Growth phases of Indian

economy and Economic

Reforms
Industrial Policy Reforms
 Industrialization and
Development
• Utilization of Natural Resources
• Balanced Sectoral Development
• Enhanced Capital Formation
• Increase in National Income
• Increase in Job Opportunities
• Increase in National Income
• Increase in Job Opportunities
• Less pressure on land
 Industrialization and
Development (contd)
• Supplementing Export
• Attaining Economic Stability
• Accumulation of Wealth
• Support to Agriculture
• Development of Markets
• Contribution towards National Defence
• Contribution towards Govt Exchequer
Pattern of Industrialization in
India
Inward Looking Economy Outward Orientation

Import Substitution Liberalization

Public Sector
Importance Privatization
Domestically
produced goods
Licensing & Control

Capital goods
imports for
Consumer
Globalization
goods
 Four Phases of growth
• 1951-52 to 1964-65 – 4.1% growth in GDP
annually
• 1965-81 – 3.2% growth in GDP annually
• 1981-88, 4.8% growth annually
• 1988-89 till 2006-07- 6.3% annually
 1990-93 – 4% growth
 1993-97 – 7.1%
 1997-2003 – 5.2%
 2003-2006 – 8.6%
 Important features in the growth
experience
• Growth pro-business
• Reforms pro-market
• India’s growth experience gradual but
stable
• No long-lasting economic instability
problem like two-digital inflation or
prolonged recession
• Political economy of democracy
Industrial Policy Resolution, 1948 &
1956
• 1948 - Acceptance of the importance of
both public & private sectors
• 1956 - Division of industrial sector – three
categories
• Role of small & cottage industry
• Role of foreign capital recognized but
through regulation & control
• Harmonious relation between
management & labour
 Industrial Licensing as a Tool
• Industries Development and Regulation Act,
1951
• Major aim – Industrial development in a
balanced manner
• No new entry or extension without licence from
Central government- on size, location, import,etc
• Units with less than 100 workers and Rs 10
lakhs not under licensing
 Monopoly Restrictive Trade
Practices (MRTP) Act 1969
• Anti-trust and competition issues
• Monopolistic Trade practice defined under
MRTP Act as “unreasonably preventing or
lessening competition in the production, supply
or distribution of any goods or in the supply of
any services” and “maintaining the prices of
goods or charges for the services or in any other
manner”
• Asset limit of Rs 20 crores
• Prevents mergers and acquisitions
• Curbing the power of large industrial houses
 Industrial Policy 1977, 1981
• 1977 – thrust on small scale
industries,reservation list expanded
• 1980 – liberalization of industrial licensing,
MRTP, FERA to facilitate modernization
 Industrial Policy, 1991
• Objectives
• Self-reliance
• Encourage Indian entrepreneurship, promotion of
productivity & employment generation
• Development of indigenous technology through R&D
• Increasing competitiveness
• Industrializing backward areas
• Enhanced support to the small-sector
• Ensure running public sector undertakings
• Protect the interests of workers
• Abolish monopoly in any field
• Link Indian economy to the global market
 Major areas of change
• Industrial Licensing – abolished except for
few industries
• Foreign investment – 51% foreign equity
allowed
• Foreign technology
• Public sector policy
• MRTP Act – Mergers & acquisitions
allowed, Major clause of Monopoly
Concentration removed
 Evaluation of 1991 Policy
• Growth rate up from 0.9% in 1991-92 to
6.8% in 1996-97
• Industrial growth registered 8%
• Impressive growth in exports & inflow of
foreign investment
• Increase in productivity, competitiveness
not deterred due to entry of MNCs
 Problems
• Slowed down after 1994
• Economic reforms initiated by state govt
but framed by centre
• Still a lot to be done in case of absolute
liberalization
• Labour class affected by VRS by both
public & private
 Further Policy Initiatives
• Coal & Lignite, Petroleum, and Sugar delicensed
in 1998-99
• Only 6 industries having compulsory licences
• Three sectors for Public Sector reservation –
arms & ammunitions, atomic energy, railway
transport
• Location Policy – beyond 25 kms of city
periphery
• FDI – 2002-03 allowed 100% in several sectors
Further Policy Initiatives (contd)
• MSE Act 2006
-Division into Micro, Small and Medium
-Entrepreneur Development
-Access to credit easier
 Industry Growth Trend after
global meltdown
• “Industry, especially manufacturing, was one of the key
drivers of the transformation in the growth trajectory of
the Indian economy witnessed during the post-2000
period. However, a cyclical slowdown began in the
industrial sector in 2007-08 and was compounded by the
twin global shocks in 2008-09. The effects lingered on
briefly in the current fiscal, but growth rebound is now
amply evident. Gross domestic product (GDP) growth
has clearly revived in the second quarter of the current
year and the industrial sector has emerged as one of the
prime movers of the process.”
Source: Economic Survey 2010
 Industry Growth Trend
Period Mining Manufacturing Electricity IIP (percent)
2006-07 5.4 12.5 7.2 11.6
2007-08Q1 2.7 11.1 8.3 10.3
2007-08Q2 7.4 8.9 7.1 8.7
2007-08Q3 5.5 8.9 4.6 8.3
2007-08Q4 5.2 7. 3 5.5 7
2008-09Q1 4 5.8 2 5.3
2008-09Q2 3.8 4.9 3.2 4.7
2008-09Q3 2.0 0.5 2.9 0.8
2008-09Q4 0.9 0.3 3.0 0.5
2009-10Q1 6.8 3.4 6.0 3.8
2009-10Q2 9 9.3 7.5 9.1
2009-10Q3 10.4 14.4 3.8 13.2

Source: Economic Survey, 2010, based on CSO data

 Reasons behind slowdown
• Reasons for slowdown from 2007-08 to
2008-09
Petrol Prices and other raw materials
Industrial Credit shrinkage
Low Export demand
 Reasons behind recovery -
Demand side
Fiscal Stimulus package by Govt. -
Reduction of Excise duty by 6% and
service tax by 2%
Financial assistance to states through
Jawaharlal Nehru National Urban Renewal
Mission on Public transport
Govt Exp on physical and social
infrastructure
 Reasons behind - Supply side
• Sector specific stimulus package
• Refinancing Rs 7000 crores to SIDBI
• Interest subvention on pre-shipment and
post shipment credit to small scale
exporters
• Liberal Monetary policy measures
• Liberal export promotion measures
 Recent policies
• Make in India
• Start up India
• Skill India
• Ease of Doing Business
• Scaling up FDI
• IPR policy
• GST a game changer?
Recent trends
Comparison
Changes in weights in IIP
Corporate Sector performance
Credit growth declined: Banking
NPAs?
MSMEs suffered in terms of
credit
Anti-dumping in steel made a
difference
Textile
 Economic Reforms and
Manufacturing sector growth
• Discussion by groups 5 and 6

• Why there has been an industrial slow

down?
• Why labour intensive export manufacturing
failed?
• What’s wrong with private investment in
industry?