Industry Concentration

The concentration of firms in an industry is of interest to economists, business

strategists, and government agencies. Here, we discuss two commonly-used
methods of measuring industry concentration: the Concentration Ratio and the
Herfindahl-Hirschman Index.

Concentration Ratio (CR)

The concentration ratio is the percentage of market share owned by the largest m

firms in an industry, where m is a specified number of firms, often 4, but sometimes a
larger or smaller number. The concentration ratio often is expressed as CR m, for
example, CR4.

The concentration ratio can be expressed as:

CRm  =  s1  +  s2  +  s3  +  ... ... +  sm

where  si  =  market share of the ith firm.

If the CR4 were close to zero, this value would indicate an extremely competitive
industry since the four largest firms would not have any significant market share.

In general, if the CR4 measure is less than about 40 (indicating that the four largest
firms own less than 40% of the market), then the industry is considered to be very
competitive, with a number of other firms competing, but none owning a very large
chunk of the market. On the other extreme, if the CR1 measure is more than about
90, that one firm that controls more than 90% of the market is effectively a monopoly.

While useful, the concentration ratio presents an incomplete picture of

the concentration of firms in an industy because by definition it does not use the
market shares of all the firms in the industry. It also does not provide information
about the distribution of firm size. For example,  if there were a significant change in
the market shares among the firms included in the ratio, the value of the
concentration ratio would not change.

Herfindahl-Hirschman Index (HHI)

The Herfindahl-Hirschman Index provides a more complete picture of industry

concentration than does the concentration ratio. The HHI uses the market shares of
all the firms in the industry, and these market shares are squared in the calculation
to place more weight on the larger firms. If there are n firms in the industry, the HHI
can be expressed as:

HHI  =  s12  +  s22  +  s32  +  ... ... +  sn2
where si is the market share of the ith firm.

Unlike the concentration ratio, the HHI will change if there is a shift in market share
among the larger firms.

The Herfindahl-Hirschman Index is calculated by taking the sum of the squares of

the market shares of every firm in the industry. For example, if there were only one
firm in the industry, that firm would have 100% market share and the HHI would be
equal to 10,000  -- the maximum possible value of the Herfindahl-Hirschman Index.
On the other extreme, if there were a very large number of firms competing, each of
which having nearly zero market share, then the HHI would be close to zero,
indicating nearly perfect competition.

The U.S. Department of Justice uses the HHI in guidelines for evaluating mergers.
An HHI of less than 1000 represents a relatively unconcentrated market, and the
DOJ likely would not challenge a merger that would leave the industry with an HHI in
that range. An HHI between 1000 and 1800 represents a moderately concentrated
market, and the DOJ likely would closely evaluate the competitive impact of a
merger that would result in an HHI in that range. Markets having an HHI greater than
1800 are considered to be highly concentrated; there would be serious anti-trust
concerns over a proposed transaction that would increase the HHI by more than 100
or 200 points in a highly concentrated market.

Other Considerations in Using Industry Concentration Measures

One should be aware that these measures are influenced by the definition of the
relevant market. For example, the automotive industry is not the same as the market
for sport utility vehicles. One also must consider the geographic scope of the market,
for example, national markets versus local markets.

ndustrial concentration” refers to a structural characteristic of the business sector. It is the

degree to which production in an industry—or in the economy as a whole—is dominated by a
few large firms. Once assumed to be a symptom of “market failure,” concentration is, for the
most part, seen nowadays as an indicator of superior economic performance. In the early
1970s, Yale Brozen, a key contributor to the new thinking, called the profession’s about-face
on this issue “a revolution in economics.” Industrial concentration remains a matter of public
policy concern even so.

