Chapter II

RURAL INDUSTRIALISATION IN INDIA: PAST AND PRESENT

We have observed in Chapter I that in cotmtries like Japan and China, the artisanal industries

were quite developed at the time when modern industrialisation began, and that these dispersed

crafts/skills provided the base on which modern industries developed. In Japan, they contributed to the

foreign exchange earnings which in turn facilitated import of modem technology necessary for the

industrial sector as a whole, besides providing the required skills. In China, aS in Japan, the existence

of a long tradition of rural crafts helped in the rapid development of decentralised industries through

providing skills and technology and also these crafts were modernised. The State played an effective

role in promoting industries, both the artisanal and Western-type, in these cotmtries. Both types of

industries grew simultaneously and, in fact, indigenous industries adopted modern techniques

developed in the factory sector. The large enterprises often took active part in promoting small

enterprises (including artisanal) and a~ the latter in terms of marketing products and providing

finance and technological guidance.

Quite akin to both China and Japan, India also had a long tradition of artisanal industries. The

development of the artisanal industries in India can be traced over three broad periods which we would

consider in the Sections below. The first includes the period upto the beginning of British rule in India.

During the period, traditional industries prospered almost in an uninterrupted manner. In the second,

which corresponds with the British colonial rule, artisanal industries, over large tracts of the country,

suffered a decline. In Section III we wQuld discuss the pattern of growth of rural industries after

independence.

2.1. Some Historical Evidence on the Growth of Rural Industries in Bengal and some Other Regions of India

In the ancient village society of India artisanal industries had been organised on the basis of

castes and the artisans primarily belonged to 'sudra', the lowest 'varna', and some times 'vaishya'

castes. Important among the artisans were carpenters, potters, weavers, iron smiths, gold smiths and

bell and brass metal workers who used to provide the villagers with their daily necessi ties1. Their

products were also sold in village fairs and festivals, some of which became famous and attracted both

the manufacturers and customers from far away place~. However, the major development of the crafts

took place in the urban areas. Nihar Ranjan Roy uncovered plenty of evidence showing a developed

Basu ( 1949), p. 84.

Ibid, pp. 85-6.

cloth industry manufacturing various kinds of silk and cotton cloth in different parts of Bengal as well

as India in ancient times, and whose popularity spread across country much before the Christian era3.

Roy also observed the existence of a number of other important industries in various parts of Bengal4•

T.N. Mukherji analysed the conditions and growth of the handicraft industries in the medieval

and early British period. He observed that among the manufactured articles which were exported, the

muslins of Dacca, the silks of Murshidabad, the ivory carving of Sylhet and the filigree work of

Cuttack commanded the admiration of ancient Persians, Grecians and Romans5• As regards product

quality, Mukherji cited Dr. Forbes Watson, one of the greatest experts in Indian products and

manufactures, as saying that "in delicacy of texture, in fineness of web; the Dacca mtislins have not

as yet been surpassed by the highest qualities of the machine made manufactures of Europe"6•

K.N. Chaudhuri observed that during the seventeenth and eighteenth centuries there were four

great industrial regions in India specialising in the manufacture of cotton goods for exports. These

were Punjab, Gujarat, the Coromandel coast and Bengaf.

Chief articles exported from Surat to Europe were 'calicoes', locally named as 'Baftas'8• These

goods were produced with special excellence at Broach, Navsari and Baroda. These were sold in some

Roy (1949), Chapter IV. He referred to the sources of the Arthashastra of Kautilya, the book called Periplus of the Erythrean Sea, and the travel and business documents of the Arabians, Chinese and the Italians.

4 For example, ornaments of gold, silver, diamond, pearl and other precious stones were manufactured by the artisans and used by the wealthy people. Evidence of ivory work was found in Shrihatta (Sylhet). Iron and other metal industries supplied a wide range of agricultural implements as well as weapons for the army. Potters used to manufacture_a wide variety of earthen utensils that were used by the common people. Sutradhars (carpenters) used to manufacture furniture, wooden structure as well as wood carving and various art works often on the structure. Salt was extracted in the coastal Bengal and traded in other parts of India (ibid).

5 When the Roman empire was at the zenith of its power, large quantities· of Dacca muslins were annually exported to West Europe by way of Egypt and Asia Minor; later the artisans re~eived a great impetus on account of the high demand for the muslins by the Caliphs of Baghdad. See Mukherji (1883), p.S.

6 The superior quality of the long stapled cotton was achieved by continual selection of seed and· improved culture extending through ages and which alone yielded the soft fine yarn required for the manufacture of the true Dacca fabrics. The time taken to weave a piece of finer quality muslin measuring 20 yd X 1 yd was not less than six months. Production of such cloth in large quantities shows the numerousness of artisans employed (ibid, pp.S-6).

Chaudhuri (1996), p.40.

O.P. Singh (1977), p.l30.

56

cases in raw (Wlbleached) form, and in some other cases bleached or dyed The cities of Ahmedabad

and Agra were famous centres where calicoes from all parts of India were brought for dyeing with

indigo which in tum was manufactured in Sarlamj and Biana9• There were other varieties of cotton

cloth viz, 'Chintz', 'DWlgarees', 'Guinee cloth', etc exported from Surat. Cotto~ yarn was also

exported from Surat by the English and Dutch East India Companies. This indicates substantial

development of cotton textiles in Surat and its neighbouring regions during the period10•

Beside Surat, the Coromandel coast was also an important trading centre of eotton goods during

the period. There existed a large number of weaving villages in South Arcot with Tanjore being a

particularly important centre of cotton weaving11• A speciality of Coromandel textile industry was the

dyeing, painting and printing of cotton goods in beautiful designs and colours. The quality and texture

of the fabrics were .also very diverse 12• There were coarse calicoes for rough daily use by the common

folk, and muslins of delicate softness for wealthy women. There were piece goods and articles of ·-

apparel, such as sarongs, coats, shawls, mantles and turban. In Coromandel, there were three varieties

of staple cloth, viz, 'long cloth', 'salempures' and 'mores', which acco\Ulted for the largest volume

of exports and were extensively woven in looms from North to South Coromandel13• Besides fabrics

and items of dress, the range of cotton textile products included the Coromandel sailcloth, cotton

carpets, bed-<:overs, pillow-<:ases, handkerchiefs, mattresses from Sindh, embroidered from Bengal,

bed-hangings, tents, etc14•

In Punjab, important weaving centres were Panipath and Jalandhar doab. The weavers producing

for exports had two main outlets for their products: one was the overland trade with the markets of

Afghanistan, eastern Persia and central Asia, and the other the riverbome traffic to the ports of Sindh

which exported the goods to Muskat, Kung and Basra15•

Raychaudhuri observed, "The production of cotton yarn appears to have been always an

independent manufacturing activity and a second- occupation· in weavers' families. Yarn· was also

9 Ibid.

1° For a discussion on the manufacturing of cotton goods in the Gujarat and the Deccan regions in south, see M. Mehta (1991).

11 .S. Arasaratnam (1986), p.63.

12 Ibid, p.97

13 For a detailed discussion see Arasaratnam (1986), pp.98-102.

14 Raychaudhuri (1982), p.270.

15 Chaudhuri ( 1996), p.41.

57

produced by a subsistence oriented sy&tem in peasant households. The weavers producing for the

market are fmmd invariably procuring yam spun by independent spinners. Broach, Balasore,

Kasimbazar, etc are mentioned as major sources of yam supply." 16 Next in economic importance were

dyestuffs and sugar. Of the two main dyestuffs, red dye wasproduced in the Coromandel coast and

indigo was mainly produced near Agra and in the north and south Coromandel17• Cane sugar in all its

three forms - the coarse jaggery, the tme-grained white 'powder sugar' and the expensive 'candy' or

crystals - were produced in many parts of the country, though the best and the cheapest varieties came

from Bengal. The Agra region, Multan and Orissa were also important sugar producing areas. The

other important agro-manufactures included, oils, tobacco, opium, saffron and alcoholic drinks1M.

Among the mineral based industries, iron was important considering its substantial demand for

weapons. The metal was produced in the Mughal provinces of Bengal, Allahabad, Agra, Berar,

Gujarat, Delhi and Kashmir19• Saltpetre, used for both the manufacture of gunpowder and cooling

water for the affluent was mainly produced in Patna and Ajmer. This was substantially exPorted by

the Dutch companl0.

