HOW TO START AN INDUSTRY

Summary

D. V. Desai’s pamphlet, based on a lecture delivered under the auspices of the Forum of Free Enterprise in Bombay on 24 May 1961, is a practitioner’s walk-through of what it actually takes to set up an industrial unit in Nehruvian India. Desai begins with the Government’s bifurcated taxonomy — large versus small, with no recognised middle tier — and traces how the legal definition of a ‘small industry’ was successively rewritten between 1953 and 1958 to widen the band of firms eligible for assistance. The bulk of the pamphlet then catalogues the lattice of agencies a would-be entrepreneur must thread through: the Development Wing of the Ministry of Commerce and Industry with its seventeen Technical Directors and eighty-five Development Officers, the Controller of Capital Issues, the Reserve Bank’s Exchange Control Department (now centralised in the Industrial Policy Section, New Delhi), the Chief Controller of Imports and Exports, and the Licensing Committee drawn from six ministries.

For large-scale and foreign-collaboration ventures Desai itemises the six basic conditions the Government imposes on collaboration terms — royalty caps at ten years, no export bans, no compulsory component purchase, royalties tied to turnover, effective Indian control, and training of Indian personnel abroad — alongside the three concessions offered in return. For small industries he reconstructs the institutional machinery: the Development Commissioner, the Small Industries Service Institute (originating from a 1953 Ford Foundation diagnosis), the sixteen Institutes with their forty-five Industrial Extension Centres, the Block-level Extension Officer scheme borrowed from the United States, mobile workshops touring villages, and the National Small Industries Corporation that since 1956 has channelled hire-purchase machinery, Government tenders with a fifteen-per-cent price preference, prototype production centres, and Industrial Estates at Okhla, Naini, Baroda, Poona, Rajkot, Surat, Kolhapur and Ahmedabad.

Though his tone is largely descriptive, Desai’s verdict turns sharp at the close. Citing the State Bank’s Pilot Credit Scheme and the Essentiality Certificate process, he argues that the one structural defect — uniquely fatal for small units that lack the Development Wing’s patronage — is the Government’s indifference to a steady supply of raw materials. The Director of Industries halves the requirement, the C.C.I. & E. or J.C.C.I. trims it further ‘like the proverbial old lady with a pair of scissors’, and the small industrialist is left buying material at ‘sky-high prices in the market’ from those very licence holders the system suspects. Desai closes with a free-enterprise coda: technicalities can be taught, but it is initiative and enterprise that finally determine whether an industry succeeds — a closing flourish consistent with the Forum of Free Enterprise’s larger argumentative project.

Key points

• The pamphlet originated as a 24 May 1961 Forum of Free Enterprise lecture and was issued as booklet on 8 August 1961, published by M. R. Pai.

• Desai documents how the legal definition of ‘small industry’ was revised twice (mid-1950s and 1958), eventually settling on a block-capital ceiling of Rs. 5 lakhs irrespective of workforce.

• He maps the full sanction chain — Development Wing, Controller of Capital Issues, Reserve Bank Exchange Control / Industrial Policy Section, C.C.I. & E., Licensing Committee — and notes sanctions routinely take five months or more, sometimes fifteen.

• For foreign collaboration he lists six Government conditions (royalty cap of ten years, no export ban, no compulsory component purchase, turnover-linked royalties, Indian control, training of Indian personnel) and three Government concessions in return.

• He credits the Ford Foundation’s 1953 observation with catalysing the Small Industries Service Institute network — sixteen Institutes, forty-five Industrial Extension Centres, mobile workshops, and the National Small Industries Corporation (1955).

• He cites concrete data: between June 1956 and March 1961 the NSIC processed 4,549 hire-purchase applicants for 17,829 machines worth over Rs. 18 crores; tenders secured for small industries rose from Rs. 62.15 lakhs (1957-58) to Rs. 2,64,81,000 (1959-60).

• Desai’s central critique is the raw-materials bottleneck: small industries holding an Essentiality Certificate get arbitrary cuts at multiple levels and end up buying the same scarce material at inflated open-market prices.

• The closing argument frames initiative and enterprise — not procedural mastery — as the decisive variables, consistent with the Forum of Free Enterprise’s classical-liberal programme.