The Measurement of Industrial Concentration

Industrial concentration was traditionally summarized by the concentration ratio, which
simply adds the market shares of an industry’s four, eight, twenty, or fifty largest companies.
In 1982, when new federal merger guidelines were issued, the Herfindahl-Hirschman Index
(HHI) became the standard measure of industrial concentration. Suppose that an industry
contains ten firms that individually account for 25, 15, 12, 10, 10, 8, 7, 5, 5, and 3 percent of
total sales. The four-firm concentration ratio for this industry—the most widely used number
—is 25 + 15 + 12 + 10 = 62, meaning that the top four firms account for 62 percent of the
industry’s sales. The HHI, by contrast, is calculated by summing the squared market shares of
all of the firms in the industry: 252 + 152 + 122 + 102 + 102 + 82 + 72 + 52 + 52 + 32 = 1,366.
The HHI has two distinct advantages over the concentration ratio. It uses INFORMATION about
the relative sizes of all of an industry’s members, not just some arbitrary subset of the leading
companies, and it weights the market shares of the largest enterprises more heavily.

In general, the fewer the firms and the more unequal the distribution of market shares among
them, the larger the HHI. Two four-firm industries, one containing equalsized firms each
accounting for 25 percent of total sales, the other with market shares of 97, 1, 1, and 1, have
the same four-firm concentration ratio (100) but very different HHIs (2,500 versus 9,412). An
industry controlled by a single firm has an HHI of 1002 = 10,000, while the HHI for an
industry populated by a very large number of very small firms would approach the index’s
theoretical minimum value of zero.

Concentration in the U.S. Economy

According to the U.S. Department of Justice’s merger guidelines, an industry is considered
“concentrated” if the HHI exceeds 1,800; it is “unconcentrated” if the HHI is below 1,000.
Since 1982, HHIs based on the value of shipments of the fifty largest companies have been
calculated and reported in the manufacturing series of the Economic Census.1 Concentration
levels exceeding 1,800 are rare. The exceptions include glass containers (HHI = 2,959.9 in
1997), motor vehicles (2,505.8), and breakfast cereals (2,445.9). Cigarette manufacturing also
is highly concentrated, but its HHI is not reported owing to the small number of firms in that
industry, the largest four of which accounted for 89 percent of shipments in 1997. At the
other extreme, the HHI for machine shops was 1.9 the same year.

Whether an industry is concentrated hinges on how narrowly or broadly it is defined, both in

terms of the product it produces and the extent of the geographic area it serves. The U.S.
footwear manufacturing industry as a whole is very unconcentrated (HHI = 317 in 1997); the
level of concentration among house slipper manufacturers is considerably higher, though
(HHI = 2,053.4). Similarly, although the national ready-mix concrete industry is
unconcentrated (HHI = 29.4), concentration in that industry undoubtedly is much higher in
specific cities and towns that typically are served by only a handful of such firms.

These examples suggest that concentration varies substantially across U.S. industries. Trends
in concentration vary from industry to industry, but most changes in concentration proceed at
a glacial pace. So, too, does aggregate concentration: the fifty largest U.S. companies
accounted for 24 percent of manufacturing value added (revenue minus the costs of fuel,
power, and raw materials) in 1997, the same percentage as in 1992 (and as in 1954, for that
matter). On some measures—the percentages of total employment and total assets controlled
by the nation’s 50, 100, or 200 largest firms—industrial concentration in the United States
actually has declined since World War II.

Concentration indexes calculated for a particular year conceal the identities of the industry’s
members. In reality, turnover among the nation’s leading firms is fairly regular over long
time horizons, averaging between 2 and 5 percent annually. Success at one point in time does
not guarantee survival: only three of the ten largest U.S. companies in 1909 made the top one
hundred list in 1987. Available concentration indexes, which are based solely on domestic
manufacturing data, also ignore the global dimensions of industrial production.
The Causes and Consequences of Industrial Concentration
Some industries are more concentrated than others because of technical properties of their
production technologies or unique characteristics of the markets they serve. Economies of
scale, which allow firms to reduce their average costs as they increase their rates of output,
favor large-scale production over small-scale production. Thus, industries for which scale
economies are important (e.g., auto manufacturing and petroleum refining) are expected to be
more concentrated than others in which costs do not fall as rapidly as output expands (e.g.,
cut-and-sew apparel manufacturing). Similarly, concentration tends to be higher in industries,
such as aircraft and semiconductor manufacturing, where learning curves generate substantial
production-cost savings as additional units of the original model or design are made.

