M a y 10, 1950 E C O N O M I C W E E K L Y

a person between 16 and 21 . These legal determinations and res­trictions, however, cannot be the basis for psychological research or classification. It has been amply demonstrated that the mental age of an individual can be below the chronological age and thus it would be wrong to expect beha­viour of the same order from the child of 12 w i t h an intelligence quotient of 9, as from a child of 12 wi th an intelligence quotient of 14.

Juvenile delinquency is a very important field for investigation,

for it exercises very far reaching influence not only immediately but also on the future health of the society. The earlier a delinquent is detected, the greater is the chance of his complete recovery. These youngsters are pliable enough to be guided from a, criminal career to that of a useful life. Crime statistics point out that most of this group begins lawless activity before they are 21 and that most of them have had a history of several con­victions at a younger age.

Hereditary conditions are very

important but in no way do they form an insuperable obstacle to the cure. For what is inherited is not always incurable, nor does it pre­clude the possibility of getting personality deviation in a normal stock. What is hereditary is neces­sarily inborn, but what is inborn is not necessarily inherited. Crime, therefore, in itself is not inherited; the constitutional drawbacks can be either remedied, or accentuated by conditions which can be con­trolled and which are the imme­diate cause of delinquency.

Measurement of Industrial Efficiency And Factors Determining It

IN modem times increasing atten­tion is being given to the con­

struction of business barometer ' which tries to give a satisfactory measure of changes in industrial efficiency. The reason for this new approach to the study of business problems lies in the economic inter­dependence of different countries, which makes the fortunes of indiv i ­dual businesses largely dependent on the wider movements of national and international prosperity. In such a setting, the question whether changes in. industrial organisation have increased or decreased a country's productive capacity as­sume very great importance. It should, however, be made clear that the construction of business barometers and their reliability are entirely based on the adequacy and accuracy of statistical data.

In industrially advanced coun­tries, the available statistics are being put to the following uses which throw light on the progress of general industrialization in the country and measure the changes in its industrial efficiency:

1. The Growth and Decay of Industries: The statistics of insur­ed persons in the industry con­cerned are taken for various dates and the growth or decay of indus­t ry indicated by the rise or fall in the number of persons insured. Alternatively, the employment figures are taken. For instance, in India, the number of workers employed in the textile industry in 1939 was 819,404. In 1945 it in -

R. C. Prakash, M. A.

creased to 1,014,309. This shows an increase of nearly 24 per cent. In this way, the relative increase and the percentage distribution of employment in different industries in different States may be taken to examine the trends in factory em­ployment and the shifts in the pat tern of employment in different industries and regions.

The Census of Population also gives the number of persons en­gaged in certain occupations. By this means, too, ten-yearly changes in the numerical strength can be traced.

Unfortunately, the occupational distribution of India's population in 1941 is not available from the Census Report for that year, but it is understood that in the next census of population in 1951, infor­mation relating to the number of persons engaged in certain occupa­tions and industries wi l l also be collected.

The measure of the growth of

industries by the number of persons employed in them is regarded good but not perfect test, ' for the greater use of power-driven machi­nery and changes in organization may result in reduction of staff but leave output undiminished or even increased. The importance of this varies from industry to industry, for some, already highly mechan­ised, cannot greatly augment their i r e of power, while others w i l l show no increase through the diffi­culty of using power-driven machi­nery for their work, or through a lack of the spirit of improvement.

2. The Movements of Labour and Industry: The history of economic development tells us that in the long run the productive acti­v i ty in an industry tends to shift to those centres which secure greater economies of production and distribution. Take for instance the locational trends in the cotton-mil l industry of India during 1911-48.

