Classifying industries by output and ownership

Detail

Two ways to classify industries

• Industries can be grouped in many ways. Two common ways are:
• by output (product): what the factory makes and who uses it.

• by ownership: who owns the factory and runs it.

• The same factory can fit both lists. Example: a government-owned steel plant is a basic industry by output and a public sector industry by ownership.

Basis	Classes	Key question
Output / product	Basic (key) industries; consumer goods (non-basic) industries	Does the product go to another factory, or straight to people?
Ownership	Public sector; private sector; joint sector	Who owns the factory: the government, private investors, or both?

A. Classification by output

Basic industries (key industries)

• Basic industries (also called key industries): industries whose products are used as raw materials by other industries.
• They are called "key" because many other industries depend on them.
• 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.

• Exercise 1(iii) answer: industries that make raw materials for other industries are basic industries.

Consumer goods industries (non-basic industries)

• Consumer goods industries (also called non-basic industries): industries that make goods people use directly.
• NCERT examples:
• bread and biscuits
• tea
• soaps and toiletries
• writing paper
• televisions

Feature	Basic (key) industries	Consumer goods (non-basic) industries
Who buys the product	Other industries	Final consumers (households)
Place in the chain	Start or middle	End
Examples	Iron and steel, textile machinery	Bread, biscuits, tea, soaps, toiletries, writing paper, televisions

Beyond NCERT: capital goods and intermediate goods

• Capital goods (also called producer goods): machines, tools and equipment used to make other goods. They are used many times and are not used up. Example: textile machinery, turbines.
• Intermediate goods: materials that are used up while making another product. Example: steel sheets, cement, chemicals, yarn.
• Both are "basic" in NCERT's sense, because neither is bought by the final consumer.
• Trap: the same item can belong to either group. Electricity bought by a factory is an intermediate input. Electricity bought by a home is consumed directly.

Why India's Second Five-Year Plan put basic industry first

• Second Five-Year Plan: 1956–61. It 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, which links the two ways of classifying industries. Examples are the steel plants at Bhilai, Rourkela and Durgapur, later grouped under SAIL. (Details: see the economy subject.)

B. Classification by ownership

Public sector industries

• Public sector industry: an industry that is owned and managed by the government.
• Common in socialist countries. In a socialist economy the state owns and plans most production.
• Indian PSUs (Public Sector Undertakings: companies where the government owns the controlling share):
• SAIL (Steel Authority of India Limited): steel.
• BHEL (Bharat Heavy Electricals Limited): power plant equipment.
• ONGC (Oil and Natural Gas Corporation): oil and natural gas.

Private sector industries

• Private sector industries: industries owned by individual investors and run by private organisations.
• They are the main type in capitalist countries.
• Capitalist economy: an economy where the factors of production (land, labour, capital and enterprise) are owned by individuals.
• Exercise 1(ii) answer: the economy in which factors of production are owned individually is the capitalist economy.
• Indian examples: Tata Steel, Reliance.

Joint sector industries

• Joint sector industries: industries run by joint-stock companies, or set up together by the public and private sectors.
• Joint-stock company: a company whose capital is split into shares held by many owners.
• Classic Indian case: Maruti Udyog
• It was a joint venture between the Government of India and Suzuki of Japan.
• In June 2003, Maruti Udyog paid the government a dividend of ₹19.84 crore. The company was then getting ready for its IPO (initial public offering: the first sale of a company's shares to the public) [4].
• The government sold its last stake in 2007. The company is now private: Maruti Suzuki India Ltd.

Sector	Owner and manager	Typical economy	Indian examples
Public	Government	Socialist	SAIL, BHEL, ONGC
Private	Individual investors and private organisations	Capitalist	Tata Steel, Reliance
Joint	Joint-stock companies, or government and private firms together	Mixed	Maruti Udyog (Government of India + Suzuki, until 2007)

Mixed economy

• Mixed economy: an economy where public sector and private sector firms work side by side.
• India is a mixed economy. Before 1991 the state controlled the "commanding heights" (heavy industry). Private firms ran much of consumer goods production.

C. Beyond NCERT: from public sector to disinvestment (1991 to now)

• Disinvestment: the government sells part or all of its shares in a public sector company.
• Privatisation: control of a company passes from the government to private owners.
• 1991: economic reforms (liberalisation, privatisation and globalisation) began the move away from the public sector.
• 2021 policy of strategic disinvestment (announced in Union Budget 2021-22) [2]:
• Strategic sectors: the government keeps only a bare minimum of public sector enterprises. The rest are to be privatised, merged, made subsidiaries of other CPSEs (Central Public Sector Enterprises), or closed [2].
• The four strategic sectors [2]:
  1. Atomic energy, space and defence
  2. Transport and telecommunications
  3. Power, petroleum, coal and other minerals
  4. Banking, insurance and financial services
• Non-strategic sectors: CPSEs are to be privatised. If that is not possible, they will be closed [2].
• Aims: use the money raised to pay for social and development programmes, and bring private capital, technology and better management into CPSEs [2].
• Deals proposed for 2021-22: BPCL, Air India, Shipping Corporation of India, Container Corporation of India, IDBI Bank, BEML, Pawan Hans and Neelachal Ispat Nigam Limited [2]. (Air India went to the Tata group in 2022; check the current status of the others in the economy subject.)

Prelims Hooks

• Industries whose products are raw materials for other industries are basic (key) industries, not consumer goods industries.
• NCERT's chain: iron and steel → textile machinery → cloth for consumers.
• Bread, biscuits, tea, soaps, toiletries, writing paper and televisions are consumer goods (non-basic) products.
• An economy where factors of production are owned individually is capitalist, not socialist or mixed.
• Public sector industries are typical of socialist countries. Private sector industries dominate capitalist countries.
• India has a mixed economy, with public and private sectors side by side.
• Maruti Udyog = Government of India + Suzuki (Japan), a joint sector venture. The government left fully in 2007.
• SAIL, BHEL, ONGC are public sector. Tata Steel, Reliance are private sector.
• The Second Five-Year Plan (1956–61), based on the Mahalanobis model, gave priority to heavy industry [3].
• 2021 strategic disinvestment policy: 4 strategic sector groups with a bare minimum public sector presence. In non-strategic sectors, CPSEs are privatised or closed [2].

Mains Points

• Why India started with basic industry (GS-III): after Independence India lacked steel and machinery. The Mahalanobis strategy of the Second Plan (1956–61) put heavy industry in the public sector so that the economy could stand on its own [3]. The public sector steel plants built then still shape the industrial belt of the Chota Nagpur plateau (Jharkhand, Odisha, Chhattisgarh, West Bengal).
• Ownership follows the economic system (GS-I): socialist economies lean on the public sector, capitalist economies on the private sector, and mixed economies like India use both. Joint sector projects such as Maruti Udyog brought in foreign technology while the state kept a share. These patterns help explain where industrial regions grew around the world.
• Changing role of the state (GS-III): since 1991 India has moved from state-led industry to disinvestment. The 2021 policy keeps only a bare minimum of public sector enterprises in four strategic sector groups and privatises or closes the rest [2]. Arguments for: efficiency, private capital, and money for social programmes [2]. Concerns: strategic control, jobs, and the loss of public assets.