Industry Growth Rate in India GDP

The Indian economy is the twelfth biggest in the world for it has the GDP of US$ 1.09 trillion in
2007. The country has the second fastest major growing economy in the whole world for it has
the GDP rate of 9.4% in 2006- 2007.
The contribution of the Industrial Sector in India GDP
The industrial sector is one of the main sectors that contribute to the Indian GDP. The country
ranks fourteenth in the factory output in the world. The industrial sector is made up of
manufacturing, mining and quarrying, and electricity, water supply, and gas sectors. The
industrial sector accounts for around 27.6% of the India GDP and it employs over 17% of the
total workforce in the country. The Growth Rate of the Industrial Sector in India GDP came to
around 5.2% in 2002- 2003. In this year, within the India GDP, the mining and quarrying sector
contributed 4.4%, the electricity, water supply, and gas sector contributed 2.8%, and the
manufacturing sector contributed around 5.7%.
The Growth Rate of the Industry Sector in India GDP came to around 6.6% in 2003- 2004 and in
this year, the electricity, water supply, and gas sector contributed 4.8%, the mining and
quarrying sector contributed 5.3%, and the manufacturing sector contributed 7.1% in India GDP.
Industry Growth Rate in India GDP came to 7.4% in 2004- 2005, with the manufacturing sector
contributing 8.1%, the mining and quarrying sector contributing 5.8%, and the water supply,
electricity, and gas sector contributing 4.3% in India GDP.
Industry Growth Rate in India GDP came to 7.6% in 2005- 2006. In this year, the mining and
quarrying sector contributed 0.9%, the manufacturing sector contributed 9.0%, and the water
supply, gas, and electricity sector contributed 4.3%. The Growth Rate of the Industrial Sector
finally came to 9.8% in 2006- 2007. This shows that Industry Growth Rate in India GDP has
been on the rise over the last few years.
The reasons for the rise of Industry Growth Rate in India GDP
The reasons for the increase of Industry Growth Rate in India GDP are that huge amounts of
investments are being made in this sector and this has helped the industries to grow. Further the
reasons for the rise of the Growth Rate of the Industrial Sector in India are that the consumption
of the industrial goods has increased a great deal in the country, which in its turn has boosted the
industrial sector. Also the reasons for the increase of Industry Growth Rate in India GDP are that
the industrial goods are being exported in huge quantities from the country.
The Indian government must boost the Industrial Sector
Industry Growth Rate in India GDP thus has been registering steady growth over the past few
years. This has given a major boost to the Indian economy. The government of India thus must
continue to make efforts to boost the industrial sector in the country. For this will in turn help to
grow the country's economy.
The industrial growth pattern in India can be divided into four phases as explained below:
1. First Phase (1951-65): Strong Industrial Base:

The first phase of industrial growth consists of the first three plan periods which had build a
strong industrial base in India. During this phase, huge investments were made in major
industries like iron and steel, heavy engineering and machine building industries. The annual
compound growth rate of industrial production during the first three plan periods moved
between 5.7 per cent to 9.0 percent.
The capital goods industries had registered its annual average compound growth rate between
9.8 per cent to 19.6 per cent during this period. Again the annual rate of growth of basic
industries moved between 4.7 per cent to 12.1 per cent over the same period. Thus, a strong
industrial base was laid during the first phase covering the first three plan periods.
2. Second Phase (1965-80): Deceleration and Retrogression:
The second phase of industrial growth covers the period of three Ad-hoc Annual Plans, Fourth
Plan and Fifth Plan. The annual compound growth rate in industrial production declined from
9.0 per cent during the Third Plan to only 4,1 per cent covering the period of 1965 to 1976. In
1976-77, the annual rate of growth of industrial output was 6.1 per cent. In 1979-80, a negative
annual growth rate of () 1.6 per cent was recorded in respect of industrial outputs as the index
of industrial production in this year (Base 1970 = 100) has declined to 148.2 as compared to
150.7 in 1978-79.
The industrial sector faced a structural retrogression during the second phase. The capital goods
industries registered its annual average growth rate of only 2.6 per cent during the second phase
Fifth Plan recorded the annual growth rate of 5.7 per cent which was far below as compared to
that of first three five year plans. For, basic industries, the annual growth rate during the second
phase was far below as compared to that of Third Plan. Thus basic industries were engaged in
the production of ferrous metal groups, construction materials, mechanical engineering
industries etc.