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May 20, 1950

Judged either by the number at cotton mil ls work ing, , or by the percentage distr ibution of sp ind le age and loomage or even by the percentage distribution of workers, in 1911 and 1948, the intra-regional shift of productive activity shows the relative decline in the predo­minant position of Bombay and a significant increase in the share of Madras, Central India, Ahmedabad and the Rest of Bombay Presi­dency. The study of these trends is very helpful for they indicate the directions in which future expan­sion is l ikely to take place. (For detailed analysis, see Dr . M. M. Mehta's article on the Locational Trends in the Cotton-mil l Industry of India, The Economic Weekly, December 3, 1949, pp . 11-12.)

3. The Productive Results of Industry:

(a) Foreign Trade: Broadly speaking, the statistics of foreign trade also indicate the trend of industrial act ivi ty in the country. Bu t these statistics require careful interpretation. Because, declining imports may signify either the growth or decay of industry. To give an example, ' a decreasing import of an article may indicate the growth of a home manufacture, and be followed later by the export of the commodity as home produc­tion increases, but it may also be due to a declining public taste for the article which adversely affects home products as well as foreign.' Granted careful interpretation, trade statistics can be used wi th advantage in the measurement of changes in industrial efficiency.

(b) Home Production: The an­nual census of manufacturing indus­tries now being conducted by the Directorate of Industr ial Statistics. Simla, wi l l afford by far the most accurate measure of India 's indus­tr ial efficiency from year to year. The Report on the First Census of Manufactures, India—1946, gives information on almost all aspects of the industry in India, notably the structure of capital and employ­ment, (the rate of capital formation to be obtained from successive Reports), the cost and productivi ty of labour, the consumption of fuels and raw materials and the products made therefrom; and finally, the value added by manufacture per factory, per person employed and per man-hour worked. A l l these would afford a really scientific mea­sure of changes in India's indus­

tr ial efficiency. An Index of Physical Production ' wi l l furnish

a quantitative measurement of India's industrial product ivi ty, dis­allowing the fluctuations in price kve l from inflating or deflating it and therefore obviate the necessity of price adjustments which one must make in other measurements, based on value figures, to get a true and correct picture,

4. Size of Industrial Establish­ments: The importance of the size of the business is an important ele­ment in its efficiency. The size of industrial establishments can be determined cither on the basis of the productive capital employed or en the strength of wage-earners in the industry. The First Census of Manufactures, India—1946 reveals that 46.7 per cent, of the estab­lishments were in the category of

those employing productive capital below one lakh rupees. Judged by the number of wage-earners, 37.2 per cent, of the establishments employed 21-50 workers only. This shows that the industrial system of India is largely based on small size business units. And bo" it noted that the extent to which the small size business units dominate the industrial system of India, her industrial efficiency wi l l remain at a low ebb; the benefits of large-scale economies w i l l be denied; there wi l l be greater wastes and lesser uti l ization; and the cost of production wi l l be ever high.

The size of the business units should, therefore, be determined from year to year. If the size of the business is increasing, it w i l l indicate rising industrial efficiency; if it is decreasing, it wi l l mean

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ECONOMIC WEEKLY M a y 20, 1950

falling industrial efficiency. The construction of business

barometers on the above lines w i l l enable a systematic and factual study and analysis of the industrial economy of the country. The need for such a study cannot be over­emphasised when the field of State onlrol and regulation of economic life is increasing rapidly. The cap­tains of industry themselves must know and analyse the various fac­t o n influencing industry in the country in order to be able to formulate and execute sound indus­trial policy.

Most of the advanced countries established their industries in the nineteenth century haphazardly with little thought to their resources and transport or to the social implications of industrialization, with the result that up to the pre­sent, industrialization has gone hand-in-hand wi th intensive urban­ization and the concentration of industries in small areas. This has brought in its wake a variety of social and economic evils. Fac­tory slums, high costs and low productivity, industrial waste and inefficiency are but a few of them. The idea of regional de-centraliza­tion in developing a nation's rcources has, of late, attracted increasing attention, largely owing to the success which has attended the T . V . A . experiment in the USA. The old, orthodox theory of freedom of enterprise, laissez faire and global division of labour is now superseded by Weber's theory of industrial location as the basis of economic planning.

