Evolution of Industries & Phases of Industrialization – UPSC

• Indian industrialisation runs in five phases: failed ventures (1818–54), agro-based mills (1854–1907), metallurgical beginnings (1907–55), state-led heavy industry (1955–85) and a mature, liberalised phase (1985 to the present).
• Its policy line moved from colonial neglect, through a mixed economy with a commanding public sector (1948, 1956), to deregulation (1991) and incentive-led manufacturing (2014 onward).
• In 2025-26 manufacturing made up 14.8% of gross value added at current prices, against 14.7% in 2022-23, so its share has barely moved despite fast growth in output.

Industry and Manufacturing

Industry

• Industry is a category of active enterprises and organisations that produce or sell goods, services or other sources of revenue.
  • It does not mean a factory alone. It takes in economic activity tied to producing goods, extracting minerals and providing services.
• Economists commonly sort it into primary, secondary and tertiary industry.

Manufacturing

• Manufacturing converts natural materials into usable commodities by processing, assembling and repairing: cloth from cotton, sugar from cane, paper from wood pulp, petrochemicals from mineral oil.
• It acts as the engine of economic growth. It reduces poverty and unemployment and moves a traditional society towards a modern one.
  • A country’s economic strength is often read from its industries, and every developed country is highly industrialised.

Evolution of Industries

Before Modern Industry

• Industrial development matters for socio-economic and human development. Long before independence India was known for its cottage and household industries.
  • Textiles: the muslin of Dhaka, chintz of Masulipatnam and calicos of Calicut (Kozhikode), with weaving known some 1,500 years before Christ.
  • Other crafts: silk goods, artistic pottery, bronze, brass, silver and copper work, wood, stone and ivory carving, dyeing and calico printing. These were famous throughout the world and in demand well before modern industry began.
  • Metallurgy: the rust-free Mehrauli Iron Pillar, more than 1,500 years old near the Qutab Minar, and the steel believed to have gone into Damascus swords.
  • François Pyrard, a 17th-century traveller, recorded Indian cloth being worn all the way from southern Africa to China.
• The traditional base collapsed under British rule.
  • English traders, and then the Industrial Revolution, brought a policy of exporting raw material from the colony and importing finished goods.
  • Machine-made goods undercut village artisans. Goldsmiths, blacksmiths and weavers lost their livelihoods, and barter gave way to money exchange.
  • The position eased somewhat after the mid-nineteenth century, but growth stayed slow.
• Colonial location pattern: the main centres were the port cities of Mumbai, Kolkata and Chennai, placed to serve imports and exports. Kanpur, a base for military supplies, was the one notable inland centre.

From Early Mills to Planned Policy

• Modern organised industry began with the cotton textile mill in Mumbai in 1854, on mainly Indian capital and enterprise.
  • The jute industry followed in 1855 at Rishra in the Hugli valley near Kolkata, largely on foreign capital and enterprise.
• Rail transport opened between Bori Bunder (Mumbai) and Thane on 16 April 1853, over 34 km.
• The country’s first paper mill came up at Ballygunge near Kolkata in 1870. Steel by modern methods was first attempted at Kulti in 1874. The Tata Iron and Steel Company was registered in 1907.
• So the modern sector dates only from after the middle of the nineteenth century.
• The two World Wars spurred chemicals, iron and steel, sugar, cement, glass and other consumer goods.
• Post-independence policy set out these goals: employment, higher productivity, removal of regional imbalance, a stronger agricultural base, export promotion and consumer protection.
  • Industries were deliberately placed in economically backward regions.
• The policies of 1948 and 1956 set the direction, and the First Five Year Plan began the planned process that later plans carried forward.

Phases of Industrialisation in India

• This evolution falls into the five phases below.

Phase	Years	Name	Character
I	1818–1854	Abortive	Failed ventures
II	1854–1907	Incipient (early expansion)	Agro-based mills
III	1907–1955	Premature	Metallurgical start
IV	1955–1985	Early mature	Heavy and basic industry
V	1985 onward	Mature	Diversification and exports

Phase I (Abortive Phase): 1818 to 1854

• Several attempts were made to start modern industry, but all failed and shut down.

Year	Venture
1818	Cotton mill at Fort Gloster near Kolkata, which soon closed
1827–1830	Iron smelting in the Madras Presidency: dated 1827 in older accounts. Josiah Marshall Heath’s Porto Novo works (Tamil Nadu) opened in 1830 and closed in the 1860s
1829	Early textile venture at Ahmedabad. The city’s lasting mill industry starts only in 1861
1832	Early paper and pulp ventures in Chennai and at Ballygunge

• Suppressive British industrial policy withheld encouragement from private industry and sealed the failure of these units.