Causes of Deceleration and Retrogression:

The causes of deceleration and structural retrogression during the second phase are;
(a) The wars of 1962, 1965 and 1971. During this period investment was made into
unproductive uses. Successive droughts of 1965-67 and 1971-73, and oil crisis of 1973 was also
responsible for supply constraints.
(b) Considerable slackening of real investment;

(c) Unequal distribution of income in favour of the rich followed by stagnation in demand for
consumer goods;
(d) Unsatisfactory performance of the agricultural sector;
(e) Policy constraints and bureaucratic obstacles on industrial growth;
(f) Conflicts in the dominant coalition between proprietary classes, capitalist class and the class
representing rich agricultural farmers.
3. Third Phase: Industrial Recovery in Eighties (1981 to 1991):
The third phase of industrial growth covers the period of eighties consisting of both Sixth and
Seventh Plan. This period of eighties experienced industrial recovery. During the period 198185, the average annual rate of growth of industrial production was accelerated to 7.0 per cent
which further increased to 8.6 per cent during 1985-90. In 1990-91 also, the annual rate of
industrial growth was registered at 9.0 per cent.
The growth rate for consumer durable goods increased to 16.9 percent in 1985-89. In 1981-90,
there was a set back as the segment recorded only 1.7 per cent growth rate and then the same
rate again shot up to 14.8 per cent in 1990-91.
The basic goods industries maintained the annual average growth rate of 8.8 and 8.9 per cent
during 1980-85 and 1985-89 respectively. But gradually declined to 5.4 per cent and 3.8 per cent
in 1989-90 and 1990-91 respectively. The capital goods industries recorded 6.3 per cent annual
rate of growth during 1980-85 which experienced increase in its growth rate of 13.0 per cent in
1985-89 and then significantly 24.0 percent in 1989-90. The growth rate of capital goods was
17.4 per cent in 1990-91.
Thus during this third phase, there is a clear shift in the pattern of industrialisation in the
country. Looking at the growth of different product group in the manufacturing sector,
chemicals, petrochemicals and allied industries recorded a faster rate as compared to others.
During this period, the production of chemicals and chemical product industries, expanded at an
annual average rate of 11.19 per cent as compared to that of only 5.47 per cent in machine
building sector.
Moreover, during this period, iron and steel, basic metal and alloys and metal products recorded
only 5.15 percent 4.94 per cent and 3.95 per cent. It shows a clear shift in the growth pattern of
the industrial sector during eighties (Third Phase) as compared to two earlier phases.
Causes of Industrial Recovery:

The main factors which were responsible for the industrial recovery during eighties are
described as under:
(a) Introduction of new industrial policy and liberal fiscal period.
(b) Higher contribution of agricultural sector in some of the regions in the country which helped
in raising the demand for industrial inputs used for agricultural production.
(c) Revival of investment in the infrastructure sectors and its effects in raising the degree of
efficiency of the industrial sector.
4. Fourth Phase: Industrial Retrogression followed by an Upturn and Downturn Nineties
(1991-92 to 1997-98):
The fourth phase of industrial growth covers the early part of nineties, i.e., from 1991-92 to
1997-98. This short period experienced a sharp industrial retrogression followed by an
immediate upturn in the industrial growth of the country.
During 1991-92, the country had a bitter experience of negative growth rate of () 0.10 per cent
as compared to that of 8.5 per cent in 1990-91. This is the clear evidence of sharp industrial
retrogression in the country.
But after that in 1995-96 the country experienced an industrial upturn trend as annual growth
rate during this year stood at 11,7 per cent, During the year 1996-97 industrial output has
increased by 7.1 per cent and further 8.6 per cent in 1997-98.
The industrial growth rates by use-based industrial classification again showed downward trend
from April to Feb. 1997 to 7.2 and 10.2 per cent in April to Feb. 1998. The growth rate of
consumer non- durables decreased to 4.2 per cent and 2.4 per cent during April-Feb. 1996-97
and 1997-98 respectively. The growth rate of capital goods industry declined to 7.2 per cent in
1996-97 and to 1.8 per cent in 1997-98. During the same period, the general growth rate of
industrial production declined from 7.7 per cent in 1996-97 to only 4.7 per cent in 1997-98.
Causes of Industrial Slow down:
The factors responsible for industrial slow down in the fourth phase are summarized as
below:
(a) Decline in the growth of export to 4.6 per cent in the first eight months between April and
November 1997.
(b) The impact of the tight money policy followed in 1995-96 when the monetary expansion was
about 13.7 per cent;