Location In India, the cotton and sugar

industries are the worst examples of mis-planned or un-planned development which must be cor­rected in the very near future in the interests of national efficiency. The need for a balanced industrial development of India for improving the low standard of living of her people has been widely realized for some time past. Both the Bombay Plan and the Second Report on Reconstruction Planning refer to the need for regional development of the country. If economic pro­gress on the scale envisaged is to be achieved within a reasonable space of time. India must deve­lop a high order of industrial effi­ciency. Dr. Radhakamal Mukerjee has suggested for India the adop­

tion of an economic plan like that of Russia for offering differential advantages in favour of industries established in the raw material producing and undeveloped econ­omic regions. Neither the pro­gramme of inter-regional distribu­tion of labour and resources nor that of the present economic un­balance and over-crowding in agri­culture in the backward areas, however, should be lost sight of in offering such differential advan­tages. Regionalism, according to him, aims at a continuity of the vast current of resources, energies and services for the permanence of the community through conserva­tion and implementation, not through exploitation, and the transformation of these resources,

production Costs An entrepreneur is primarily

interested in the question of costs, his aim being to secure the maxi­mum efficiency in production and distribution. Costs of production include the cost of raw materials, fuels, etc., and labour, transport, commission and insurance charges, etc. An analysis of the various elements of cost wi l l indicate at what point in the chain of manu­facturing processes the largest costs are incurred.

Production costs may, however, vary from one firm to another ac­cording to differences in size of the business unit , in efficiency or equipment, nearness to the sources of labour and raw materials, trans­port facilities, etc. Again, the pro-

Source : First Census of Manufac-

energies and services into higher values furnishing a permanent dynamics of human culture free from the artificiality and empti­ness of the technological society. It establishes an equilibrium be­tween the people and the heritage of the region, (See Preface to his Planning in Economic Problems of Modern India, Vo l . II and Social Ecology, pp. 316-318.)

Thus, the most important single factor of industrial efficiency is regionalisation, a dispersal of industrial and other economic acti­v i ty , so that, as far as physical conditions permit, each distinct region of the country may develop a balanced economy.* In fact, from the regional distribution of industries emanate other factors of industrial efficiency, such as, pro­duction costs; size of the business unit; supply, selection, organization and management of labour, savings and capital requirements, etc., etc. Let us examine these factors in some detail..

* For a searching analysis of the India, see T. R. Sharma: Location of

tures, India- 1946.

portions of the total costs which are accounted for by raw materials and other items may vary from in­dustry to industry.

Table 1 analyses the percentage relation of the principal items of cost to the total costs in some of the major industries of India. Raw materials,

The table reveals striking differ­ences in the relative importance of various factors of production. Raw materials cost 86.2 per cent of the total in the sugar industry against 47-5 per cent in the case of i ron and steel. Wages cost 35.5 per cent of the total in the general engineer­ing- and electrical engineering in ­dustries against only 11.7 per cent in the case of sugar. Fuels, electri­city, lubricants, etc. cost 22 per cent of the total in the iron and steel in ­dustry compared to 2.1 per cent only in the sugar. These differences are of great importance in deciding the industrial policy for any coun­try. Where raw materials account

regional distribution of industries in Industries in India.

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May 20, 1950 ECONOMIC WEEKLY

for a large proport ion of the total cost, any fluctuation in their price w i l l affect production costs at once. The same would be true of wages and fuels, etc. It may, therefore, be necesary to stabilise the price of raw materials, or prevent abrupt rise in wages.

