01. This includes massive improvements in telecommunications, power, energy, and transport.
India has recognised the vital role telecommunications play in the growth of the economy. The Indian telecom sector was wholly under government ownership and control until recently and was characterised by under-investment and outdated equipment. There is vast potential for extending these services in India, which has one of the world’s smallest telephone densities of 1.3 per 100 people, compared with the world average of 10 per 100. Advanced communication services such as fax, data transmission, and leased circuits are becoming increasingly common. Foreign collaboration is also being encouraged in cellular phones and paging systems. In the telecommunications sector, estimates for regional investment needs range from $40 billion a year, to as high as $70 billion a year by the end of the century.
The power problems are severe in India with three-hour-a-day power cuts and damaging voltage fluctuations that require companies to generate their own power. Investment in energy is a sound way of increasing manufacturing activity. If all 49 proposed private sector power projects are implemented, these would add a total of 20,000 megawatts to India’s current capacity of 66,000mW. However it should be noted that India’s energy demand is growing at 8-10% a year.
As part of India’s liberalisation efforts, the transportation sector has been opened to private investment. The government is offering incentives to invest $4.7 billion to construct and operate bypass roads, highways, bridges, railways, and ports.
Health and Education
HIV/AIDS is a newly emerging threat to India’s public health. About 3 million people in India may be affected. Malnutrition also continues to impede India’s development. Prejudices against women and girls are reflected in the demographic ratio of 929 females for every 1,000 males.
To support India’s goal of achieving universal primary education, the World Bank is supplementing increased state government expenditure. This has boosted school enrolment, particularly among girls and disadvantaged children, and is improving the quality of instruction and learning achievement.
Amartya Sen reckons that India could enrol all its children in primary school by spending an additional 0.5-1% of GDP. Providing basic health and education is not expensive where labour is cheap. But health and education indicators, while showing some progress, still remain among the world’s lowest.
Public sector
Another big problem is India’s notoriously bloated and inefficient public sector. The World Bank has turned down applications for power loans worth $750 million for projects in some states because of mismanagement in their government. Many electricity boards have become insolvent as a result of providing electricity at extremely subsidised rates and ignoring large-scale thefts of electricity. State governments have been unable or unwilling to take the politically unpalatable decisions needed to make their electricity boards viable.
The most telling evidence of the cost of delaying reform is the sheer effort companies have to expend to cope with the country’s labyrinthine bureaucracy. For example, foreign investors continue to seek permission from the Foreign Investment Promotion Board, even though their plans are covered by the automatic approvals system.
Corruption
An immediate threat to India’s governance is not the tottering coalition governments or the BJP, but corruption. The combination of a state-run economy and weak political institutions created all too many opportunities for crooked politicians and bureaucrats.
Worse still for the business community is that the government itself is the fountain-head of corruption. This is particularly serious in view of the huge importance of the government sector in India’s economy.
Corruption has become ubiquitous at all levels and is accepted by everyone. Many Indian businessmen feel that liberalisation of the economy will have no impact on reducing the corruption that has become so well entrenched. The influx of foreign companies is already unleashing a new wave of even greater corruption. A survey of 183 US firms conducted by the US embassy in 1995 revealed that US investors rated corruption in India as the third worst problem they faced after red tape and a lack of electric power.
The blame for the deluge of corruption in India lies in the lack of transparency in the rules of governance, extremely cumbersome official procedures, excessive and unregulated discretionary power in the hands of politicians and bureaucrats, who are prone to abuse it, and a lax judiciary.
Tax Problems
Tax reforms have been seeking to transform India’s tax system from one with high differential tax rates falling on a narrow base, into one with tax rates at moderate levels falling on a broad base. The 1995 fiscal budget reduced taxes on corporate income, and a major reform of excise taxes has been implemented to make it resemble a value-added tax more closely.
But the government’s income is also constricted by an inefficient taxation system. Rural areas are not taxed because they contain such a large pool of voters and no government has had the political will to change this. Income tax is skilfully dodged. This leaves the government with excise and customs duties, which represent two thirds of all taxes.
Labour market
India needs greater labour market flexibility to make its companies more competitive and its economy more productive. Politically powerful labour unions have stifled most efforts at serious reform or privatisation of India’s largest public sector enterprises, including most banks, all insurance companies, and many major industries, even though privatisation would probably cost the jobs of no more than 1.1% of the urban labour market. India’s labour laws hinder efficiency and growth.
Financial sector
India’s financial sector still cannot effectively mobilise and mediate capital to respond to economic changes. The resulting high cost of capital makes Indian industry and exports less competitive. In spite of recent improvements, India’s equity markets are still too thin and volatile to inspire great confidence on the part of domestic or foreign investors. Bond markets are practically non-existent. Liberalisation of the insurance industry, which would greatly improve the investing of India’s substantial savings, now 26% of GDP, has been stymied. India’s banking system remains flawed, with the dominant state-owned banks still carrying bad loans amounting to 15 to 25% of their total.
Outlook
The arrival of a BJP-led government in March looked like a setback for freer trade. It took two steps away from trade liberalisation. Firstly, India’s anti-dumping procedures were tightened. Secondly, the Finance Minister imposed an extra tariff of 4% in June. However, it is too early to conclude that India is returning to protectionism. The government insists that tariffs were increased to raise revenue, not to protect Indian business.
BJP strategy regarding foreign investment
BJP party leaders seem keen to limit foreign investment in all areas other than infrastructure. They are worried that Indian culture will be eroded by western consumerism such as food habits brought in by Kentucky Fried Chicken or McDonald’s. Such sentiments cause alarm.
"Foreign investors are not exactly queuing up to enter India, and this attitude will scare away those who are weighing up the possibilities of doing business here," cautions a top executive with a foreign investment bank in Bombay. In its defence, the BJP says that while it seeks to protect domestic industry and reserve "India for Indians", it does not intend to take back the reforms. But approved and actual foreign direct investment already shrank between January and July 1998. Approvals totalled only $4.7 billion, compared with $7.1 billion in the same period in 1997 and actual inflows slid to $1.6 billion from $1.9 billion.
Furthermore the BJP’s decision to conduct five nuclear tests in May 1998 underscored India’s reputation for unpredictability and highlighted the vulnerability of infrastructure investment to international and domestic political pressures. The sanctions imposed by the US on India include bans on private banking assistance to the Indian government and pressure on multinational lenders such as the International Monetary Fund to withhold loans. The sanctions hit the Indian economy and Indian companies generally, and were potentially very onerous for foreign developers.
On the other hand, the government recently encouraged foreign direct investment. In July 1998 it put forward a plan allowing foreign companies to take stakes of up to 26% in Indian insurance companies, having resisted opening the insurance market to foreigners in the past. "Automatic" approval of foreign investment of up to 100% was extended to more sectors of industry.
Recent development of the macroeconomic situation
The macroeconomic situation is also causing concern. After a year of patting itself on the back for escaping the Asian crisis, the Indian government is now sitting up at some spine-chilling signs that the economy hasn’t been unscathed after all.
India’s gross fiscal deficit will rise to 6.6% of GDP from a planned 5.7% in 1998, forcing the government to keep borrowing and pushing up interest rates. But the government’s infighting and inability to push through much-touted economic reform bills raises doubts as to whether it can tackle these problems.
The ballooning trade deficit comes on top of sluggish industrial production, high inflation (a 9% annual rate in the first half of November), and an expanding budget deficit. Currency devaluations in the rest of Asia have made Indian exports even less competitive than they were previously.
The current deficit of $2 billion has been pushed to the highest level since 1991. The rising deficit is financed by foreign-exchange reserves, and is expected to put upward pressure on the rupee .
On the other hand, GDP growth is forecast to move upwards to 6.4% in 1999. This follows a slowdown to 5.1% in 1998 due to a 1.5% decline in agricultural production, slowing exports, and industrial growth. Factor-cost GDP is forecast to expand by an annual average of 6.7% until 2002-2003.
Overall, it remains to be seen how entrenched the reforms are in India in the face of more difficult and troubled economic conditions.
To discuss the topic "The Indian approach to industrialisation", this essay is divided into several parts. Firstly, the reasons for, and policies of industrialisation are discussed. The theoretical framework is finished by identifying indicators to be used in the evaluation of the success of such policies. The second section gives a rough overview of the development of industrialisation in India since independence. The third section goes into more detail and provides information about some specific and important areas for industrialisation. The fourth section uses the defined indicators to measure the success of India’s two main approaches to industrialisation and evaluates the results. The fifth section describes the main problems India faces today and in the future. Last but not least, the sixth section informs about current trends in Indian policy.