(c) Significant build up industrial capacity in the first phase of liberalization;

(d) In some cases the rate of demand growth was overestimated.
Signs of Sustained Industrial Recovery in 1999-2000:
The acceleration of growth rates in various sectors of the economy underline the significance of
industrial recovery in the current year and cyclical downturn.
However, following are some of the major indicators of industrial recovery in recent years:
(a) Overall industrial output of the country i.e. 6.2 per cent in April-December 1999 as compared
to that of only 3.7 per cent in April-December 1998.
(b) The position of electricity generation remained much better in 1999-2000.
(c) Manufacturing segment of industrial sector has grown by 6.7 per cent in April to December
1998.
(d) As per use based classification, basic goods, intermediate goods and consumer goods, are
having higher growth in 1999- 2000.
(e) Non-metallic mineral products, machinery and equipment, wool, leather, paper and basic
chemicals are some of the industries growing at more than 10 percent during 1999-2000.
(f) Industries like electricity, crude oil, coal, steel and cement having a weight of 26.7 per cent in
overall IIP, grew at 8.2 per cent in April-December 1999.
(g) Better corporate performance in 1999-2000 compared to previous year.
Industrial Slowdown since 2001:
In recent years, the country is experiencing a serious phase of industrial slowdown during 200001 and in 2001- 02. The overall industrial growth during April- December 2001-02 at 2.3 per
cent, is substantially lower than the 5.8 per cent achieved during the corresponding period of
2000- 01. In fact, the growth rate of the industrial sector during the first nine months of 2001-02
is considered as the lowest during the last ten years.
Industrial slowdown was recorded in all broad sectors such as manufacturing, electricity and
mining an all end use based groups such as capital goods, intermediate goods, consumer goods
both durables and non-durables. However, the reasons for slowdown in industrial growth during
this period is due to a number of structural and cyclical factors.

The other reasons are explained below:

1. The adjustment process is industry in response to increased competition in the form of
Mergers and Acquisitions is taking longer time than expected.
2. Infrastructural bottlenecks and high costs.
3. Unreliable supply of services in transport, communications and power sector.
4. Low levels of productivity due to low economies of scale, out-dated technology and restricted
labour laws.
5. Lower speculative demand for sectors like automobiles and real estate due to expectation of
lower prices and reduction of taxes and duties in the short term period.
6. High interest rates.
Introduction
The Prime Minister of India, Mr Narendra Modi, has launched the Make in India initiative to
place India on the world map as a manufacturing hub and give global recognition to the Indian
economy.
The Government of India has set an ambitious target of increasing the contribution of
manufacturing output to 25 per cent of Gross Domestic Product (GDP) by 2025, from 16 per
cent currently.
Market Size
Indias manufacturing sector could touch US$ 1 trillion by 2025. There is potential for the sector
to account for 25-30 per cent of the countrys GDP and create up to 90 million domestic jobs by
2025.iBusiness conditions in the Indian manufacturing sector continue to remain positive.
In August 2015, the seasonally adjusted Nikkei India Manufacturing Purchasing Managers'
Index (PMI) stood at 52.3, thanks to a sharp increase in buying levels coupled with a record
drop in stocks of finished goods. The composite PMI that combines both services and
manufacturing sectors was at a five month high of 52.6 points in August 2015.
Investments
In a major boost to the 'Make in India' initiative, the Government of India has received
investment proposals of over Rs 1,10,000 crore (US$ 16.56 billion) in the last 12 months from

