Economics: Industry - Types, Their Importance and Problem

Concept of Industry

The industry is regarded as a secondary sector of Nepalese economy. The economic development of a nation depends on the stage of industrial development. The industry is the greatest sector that can provide employment to the mass people which help to increase per capita and reduces the poverty. Industry creates a various form of utilities; for example, sugarcane is given the form of sugar, a log of wood is given the shape of furniture, i.e. raw materials being transformed in the form of final goods.

Industrial development began rather late in Nepal. It started with the establishment of Industrial council in 1936 A.D. "Gharelu Prachar Illam Adda" was established in 1940 A.D. The cigarette, matches, cotton was gradually established thereafter. Raghupati Jute Mills, which is regarded as the first modern industry in Nepal, was established in 1946.

Types of Industries

The industries of Nepal are classified into four broad groups based on capital investment. They are:

• Cottage Industries: According to Nepal Industrial policy 2067 B.S. those industries which use up to 10KW electricity are called traditional cottage industries. Such industries are mainly labour-intensive. They use local raw materials and skills and produce different types of goods. For example, wooden product, paper product, hand-made items, carpets, etc.
  
  
• Small Scale Industries: According to Nepal Industrial policy 2067 B.S. those industries which have capital investment up to 5 crores are called small scale industries. Such industries are mostly capital-intensive and are operated by outside labours. For example, rice mill, oil mill, printing and publication, carpet industries, etc.
  
  
• Medium Scale Industries: According to Nepal Industrial policy 2067 B.S. those industries which capital investment is between 5 crores to 15 crores are called medium scale industries. Such industries are capital-intensive industries and they use more labours. For example, a jute mill, sugar mill, cement factory, cigarette factory, etc.
  
  
• Large Scale Industries: According to Nepal Industrial policy 2067 B.S. those industries which capital investment is more than 15 crores are called medium scale industries. Such industries provide employment to mass people and produce large quantities of goods. For example, iron industries, steel industries, petroleum products purifying industries, etc.

Cottage and Small Scale Industries

The industrial policy 1992 A.D of Nepal government has classified labour-intensive industries related to country's tradition, art, culture and traditional industries mobilizing special skills or local raw materials and resources as traditional cottage industries. According to Nepal Industrial policy, 2067, that industry which uses up to 10 KW electricity for production are called industry.

Small scale industries, on the other hand, belongs to the group of industries which have capital investment up to Rs. 5 crores (Industrial policies 2067 B.S.) and are operated with the help of outside labour ranging in the most cases from 10 to 25 heads.

Importance of Cottage and Small Scale Industries

Cottage and small scale industries play a very crucial role in the process of economic development of developing country like Nepal. The importance of cottage and small-scale industries are mentioned as follows:

1. Generation of Employment Opportunities: Being labour intensive in nature, cottage and small-scale industries can generate more employment opportunities for the people. In Nepal, most of the people are dependent on agriculture. But this sector provides only seasonal employment and for the rest of the period, people are unemployed.
   
   
2. Easy to Establish: Cottage and small scale industries are easy to establish in the sense that these industries do not require more capital and technical knowledge. Such industries can be established and run by households by utilizing their own capital, raw materials and skills.
   
   
3. Utilization of Local Resources: Various types of raw materials are found in different parts of the country. The cottage and small scale industries play an important role in the proper utilization of these locally available raw materials like stone, woods, herbs, bamboos, etc.
   
   
4. Basis of the Development of Large Industries: Cottage and small scale industries are the basis for large-scale industries. Development of these industries increases the income and purchasing power of the people.
   
   
5. Foreign Exchange Earning: Good produced by cottage and small scale industries of Nepal have good export markets. Handicrafts, woolen shawl (Pashmina), paper and paper products, readymade garments, etc are popular in foreign markets.
   
   
6. Preservation of Local Art and Culture: Cottage and small scale industries play an important role in preserving local arts, skills, and culture. These industries produce goods depicting or reflecting local arts and culture of different part of the country.
   
   
7. Source of National Income: Cottage and small scale industries play a vital role in uplifting national productivity and national income. These industries provide more employment opportunities which lead to increase per capita income and national income of the country.
   
   
8. Fewer Disputes: Since the cottage and small scale industries are owned by households or small groups of people, there is a close relationship between the owners and workers so,there can be either fewer or no chance of any unwanted disputes leading to lockout and strikes in such industries.

Problems of Cottage and Small Scale Industries

Despite the great importance of cottage and small scale industries in the national economy the pace of their development is very slow due to the following reasons:

1. Lack of Capital: One of the major problems of cottage and small scale industries is inadequate financing. Persons with special skill lacks financial resources. Because of collateral requirement and complicated procedures of financial institutions, it becomes difficult to take loans from these institutions.
   
   
2. Shortage of Raw Materials: There is a lack of required raw materials to run such industries. Raw materials available within the country are exported to foreign countries in large quantities and also the raw materials available are of low quality.
   