Theoretical Framework for Industrialisation
Before analysing the Indian approach, we want to introduce the aims of industrialisation, give a rough overview of the industrialisation strategies for Less Developed Countries (LDCs) and identify indicators for the evaluation of the success of industrialisation policies.
Why Industrialisation?
What are the ultimate objectives of economic development? Different governments may have different objectives in mind. Generally, however, they will include a faster growth of national income, alleviation of poverty, and reduction of income inequalities.
But how is industrialisation expected to contribute to these goals? The experience of industrial economies shows a close association between development and industrial expansion. But industry is also thought to provide certain spillovers which would benefit other activities: enhancement of skills, training of managers, dispersion of technology, etc. Moreover, pessimism about the prospects of food and raw materials made the substitution of domestic for imported manufactured goods seem the most promising route to development for many countries.
Industrialisation and foreign trade
Economists and policymakers in the developing countries have long agreed on the role of government in providing infrastructure and maintaining stable macroeconomic policies. But they have disagreed on policies toward trade and industry. The form of government intervention in this area is the distinguishing feature of alternative development strategies.
A convenient and instructive way to approach the complex issues of appropriate trade policies for development is to set these specific policies in the context of a broader Less Developed Countries strategy of looking outward or inward. Outward-looking development policies encourage not only free trade but also the free movement of capital, workers, enterprises, the multinational enterprise, and an open system of communications. By contrast, inward-looking development policies stress the need for LDCs to evolve their own styles of development and to control their own destiny. Within these two broad philosophical approaches to development, a lively debate has been carried out between the free traders, who advocate outward-looking export promotion strategies of industrialisation, and the protectionists, who are proponents of inward-looking import substitution strategies .
The advocates of import substitution (IS) – the protectionists – believe that LDCs should substitute domestic production of previously imported simple consumer goods and extend this later to a wider range of more sophisticated manufactured items – all behind the protection of high tariffs and quotas on imports. In the long run, IS advocates cite the benefits of greater domestic industrial diversification and the ultimate ability to export previously protected manufactured goods, as economies of scale, low labour costs, and the positive externalities of learning by doing cause domestic prices to become more competitive with world prices.
By contrast, advocates of export promotion (EP) of both primary and manufactured goods cite the efficiency and growth benefits of free trade and competition, the importance of substituting large world markets for narrow domestic markets, the distorting price and cost effects of protection, and the tremendous success of the East Asian export-oriented economies of South Korea, Singapore, and Hong Kong .
The balance of the debate has swung back and forth, with the protectionists predominating in the 1950s and 1960s, and the export promoters gaining the upper hand in the late 1970s and in the 1980s and 1990s, especially among Western and World Bank economists.
Indicators for measuring economic development
Of course, any development policy has to be assessed by measuring the economic development it effects. India’s first Prime Minister Jawaharlal Nehru declared on the eve of the departure of the British, on 14 August 1947, that India’s task in the future included "the ending of poverty and ignorance and disease and inequality of opportunity".
These measures will be used to determine the success of the inward-looking policies he initiated, as well as to compare their success with the success of the reform policies. Therefore, growth of income per capita, alleviation of poverty and reduction of income inequalities are amongst the most important indicators.
To measure advances regarding inequality of opportunity and ignorance, several indicators pertaining to education and health will be used. These are two important public goods to which every individual is entitled; both for their intrinsic importance and for their enhancement of instrumental personal, social and process roles, and also empowerment and distributive roles.
History of Industrialisation in India
This section gives a rough overview of the history of industrialisation in India. Several areas will be discussed in more detail in the following section.
Colonial rule
Under colonial rule, India, as with most other developing countries, followed a non-industrial model. But many Indians believed that progress was retarded by this. It was believed that true economic progress lay in industrialisation; Smith’s and Ricardo’s ideas of international specialisation and mutually advantageous free trade were rejected, at least until India became an exporter of more sophisticated goods.
Industrialisation since Independence
India’s first Prime Minister, Jawaharlal Nehru, Premier from 1947 to 1964, saw industrialisation as the key to alleviating poverty. Industrialisation not only promised self-sufficiency for his nation that had just regained political sovereignty, but also offered external economies accruing from technical progress. Believing the potential of agriculture and exports to be limited, Indian governments taxed agriculture by skewing the terms of trade against it and emphasising import substitution, thus giving priority to heavy industry.
Nehru believed a powerful state with a centralised planned economy to be essential if the country was to industrialise rapidly. The Industries (Development and Regulation) Act (IDRA) in 1951 laid the foundations for this administrative control on industrial capacity. But, over time, the licensing requirements became increasingly stringent and were accompanied by a gamut of procedures that required clearance by a number of disparate and uncoordinated ministries.
In order to pursue IS, the Import Trade Control Order of 1955 subjected almost all imports to quantitative restrictions in the form of import licenses. These were supplemented by tariffs at rates that were among the highest in the developing world.
Indian state intervention in industrial development has been extensive. Unlike many East Asian countries, which used state intervention to build strong private sector industries, India opted for state control over key industries. At different times, nationalised industries included chemicals, electric power, steel, transportation, life insurance, portions of the coal and textile industries, and banking. To promote these industries the government not only levied high tariffs and imposed import restrictions, but also subsidised the nationalised firms, directed investment funds to them, and controlled both land use and many prices.
Under Prime Minister Indhira Gandhi (1966-77), two major shifts took place in the role of the state. First, the neglect of agriculture was reversed through state activism in subsidising new seeds and fertilisers, agricultural credit, and rural electrification. The green revolution took off and by the mid-1970s India was self-sufficient in grain. The second shift was the further tightening of state control over every aspect of the economy. Banks were nationalised, trade was increasingly restricted, price controls were imposed on a wide range of products, and foreign investment was squeezed.
In 1973, dealings in foreign exchanges as well as foreign investment came to be regulated by the Foreign Exchange and Regulation Act (FERA). The act virtually shut out the inflow of new technology from abroad in the 1970s and 1980s, particularly when these involved large equity participation.
The Indian system of state planning went far beyond the usual inward-looking industrialisation policies that most developing countries pursued after World War II. The government regulated the most basic business decisions for all firms above a certain size: borrowing, investment, capacity utilisation, pricing and distribution.
The over-restrictive, and often self-defeating nature of the regulatory framework, began to become evident by the late 1960s and early 1970s. Comprehensive planning was increasingly criticised as planned targets were not met and many plans were not even implemented. The lack of success in some dimensions led to a new and more restrictive set of regulations. One example is the attempt to reserve sectors for small industries and to restrict the growth of large firms.
Beginning in the early 1980s, a mild trend towards deregulation started. Economic reforms were introduced, starting to liberalise trade, industrial and financial policies, while subsidies, tax concessions, and the depreciation of the currency improved export incentives. These measures helped GDP growth to accelerate to over 5% per year during the 1980s, compared to 3.5% during the 1970s, and reduced poverty more rapidly. However India’s most fundamental structural problems were only partially addressed. Tariffs continued to be among the highest in the world, and quantitative restrictions remained pervasive.
Moreover, a significant government influence continued in the allocation of credit to firms and a discouragement of foreign investment. Relatively inefficient public enterprises, controlling nearly 20% of GDP, remained a drag on economic growth.
The government expanded antipoverty schemes, especially rural employment schemes, but only a small fraction of the rising subsidies actually reached the poor. Competition between political parties drove subsidies up at every election. The resulting fiscal deficits (8.4% of GDP in 1985) contributed to a rising current account deficit. India’s foreign exchange reserves were virtually exhausted by mid-1991 when a new government headed by Narasimha Rao came to power.
In July 1991, India launched a second major economic reform program. The government committed itself to promoting a competitive economy that would be open to trade and foreign investment. Measures were introduced to reduce the government’s influence in corporate investment decisions. Much of the industrial-licensing system was dismantled, and areas once closed to the private sector were opened up. These included electricity generation, areas of the oil industry, heavy industry, air transport, roads and some telecommunications. Foreign investment was suddenly welcomed.
Greater global integration was encouraged with a significant reduction in the use of import licenses and tariffs (down to 150% from 400%), an elimination of subsidies for exports, and the introduction of a foreign-exchange market. Since April 1992, there has been no need to obtain any license or permit to carry out import-export trade. As of April 1, 1993, trade is completely free, barring only a small list of imports and exports that are either regulated or banned. The WTO estimated an average import tariff of 71% in 1993 which has been reduced to 40% in 1995. With successive additional monetary reforms, the rupee, since 1995, can nearly be considered a fully convertible currency at market rates. India now has a much more open economy.
