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  • Chapter 2 Evolutionary Dynamism of

    Manufacturing Sector in Punjab

    2.1 Introduction

    This chapter serves as a background to the study. It traces the evolutionary dynamism of manufacturing sector in Punjab - a state, which, since the colonial

    period, being agriculturally advanced, had been engaged in the commercial cul- tivation of crops like wheat, cotton, sugarcane, oil seeds etc. on large tracts of irrigated land. There was no serious famine-like situation and the overall eco-

    nomic condition of the peasantry had been better than that in the rest of India. 1

    Under such situation, based on the theoretical literature emphasising the inter- dependence between agriculture and industry, one may conjecture the evolution

    of a dynamic manufacturing sector in the state. But, how did it happen? What had been its nature? Following the rude shock of partition in 1947, how the

    industrial economy of the state could recover and attain dynamism in the post-

    independence period? and, What were those key factors that facilitated the state to attain growth dynamism in the sphere of small-scale industrial development?

    By way of addressing these questions, we understand the evolution of dy- namic manufacturing sector in Punjab in the follOwing sections. After deriving

    insights from the theoretical perspectives on the relation between agriculture

    and industry (in section two), we begin with the situation under the British rule

    and thereby discuss about public investment and commercialisation of agricul-

    ture in the state during this period (in section three). This discussion is further

    supplemented with an elaboration of the nature of capital accumulation and the

    magnitude of manufacturing activity during this period (in section four). Hav-

    IMukheIjee (1985) pOints out that the spread of benefits of'commercialization "was probably wider. at least in the agriculturally more advanced areas of the province. than in regions such as Bengal. Also. a larger portion of the profits from commercialization. whether through mortgage debt or sale of agricultural produce. was accumulated and retained within the agricultural sector in the hands of rural classes such as well-to-do peasants and landlords. It was not drained away from the agricultural sector through the usury trading network. as is supposed to have happened in Bengal" (p.65).


  • ing understood the initial (British-time) situation, we examine the evolution and

    growth dynamism of state's manufacturing sector during the post-independence

    period (in section five). Following which, we highlight the prime role of state

    support, entrepreneurial capability and artisans hip in attaining the growth dy- namism (in section six). We also discuss the structure of industrial labour mar-

    ket along with its operational dynamics (in section seven). The final section sums

    up the focus of this chapter.

    2.2 Theoretical Perspectives on The Relation Between Agriculture and Industry

    We generally observe that there exists much inter-dependence between agricul-

    ture and the industrial sector. This inter-dependence between the two is so much

    significant that one is often held crucial to the growth of the other and vice-versa.

    The agriculture sector assumes significance for the growth of a sound indus-

    trial sector as it helps (1) in manufacturing by supplying various raw materials,

    (2) by releasing surplus labour for the industrial sector, (3) in maintaining low

    wage rates by providing food items (to industrial workforce), (4) in procuring im-

    ported machinery by providing earnings from agricultural exports, and so on.

    Similarly, the industrial sector supports agriculture by (1) supplying inputs (like

    fertilizers, insecticides, agricultural tools etc.), (2) generating adequate infras-

    tructure for agricultural development, (3) providing market for the farm produce,

    and so on.

    This relation between agriculture and industry was recognised in economic

    theory since its early beginnings in classical political economy. Bharadwaj (1987)

    pOints out, "In Petty's time when different sorts of activities were carried on

    within the same enterprise, neither social nor intra-enterprise division of labour

    had progressed much so that the producers, mostly in possession of their own

    means of production, employing also family labour, catered to a variety of their

    own needs, the distinction between 'agriculture' and 'industry' did not emerge

    sharply. It was in the works of the Physiocrats that such a sectoral separation emerges Significantly, although 'industry' was perceived more as an appendage

    to agriculture, and constituted predominantly artisan households" (p. AN-I5).

    In Physiocrats' model of the economy, the agriculture sector dominated as a

    sector generating not only major production but also surplus. They conceived

    agriculture as the only productive sector and the rent (appropriated by landed

    proprietors) as the only form of surplus generated. Since the artisan (manufac-

    ture) sector was believed not to produce any surplus, the demand for the prod-

    ucts of artisans emanated mainly from the rental revenues of the proprietors

    (Bharadwaj, 1987, p. AN-I6). In spite of considering industry as appendage


  • and sterile not generating any surplus, the Physiocrats' first macro-modelling of the economy facilitated thinking over the relationship between agriculture and industry.

    As with the advancement of capital relations in agriculture and industry, there took place transformation in their inter-relation, Adam Smith, in contrast to Quesnay, recognised manufacturing sector contributing to 'net product' of the economy. In Smith's analysis, though the agriculture sector retained its par- ticular significance as an important provider of subsistence (food items), it was also observed that the industrial sector can provide relatively more advantages to the economy by allowing greater division of labour, which may lead to further sub-divisions and expansions in industrial employment along with the achieve- ment of higher productivity through the invention of superior machinery. Smith was of the opinion that in comparison to an economy without a substantial in-

    dustrial sector, an economy, which develops its industry substantially, can enjoy relatively better terms of trade between agricultural produce and manufactures. Smith viewed the relation between agriculture and industry as the symbiotic re-

    lation between the 'country' and the 'town' as he emphasised that the country supplies the town with the necessary subsistence and the materials of manufac- tures. The town repays this supply by sending back a part of the manufactured produce for the inhabitants of the country and thus, in any civilised society, the great commerce is carried on between the inhabitants of the country and the town (Eltis, 1988).

    Thus, in its primitive form, industry had remained an appendage to agri-

    culture. In such a situation, there had not arisen much possibility for inter- linkages. But, with growing speCialisation and increasing division of labour,

    there took place a spatial and organisational separation of industry from agricul-

    ture. The simultaneous progress in technology and product diversification in in-

    put and output markets had resulted in the emergence of inter-linkages between industry and agriculture which became stronger over the period of time (Eapen, 2003). Hirschman (1958) has been the first to consider 'production linkages' as inducement mechanisms for stimulating economic activities through backward

    and forward linkages. He considers backward linkages as those related with in-

    put provision and the forward linkages as those related with the utilisation of


    Based on the idea of 'linked progress', Nurkse (1961) has advocated that the

    sectors of farming and manufactUring must move forward together, though their

    equilibrium rates of growth between the two may be different and vary over time.

    Kuznets (1968) too opines that the industrialisation facilitates agricultural trans-

    formation as a coincident revolution in agricultural productivity releases human

    resources to industry and therefore, technological advancement must support



  • ..

    Kalecki (1960) too observes that the rapid development of industry requires

    investment and technological advances in agriculture. Consequently. the basic

    prerequisite for rapid industrialisation of an underdeveloped economy is a revo- lutionary upsurge in agricultural production.

    In theoretical models like Hymer & Resnick (1969) and Ranis & Stewart (1993), the interaction between agriculture and industry has gained attention.

    However. the pioneering attempt to specifY. empirically and quantitatively. the

    linkages between these two sectors has been made by Harriss (l987b.a). Har-

    riss conceptualises the linkage of small industries with agriculture in two ways:

    first, by exploring the nature of their linkage in terms of forward. backward or

    consumption links beSides exploring whether these links are direct or indirect;

    second. by interpreting the linkages in terms of (three types of) flows. viz. com-

    modity flows. flows of finance (private investment capital