   
3. Lack of Basic Infrastructure: There is a lack of basic rural infrastructure in rural development areas such as road, transportation, communication, electricity etc. for the development and smooth operation of cottage and small scale industries.
   
   
4. Tough competition with Large Industries: Being labour intensive in nature, goods produced by the cottage and small scale industries are more expensive in comparison to goods produce by large industries.
   
   
5. Limited Market: Organized marketing system has not yet developed in Nepal. Because of low purchasing power of people and lack of basic infrastructures, the size of the industrial market is small which creates difficulty in selling the products in time.
   
   
6. Lack of Skill Development Training: Cottage and small scale industries are suffering from the lack of efficiency of labour, mainly because of the unskilled quantity of labour in these industries. There are no provisions for skill development training for such unskilled labour.
   
   
7. Primitive Technology: The production techniques of cottage and small scale industries are very primitive. The entrepreneurs of these industries are mostly uneducated, unskilled and untrained. They still continue with tradition tools and method of production.
   
   
8. Lack of Protection Policy: Each country should adopt a policy of protection for the cottage and small scale industries at the beginning. But there is a lack of such protection policies in Nepal.

Medium and Large Scale Industries

In general, industries which need more capital, labour, machinery, equipment and high technology are called medium and large scale industries. According to Nepal Industrial policy 2067 B.S., those industries having capital investment between Rs 5 crores to 15 crores called medium scale industries and capital investment more than 15 crores are called large scale industries.

Importance of Medium and Large Scale Industries

The establishment of medium and large scale industries plays a very significant role in the process of the overall economic development of the country. The significant of this fact are as follows:

1. Provides Employment Opportunities: Development of medium and large scale industries help to remove the problem of unemployment by creating a wide range of employment opportunities to unskilled, semi-skilled and highly skilled human resources.
   
   
2. Modernization of Agriculture: Modernization of agriculture requires modern tools, machinery, fertilizers, technology, etc. By establishing agro-based industries, these things can be produced within the country.
   
   
3. Maximum Utilization of Resources: Medium and large scale industries are necessary for the scientific utilization of available natural resources such as forest resources, mineral resources, human resources and water resources, etc.
   
   
4. Development of Basic Infrastructure: Basic infrastructures like transport, communication, electricity, banking, insurance etc are the prerequisites for the development of large industries. The investment in these basic infrastructures increases the development of industries.
   
   
5. Source of Government Revenue: With the establishment and development of medium and large scale industries government can receive revenue in the form of sales tax, exercise duty, income tax, export duty, VAT, etc.
   
   
6. Capital Formation: Medium and large scale industries help to accelerate the process of capital formation within the country, which is the basis of economic development.
   
   
7. Favorable Balance of Payment: Unfavorable balance of payment is a serious problem in Nepal. The development of medium and large scale industries assists in import substitution and export promotion.
   
   
8. Sectoral Balance: In Nepal about 80 percent of the population is engaged in agriculture. This heavy dependency on agriculture indicates the sectoral imbalance in the country. Thus, it is necessary to divert population from agriculture sector to the non-agricultural sector.

Problems of Medium and Large scale industries

Despite various importance of medium and large-scale industries in national economy the development of industrial sector is still very slow due to the following reasons:

1. Lack of Capital: Development of medium and large scale industries requires a large amount of capital investment, which is beyond the capacity of most of the Nepalese entrepreneurs. Even the people who are able to invest are not interested in investing in these sectors due to the absence of favorable industrial policy and attractive industrial development.
   
   
2. Lack of infrastructures: Infrastructures like transport, communication, and power generation are most important factors for the establishment of large industries. There has not been adequate development and expansion of such basic infrastructure in Nepal.
   
   
3. Scarcity of Raw material: Unavailability of adequate raw material is also a cause of slow industrial development. The raw material which is not adequate and also are of inferior quality.
   
   
4. Limited Market: The domestic market for Nepalese industrial products is very limited due to low purchasing power of the people. There is a lack of transport and communication facilities to sell the commodity throughout the country.
   
   
5. Land Locked Position: The landlocked position of the country also hinders the development of medium and large-scale industries. Capital equipment, material and other resources for these industries have to be imported from abroad.
   
   
6. Lack of Industrial Security: The government of any country must provide reliable industrial security and environment to establish, expand and develop any type of industry. But due to the growing internal war and political instability, the security of industries has been a great challenge.
   
   
7. Lack of Entrepreneurship and Managerial Skill: Development of medium and large scale industries mostly depends on successful entrepreneurs who can convince, promote, implements and take a risk in any disciplines. But such entrepreneurs are not available in Nepal.
   
   
8. Frequent changes in Industrial Policy: The industrial policy of Nepal lack stability. In the past, it changed frequently. Facilities provided by policy declaration do not become available in practice. There is a lack of coordination between the government departments and ministries of the government on policy matters.