Special areas of economic policy
After giving a rough overview of the history of industrialisation, this chapter provides more detailed information about the areas of human factors for industrialisation, structure of foreign investment, and the process of privatisation.
Human Factors for industrialisation
A very necessary ingredient for promoting industrialisation and technological change is the investment in human capital. India’s current average adult literacy rate is low at 52%. There are large inequalities between males (literacy: 64%) and females (literacy: 39%), between urban and rural areas, and between different social classes. Low levels of female education in India are due to the gender division of labour. Females are expected to spend most of their life in domestic work and child rearing. Secondly, the practice of dowry and the ideology of hypergamous marriage can turn female education into a liability. An educated girl is likely to be more expensive to marry off, thus female education tends to be a threat to the social order. Illiteracy is widespread not only in older groups, but also among young boys and girls, particularly in rural areas.
The remarkable neglect of elementary education in India is all the more striking given the widespread recognition, in the contemporary world, of the importance of basic education for economic development. Primary education in India is not compulsory. However those who receive primary education and make it through secondary school have an excellent chance of getting a high-class University education. India has a huge supply of people with more education than they can use.
Amartya Sen argued that there were deep-seated class biases in the pressures that have determined Indian educational priorities, and that the inequalities in education are, in fact, a reflection of the inequalities of economic and social powers of different groups in India. India’s hierarchical, brahmin-dominated society has been noticeably casual about primary education; resources have been poured into the higher education that benefits the upper class.
The persistence of endemic illiteracy and educational background in India generally limits the freedom and well-being of the Indian masses and has a direct role in the relative deprivation of women in particular. Elementary education is extremely important for a successful integration in the world market and if the process of growth were more ‘participatory’ it could raise the income-earning power of large parts of the nation. Even if India’s high technology industries, such as modern computer software or engineering products had an accelerated growth, the bulk of the Indian population would benefit only marginally.
Foreign Investment Policy Instruments
Since independence, new foreign investment has been rigidly controlled in line with established development thinking. Investment was mostly restricted to industries where it was felt that the acquisition of foreign technology was important, or where the promise of exports was convincing. The FERA was a landmark. In most industries, foreign shareholdings in rupee companies had to be reduced to 40%. The relative importance of foreign ownership in the private corporate sector fell significantly in the next decades. The attitude towards foreign investment began to change in 1985 as a part of Ghandi’s drive for advanced technology. Despite this, looking at 1988 shows how poorly India fared in attracting private foreign investment. Net Private Foreign Investment to India (in million US$) was $280. This is compared to her Asian competitors with figures of $2344 (China), $1093 (Thailand) and $986 (Philippines).
Since the liberalisation in, mid-1991 India has become a magnet for foreign investment. A noteworthy feature is the dramatic speed of approvals, some taking only a week. Automatic approval of projects in 34 industrial sectors is permitted. The constraint that foreign investment should reach only 40% was relaxed to 51%. In certain sectors, such as infrastructure and computer software, the ownership can also be as high as 74%. In some sectors such as transport infrastructure, full foreign ownership is permitted and even encouraged.
Foreign direct investment rose from $170 million in 1991-92 to $1.3 billion in 1994-95. India is targeting foreign direct investment of at least $10 billion annually by the turn of the century. It attracted a total of $2.4 billion in 1996-97 and $3.4 billion in 1997-98. Foreign direct investment is nearly 25 times higher than it was before the economy was liberalised.
The government in New Delhi is continuing to work toward reforming long-standing policies to make the country more "investor friendly"; a move that continues to heighten US interest in the country. A growing number of US companies, motivated by an increasingly favourable investment climate and the country's huge reserves of both human and natural resources, have seriously begun to consider investing there. US investment has been more than 24% of the total investment since 1991. In 1995 approximately $3.5 billion of US foreign investment flowed into India.
The US continues to be the leading investor in India. The US is followed by other more ‘traditional’ investors like the U.K. (6.4%), Israel (5.9%), Mauritius (4.6%), Japan (4.2%) and Germany (4.1%). Most of the investment interest has been in the telecommunications, oil refining, automobile and transportation sectors, with other projects developing in the electronics, software and electrical equipment industries.
Revitalisation of the Indian Private Sector
India has always been a trading nation. Centuries of alien rule and decades of socialism did not stamp out the Indian entrepreneurial spirit. The Statement of Industrial Policy 1991 reduced the list of industries reserved for the public sector from 17 to 6. In 1992/93, 104 out of a total of 237 central public sector enterprises made losses. With few exceptions, the inefficiency of public enterprises, which generate 17% of GDP, has continued to be a serious issue. It is clear that there is a prima facie case for privatisation on grounds of efficiency. However, the strength of the case for privatisation varies with the type of industry.
Now exposed to international competition, Indian companies are forming alliances with each other to face the challenges of the future. It is now even possible for Indian firms to merge with other companies. Procter & Gamble merged its operations with Godrej Soaps. Coca Cola acquired Parle, its erstwhile competitor, thus extending the cola wars to new exotic lands. Companies are enjoying the benefits of economies of scale and synergy. As larger and stronger groups emerge, they will have the resources necessary to invest in upgrading technology and will become more competitive.
Evaluation of Industrialisation in India
The indicators named above will be used to evaluate the success of Indian industrialisation policies. A distinction will be made between the period from Independence until 1980, characterised by inward-looking policies such as IS, and the period from 1980 until today, characterised by reforms and the opening up of the Indian economy. The following analysis with indicators compares the achievements of these two periods only. Absolute statements of Indian achievements follow later on.
It must be emphasised that the analysed data conceals sharp disparities within India between development-oriented states and laggards, between women and men, between adults and children, and between city and countryside. Different states have progressed at differing paces and, even within states, different regions have achieved markedly varied results. Even more noticeable than geographic differences in poverty reduction are the inequalities that persist across gender, caste and ethnic groups. Social indicators for women – literacy, for example – are distinctly lower than for men, and the level of scheduled castes and tribes in both economic and social achievements is still well below the national average.
Growth of national income
Growth of national income in GNP per capita in India was about 1.4% in the years from 1960 to 1980. The effects of the reforms of the 1980s are reflected in growth figures: the average GNP per capita growth increased to 3.25%. And with further opening up in the 1990s, the GNP per capita reaches new heights with 3.8% average growth in the period from 1987 to 1997.
Alleviation of poverty
In the early 1950s, about half of India’s population was living in poverty. Since then, poverty has been declining slowly. The poverty reduction was given new impetus by the reforms: falling from around 55% in 1974 to just under 35% in 1994 by a headcount index. In the 1980s and 1990s, poverty reached historically low levels. Still, because of India’s rapid population growth rate, the relative reduction of poverty has not been sufficient to reduce the absolute number of poor which increased from about 164 million in 1951 to 312 million in 1993-94.
Reduction of income inequalities
The reduction of income inequalities has only made slight advances. The biggest advances were made mostly before the reforms. On the other hand, one of the biggest increases in inequality happened in the late 1970s, and the developments for the late 1980s / early 1990s in Figure 1 look promising. Compared to other low-income economies, the inequality is relatively low.
Education
From 1960 to 1977 the reduction of illiteracy was only 11%. From 1978 to 1995, it was 25%, thus much higher. Of course, there are also long-term developments involved here, so that the higher reduction in the second period might be partially due to actions taken in the first period.
Health
Life expectancy, used as an indicator of health, has increased constantly since independence. During the period from 1960 to 1980, it increased from 43 years to 52 years, which is an increase of 21% in 20 years. From 1980 to 1995 it grew to 62 years, which is a 19% increase in only 15 years. This means that the growth of this indicator has increased by a rate of 24% compared to the previous period.
Even clearer is the improvement in the reduction of infant mortality. This was reduced by 25% in the period 1960 to 1995 and a further reduction of 45% took place from 1980 to 1995. This is partially due to better education of mothers, as well as to an improved economic situation of parents.