Owing to so-called network effects, some goods increase in value as more people use them.
Computer operating systems, word-processing software, and video recorder-players are
examples of such goods, as are literal networks such as railroads, commercial air
transportation, and wire line telephony. Because standard technologies and protocols that
provide compatible interconnections are critical to the realization of network effects—
allowing faxes to be sent and received or computer users easily to exchange files—consumers
rationally favor large networks over small ones. The necessity of building networks that
accommodate critical masses of users means that only a few providers will achieve dominant
positions, and therefore the industry will tend to be highly concentrated. Such domination is
likely to be temporary, however, since consumers will switch networks when benefits
outweigh costs, as illustrated by the replacement of Betaformatted video tapes by VHS
formatted ones, which in turn are being replaced by DVDs.

Industrial concentration also is promoted by barriers to entry, which make it difficult for new
firms to displace established firms. Barriers to entry are erected by government-conferred
privileges such as patents, copyrights and trademarks, exclusive franchises, and licensing
requirements. Existing firms may possess other advantages over newcomers, including lower
costs and brand loyalty, which make entry more difficult.

The fundamental public policy question posed by industrial concentration is this: Are
concentrated industries somehow less competitive than unconcentrated ones? Concentration
would have adverse effects if it bred market power—the ability to charge prices in excess of
costs—thereby increasing industry PROFITS at consumers’ expense. In theory, industrial
concentration can facilitate the exercise of market power if the members of the industry agree
to cooperate rather than compete, or if the industry’s dominant firm takes the lead in setting
prices that rivals follow. And, indeed, the evidence generated by hundreds of econometric
studies suggests that concentrated industries are more profitable than unconcentrated ones.
But that evidence begs the question. It does not tell us whether profits are higher in
concentrated industries because of market power effects or because the firms in those
industries use resources more efficiently (i.e., have lower costs).

Some economists have found that concentration leads to higher prices, but the link observed
typically is both small (prices elevated by 1–5 percent) and statistically weak. A detailed
econometric study by Sam Peltzman (1977) reaches the opposite conclusion. He reports that
profits are higher in concentrated industries not because prices are higher, but because they
do not decline as much as costs do as efficient firms expand their scales of operation.
Analyses by Yale Brozen (1982), Harold Demsetz (1974), and others have found that the
positive relation between industrial concentration and profits disappears altogether when firm
size is taken into account. These results are consistent with the hypothesis that some
industries are more concentrated than others because large firms have significant cost
advantages over small firms. There is, in short, little unequivocal evidence that industrial
concentration per se is worrisome. Just the reverse seems to be true.

Public Policies Toward Industrial Concentration

Consolidating production in the hands of fewer firms through mergers and acquisitions
obviously is the most direct route to industrial concentration. Preventing transactions that, by
eliminating one or more competitors, would lead to undue increases in concentration and the
possible exercise of market power by the remaining firms is the mandate of the two federal
ANTITRUST agencies—the U.S. Department of Justice and the Federal Trade Commission—
under section 7 of the Clayton Act (1914). That mandate was strengthened considerably by
the Hart-Scott-Rodino Act (1978), which requires firms to notify the antitrust authorities of
their intention to merge and then to hold the transaction in abeyance until it has been
reviewed. Most transactions with summed firm values of fifteen million dollars or more had
to file premerger notifications initially; in February 2001 that threshold was raised to fifty
million dollars and indexed for INFLATION.

Two important factors that antitrust authorities consider in deciding whether to allow a
proposed merger to proceed are the level of market concentration if the merger is
consummated and the change in market concentration from its premerger level. (Note that the
“market” considered relevant for merger analysis hardly ever corresponds to the “industry”
defined by the Economic Census; antitrust markets may be defined more broadly or more
narrowly; in practice, the definition of the relevant market usually is the key to whether a
merger is lawful or not.) Concentration thresholds are laid out in the Justice Department’s
merger guidelines, first promulgated in 1968, revised substantially in 1982, and amended
several times since.

