1

Analysis of Trends in the Manufacturing Growth in Last Five years

(2006-07 to 2011-12)

Jitender Singh
Assistant Director

Research Studies
Office of the Economic Adviser
Department of Industrial Policy and Promotion
Ministry of Commerce & Industry
Udyog Bhawan, New Delhi
India
March, 2013

Views expressed in this paper are those of the author(s) and may not be attributed to the Government of India.

Acknowledgement

This study w ou ld n ot h a ve b e en p os s ib le w ith ou t Dr. Ma n ju la Kris h n a n Prin cip le

Adviser, w h o w ith her k in d coop era tion , a ctiv e s u p e rv is ion a n d s te a d fa s t s u p p ort h a s
made this research work reality.

I a m ex tre m e ly gra te fu l to Mrs . Ad iti S . R a y , S e n ior Ad v is e r, S h ri. S rik a ra Na ik ,

Econ om ic Ad v is er, Dr. Moh a n Ch u ta n i, Econ om ic A d v is er, a n d S h ri S .S . Da s Ad d l.
Econ om ic Ad v is er w h os e k ee n con tin u ou s e n cou ra ge m e n t a n d s u gge s tion s h e lp ed to
com p le te th is w ork .

Place:
Date:

Jitender Singh

CONTENTS
SN
I.

II

III

IV

VI

VII

Subject
INTRODUCTION
Current Economic Situation a Macro Scenario
International scenario
Structural Transition of economic activities
THE EVOLUTION OF INDUSTRIAL STRUCTURE IN INDIA THROUGH THE PRISM OF
PLANNING
Overview of the Industrial Policy
Overview of the Planning
Strategy and Key recommendations included
TRENDS IN MANUFACTURING SINCE INDEPENDENCE
Phases of growth in manufacturing in India since independence
Post 1991- Paradigm Shift in Industrial Policy and Manufacturing
Structural changes in manufacturing
MANUFACTURING TRENDS IN THE LAST FIVE YEARS - 2007-08 to 2011-12
Index of Industrial Production (IIP)
Trends in Growth of Eight Core Industries
Trends in Employment in Manufacturing
FACTORS AFFECTING MANUFACTURING GROWTH
Investment
Investment Intentions
Foreign investment
Inflation in Manufacturing Sector
Monetary Policy
Trends in Deployment of Gross Bank Credit (GBC)
Fiscal policy & Industrial Growth
Quality Standards & Manufacturing Growth
Trade Policy and Industrial Growth
Labour preferences and Manufacturing
Conducive Business environment
INITIATIVES TO BOOST MANUFACTURING IN THE LAST FIVE YEARS
National Manufacturing Policy
Delhi Mumbai industrial corridor (DMIC)
Promotion of Business environment
Other Ministries engaged in manufacturing
ROAD MAP TO BOOST MANUFACTURING
Skill Building and human resource development
Shifting employment from informal sector to manufacturing
Enabling jobs/ employment
Supporting Unorganized Sector
Technology upgradation, systems for transfer of technology, incentivizing and green production and R&D
Credit Access
Exploring new areas of manufacturing - Defence offsets
Domestic production capital goods core investment
Suggested measures to be taken by Ministries/ Departments engaged in manufacturing
Systems for convergence, monitoring and tracking
Promotion of Business environment
Business regulatory framework
Boosting Manufacturing Export
Reforming the role and management of Public Sector Enterprises (PSEs)
Others (including policy measures)
Schemes for the Manufacturing Growth implemented by Ministries/ Departments

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SECTION-I
INTRODUCTION

Current Economic Situation

a Macro Scenario

The global slowdown in 2008-09 has caused the GDP growth in India to moderate from
9.3% in 2007-08 to 6.5 % in 2011-12 as shown in table-1.
Table-1. Rate of growth of GDP and its Sectors (average annual %)
1950-92 1992-97
Agriculture
2.44
4.72
Industry
5.31
7.29
Manufacturing
5.17
9.42
Services
4.96
7.28
GDP at factor cost
3.95
6.54
Share of Industry
21.6
25.9
Share of Manufacturing
12.6
15.2
Source: Central Statistics Office (CSO)