Summary
Independence - 1980
The system of state planning constrained growth of the private sector by allowing it to expand only with government permission. But despite the massive interventions, economic progress was made during the period following independence. The per capita GDP grew at a respectable rate of 1.4% per annum from the late 1940s into the 1970s. Both famine and poverty were significantly reduced during this period. Nevertheless, most economists argued that the interventions lowered India’s economic growth rates to a level which was not adequate for a country that saved and invested over one-fifth of its GDP. With few major producers of many key industrial products, the concentration of domestic production was very high, inviting monopolistic pricing. Moreover, as the world economy grew and as beneficial opportunities for growth through trade expanded, India paid an increasing price for its economic isolation.
The Indian system of state planning has been described as combining "the worst of socialism and capitalism, by suppressing growth while failing even to deliver the social welfare that communist systems provided".
1980 – mid-1990s
The liberalisation that started in the 1980s and gained further momentum in mid-1991 proved the critics of the old system right.
Per capita GNP reached historically high growth rates; industrial output-growth averaged 8.4% in 1994-95; exports were up by 27%; inflation dropped below 10%; the current account deficit is below 1% of GDP; foreign-exchange reserves are high at $20 billion; and food stocks have hit an all-time high of 37m tonnes.
The long neglected private sector today generates two-thirds of India’s GDP. The World Bank describes the change of the state’s role from that of principal investor to that of facilitator of entrepreneurship. Thus, over the course of a few years, the old national consensus on socialism has given way to a new consensus on liberalisation.
India – a perspective
It should not be forgotten, that despite all mentioned advances, India is still a low-income, developing country. It has an economy slightly smaller than Belgium’s with a GNP per capita of $390. Only about half of its 960 million people can read. Only 14% of the population has access to clean sanitation - a lower proportion than anywhere else except for parts of Sudan and Burkina Faso. According to the World Bank, 63% of India’s under-five-year olds are malnourished. The infant mortality rates of two Indian states is above the sub-Saharan average. About 40% of the world’s desperately poor live in India.
India’s progress in fighting poverty is modest when compared with some of its Asian neighbours. Between 1970 and 1993, the proportion of Indonesia’s population living in poverty dropped from 58% to 8% – a greater decline in a shorter period of time. According to the World Bank,
"it is through rapid growth that India will be able to reduce poverty and generate the resources to invest in the health and education of its people who will in turn sustain this growth, [as] overall growth accounted for the lion's share of poverty reduction: 80% of the decline in the number of households below the poverty line between 1951 and 1970, and almost 100% since 1970".
But India, like many developing countries that adopted a philosophy of government intervention with import substitution policies, is finding that economic reform can often be a slow, incremental process. Complications continue. Domestic producers will resist tariff reductions that subject them to increased competition. Government bureaucrats will try to maintain the power and influence they acquired during periods of substantial government involvement in economic decision making. The reforms so far are a positive step but must be extended and accelerated if India is to catch up with the East Asian tigers.
It is not possible to condemn the inward-looking policies as totally wrong. Some advances were made and no one can say what would have happened if India had followed another strategy. In our opinion, the idea that industrialisation was important for India in the 1950s was right, as the share of commodities in world trade is constantly decreasing. However, the view that exports are not important and that India could go its own way was wrong. By protectionism and interventions, India fostered the establishment of industries. India didn’t create an efficient private sector but a huge, inefficient public sector, and protectionism lowered the competitiveness of India’s economy. Furthermore, the neglect of exports led to the fact that India’s share of world trade decreased from 2% in 1950 to 0.5% in 1990.
In our opinion, India should have followed an EP-strategy as the Asian tigers did and shouldn’t have created the system of state planning and such a large public sector; both of which led to huge inefficiencies. The success of the recent opening up of the economy illustrates the potential India has. Therefore, India should proceed in this direction to encourage further economic growth.
Still, economic growth alone is not enough. Amartya Sen emphasises that growth must be "high and participatory". But even today, India’s "have-nots are treated virtually as are-nots" due to the caste-system and are neglected. Sen toured India in January 1999 to communicate his message that Indians are woefully underfed, undereducated and sickly, even by the standards of poor countries. The impact remains to be seen. India’s biggest current problems will be covered in the following section.’
India’s current problems regarding industrialisation
After evaluating important indicators for industrialisation and giving a summary of industrialisation since independence, we will now take a more detailed look at some specific areas for future industrial development in India.
Infrastructure
Perhaps the biggest problem for doing business in India is the woeful state of its infrastructure. Consider this: it takes four days for a truck to travel the 900 miles between India’s national capital New Delhi and its commercial capital Bombay. It takes months to get connected to the power supply in any Indian city, and several years to get a telephone connection in large cities.
Poor infrastructure is acting as a drag on the Indian economy, and the Indian government is now attracting private domestic and foreign investment to build the backbone of a modern economy. A recent report estimated that investment in infrastructure would rise from 5.5% of GDP in 1997, to about 7% in 2000/01. This includes massive improvements in telecommunications, power, energy, and transport.
India has recognised the vital role telecommunications play in the growth of the economy. The Indian telecom sector was wholly under government ownership and control until recently and was characterised by under-investment and outdated equipment. There is vast potential for extending these services in India, which has one of the world’s smallest telephone densities of 1.3 per 100 people, compared with the world average of 10 per 100. Advanced communication services such as fax, data transmission, and leased circuits are becoming increasingly common. Foreign collaboration is also being encouraged in cellular phones and paging systems. In the telecommunications sector, estimates for regional investment needs range from $40 billion a year, to as high as $70 billion a year by the end of the century.
The power problems are severe in India with three-hour-a-day power cuts and damaging voltage fluctuations that require companies to generate their own power. Investment in energy is a sound way of increasing manufacturing activity. If all 49 proposed private sector power projects are implemented, these would add a total of 20,000 megawatts to India’s current capacity of 66,000mW. However it should be noted that India’s energy demand is growing at 8-10% a year.
As part of India’s liberalisation efforts, the transportation sector has been opened to private investment. The government is offering incentives to invest $4.7 billion to construct and operate bypass roads, highways, bridges, railways, and ports.
Health and Education
HIV/AIDS is a newly emerging threat to India’s public health. About 3 million people in India may be affected. Malnutrition also continues to impede India’s development. Prejudices against women and girls are reflected in the demographic ratio of 929 females for every 1,000 males.
To support India’s goal of achieving universal primary education, the World Bank is supplementing increased state government expenditure. This has boosted school enrolment, particularly among girls and disadvantaged children, and is improving the quality of instruction and learning achievement.
Amartya Sen reckons that India could enrol all its children in primary school by spending an additional 0.5-1% of GDP. Providing basic health and education is not expensive where labour is cheap. But health and education indicators, while showing some progress, still remain among the world’s lowest.
Public sector
Another big problem is India’s notoriously bloated and inefficient public sector. The World Bank has turned down applications for power loans worth $750 million for projects in some states because of mismanagement in their government. Many electricity boards have become insolvent as a result of providing electricity at extremely subsidised rates and ignoring large-scale thefts of electricity. State governments have been unable or unwilling to take the politically unpalatable decisions needed to make their electricity boards viable.
The most telling evidence of the cost of delaying reform is the sheer effort companies have to expend to cope with the country’s labyrinthine bureaucracy. For example, foreign investors continue to seek permission from the Foreign Investment Promotion Board, even though their plans are covered by the automatic approvals system.
Corruption
An immediate threat to India’s governance is not the tottering coalition governments or the BJP, but corruption. The combination of a state-run economy and weak political institutions created all too many opportunities for crooked politicians and bureaucrats.
Worse still for the business community is that the government itself is the fountain-head of corruption. This is particularly serious in view of the huge importance of the government sector in India’s economy.
Corruption has become ubiquitous at all levels and is accepted by everyone. Many Indian businessmen feel that liberalisation of the economy will have no impact on reducing the corruption that has become so well entrenched. The influx of foreign companies is already unleashing a new wave of even greater corruption. A survey of 183 US firms conducted by the US embassy in 1995 revealed that US investors rated corruption in India as the third worst problem they faced after red tape and a lack of electric power.
The blame for the deluge of corruption in India lies in the lack of transparency in the rules of governance, extremely cumbersome official procedures, excessive and unregulated discretionary power in the hands of politicians and bureaucrats, who are prone to abuse it, and a lax judiciary.
Tax Problems
Tax reforms have been seeking to transform India’s tax system from one with high differential tax rates falling on a narrow base, into one with tax rates at moderate levels falling on a broad base. The 1995 fiscal budget reduced taxes on corporate income, and a major reform of excise taxes has been implemented to make it resemble a value-added tax more closely.
