Manufacturing Industries

When raw cotton becomes cloth, iron ore becomes steel, and sugarcane becomes sugar, value is added at every step. Manufacturing is the making of finished goods from raw materials in large quantities. It is regarded as the backbone of development. A country is judged to be strong not by how much it grows or digs, but by how much it makes. Understanding why manufacturing matters, how industries are classified, and the story of India's key industries is essential economic geography.

Manufacturing is classed as a secondary activity. It works on the output of the primary sector: farms, mines and forests supply the raw materials that factories process using power and machinery. Where these activities choose to locate shapes the map of the world's wealth.

Manufacturing matters for several connected reasons:

• Creates jobs outside farming, drawing people from overcrowded fields into factories and services.
• Adds value to raw materials, turning cheap primary goods into costlier finished products and so increasing wealth.
• Supports agriculture by buying its produce (cotton, sugarcane) and supplying it with tools and fertilisers.
• Earns foreign exchange through exports.

For all these reasons, the growth of manufacturing is taken as a measure of a country's economic strength. Agriculture and industry are seen to move forward together.

Industries are grouped in several ways, and the schemes often appear in examinations.

• By source of raw material: agro-based industries (cotton, sugar, tea) use farm produce, while mineral-based industries (iron and steel, cement) use minerals.
• By their main role: basic or key industries supply raw materials to other industries (iron and steel), while consumer industries make goods for direct use (sugar, toothpaste).
• By capital invested and size: household, small-scale (limited investment) and large-scale industries.
• By ownership: public sector (owned by the government), private sector, joint sector and cooperative sector.
• By the weight of materials: heavy industries (iron and steel) and light industries (electronics).

Why do industries set up where they do? An industry seeks the place where it can produce most cheaply. The key factors of industrial location are:

• Raw materials: being near heavy or perishable inputs saves transport cost.
• Power: a reliable, cheap energy supply.
• Labour: an adequate, affordable and suitably skilled workforce.
• Market: being close to where the goods will be sold.
• Transport: good roads, railways and ports to move inputs and products.
• Capital and government policy: money to invest and a supportive environment.

Industries weigh these factors against each other. Heavy industries locate near raw materials, while market-oriented ones locate near consumers.

Industries are drawn to similar favourable conditions, so they tend to cluster together in particular areas. These clusters are called industrial regions. Once an area has industry, more industries follow. Newcomers benefit from the labour, transport and services already present.

The world's great industrial belts grew where coal, iron, transport and markets came together: western Europe, north-eastern North America and East Asia. In India, the Chhota Nagpur plateau and the Mumbai–Pune belt are major industrial clusters.

The iron and steel industry is the basic industry. All other industries, heavy and light, depend on it for their machinery and tools. It is also a heavy industry. Its raw materials (iron ore, coal, limestone) and its products are bulky and costly to move.

For this reason, steel plants are located close to their raw materials. Most of India's iron and steel plants are concentrated in the Chhota Nagpur plateau region (Jharkhand, Odisha, West Bengal, Chhattisgarh). This region has iron ore, coal and cheap labour close together. India is among the world's leading producers of steel, though it faces challenges of high costs and limited modern technology.

The plants of the coal belt, such as TISCO at Jamshedpur, Durgapur and Bhilai, enjoy coal supplies from nearby fields. The Visvesvaraya Iron and Steel plant at Bhadravati in Karnataka is the notable exception. It has no coalfield in its neighbourhood and historically ran on charcoal from local forests and on hydroelectric power instead.

Public-sector steel rests on two companies. The Steel Authority of India Limited (SAIL) runs the integrated steel plants at Rourkela (Odisha), Bhilai (Chhattisgarh), Durgapur (West Bengal), Bokaro (Jharkhand) and Burnpur (West Bengal). Rourkela is SAIL's only integrated plant in Odisha; there is no SAIL integrated plant at Jaipur in that state. Each of the first three plants was built with a different foreign partner:

• Rourkela: the first public-sector integrated steel plant, built with West German collaboration.
• Bhilai: built with Soviet collaboration.
• Durgapur: built with British collaboration.