1997-2002
2.43
4.29
3.31
7.87
5.51
25.7
15.2

2002-07
2.34
9.18
8.57
9.37
7.8
26.1
15.1

2007-08
5.8
9.7
10.3
10.3
9.3
28.7
16.1

2008-09
0.1
4.4
4.3
10.0
6.7
28.1
15.8

2009-10
1.0
8.4
9.7
10.5
8.4
28.1
16.0

2010-11
7.0
7.2
7.6
9.3
8.4
27.8
15.8

2.
The sectoral picture shows that the decline has been mainly on account of industry and
manufacturing. Manufacturing growth rate reduced from 10.3 % in 2007-08 to 2.5 % in 2011-12
The major reasons attributed for this can be attributed to factors like decline in external demand,
euro zone crisis, moderation in domestic demand, inflationary pressure, rising input cost etc . In
comparison, Services sector which was expected to be also affected, (primarily because services
export from India is mainly concentrated to crisis ridden countries), however did show more
resilience compared to manufacturing sector, with a relatively lower growth decline from 10.3
% in 2007-08 to 8.9% in 2011-12.
3.
This is not the first time when the global business cycles have directly affected Indian
economy and particularly the manufacturing sector; similar trends were recorded during East
Asian crisis, 1997. With the growing levels of globalization and increasing interdependence of
markets and capital flows, business cycles which advanced countries are periodically subject to
are also increasingly impacting the Indian economy, especially the manufacturing and exports.
4.
The question arises as to why global slowdown should so severely impact manufacturing
in spite of fundamental strengths possessed by the country- strong demographic dividend, large
domestic market base, well regulated monetary system etc.? The reasons include constraints and
shortcoming in areas like infrastructure, skill development, growing fiscal deficit due to high
levels of subsidies, R& D, laws and regulation in sectors like environment, labour, land etc.

2011-12
2.8
3.4
2.5
8.9
6.5
27.0
15.3

Tight monetary policy and liquidity squeeze with high rates of inflation which touched double
digits through most of 2011-12 also contributed to the problem.
5.
The services activities did better as they were not constrained by these above factors to
the extent manufacturing were impacted. Also the revolution of Information Technology &
Communication (ITC) in past two decades facilitated global services outreach. The lower sink
cost and relatively less requirement of working capital, to some extent too helped overcome the
credit constraints and initial investment requirements. Besides, swelling labour force became a
reserve pool for supply cheap labour to service sector especially with easy entry and exit
mechanisms. However, if the current economic situation persists, it is possible that the services
sector would also probably face similar constraints, which will pull its growth down.
International scenario
6.
Table 2 below gives the share of industry and manufacturing value added in GDP and
share of industry in total employment across a few countries.
Table 2. Share of Industry and Manufacturing in GDP and Employment in industry
Countries

Industry,
value added
(% of GDP)
Thailand
45
China
44
Korea Repu.
39
Malaysia
44
Japan
27
Sri Lanka
28
Brazil
28
Pakistan
25
India
26
US
20
Indonesia
45
Bangladesh
29
Note-Figures are ranging from 2009-2011
Source: World Bank

Manufacturing,
value added
(% of GDP)
36
31
31
26
19
17
15
15
14
13
11
10

Employment in Industry
(% of total employment)
20
27
17
27
25
25
22
20
22
17
19
15

7.
As seen from the table-2, manufacturing value added of GDP is 14 % in India compared
to 13% in United States and 31 % in China. (Even though the percentage share of manufacturing
value added in US is lower, in absolute terms, the value of manufacturing in US in 2010 is $1771
billion compared to $ 228 Billion in India). The share of employment in industry as percentage
of total employment is 22% in India as compared to 27 % in China. The share of employment in
industry is 17 % in United States , on account of the fact that the manufacturing workforce tends
to get smaller and highly skilled as manufacturing evolves into a more technology intensive

sector. Also significant amount of outsourcing of jobs as well as investments in different

countries have kept the employment share in manufacturing at lower level.
Structural Transition of economic activities
8.
One of the most stable views in economic literature is the structural shift of economic
activities during the development process, defined by the relative sectoral shares of employment.
As evidenced from Table-2 above, it is found that normally, there is a transformation of the
economy in terms of relative share of the sectors from Agriculture to Industry and eventually to
Services. For example in United States the share of employment in agriculture is as low as 1.6
% as compared to about 17% % in Industry and 81 % in Services. The main derivers of this
transformation are many, including the impact of technological innovation, income elasticity of
demand and shift in comparative advantage in international trade. Table-3 below shows that
structural transition of economic activity of India, China and the US.
Table 3. Sectoral Employment Share
India
Sectors
Agriculture
Industry
Services
Source: World Bank