But the government’s income is also constricted by an inefficient taxation system. Rural areas are not taxed because they contain such a large pool of voters and no government has had the political will to change this. Income tax is skilfully dodged. This leaves the government with excise and customs duties, which represent two thirds of all taxes.
Labour market
India needs greater labour market flexibility to make its companies more competitive and its economy more productive. Politically powerful labour unions have stifled most efforts at serious reform or privatisation of India’s largest public sector enterprises, including most banks, all insurance companies, and many major industries, even though privatisation would probably cost the jobs of no more than 1.1% of the urban labour market. India’s labour laws hinder efficiency and growth.
Financial sector
India’s financial sector still cannot effectively mobilise and mediate capital to respond to economic changes. The resulting high cost of capital makes Indian industry and exports less competitive. In spite of recent improvements, India’s equity markets are still too thin and volatile to inspire great confidence on the part of domestic or foreign investors. Bond markets are practically non-existent. Liberalisation of the insurance industry, which would greatly improve the investing of India’s substantial savings, now 26% of GDP, has been stymied. India’s banking system remains flawed, with the dominant state-owned banks still carrying bad loans amounting to 15 to 25% of their total.
Outlook
The arrival of a BJP-led government in March looked like a setback for freer trade. It took two steps away from trade liberalisation. Firstly, India’s anti-dumping procedures were tightened. Secondly, the Finance Minister imposed an extra tariff of 4% in June. However, it is too early to conclude that India is returning to protectionism. The government insists that tariffs were increased to raise revenue, not to protect Indian business.
BJP strategy regarding foreign investment
BJP party leaders seem keen to limit foreign investment in all areas other than infrastructure. They are worried that Indian culture will be eroded by western consumerism such as food habits brought in by Kentucky Fried Chicken or McDonald’s. Such sentiments cause alarm.
"Foreign investors are not exactly queuing up to enter India, and this attitude will scare away those who are weighing up the possibilities of doing business here," cautions a top executive with a foreign investment bank in Bombay. In its defence, the BJP says that while it seeks to protect domestic industry and reserve "India for Indians", it does not intend to take back the reforms. But approved and actual foreign direct investment already shrank between January and July 1998. Approvals totalled only $4.7 billion, compared with $7.1 billion in the same period in 1997 and actual inflows slid to $1.6 billion from $1.9 billion.
Furthermore the BJP’s decision to conduct five nuclear tests in May 1998 underscored India’s reputation for unpredictability and highlighted the vulnerability of infrastructure investment to international and domestic political pressures. The sanctions imposed by the US on India include bans on private banking assistance to the Indian government and pressure on multinational lenders such as the International Monetary Fund to withhold loans. The sanctions hit the Indian economy and Indian companies generally, and were potentially very onerous for foreign developers.
On the other hand, the government recently encouraged foreign direct investment. In July 1998 it put forward a plan allowing foreign companies to take stakes of up to 26% in Indian insurance companies, having resisted opening the insurance market to foreigners in the past. "Automatic" approval of foreign investment of up to 100% was extended to more sectors of industry.
Recent development of the macroeconomic situation
The macroeconomic situation is also causing concern. After a year of patting itself on the back for escaping the Asian crisis, the Indian government is now sitting up at some spine-chilling signs that the economy hasn’t been unscathed after all.
India’s gross fiscal deficit will rise to 6.6% of GDP from a planned 5.7% in 1998, forcing the government to keep borrowing and pushing up interest rates. But the government’s infighting and inability to push through much-touted economic reform bills raises doubts as to whether it can tackle these problems.
The ballooning trade deficit comes on top of sluggish industrial production, high inflation (a 9% annual rate in the first half of November), and an expanding budget deficit. Currency devaluations in the rest of Asia have made Indian exports even less competitive than they were previously.
The current deficit of $2 billion has been pushed to the highest level since 1991. The rising deficit is financed by foreign-exchange reserves, and is expected to put upward pressure on the rupee .
On the other hand, GDP growth is forecast to move upwards to 6.4% in 1999. This follows a slowdown to 5.1% in 1998 due to a 1.5% decline in agricultural production, slowing exports, and industrial growth. Factor-cost GDP is forecast to expand by an annual average of 6.7% until 2002-2003.
Overall, it remains to be seen how entrenched the reforms are in India in the face of more difficult and troubled economic conditions.
Industrial Social Work: What to do with Organisations?
Introduction
Social work is a profession for those with a strong desire to help improve people's lives. Social workers help people function the best way they can in their environment, deal with their relationships, and solve personal and professional problems. Social workers practice in a variety of settings. Hospitals and psychiatric facilities they provide or arrange for a range of support services. In mental health, community centers, and private practice they provide counseling services on marriage, family, and adoption matters, and they help people through personal or community emergencies, such as dealing with loss or grief or arranging for disaster assistance. Industrial social work is one of the area in which the social worker extend their skill and expertness in helping personnel managers in the industry directly and organisational development indirectly, by intervening the employee management.
Industrial Social Work
Industrial organisation forms a secondary setting for the proactive of professional social work. It is different from other secondary welfare setting due to its primary orientation to production and profit rather than to the welfare needs of the workers. There is a growing recognition of the fact that the human personality is influenced by and influences the organisation. Hence it is necessary to have a basic understanding of organisational structure of the industry in relation to its communication pattern and its system of authority. The workers and the problems can be better perceived against the holistic background of his work place, his work family, and his community. The industrial social worker whose work covers an intangible out put can work with conviction and commitment in a profit oriented setting only if his/her functions are balanced with the primary interest of the organisation. A clear understanding of the social workers role responsibilities and status in relation to the concerned department of great relevance. Although it was felt earlier that a personnel or welfare programmes need not have any connection with the economic potentials of the industry. It is increasingly felt that "A well formulate Social Work Practice," is as much as economic proposition as production or sales programme. It helps to improve the attitude of employees towards their job. As in the ultimate analysis it is the attitude of employees, which control the quality of production, quantity of the production and the productivity. Improvement in the attitude improves productivity and there by increases profit.
Role of Industrial Social Worker
It is essential to understand the areas of responsibilities associated with each functionary, so as to gain a clear perspective of role and status of the industrial social worker. The development of the industrial social work in India is recent. It is primarily voluntary and is influenced by the emphasis placed by the government on certain programmes in organized sector.
The place of social worker in an industrial organisation is within the administrative preview of Personnel or Human Resource Management department. Occasionally is under the direct control of the line managers. The workers are occasionally involved in the decision making in the development of the welfare services. However, since he/she is enjoys autonomy in their day-to-day functioning, they are in a position to build a purposeful relationship with the operative employees. This will enable them to relate freely to the social worker with trust and confidence.
Professional Social Work Ethics
It is at this point that the issue of professional social work ethics assumes importance, both for the social worker and the employing organisation.
They are:1. The social worker should be outside the chain of command of the management, even though officially she may have to operate from the personnel or administrative department.2. The worker should not have any responsibility involving his functionary, directly controlling the work life of the employee in so far as it affects the production process.3. The worker should maintain the professional confidentiality. This does not mean that the worker should not share the workers problem with staff at other levels and management.
His work necessarily demands contact with different levels of management in the industry for effective discharge of his functions.
It is equally important for the workers to note that 'the strategic role of social worker in industry stem from his intimate contact with the rank and file workers as well as the access he has to in decision making channel and the upper echelons of the power structure in industry… but he should be very cautious of the dangers involved in his multiple identification with people in a variety of status of roles and in having his skills used manipulatively.
This is particularly true of his role in enhancing positive communication between workers and managers. This is highly complex, due to the growing importance of the trade unions, which now has great influence on the management. It is primarily delegated to the Personnel Officer and rather than to the Labour welfare Officer, or the social worker. It is the personnel officer who has to act as spokes men of the workers and advice the management on the action to be taken on their problem. He also have to strive to maintain a neutral stand to hold the balance between the management and employees and the situation which can arise possible conflicts between the trade unions and the management objectives. Here the positive and the neutral stand of the industrial social worker can be of great value to the personnel officer.
The responsibility of the social worker fall mainly in the category of non statutory services such as:1. Family individual and group, counselling and home visit in relation to adjustment of the work orientation, personality and other problems at preventive level.2. Active participation in corporate social responsibility activities and community development initiatives of the industry.3. Employee management and effective intervention of labour management problems.4. Industrial counselling.5. Case work interventions.6. Health and educational help, which would involve referral to other agencies.7. Coordination of welfare services with other welfare agencies.8. Workers education.9. Family planning and Family life education.10. Workers recreation management.