The Burnpur plant came from the Indian Iron and Steel Company (IISCO), and the merger of IISCO with SAIL has been completed. Maharashtra Electrosmelt Limited is a subsidiary of SAIL. The Salem Steel Plant in Tamil Nadu is a premier producer of stainless steel.

The second company is Rashtriya Ispat Nigam Limited (RINL), which runs the Visakhapatnam (Vizag) Steel Plant in Andhra Pradesh. RINL has been declared a Mini Ratna, a status that gives a profitable public enterprise greater financial autonomy. Two power projects are often paired with these steel plants in matching exercises: the Jamnagar power project in Gujarat belongs to Essar Power, and the Kayamkulam project in Kerala belongs to NTPC.

The textile industry is unique because it is agro-based. It is the largest industry in India by employment, providing work to millions. It also has a long chain that links farmers, factory workers and traders.

The cotton textile industry has ancient roots in India. It is concentrated in Maharashtra and Gujarat, where black soil grows cotton and the climate and ports help. The jute industry is concentrated along the Hugli river in West Bengal, near the jute-growing delta. Silk, wool and synthetic textiles add to the variety. The industry supports farming by buying raw cotton. It also supports the country by exporting finished cloth and garments.

Aluminium smelting is the second most important metallurgical industry in India after iron and steel. Its raw material is bauxite, an ore found in large reserves in Odisha and the Eastern Ghats. Turning bauxite into aluminium consumes enormous quantities of electricity. Cheap and assured power, more than nearness to the ore, therefore decides where smelters are sited.

The major plants and their locations are frequently tested as matched pairs:

• HINDALCO, Renukoot (Uttar Pradesh): owes its site to the abundant power of the nearby Rihand Dam, a large hydroelectric project, rather than to raw materials or markets.
• BALCO, Korba (Chhattisgarh): a public sector plant located close to the Korba coalfields and their thermal power stations.
• NALCO, Koraput (Odisha): the National Aluminium Company, set close to the rich bauxite deposits of the Eastern Ghats.
• Indian Aluminium Company (INDAL), Hirakud (Odisha): draws cheap power from the Hirakud Dam project on the Mahanadi.

The paper industry uses bamboo, wood pulp, waste paper and bagasse, the crushed residue of sugarcane. Raw material and water supply pull mills towards forested and riverine regions. Three centres are well known for paper manufacturing: Yamunanagar in Haryana, Guwahati in Assam and Ballarpur in Maharashtra, home to one of India's largest paper mills. Shahabad in Karnataka, by contrast, is a cement town and is not a paper centre.

Cement, fertilisers and petrochemicals complete the list of major material industries. Cement plants sit near limestone deposits, while fertiliser and petrochemical plants cluster near refineries and ports that supply their feedstock.

Small-scale industries (SSIs) are defined by a ceiling on investment in plant and machinery, not by the number of workers alone. The nature and size of an industry are judged by capital investment, business turnover and power consumption. In most cases SSIs are less efficient and less competitive than large-scale units. The government still gives them preferential treatment, cheap credit and, for decades, reservation: a list of products that only small units could make.

Two justifications drive this support. SSIs provide higher employment per unit of capital deployed, and they promote a regional dispersion of industry and economic activity beyond the big cities. Since 1992 the small-scale sector has contributed about 34 per cent of the gross turnover of the manufacturing sector. The Abid Hussain Committee, an expert committee on small enterprises, recommended abolishing the reservation of items for the small-scale sector to make it more competitive. Reservation was later phased out.