1994
61.9
15.7
22.4

China
2010
51.1
22.4
26.5

1994
54.3
22.7
23.0

2008
39.6
27.2
33.2

US
2010
1.6
16.7
81.2

9.
As seen from the table-3, China has successfully brought down the share of employment
in agriculture from 54.3% in 1994 to 39.6% in 2008 compared to 61.9 % and 51.1 % for India
between 1994 and 2010. Meanwhile employment in manufacturing in China has risen to 27%
and services to 33%. This shows that in the transition of economic growth, India has not been
able to fully capture the economic gains to build a strong manufacturing base to enable
employment to shift to industry in large numbers from agriculture.
10.
In this context , when the applicability of the Lewis turning point is analyzed for India
and China, it has been widely agreed that China has been able to reach this turning point, as it
appears that excess labor in the subsistence sector is fully absorbed into the manufacturing
sector, and further expansion of this sector is likely increase wages. This could be prove to
competitively advantageous to India which has a large pool of cheap labour as transition from
rural to urban, and agriculture to industry is ongoing , as over 50 % are still employed in
agriculture. However constraints like lack of appropriate skill sets and availability of a large
manufacturing base prevents transfer of surplus labour to manufacturing Also, the existence of a
large unorganized/ informal manufacturing in the rural sector and safety net schemes like
NREGA and other subsidies to agriculture, lessens the inducement for urban migration.

SECTION

II

THE EVOLUTION OF INDUSTRIAL STRUCTURE IN INDIA THROUGH THE PRISM

OF PLANNING
Overview of the Industrial Policy
11.
India started her quest for industrial development after independence in 1947. The
industrial backwardness of Indian economy was evident as only 6.6 % of the national income
was earned by Factory Establishments, employing just 1.8 % (i.e. about 2-4 million) of the total
of the working population of the country in 1948-49. The Industrial Policy Resolution of 1948
marked the beginning of the evolution of the Indian Industrial Policy. The Resolution not only
defined the broad contours of the policy; it delineated the role of the State in industrial
development both as an entrepreneur and as an authority. Successive policy resolutions also
reiterated this basic tilt in favour of the public sector. The Industrial Policy Resolution of 1956
gave the public sector a strategic role in the economy. It categorised industries, which would be
the exclusive responsibility of the State or would progressively come under State control and
others. Earmarking the pre-eminent position of the public sector, it envisaged private sector coexisting with the State and thus attempted to give the policy framework flexibility.
12.
Since then, the industrial development in the country, in terms of industrial policy and the
framework has seen many changes befitting the growing globalization and liberalization of the
economy. Besides, industry being in Concurrent List of the Constitution, a simultaneous effort is
also made in this direction by the respective State Government. The industrial policy has been
deeply embedded into the Five Year Plan (FYP) framework for the industrial development.
13. India s strategy for industrial development witnessed a paradigm shift in 1991. Industrial

development until then was largely based on product market regulations, with capacity licensing
being its principal instrument. Though this strategy had successfully created an industrial base, it
had encouraged rent seeking to a considerable extent. There were limited incentives for product
innovation and for a competitive push. Economic reforms initiated in 1991 gradually removed
these product market licenses. The new industrial development strategy, therefore, envisaged a
significantly bigger role for private initiatives.
14. Industrial Policy since 1991 has been more for facilitating the industrial development rather
than anchoring it through permits and controls. Industrial licensing has, therefore, been abolished
for most of the industries and there are only 5 industries related to security, strategic and
environmental concerns where an industrial license is currently required:
i.
ii.
iii.

Distillation and brewing of alcoholic drinks;

Cigars and cigarettes of tobacco and manufactured tobacco substitutes;
Electronic aerospace and defence equipment: all types;

iv.
v.

Industrial explosives including detonating fuses, safety fuses, gunpowder, nitrocellulose

and matches;
Specified Hazardous chemicals i.e.(i) Hydrocyanic acid and its derivatives, (ii) Phosgene
and its derivatives and (iii) Isocyanates & disocyanates of hydrocarbon, not elsewhere
specified (example Methyl Isocyanate)