Apar t from the differences in the relative importance of various fac­tors of production which vary from industry to industry, "costs of pro­duction, in the same industry (italics mine), vary w i th the rela­t ion of the actual output to possible output, tending to increase as pro­duction falls below the maximum, and to drop to a min imum when they are running at l u l l capacity. Even a single firm has no one cost of production, but a series of costs varying according to the scale of output. This is due to the fact that the different items of expense do not respond uniformly to changes in the volume of production, some of them altering as output alters, others remaining relatively con­stant." (See Percy F o r d : Econ­omics of Modern Industry, p. 11, italics ours). This is a point of very great importance to us because in our country production capacity is seldom fully utilized. Table I I gives a factual picture of production in

Table I I reveals a very ineffec­tive utilization of installed capacity, particularly in the case of mecha­nised industries such as power trans­formers, electric motors, electric fans, belting, diesel engines, ma­chine tools and hurricane lanterns. These are the industries in which large sums have been invested in fixed plants and machinery and 'variable costs' of human labour have been replaced by 'constant costs' of the machine, so that w i t h decreasing output in relation to the installed capacity, cost per unit rises. This accounts for high pro­duction costs in India .

It is interesting to note the con­clusions of the U . K . Committee on Industry and Trade in this connec­tion. Taking the cost per unit in 1913 as equal to 100, a heavy o i l engine firm working at 94 per cent capacity showed a rise to 137, a bicycle firm, working at 90 per cent capacity, a rise to 185, while loco­motive construction firms, working at 35.5 per cent capacity showed an increase to 320. (Economics of Mo­dern Industry, op, cit. p. 13.) Com­pare India's production in 1949 w i t h the installed capacity and it should not he difficult to explain her high cost of production.

Size of the Unit

The size of the business is an­other important element in its effi­ciency. In the case of an industrial establishment, it can be determined cither on the basis of the produc­tive capital or on the numbers of wage-earners employed.

Table I I I . reveals the distribution of industrial establishments in dif­ferent sizes according to the pro­ductive capital employed and the

number of wage-earners employed, by the industry in 1946.

Nearly half of the industrial undertakings are in the category of those which employ productive ca­pital below one lakh rupees. Judged by the number of wage-earners, 37.2 per cent of the establishments are in the category of those which employ 21-50 workers only. This shows that the industrial system of India is largely worked on small size business units. The extent to which small size units are the pre­dominating feature of India's in ­dustrial system, her industrial effi­ciency w i l l remain at a low level; the benefits of large-scale econo­mies wi l l be denied; there w i l l be greater wastes and lesser ut i l izat ion; and the cost of production w i l l be ever high.

Organization of Labour

Adequate organisation of the la­bour supply and mobilisation of the man-power of the country is very necessary for a high order of indus­trial efficiency. The report by Messrs. Ford, Bacon and Devis re­veals that there is an almost com­plete lack of engineering and mana­gement experience of "know-how." In other words, the intimate know­ledge of the most practical means under any given condition to pro­duce in quantity at lowest cost, and involves knowledge of methods of processing, tooling and designing of jigs and fixtures; the laying out of equipment and the provision of la­bour-saving devices the designing and setting up of proper controls of production and inventories; the organisation of supervisory person­nel; and laying down lines of au­thority and responsibility.

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E C O N O M I C W E E K L Y May 20, 1950

This "know-how" is perhaps the most important single element re­quisite for rapid and successful i n ­dustrialization in India, Therefore, for providing adequate supply of skilled labour in all branches of productive activity, appropriate training arrangements arc necessary along wi th employment facilities for such trained personnel.

The Seientific Manpower Com­mittee proposed the adoption of ur­gent and far-reaching measures to make available existing facilities for practical training to as many men as possible and recommended that

" A l l factories or industrial esta­blishments, both private and State-owned, should sponsor schemes of practical training and expenditure on this account should be regarded as legitimate expenditure of the establishments. For effective implementation of the recommendations made, Government should, following the French system, impose a levy on industrial concern—say about 3 per cent of the total wages paid by the concern and the proceeds of such levy, supple­mented by Government subven­tion of an equal amount, should be utilized for organizing practi­cal training of various grades and categories of personnel in indus­tr ial concerns under Government supervision."