Phase II (Incipient Phase): 1854 to 1907

• This was the phase of early expansion, when modern industry first took hold.

Year	Industry
1854	Cotton mill at Mumbai (Bombay Spinning and Weaving Company) by Cowasji Nanabhai Davar, an early Indian private entrepreneur
1855	Jute mill at Rishra, with jute also finding markets in Australia
1861–1863	Ahmedabad mills: Ranchhodlal Chhotalal’s first mill (Shahpur, 1861) and the Calico mill (1863). Expansion followed demand during the American Civil War
1870s–1880s	Woollen mills: Kanpur (Lal Imli, 1876), Dhariwal (1881), Mumbai (1882) and Bengaluru (1886), often grouped loosely under 1870
1875–76	47 cotton mills, over 60% of them in Mumbai, or about 50 in rounded older accounts
1900–1914	Over 190 mills by 1900 and 271 by 1914. An older count of close to 120 put 46 in Mumbai, already the “Cottonopolis of India”

• Other milestones:
  • The first paper mill at Ballygunge, Kolkata, in 1870.
  • The first railway from Mumbai to Thane in 1853.
  • Bengal Iron Works at Kulti, founded in 1870, with modern smelting from 1874. It was taken over by the government in 1881.
• Paper, pulp and jute were emphasised in the Hugli and Bihar region, and cotton textiles in the western region.
• The phase built a strong agro-based set-up, but basic and heavy industries still lagged.
• Jute mills stood at 64 by 1913-14, employing over two lakh people. Woollen textiles, paper and breweries had also appeared before 1914.

Phase III (Premature Phase): 1907 to 1955

• Industrialisation based on iron and steel began here.

Year	Industry
1907	Tata Iron and Steel Company (TISCO) registered. Jamsetji Nusserwanji Tata conceived it and died in 1904, and Dorabji Tata carried it through. The first ingot came in 1912 at Sakchi, later Jamshedpur
1918–1919	Indian Iron and Steel Company (IISCO), incorporated in 1918 with its works at Hirapur (Burnpur). Kulti later merged with it
1923	Mysore Iron Works at Bhadravati, Karnataka, today’s Visvesvaraya Iron and Steel Plant

• Inter-war period:
  • The First World War raised demand for industrial goods from the armed forces.
  • The Indian Fiscal Commission (1921-22) secured protection for iron and steel, textiles, cement, sugar, paper and metals.
  • War hindered sea traffic and made European goods costly to bring in, so the British took a more liberal line towards Indian-made products.
  • Cotton textiles dispersed from Mumbai: its share of mills fell from 61.7% (1875-76) to 17.5% (1938-39).
  • India became the fourth largest cotton manufacturer, behind the USA, the UK and Japan, and a main supplier of textiles and liquor.
  • Jute stayed concentrated in the Hugli basin, with mills rising to 107 by 1938-39.
• Second World War:
  • Industry prospered between the wars, but India’s participation and Japan’s entry brought the war to the country’s doorstep.
  • The trouble was short-lived. Wartime need for arms and ammunition made the ordnance industry flourish, under a ₹4 crore programme from 1941, with about 700 varieties of ammunition.
  • Heavy chemicals began in 1941, producing sulphuric acid (H2SO4), synthetic ammonia, caustic soda, chlorine and bleaching powder.
  • Aircraft: Hindustan Aircraft was set up at Bengaluru by Walchand Hirachand on 23 December 1940. It assembled its first aircraft in 1941, and the government took it over in 1942.
  • Metal fabrication such as copper began. Engineering, electrical equipment and plastics flourished, while diesel engines, pumps, sewing machines and fans suffered.
• After the war and Partition:
  • Falling demand, labour trouble, overworked machinery and transport bottlenecks pulled growth down.
  • Partition (1947) hit cotton and jute hardest: 40% of cotton and 81% of jute output went to Pakistan, which held 18% of the people and 23% of the area. The location effects of Partition lasted for years.
• At independence industry was dominated by consumer goods such as cotton, sugar and leather. Intermediate and capital goods had grown slowly.
• Three steps eased matters in 1948: a three-year labour truce, tax concessions and the Industrial Finance Corporation.