The guidelines state that proposed mergers are unlikely to be challenged if the postmerger
market is unconcentrated (HHI remains below 1,000). However, mergers generally will not
be approved if, following consummation, market concentration falls within the 1,000–1,800
range, and the HHI increases by more than 100 points or, if the postmerger HHI is 1,800 or
more, concentration increases by more than 50 points.2 Exceptions are provided when the
merging firms can demonstrate significant cost savings, when barriers to entry are low, or
when one of the merger’s partners would fail otherwise. (In the EUROPEAN UNION, by
contrast, COMPETITION policy, including merger law enforcement, is shaped principally by
fears of possible “abuses of dominant market positions” by large firms.)

Studies examining the enforcement of section 7 under the merger guidelines have found that
they are not always followed closely. Mergers are, indeed, more likely to be challenged the
greater the level of market concentration and the higher the barriers to entry are thought to be.
But law enforcement also is found to be influenced significantly by political pressures on the
antitrust authorities from groups that stand to lose if a merger is approved, including rivals
worried that the transaction will create a more effective competitor. In fact, studies of stock-
market reactions to news that a merger is likely to be challenged typically find competitors to
be the main beneficiaries of such decisions.
Environment
Whose Environment is it?
Problems of Poverty and Development in India

As India prepares to enter a new millenium, the degraded state of India's natural environment
cannot escape comment or analysis. Some believe that the deterioration in the environment is
of such magnitude that all development must cease for the planet to survive. Others dismiss
the entire environmental movement as comprised of loony troublemakers who have no right
to interefere with the sanctity of private property and private enterprise. Still others berate the
environmental movement for being an exclusively middle-class movement that is irrelevant
to the class struggle.

Lost in the middle of these antagonistic positions are those who see environmental pollution
as a serious issue that affects people cutting across class lines but also recognize the
unfairness of the existing order in which the earth's resources and benefits of modern
technology are monopolized by a minority of the rich on this planet. For them, issues of
environmental degradation must be tackled on a war-footing, but they reject solutions that
preserve the unfair distribution of the world's products and natural resources. For them,
fairness and justice - the idea that there must be progress for all, cannot be sacrificed in the
name of "saving the environment". For them, environmental concerns must be integrated into
the general class struggle, and against the tendency of private interests to violate and exploit
both people and the environment. Their world-view is in sharp contrast with those
environmental elitists who wish to enjoy all the fruits of modern industrial development
while denying those same benefits to the proletarian masses who must struggle and survive
under the most primitive of human conditions.

Air and Water Pollution in Delhi

Take the issue of air and water pollution in Delhi and the recent supreme-court rulings in that
regard. Few can deny that Delhi's air is deadly to breathe. By some estimates, one in three is
now afflicted with chronic breathing ailments. Almost a sixth of all children are reputed to
suffer from lead induced mental retardation. Gastro-epidemics (resulting from water-borne
pollutants) have been all too frequent in recent years, with children being especially
vulnerable. Yet, for some industrialists this is not a "serious" enough problem to warrant
further regulation or even ensure the implementation of existing regulations. Curiously, some
unionists have adopted the absurd position that this is not a "class" issue, as if the poor and
the working class don't suffer from lung diseases or water contamination. If anything, it is the
other way around. The poor are the first to suffer from the effects of air and water pollution.
While the rich can limit their exposure to air-borne toxics by driving around in air-
conditioned cars, the poor who must walk to work, or use bicycles or public transport simply
can't escape the ill-effects. The rich can buy bottled spring water or distilled water, but the
poor usually can't afford anything but tap water. Rather than dismiss such concerns, unionists
and others involved in the class-struggle ought to be the first to take up the battle against air
and water pollution.

