Classification of Industries

Industries can be classified in more than one way, and TS Inter II year Economics exams commonly ask students to distinguish these classifications clearly rather than mixing them up.

Classification by nature of output (basic/key, capital-goods, consumer-goods).

• Basic or key industries produce essential inputs that other industries depend upon — iron and steel, coal, heavy chemicals, cement and power generation are classic examples. Because so much else depends on them, these were treated as strategically important and were placed largely under public-sector control in India's early industrial policy.
• Capital-goods industries (also called producer-goods industries) manufacture the machinery, tools and equipment used by other industries to produce further goods — machine tools, heavy electrical equipment, industrial machinery. A country that lacks a capital-goods industry must import machinery for every other industry it wants to build, which is why developing this category was a planning priority.
• Consumer-goods industries produce goods for direct final consumption by households — textiles, food processing, footwear, consumer electronics, sugar. These industries are typically more labour-intensive and quicker to set up, and historically dominated India's pre-independence industrial base.

Classification by scale of operation (large, medium, small, cottage/village).

• Large-scale industries use large amounts of fixed capital, employ large workforces and produce on a mass scale (steel plants, automobile factories, large textile mills).
• Medium-scale industries fall between large and small units in investment and output.
• Small-scale industries (today largely covered under the MSME classification, discussed later in this chapter) operate with comparatively modest investment in plant and machinery, are often labour-intensive, and are especially important for employment generation and regional dispersal of industry.
• Cottage and village industries are typically household-based, use family labour and traditional or simple tools, need very little capital, and are common in rural India — handloom weaving, handicrafts, pottery, food processing at the household level.

The table below summarises the two classification schemes side by side, which is a convenient way to revise this section before an exam.