The production of a wide variety of boats was an important manufacturing activity during the

Mughal period. "Down to the earlier half of the seventh century India produced all her shipping

required for coastal as well as Indian ocean trade ... The centres of production, partly dependent on the

availability of timber, were spread along the Gujarat, Konkan and Coromandel coasts."21

The above discussion was an attempt to provide some evidence of the existence of developed

manufacturing or handicraft industries in different parts of India in the pre-British and the early British

period. The development of manufacturing ,may also be guessed from the development of trade

(particularly exports and inland trade) of manufactured goods. In a sense, such development of

industries is to an extent related to the growth of trade and mercantile activities, banking, insurance

and financial networks. The spread of trading network was made easier through a cheap and highly-

16 Raychaudhuri (1982), p.271.

17 Ibid, p.274.

18 Ibid.

19 Ibid, p.275

20 Ibid.

21 Ibid, p.276.

58

--;.

efficient system of banking and insurance22•

We may mention some of the observations regarding trade in Bengal made by Ghoshal. He

observed that "large quantities of fme rice were exported from South Bihar to Benaras, Murshidabad

and Calcutta ... wheat and tobacco form North Bihar to Patna and South Bihar, salt anQ betelnut from

Dacca, Calcutta, Murshidabad to different parts of Bengal province, Benaras and upper provinces'123•

Ghoshal further noted that a brisk trade in cotton fabrics was carried on by the indigenous merchants

until at least about the end of the first decade of the 19th centu~. Among other commodities mention

may be made of raw silk, silk piece-goods and woollen fabrics which were widely traded in Bengal25•

A substantial inter-provincial trade had developed based on fme textiles which were supplied ·

from special centres. "The muslins from the Dacca district in eastern Bengal had their counterpart in

the silk goods and taffetas of Kasimbazar, also in Bengal. Towns in western and central India, such

as Ahmedabad and Sironj, provided fme embroidered quilts, satins, chintz, and the famous transparent

muslin Ab-i-rav~. meaning flowing W.~ter. The· finest varieties of painted cloth in India, as the

servants of the East India Company so often described, came from the area around Masulipatam. "26

Ghoshal also observed the existence of 'transit trade of the upper provinces'. The leading exports

from these provinces to Benaras, Bihar and Bengal proper were cotton, sambhar salt, unwrought iron,

drugs and woollen goods. The returns from the lower provinces were made in sugar, copper, tin, lead,

broad cloths, and several other article~7• Ghoshal, however, noted that during the second half of the

eighteenth century, the internal trade of Bengal steadily declined28•

22 For an elaborate discussion on the development of indigenous banking and insurance and of the business class see Bagchi (1981), Tripathi (1979) and Guha (1970). For a discussion on the development of capitalist forces in the Mughal period and the future potentialities see Habib (1968) and Satish Chandra (1968).

23 Ghoshal (1966), p.l70.

24 Ibid. At the time of Buchanan's survey there were about a hundred such merchants in Shahabad who exported cloth to Murshidabad, Burdwan and Miditapur (ibid).

25 From Mirza pur and Shahabad carpets and blankets were exported to different parts of the province of Bengal (ibid, p.171).

26

21

Chaudhuri (1996), p.38.

Ghoshal (1966), p.l71.

18 The "opposition committed by the East India Company's servants in carrying on the private trade after the battle of Plassey, numerous impositions levied both by the Company's Government and the zaminders, farmers and other persons of authority "upon every article of commerce and necessity of life", the general decay of the old roads and the neglect of the water ways, the increasing activities of free-booters and gang robbers ... were all, in a greater or lesser degree, responsible for the decay of

59

While identifying different classes of inland traders, Ghoshal referred to Buchanan who observed

that in Bihar important indigenous merchants included, Parchunias (dealt with all kinds of grain),

Goldars (wholesale dealers in grains), Nemaki paikers (who dealt in salt), Saudagars (maintained shops

of European articles), Kothiwals (primary business in banking but often combined .it with trading),

Arhateas (received goods from merchants at a distance and disposed of these by commission), among

othen19• Trading pilgrims (Sannyasis or Gosains), who travelled from place to place carrying various

articles of commerce, were found to be an important class of traders as they had a wider trading

network. Benaras ~ad 500 houses of Gosains who carried on a very extensive trade. Besides these

there were Greek and Armenian merchants who maintained floating shops carrying commodities up

and down the Gang~.

The growth of commodity trade (which in tum promoted manufacturing) and of merchant capital

were facilitated by the well organised fmance and banking networks. An important instrument of

fmancial transaction/exchange had been the hundi (bill of exchange), a negotiable document, which

was usually transferred at a small discoune 1• The rate of discount/premium on a hundi was determined

partly by the real rate of exchange depending upon the balance of payment between the places of issue

and maturity, and partly by the rate of interest for the period between its issue and redemption32•

Usually the shroffs specialised in issuing hundis as well as discounting them. The hundi became

convertible from a means of remittances into an instrument of credie3• Habib (1972) traced evidence

of hundi as early as in the 15th century, although it became well developed during the Mughal period.

Mishra's study revealed that in the 18th century there were a large number of developed banking

houses operating in the Upper India, with their centre at Benaras34• Earlier they acted as bankers to

kings and nawabs - liquidating the nawab's arrears (to the East India Company) by granting bills in

advance of payment by the nawab; later they became the chief remitters of the Company's revenue

internal trade throughout the presidency" (Ghoshal, 1966, p.169).

29 Ibid, p.172.

30 Ibid, p.173.

31 Habib (1972), p.291.

32 Ibid, p.295.

33 Ibid.

34 Mishra (1987), p.61. The majority of the bankers were Vaishya, Agarwal, Khatri, traditional mercantile communities of the Hindu social system. They were followed by Gosain and Brahmin. Most of these bankers came from Gujarat, Rajasthan and the Western part of the present U.P. (ibid, pp.61-2).

60

through instruments of hundis payable at Calcutta35• They had their representatives or gumashtas posted

at different branches of their respective houses. These agents were often members of their families,

relations or persons of trust and responsibility associated with them through long service and business

experience36• Mishra further observed that originally all indigenous bankers w~re traders and

merchants, who accumulated capital through trade and started banking business. They earned immense

profits through trade in coins, gold and silver bullion, commission on hundis, interest on loans and

insurance of goods and merchandise37• Habib noted that an efficient system of credit not only enlarged

merchant capital but also gave it mobility during the Mughal period38• ''The sarrafs not only

transmitted money through their own hundies but by discounting the merchants' hundies, they fmanced

commerce, particularly long distance and international trade, to a very large extent So brisk was the

use of these bills [hundis] that in the Ahmedabad market merchants made their payments, or adjusted

their obligations, almost entirely through transfer of papers ... Insurance, a business also carried on ?Y the sarrafs, was fairly well developed. Hundis, goods in transit and cargo could all be insured." 39 Sinbe

the "sarrafs accepted deposits while they also advanced loans directly, they acted practically as deposit

bankers ... [And] owing to their ability to advance large loans to merchants ... some of the capital mopped

up through deposits with the sarrafs did turn into merchant capital"40•

As regards the development of production organisation during the Mughal period, Raychaudhuri

observed, "The interaction of technology, the social system and the size and character of the market

resulted in a limited variety of manufacturing organisation ... The relatively elementary character of

technology with its emphasis on cheap uncomplicated instruments and very low ratio of fixed to

working capital implied a minimal concentration of labour and capital in individual units of

production. Since the bulk of the production was for the isolated small-scale rural markets and even

there geared more to reciprocal arrangements rather than to exchange, small units using very little

capital were the characteristic form of organisation."41 He further noted that "Where heredity is the

3~ Ibid, pp.61-4. The hundis were also regularly employed by the merchants and individuals for transacting business requiring remittances of money to distance places (ibid, p.70).

36 Ibid, p.64.

37 Ibid, p.65.

38 Habib (1995), p.224.

39 Ibid, pp.226-27.

40 Ibid, p227.

41 Raychaudhuri (1982), p.277. See also Habib (1995), pp. 213-20.

61

~

chief if not the only determinant of artisan's choice of trade, the family develops naturally as the work­

unit and the paterfamilias as the master craftsman providing the necessary training in skills. The

resulting uniformity of family-based production units was modified by the nature of demand and at

times by the types of commodity produced."42 Available evidence indicates that particular varieties of

textiles came to be produced by particular sub-castes. Raychaudhuri went to the extent of saying that

virtually every operation connected with the production of cloth - cotton carding, spinning, winding

silk-thread, unwinding and rewinding the yam, formation of the cloth on the loom, bleaching, dyeing,

printing and painting of designs - developed into di~inct occupations, some as exclusive jalis or caste

categories43.

