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Industrial growth in small and medium towns and their vertical integration:
the case of Gobindgarh, Punjab, India
by
Amitabh Kundu and Sutinder Bhatia

- Chapter 2-

2. Growth of small and medium towns and industrial dispersal in Punjab The present structure of urbanisation in Punjab must be seen in the historical context of its growth. The state had undergone significant population redistribution during the colonial period as a consequence of political compulsions. Even after Independence, it went through three phases of population change: (a) replacement of a large number of Muslims by the non-Muslims at the time of partition in 1947; (b) population redistribution during 1947-66 mainly with extension of irrigation facilities and reclamation of new agricultural lands; and (c) spatial containment of the population due to a check on agricultural out-migration since its reorganisation in 1966. These made the state demographically more homogenous giving the Sikh population a majority. Further, regional disparities in population density narrowed down in the post Independent period, blurring the demographic distinction between the former British administered and princely ruled parts of the Punjab (Gopal Krishan 1998). It is evident that the population redistribution in the state was strongly influenced by political change in the form of territorial reorganisation and by technological change – by way of allowing a greater use of land and water resources. This led to a dynamic system of interdependencies resulting in a higher level of agricultural productivity, agro-based industrialisation and a balanced pattern of urbanisation during the first couple of decades since Independence. The urban structure in Punjab, inherited from the colonial period, was nevertheless relatively balanced compared to all other states. It remained so until the 1970s due to the policies noted above. The percentage of the population in class I cities was just one third of the total urban population in 1951. The medium towns – with population between fifty and one hundred thousand – and small towns – with population less than fifty thousand – also claimed one third each (Bhalla and Kundu 1982). The balanced pattern of urbanisation in Punjab can also be seen in the fact that average distance between towns is just 22 km, which is the lowest among the states. This compares favourably with the national figure of 31 km. The balanced urban structure has often been attributed to the fact that agriculture has provided the main impetus to development since the beginning of the century. Further, the Green Revolution in the 1960s gave a boost to agro-processing activities in Punjab. This led to a growth in the demand for agricultural implements and the consequent establishment of a number of engineering units. Economic prosperity of the people also led to investment in dwelling units and infrastructural facilities which was behind the increase in demand for steel and engineering products in construction linked activities. Arguably, when urban centres emerge to meet the economic needs of an agrarian economy, their spacing tends to be more even. This is because the demand for agricultural services and urban facilities get linked to marketable surplus which in turn depends upon the area under cultivation (Bhalla and Kundu 1982). The growth rate of the population in large cities has in general been higher than in the small and medium towns in post-Independent India. This is the pattern observed in most of the developed states. However, this is not so in Punjab. Here, the annual exponential growth rate of population for towns with population between 50,000 and 100,000 was 3.6 percent during 1971-81, which is higher than that of the cities. The small towns with population of between 5,000 and 10,000 grew at the same rate as the class I cities viz. 3.3 percent. Growth in agriculture and agro-based industries, established through demand and supply linkages, are behind the emergence and growth of small towns. As a consequence, the pattern of urbanisation here is not top heavy, as is the case in the country as a whole. The growth of small and medium scale industries in Punjab in the post-Independence period has a distinct regional pattern. The major factor behind this growth process is the emergence of an urban industrial corridor along the Ludhiana, Jalundhar and Amritsar highways. Besides the linear physical growth of small and medium towns in the corridor, industrial units have tended to concentrate in the western districts of Ludhiana, Jalandhar and Amritsar explaining over 60 percent of the registered manufacturing units. This western industrial corridor, however, had some spread in the eastern Punjab as well, along the Grand Trunk (GT) road from Ludhiana to Delhi. Many of the towns in this corridor were specialised in the steel industry. Their location in the eastern region is partly due to proximity to Delhi and other supply and demand centres in the country. Further, raw materials for the industry being heavy, there were cost advantages in locating the units nearer Delhi. The state, thus, saw an impressive