INDUSTRIAL GROWTH AND PERFORMANCE

INTRODUCTION Industralisation is a socio economic change that transforms human

group to industrial one.

Need of industrialization in India:Progress of India To become a developed nation from a developing nation. Increase employmentIncrease Income and savingsIncrease economies of scaleBetter productivity of raw materials

1951-65Rapid growth of over 7%per year

1966-80Growth

declined to 4% due to

crop failures

1980sImprovement

in public infrastructure

1990s Outburst of industrial activity reaching to 15%

Industrial performance in 1990-91 In 1991,economy faced liquidity crisis on account of• The Gulf War• Collapse of Soviet Union• The domestic political uncertainty Encouraged by the industrial and export boom in 1980s, economic reforms

initiated in 1991 sought to• make a bonfire of remaining output and investment controls• Cut back public investment• Undermine protective and promotional measures for small scale industries• Sell minority equity holding in public sector enterprises.

INDUSTRIAL PERFORMANCE AFTER

1991-2

• After an expected dip in 1991-2 on account of crisis and adjustment, output boomed for 4 years peaking in 1995-6.

• After that, there was a steep deceleration for 7 years until 2002-3.

• Next boom lasted for 5 years, from 2003-4 to 2007-8.

• Average annual growth rate over the 17-year period since 1991-2 is 6.6 per cent.

• During this period Consumer durables grew the fastest

at 8.1 per cent per year Capital goods grew at 7.4 per cent

per year

• By two-digit industry groups, beverages recorded the fastest growth at 12 per cent per year.

• Capital goods grew at nearly 15 per cent during 2003-8.

• Electrical machinery grew faster in the 1980s at 12.7 per cent per year.

• Transport equipment fared better after the reforms of 1991.

• In spite of the dismantling of the much criticized ‘ permit license raj’, industrial growth rate has not accelerated, nor has the growth rate of labour-intensive consumer goods gone up

• There has been no de-industrialization• The shares of industrial employment and output in the total have not

declined• The structural transformation of workforce has continued at the same

pace at the reforms, though the workforce has gone into services, not manufacturing.

• Within industry, the incremental workforce has gone into construction.• Manufacturing sector’s share in total fixed investment has gone up from

around 27 per cent in the 1980s to about 40 percent in the current decade.

• Causes of concern:Industry or manufacturing sector’s share in domestic output

has stagnated and its export share has declined; primary sector’s shares in merchandise exports has risen

The rising share is entirely due to iron ore exports to China, as India rode the commodity boom.

This was perhaps avoidable, if the much anticipated expansion of labour-intensive manufacturing was realized.

• Manufacturing sector’s share in total employment stagnation represents the failure of the reforms to promote labour-intensive manufacturing. Partly, growing capital intensity of production in general explains the employment stagnation.

• There could be structural reasons as well.• While the stagnation of the industrial employment

share is a cause of concern, it perhaps represents an outcome of the changing market conditions,organization of production and technology in an open labour-surplus economy.

While india has managed to avert de-industrialization, its output growth rate has not accelerated.

Manufacturing sector’s share in GDP has stagnanted(its share in merchandise exports has declined in favour of primary products).

The sustained growth in output and exports, and a rising share in the economy’s fixed investment are reassuring that the reforms have not damaged India’s industrialization prospects.

OTHER ASPECTS OF

INDUSTRIAL CHANGE

Easier imports.Entry of new firms.Development of buyers market.Increase in foreign firms share in GDP.Decrease in public sector share in GDP.Manufacturing sector restructuring.

PUBLIC SECTOR AND FOREIGN FIRMS SHARE IN GDP mfg.

WHY DID THE REFORMS FAILED TO

DELIVER THE EXPECTED RESULTS?

1) LABOR MARKET RIGIDITIES

Lack of entrepreneurial hiring and firing of workers.

Though in the economic crisis of 2008, 3.7 lakh workers lost their jobs against the labor market rigidities law.

2)SIZE STRUCTURE OF INDIAN FACTORIES

Indian factories are either too large or either too small both of which are said to be inefficient.

Indian industries are generally dominated by large sized factories ; like the worlds largest bicycle actory (Hero Cycles), largest motor cycle plant(Hero Honda), largest petroleum refinery (Reliance refinery in Jamnagar).

Large sized plants in China may or may not be said to be efficient because China internalizes its functions through integrated plants and unlike Taiwan and Japan has a weak inter firm relationship which is more efficient.

3) INFRASTRUCTURE BOTTLENECKS Infrastructure services by definition, have

a long gestation period and are capital intensive, with low rates of return spread over a long period.

Before 1991 public sector provided infrastructure but was considered to be poor.

Reforms encouraged private and foreign capital in these industries.

CONCLUSIONAfter 1991 reform :

1. Export diversification,2. Boom in services exports3. Enhanced competition, 4. Improved quality, variety and 5. Decline in public sector investment

Reforms promised faster and labour intensive growth…………. What is holding back industrial growth?

Incomplete reforms,1. Infrastructure constraint,2. Rigid labour laws3. Exposure of external competition4. Public infrastructure investment

(decrease)

5. Difficulties in obtaining funds for expansion6. Anomalies in tariff structure7. Contraction in consumer demand