Instead, this aloof attitude has led to solutions that don't go far enough, and are decidedly
unfair to the poor. For instance, the Supreme Court has ruled that "polluting industries" must
be relocated out of Delhi. Does that mean that these polluting industries are now free to
destroy the health of residents in Ghaziabad, Meerut or Rohtak? Does the Indian Supreme
Court only care about the health of those who reside in the nation's capital? And what of the
hapless employees of those industrial units that were given the orders to relocate? How are
they supposed to cope with unemployment and lack of income?

Shouldn't the real solution have been to insist upon correcting manufacturing processes so
that they didn't pollute in the first place? Of course, one of the obstacles to any environmental
regulation is that businesses will scream that it hurts their "bottom line". When the right to
profits is supreme there is little arguing with such views. Yet, not many in the environmental
movement consider public ownership of industry as a possible solution where environmental
regulations could be enforced across the board, without the risk of corruption or lobbying by
private business interests.

A significant source of pollution in India's cities are vehicles - cars, two-wheelers, three-
wheelers, trucks and buses. Although there have been small steps in moving towards
unleaded fuel, little has been done to improve and encourage the use of public transportation.
Railways have been neglected and buses for commuters are poorly maintained. Private bus,
tempo and truck manufacturers have largely gotten away with producing poor quality
vehicles that routinely exceed emission norms. In a socialist economy, private cars would not
be a priority. Expanding the rail network and improving the quality of buses and goods
transport vehicles would instead, get their due importance. Unfortunately, a majority in the
environmental movement are unable to break from their affinity with private ownership and
support of private enterprise. As a result, society makes little, or very slow progress in
solving these pressing issues.

The Issue of "Big Dams" and National Sovereignty

Another divisive issue for India has been the growing controversy over "big dams". Over the
years, critics of India's dams have presented a host of damning evidence pointing to the
deplorable neglect of displaced people - especially poor tribal communities. Critics have also
correctly pointed out how many dams are started but never completed, or else poorly
constructed. Corruption and mismanagement have often led to huge cost overruns, and too
often, there is a lack of follow-up in building adequate feeder canals, or else, the canals that
are built are not properly maintained.

But rather than calling for the rectification of such grievious errors, many have adopted an
idealogical and blanket opposition to all hydro-projects. This has led to grave consequences
for the nation. By increasing the nation's reliance on thermal power stations, it has created
chaos in the national grid. Thermal power stations are much less suited to handling
fluctuating demand. Given the poor quality of India's coal, and the long distances it has to be
transported, India's thermal power plants are more polluting, relatively expensive to maintain,
and prone to frequent tripping. What is even worse is that the neglect of hydro-power is
leading to a growing reliance on even more expensive imported fuel based power plants of
the Enron-type. Not only are these very costly (and also entail environmental risks), they
involve a grave loss of national independence.

While it is not surprising that US-based anti-dam groups might encourage the shift to oil and
gas-based energy, it is tragic how some Indian environmentalists are falling into that trap. As
it is, India's oil import bill is too large for the country to afford. By building more oil and gas
based power plants, India will become even more vulnerable to pressure from the US, which
has a virtual stranglehold on the world's oil trade.
It is important to note that historically, manipulating water resources has been a powerful tool
for political conquerers. When Mandu was conquered by invaders from the North-West,
Bhojpur's dams were destoyed so as to demoralize and weaken the local peasantry and
destroy the legitimacy of the Parmar rulers. The Parmar Rajahs of Bhojpur were particularly
renowned builders and admired and venerated for their acumen as great architects and civil
engineers. By destroying Bhojpur's dams, Mandu's Afghan conquerers were able to hasten
their defeat. Several centuries later, India's British colonial rulers, through a policy of
deliberate and wanton neglect, destroyed Bengal's traditional water-works, thus
compromising the region's ability to feed and defend itself. It is therefore, not surprising that
powerful neo-colonial interests in the West would wish to keep India energy deficient, and
dependant on imported sources.