various companies including Airbus, Phillips, Thomson, Samsung, LG and Flextronics among
others.
India has become one of the most attractive destinations for investments in the manufacturing
sector. Some of the major investments and developments in this sector in the recent past are:
Siemens has announced that it will invest 1 billion (US$ 1.13 billion) in India to add
4,000 jobs to its existing workforce of 16,000 in the country.
US-based First Solar Inc and Chinas Trina Solar have plans to set up manufacturing
facilities in India. Clean energy investments in India increased to US$ 7.9 billion in 2014,
helping the country maintain its position as the seventh largest clean energy investor in
the world.
Samsung Electronics has invested Rs 517 crore (US$ 77.82 million) towards the
expansion of its manufacturing plant in Noida, Uttar Pradesh (UP). Samsung India
Electronics is committed to strengthen its manufacturing infrastructure and will gradually
expand capacity at this plant to meet the growing domestic demand for mobile handsets,
as per the company.
India is currently among the top 10 sourcing countries for IKEA. The plan is to double
sourcing from India to 630 million (US$ 711.65 million) by 2020.
Shantha Biotechnics Private Limited has started building a facility to manufacture
Insuman, an insulin product to treat diabetes. Sanofi SA, which acquired Shantha
Biotechnics, will invest Rs 460 crore (US$ 69.24 million) to build the facility.
BMW and Mercedes-Benz have intensified their localisation efforts to be part of Make
in India initiative. "The localisation efforts will reduce the waiting period and accelerate
the servicing process of our cars as we had to (previously) depend on our plants overseas
for supply and will help us on the pricing front.
Suzuki Motor Corp plans to make automobiles for Africa, the companys next big bet, as
well as for India at its upcoming factory in Hansalpur, near Ahmedabad, Gujarat.
Taiwan-based HTC has decided to manufacture products in India. HTC is believed to
have partnered GDN Enterprises, which has an assembly set up in Noida.
Foxconn is planning an aggressive expansion in India, building up to 12 new factories
and employing as many as one million workers by 2020
The State Government of Tamil Nadu has signed investment agreements worth Rs
2,42,160 crore (US$ 36.45 billion) during a two-day Global Investors Meet in September
2015.
Government Initiatives
In a bid to push the 'Make in India' initiative to the global level, Mr Narendra Modi, Prime
Minister of India, pitched India as a manufacturing destination at the World International Fair in
Germany's Hannover earlier this year. Mr Modi showcased India as a business friendly
destination to attract foreign businesses to invest and manufacture in the country.

The Government of India has taken several initiatives to promote a healthy environment for the
growth of manufacturing sector in the country. Some of the notable initiatives and developments
are:
The Government of India has asked New Delhi's envoys in over 160 countries to focus on
economic diplomacy to help government attract investment and transform the 'Make in
India' campaign a success to boost growth during the annual heads of missions
conference. Prime Minister, Mr Modi has also utilised the opportunity to brief New
Delhi's envoys about the Government's Foreign Policy priority and immediate focus on
restoring confidence of foreign investors and augmenting foreign capital inflow to
increase growth in manufacturing sector.
The Government of Uttar Pradesh (UP) has secured investment deals valued at Rs 5,000
crore (US$ 752.58 million) for setting up mobile manufacturing units in the state.
The Government of Maharashtra has cleared land allotment for 130 industrial units across
the state with an investment of Rs 6,266 crore (US$ 943.13 million)
Dr Jitendra Singh, Union Minister of State (Independent Charge) of the Ministry of
Development of North Eastern Region (DoNER), MoS PMO, Personnel, Public
Grievances & Pensions, Atomic Energy and Space, Government of India, has announced
the 'Make in Northeast' initiative beginning with a comprehensive tourism plan for the
region.
Government of India has planned to invest US$ 10 billion in two semiconductor plants in
order to facilitate electronics manufacturing in the country.
Entrepreneurs of small-scale businesses in India will soon be able to avail loans under
Pradhan Mantri MUDRA Yojana (PMMY). The three products available under the
PMMY include: Shishu - covering loans up to Rs 50,000 (US$ 752), Kishor - covering
loans between Rs 50,000 (US$ 752) to Rs 0.5 million (US$ 7,520), and Tarun - covering
loans between Rs 0.5 million (US$ 7,520) and Rs 1 million (US$ 15,052).
Road Ahead
The Government of India has an ambitious plan to locally manufacture as many as 181 products.
The move could help infrastructure sectors such as power, oil and gas, and automobile
manufacturing that require large capital expenditure and revive the Rs 1,85,000 crore (US$
27.85 billion) Indian capital goods business.
India is an attractive hub for foreign investments in the manufacturing sector. Several mobile
phone, luxury and automobile brands, among others, have set up or are looking to establish their
manufacturing bases in the country.
With impetus on developing industrial corridors and smart cities, the government aims to ensure
holistic development of the nation. The corridors would further assist in integrating, monitoring
and developing a conducive environment for the industrial development and will promote
advance practices in manufacturing.
Exchange Rate Used: INR 1 = US$ 0.01505 as on September 15, 2015