Although personnel officer welfare officer and the industrial social worker are all concerned with the human relation aspect in the industry, a comparison of their rights and duties reveal that the former are organisation oriented and the social worker is essentially employee oriented. He/she can effectively sustain her working relation with other specialist for implementing the social welfare policy.
Qualities of Industrial Social worker
The knowledge and personality traits deemed essential in a social worker in the industry are:* Maturity* Warm and genuine interest in people adjustability* Good communication skills in dealing with people at different levels* Resourcefulness* Sound physical health* Effective intervention skills* Knowledge of industrial psychology* Knowledge of labour laws* Expertness in corporate-community interaction* Expertness in industrial counselling
Conclusion
The industrial social worker with his basic knowledge of human dynamics and her skill in working with individuals at different levels will be a great asset in individualization service. The industrial social worker has to project his or her role as helper/moderator/facilitator rather than management appointed person. An ongoing coordination between training in social work institutions and industries is necessary and useful for effective feedback. Industrial social work should emerge as an accepted professional filed in India that will enable Human Resource Managers and Personnel Managers in the effective employee management and organisational development.
Social work is a profession for those with a strong desire to help improve people's lives. Social workers help people function the best way they can in their environment, deal with their relationships, and solve personal and professional problems. Social workers practice in a variety of settings. Hospitals and psychiatric facilities they provide or arrange for a range of support services. In mental health, community centers, and private practice they provide counseling services on marriage, family, and adoption matters, and they help people through personal or community emergencies, such as dealing with loss or grief or arranging for disaster assistance. Industrial social work is one of the area in which the social worker extend their skill and expertness in helping personnel managers in the industry directly and organisational development indirectly, by intervening the employee management.
Industrial Social Work
Industrial organisation forms a secondary setting for the proactive of professional social work. It is different from other secondary welfare setting due to its primary orientation to production and profit rather than to the welfare needs of the workers. There is a growing recognition of the fact that the human personality is influenced by and influences the organisation. Hence it is necessary to have a basic understanding of organisational structure of the industry in relation to its communication pattern and its system of authority. The workers and the problems can be better perceived against the holistic background of his work place, his work family, and his community. The industrial social worker whose work covers an intangible out put can work with conviction and commitment in a profit oriented setting only if his/her functions are balanced with the primary interest of the organisation. A clear understanding of the social workers role responsibilities and status in relation to the concerned department of great relevance. Although it was felt earlier that a personnel or welfare programmes need not have any connection with the economic potentials of the industry. It is increasingly felt that "A well formulate Social Work Practice," is as much as economic proposition as production or sales programme. It helps to improve the attitude of employees towards their job. As in the ultimate analysis it is the attitude of employees, which control the quality of production, quantity of the production and the productivity. Improvement in the attitude improves productivity and there by increases profit.
Role of Industrial Social Worker
It is essential to understand the areas of responsibilities associated with each functionary, so as to gain a clear perspective of role and status of the industrial social worker. The development of the industrial social work in India is recent. It is primarily voluntary and is influenced by the emphasis placed by the government on certain programmes in organized sector.
The place of social worker in an industrial organisation is within the administrative preview of Personnel or Human Resource Management department. Occasionally is under the direct control of the line managers. The workers are occasionally involved in the decision making in the development of the welfare services. However, since he/she is enjoys autonomy in their day-to-day functioning, they are in a position to build a purposeful relationship with the operative employees. This will enable them to relate freely to the social worker with trust and confidence.
Professional Social Work Ethics
It is at this point that the issue of professional social work ethics assumes importance, both for the social worker and the employing organisation.
They are:1. The social worker should be outside the chain of command of the management, even though officially she may have to operate from the personnel or administrative department.2. The worker should not have any responsibility involving his functionary, directly controlling the work life of the employee in so far as it affects the production process.3. The worker should maintain the professional confidentiality. This does not mean that the worker should not share the workers problem with staff at other levels and management.
His work necessarily demands contact with different levels of management in the industry for effective discharge of his functions.
It is equally important for the workers to note that 'the strategic role of social worker in industry stem from his intimate contact with the rank and file workers as well as the access he has to in decision making channel and the upper echelons of the power structure in industry… but he should be very cautious of the dangers involved in his multiple identification with people in a variety of status of roles and in having his skills used manipulatively.
This is particularly true of his role in enhancing positive communication between workers and managers. This is highly complex, due to the growing importance of the trade unions, which now has great influence on the management. It is primarily delegated to the Personnel Officer and rather than to the Labour welfare Officer, or the social worker. It is the personnel officer who has to act as spokes men of the workers and advice the management on the action to be taken on their problem. He also have to strive to maintain a neutral stand to hold the balance between the management and employees and the situation which can arise possible conflicts between the trade unions and the management objectives. Here the positive and the neutral stand of the industrial social worker can be of great value to the personnel officer.
The responsibility of the social worker fall mainly in the category of non statutory services such as:1. Family individual and group, counselling and home visit in relation to adjustment of the work orientation, personality and other problems at preventive level.2. Active participation in corporate social responsibility activities and community development initiatives of the industry.3. Employee management and effective intervention of labour management problems.4. Industrial counselling.5. Case work interventions.6. Health and educational help, which would involve referral to other agencies.7. Coordination of welfare services with other welfare agencies.8. Workers education.9. Family planning and Family life education.10. Workers recreation management.
Although personnel officer welfare officer and the industrial social worker are all concerned with the human relation aspect in the industry, a comparison of their rights and duties reveal that the former are organisation oriented and the social worker is essentially employee oriented. He/she can effectively sustain her working relation with other specialist for implementing the social welfare policy.
Qualities of Industrial Social worker
The knowledge and personality traits deemed essential in a social worker in the industry are:* Maturity* Warm and genuine interest in people adjustability* Good communication skills in dealing with people at different levels* Resourcefulness* Sound physical health* Effective intervention skills* Knowledge of industrial psychology* Knowledge of labour laws* Expertness in corporate-community interaction* Expertness in industrial counselling
Conclusion
The industrial social worker with his basic knowledge of human dynamics and her skill in working with individuals at different levels will be a great asset in individualization service. The industrial social worker has to project his or her role as helper/moderator/facilitator rather than management appointed person. An ongoing coordination between training in social work institutions and industries is necessary and useful for effective feedback. Industrial social work should emerge as an accepted professional filed in India that will enable Human Resource Managers and Personnel Managers in the effective employee management and organisational development.