As already mentioned, the bulk of the rural manufactures were produced by the hereditary artisan

castes bound to the dominant agricultural castes by traditional ties of client-patron relationship, termed

as the jajmani system. By the seventeenth century, with monetisation and development of the exchange

system, payments in cash or kind for additional work, or entirely on a piece-work basis, came to exist

along-side the more widely practice of allocating fixed shares of rural produce and/or land to the

artisan families44• By the mid eighteenth century the entire production for the long- and medium-

. distant trade was dependent on artisans who were fully weaned from the 'jajmani system'. The

majority of these artisans appeared to have become dependent on the system of advance, known as

dadni, from the buyers or the middlemen. The shortage of capital of the artisans was the basic reason

for such a system of advances. In case of European Companies placing the order, it eru;ured purchase

of goods to the weavers. (Disputes however arose as the former often rejected the goods due to

deviation from their specification.) Additionally, dadni was a way of binding-up the producers in the

face of competition from other European Companies and Indian merchants45. In a few instances

artisans were reduced virtually to the position of wage earners - with .the buyer providing the raw

materials and paying on a daily basis, as seen in the case C?_f the weavers working for the English

Company's chief supplier, Kasi Viranna, on the Coromandel coast, or silk reelers in the Kasimbazar

factory 46• Dadni was not the same as the 'putting-out' system which existed in Europe in the 16th and

42 Raychaudhuri, ibid. In the famous Coromandel painted cloth in the seventeenth century it is observed that in the family based units, artisans' homes were the typical workshop with capital provided from the surplus over the producers' consUmption needs (ibid, p.279).

Ibid; p.278.

Ibid. p.280.

45 Ibid, p.281. See also Chaudhuri (1996), p.S3.

Raychaudhuri (1982), p.282.

62

17th centuries. The artisans in the former retained considerable independence in purchasing raw

materials and selling products47• Raychaudhuri observed that "As late as 1790 the weavers supplying

the Company's Bengal factories procured their own yam. Where the raw materials were expensive and

had to be procured from distant sources, as in the case of silk manufacture and jewellery in Gujarat...,

the artisans' dependence on the merchant-buyer was greater. Yet the system at most promoted the

merchants' control over the producer rather that the process of production"48• Chaudhuri, however,

maintained that contractual relations similar to putting-out developed in some places in India since the

second half of the seventeenth century, but it happened invariably under the influence of European

trading49• A part from the problem of scale, the organisation of production based on the advance system

involved two other issues which the European Companies often encountered. These were the

measurement of risks and the question of quality control and standardisation. The commercial system

adopted by the EICshifted the risks 1ofdefault by the workmen to the shoulders of Indian merchants.

But the problem of quality control proved much more difficult to handle at a time of commercial or

general economic crisis50•

Although household production was the predominant form of organisation, there is evidence of

affluent artisans employing hired labour in the mid eighteenth century. In Lucknow, master craftsmen

employing as many as 500 artisans were observed. European Companies also employed a large number

of artisans in their factories on wage rate basis. However, these were intended not to achieve any

economies of scale but to ensure the quality and regularity of supply. Similarly, the imperial karkhanas

employing a wide variety of artisans on a regular wage basis were the largest manufacturing

organisations in the country, but their primary object was to cater for the needs of the imperial courts

and the army, not production for the market51•

Habib (1995) made a detailed study on the later phase of Mughal India, and asked the question

about the existence of the potentialities of capitalist development. Features like, stratification of

peasantry, capitalist farming with substantial investment of capital and employment of wage labour,

47 Chaudhuri ( 1996) made a distinction between the European 'putting-out' system and the 'advance system' practised in the traditional contractual.relations in India. While under the former merchant advanced raw materials to the weavers, in India, the merchant·made cash advances to the weavers for purchasing raw materials and family subsistence (p.52).

Raychaudhuri (1982), p.282.

49 Chaudhuri (1996), p.52.

50 Chaudhuri, 1996, pp.42-4.

51 Ibid, pp.284-87. See also, Habib (1995), pp.220-22.

63

were developed in agriculture, and in industry, there also emerged manufactories organised by the

nobles primarily for their own consumption and in some cases by the merchants for commodity

production employing wage labour, and independent petty producers producing for the market. Some

traces of organising large numbers of workers under single supervision for particular works and

specific durations were also found52.

Habib observed that a sizeable market existed in the urban areas where the nobles or the richer

section of the urban population spent their revenue/income on high quality agricultural and

manufactured goods. He however mentioned that some amount of agricultural surplus was retained in

the rural areas (for example, through revenue guarantees) which enabled to an extent formation of

market for the above mentioned commodities in the rural areas. Further, in the urban areas, the demand

for manufactured goods was generated mainly for luxurious consumption of the nobles,53 for ·

production of armaments and for exports in order to meet the import requirements, such as, of horses

and luxury items. Moreover, there existed a large number of urban poor during 1the Mughal period,

who demanded lower quality manufactured goods, like coarse cloth54•

The nobles often maintained their own karkhanas55 to produce luxury goods, although, they had

to purchase substantially from the market. Parallel to these nobles' karkhanas, rich merchants and

tradesmen also maintained 'manufactories' employing hired labour, for example, in silJ26. However,

the putting-out system was widely in use, and both cash advances and the giving-out of raw material

were established practic~7 . Habib noted, "More significant for potential capitalistic development was

the assembling of numbers of artisans and labourers for continuous production. Tavernier's detailed

description of diamond mines in Daccan shows that the fields were divided up among plots leased by

individual merchants, who then employed labourers, of which the number on a plot might be as high

as 300 ... A similar form of organization prevailed in the saltpetre industry ... merchants are here seen

52 Habib (1995), pp.196-99, 219-21.

53 Ibid, pp.21 0-11. The nobles' expenditure on articles of furniture and decoration as well as of personal use must have been very large (ibid, p.210). ,

54 Ibid, p.211.

55 "A karkhana seems usually to have been a sort of hall. .. here the artisans were set to work, under close supervision, on material provided by the noble" (ibid, p.21 0).

56 Ibid, p.222; the establishment of English factories might have induced, local merchants to set up similar factories (ibid).

51 Ibid, p.220.

64

as large-scale producers"58• However, the more striking development was the emergence of the

independent petty producers (e.g., in weaving) who were producing goods in anticipation of demand.

"What is still more interesting is that they sometimes enlarged their 'investment' by having their

products 'cured' by washers... costing three rupees for twenty pieces ... enrichment through such

ventures might in time have enabled some weavers to expand their production by no longer confining

it to the household but engaging apprentices and servants. This would have been an important

development, possibly representing a step in the evolution of capitalism 'from below' - the 'really

revolutionary way"'59. But, as Habib noted, in general in the various crafts there were only very few

independent master-craftsmen.

In sum, in the pre-British India, the artisanal industries were quite prosperous. They were able

to meet the requirements of local areas and of the urban nobility. There developed inland trade as well

as exports of the manufactur~ goods. However, a major part of the artisanal production was carried

on in the rural areas. Peasant hbuseholds manufactured goods in their spare time for self consumption.

Besides this, artisans belonging to different castes manufactured goods for customary exchanges in the

village under the arrangement called the jajmani system. Production for market was predominantly an

urban phenomenon, although there are instances of village artisans producing for the market60•

Production was organised by the artisans on their own or through 'putting-out' under merchants. In

handicrafts, merchant capital developed considerably and brought the artisans under control through

'putting-out'. But the manufactory as an established form was yet largely outside of the sphere of

commodity production. In other words, "capital was by and large merchant capital, and though the

economy was fairly highly monetized, domestic industry still predominated"61•

2.2. De-industrialisation under Colonial Rule

The decline of artisanal industries was one of the most adverse implications of the British

colonial rule in India. The process of de-industrialisation started in the early 19th century and

58 Ibid, p.211.

59 Ibid.

60 Interesting} y, Chaudhuri (1996) observed that there was dissimilarities across regions as regards dispersion pattern of the cotton industry: In western and northern India weavers producing for export markets were either urban-based or situated closely to the main cities .. .In Bengal and the Coromandel coast, on the other hand, the industry appears to have been much more scattered and it was to be found both in town and country (p.44).

61 Ibid, p.231.

65

continued well into the twentieth century62• There were, however, regional variations in the speed and

phasing of the process of de-industrialisation. The handicrafts declined due to the disappearance of

native Indian courts which patronised the fancy arts and handicrafts, the preference of the new elite

class for Western products and competition from the cheap British factory made goods63• The process

of de-industrialisation was strengthened by the imperialist policy of discriminatory trade practice

against Indian goods64• The development of transport, particularly railways, into the hinterland of India

further aggravated the problems of the artisans. Even the artisans in the interior would face the

competition from British goods and the costs of raw materials would also go up as large quantities of

these were now exported65•

Alice and Daniel Thorner observed that the 'discriminatory British Commercial policies' affected

India's exports of high quality fabrics and for these industries the decline was primarily confined to

the first thre~ quarters of the 19th century. In the subsequent period, however, the authors did not fmd

any evidence of major decline of industrial workforce as a whole in lndia66• Bagchi's estimates show

that the proportion of industrial to total population declined from 18.6% in 1808-13 to 8.5% in 1901

in the Gangetic Bihar. And the absolute number of population engaged in industry declined by almost

50% during the same period. He has further noted that the major affected industry was the textile

industry: whereas, around 1809-13 the percentage of population dependent on cotton weaving and

spinning to total industrial population in Gangetic Bihar had been 63.2, by 1901, the percentage of

population engaged in the spinning of cotton yarn, and the weaving, sizing, etc., of cotton cloth, to

62 See among others Gadgil (1973) and Bagchi (1976).

63 Gadgil (1973), p.38.

64 The Indian nationalist leaders like R.C. Dutt, Dadabhai Nauroji, and some British economic historians like Digby, described the de-industrialisation process and pointed out the 'un-British' policies adopted in India. See Bipan Chandra's controversy with M.D. Morris on "Reinterpretation of Nineteenth Century Indian Economic History", in Chandra (1979). See also Krishnamurty (1976) and Chattopadhyaya (1975).