The New Industrial Policy of 1991 ended the licence raj. Compulsory industrial licensing was scrapped for most industries, with the list of licensed industries cut to about 15 and later to a handful on security, health and environmental grounds. The white goods industry, consumer durables such as refrigerators, washing machines and air conditioners that are bought for conspicuous consumption, was among the sectors delicensed. With markets taking the central place in allocating resources, central planning for industry lost much of its earlier importance, and industrial investment passed largely to private and multinational firms.

Later policy built on this base:

• SEZ Act, 2005: in force from February 2006, it creates Special Economic Zones to develop infrastructure, attract investment including foreign investment, and promote exports of both goods and services, not services alone.
• National Manufacturing Policy, 2011: proposed National Investment and Manufacturing Zones (NIMZs), single window clearance for approvals, and a Technology Acquisition and Development Fund. India's first NIMZ was proposed in Prakasam district, Andhra Pradesh.
• Corporate Social Responsibility (CSR): the Companies Act, 2013 requires eligible companies to spend at least 2 per cent of average net profits on CSR. The rules exclude any expenditure that benefits the company itself or its employees from counting as CSR.
• Geographical Indication (GI): a tag that ties a product to its place of origin. Banaras Brocades and Sarees and the Tirupathi Laddu hold GI status. A generic dish such as Rajasthani Daal-Bati-Churma does not.

A cluster of institutions and public enterprises also recurs in questions:

• Labour Bureau: under the Ministry of Labour and Employment, it compiles data on industrial disputes, closures, retrenchments and lay-offs in factories.
• National Automotive Board: functions under the Ministry of Heavy Industries.
• Coir Board: functions under the Ministry of Micro, Small and Medium Enterprises.
• National Centre for Trade Information: functions under the Ministry of Commerce and Industry.
• MMTC Limited: India's largest international trading organisation and its largest non-oil importer. With the Government of Odisha it set up Neelachal Ispat Nigam Limited, a steel venture.
• Project and Equipment Corporation of India: functions under the Ministry of Commerce, not the Ministry of Industry.
• ECGC (Export Credit Guarantee Corporation): provides export credit insurance to exporters. Quality control and pre-shipment inspection are the work of the Export Inspection Council, not of ECGC.
• NTPC: the largest power utility in India.
• Indian Ordnance Factories: the largest departmentally run industrial undertaking in the country.

Industrial output is tracked by the Index of Industrial Production (IIP). Within it sit the Eight Core Industries: coal, crude oil, natural gas, refinery products, fertilisers, steel, cement and electricity. Textiles is not a core industry. The core industries carry a combined weight of about 37.90 per cent in the overall IIP. In the earlier base-year series electricity generation carried the highest weight among the eight; in the revised 2011-12 series refinery products carry the highest weight, with electricity next.

Growth in industrial production responds to demand, a stable exchange rate and business sentiment. The upturn of 1999-2000 is attributed to exactly these conditions, and in 2000-01 steel recorded the highest growth rate among the major industries. India also ranks high globally in several lines: it has long been the second largest producer of silk and among the top three producers of coal, though it is not the second largest producer of nitrogenous fertilisers.

Industrial development remains constrained by gaps in entrepreneurship and business leadership, by shortfalls in technology, skills and infrastructure, and by the limited purchasing power of the masses, which keeps domestic demand weak. A shortage of savings to invest is not counted among these constraints.

Industries bring prosperity, but they also pollute the environment in four ways. Air pollution comes from smoke and gases. Water pollution comes from chemicals and waste poured into rivers. Land pollution results from dumping solid waste, and noise pollution from machinery. These harm human health and damage soil, water and air.

Industry also strains water supplies directly. Thermal power plants are the largest industrial consumers of water in India. They draw huge volumes for steam generation and cooling, well ahead of the engineering, paper and pulp, and textile industries.

Pollution can be controlled in several ways. Industrial waste should be treated before it is released. Water should be reused and recycled, and rainwater harvested to meet water needs. Industries should adopt cleaner technology that produces less waste. Strict laws and the proper siting of industries away from dense settlements also help reduce the damage.