Transcript India`s Industrial Performance, 1991-2008

India’s Industrial Performance,
1991-2008
R Nagaraj
Indira Gandhi Institute of
Development Research
Mumbai
India Industry in 1991
• Contributed 26% of GDP, employed 15% of
workforce and 39% of capital stock.
– Mfg GDP share 15%, employing 12% workforce.
• In the 1980s, it was the leading sector, growing at
over 6%, while the GDP grew at 5.5%, exports
(2/3 of which were mfg) grew at 8 .5% (in current
$ terms).
• 1980s witnessed modernization of production, delicensing, trade policy shifted from quotas to
tariffs, and step up in public infrastructure
investment.
December 10, 2009
India's Industrial Performance
2
What did the reforms do?
• Made a bonfire of output and investment
controls.
• Cut back public investment.
• Undermine policies to promote and protect
small enterprises.
• Sell public sector enterprises’ equity.
• More generally, structural reforms.
December 10, 2009
India's Industrial Performance
3
Reforms - Hopes and Fears
• Protagonists predicted the reforms to speed up
industrial growth and labour intensive exports – as
had happened in East Asia and China.
• Critics fears – based on LA and African
experience – debt, deflation and deindustrialization.
• We examine the evidence against these competing
perspectives.
December 10, 2009
India's Industrial Performance
4
Trend Growth, 1991-08
• Industrial growth 6.6% p.a., during 17
years.
• Consumer durables grew fastest at 8.1% pa,
followed by capital goods at 7.4% pa.
• By 2-digit industry groups, beverages grew
the fastest at 11% pa.
• Growth rates after the reforms roughly same
as in the 1980s.
December 10, 2009
India's Industrial Performance
5
Annual Growth Rates, 1991-08
Industrial Growth, 1991-09
14
12
Per cent
10
8
6
4
2
0
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Year ending
IIP general
December 10, 2009
GDP industry
India's Industrial Performance
6
Detailed Trends
• Boom for 4 year during 1993-96, following
a “J” curve after the reforms.
• Then a steep slow down for 7 years to 200304, followed by a 5 year boom 2003-08.
• The first boom was led by consumer
durables, the second one by automobiles.
• Boom in exports and cheap credit
underpinned the recent growth.
December 10, 2009
India's Industrial Performance
7
Assessing the perspectives
• No acceleration in growth rates or in output shares
• No de-industrialization either (Table)
• No set back to industrial investment: share of
investment going into industry or into capital
goods has not declined (Figure 2).
• Exports have diversified – mostly into services, a
consequence of industrial investments early on.
December 10, 2009
India's Industrial Performance
8
Assessing the perspectives
• Yet, industry or, manufacturing sector’s share in
GDP has stagnated (Figure 3)
• Share of labour intensive mfg and their exports
have not increased, as expected.
• In merchandise exports, share of primary (iron
ore) exports increased; mfg declined (Figure 4).
• So, while much of the apprehensions are
unfounded, there are surely signs of concern.
December 10, 2009
India's Industrial Performance
9
Industrial Changes
• Effective competition in industrial markets has
gone up - product quality, variety and after sales
services has improved.
• Share of foreign firms increased; public sector’s
share declined (Figure 5)
• After brutal restructuring, domestic firms have not
only withstood external competition, but have
spread their operations cross the world.
• Yet, Industrial growth, or labour intensive exports
have not improved. Why?
December 10, 2009
India's Industrial Performance
10
Competing Explanations
• Incomplete reforms – labour market
rigidities, lack of infrastructure, incomplete
financial sector reforms, including CAC.
• Poor agriculture growth (Figure 6),
declining public infrastructure investment.
• While there is unanimity for stepping up
infrastructure investment, not on how to do
it. Why?
December 10, 2009
India's Industrial Performance
11
Infrastructure
• Despite improved PSEs’ financial performance,
rising domestic saving and tax/GDP ratios, policy
makers have refuse to step up public infrastructure
investment.
• They are committed to fiscal orthodoxy, and insist
on promoting private and foreign investment in
infrastructure.
• This is so, despite the costly disasters like Enron
power plant in the 1990s.
December 10, 2009
India's Industrial Performance
12
Conclusions
• Reforms promised faster and labour intensive
growth, as policy induced restriction on supply
were dismantled – to take India closer to East
Asia.
• Critics feared debt, deflation and
deindustrialisation, as had happened in LA and
Africa since the 1980s.
• This study sought to assess India’s performance,
against these promises and apprehensions.
December 10, 2009
India's Industrial Performance
13
Conclusions
• No growth step up; nor deindustrialisation.
• Export diversification, decline in mfg.’s share;
boom in services exports, and of primary products.
• Enhanced competition, improved quality, variety –
greater share of foreign firms, and decline in
public sector.
• Indian industry and enterprise are flourishing
internationally, acquiring factories and firms to
leverage their domestic capabilities.
December 10, 2009
India's Industrial Performance
14
Conclusions
• What is holding back industrial
growth?Incomplete reforms, infrastrcuture,
labour laws.Ag. Productivity, public
infrastructure investment.
• Why low infrastructure investment?
– Fiscal orthodoxy
– Commitment to private entry.
December 10, 2009
India's Industrial Performance
15
Thank You
December 10, 2009
India's Industrial Performance
16
Industry and Mfg. share in GDP
Shares of Industry and Manufacturing in GDP
30
Per cent of GDP
25
20
15
10
5
0
91
92
93
94
95
96
97
98
99
2000 2001 2002 2003 2004 2005 2006 2007 2008
Year Ending
Manufacturing
December 10, 2009
Industry
India's Industrial Performance
17
Investment Shares,1991-08
Investment shares, 1991-2008
45
Per cent of GFCF
40
35
30
25
20
15
10
5
0
91
92
Manufacturing
December 10, 2009
93
94
96
95
Infrastructure
97
98
99 2000 2001 2002 2003 2004 2005 2006 2007 2008
Agriculture
Year ending
India's Industrial Performance
18
India’s Trade Balance, 1991-08
India's trade balance, 1991-08
90
80
70
Per cent
60
50
40
30
20
10
0
199 199 199 199 199 199 199 199 199 199 200 200 200 200 200 200 200 200
0-91 1-92 2-93 3-94 4-95 5-96 6-97 7-98 8-99 9-00 0-01 1-02 2-03 3-04 4-05 5-06 6-07 7-08
R
P
Mfg. export share
December 10, 2009
Mfg trade balance
Year
India's Industrial Performance
19
Foreign and Public sectors
Public sector's and foreign firms' share in GDPmfg
20
18
16
Per cent
14
12
10
8
6
4
2
0
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Year ending
Public sector's share in GDPmfg
December 10, 2009
Foreign firms' share in GDPmfg
India's Industrial Performance
20
Employment and output share of principal sectors, 1983 to 2004-05.
(per cent)
Employment
GDP
1983
1993-94
2004-05
1983
1993-94
2004-05
1. Agriculture
68.5
64.0
56.5
37.1
30.0
20.2
2. Industry
13.8
15.0
18.7
24.3
25.2
26.2
2.1
Manufacturing
10.7
10.6
12.2
14.5
14.5
15.1
3. Services
17.6
21.1
24.8
38.6
44.8
53.6
December 10, 2009
India's Industrial Performance
21
Agriculture Output Growth
Figure 6: Trends in Agriculture Production, 1981-07
4
3.5
Per cent per year
3
2.5
2
1.5
1
0.5
0
All Crops
Foodgrains
Nonfoodgrains
1981-90
December 10, 2009
Cereals
1991-00
Rice
Wheat
GDPag.
1991-07
India's Industrial Performance
22