15. For all other industries, a non-SSI entrepreneur is to file an Industrial Entrepreneurs
Memorandum (IEM) to the Secretariat for Industrial Assistance (SIA), Department of Industrial
Policy & Promotion (DIPP). Along with the removal of the industrial licensing, reform has also
been initiated in areas of reservation of products for exclusive production in the small scale
sector. Consistent with the policy of liberalization of domestic industry, the numbers of industries
reserved for public sector have also been reduced. Presently there are only two areas which are
reserved for public sector viz. Atomic Energy and Rail Transport.
First Five Year Plan (1951-56)
16.
Lewis economic growth framework guided First Five Year Plan, where an economy
transforms gradually from a low productivity sector (i.e. Agriculture) to a relatively high
productivity sector (i.e industry) The first Five Year Plan (FYP) recognized the linkages
between Industry and Agriculture sectors . Agriculture could serve industry in terms of sharing
its surplus labour force, producing raw material and consuming a part of industrial production.
On the other hand the higher productivity in Industry had the potential to generate relatively
more savings than Agriculture, which could be further invested.
17.
The dominant strategy was guided by Industrial Policy Resolution of 1948 which devised
a dual ownership pattern, Public and Private, for the industries and a pattern of industrialization
which emphasized on capital goods industries and consumer goods industries. The Industrial
(Development & Regulation) Act, 1951 listed 37 industries in its first schedule.
18.
As per index of industrial production, the progress of industry during the first five year
plan could be counted as satisfactory, though, it did not achieve the requisite objectives,
priorities and levels of capacity and production which had been envisaged for different industries
when the plan was drawn up.
Second Five Year Plan (1956-61)
19.
The first plan period was used as a preparatory work for studying a wide range of
problems relating to markets, availability of raw materials and fuels, choice of processes, costs of
production and the building up at different levels of the technical and managerial experience
required for running undertakings, to give a big push for large-scale industrial development
especially heavy industries. This could not be possible without foreign technical assistance for
the development of a number of industrial big projects.

20.
The Industrial Policy, 1948 was revised as Industrial Policy, 1956, and gave the States
greater responsibility for development of industries. The new policy was to speed up
industrialization and, in particular, to develop heavy industries and machine making industries,
to expand the public sector, and to build up a large and growing co-operative sector.
21.
The industries that got priority were iron and steel, heavy chemicals, including
nitrogenous fertilizers, and heavy engineering and machine building industries. Besides, the
capacity expansion was envisaged in developmental commodities and producer goods such as
aluminum, cement, chemical pulp, dyestuffs and phosphatic fertilizers, and essential drugs. In
addition priority was given modernization and re-equipment jute and cotton textiles and sugar.
22.
The first two Plans could be considered as a turning point in industrial development in
India because of its thrust for building a strong industrial base along with diversification of
industry. Besides completing three new steel works, each of one million tons capacity in the
public sector and two existing steel works in the private sector , the foundation was also laid
down for heavy electrical and heavy machine tools industries, heavy machine building and other
branches of heavy engineering, and the production of machinery for the cement and paper
industries.
Third five Year Plan (1961-66)
23.
The third plan s thrust was to lay the foundation for further rapid industrialization over
the next 15 years with focus on basic capital, and producer goods industries and special
emphasis on machine building programme accompanied by acquisition of related skills, technical
know-how and designing capacity. Besides, the focus was on to increase production of major
basic raw materials and producer goods like aluminium, mineral oils, dissolving pulp, basic
organic and inorganic chemicals and intermediates inclusive of products of petrochemical origin.
Fourth Five year Plan (1969-74)
24.
Industrial progress had been uneven during Third Plan and the subsequent Annual Plans
mainly due to low rates of growth in textiles and food industries, metals and machinery
industries. The hostilities in 1965 and the two successive droughts, shortage of raw materials and
components arising from the pause in external aid in 1965 were responsible for the distortions in
business environment. The two year agricultural drought caused a considerable decline in
savings, investments and purchasing power, along with shortage of raw material for agro-based
industries. The deficiency of demand in the wake of agriculture drought, especially at the time
when a substantial capacity in industries had been added, accentuated the problem of unutilized
capacity in many industries and more particularly in the capital goods industries.
25.
Based on the review of the industrial performance during Third FYP , a modified
approach for the industrial development was strategized in the Fourth FYP with three objectives-