Apart from the availability of high-grade technical ability, the supply of skilled and unskilled workers and the efficiency of labour must be there to contribute to the rapid growth and development of our industries. Indian labour is comparatively less efficient largely due to low standard of l iving, long hours of work, industrial fatigue, labour turn-over, absenteeism, un­satisfactory housing, etc. In recent years, much legislation has been piloted by the Government wi th a view to ameliorate the l iving condi­tions and improve the economic position of the workers and it may be hoped that as a result of these new labour laws in the country, the efficiency of the working class w i l l improve.

Savings and Capital The productive apparatus of a

country needs not only to be main­tained in good order but also im­proved and expanded. This is pos­

sible when there is a broad margin of savings in the country. Reliable statistics of capital formation are not yet available in India. Hut it is estimated, on good evidence, that the volume of savings would be much short of the requirements of capital investment. , In the period 10,21-30, the rate of visible savings in India was estimated at Rs. 90 erores per annum and for 1940-45 Rs. 240 crores per annum, Dr. S. K. Muranjan: Shadows of Hyper-Infiation, p. 27.) Assuming that India saves 6 per cent (of her national income) and applying it to her national income, estimated at Rs. 4,900 crores in 1945-46. the Tata Quarterly estimates the total savings at about Rs. 300 crores a year. Applying the standard pres­cribed for South-Eastern Europe, the basic conditions in which re­semble those in India, and making adequate provision for the develop­ment of agriculture, Prof. 1). Ghosh suggests that an investment of about Rs. 20,000 crores, spread over ten years, would be neces­sary for achieving full employment. ( Vide his Pressure of Population and Economic Efficiency in Ind:a, p. 94),

Not only is this hypothetical sav­ing ridiculously low, therefore, as compared to India's capital require­ments in any scheme of planned industrialization; it must have de­clined further owing to the changes that have taken place in the distri­bution of national income during the imlationary regime for the last few years and in the level of tax­ation.

A change, however, is now notice­able in the psychology of the invent­ing classes and wi th the abolition of the business Profits Tax, reduction in the company rate of income tax and the discontinuance of the Divi­dend Limi ta t ion Act announced in the last Budget, it may be expected that there would be more savings and investment leading to a higher rate of capital formation in the country.

Fluctuations of Output

The scale of output has a great bearing on the cost of production. This aspect of industrial efficiency has been emphasised earlier. There should, therefore, be full and steady utilization of the works as far as

possible, avoiding excess productive capacity in any industry or its spasmodic and irregular use. This is no doubt easier to prescribe than to achieve. Because, apart from seasonal variations in output as in the case of sugar, fluctuations of output are, in the short period, sometimes forced by labour troubles, shortage of raw materials, or by-other factors beyond the control of the management. A l l the same, the difference between the actual pro­duction and the installed capacity should be regarded as the ''measure of equipment provided but not fully utilized, and that, if by technical improvement or commercial devices production can be regularised and continuous operation achieved, wastes can be eliminated and costs reduced.'' In short, irregular pro­duction increases costs per uni t ; steady utilization of plants reduces them.

Short-term fluctuations apart, there may be long-period fluctua­tions, wider-movements of produc­tion and prosperity, in which pe­riods of good trade and rising prices are followed by periods of depres-

n. wi th falling production and prices, and increasing unemploy­ment. These upheavals are inherent in the capitalist system of produc­tion. Without going into their causes, suilicc it to say that an i n ­telligent study of the various indices of business activity and some know­ledge of the behaviour of the trade cycle would enable the business man to counteract the evils of de­pression to a certain extent and he would not be taken unawares by economic misfortunes or losses arising therefrom. In other words, it would he possible to adjust and regularise production, up to a point, according to the rising or falling off demand during industrial boom or depression as the case may be.

