Industrial location

Geography glossary

Also called: Factors of industrial location · Topic: Secondary Activities: Manufacturing and Industrial Location · NCERT: Class 12, Ch 5 "Secondary Activities"

Meaning

Industrial location is the place where a factory is set up. A firm chooses this place to make the most profit, so it picks the site where the total cost is lowest. Total cost means the cost of raw material, power, labour and transport, plus the cost of reaching buyers. The topic matters because it explains why industries cluster in some regions and not in others, such as steel on the Chota Nagpur belt and jute along the Hugli. It also helps explain how government policy can change the industrial map of a country.

Explanation

The basic rule: lowest cost, highest profit

  • Profit rises when cost falls.
  • A firm adds up all its costs: inputs, power, labour and transport, plus the cost of reaching buyers.

  • It settles where this total is the lowest.

  • The factors act together.

  • Usually no single factor decides the site.

  • But one factor can dominate for one kind of industry. Raw material dominates for steel, energy for aluminium, and the market for aircraft.

  • NCERT lists seven factors for large-scale industries: 1. access to market 2. access to raw material 3. labour supply 4. sources of energy 5. transport and communication 6. government policy 7. agglomeration economies

Factor What pulls the industry Typical industries
Market Buyers who want the goods and can pay Consumer goods, aircraft, arms
Raw material Inputs that lose weight or spoil fast Steel, sugar, cement, agro-processing, dairy
Labour Skilled or cheap workers Hi-tech, knitwear, handicrafts
Energy Large, cheap power supply Aluminium smelting
Transport Low freight cost, ports, railways Jute (Hugli), port-based refineries
Government policy Incentives in chosen regions SEZs, corridor cities, units in backward areas
Agglomeration Being near a leader industry and related firms Clusters: Tiruppur, Ludhiana, Moradabad

Market, raw material, labour and energy

  • Access to market: the most important factor (NCERT).
  • In location theory, a market means people who want the goods (demand) and can pay for them (purchasing power). Many people with no money do not make a market.
  • High-income markets: Europe, North America, Japan and Australia. They have fewer people but a lot of buying power, so they are global markets.
  • Large-population markets: South and Southeast Asia. Incomes are lower, but there are so many people that total demand is big.
  • Global-market goods: Very few buyers in any one country want aircraft and arms, so these are sold all over the world. Their location depends on skills, technology and state support, not on local buyers.

  • The market pulls harder when the finished product is heavier, bulkier or easier to break than its inputs (bottled drinks, furniture). It also pulls harder when the product spoils fast or must reach buyers quickly (bread, newspapers).

  • Access to raw material.

  • A weight-losing raw material loses a large part of its weight during processing. Examples are iron ore, sugarcane and limestone.
    • Carrying the waste part is costly.
    • So the factory moves close to the source, and only the lighter finished product is transported.
    • This is why steel, sugar and cement plants sit near their raw material.

  • A perishable raw material spoils fast. Examples are cane, milk and fruit.

    • It must be processed within hours or days.
    • So agro-processing units sit near farms, and dairies sit near milk-supply areas.

  • Access to labour supply.

  • Skilled labour still pulls industry, for example in electronics, software and precision engineering.
  • Labour's pull is getting weaker because of:
    • mechanisation (machines do work that people once did by hand);
    • automation (machines run on their own under computer control);
    • flexible industrial processes (production lines that can quickly switch products, so fewer workers are needed).

  • Labour still matters a lot for labour-intensive work (work that needs many workers), such as garments, knitwear, handicrafts and brassware.

  • Access to sources of energy.

  • Power-hungry industries (industries that use a lot of electricity) sit close to cheap, large power supplies.
  • Aluminium smelting is the classic case.
    • Alumina (which comes from bauxite) is turned into aluminium by electrolysis, which means passing a huge electric current through it.
    • So electricity becomes the biggest cost.
    • Smelters therefore go where power is cheap, often near large hydroelectric projects.
  • Coal's pull has weakened.
    • During the Industrial Revolution, coal was the main source of energy and was costly to move. So industry grew on the coalfields.
    • Hydroelectricity and petroleum can be sent through wires and pipelines. So industry is no longer tied to the coalfields.

Transport, government policy and agglomeration

  • Access to transport and communication.
  • Industry needs fast transport for inputs coming in and finished goods going out.
  • Freight costs (the cost of carrying goods) strongly decide where a factory goes.
  • Better transport leads to regional specialisation, which means each region makes what it is best at and trades for the rest.
    • When carrying goods is cheap, a region can sell to buyers far away.
    • So it can focus on a few products.