10

one to achieve speedy self-reliance, second, dispersed industrial development, and third,
avoidance of technological un-employment among the workers in traditional industries under the
impact of unregulated spread of capital intensive modern technology during the period of
transition. In other words, the thrust was to correct imbalances in the industrial structure and
optimize the utilization of capacity already built.
26.
A review of the licensing system was done to accelerate industrial development and
improve administrative efficiency. The Industrial Licensing Policy Inquiry Committee
recommended that the licensing should be confined to industries which come within the basic,
strategic and critical sectors, for which detailed industry plans should be prepared, and where the
major inputs would have to be assured and the targets implemented.
Fifth Five Year plan (1974-79)
27.
This plan period witnessed inflationary pressures build up and the worsened balance of
payment position on account of steep rise in the prices of imported oil and other materials. Food
articles and industrial raw materials accounted for about two-third of the price increase.
28.
The industrial growth low fell to as low as 2.5% during 1974-75 and 5.7% during 197576 especially in industries like passenger cars, consumer durables and cotton textiles though the
basic industries like steel, coal, cement, non-ferrous metals and power generation fared better.
29.
Efforts were made to decontrol licensing to revive industrial growth, whereby 21
industries including cotton spinning, basic drugs and industrial machinery were delicensed, 29
selected industries including foreign and MRTP companies were permitted to utilise their
installed capacity without limit. Besides, to promote exports of engineering goods, 15
engineering industries were allowed to set up units.
Sixth Five Year Plan (1980-85)
30.
Industrial production during first thirty years 1950-1980, was reviewed and it was found
that industrial production had increased about five times, with a diversified industrial structure.
The average growth rate has been about 4 % per annum during 1970-71 to 1979-80. The major
constraints identified includes infrastructural requirements and other vital inputs (such as power,
transport, coal, cement), unremunerative administered prices, disturbed industrial relations and to
an extent inefficient management during this period.
31.
The Industrial Policy Statement of July, 1980 emphasized on improving efficiency and
productivity in the industrial sector through optimum utilization of existing capacity. The
technological improvements and labor productivity become forefronts for capacity creation.

11

Seventh Five Year Plan (1985-90 - ) - paradigm of change the advent of liberalization
32.
The major issues faced by industry during the Sixth Plan included power shortage,
prolonged labour unrest and insufficient demand in the case of textiles, raw material shortage in
the case of jute manufactures, scarcity of coking coal in the case of steel and inadequate
availability of the appropriate quality of steel in the case of a number of steel using industries
were assigned the major reasons.
33.
The main strategy in the Seventh plan was on restructuring of industry by enabling shift
from traditional industries to basic metals, fertilisers and industrial manufactures with an
increasing share for the emerging technology intensive industries; efficient use of capital;
improving infrastructural facilities: modernisation and upgradation of technology and improving
productivity. In order further boost the symbiotic and complementary relationship between
public and private sectors as visualized in the Industrial Policy Resolution of 1956, public sector
investments in infrastructure were expected to provide inputs and facilities as well as markets for
private manufacturing and encourage involvement of the private sector for the development of
'sunrise' industries such as telecommunications, computers, microelectronics, ceramic
composites and biotechnology. It was also felt that the time had come to inject an element of
competition within the public sector and in certain cases with the private sector.
Eighth Five Year Plan (1992-97)
34.
The major initiatives undertaken during the Seventh FYP enabled an annual industrial
sector growth rate of 8.5% which was much higher than the 3.5% achieved during the Sixth Plan.
The growth rate for manufacturing sector was as high 8.9 %.
35. The factor that boosted the industrial growth during Seventh FYP were significant
improvements in the performance of the infrastructure viz., power, coal, etc., changes in the area
of licensing and procedures; import of technology; higher import of capital goods; better
utilisation of installed capacities; and allowing broad banding of products in a number of
industries.
36.
The liberalisation measures taken during Seventh FYP included raising the assets limit
for exemption to companies from the purview of MRTP Act; exempting 83 industries under the
MRTP Act for entry of dominant industries; grant of exemption from licensing for industrial
units with an investment of upto Rs.50 crores in backward areas and Rs.15 crores in other areas
on the basis of a negative list; and delicensing non-MRTP, non-FERA companies for 31 industry
groups and MRTP/FERA Companies in backward areas for 72 industry groups.
37.
A series of reforms in the industrial, fiscal, trade and foreign investment policies set the
path for globalization to de-regulate and allow industry to adjust to the changes in internal as

