ABSTRACT
In the 1950s and 1960s the Indian Government, like the governments of many other developing countries, used industrial policy to facilitate and encourage the transition from agriculture to industry. Unlike many other developing country governments, however, it also had an active competition policy to avoid excess concentration of assets and of production. Together these policies were intended to facilitate its objective of growth with industrialisation but also with socio-economic equity. During this period, the manufacturing sector was seen as central to economic growth both by academic economists and policy makers for a number of reasons. Its processes enabled division of labour and specialisation, allowing it to benefit from increasing returns to scale, unlike the agricultural and service sectors. Manufacturing was also seen as benefiting from longer and deeper linkages (both backward and forward) and within this, the heavy industrial sector was credited with the longest and deepest linkages (a characteristic that made it the focal sector in Socialist development plans). The manufacturing sector also experienced agglomeration economies and benefits from dynamic returns to scale through learning by doing and technological improvements.