Gadgil, ibid.

66 The specific period considered by the authors in this context was 1881-1931. Alice and Daniel Thomer(l962), rejected the Census estimates which show that the proportion of Industrial workers in total workers declined from 35% to 17% during the 1881 and 1931, on the ground that the estimate of industrial workforce in 1881 was infected by double entry and included a category of workers who was transferred to non-industrial sectors in 1931 census. After critically analysing and revising the data he came up with following conclusion: At best, a plausible inference from our figures is that whatever new employment was created by the introduction of textile mills, rice de-husking plants and other modem establishments may have been roughly offset by an equivalent falling off in handicraft (p.77).

66

~,

total industrial population had come down to 15.167• His data sources are the survey reports of Francis

Buchanan Hamilton (for 1808-13) and the Census of India (for 1901).

Another estimate, made by Sinha, shows that the total number of workers engaged in cotton

weaving and spinning, dress making, embroidery, etc., together declined by a million in Bengal

(including Bihar and Orissa) by 182868• Sinha has also compiled estimates of the EICs investment

{purchase of goods and exports) in various trading centres. Analysing these data, and considering the

decline in export as a rough index of de-industrialisation, Bagchi observed that the fall in employment

in the traditional industry for Bengal as a whole was about sixteen times that for the districts of

Gangetic Bihar69• Bagchi has also traced evidence of large scale decline in employment in traditional

industries in the United Provinces, Deccan and the Bombay Presidency, from various Gazetteers,

Reports of Buchanan Hamilton and other official documents, and come to the conclusion that there

was the "working of a general process of deindustrialisation in India over much of the nineteenth r

century, caused mainly by the decline of the traditional cotton weaving and spinning but not! confined

to such decline"70•

It was only since 1921 with the spread of Nationalist movement under the leadership of Mahatma

Gandhi that these artisanal industries, notably hand spinning and weaving, received some kind of

protection and started growing in the rural areas71• Although the 'swadeshi' movement which began

in 1906 emphasised on the development of indigenous industries, the artisanal industries could not

benefit any significant extent. On the contrary Indian factory industry gained substantially through this

movement. The 'swadeshi' movement at the beginning72, attempted on the one hand to reject imported

goods, Western education, and to refuse serving the British through holding any Government post, and

on the other, glorifying the Indian industries, primarily the handicrafts, and Indian culture and

67 Bagchi (1976), p.140.

Cited in Bagchi (1976), p.142.

Cited in Bagchi (1976), p.142.

70 Different views on the deindustrialisatio n process in India have been summarised by Matson (1990), pp. 206-232.

71 Tyabji (1989), pp. 114-15.

71 Its roots however may be traced earlier, by the end of the 19th century, when the discussion started at the theoretical level and some experiments in terms of setting up village · samiti es' to concentrate on local development and solve local problems were made. Over time samities started growing in number and spreading wider areas, particularly after the partition of Bengal in 1905. See Sarkar (1983), p.l13.

67

education73• People like Satishchandra Mukherjee emphasised the development of small scale

'individual f~mily organisations' and wanted 'big factories' only where absolutely indispensable74.

There were also some people like Jogendra Chandra Ghosh who preferred to develop modem

industries, raise fund, send students to Japan75 to acquire technical expertise, and set up modem

ventures76• Some successful ventures had been observed in cotton textiles, porcelain, chrome tanning,

soap, matches and cigarettesn. But shortage of capital had been the major problem as the existing

merchants did not take interest in entering into modem manufacturing. During the nationalist (1921)

movement, the main slogan had been rejection of British factory-made goods, not the Indian factory­

made goods; and thereby Gandhiji achieved some success in bringing the Parsi and Gujrati

entrepreneurs into the movemene8• At any rate, the artisanal industries received some support and

protection through the movement and wert? able to develop to an extent.

In brief, the artisanal industries, which continued to grow till the early decades of the 19th

century, started declining thereafter and the process continued well into the early decades of the 20th

century. It was only since 1921, with the launching of nationalist movement, that the process was

resisted to an extent. On the other hand, the growth of modem (factory) industry remained at a very

modest level since its inception in the 1850s and 1860s till the beginning of first world war; thereafter,

the factory industry however made significant progress with some temporary disturbances particularly

in the thirties. However, Bagchi observed that "total industrial investment remained surprisingly stable

in real terms during the years of the depression of the thirties. "79 He further noted that there was a

slight increase in the proportion of the working force engaged in manufacturing, mining and

construction between 1931 and 1941 80• It is worth mentioning that the limited development of modem

industries that took place in a few clusters rarely utilised the traditional crafts/skills or provided any

73

74

Ibid, pp.lll- 117.

Ibid, p.116

75 Probably the Japanese nationalism that stimulated her capitalist development and enabled to keep away the Western power, had some influence on these Indian nationalists.

76 Ibid, p.116.

77 Ibid, p. 117.

78 Sarkar (1983), p.43. For a discussion on the Nehru's move towards left-extremism and the support of the capitalist class to Gandhiji in the movement, see Bipan Chandra (ed), 1979.

79 Bagchi (1972), p.441.

80 Ibid.

68

assistance to the latter. On the contrary the modem industries added to the miseries of the traditional

crafts by aggravating the competition which the latter were already facing81: Thus, at the time of

independence, there existed multiplicity of structures of indUstries. On the one hand, small artisans

often tied to the merchants and scattered over the country, and on the other, large factories located in

certain enclaves82 were the characteristics of Indian industries.

2.3. Rural Industrialisation83 in India During the Plan Periods

After independenc~. the Indian Government was formed with the high hope of building a strong

economy with rapid industrialisation. But the inherited class structure which determined the nature of

the class-coalition wielding State power stood in the way of any radical reform measures: the coalition

of the landlords-rich peasants class and the bourgeoisie effectively barred the land reform measures,

the primary condition for industrialisation84• As Patnaik observed, "While on the one hand it [state]

had to maintain the balance of the class coalition (by effectively curbing any constituent group that

became too strong), and to make periodiC concessions to the exploited, on the other it could not

change the position of any constituent group too strongly, for that would affect the collective strength

of the coalition ... The limits to the state action were sharply drawn and any social structural reform was

ruled out."85 The activities of the landlords-rich peasants also prevented industrial development through

81 Gadgil (1973), p.181.

82 For a discussion on the capitalist development in colonial India see the introductory chapter in Chandra (1979), and Bagchi (1972), Ch.6 and Patnaik (1972).

83 We have used the term 'rural industrialisation' to mean developing industries in the villages and small towns. We would, however, face problems in using this definition. Firstly, data provided by the Census and NSS are not in conformity with our definition (see Chapter III for their definition). While using these data we would follow the classification made by their sources. Secondly, the Government . of India clubbed village industries with the urban cottage and small scale industries, jointly termed as VSI (Village and Small Industries), for policy purposes. Our discussion on the State policy would deal with the VSI as a whole. We would, however, use our definition while analysing field data. Small towns are importan~ in the sense that these are local trading centres and have some infrastructure like, transport facilities, power supply, etc., may be suitable places for setting up industries. These areas may also act as nodal points of the surrounded villages where the artisan· industries are located. The best example in this respect is China. Jiacheng (1990) has noted that "TVPs [township enterprises, villagers' committee enterprises, partnership and individual enterprises, etc.] are mostly clustered in or closed to commercia I hubs and attract a large part of surplus agricultural labourforce" (p.121).

84 See Patnaik (1972), pp. 215-16.

85 Ibid, p.216.

69

various ways, for example influencing terms of trade in favour of agriculture86, speculation in food

grains and thereby raising wage costs via inflation87• Such coalition is likely to affect much more the

development of rural industries _as the latter are closely related to agriculture. It is worth mentioning

that land reforms are of vital importance for industrial development. It would unleash productive forces

in agriculture raising food grain production and the supply of raw materials to the industries. The other

important effect of land reforms would be the increase in purchasing power of the rural people and

thereby demand for manufactured goods.