12

well as external environment and meet the needs of a dynamic market, to optimize its operations
and improve its competitiveness.
38.
There was less emphasis on quantitative targets and the planning became more
"indicative" with the shifting to modifications in industrial, trade, fiscal policies and changes in
duties and taxes rather than through quantitative restrictions on imports/exports or licensing
mechanism.
39.
The new Industrial Policy of July 1991 further shifted the paradigm of industrial
development by reducing the role of public sector to 8 industries from earlier 29, concentrating
on basic and core sectors which were important strategy, security etc.. These reforms were
expected to enhance competitiveness, by improving comparative advantage, increase the scale of
the companies, and allow greater integration of indigenous production with outside. Joint
ventures were allowed to exploit the complementarities of resource endowments in this country
and the concerned foreign country.
Ninth Five Year Plan (1997-2002)
40.
The beginning of liberalization of policy measures started in 1985 continued during the
Ninth five year Plan. A review of the major reforms undertaken during the Eighth plan is given
in the Box.
Industrial Policy Reforms and major Initiatives
Number of industries requiring industrial licenses reduced to 6 only 4 industries 0reserved for Public sector
Foreign direct investment policy liberalized
Disinvestment Commission constituted for preparing an overall long term disinvestment programme for
PSEs referred to it and the modalities for disinvestment.
Sick Industrial Companies Act (SICA), 1985 amended to bring PSEs within the ambit of SICA,1985 and
BIFR
National Renewal Fund set up to protect the interest of workers likely to be affected due to restructuring or
closure of industrial units
Growth Centres Scheme taken up to develop infrastructure in backward areas to promote industrialisation
To promote development of specific hilly, remote and inaccessible areas, Transport subsidy scheme
extended till March, 2000
Drugs Price Control Order amended to give freedom to private sector including fixation of drug prices
Number of drugs under price control reduced from 143 to 72
New National Minerals Policy announced opening Mining industry to private sector including 50 % foreign
equity in 13 minerals
Technology Development Board set up to facilitate development of new technologies and assimilation of
imported technologies
Source: Planning Commission

13

41.
The industrial growth was 7.3 % during the Eighth Plan period. The industrial growth
doubled from 6.0 % in 1993-94 to 12.1 % in 1995-96 though it slumped to 7.1 in 1996-97.( one
reason was the East Asia crisis of 1997)
42.
The causes cited for lower growth during the Eighth FYP as compared to Seventh plan
included sudden exposure to foreign competition on account of liberalization of imports and a
drastic reduction in import duties. The downfall in capital goods sector was caused by reduction
in tariffs for imports and postponed investment plans by entrepreneurs expecting more
concessions. There was also slowdown of public investment to control the fiscal deficit. Private
investment also slowed down drastically under the underdeveloped capital market, high cost of
borrowings, and imposition of Minimum Alternate Tax (MAT).
43.
Inadequate & quality of infrastructure e.g. power and transportation bottlenecks,
inadequate handling facilities at ports increasing imports of basic materials and intermediate
goods and components, second-hand machinery due to anomalous tariff structure also affected
industrial production.
44.
The Ninth Plan emphasized on the quality of infrastructure, exports, review of SSI
reservation for critical export industries such as toys, garments and leather goods, labour
legislation, disinvestment of PSEs, balances in industrial development, investment in domestic
R&D & linking of R&D with industry. Besides, the simplification or streamlining of procedures
at State Governments level, the Government also decided to dismantle the administered price
mechanism in respect of petroleum products in a phased manner.
Tenth Five Year Plan (2002-07)
45.
The industrial growth during Ninth FYP was 4.5 % while that for manufacturing; mining
and electricity generation were 5.3 %, 2.5 % and 5.5 % respectively. Internal factors cited for the
slowdown were slowdown in domestic and global demand continuing high real interest rates,
infrastructure bottlenecks in power and transport, lack of reforms in land and labour markets,
decline in private investment and delays in establishing appropriate institutional and regulatory
frameworks in some key sectors. The terrorist attacks of 11 September 2001, also had adverse
impact on air transport, communications and tourism..
46.
The Tenth plan strategy was on providing conducive policy environment though labour,
fiscal reforms and streamlining of procedures, legal and procedural reforms, bankruptcy and
foreclosure laws, world-class infrastructure, clusters, augment resource base, stronger capital
and institutional finance markets/Institutions, attract higher level of FDI, optimize resource
allocation , pricing policy, increased flows into high growth areas , leverage resources through
effective public-private, release of unproductive resources partnerships, expeditious closure of

14

non-revivable PSUs, expeditious divestment of non-strategic PSUs, improving productivity and