MEANING AND DEFINITION OF INDUSTRIAL RELATION
The relationship between Employer and employee or trade unions is called Industrial Relation. Harmonious relationship is necessary for both employers and employees to safeguard the interests of the both the parties of the production. In order to maintain good relationship with the employees, the main functions of every organization should avoid any dispute with them or settle it as early as possible so as to ensure industrial peace and higher productivity. Personnel management is mainly concerned with the human relation in industry because the main theme of personnel management is to get the work done by the human power and it fails in its objectives if good industrial relation is maintained. In other words good Industrial Relation means industrial peace which is necessary for better and higher productions.Definition:-i. Industrial Relation is that part of management which is concerned with the manpower of the enterprise – whether machine operator, skilled worker or manager. BETHEL, SMITH & GROUPii. Industrial Relation is a relation between employer and employees, employees and employees and employees and trade unions. - Industrial dispute Act 1947iii. While moving from jungle of the definitions, here, Industrial Relation is viewed as the “process by which people and their organizations interact at the place of work to establish the terms and conditions of employment.”The Industrial Relation relations also called as labor - management, employee-employers relations.A few notable features pertaining to Industrial Relations are as under: 1. Industrial Relation do not emerge in vacuum they are born of employment relationship in an industrial setting. Without the existence of the two parties, i.e. labor and management, this relationship cannot exist. It is the industry, which provides the environment for industrial relations.2. Industrial Relation are characterized by both conflict and co-operations. This is the basis of adverse relationship. So the focus of Industrial Relations in on the study of the attitudes, relationships, practices and procedure developed by the contending parties to resolve or at least minimize conflicts.3. As the labor and management do not operate in isolations but are parts of large system, so the study of Industrial Relation also includes vital environment issues like technology of the workplace, country’s socio-economic and political environment, nation’s labor policy, attitude of trade unions workers and employers.4. Industrial Relation also involve the study of conditions conductive to the labor, managements co-operations as well as the practices and procedures required to elicit the desired co-operation from both the parties.5. Industrial Relations also study the laws, rules regulations agreements, awards of courts, customs and traditions, as well as policy framework laid down by the governments for eliciting co-operations between labor and management. Besides this, it makes an in-depth analysis of the interference patterns of the executive and judiciary in the regulations of labor–managements relations.In fact the concepts of Industrial Relations are very broad-based, drawing heavily from a variety of discipline like social sciences, humanities, behavioral sciences, laws etc.In fact, Industrial Relation encompasses all such factors that influence behavior of people at work. A few such important factors are details below:1. Institution: It includes government, employers, trade unions, unions federations or associations, government bodies, labor courts, tribunals and other organizations which have direct or indirect impact on the industrial relations systems.2. Characters : It aims to study the role of workers unions and employers’ federations officials, shop stewards, industrial relations officers/ manager, mediator/conciliators / arbitrator, judges of labor court, tribunal etc.3. Methods : Focus on collective bargaining, workers’ participation in the Industrial Relation schemes, discipline procedure, grievance re-dressal machinery, dispute settlements machinery working of closed shops, union reorganization, organizations of protests through methods like revisions of existing rules, regulations, policies, procedures, hearing of labor courts, tribunals etc.4. Contents : Includes matter pertaining to employment conditions like pay, hours of works, leave with wages, health, and safety disciplinary actions, lay-off, dismissals retirements etc., laws relating to such activities, regulations governing labor welfare, social security, industrial relations, issues concerning with workers’ participation in management, collective bargaining, etc.Objectives of Industrial RelationA. To safeguard the interest of labor and management by securing the highest level of mutual understanding and good-will among all those sections in the industry which participate in the process of production.B. To avoid industrial conflict or strife and develop harmonious relations, which are an essential factor in the productivity of workers and the industrial progress of a country.C. To raise productivity to a higher level in an era of full employment by lessening the tendency to high turnover and frequency absenteeism.D. To establish and nurse the growth of an Industrial Democracy based on labor partnership in the sharing of profits and of managerial decisions, so that ban individuals personality may grow its full stature for the benefit of the industry and of the country as well.E. To eliminate, as far as is possible and practicable, strikes, lockouts and gheraos by providing reasonable wages, improved living and working conditions, said fringe benefits.F. To establish government control of such plants and units as are running at a loss or in which productions has to be regulated in the public interest.G. Improvements in the economic conditions of workers in the existing state of industrial managements and political government.H. Control exercised by the state over industrial undertaking with a view to regulating production and promoting harmonious industrial relations.I. Socializations or rationalization of industries by making he state itself a major employerJ. Vesting of a proprietary interest of the workers in the industries in which they are employed.The main aspect of Industrial Relations are :-i. Labor Relations, i.e. relations between union and management.ii. Employer-employees relations, i.e. relations between management and employees.iii. Group relations, i.e. relations between various groups of workmen.iv. Community or Public relations, i.e. relations between industry and society.v. Promotions and development of healthy labor-managements relations.vi. Maintenance of industrial peace and avoidance of industrial strifevii. Development of true industrial Democracy.Effects of poor Industrial RelationsPoor Industrial Relation produces highly disquieting effects on the economic life of the country. We may enumerate the ill-effects of poor Industrial Relations as under:1. Multiplier effects: Modern industry and for that matter modern economy are interdependent. Hence although the direct loss caused due to industrial conflict in any one plant may not be very great, the total loss caused due to its multipliers effect on the total economy is always very great.2. Fall in normal tempo : poor Industrial Relations adversely effect the normal tempo of work so that work far below the optimum level. Costs build up. Absenteeism and labor turnover increase. Plants discipline breaks down and both the quality and quality of production suffer.3. Resistance of change : Dynamic industrial situation calls for change more or less continuously. Methods have to be improved. Economics have to be introduced. New products have to be designed, produced and put in the market. Each of these tasks involves a whole chain of changes and this is resisted bitterly if these are industrial conflict.4. frustration and social cost : every man comes to the work place not only to earn a living. He wants to satisfy his social and egoistic needs also. When he finds difficulty in satisfying these needs he feels frustrated. Poor Industrial Relations take a heavy toll in terms of human frustration. They reduce cordiality and aggravate social tension.Suggestions to Improve Industrial Relation :-a. Both management and unions should develop constructive attitudes towards each otherb. All basic policies and procedures relating to Industrial Relation should be clear to everybody in the organization and to the union leader. The personnel manager must make certain that line people will understand and agree with these policies.c. The personnel manager should remove any distrust by convincing the union of the company’s integrity and his own sincerity and honesty. Suspicious, rumors and doubts should all be put to rest.d. The personnel manager should not vie with the union to gain workers‘loyal to both the organization. Several research studies also confirm the idea of dual allegiance. There is strong evidence to discard the belief that one can owe allegiance to one group only.e. Management should encourage right kind of union leadership. While it is not for the management to interfere with union activities, or choose the union leadership, its action and attitude will go a long way towards developing the right kind of union leadership. “Management gets the union it deserves” is not just an empty phrase. Managements IMPORTANCE OF INDUSTRIAL RELATIONS:The healthy industrial relations are key to the progress. Their significance may be discussed as under -1. Uninterrupted production – The most important benefit of industrial relations is that this ensures continuity of production. This means, continuous employment for all from manager to workers. The resources are fully utilized, resulting in the maximum possible production. There is uninterrupted flow of income for all. Smooth running of an industry is of vital importance for several other industries; to other industries if the products are intermediaries or inputs; to exporters if these are export goods; to consumers and workers, if these are goods of mass consumption.2. Reduction in Industrial Disputes – Good industrial relation reduce the industrial disputes. Disputes are reflections of the failure of basic human urges or motivations to secure adequate satisfaction or expression which are fully cured by good industrial relations. Strikes, lockouts, go-slow tactics, gherao and grievances are some of the reflections of industrial unrest which do not spring up in an atmosphere of industrial peace. It helps promoting co-operation and increasing production.3. High morale – Good industrial relations improve the morale of the employees. Employees work with great zeal with the feeling in mind that the interest of employer and employees is one and the same, i.e. to increase production. Every worker feels that he is a co-owner of the gains of industry. The employer in his turn must realize that the gains of industry are not for him along but they should be shared equally and generously with his workers. In other words, complete unity of thought and action is the main achievement of industrial peace. It increases the place of workers in the society and their ego is satisfied. It naturally affects production because mighty co-operative efforts alone can produce great results.4. Mental Revolution – The main object of industrial relation is a complete mental revolution of workers and employees. The industrial peace lies ultimately in a transformed outlook on the part of both. It is the business of leadership in the ranks of workers, employees and Government to work out a new relationship in consonance with a spirit of true democracy. Both should think themselves as partners of the industry and the role of workers in such a partnership should be recognized. On the other hand, workers must recognize employer’s authority. It will naturally have impact on production because they recognize the interest of each other.5. New Programmes – New programmes for workers development are introduced in an atmosphere of peace such as training facilities, labor welfare facilities etc. It increases the efficiency of workers resulting in higher and better production at lower costs.6. Reduced Wastage – Good industrial relations are maintained on the basis of cooperation and recognition of each other. It will help increase production. Wastages of man, material and machines are reduced to the minimum and thus national interest is protected.Thus, from the above discussion, it is evident that good industrial relation is the basis of higher production with minimum cost and higher profits. It also results in increased efficiency of workers. New and new projects may be introduced for the welfare of the workers and to promote the morale of the people at work.An economy organized for planned production and distribution, aiming at the realization of social justice and welfare of the massage can function effectively only in an atmosphere of industrial peace. If the twin objectives of rapid national development and increased social justice are to be achieved, there must be