Basic industries

Also called: Key industries · Topic: Secondary Activities: Manufacturing and Industrial Location · NCERT: Class 10, Ch 6 "Manufacturing Industries"; Class 12, Ch 5 "Secondary Activities"

Meaning

Basic industries (also called key industries) are industries whose products are used as raw materials by other industries, not bought directly by people. They are called "key" because many other industries depend on them. If basic industries are weak, a country must import steel and machines before it can make almost anything else.

Explanation

How a basic industry works: the chain of production

• NCERT's chain shows how one product feeds the next:
• an iron and steel plant makes steel →
• steel is used to make textile machinery →

• the machinery is used to make cloth, which consumers buy.

• Only the last step reaches the consumer. Steel and machinery are basic products in this chain.

• The question to ask: does the product go to another factory, or straight to people?
• It goes to another factory → basic industry.
• It goes straight to people → consumer goods industry.

Parts of basic industry (beyond NCERT)

• Capital goods (also called producer goods) are machines, tools and equipment used to make other goods.
• They are used many times and are not used up.

• Examples: textile machinery, turbines.

• Intermediate goods are materials that are used up while making another product.

• Examples: steel sheets, cement, chemicals, yarn.

• Both count as "basic" in NCERT's sense, because the final consumer buys neither of them.

• Trap: who buys the item decides its class, not the item itself.
• Electricity bought by a factory is an intermediate input (basic).
• Electricity bought by a home is used up directly (consumer use).

Where basic industry sits among the ways to classify industries

• Industries can be grouped by output (what the factory makes and who uses it) or by ownership (who owns and runs it).
• "Basic industry" is a class by output. The other class by output is consumer goods (non-basic) industries.
• One factory can fit both lists.
• Example: a government-owned steel plant is a basic industry by output.
• The same plant is a public sector industry (owned and run by the government) by ownership.

Why India built basic industry first

• The Second Five-Year Plan (1956–61) pushed the growth of heavy industry in India [3].
• It was built on P.C. Mahalanobis's mathematical description of the Indian economy, later called the Mahalanobis model [3].
• How the reasoning worked:
• India had to import most of its machines and steel →
• so the plan put money into making producer goods (steel, machinery, heavy engineering) at home →

• these goods would then let India build its own consumer goods industries and depend less on other countries.

• Most of this heavy industry was set up in the public sector. This links the output-based and ownership-based ways of classifying industries.

Where it occurs

• India: public sector steel plants of the Second Plan era
• Bhilai (Chhattisgarh), Rourkela (Odisha) and Durgapur (West Bengal). They were later grouped under SAIL (Steel Authority of India Limited).

• These plants still shape the industrial belt of the Chota Nagpur plateau (Jharkhand, Odisha, Chhattisgarh, West Bengal).

• India: other basic-industry companies

• SAIL: steel (public sector).
• BHEL (Bharat Heavy Electricals Limited): power plant equipment, a capital good (public sector).

• Tata Steel: steel (private sector). This shows that basic industry is not only a public sector activity.

• World: basic industry is found under every economic system. In socialist countries the state mostly runs it, while in capitalist countries private investors mostly run it. In a mixed economy like India, both sectors work side by side. Before 1991, the Indian state controlled these "commanding heights" (heavy industry).

Don't confuse with

• Consumer goods (non-basic) industries: they make goods that people use directly, such as bread, biscuits, tea, soaps, toiletries, writing paper and televisions. Basic industries sell to other industries.
• Public sector industries: this is a class by ownership (the government owns the industry). Basic industry is a class by output. A basic industry can be private (Tata Steel), and a public sector firm can make other products (ONGC: oil and natural gas).
• Capital goods vs intermediate goods: both are basic. Capital goods (machinery, turbines) are used many times. Intermediate goods (steel sheets, cement, yarn) are used up in making another product.
• Heavy industry: this word is about the scale and weight of production. Basic industry is about who buys the product. In the Second Plan the two overlapped (steel, heavy engineering), but they are not the same idea.

Prelims Hooks

• Industries that make raw materials for other industries are basic (key) industries, not consumer goods industries.
• NCERT's chain: iron and steel → textile machinery → cloth for consumers. Only cloth is a consumer good.
• Trap: bread, biscuits, tea, soaps, toiletries, writing paper and televisions are consumer goods (non-basic), not basic.
• A government-owned steel plant is basic by output and public sector by ownership, so one factory fits both classifications.
• The Second Five-Year Plan (1956–61), based on the Mahalanobis model, gave priority to heavy industry and producer goods [3].
• Bhilai, Rourkela and Durgapur steel plants were later grouped under SAIL.

Mains Points

• Why India began with basic industry (GS-III):
• After Independence, India lacked steel and machinery and had to import them.
• The Mahalanobis strategy of the Second Plan (1956–61) put producer-goods industry in the public sector so the economy could stand on its own [3].

• The aim was to supply home-made steel and machines to consumer goods industries and to depend less on other countries.

• Regional effect (GS-I): basic industry built industrial regions around it.

• Public sector steel plants (Bhilai, Rourkela, Durgapur) still shape the Chota Nagpur plateau industrial belt across Jharkhand, Odisha, Chhattisgarh and West Bengal.

• Steel feeds machinery makers, which feed consumer industries, so a single basic-industry plant can grow a whole cluster of other industries.

• Changing role of the state (GS-III):

• Basic industry began mostly in the public sector. Since 1991, India has moved towards disinvestment (the government selling its shares in public sector companies).
• Under the 2021 strategic disinvestment policy, sectors such as power, petroleum, coal and other minerals keep only a bare minimum of public sector enterprises [2].
• Arguments for: efficiency and private capital [2]. Concerns: strategic control, jobs and the loss of public assets.

Related concepts

• Consumer goods industries
• Public sector industry
• Private sector industries
• Joint sector industries
• Mixed economy

Read more

• Classifying industries by output and ownership