efficiency of transitional PSUs.
47.
It recommended efficiency enhancing policies in the areas of innovations, technology
upgradation, modernization, R&D, skill upgradation, export thrust, assist States for updating
export infrastructure, Special Economic Zones , standardization, accreditation and certification,
market access initiatives, making products/processes/practices eco-friendly, level playing field,
rationalization of taxes and duties, cost of finance and credit availability, intellectual property
rights regime, world class infrastructure, modernizing patent offices, rationalization of Indirect
Taxes etc..
11th Five Year Plan (2007-12)
48.
The dynamism in manufacturing during the Tenth plan increased its growth rate to 8.7%
compared to 3.8% in the Ninth Five Year Plan. The CAGR recorded at 8% in the Tenth Five
Year Plan compared to 4.5% in the Ninth Five Year Plan to. The improved demand in both
domestic and external markets was a major contributory factor along with cumulative effect of
industrial and fiscal policy changes carried out since the economic reforms of 1991 92. The
environment for investment was optimistic.
49.
On the employment front, however, the performance of the organized manufacturing
sector continued to be a source of concern. The rationalization of staffing and closure of the sick
units in the public sector led to a massive decline in employment following in some units. In the
early post-reform years, some rise in private sector employment compensated the decline in the
public sector however, during the Tenth Five Year Plan the manufacturing employment declined
in private sector as well.
50.
A conductive investment climate for the industry was attempted through elimination of
entry barriers, decontrolling location restrictions from entrepreneurs liberalization of Foreign
Direct Investment (FDI) policy, elimination of exit barriers by reforming Chapter V-B of the
Industrial Disputes Act 1947 under which units with more than 100 employees cannot exit an
unprofitable enterprise without the consent of the concerned State Government. The eGovernance project MCA 21 launched to computerize and speed up the process of registration of
companies. The quantitative restrictions on trade had already been progressively eliminated.
51.
Against the background of a growing manufacturing scenario, the growth target for 11th
FYP for industry and manufacturing were set at an average annual rate of 9.8%. The emphasis
was on creation of world-class Infrastructure, especially on quality of electricity, power, roads,
railways, ports, and airports etc. Tax policy recognized as an important determinant of the
investment climate since the rates of direct taxes determine the structure of incentives to work,

15

save, and invest, while the level and structure of indirect taxes influences the aggregate demand
and thus the scale of operations on the one hand and relative prices of different goods and
services on the other..
52.
The plan recommended efforts to correct inverted duty structure, where there was
elimination or reduction of duty on value-added products, while higher duties apply on the raw
material and intermediate products increased competition from imports in manufacturing
products. These arose due to lowering of customs duties in compliance of Most-FavouredNation duties, and / or Regional Trading Arrangements (RTAs) that India. The early introduction
of Goods and Service Tax (GST) was recommended.
53.
A skill deficit in virtually all areas of manufacturing had emerged as one of the major
impediments to growth in manufacturing. Reforms in labour market were recommended for
skill development to make the workforce employable in such industries. The manufacturing,
employment growth as per 61st Round (2004 05) NSS was 3.9% per annum, raised the sectoral
share of manufacturing in employment from 12.13% in 1999 2000 to 12.90%in 2004 05.
Twelfth Five Year (2012-17)
54.
An assessment of the performance in the Eleventh Plan showed that it was marked by
unfavorable global economic conditions brought about by the financial sector crisis of 2007-09
followed by sovereign debt crisis from mid 2011 onwards. This led to slackening demand,
exchange rate volatility, domestic difficulties such as poor implementation and delayed reforms,
all of which slowed down the growth in the manufacturing sector.
55.
While 2009-10 witnessed a resurgence of manufacturing buoyancy largely on account of
sectors like automotive, cotton, leather, food products etc., the growth moderated in 2011-12.
India was not able to leverage the opportunities provided by the dynamic sub globalization and
the shift of manufacturing capacities to rapidly developing economies unlike China. It is
estimated that by 2025, RDE production will account for more than 55% of global production as
compared to 36% presently.
56.
The manufacturing growth rate peaked at 14.3% in 2007-08 and then started decelerating.
The decline in manufacturing growth was primarily responsible for slowed down of GDP in
2011-12, while global economic meltdown, fragile economic recovery in US and EU, rising
interest rates and rupee depreciation also contributed to the slow down. The rate of growth of
manufacturing in GDP has declined from 10.3% in 2007-08, to 4.3% in 2008-09, revived in
2009-10 and 2010-11 to 9.7% and 7.6% respectively. It is estimated to have declined to 3.9% in
2011-12.
57.
As regards employment, manufacturing contributed to 44 million in 1999-2000 and rose
marginally 48.54 million in 2009-10. Agriculture still continued to be the major employment