Further, we have noted in the case of Japan that the State deliberately encouraged the rural

industries - on the one hand, it assisted them in finance, technology upgradation, marketing, etc.

through various institutions, and on the other, it forced the big industrialists to adopt similar measures

for the development of the artisan and rural industries. The big industrialists also established control

over the producers in the rural areas through their banking and trading network, and assisted these

decentralised industries in various ways. In China, the State implemented land reforms, adopted

decentralised strategies with self reliance in the local areas and strong linkages were established

between rural industries and agriculture and also between rural industries and urban industries where

the latter provided technology and skills to the former. The Indian State, on the other hand, was most

unlikely to adopt policies similar to those seen in Japan because of the interest groups controlling the

State. Further, due to the absence of land reforms and the resulting slow growth of agricultural

production, in India, local demand for the products of rural industries was not growing fast enough.

Thus, inter-linkages between rural industries and the other sectors of the economy as was seen in

China, were also not in evidence. So, India fell between two stools. Measures were adopted to

encourage the rural and artisanal industries but they were often ineffective and sometimes

counterproductive as the advantages were taken by the big capitalists and placed the former producers

in a disadvantageous position in the market, for example in powerloom and leather industry88•

In this section we shall discuss some aspects of rural industrialisation in India during the plan

periods. The issues to be raised here include, objectives of rural industrialisation, State policies and

growth performance of rural industries.

2.3.1 Initial Conditions and Laying the Basis of Rural Industrialisation

The overall condition of the Indian economy on the eve of independence was predominant! y

K6 Mitra (1977).

K7 P. Patnaik (1981, 1984).

88 See Tyabji (1989), 183-84.

70

feudal and the majority of the population which depended on agriculture was poverty stricken, with

some development of capitalist industries89• The agricultural sector was stagnant with low productivity

of land and labour because of the predominance of tenancy and land concentration90• In this situation,

rural industrialisation was seen as part of a vibrant rural economy; it would meet the 'important

objective of employment generation91• It was found that heavy industry was necessary and important

but the economy must have other bases - the village industry and handicrafts92• The then Prime

Minister in his speech stated, "The balanced industrial structure that India hopes to evolve is of three

parts or layers: the heavy basic industries which are the necessary underpinning for any developed

economy; a vigorous small-scale industries, advancing in modern techniques, complementing and in

part supplying large industries; and a progressive rural industries producing largely for the villages and

sustaining rural employment and social cohesion."93 The development of these industries, and ... especially of the village industries, could mean a more. decentralised as well as a more balanced

. I

economy94• It would spread the gains in employment and income. As Gandhiji foresaw, "the fostering

of small and hand industries is a necessary part of balanced industrial development, an essential aspect

of balanced social, as of economic, growth, not only in this period of India's transition to modern

nation, but it may well be, for a long time into India's future."95

The State's concern for these industries on the eve of independence was reflected in the Industrial

Policy Resolution, 1948. It was_stated that "Cottage and small scale industries have a very important

role in the national economy, offering as they do scope for individual, village or cooperative enterprise

and a means for the rehabilitation of displaced persons. These industries are particularly suited for the

better utilisation of local resources and for the achievement of local self-sufficiency in respect of

certain types of essential consumer goods like food, cloth and agricultural implements. The healthy

89 Minhas (1970), Dandekar and Rath (1971) and Bardhan (1973).

90 Bhaduri (1973, 1977 and 1984), Utsa Patnaik (197la and 197lb), Laxminarayan and Tyagi (1982) and Dantwala (1986).

91 In his speech the then Prime Minister said, "While we believe that the industrial progress in India will depend and must depend on the growth of heavy industries, we have always to remember that unless we balance that with the growth of village industry we will produce an unbalanced structure which may crack and fall dowri"~ (Prime Minister to the All-India Congress Committee, Indore, Jan.4, 1957). .

91 Ibid.

93 Government of India, Planning Commission (1958), The New India, p.47.

94 Ibid, p.48.

95 Ibid, p.49.

71

expansion of cottage and small scale industries depends upon a number of factors, like the provision

of raw materials, cheap power, technical advice, organised marketing of their products and where

necessary, safeguards against intensive competition by large manufacture, as well as on the education

of the worker in the use of the best available technique."96 Most of the above points were reiterated

in the second Industrial Policy Resolution (1956). Additionally, it was stated in the latter Resolution

that "the aim of the state policy will be to ensure that the decentralised sector [VSI] acquires sufficient

vitality to be self supporting and its development is integrated with that of large scale industry ... For

this it is essential that the technique of _production should be constantly improved and modernised, the

pace of transformation being regulated so as to avoid, as far as possible, technological

unemployment. "97 The important aspect which did not receive adequate attention in the second

Resolution was the linkage of VSI with the agriculture which was mentioned in the first. On the other

hand, erqphasis was laid in both the Resolutions on making VSI, or a part of it, an appendage to large

scale industries.

Considering the above and the non-implementation of land reforms, it may be said that the State

tried to promote rural industries without fundamentally changing the basic structure of production

relations in rural areas. One of the established facts, however, has been that the performance of the

agricultural sector primarily determines the fortunes of rural industries.

As we have stated earlier, the artisanal industries started growing since the early decades of this

century when they had been integrated with the nationalist movement and thereby received some sort

of protection. After independence they continued to receive some protection for the reasons discussed

above.

At the planning level several contradictions arose in dealing with the artisanal industries. On the

one hand, the growth of modern industries would destroy these traditional industries and thereby create

unemployment. On the other hand, protecting these traditional industries would perpetuate backward

technology and restrict development of modem industries in several spheres of manufacturing

activities. What actually happened was that the modern small industries98 which often compete with

the artisanal industries were encouraged. And for policy purposes, the planning authorities clubbed the

·· cottage industries with modem small industries under single heading called 'Village and Small

96 Cited in A. Ghosh (1988), p.324.

97 Government of India (1956), Second Five Year Plan, p.48.

9s . These modem small industries are highly capital intensive and have labour displacing effect.

72

Industries' {vSI)99• VSI, therefore constituted heterogeneous industries requiring different approaches

and policies for their development. In other words, policies to protect/promote this group as a whole

without proper discrimination among the constituents of the group would lead to the decline of the

traditional industries and the growth of the modern small indUstries as the latter could appropriate the

advantages and out compete the former.

The emphasis on the development of cottage and small scale industries was laid in the very first

Industrial Policy Resolution (1948) as stated above. In the first Five Year Plan (1951-56) the

development of cottage and village industries was taken as the most important component in rural

development and it was integrated with the Community Development (C. D.) programme. Subsequently

some C.D. Blocks were chosen for intensive development of cottage and household industries and the

C.D. areas were brought under Industrial Pilot Projects. The need for supporting the organisational

base of the l>roject was felt. It took the entire First Five Year Plan and the first half of the Second Five

Year Plan (1956-61) to rationalise the organisational structure, particUlarly the administrative setup

involving Khadi Commission, Silk Board, Handicraft Board, Coir Board, Handloom Board, Powerloom

Board and Small Scale Industries Board

The Government also evolved 'common production programmes' to provide a degree of

protection to the Village and Small Industries (VSI) sector. This led to the reservation of certain

spheres of production exclusively for VSI sector and restriction on the expansion of capacity by some

selected large units and the imposition of cess on them100• Arrangements for preferential supply of raw

materials to the decentralised industries were also made.

The points to be emphasised are (i) the establishment of various organisations (instrumentalities)

by the State to promote the VSI in an organised manner, (ii) State protection to these industries from

competition of factory industry through 'common production programmes', (iii) clubbing of artisan

and modern small scale industries into a single category called, 'VSI', for developmental purposes,

which led to competition between these two types of industries in which the former was weaker.

2.3.2 Nature of State Intervention

The Second Five Year Plan was characterised by systematic efforts being made by the State to

strengthen the process of industrialisation in the country. We have already mentioned some of the State

99 Tyabji (1989), pp. 143-47. See also this author's discussion on the influence of the recommendations of the Ford Foundation Team for modernising small industries (pp.l36-7).

100 The most important in this regard is the case of cotton textile industry. The 'common production programmes' demarcated. the spheres of production activities of the handlooms ~nd small powerlooms (employing 5 or less workers) on the one hand, and the large powerlooms and the mills on the other. See Mazumdar, (1984) and Jain (1983).

73

policies relating to VSI, notably, fonnation of various developmental organisations and protection from

the competition of factory industry in First Five Year Plan and early Second Five Year Plan. The

theoretical basis of the Second Five Year Plan was la~d down in the Mahalanobis model. We would

first discuss the scope of the model in promoting ruralfdecentralised industries. This would be followed

by a discussion of various policies and programmes adopted in successive Plans excepting the First

Plan.