The negative reation to India's nuclear tests, and the resistance to India's nuclear power
policy, stems at least partially from the desire of some to constrict India's development. Even
though India's nuclear power plants use resources that are locally available, and have a safety
record that matches the highest international standards, India's nuclear policy has been
severely criticized in major international fora. International groups are particularly
hypocritical in their condemnation of India's nuclear efforts when in fact, it is the rich
industrialized countries like France, Sweden, Japan (and many others) who are the biggest
users of nuclear energy. Although new technologies reduce the problem of nuclear waste-
management, and make it much more manageable, many in the West prefer to foist oil-based
energy use in oil-poor countries like India.

"Independence in the energy sector is central to the national sovereignty and national well-
being for an oil importing and developing country like India". This was the view expressed
recently by Dr S. K. Chopra, Senior Advisor to the Ministry of Non-Conventional Energy
Sources. Dr Chopra was speaking after making a presentation on "Energy Policy for India -
Towards Energy Independence" in Delhi. A strong advocate of alternative energy, he spoke
against the oil intensification of the Indian economy. He pointed out that there was
inadequate use of renewable sources of energy which must be stepped up. "We are one of the
leaders in harnessing wind energy, but must widen our net", he remarked. On the atomic
energy front, Dr Chopra stated that India and France had begun harnessing atomic power at
the same time. But while France was getting 80 per cent of its energy needs from atomic
power today, its contribution in India was only 2.35 per cent of the entire need.

Energy Management
Ideally, India should do far more to manage the demand for power. Sections of Indian
industry are extremely wasteful in their use of energy. India's homes could be better designed
to be cooler in the summer and warmer in the winter. More could be done to strengthen the
national power-grid, minimize transmission losses and rebuild and improve outdated power
plants. Non-polluting alternative power sources such as wind, solar and tidal power need far
more national support and funding. These should be particularly useful in residential use and
in electrifying remote and poorly connected villages of the country.

But these alternatives cannot replace conventional sources of energy production entirely. It
should be noted that the development of "alternative energy resources" presumes highly
developed conventional energy sources. Wind-turbines require manufacturing that would be
impossible without energy supplied by conventional power plants. Solar panels also need
advanced high-energy industrial manufacturing. Hence, it would be naive to argue that India
could simply abandon the development of conventional energy resources and suddenly
switch to alternative sources. Those who advocate 'small decentralized plants' seem unaware
of the heavy requirements of modern industrial production.

The transition to alternative sources will take several decades. In order for India to expand
it's use of non-polluting alternatives to thermal or oil/gas based power, it will also have to
expand the production of conventional energy in that interim period. Moreover, for energy
alternatives to became fully viable, considerably more research and seed capital will be
necessary. This is unlikely to come from private sources, and will require greatly increased
state-funding.

'Decentralization' and 'Small is Beautiful'

Although 'decentralization' and "small is beautiful" have become very popular slogans, these
are fraught with their own contradictions. Consider the proliferation of "small" private
generators. Powered by petroleum derivatives - these are energy- inefficient, extremely noisy
and highly polluting. But unlike Narmada-Bachao, there is no Generator-Bachao movement.
Inconsistencies like these could lead to questions about the sincerity of some environmental
activists. How many dare to speak out against the growing use of luxury cars, high-powered
air-conditioners, and the reliance on private generators?

Another charge levelled against some of India's environmentalists is that they are hostile to
progress. That while they are extremely sensitive to the victims of developmental
displacement, they are insensitive to the suffering of those who have been denied any benefits
of development. In their exclusive advocacy of "small" hydro projects, they are unwilling to
consider that these may sometimes be inadequate even in fully meeting irrigation and
drinking water needs (let alone generate electricity).

Recently, Gail Omvedt (at Pune University) pointed out how small irrigation projects while
helpful were insufficient to meet the needs of some of Maharashtra's small farmers. She made
this observation after a ten-year study of districts where small-scale water harvesting projects
had been developed to the fullest for over a decade. She also observed how the "small is
beautiful" mantra - while initially helpful in improving the lives of poor communities,
eventually puts those communities at a disadvantage vis-a-vis richer farmers with access to
more advanced irrigation schemes, and allows the rich farmers to continue to politically and
economically exploit the poorer farmers.