  • Communication (telegraph, telephone, internet) lets firms manage factories in many places and reach buyers. It matters most for services and hi-tech industry.

  • Government policy (regional policy).

  • In regional policy, the state uses incentives, controls or its own investment to place industries in chosen areas.
  • The aim is balanced regional development, which means reducing the gap between rich and backward regions.

  • It can override pure cost logic. A plant may be put in a backward area even if a richer region would be cheaper.

  • Agglomeration economies.

  • Agglomeration economies are the cost savings firms get by being close to a leader industry and to one another.
  • The savings come from:
    • Linkages: one firm's output is another firm's input, so transport and delay costs fall.
    • Shared suppliers of parts, machines and repair work.
    • A ready pool of skilled workers that firms can hire from.
    • Shared services such as banking, insurance, transport and marketing.
  • Result: new firms keep joining old centres. That is why industrial regions persist long after the first cause (for example a coalfield) has lost importance.
  • Alfred Marshall's "industrial districts" are places where many small, specialised firms in one trade cluster together and share skills and know-how.

Where it occurs

Raw-material-based location (India)

  • Sugar mills are in the cane belts of Uttar Pradesh and Maharashtra. Cane loses sucrose soon after cutting, so it must be crushed quickly.
  • Cement plants are in limestone areas of Madhya Pradesh, Chhattisgarh, Rajasthan and Andhra Pradesh.
  • Integrated steel plants are on the Chota Nagpur iron–coal belt, spread over Jharkhand, Odisha, Chhattisgarh and West Bengal. Examples are Jamshedpur, Bokaro, Rourkela and Durgapur, with Bhilai nearby. Iron ore and coking coal both lie close by, which keeps costs low.

Energy-based location

  • World: Norway, Iceland and Quebec (Canada) smelt aluminium using cheap hydropower.
  • India: Hirakud (Sambalpur, Odisha, on the Mahanadi) and Renukoot (Sonbhadra, Uttar Pradesh, near the Rihand dam).
  • Old coalfield regions: the Ruhr (Germany), the British Midlands and Pittsburgh (USA).

Transport-based location

  • Western Europe and eastern North America built dense railway, canal and road networks early, so industry gathered there.
  • Jute mills along the Hugli (West Bengal).
  • The Hugli is a distributary of the Ganga. It flows past Kolkata into the Bay of Bengal.
  • Jute came from the Ganga–Brahmaputra delta. The mills also had cheap water transport on the river, the port of Kolkata, coal from Raniganj and a ready labour supply.

  • Together, these factors led to a mill belt on both banks of the river.

  • Port towns such as Mumbai, Kandla, Visakhapatnam and Chennai attract refineries, fertiliser plants and shipbuilding.

Government policy (India)

  • Freight equalisation policy (1952–1993).
  • The Centre made the transport cost of key inputs like coal and steel the same everywhere in India.
  • The aim was to spread industry evenly.

  • In practice, it wiped out the cost advantage of the mineral-rich eastern states (Jharkhand, Odisha, West Bengal, Chhattisgarh). Industry moved towards coastal and market states such as Maharashtra, Gujarat and Tamil Nadu.

  • Backward-area incentives: tax breaks, cheap land and capital subsidies for factories in less-developed districts.

  • Special Economic Zones (SEZs).
  • An Export Processing Zone (EPZ) is an area with special customs rules for producing goods for export. Asia's first EPZ was set up at Kandla (Gujarat) in 1965 [2].
  • The SEZ Policy was announced in April 2000 [2].
  • The SEZ Act, 2005 got Presidential assent on 23 June 2005. The SEZ Rules came into force on 10 February 2006 [2].
  • Approval is through a single window, a 19-member inter-ministerial Board of Approval [2].

  • 425 SEZ proposals had been approved (as on 30 November 2021), with 376 notified and 268 operational [2].

  • National Industrial Corridor Development Programme (NICDP).

  • On 28 August 2024, the Cabinet Committee on Economic Affairs approved 12 new industrial nodes/cities. They will cost an estimated ₹28,602 crore and are spread across 10 states along 6 corridors [3].
  • The locations are Khurpia (Uttarakhand), Rajpura-Patiala (Punjab), Dighi (Maharashtra), Palakkad (Kerala), Agra and Prayagraj (Uttar Pradesh), Gaya (Bihar), Zaheerabad (Telangana), Orvakal and Kopparthy (Andhra Pradesh), and Jodhpur-Pali (Rajasthan) [3].