1. Mahalanobis Model and Scope or RuraVDecentralised Industrialisation:

The four sector model of Mahalanobis adopted in the mid 1950s recognised the importance of

rural industries and assumed that the village and small industries (VSI) belonging to the household

industries and agricultural sector (Sector C2) will be absorbed and replaced by the factory consumer '

goods industries sector (Sector Cl) in the long run101• The model was specifically designed to achieve

a certain rate of growth of GOP through a planned rate of savings and investments. And given the

capital-output ratios in the four sectors, the economy would generate a desired rate of employment

growth. The instrument variable was the proportion of investment allocated to different sectors. Basic

investment goods industries (Sector K) shared 53% and factory consumer goods industries (C1 Sector)

shared 17% of the total investments. The household industry together with agriculture (C2 Sector)

shared ·only 21% of the investment. This low investment share of the combined Sector (C2) vis a vis

the total share of Sector K and Sector C1 indicates the low priority attached to the VSI. In fact the

VSI sector has been treated as a source of job creation and a supplier of consumer goods for a short

period. High inflationary pressure which may originate in the process of massive investment in the

basic industries (Sector K), will be checked by the supplies of VSI sector.

The Mahalanobis model, therefore, emphasised the role of the household sector for an immediate

growth of employment and output (to prevent inflation) but as a transitional measure 102• In the long

run these industries would be transformed into or replaced by. the modem small scale industries; these

emerging industries would be the basis of industrial decentralisation and would break the concentration

of economic power and thereby providing the democratic basis of economic development103. And the

basic capital goods sector, in which the model proposed to invest the major part of the plan allocation,

101 See Mahalanobis (1955), pp. 34-35 and Rangaswami and Samasekhara (1974), p.11.

102 See P. Patnaik ( 1994), p.161.

103 Ibid, p.162 and Mahalanobis ( 1955), pp.34-5.

74

would provide the machinery and equipment to the small producers104, thereby establishing a forward

linkage with the VSI sector.

2. Important Policies and Programmes of the State:

The Industrial Policy Resolution of 1956 added some new dimensions to the existing policies in

line with the Mahalanobis model. In this policy resolution while the proposal was made for the

establishment of some basic and heavy industries, the role of cottage and VSI in economic

development was also emphasised. It was stated in the Resolution that "it is essential to ... speed up

industrialisation and in particular, to develop heavy industries and machine making industries, to

expand public sector ... [T]he State will progressively assume a predominant and direct responsibility

for setting up new industJ;ial undertakings. The Government of India ... would stress the role of cottage

and village and small scale industries in the development of the national economy. In relation to some

of the problems that need urgent solutions, they offer some distinct advantages. They provide

immediate large scale employment; they offer a method of ensuring a more equitable distribution of

national income and they facilitate an effective mobilisation of resources of capital and skill which

might otherwise remain unutilised. Some of the problems that unplanned urbanisation tends to create

will be avoided by the establishment of small centres of industrial production all over the country. "105

The Second Plan gave immediate attention to the development of rural industries106. "The need to

promote, modernise and recognise these industries is paramount. The problem is one of devising.

effective policies as well as of making suitable organisational arrangements. "107 Progressive up

gradation of technology without reducing employment, provision of training facilities for artisans and

the supply of credit to petty producers were given special emphasis. Furthermore, efforts were made

to promote cooperation. The Second Plan also stressed on the promotion of the SSI as ancillaries to

large scale units. Small producers were made eligible for tax concession and subsidies. To impart

104 Mahalanobis (1955).

105 Government of India (1956) Second Five Year Plan, pp. 44-7.

106. The primary reason for this emphasis at the official and policy making level was the

recommendation of the Karve Committee which was appointed by the Planning Commission in 1955 to recommend suitable policies for VSI in the Second Plan. "The aim, according to this committee was to build up: .. a pyramidal structure of industry broad based on a progressive rural economy and the growth of small industrial units coupled with necessary services among the big villages and the small towns all over the country", see Government of India, Ministry of Commerce and Industry (1959), p.l20.

107 Ibid, pp.30-l.

75

marketing facilities to them steps were taken to provide assistance in conducting exhibitions and

setting up show rooms in cities and tourist spots. Improved spinning wheels (Ambar Charkha) were

introduced by KVIB108• Intensive marketing schedule and area schedule were also adopted for KVI.

Small Industries Service Institute {SISI) was set up to assist the VSI with technical advice,

procurement of raw materials and marketing research. National Small Industries Corporation (NSIC)

with its branches in the States had undertaken the task of supplying machinery and equipment to small

producers. The corporation assisted them in procuring orders from the Government and also provided

them with financial, marketing and technical facilities.

The Recommendations of the Karve Committee and the schemes adopted in this Plan primarily

indicated a shift in the emphasis from the Gandhian cottage industries to the modem small scale

capitalist industries109•

In the Draft Third Five Year Plan {1961-66), a programme of intensive development of the VSI

-~as l~~cheg t!rrough selected project areas called Rural Industries Project. Operational areas of the

projects were made equal to the average size of the district so as to avoid the drawbacks of the Pilot

Projects. KVIC launched 'Gram Ekais' for Integrated Rural Development.

During the Annual Plans (1966-67, 1967-68 and 1968-89) the question of regional imbalances

had become paramount. The need of discouraging the growth of industries in the metropolitan areas

and of promoting industries in the backward areas was felt. This led to the formation of special

location specific schemes of incentives for setting up units. During the Fourth Plan as well as the Third -

and the Annual Plans the policy of industrial dispersion was centred around the concept of industrial

estates which were located in the suburbs and small towns. The Government would build up

worksheds at suitable locations having the necessary infrastructure, like, electricity, transport, water,

postal and tele-communication and other facilities, and the sheds would be leased out to the

prospective entrepreneurs at cheap rates to establish manufacturing units1 10•

108 According to A.K. Sen (1972) the Ambar Charkha programme was uneconomical. Far from creating any surplus, "the Ambar Charkha produces Re 0-7-4 deficit per worker per day. Even the recurring costs far exceeded the output flows from the charkha and its contribution to domestic capital accumulation seems to be definitely negative ... Even leaving aside the inflationary effects of the capital investment in Ambar Charkha, it appears that the situation is quite inflationary, as the annual value of output is less that the annual purchasing power its operation creates" (p. 108). Thus he concluded that as ''a technological possibility the Ambar Charkha seems to offer very little" (ibid, p.ll 0).

109 See also Tyabji (1989), p.l45.

iiO As regards attracting new entrepreneurs to the industrial estates, K. Bandopadhyaya's (1969) study in West Bengal revealed that in some cases the new entrepreneurs were not able to make use of the available facilities offered to them in terms of power, water, ready-built factory premises, etc. becau...;;e of the non-availability of raw materials and machinery etc (p.l46). She further observed, "sometimes

76

The Fifth Plan placed special emphasis on the growth of tiny sector and extended the number of

reserved items for VSI sector. It. further, attempted to shift the focal point of development for cottage

and SSI from big cities to district head quarters and stressed the need for providing servicing facilities

and vocational training to the producers in both artisan and modem industries. Similarly, Integrated

Rural Development Programme (IRDP) launched in 1978 to integrate various ongoing programmes,

was intensified in this plan. IRDP attempted to provide self-employment in agriculture, animal

husbandry, manufacturing, trading, etc. through raising asset endowment of the rural poor111• On the

average 600 poor households would benefit in each block under this programme. One-sixth of them

would benefit through village and cottage industries employment and another one-sixth through service

sector employment. Decentralisation therefore would extend from district level to the block level.

The Seventh Plan continued with almost all the programmes of the previous plan. It strengthened

the Backward Area Development Programme through special incentives scheme to disperse modem

small and medium scale industries in the rural areas.

Important points to be highlighted are (i) continuing emphasis on the up-gradation of technology

of the artisan and small scale industries, (ii) gradual dispersion of the focal point of development from

the city to the suburban, small towns, and backward/rural areas, in some cases through setting up

industrial estates~ simultaneously, decentralisation of administrative organisations, particularly setting

up of District Industries Corporation (DIC) and Small Industries Corporation (SIC) at district and

regional level to assist the small entrepreneurs, (iii) organising training to the small entrepreneurs in

new technology or entrepreneurship, (iv) setting up of Industrial Training Institutes (ITI), Polytechnics

and Engineering Collages to generate skilled technicians, and (v) arrangement of finance from

commercial banks and financial institutes to the small entrepreneurs through DIC.

2.3.3 Growth of Rural Industries

We would now highlight the broad trends of rural industries in the light of the initiatives taken

in the various plans as discussed above. Table 2A shows the number of workers engaged in

manufacturing and non-agricultural activities and their proportions in total rural workforce. Data

sources used here include Census and the NSS. In the next chapter we shall discuss the problems of

making inter-Census comparisons originating from changes in definitions and coverage of several

it happened that the entrepreneurs took occupation of the sheds and tried their best to obtain raw material quotas and machinery etc. on easy terms, but as they are men with small means, they become impatient on considering the time they would require to get started in bu.<>iness and quit the estate" (ibid, p.l45).