Social Security

Last, but not the least important factor of industrial efficiency, is economic security which the mo­dern industrial society must provide. A l l are agreed that a regime of free private enterprise not only results in the existence of great, masses of under-privileged persons but has shown itself to be subject to econo­mic and social upheavals far more violent than a twentieth century democracy can tolerate. Thus it is

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May 20, 1950 ECONOMIC WEEKLY

that all progressive States assume the responsibility of providing the fundamental or basic security to the common man in the economic sphere, A sound and well-integrated programme of social security wi l l contribute much to vase the transi­tion of deficit-economy to that of self-sufficiency; what is more, " i t w i l l prevent social disorder and so-cial dissension by effecting an early and effective compromise between the apostles of self-interest and those of human rights."

It is hoped that the problem of

industrial efficiency in India which is so vital in the context of the pre­sent grievous economic situation in the country, w i l l be viewed in its wider perspective and efforts w i l l be made by all concerned, to re­move the unwholesome features of our industrial system and attain a high order of' industrial efficiency and self-sufficiency in material goods, social services, public utilities and civic amenities so as to raise the general standard of l iving of the people as a whole and to ensure useful employment for all .

From the Washington End

Economic Aid To South East Asia

T HE State Department's econo­mic study group has recom­

mended to Secretary Acheson that $64 mil l ion aid be given to Indo-China. Indonesia, Burma, Thailand and Malaya, to provide economic and technical assistance for u 15 month period. "The study group suggests that the sum may he re­leased- front the $100 mill ion provided for in the pending ECA hil l for the general area of China.

It is believed unlikely that any of the $75 mi l l ion available to Presi­dent Truman for economic and mili tary aid to the Far East w i l l be used for the Economic A i d Pro­gramme for South-East Asia. Out of the $64 mi l l ion aid suggested, about $23 mi l l ion would be given to Indo-China. the rest being divid­ed about equally among the other countries.

It is suggested that, to be effec­tive, the aid programme must be tartcd quickly though it is doubt­

ful whether at the present time more than $64 mil l ion could be spent wi th full effectiveness. Among rther things, the economic study group has suggested that schools be established in Burma and Indonesia for teaching government adminis­tration and business practices. The Under Secretary, M r . Webb, has announced that such a proposal is at present under contemplation for Europe. The State Department's proposal,. it is significant to note was made public in part imme­diately after Secretary Acheson an­nounced in Paris that economic and mil i tary aid would be given to S.E. Asia.

Revival of International Cartels

A ten-man Committee, appoint­ed by the Swedish Government, has published, after two years' research, a report on "The Capacity and Competitive Position of Swedish Electrical Industry." The report re­veals the revival of an international cartel arrangement to restrict com­petition in various branches of the electrical goods manufacturing in­dustry. The cartel originated as early as 1946 when there was a p i t i ­ful shortage of nearly all electrical goods in Europe.

The cartel builders have tried to conceal their activities and aims by making continuous use of high-sounding phrases in their agree­ments--phrases which were taken from the I T O and Atlantic Char­ters, as it were.

The agreement involves three Belgian companies, one French na­tional cartel group of fifty com­panies, an organisation of ten Bri­tish companies representing 85 per cent, of British non-ferrous metal output, two British export com­panies controlling too per cent, of British exports, a group of Swiss companies, and a leading Swedish company. No German companies joined in 1946 but some may have joined later.

In order to give everybody the so-called unrestricted access to world markets, the cartel has divid­ed these markets into the sections the home market of cartel members and the markets that have no mem­bers in the group.

As regards prices, it is agreed that

in the markets of members, no other member may sell below the mem­ber's price—the member being i t ­self a cartel that sets national prices or has them set by government ma­chinery, which it usually controls. In other markets no member may sell below an agreed price list, kept up-to-date by a permanent secre­tary.

The agreements now in force affects components, not finished products, bought by consumers, and they require a min imum of enforce­ment or of formal written agree­ments or records.

The Government committee un­animously found that participation in these arrangements by Swedish companies was contrary to the Swedish public interest.

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