growth of industrial activities, dotting the two sides of the GT Road right from Delhi to Amritsar during the 1950s, 1960s and 1970s. Starting from the grain market town of Samalkha, (now in Haryana, about 70 km from Delhi), several towns saw the setting up of a number of iron foundries. These foundries not only fed the industries that were located in that belt, such as the cycle manufacturing units at Sonepat and steel tubes units (now closed) at Gannaur, but also other engineering industries that came up in the adjoining areas. Further west, the city of Karnal became a centre for the White Revolution and Panipat became a centre for handloom production. A number of units manufacturing scientific instruments linked to the industries in the region came up at Ambala. Similarly, several steel pipe and foundry units came up at Rajpura, adjoining the grain market at Khanna. Sarhind became a township for body-building for trucks. Ludhiana became a centre for bicycles, hosiery and sports goods, set by mostly by the entrepreneurs migrating from Sialkot (Pakistan) on the eve of partition. The border town of Amritsar saw a large number of woollen cloth manufacturing units and adjoining Batala became a centre for cast iron foundries. All these made Punjab an economically dynamic region with industries getting located not only in a handful of large cities but also in a number of small and medium towns (Gopal Krishan,1997). The steel re-rolling activities received a boost in the 1970s due to growth of the market outside the state of Punjab. Also, support from the government in the form of freight equalisation (for bringing in the raw materials and sending out the finished products), there being no restriction in creating capacities in rolled products etc., favoured the units in Punjab. These could go for new lines of production such as ingots, foundries, steel rolling machinery, machine tools and cycle parts, besides a variety of re-rolled products like bars flats, rounds, angles, squares, channels and sections without going through bureaucratic hassles. They could, thus, meet the diversified needs of the machine makers in different cities all over the country. The 1980s, however, mark a significant change. The decade has been described as "the lost decade" or "a period of missed opportunities" for Punjab. This is true, to a large extent, since it suffered significantly in terms of economic growth due to the disturbed socio-political milieu, as a result of terrorism and the consequent non-governance in the state. The growth in agriculture as well as the overall rural economy was low and there was a net outflow of Hindu population from rural areas in the affected regions. Surprisingly, that did not result in urban explosion in the state. This is primarily because many Hindus chose to move out of the state, at least temporarily. This adversely affected the Hindu Sikh population ratio in several urban centres. The Sikh population, for example, grew by 33.6 percent in the Patiala district while the Hindu population grew by only 3.4 percent over the period 1981-91. Many of the small towns experienced deceleration in population growth during 1980s compared to the previous decade, as these were considered less safe than the larger cities. As a consequence, the demographic growth in large cities works out as higher than those in other categories of towns during the 1980s. Understandably, the share of population in class I cities has gone up sharply – from 46 percent to 54 percent during 1981-91. The dominance of large cities in Punjab is a recent phenomenon, which can also be attributed to the shift of the thrust of growth from agriculture to industry. There is no denial that there was a process of spatial concentration of urban industrial activities during the 1980s. The declassification of as many as 19 towns, resulting in a decline in the total number of urban centres in the state during the 1980s, is also a manifestation of the process of shift from dispersed to agglomerated pattern of urban growth. The change in the urban growth pattern in recent years can be better understood in the context of changes in sectoral composition in the state economy. The contribution of manufacturing in gross domestic product during the 1980s was less than the national average. This can, however, be attributed partly to the rapid growth of agriculture during the 1960s and 1970s. Industrial growth in Punjab during 1980s and 1990s has, however, been much faster than the national average, despite the socio-political uncertainty. Going by indicators like the percentage of registered factories, workers therein, share of total manufacturing workers, share in the total value of industrial output etc. one would argue that Punjab was one among the highly industrialised states in the country in the 1990s. This rapid industrialisation is impressive, especially bearing in mind its distant position vis-à-vis India’s oil, coal, iron ore deposits. Understandably, urban growth and its structure in recent decades have been determined by the requirements of industrial economy. The impact of this industrial growth on urban hierarchy and spatial pattern of growth is