Ill For a discussion on this programme, see Kurien (1987) and Parthasarthi (1985).

77

items. Problems also arise in Census-NSS comparison because of the above mentioned reasons as well

as differences in the respective reference periods. Both the Census and the NSS data show slowly

rising trends, particularly during the 1960s, of employment in manufacturing and non-agricultural

activities and their ratios in totaf rural workers. According to Census data, the absolute number of rural

manufacturing population increased from 10.3 million to 12.7 million during 1961-81 112. The

employment growth took place only in the male workers whereas the absolute number of female

workers declined.

Table 2A: Estimates of non-agricultural and rural industrial employment in India

~

Sources/ Worker-popula- Number of workers in rural Number of workers in Year tion ratio (%) industries (in million) non-agricultural works

(million)

Male Female Male Female Total Male Fern. Tot.

A. Population Census

1961 58.3 31.4 6.8 3.5 10.3 17.4 5.7 23.1

1971 53.6 13.4 6.9 1.4 9.3 19.6 2.9 22.5

1981* 52.6 16 9.2 1.1 10.3 25.1 4.3 29.4

1981** 53.8 23.2 9.4 3.3 12.7 25.5 5.6 3l.l

B. NSS Rounds

27th Round 54.4 31.8 7.2 3.3 10.5 21.3 7.3 28.6 1972-3

32nd Round 54.7 32.6 9 4.8 13.8 27.3 9.6 36.9 1977-8

38th Round 55.6 34.2 10.2 5.6 15.8 32.7 10.9 43.6 1983

(TaJle 2A contmued to the next page)

111 As it is discussed in the next chapter, the Census data for 1961 and 1981, on occupational distribution are comparable.

78

~I

(Table 2A Continued)

Sources/ year Rural industries workers as Rural non-agricultural workers as percentage of all rural workers percentage of all rural workers

Male· Female Total Male Female Total

A. Population Census

1961 6.4 6.4 6.4 16.3 10.3 14.3

1971 5.7 5.1 5.6 16.3 10.4 15.2

1981 * 6.7 2.9 5.9 18.3 10.9 16.6

1981** 6.7 5.7 6.4 18.2 9.7 15.7

B. NSS Rounds

27th Round 1972-3 5.7 4.6 5.3 16.8 10.3 14.5 ·--· .•.

32nd Round 1977-8 6.4 5.9 6.2 19.4 11.9 16.7

38th Round 1983 7 6.4 6.8 22.5 12.5 18.8

Notes: 1. NSS estimates relate· to working in terms of usual status and includes subsidiary workers. 2. Following Krishnamurty (1970), unclassified and general labourers in 1961 has been

distributed pro-rata among agricultural labourers, construction and 'other services'. 3. The Population Census estimates exclude Assam. * denotes 'main workers'and **denotes 'main plus marginal workers~

I

Source : Rakesh Basant and B. L. Kumar (1989) Table 1 and Table 5, pp.17 and 24.

The Census estimates of rural workforce are in conformity with those of NSS for the overlapping

period, as shown in above tables. But, in. case of female workforce, they show opposite trends - in

Census the employment declined and in NSS it increased. However, the Census estimate of female

workers in 1981 is under-estimated as observed by Basant and Kumar113•

NSS data also show that the proportion of manufacturing workers in total rural workers increased

steadily from 5.3% in 1972 to 6.8% in 1983 and then to 7.3% in 1987. Correspondingly the share of

non-agricultural workers in total workers belonging to rural areas increased from 14.5% to 18.8% and

to 21.8%. Absolute number of rural non-agricultural workers steadily increased from 28.6 millions in

1972 to 36.9 millions in 1977 and further to 43.6 millions in 1983. This indicates that the relative

share of rural industry in non-farm employment declined over time. However, by 1983, les..<; than

one-fifth of the rural workers were engaged in non-farm activities and one-fifteenth in manufacturing.

113 Basant and Kumar (1989), p.18.

79

Some Plausible Explanations for the Slow Growth of Rural Industries

We may argue in tenns of certain drawbacks of the State policies, and overall economic

conditions restricting the growth of rural industries, though these two aspects are not independent.

1. Inadequacy of Financial Assistance in the Plans:

Financial assistance provided through Plans may be considered as one of the important indicators

of the seriousness of the State in promoting this sector. Table 2C and 2B display the dismal picture

of Plan expenditure allotted to the VSI. Strictly speaking, rural industries are not the same as VSI, but . only a S'.lbset of the latter. But, since no separate data on the State assistance to rural industries are

available, we would use the aggregate data on VSl. In the First Plan the share of VSI in total Plan

expenditure was 2.4% which increased to 4% during the Second Plan. In the subsequent Plans the

share declined and reached 1.33% in the Fifth Plan. Thereafter it remained below the 2% level. The

very low share of the VSI in Central allocation, as compared to the vast requirements, is indicative

of the negligence of the Government.

Table 2B: Public sector outlay for VSI in India (in Rs crores)

Periods Plan provision to Total public sector % share of VSI in total VSI outlay plan outlay

First Plan 14.5 1960 0.74

Second Plan 173.4 4372 3.96

Third Plan 264 8577 3.08

Annual Plans* 126 6625 1.9

Fourth Plan 288 15783 1.83

Fifth Plan 526 28910 1.82

Annual Plan** 289.5 11591 2.5

Sixth Plan 1780 97500 1.83

Source: Various Plan documents. Note: * & **denote the periods, 1966-69 & 1979-80 respectively.

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Table 2C: Public sector allocation to sub-sectors of VSI in India (Rs in crores)

Items 1951-56 1956-61 1961-66 1969-74 1974-79 1979-80 1980-85

KVI 6.4 82.4 92.4 96.47 142.98 93.31 547-

(44.1) (47.5) (35.0) (33.5) (1:1.2) (32.2) (30.7)

Hand 4.9 29.7 34 39.35 90.92 48.59 310.9:~

loom (33.8) (17.1) (12.9) (13.7) (17.3) (16.8) (17.5)

SeriC 0.8 3.1 7 10.39 29.68 16.62 164.511

ultre (5.5) (1.8) (2.7) (3.6) (5.6) (5.7) (9.2)

Handi 0.4 4.8 8.6 13.46 29.8 23.18 110.9

craft (2.8) (2.8) (3.3) (4.7) (5.7) (8.0) (6.2)

Coir - 2 3.2 5.03 7.66 2.32 26.72

- (1.2) (1.2) (1.8) (1.5) (0.8) (6.2)

SSI&. 2 44.4 114.8 123.35 221.74 104.81 616.1

Est. (13.8) (25.6) (43.5) (42.8) (42.2) (36.2) (34.6)

Power - - 4 - 3.25 0.65 4.1.'i

loom (1.52) - (0.62) (0.22) (0.23)

Total 14.5 173.4 264 288.05 526.03 289.48

Source : Various Plan documents of India. Note : Parenthesis indicates corresponding percentage share.

2. Ineffective Common Production Programmes and Assistance to Small Units:

The main objective of these programmes was to protect small units from the competition of the

large units. There are a number of instances, like in the powerloom sector, where the big industrialists

set up small units and reaped the benefits (like tax rebate, assured supply of raw materials), offered

by the State to small units114• This further weakened the competitive power of the household

enterprises vis-a-vis large. Even among the small entrepreneurs, the growth of powerlooms adversely

114 See Jain (1983) and Tyabji (1989), pp. 183-4. In this connection, K.V. Ramaswamy questioned the policies of product reservation for the SSI sector. He noted that the "production of reserved items is not found to be the dominant activities of small scale units. The estimated output share of reserved items in industries with large share of the number of reserved items, is not found to have increased". See Ramaswamy (1994).

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1780.311

affected the handloom weavers as both produced similar products115• These programmes on several

occasions became counter productive.

3. Mismatch of Technology Upgradation, Training and Skill Formation:

Repeated emphasis has been made on up-grading technology, training artisans and small

entrepreneurs etc for the development of rural industries in various Plans. So far as technology

generation or its up-gradation for small industries is concerned, the performance of the

national/regional R&D institutes are not satisfactory; only a limited number of new or improved

technologies, like, Jacquard loom, food (particularly fruit) processing machines, ceramics, leaf plate

machines, Jute stick particle and straw boards-machines, etc, have been introduced116• These

technologies and some imported ones were supplied to the entrepreneurs through NSIC and for that

matter technical, financial and marketing assistance were provided by SISI through their decentralised

bodies, namely, DICs which were supposed to provide single window clearance~

Problem of technology diffusion arose at two levels. Firstly, unlike what we have seen fn China

where new technology diffused through direct exchanges between the source and destination (the

source organisation directly trained the workers of the user organisation while providing technology),

in India there existed a layer of bureaucracy in between these· two types of organisations as mediator

often obstructing the diffusion of the exact information regarding technology. This bureaucrdcy often

lacked personnel of the required expertise for various types of technologies, and therefore, could not

transfer the entire technology-package, including skills, and other information117. In other words, this.

snapped the vertical technology linkages between the R&D institutes and entrepreneurs. Moreover,

unlike in China where the mass scientific organisations kept the people informed about new

technologies and thereby helped diffuse technologies, in India similar organisations do not exist; the

information was provided by DICs or other organisations which rarely had contacts with the masses.

