Transcript Presentation

An Overview of Indian
Manufacturing Sector
Pranav Kumar
Policy Analyst, CUTS-CITEE
Presentation Coverage
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Three distinct phase since independence
Policy changes during the three phases
Growth trends and the sector’s
contribution in national income
Mfg. contribution to exports
Employment generation in manufacturing
Major challenges
Major constraints
Steps required
Three Distinct Phase Since
Independence
Phase-I 1950-80: Main Policies
 Focus on large and heavy industries
 State control and central planning
 Import substitution
 Rigid price controls
 Severe restrictions on private initiatives
WIDELY ACKNOWLEDGED TO HAVE BEEN
UNSUCCESSFUL
Three Distinct Phase Since
Independence (Contd.)
Phase-II 1980-90: Main Policies
 Reduction of barriers to entry and
expansion
 Beginning of simplification of procedures
 Providing easier access to better
technology and intermediate material
imports
INTRODUCTION OF PIECEMEAL REFORMS
Three Distinct Phase Since
Independence (Contd.)
Phase-III 1991 Onwards: Main Policies
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Reduction in and/or abolition of some restrictions, such
as high tariff rates, import licensing, and QRs
Reducing the barriers to entry for FDI
Abolition of industrial licensing
Private sector participation in sectors reserved for
public sector
Fiscal and monetary reforms
HIGH GROWTH IN TOTAL MANUFACTURING
Growth Performance of Indian
Manufacturing (Phase-I)
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State-led import-substitution policy
framework had helped create a
diversified manufacturing sector in
Phase-I
Industrial stagnation since the mid-1960s
increasingly blamed on the policy
framework
This led to some tentative steps aimed at
liberalising these regimes in the late
1970s and early 1980s
Growth Performance of Indian Manufacturing (Phase-II)
Index Numbers of Industrial Production (Growth Rates) 1981-82 to 1990-91
Year
Mining & Quarrying
Mfg.
Electricity
General
1981-82
17.7
7.9
10.2
9.3
1982-83
12.4
1.4
5.7
3.2
1983-84
11.7
5.7
7.6
6.7
1984-85
8.9
8
12
8.6
1985-86
4.1
9.7
8.5
8.7
1986-87
6.2
9.3
10.3
9.1
1987-88
3.8
7.9
7.7
7.3
1988-89
7.9
8.7
9.5
8.7
1989-90
6.3
8.6
10.8
8.6
1990-91
4.5
9
7.8
8.2
Source: Reserve Bank of India
Base: 1980-81=100
CAGR:
Growth Performance of Indian Manufacturing (Phase-III)
Index Numbers of Industrial Production (Growth Rates) 1990-91 to 2005-06
Year
General
Year
General
1990-91
8.2
1998-99
4.1
1991-92
0.6
1999-00
6.7
1992-93
2.3
2000-01
5
1993-94
6
2001-02
2.7
1994-95
9.1
2002-03
5.7
1995-96
13
2003-04
7
1996-97
6.1
2004-05
8.4
1997-98
6.7
2005-06
8.2
Remarks: Industrial
sector growth in India
has fallen sharply in
the later seven years
(1997-98 to 2003-04)
as compared to the
first seven years after
the reforms (1990-91
to 1996-97)
Source: Reserve Bank of India
Base: 1980-81=100 for years 1990-94 and 1993-94=100 for remaining
Manufacturing Share in GDP
Source: ICRIER Working Paper No. 211, page no.1
Sectoral Contribution to India’s GDP Growth
Source: ICRIER Working Paper No. 211, Page no. 2
Manufacturing Contribution to Exports
Share (Per cent)
200001
200506
200607
CAGR
2000-01
to 200405
Mfg. goods
78.8
72.0
68.6
15.3
19.6
16.9
Tex. Incl. RMG
23.6
14.5
12.5
4.3
20.4
5.7
Gems & jewellery
16.6
15.1
12.6
16.8
12.8
2.9
Eng. Goods
15.7
20.7
23.3
25.4
23.4
38.1
Chemical & related prod.
10.4
11.6
11.2
21.7
17.3
19.1
Leather & leather mfg.
4.4
2.6
2.4
5.5
11.1
12.1
Handicrafts (incl. carpet
handmade)
2.8
1.2
1.1
-5.3
30.3
4.1
Petroleum, crude &
products (incl.coal)
4.3
11.5
15.0
38.7
66.2
59.3
Total Exports
100
100
100
17.0
23.4
22.6
Source: Economic Survey 2007-08
Growth rate
(%)
200506
200607
Employment in Manufacturing
Sectoral Employment Shares by CDS Basis
1983
199394
199900
200405
Agri.
65.42
61.03
56.64
52.06
Mfg.
11.27
11.10
12.13
12.90
Source: Various rounds of
NSSO survey on
employment and
unemployment/Planning
Commission
Year-wise Employment in the Organised Manufacturing (In Lakh)
Empt
1980
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
58.62
63.27
63.33
64.27
63.96
64.14
66.21
66.58
71.29
68.52
67.43
66.15
64.43
Source: Rajya Sabha Unstarred Question No. 1978, dated 15.12.2003
Main Challenges Facing Indian
Manufacturing
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Sharp deceleration in manufacturing
sector growth
Contribution in GDP remains constant
No significant contribution in employment
generation
Share in total exports is falling, though
still the dominant export sector
Labour-intensive manufacturing not
performing well
Major Constraints Facing Indian
Manufacturing
Major Constraints:
I.
India’s crumbling infrastructure
II.
Labour regulations
III.
High cost of finance and high
transaction costs
IV.
Deteriorating quality of labour, skill
mismatch, skill shortage
V.
Cascading effect of indirect taxes on
selling price of commodities
Steps Required
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Increase investment in infrastructure
from 5 percent of GDP to 8 percent of the
GDP by the end of 11th FYP
Reform labour laws as rigidities
introduced by unchanged regulations are
holding back the mfg. sector growth
Financial sector need further revamping
Source: ICRIER working paper no. 211, Page no. 8