Important Facts Related to Indian Economy: – (Industry)

Last Updated on November 14, 2024 by Bharat Saini

• Industrial and Service Sector Growth Analysis

  1. Industrial Sector Growth Trends
     Over the Ninth to Twelfth Plans, India’s industrial sector saw fluctuating growth rates:
     • Ninth Plan (1997–2002): 4.3%
     • Tenth Plan (2002–07): 9.4%
     • Eleventh Plan (2007–12): 7.2%
     • Twelfth Plan (2012–17) (Target): 7.6%

     Despite some strong years, industrial growth has shown vulnerability to economic changes. After the 2015–16 peak growth of 7.4%, estimates for 2016–17 projected a dip to 5.2%. This points to an inconsistent industrial performance and a need for further stability-enhancing policies.

  2. Manufacturing Sector Performance
     The manufacturing sector mirrored the fluctuations of the broader industrial sector, with growth rates from the Ninth to Twelfth Plans as follows:
     • Ninth Plan (1997–2002): 3.3%
     • Tenth Plan (2002–07): 9.3%
     • Eleventh Plan (2007–12): 7.7%
     • Twelfth Plan (2012–17) (Target): 7.1%

     While manufacturing has improved over the years, the sector has underperformed in key areas such as capital goods production, highlighting the need for increased capital investment and robust infrastructure.

  3. Services Sector Dominance
     The services sector, contributing over 72% of GDP growth in 2014–15, has outpaced both industrial and agricultural sectors, showing a steady increase in growth from 7.8% in 2012–13 to 10.3% in 2015–16. This steady rise underscores the services sector’s crucial role in driving India’s economic growth, and its significant share (over 40%) in most states’ GSDPs indicates a broad-based economic shift toward services.
  4. Black Revolution and Energy Self-Reliance
     Following the successes of the Green and White Revolutions, the government is initiating a ‘Black Revolution’ aimed at reducing India’s reliance on imported petroleum. This strategy involves accelerating ethanol and biodiesel production to substitute up to 10% of petrol, highlighting a proactive approach to energy security.
  5. Investment and Credit Flow
     Despite growth in gross capital formation from -3.7% in 2013–14 to 3.6% in 2014–15, credit to medium-scale industries remains a challenge, with a decline of 7.6% in 2015–16. Enhanced credit access, especially for micro and medium-scale industries, is essential to sustain industrial growth and investment momentum.
  6. Infrastructure and Core Industries
     The eight core industries – coal, crude oil, natural gas, refinery products, fertilizers, steel, cement, and electricity – are critical to supporting industrial growth. These industries grew by 4.9% during April–November 2016–17, up from 2.5% in the same period in 2015–16. However, fluctuations in sectors like crude oil and natural gas indicate a need for more consistent performance across core industries.
  7. Foreign Direct Investment (FDI) Reforms
     India has simplified FDI regulations across several sectors, including defence and infrastructure, resulting in record inflows of $55.457 billion in 2015–16. By abolishing the Foreign Investment Promotion Board in 2017, India has further streamlined the FDI approval process, making it easier for foreign investors to engage in the Indian market.
  8. MSME Sector and Employment Generation
     The MSME sector contributes 37.5% to GDP, with 45% in manufacturing output and 40% of exports, employing over 8 crore people. Continued support and investment in this sector are crucial, especially given that 94.94% of MSMEs are micro-enterprises. The recent removal of reserved items exclusively for MSMEs has opened avenues for large-scale manufacturing, but MSMEs may require additional support to compete effectively.
  9. ‘Make in India’ and Economic Reforms
     The ‘Make in India’ campaign aims to develop India as a global manufacturing hub, with a focus on skill development, infrastructure, and employment. Complementary initiatives such as ‘Invest India’ and ‘Startup India’ encourage domestic and international investments. However, challenges in ease of doing business and regulatory processes continue to affect manufacturing growth. Improving these areas can further strengthen India’s position as a preferred manufacturing destination.
  10. Textile and Leather Industries
      The textile industry, a key employment provider, contributes about 20% of total industrial production and 38% of exports. Similarly, the leather industry plays a significant role, especially in providing jobs to disadvantaged sections. These sectors could benefit from additional modernization and export incentives to remain competitive globally.
  11. Gems and Jewellery Sector
      India is a leader in the global gems and jewellery sector, leveraging traditional craftsmanship. Supporting this sector through infrastructure and training can help maintain its growth and global competitiveness.
  12. Inclusive Innovation through IIIF
      The India Inclusive Innovation Fund (IIIF) promotes innovation for addressing the needs of lower-income groups. This initiative, along with the SFURTI scheme for traditional industries, underscores the government’s commitment to inclusive growth, though scalability and resource allocation remain areas for further enhancement.
  13. Recent Policy Changes and Industrial Reforms
      The new industrial policy since 1991 and the subsequent liberalization of FDI reflect India’s gradual shift toward a market-oriented economy. Policies like the replacement of FERA with FEMA have facilitated smoother foreign exchange transactions, encouraging foreign investment. However, for India to achieve sustained industrial growth, it must balance regulatory simplification with robust oversight.

  Conclusion and Recommendations

  India’s industrial and services sectors have shown significant growth and resilience but still face several challenges. To build on the achievements and address the gaps, the following are recommended:

  • Strengthening Infrastructure and Capital Investment: Enhancing infrastructure, particularly in capital goods and core industries, is essential to support sustained industrial growth.
  • Boosting Credit Access for MSMEs: Expanding financial support for MSMEs, particularly medium-scale enterprises, will drive industrial diversification.
  • Streamlining Regulatory Reforms: Simplifying processes further under ‘Make in India’ and aligning with global standards will attract more foreign and domestic investors.
  • Supporting Traditional and Export-Oriented Industries: Investing in the modernization of textile and leather sectors and further incentivizing exports can maintain India’s competitive edge globally.
  • Promoting Inclusive Innovation: Focusing on initiatives like IIIF will address social inequities while fostering a more innovative industrial environment.

  With these improvements, India can enhance its economic growth, leverage its industrial and service sector potential, and solidify its standing as a global economic power.