Secondly, in India, industrial training was provided by the institutes like, ITI, polytechnics, engineering

colleges, etc. which often have no direct contacts with the enterprises employing the techniciansm. The

115 Mazumdar (1984).

116 See, various Plan documents, particularly, Chapter on VSI; a part of these are also revealed in our field survey - to be discussed in the following chapters.

117 Biswas and Raj (1996).

11H S.C. Jain (1985) observed that the technicians did not have the required technical knowledge as

per the requirements of the entrepreneurs(p.54). For a detailed discussion on the drawbacks of the ITI and other technical courses, see Jain (1985), pp.54-63. Moreover, they do nottrain in new technologies introduced by the R&D institutes (pp.54-63). He, therefore. suggested that "There should be coordinated move on the part of training institutes and the industrial units to update the programmes and to ensure absorption of the trained workers" (ibid, p.54).

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activities of the three types of organisations, viz. those who generate technology, those who use

technology and those who train the workers in operating the technology, were not coordinated119.

The technicians (certificate hplders) are eligible for bank loans under self-employment scheme,

but they do not have the entrepreneurial ability120• But the artisans who rarely fmd opportWlity to study

technical courses acquire their skills as apprenticeship in the family craft or other's craft. Unlike the

certification of the skills of the students of the technical institutes, the skills of the artisans are not

certified by any formal institutes121• And therefore the latter skills are not bankable for the purpose of

loans. In general, new or improved technologies, both artisanal or modem small scale, are highly I

expensive122 and without fmancial as9.stance they could hardly be adopted by the poor artisans/

entrepreneurs. In Japan and China, large enterprises as9.sted substantially the small enterprises in

fmance, arranging raw materials, technology upgradation, marketing, training workers, etc, but such

things are rarely observed in India, excepting in some industries like handloom in West-Bengal, as will -

be discussed in the following chapters.

4. Lack of Effective lnterlinkages wilh Other Sectors:

Apart from the direct intervention by the State, there exist other factors which influence rural

industries. Our observation in China indicates that the rural industries have forward and backward

linkages with the agricultural sector123• These industries also provide consumer goods as well as

construction materials for housing to the rural people. Furthermore, they have vertical linkages with

the urban factories in terms of technology transfer, manufacturing, assembling and marketing. ln India,

there have been a number of studies regarding rural industry-agriculture linkages.

Chandrasekhar, in his study on rural West Bengal, obtained a positive relation between the

119 In consequence, as Basak (1978) observed, there emerged "Mismatching of quantity with quality in education field, emergence of regional imbalances, simultaneous existences of shortages and surpluses of manpower at different levels" (p.37).

120 It is worth noting that the traditional craftsmen, like carpenters, ironsmiths, etc. rarely get the opportunity to study modem methods in carpentry, draftsman, fitter, etc. in the technical institutes. See, Dhesi (1979), p.85 and Jain (1985), p.263.

121 See Kanitkar (1994), p. M-29. In this connection, Lourie (1991) observed that 'credit or certification systems' would give self-learning a 'social or professionallegitimacy'(1991), p.323.

122 In Chapter VI we have discussed the costs of installing Jacquard looms, and some other machinery.

12·1 We have discussed above that their forward linkages are in terms of supplying fann tools,

machinery and their servicing, supplying fertilizers and other inputs, and construction materials for building irrigation system and other infrastructure. There rural industries also have forward linkages with agriculture in terms if processing agricultural products.

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growth· of agricultural production and that of non-farm employment in rural areas for some periods

and no such relation for some others124• He then concluded that this relation was not a monotonic one.

Papola noted a strong relationship between the growth of rural industries and that of agricultural output

and the rise in income levels, purchasing power and investible Slirplus125• He also traced backward and

forward linkages between agriculture and rural industries (i.e., the rural industries supplying inputs to

agriculture, and processing agricultural products), but the indirect effect (i.e., rising agricultural income

led to rising demand for rural industries' products) seemed to be stronger. Thirdly, Vaidyanathan put

forward a hypothesis that non-agricultural activities acted as a residual sector so that rural workers who

were not absorbed in agriculture would spill-over into non-agricultural activities126• Basant and Kumar

noted a similar phenomenon that growing casualisation of la.bour raised the participation in non-farm

activities, particularly in seasonal activities127• In case of West Bengal, Chandrasekhar observed both

the phenomena - agricultural growth-led diversification and' the distressed-driven spill-over into non-/

farm activities of a labour-force that was not fmding adeqJate employment in agriculture - at varied

extent in different districts and in different periods128• He then concluded that the aggregate magnitude

of off-farm employment would depend on the combined effect of the agricultural 'pull factor' and

'push factor'. Finally, the interlinked relations between the rural/small industries with the urban factory

industries are rarely observed129•

2.4 Summary

In India there exists a long tradition of artisanal industries. Considerable evidence exist which

show their substantial development in the ancient times and their popularity abroad as the products

were exported. In the medieval times, particularly during the Mughal period, both inland trade and

exports of the manufactured goods flourished to a considerable extent. These manufactured goods were

exported to different parts of Europe and Asia by the European East India Companies and others.

124 Of which manufacturing employment was substantial. See Chandrasekhar (1993), Table 8, p.224.

125 Papola (1987). See also Unni (1991) who noted a strong positive association between the growth .. of agricultural productivity (output per unit land) and the percentage of rural non-agricultural workers.

126 Vaidyanathan (1986).

127 Basant and Kumar (1989).

128 Chandrasekhar (1993).

129 See Staley and Morsey (1965), pp.263-65. They also noted that the state policy of ancillarisation or developing sub-contracting relations have mostly failed (p.266).

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The most important industries were the manufacturing of cotton and silk goods which were

produced in various parts of India. Production was primarily organised by the merchants through the

putting-out system.

Apart from these exported items, substantial amount of artisanal production was carried on by

the artisans in the villages under customary exchange system called the ~jajmani' system.

The artisanal industries continued to grow till the early decades of the 19th century. Thereafter,

with the establishment of the British rule these industries substantially declined in the face of

competition from the Britishfactory-made goods together with discriminatory colonial policies against

these industries.

It was since 1921, with the launching of nationalist movement that some of the artisanal

industries, notably weaving and spinning received some protection and started reviving to an extent, I .

particularly ip the rural areas.

After independence the State recognised their importance and made planned efforts to develop

them in the· villages and small towns. Several organisations like the Khadi and Village Industries

Commission and Handloom Board were set up to promote these industries.

However, the rural industries in India achieved a moderate growth after independence. State

policies to promote these industries are found to be often ineffective and sometimes counter

productive. Several contradictions are also noted in the policies, notably, in technology upgradation,

diffusion, training workers and technicians, and the use of technology and skills. As such there is no

effective coordination among the agencies involved in technology generation, training workers in the

technology and using them. Further, demand for rural industries' products has not been growing fast

enough due to slow growth in agriculture which in turn was primarily due to non-implementation of

land reforms. The inherited power structure of a coalition of landlords, rich peasants and big capitalists

effectively barred radical land reforms. Furthermore, there is a conflict between the artisanal industries

and the small scale industries - the growth of the latter substantially competed out the former.

Moreover, a substantial part of the rural industries products was being substitu~ed by urban factory

made goods. This is not only true for consumer goods but also for agricultural tools and implement,

fertilizers, and even processing some agricultural products. Lastly, as seen in Japan and China, the

large enterprises helped the small enterprises through up-grading technology, providing raw materials

or intermediate products, improved machinery, financial assistance, various information, and marketing

products; such phenomena are occasionally seen among the enterprises in India, for instance, in some

weaving clusters in West Bengal.

The latter region has made significant progress in rural. industrialisation. The region has also

fulfilled certain preconditions, like implementation of land reforms and rural development measures,

85

attainment of a sizeable growth in agriculture. Moreover, the entrepreneurs also developed some

flexibility in their organisational structure, like the Japanese-type symbiotic relations, though to a lesser

extent, between artisans and the big enterprises promoting rural industries, as we shall see in the

following chapters. In the next chapter we shall make an attempt to comprehend the implications of

the plans and programmes and the pattern of growth of the decentralised and rural industries in West

Bengal.

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