Industrial Policy Resolution, 1948

• The first Industrial Policy Resolution (6 April 1948) changed the situation. Its objectives were:
  • Employment generation
  • High productivity
  • Removal of regional imbalances
  • Promotion of the public sector
  • Self-sufficiency
• Its other features:
  • It declared India a mixed economy.
  • It gave importance to small-scale and cottage industries.
  • It placed restrictions on foreign investment.
• It sorted industries into four broad areas:

Category	Control	Industries
Strategic	Central monopoly	Arms and ammunition, atomic energy, rail transport
Basic or key	Public-cum-private; new units by the State only	Coal, iron and steel, aircraft, shipbuilding, telephone, telegraph and wireless apparatus, mineral oil
Important	Controlled private sector (18 industries)	Heavy chemicals, sugar, cotton and woollen textiles, cement, paper, newsprint, salt, machine tools, fertiliser, rubber, non-ferrous metals, air and sea transport, motor, tractor, electricity
Other	Private and cooperative	Everything else

First Five Year Plan (1951–56)

• The plan promoted a self-reliant, closed economy. Drafted with K. N. Raj on a Harrod–Domar growth model, it precedes the Mahalanobis strategy of the next plan.
• Agriculture took top priority, for food self-sufficiency in the shortest time and to control inflation.
• The emphasis was on raising the capacity of existing industry rather than starting new units.
  • Cotton textiles, sugar, vanaspati, cement, paper, chemicals and engineering made some progress.
• New lines appeared: newsprint, power looms, medicines, paints and transport equipment.
• Units from these years include the Sindri fertilizer factory, Chittaranjan Locomotive Works and Integral Coach Factory.
• Industrial production rose about 40% over the plan, against 30% for grain.
• Verdict: between 1907 and 1955 some modern and basic industry took root, but for so large a population it was miserably insufficient.

Phase IV (Early Mature Phase): 1955 to 1985

Second Five Year Plan (1956–61)

• The plan drew on the socialist pattern of the USSR. It rested on the Mahalanobis model, set out by Prasanta Chandra Mahalanobis in 1953.
• Rapid industrialisation, with priority for basic and heavy industries and a key role for the public sector.
• Industrial Policy Resolution, 30 April 1956, often called India’s economic constitution, made a socialistic pattern of society the goal of economic policy.

Schedule	Status	Coverage
A	Exclusive State responsibility (17 industries)	Arms, atomic energy, iron and steel, heavy machinery, coal, mineral oils, aircraft, air and rail transport, shipbuilding, telephones, electricity
B	Progressively State-owned (12), with private firms supplementing	Other minerals, aluminium, machine tools, chemicals, antibiotics, fertilizers, road and sea transport
C	Private initiative	All remaining industries

• The Resolution also promised fair treatment for the private sector, support for village and small industry, attention to backward areas, and a measured welcome to foreign capital and technique.
• Backward area development and the trickle-down idea of the growth pole and growth centre were adopted.
• Three new State steel plants came with foreign partners:
  • Bhilai (USSR): agreement in 1955 (with the work often dated from 1954), first furnace in 1959.
  • Durgapur (UK): 1959.
  • Rourkela (West Germany): 1959.
• Older plants expanded: Jamshedpur, Kulti–Burnpur and Bhadravati.
• HMT Bengaluru, the Sindri fertilizer factory, Chittaranjan Locomotive Works and the Hindustan Shipyard at Visakhapatnam were also expanded.
• New units: fertilizer plants at Rourkela and Nangal, and a heavy electrical plant at Bhopal (Heavy Electricals, incorporated 1956).

Third Five Year Plan (1961–66)

• It stressed industrial diversification and expanding steel, machine building, fuel, power and chemicals, to lay the base of a self-generating economy.
• Machine tools: Hindustan Machine Tools (HMT) grew beyond Bengaluru to Pinjore in Haryana (1963), Kalamassery (1965) and Hyderabad (1967), with Ajmer following in 1975.
  • Ranchi received the Heavy Machine Tools plant of the Heavy Engineering Corporation.
• New pillars: heavy electricals at Bhopal and Haridwar, and drugs at Rishikesh near Haridwar and Hyderabad, under Indian Drugs and Pharmaceuticals (1961).
• Shipbuilding, aircraft, locomotives, railway coaches, chemicals and fertilizers also advanced.
• Achievement fell short because of:
  • The wars with China (1962) and Pakistan (1965)
  • The drought of 1965
  • Scarce foreign credit
  • Rigid administrative rules that could not cope with abnormal conditions

Three Annual Plans (1966–69): Plan Holiday

• The failure of the Third Plan, a rupee devaluation meant to boost exports, and inflationary recession postponed the Fourth Plan.
• A crisis in farming and serious food shortage turned attention to agriculture, with a new strategy: high-yielding seeds, fertilizers, irrigation and soil conservation.
• The economy absorbed the shocks of the Third Plan and prepared for planned growth.
  • Industrial production rose only 1.7% and 0.3% in the first two years, then 7% in 1968-69.