harmonious relationship between management and labor.DIFFERENCE BETWEEN INDUSTRIAL RELATIONS AND HUMAN RELATIONS :The term “Industrial Relations” is different from “Human Relations”. Industrial relations refer to the relations between the employees and the employer in an industry. Human relations refer to a personnel-management policy to be adopted in industrial organizations to develop a sense of belongingness in the workers improves their efficiency and treat them as human beings and make a partner in industry.Industrial relations cover the matters regulated by law or by collective agreement between employees and employers. On the other hand, problems of human relations are personal in character and are related to the behavior of worker where morale and social elements predominated. Human relations approach is personnel philosophy which can be applied by the management of an undertaking. The problem of industrial relations is usually dealt with a three levels – the level of undertaking, the industry and at the national level. To sum up the term “Industrial Relations” is more wide and comprehensive and the term “Human Relations” is a part of it.Determining factors of industrial relations – Good industrial relations depend on a great variety of factors. Some of the more obvious ones are listed below:1. History of industrial relations – No enterprise can escape its good and bad history of industrial relations. A good history is marked by harmonious relationship between management and workers. A bad history by contrast is characterized by militant strikes and lockouts. Both types of history have a tendency to perpetuate themselves. Once militancy is established as a mode of operations there is a tendency for militancy to continue. Or once harmonious relationship is established there is a tendency for harmony to continue.2. Economic satisfaction of workers – Psychologists recognize that human needs have a certain priority. Need number one is the basic survival need. Much of men conducted are dominated by this need. Man works because he wants to survive. This is all the more for underdeveloped countries where workers are still living under subsistence conditions. Hence economic satisfaction of workers is another important prerequisite for good industrial relations.3. Social and Psychological satisfaction – Identifying the social and psychological urges of workers is a very important steps in the direction of building good industrial relations. A man does not live by bread alone. He has several other needs besides his physical needs which should also be given due attention by the employer. An organization is a joint venture involving a climate of human and social relationships wherein each participant feels that he is fulfilling his needs and contributing to the needs of others. This supportive climate requires economic rewards as well as social and psychological rewards such as workers’ participation in management, job enrichment, suggestion schemes, re-dressal of grievances etc.4. Off-the-Job Conditions – An employer employs a whole person rather than certain separate characteristics. A person’s traits are all part of one system making up a whole man. His home life is not separable from his work life and his emotional condition is not separate from his physical condition. Hence for good industrial relations it is not enough that the worker’s factory life alone should be taken care of his off-the-job conditions should also be improved to make the industrial relations better.5. Enlightened Trade Unions – The most important condition necessary for good industrial relations is a strong and enlightened labor movement which may help to promote the status of labor without harming the interests of management, Unions should talk of employee contribution and responsibility. Unions should exhort workers to produce more, persuade management to pay more, mobilize public opinion on vital labor issues and help Government to enact progressive labor laws.6. Negotiating skills and attitudes of management and workers – Both management and workers’ representation in the area of industrial relations come from a great variety of backgrounds in terms of training, education, experience and attitudes. These varying backgrounds play a major role in shaping the character of industrial relations. Generally speaking, well-trained and experienced negotiators who are motivated by a desire for industrial peace create a bargaining atmosphere conducive to the writing of a just and equitable collective agreement. On the other hand, ignorant, inexperienced and ill-trained persons fail because they do not recognize that collective bargaining is a difficult human activity which deals as much in the emotions of people as in their economic interests. It requires careful preparation and top –notch executive competence. It is not usually accomplished by some easy trick or gimmick. Parties must have trust and confidence in each other. They must possess empathy, i.e. they should be able to perceive a problem from the opposite angle with an open mind. They should put themselves in the shoes of the other party and then diagnose the problem. Other factors which help to create mutual trust are respect for the law and breadth of the vision. Both parties should show full respect for legal and voluntary obligations and should avoid the tendency to make a mountain of a mole hill.7. Public policy and legislation: - when Government, regulates employee relations, it becomes a third major force determining industrial relations the first two being the employer and the union. Human behavior is then further complicated as all three forces interact in a single employee relation situation. Nonetheless, government in all countries intervenes in management – union relationship by enforcing labor laws and by insisting that the goals of whole society shall take precedence over those of either of the parties. Government intervention helps in three different ways 1) it helps in catching and solving problems before they become serious. Almost every one agrees that it is better to prevent fires them to try stopping them after they start; 2) It provides a formalized means to the workers and employers to give emotional release to their dissatisfaction; and 3) It acts as a check and balance upon arbitrary and capricious management action.8. Better education: - with rising skills and education workers’ expectations in respect of rewards increase. It is a common knowledge that the industrial worker in India is generally illiterate and is misled by outside trade union leaders who have their own axe to grind. Better workers’ education can be a solution to this problem. This alone can provide worker with a proper sense of responsibility, which they owe to the organization in particular, and to the community in general.9. Nature of industry: - In those industries where the costs constitute a major proportion of the total cast, lowering down the labor costs become important when the product is not a necessity and therefore, there is a little possibility to pass additional costs on to consumer. Such periods, level of employment and wages rise in decline in employment and wages. This makes workers unhappy and destroys good industrial relations.INDUSTRIAL RELATIONS PROGRAMME :Today’s professional industrial relations director, or by whatever title he is designated, no longer views his job as personalizing management, or that of a social worker in a factory, or a union buster, he looks upon his department as an adjunct to management supervision at all levels; he keeps other executives informed about new discoveries, programme trends and needs. At the same time, he provides efficient service in the operation of several centralized services.A successful industrial relations programme reflects the personnel viewpoint, which is influenced by three main considerations:a) Individual thinkingb) Policy awareness andc) Expected group reactionIndividualized thinking makes if imperative for the administrator to consider the entire situation in which the affected individual is placed. Policy awareness underscores the idea of the consistency of treatment and the precedent value of any decision which a management takes; while expected group reaction balances what we know of human nature in groups against an individual’s situation in the light of the policy that has been formulated and implemented. In all these different circumstances, reality demands that all the three aspects of the personnel viewpoint should be considered at once in terms of the past, the present and the future. This viewpoint is held at all the levels of management from the top to the bottom, from the top executives and staff to the line and supervisory personnel.SCOPE OF INDUSTRIAL RELATIONS WORK: The staff employed in the industrial relations department should know the limitations within which it has to function. The industrial relations director generally has several assistants who help him to perform his functions effectively, and he usually reports directly to the president or chairman of the board of directors of an organization.The functions of the industrial relations staff are -1. Administration, including overall organization, supervision and co-ordination of industrial relations policies and programmes.2. Liaison with outside groups and personnel departments as well as with various cadres of the management staff.3. The drafting of regulations, rules, laws or orders and their construction and interpretation.4. Position classification, including overall direction of job analysis, salary and wage administration, wage survey and pay schedules.5. Recruitment and employment of workers and other staff.6. Employment testing, including intelligence tests, mechanical aptitude tests and achievement tests.7. Placement, including induction and assignment.8. Training of apprentices, production workers, foremen and executives.9. Employee counseling on all types of personnel problems-educational, vocational, health or behavior problems.10. Medical and health services.11. Safety services, including first aid training.12. Group activities, including group health insurance, housing, cafeterial programmes and social clubs.13. Suggestion plans and their uses in labor, management and production committees.14. Employee relations, specially collective bargaining with representatives and settling grievances.15. Public relations.16. Research in occupational trends and employee attitudes, and analysis of labor turnover.17. Employee records for all purposes.18. Control of operation surveys, fiscal research and analysis.19. Benefit, retirement and pension programmes.FUNCTIONAL REQUIREMENTS OF A SUCCESSFUL INDUSTRIAL RELATIONS PROGRAMME The basic requirements on which a successful industrial relations programme is based are :-a) Top Management Support: - Since industrial relations is a functional staff service, it must necessarily derive its authority from the line organization. This is ensured by providing that the industrial relations director should report to a top line authority to the president, chairman or vice president of an organization.b) Sound Personnel Policies: - These constitute the business philosophy of an organization and guide it in arriving at its human relations decisions. The purpose of such policies is to decide, before any emergency arises, what shall be done about the large number of problems which crop up every day during the working of an organization. Policies can be successful only when they are followed at all the level of an enterprise, from top to bottom.c) Adequate Practices should be developed by professionals: - In the field to assist in the implementation of the policies of an organization. A system of procedures is essential if intention is to be properly translated into action. The procedures and practices of an industrial relations department are the “tool of management” which enables a supervisor to keep ahead of his job that of the time-keeper, rate adjuster, grievance reporter and merit rater.d) Detailed Supervisory Training :- To ensure the organizational policies and practices are properly implemented and carried into effect by the industrial relations staff, job supervisors should be trained thoroughly, so that they may convey to the employees the significance of those policies and practices. They should, moreover, be trained in leadership and in communications.e) Follow-up of Results: - A constant review of an industrial relations programme is essential, so that existing practices may be properly evaluated and a check may be exercised on certain undesirable tendencies, should they manifest themselves. A follow up of turnover, absenteeism, departmental morale, employee grievances and suggestion; wage administration, etc. should be supplemented by continuous research to ensure that the policies that have been pursued are best fitted to company needs and employee satisfaction. Hints of problem areas may be found in exit interviews, in trade union demands and in management meetings, as well as in formal social sciences research.
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