  • Cities that are already developed:

    • Dholera SIR (Gujarat, about 100 km south-west of Ahmedabad), India's first platinum-rated industrial smart city [3].
    • AURIC (Shendra–Bidkin, Maharashtra, on the Delhi–Mumbai Industrial Corridor) [3].
    • Greater Noida (UP) [3].
    • Vikram Udyogpuri near Ujjain (MP) [3].

  • World example: EU cohesion funds send money to poorer member regions to reduce regional gaps.

Agglomeration clusters (India)

  • Tiruppur (Tamil Nadu): cotton knitwear.
  • Ludhiana (Punjab): hosiery and woollens.
  • Moradabad (Uttar Pradesh): brassware. It has a handicrafts SEZ that was set up in 2003 and has been working since April 2007 [2].

Don't confuse with

  • Weight-losing vs pure raw material: A weight-losing raw material (iron ore, sugarcane, limestone) pulls the factory to the source, because carrying the waste part is costly. If the product is heavier or bulkier than its inputs (bottled drinks, furniture), the factory is pulled towards the market instead.
  • Freight equalisation vs regional development: Freight equalisation aimed at an even spread of industry, but it hurt the mineral-rich eastern states by removing their cost advantage. Do not mark it as a policy that "helped eastern India".
  • SEZ vs industrial corridor: An SEZ is a duty-free enclave that is treated as outside India's customs territory for its approved operations, and it must earn positive net foreign exchange [2]. An industrial corridor (NICDP) is a belt of planned industrial towns along freight routes, built with ready-to-use 'plug-n-play' plots [3]. It is not a customs enclave.
  • Agglomeration economies vs raw-material pull: Agglomeration keeps an industrial region alive because of shared workers, suppliers and services, even after its original raw material or coalfield has lost importance. Raw-material pull only works while the input is still there and is still costly to move.

Prelims Hooks

  • NCERT names access to market as the most important factor of industrial location.
  • Aluminium smelting follows cheap power: Hirakud (Odisha, Mahanadi) and Renukoot (UP, Rihand) in India; Norway, Iceland and Quebec abroad.
  • Trap: coal's hold on industrial location was reduced by hydroelectricity and petroleum, not by nuclear power or solar energy.
  • Jute mills along the Hugli grew mainly because of cheap water transport.
  • Asia's first EPZ was at Kandla, 1965 [2]. The SEZ Act got assent on 23 June 2005, and the SEZ Rules came into force on 10 February 2006 [2]. NICDP (August 2024): 12 cities, 10 states, 6 corridors, ₹28,602 crore [3].
  • Cluster–product pairs: Tiruppur–knitwear, Ludhiana–hosiery, Moradabad–brassware.

Mains Points

  • Location factors change in importance over time.
  • During the Industrial Revolution, raw material and coal decided location (Chota Nagpur steel, the Ruhr).
  • Today, market access, transport and agglomeration matter more.

  • The reasons are hydropower and petroleum, mechanisation and automation, and containerised ports.

  • Regional policy versus efficiency (GS-I/GS-III).

  • Freight equalisation (1952–1993) removed eastern India's mineral advantage and moved industry to the west and south coasts.
  • Today's SEZs [2] and NICDP corridor cities [3] try to create growth centres by building infrastructure, not by subsidising freight.

  • Their success depends on linkages, not only on tax breaks. Only 268 of the 376 notified SEZs were operational in 2021 [2].

  • Clusters, energy and environment.

  • Tiruppur, Ludhiana and Moradabad show how shared workers, suppliers and services keep industrial regions alive. Cluster policy, such as common facilities and sector SEZs like Moradabad [2], is a cheap way to boost MSME exports.
  • Power-hungry industries such as aluminium follow cheap energy. Indian smelters often run on their own coal-based power, while Norway and Iceland smelt on hydropower. This raises concerns about emissions as the world moves to green industry (GS-III).

Related concepts

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Sources

  1. 1Class 12, Ch 5 "Secondary Activities" (primary)
  2. 2PIB Backgrounder, "Special Economic Zones – An overview" (5 January 2022)static.pib.gov.in · tier 1
  3. 3PIB Backgrounder, "National Industrial Corridors" (August 2024)static.pib.gov.in · tier 1