Fourth Five Year Plan (1969–74)

• The economy began to recover from recession, though growth swung from 7.3% (1969-70) to zero (1973-74).
• Bokaro Steel Plant became operational.
• Agro-based, small-scale and household industries received great emphasis, though sugar, cotton, jute and vanaspati grew unevenly for want of raw material and power.
• Dispersal was pushed through regional and local planning.
• Good progress: alloys and special steels, aluminium, automobile tyres, petroleum refining, electronic goods, machine tools, tractors and heavy electrical equipment.
• Public sector undertakings also did well.

Fifth Five Year Plan (1974–79)

• The plan emphasised rapid growth of core sector industries, and more goods for export and for mass consumption.
• Steel: plants at Salem, Vijayanagar and Visakhapatnam were proposed, to add capacity.
• Steel Authority of India (SAIL) dates from 1973.
• Drugs, oil refining, chemical fertilizers and heavy engineering progressed.
• The world energy crisis hurt Indian industry.

Sixth Five Year Plan (1980–85)

• The plan marked a watershed. Three decades of growth had produced a high-cost, low-quality structure, weak on modernisation.
• Liberalisation began here. The July 1980 policy under Indira Gandhi opened the door, and Rajiv Gandhi carried it further from late 1984.
• Capacity use and productivity improved. Consumer and capital goods output rose, and electronics grew rapidly.
• Capacity targets were met in aluminium, zinc, lead, petrochemicals, automobiles and consumer durables.
• Production targets were met in petroleum, machine tools and automobiles, while coal, steel, cement, textiles and sugar fell short.

Phase V (Mature Phase): 1985 to the Present

Seventh Five Year Plan (1985–90)

• Focus on a high-technology and electronics industrial service base.
• General dispersal of industry across regions, use of local resources, self-employment and training to skill the workforce.
• An integrated policy concentrated on industries with a large domestic market and export potential.
• Macro changes began. Some stringent, restrictive laws were modified, allowing large private partnerships and foreign direct investment (FDI).

Annual Plans (1990–91 and 1991–92)

• The Eighth Plan could not start because of the fast-changing political situation, so these two years ran as Annual Plans.
• The effects of liberalisation were felt across industry and the wider economy.

Eighth Five Year Plan (1992–97) and the 1991 Policy

• 1991 was the watershed. The New Industrial Policy (24 July 1991), the Rao–Manmohan model, was adopted under P. V. Narasimha Rao and Finance Minister Manmohan Singh.
• Its features:
  • Entry barriers removed.
  • Fewer areas reserved for the public sector.
  • Monopolistic and restrictive practices handled by a rationalised approach: MRTP companies no longer needed prior approval for expansion.
  • Foreign investment and import policy liberalised, with automatic approval up to 51% in priority sectors and for technology agreements.
  • Regional imbalance addressed, and employment-intensive small and tiny sectors encouraged.
  • Five Ds: deregulation, disinvestment, decentralisation, de-licensing and devolution (debureaucratisation).
• Foreign Exchange Regulation Act (FERA) replaced by the Foreign Exchange Management Act (FEMA): passed in 1999, in force from June 2000.
• Licensing shrank to a short list of industries by 1993. The list has since narrowed further.
• Result: a large influx of foreign multinationals, and pressure that made Indian industry more internationally competitive.
• The plan saw growth in multinational companies, automobiles and telecom. After low growth right after the reforms, annual growth in major industry reached 12% by 1995-96.