significant and clearly discernible. This is more so since the second phase of the Green Revolution seems to be petering out. Despite the higher demographic growth in class I cities, their share of the total urban population in 1991 was still much below the national average of 65 percent. The other developed states like Maharashtra and West Bengal had about 80 percent of their urban population in these cities. The share of the towns having population between 50,000 and 100,000 has gone up from 14 per cent to 20 percent during 1981-91. It is only in the case of towns with less than 50,000 people that the share has declined from about 39 percent to 26 percent. And yet this is above the national figure of 24 percent. The concentration of industries in the western region has gone down slightly over the past two decades partly due to internal socio-political factors, noted above. The share of industries even in eastern districts like Patiala which ranks fifth among the districts in terms of industrialisation, – where Gobindgarh, the town selected for micro level analysis, is located – has gone down over the last decade. Gobindgarh, too, has experienced a deceleration in its population growth, the rate decreasing from its all time record of 10 percent in the 1970s to 4 percent in 1980s. This, however, is still better than that in the state wherein the average growth rate for small and medium towns has dwindled from 3 percent to 2.6 percent. It is important to note that the demographic and economic growth in the steel based towns in Punjab got a significant boost from the policy of the government of India to make steel products available to producers in distant regions at uniform prices in the post-Independence period. This helped the units located away from the integrated steel plants since under this policy, the government absorbed a part of the freight. The units in the towns in Punjab, therefore, got a de-facto subsidy on the cost of transportation, which was as high as about 10 per cent of the price of steel. Gobindgarh was one of the major beneficiaries of the policy since steel production there became highly cost-effective. As a consequence, the steel rolling mills grew in number and capacity during the first three decades after Independence. This continued even during the 1980s despite the uncertain political situation in the state. Its high rate of population growth even in comparison with other steel-based towns like Batala, Rajpura during 1981-91, reflects the strength of its economy. In the aftermath of steel decontrol in 1992, the freight equalisation scheme, applicable all over the country for steel products, was partially withdrawn by the government. The maximum applicable freight was pegged at the freight equivalent of the distance of 750 km. This resulted in a higher cost for freight on incoming steel for industries located beyond the distance of 750 km from the main producing centre. Also, for the industries located near the integrated steel plants, particularly in Eastern and Central India, the freight cost for the outward movement of finished steel products increased substantially. The analysis of the data of steel consumption in the country during the period from 1985-86 to 1998-99, however, suggests that the share of the secondary sector, comprising the units other than the integrated plants, has continued to grow (Table 2.1). This implies that despite a squeeze on profitability of the units located away from the integrated steel plants engaged in secondary steel production, many have been able to remain in business and even expand their activities. Understandably, the growth of the units and capacity of the rolling mills located at Gobindgarh was also checked due to decline in profit margins with the withdrawal of the price equalisation policy. The adverse impact of the macro policies on this town can be seen through the survey data. It is nonetheless worth noting that most of the units struggled and managed to overcome the problems arising out of this changed policy at the macro level by reorganising their production process and obtaining a part of the supply of inputs from within the town. Consequently, the supply of pencil ingots and re-rollable scrap from the units at Gobindgarh increased phenomenally, as discussed in the following sections. The town even saw a few new mills starting up while several old units managed to increase their production levels.   Table 2.1: Total steel consumption (including imports) and the percentage share of the secondary sector (shown in brackets) in India (per 1000 tonnes)   Year Non flat Flat Total finished steel 1985-86 6238(57) 3809(2) 10047(36) 1990-91 8659(70) 6416(20) 15075(49) 1992-93 8523(65) 69289(21) 15451(45) 1994-95 9812 9156 18968 (48) 1995-96 10112 11288 21400 (52) 1996-97 10758 12136 22894 (51) 1997-98 11067 12080 21347 (52) 1998-99 11704(61) 11438(38) 23142(52) Source: Reports of the Joint Plant Committee, Ministry of Steel Back: Table of Contents Continue: Chapter 3 © UNESCO 2001 The opinions expressed in this publication are those of the author and do not necessarily reflect the views of UNESCO.

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