What is particularly ironic is how some of the "small is beautiful" mantra is posed as a
counterpoint to "Western Models" of water management. But, building large dams is not a
Western invention at all. India has one of the oldest traditions in elaborate water-management
projects going back to the times of Mohenjo-Daro. Many of India's medieval rulers diverted
rivers, built artificial lakes, canals, dams and water-reservoirs. Today, the large lakes and
reservoirs of Jaipur, Udaipur, Hyderabad or Bhopal may seem "natural" - but they are all the
result of human endeavour. The Bhopal lake required diverting a river more than 10 kms
away. Neither is silting of rivers exclusively a problem of 'modern development' as some
contend. There are references to India's medieval rulers recognizing the problem of silting
and organizing campaigns to desilt rivers. Rajni Palme Dutt, in his classic book on colonial
rule in India - 'India Today' - bemoans British neglect of the vast irrigation networks that had
been constructed and carefully maintained in Bengal and Assam before the Plassey defeat.
As already mentioned, the highly popular Parmar Rajahs of Central India were noted for their
devotion to "large" water-management projects. As skilled architects and promoters of large
construction projects, they won considerable popular acclaim in their times.

Environmental Destruction in the Past

There is also a common myth that there was no environmental destruction before the onset of
the industrial revolution. In fact, some of the greatest deforestation in the lands around the
Mediterranean took place in the Greek and Roman era when indiscriminate logging and
mining led to rapid clear-cutting and consequent desertification. As the world's population
has grown, the tribal practice of slash and burn agriculture has also become less
environmentally viable in some places, and in recent times this has been a major obstacle to
forest preservation in Africa and even parts of India. Some environmentalists project an
idealistic view of ancient practices and tribal customs. But they forget that the lack of modern
technology can also be a source of environmental destruction. When the forest cover
dwindles, even the cutting of trees by poor peasants for heating and cooking can pose a
problem. (Of course, the primary source of deforestation in India is not the construction of
dams but indiscriminate commercial logging - which deserves much greater scrutiny and
control.)

The history of the planet is marked by environmental destruction and by serious attempts at
resisting and managing such trends. Industrialization greatly heightens this conflict. But it
would be wrong to romanticize the past. It is important to realize that there is a dialectical
relationship between environmental preservation and human technological development. The
point is to strike the best and most sustainable balance.

Dialectics of Development and Environmental Preservation

Ultimately, the strength of India's environmental movement will depend on how it builds
alliances with popular movements and sympathizes with the concerns of all of India's down-
trodden. There is a great deal to be done in terms of cleaning and protecting the environment.
But it cannot be done by simply ignoring the poverty that results from under-development.
Neither would it be correct to espouse environmental concerns in a manner that preserves the
right of the rich to every modern luxury even as the poor huddle in slums in the heat and cold.

Take the "Narmada Bachao Andolan". Activists involved with Narmada Bachao rightly bring
up the issue of "development for whom?". Who pays the price, and who garners the benefits
of "development" are extremely important issues facing India as a nation. But is the final
answer that all development must cease - or that development must be structured differently?
Is the problem of developmental inequality a cause or more a symptom of existing class
relations in society?

At present there is a huge chasm between opponents and proponents of the Narmada dam.
Some argue that the dam should have never been built. Others point to how it has already
succeeded in preventing the frequently recurring flooding that occurred along the banks
during heavy monsoon years. In Gujarat, support for the dam is almost universal and even
extends to popular NGOs. The problems of the dam oustees are real and exceedingly
important. But so too are the drinking water problems of Gujarat's poor. While the rich can
buy water from tankers, or buy Bisleri (or it's equivalent) for drinking, Gujarat's rural and
urban poor have far fewer options. In a bad year, dalit and tribal women often bear the
biggest burden in trudging miles to find water for their families. Although much more could
be done to augment rain-water harvesting in Gujarat, it is important to recognize that most of
Gujarat's ground water is extremely brackish. Without any major all-weather rivers of it's
own, it is little wonder that the Narmada project is defended with such passion in the state.