Effects of liberalisation	Examples
Gains	FDI inflows, higher GDP and exports, revival from the recession of 1991, better infrastructure
Costs	Wider regional disparities as investors favoured advanced States, damage to cottage and small industries, labour-saving technology and weak job growth, volatile portfolio money, neglect of agriculture

Ninth Five Year Plan (1997–2002)

• Current account convertibility of the rupee came in 1994, during the Eighth Plan. Capital account convertibility stayed partial, and the move from FERA to FEMA was completed in this plan.
• Almost all sectors opened to private investment. The list once given as railways, space and nuclear science now stands at atomic energy and railway operations as reserved.
  • The SHANTI Act, 2025 has since allowed private companies to build and operate nuclear power plants.
• The plan set out to address regional imbalance, and existing industries such as cement, coal, steel and consumer goods were optimised.
• The 2000-01 slowdown had several causes:
  • Weak domestic demand
  • High oil prices
  • The Gujarat earthquake
  • High interest rates that hurt private investment, with a slowdown in the world economy

Tenth Five Year Plan (2002–07)

• Modernisation and technology upgradation, higher exports and greater global competitiveness.
• Balanced regional development was the stated aim, with policy packages for special category States: Uttarakhand, Himachal Pradesh, Jammu and Kashmir, and the North East.
• The plan recorded the highest growth of any plan up to then.
• India emerged as a leader in IT and services. Automobiles and pharmaceuticals grew strongly, and tourism and the knowledge industry gained.
• Export thrust from the Department of Commerce:
  • Assistance to States for Infrastructure Development for Exports (ASIDE)
  • Market Access Initiative (MAI)
  • The Special Economic Zones policy
  • Modernisation of the Directorate General of Foreign Trade (DGFT)
• Textiles: the Technology Upgradation Fund Scheme (TUFS) and the Textile Centre Infrastructure Development Scheme for the sector’s infrastructure.

Eleventh Five Year Plan (2007–12)

• The plan’s theme was “Faster and More Inclusive Growth”, aiming at industry and agriculture growing together with a forward-looking vision.
• Environmental Impact Assessment became part of the industrial growth focus, and resource use was further rationalised.
• The global crisis of 2008-09 hurt growth: the index of industrial production rose 15.5% in 2007-08, 2.5% in 2008-09, 5.3% in 2009-10, 8.2% in 2010-11 and 2.9% in 2011-12.

Twelfth Plan and After

• The Twelfth Plan (2012–17) was the last Five Year Plan. NITI Aayog replaced the Planning Commission on 1 January 2015.
• Verdict on the plan era: planning built heavy industry and diversified output, though at high cost and with uneven regional spread.
• Make in India (25 September 2014) set out to make India a global manufacturing hub, in the line of the National Manufacturing Policy (2011), whose aim was a 25% manufacturing share.
  • Its levers were easier business rules, industrial corridors, skills and FDI.
  • The share target has been pushed out. NITI Aayog’s roadmap now looks to 2035.
• Startup India (2016) and later reforms: the startup programme supports new firms, alongside GST (2017), the Insolvency and Bankruptcy Code (2016) and PM GatiShakti (2021).
• Production Linked Incentive (PLI) schemes: launched in 2020, now in 14 sectors with an outlay of about ₹1.97 lakh crore.
  • By 30 June 2026: investment of ₹2,58,835 crore, 14.57 lakh jobs and ₹36,754 crore paid out. Large-scale electronics took the largest share of the payments, at about ₹19,091 crore.
• Labour law: four Labour Codes came into force on 21 November 2025, consolidating 29 central laws.
• National Manufacturing Mission: announced in the 2025-26 Budget. The 2026-27 Budget turned to seven strategic and frontier sectors.
• Foreign investment: record gross FDI inflow of about US$ 94.5 billion in 2025-26, and US$ 843 billion cumulatively from 2014-15.

Registered factories (Annual Survey of Industries)	2023-24	2024-25
Factories	2,60,061	2,66,931
Persons engaged	1.96 crore	2.10 crore
Gross value added	₹24.58 lakh crore	₹26.94 lakh crore

• Structure in 2024-25: basic metals lead in gross value added (11.58%), followed by motor vehicles and chemicals. Food products lead in factories and jobs.
• Medium- and high-technology industries now give 46.3% of manufacturing value added (Economic Survey 2025-26).

Policy Statements at a Glance

Year	Policy	Main thrust
1948	Resolution of 6 April	Mixed economy; four categories
1956	Resolution of 30 April	Public sector dominance; Schedules A, B, C
1977	Janata Government statement (December)	Small, tiny and cottage sector; limits on large houses and foreign collaboration
1980	Statement of July	Public sector efficiency, economic federalism, higher small-unit limits, revival of sick units
1991	New Industrial Policy, 24 July	De-licensing, foreign investment, public sector shrinkage, MRTP relaxation
2014 onward	Make in India, PLI	Manufacturing share, incentives, logistics

• On this chart, “Early Expanding” is Phase II (Incipient) and “Pre Mature” is Phase III.