Effects of Industrial Policy Changes on Industrial Growth:

Industrial policy changes started in India in a big way from the year 1991 which marked the
beginning of economic reforms and LPG. Major changes initiated in 1991 were:
(a) Delicensing of a large number of industries.
(b) Dilution of the role of public sector
(c) Opening up foreign investment
(d) Relaxation of MRTP Act.
Subsequent changes in industrial policy have been, by and large, extension of the above
and enactment of competition Act, FEMA, import liberalisation, convertibility of rupee and
further opening up foreign investment in tune with WTO making Indian industry global.
Industrial growth in India is measured on the basis of IIP which has nearly 80 percent weight
of the manufacturing sector. Initial euphoria of liberalisation resulted in robust industrial
growth in the 8
th
Five Year Plan (1992-1997) during which the growth rate peaked to 13
percent in 1995-96.
However, the average annual growth rate of industrial sector was only 7.3 percent during
1992-97, i.e. 8
th
Five Year Plan, which was below the annual growth rate of 8.5 percent in
the pre-reform period of 1985-90 viz., the 7
th
Five Year Plan. During the Ninth Plan (1997-
2002) industrial growth rate slipped to 4.6 percent per annum but picked up to 8.2 percent
per annum in Tenth Plan. The performance of the industrial sector during 11
th
Plan has been
modest and below the rate achieved in the 10
th
plan.
Industry has failed to act as harbinger of overall GDP growth in the post reform period during
which industrial growth has been confined largely to consumer durable goods and to some
extent capital goods. It is mainly the services sector which has been the main catalyst of
growth. The share of industry in national income in 1948-49 was 17 percent which at present
is only close to 22 percent which shows a very dismal growth rate and contribution of the
industrial sector. The share of manufacturing sector continues to be very low as compared to
advanced nations where this share is between 30 to 50 percent. This has prompted the
government to unveil a New National Manufacturing Policy which targets a 12-14 percent
growth rate of manufacturing sector and its share in GDP at 25 percent in 2022.
There has been alarming slowdown of the industrial growth rate, particularly in the last five
years due to severe constraints of infrastructure and factors like virtual halt of economic
reforms, policy paralysis due to compulsion of coalition governments, widespread corruption
and scams, all of which have caused to collateral damage to the credibility of the
government and its governance.
Industry - Environment linkages have further resulted in inordinate delays in clearance of
projects due to lack of coordination among different departments.
Major determinants of industrial growth in India are agricultural growth and rural incomes,
infrastructure development and exports. While infrastructure has been a vital bottleneck,
export growth rate has slowed down due to Euro zone crisis while agriculture continues to be
uncertain.


The post reforms period has no doubt made Indian Industry competitive due to increasing
role of foreign direct investment and enactment of Competition Act. Besides public sector
has also improved its performance as 170 out of 220 operational PSUs are profit making.
It is time to focus on fast-tracking second generation reforms like factor market reforms, legal
and institutional reforms, and governance reforms and most importantly reforms of
infrastructure.