Many of India's environmental controversies are a result of the high density of India's
population. Unlike Europe, which was able to ease the pressure of it's burgeoning population
through colonial conquests in America and Australia, India has few options when countries
like the US and Australia have limited immigration to a trickle. Partition further aggravated
the situation for India when the best naturally irrigated lands went to Pakistan and
Bangladesh. Even a cursory look at the map will demonstrate how Pakistan and Bangladesh
are blessed with a unique natural network of rivers. Pakistan is ideally situated for the
construction of modern dams and is a power surplus nation but it's unyielding hostility
towards India means that India cannot avail of those natural resources.

There is also tremendous undeveloped hydro potential in Nepal and the Indian North-East.
While India can do little about the opposition to joint development of water resources with
India in Nepal - the North-East is fairly sparsely populated, and at least some of the hydro-
potential could be harnessed without too much controversy. The Brahmaputra which is prone
to deadly flooding urgently needs new check dams if nothing else. But the lack of a national
water-management and power policy, the reluctance to support state-investment in new
projects and the headlong rush towards privatization prevents some of the best hydro-
resources in the sub-continent from being carefully developed.

The problems of development in India are exceedingly complex. Class inequities,

geographical and political limitations greatly compound India's environmental situation. But
with greater sensitivity towards basic human needs, one hopes that India's future development
will be harmonized and reconciled with environmental contradictions. But without a doubt,
that will entail restrictions on the "freedom" of private capital to use land and mineral
resources at will. It will also entail curtailments on the lifestyles of India's rich and powerful.
It will require India's environmentalists to embrace the class struggle, and require India's
activists for the oppressed to embrace environmental concerns.

Whose environment is it? It is everyone's - to preserve and to keep healthy and sustainable.
But it is also to develop and share equitably - not an exclusive preserve of the rich and well-
heeled alone to enjoy and exploit.

ADOPTION OF POLLUTION CONTROL MEASURES

Manufacture of new products and by-products recovered through application of pollution

control processes.

1. It is the policy of the Government that the industrial undertakings desiring to use the
wastes and effluents for manufacture of new products should be encouraged to do so.

2. Many of the chemicals recovered from pollution control processes and recycling of waste
products are reserved for exclusive manufacture in the small scale. As per current industrial
policy, the non-small scale units require to obtain industrial licence with 50% export
obligation for manufacturing any of the products reserved for the small scale sector. In this
background, it was felt that if the chemicals are recovered through installation of pollution
control processes which are in the larger interest of sustainable industrial development,
capacity of such recoverable chemicals, even if reserved for the small scale, should be
permitted without the mandatory export obligation.

3. The Government have now decided that in order to encourage adoption of pollution control
processes by the industrial undertakings which have the potential to utilise the waste products
and effluents for manufacture of new items, they may be allowed to do so by suitable
endorsement in the existing Industrial Licences or issued new Industrial Licences for such
recoverable items which may be reserved for the small scale sector, without necessarily
stipulating the mandatory export obligation.

4. The industrial undertakings will submit application in Form IL, to the Secretariat for
Industrial Assistance, Ministry of Industry, Udyog Bhawan, New Delhi. Such applications
will be considered on merits and wherever Government agrees to allow industrial
undertakings to recycle their wastes and effluents, necessary endorsement of capacity for the
items allowed would be made on industrial licences, without necessarily stipulating the
conditions for export of such new items. However, before taking a decision in the matter, the
Secretariat for Industrial Assistance will obtain the prior written comments/views of the
Development Commissioner (SSI) in each case.

5. It is hoped that adoption of this positive policy would encourage the industrial units to
install pollution control processes and be a positive incentive to utilise the waste products and
effluents.

6. Entrepreneurs desirous of availing this facility shall have to submit applications in the
prescribed form for Industrial Licences (Form FC/IL) to the Secretariat for Industrial
Assistance (SIA), Department of Industrial Policy & Promotion, Ministry of Industry, Udyog
Bhawan, New Delhi-110011, giving full details of the pollution control processes proposed to
be adopted and new items with capacities which would be recovered from the same.