16

provider (providing employment to about 240-250 million) but it will not be able to offer
employment to 250 million additional job seekers joining the work force in the next 15 years.
Therefore unless manufacturing sector is able to absorb at least 100 million additional jobs, the
unemployment scenario in the country is likely to severe.
58.
The National Manufacturing Policy which was introduced in 2011 has the underline
objective of increasing the share of manufacturing in the GDP from 15-16% % to 25% by 2025
and also provide employment to 100 million additional job seekers.
59. The Twelfth plan laid down the essential features of a Manufacturing Eco System that
can deliver rapid industrial growth on the lines of strategies that have been adopted by different
countries like Korea, China, Japan etc, where a close coordination is there between producers
and Government policy makers.
60.
The three features of a dynamic manufacturing eco system is, one, - having in depth
value addition in manufacturing processes; two, - it must combine four capabilities- human
skills, embodied technology, hardware, knowledge (intellectual property) and a large and
demanding customer base; Third, it must have a wide range of different seized firms especially
small and medium as these firms can eventually specialise and grow into larger firms. Certain
processes are important to sustain the above R&D, processes of innovation, regime or standard
and IP regime, enabling system wide learning and continuing improvement through quality
management.
Strategy and Key recommendations included:
61. Human Resource Development by inducing job creation and reducing the cost of
generating employment and developing a supply of qualified human resources to meet demand
of additional job creation; Creation of conductive business regulatory framework and enabling
institutional architecture for ensuring competitiveness in manufacturing; Ensuring Environment
sustainability with industrial growth especially creation of Green Technology Fund, water
management, promotion of green products, environment regulatory reforms, voluntary disclosure
environment sustainability programme etc..; Land issues- a land use policy to be developed
which will include land mapping, land zoning, and land digitization of land records.
62.
The Twelfth Plan lay emphasis on promoting manufacturing though Clustering and
Aggregation and setting up of Cluster Stimulation Cell Promotion of Micro Small and Medium
Enterprises; reforming the role and management of Public Sector Enterprises etc. It stated that
the National Investment and Manufacturing Zones (NIMZs) is an integral part of the National
Manufacturing Policy(NMP) and distinct role have been given to Central Government and State
Government for setting up of the NIMZ through a Special Purpose Vehicle (SPV). A very
important policy initiative is special incentives for green technology in NIMZ.

17

63.

The plan emphasized on key manufacturing sectors that need to be focused on like:

Sectors of strategic importance relating to national security and self reliance- defence
equipment, aerospace, capital goods, electronic system, ship building etc.

Sectors of basic inputs which provide raw material - industries engaged in production
of steel, cement, fertilizers, minerals etc.

Sectors for depth and value addition- knowledge and technology intensive industries
automobile, pharmaceutical, petro chemicals, electronics etc.

Sectors for employment generation- textiles, leather, food processing, gems and jewellery
etc. Based on the mandate of providing 100 million additional jobs in the next ten years.
The manufacturing strategy should accordingly be formulated in each of this above
sectors to deliver the required outcomes.

18

SECTION III
TRENDS IN MANUFACTURING SINCE INDEPENDENCE
Phases of growth in manufacturing in India since independence
Before 1990
64.
Three important phases of the industrial growth can be identified in the pre 90s era. - the
first phase is from 1950-51 to 1964-65, second from 1965-66 to 1970 s, and third from 1979-80
to 1989-90.
65. The first phase of industrial growth is tagged as phase of rapid industrial growth i.e. from
1950-51 to 1964-65. The manufacturing sector grew at an average rate of 5.8 % in first half of
fifties and 6.5 % in the second half of the decade. The growth was mainly on account of the
thrust given in the second five year plan of building a strong capital base through investment in
public sector especially as the Private sector was in the nascent stage.
66.
The Second phase is tagged as deceleration phase of industrial growth. The late sixties
and seventies, saw a moderation in manufacturing was due to emergence of macro politicaleconomic uncertainties such as wars with Pakistan and China, rising prices, oil prices shocks,
licensing requirements for investment, reservation of industries in Public Sector. etc. The
manufacturing sector grew at an average rate of 4.3 % during this period compared to 6.5 %
during the second and third Plan together.
67.
The third phase saw a revival of industrial growth with the gradual withdraw of
constraints and controls through sequential policy reforms. The table-4 below shows that growth
rates in manufacturing between the period 1950-51 to 1989-90.
Table 4. Phases of Industrial Growth in India since Independence
Sectors
Manufacturing
Registered
Unregistered
Industry
GDP

1950-51 to 1955-56
5.8
6.2
5.6
6.0
3.6

1956-57 to
1965-66
6.5
8.2
4.5
6.7
3.6

1966-67 to
1979-80
4.3
4.5
4.1
3.9
3.4

1981-82

to 1989-90
5.8
7.6
3.4
6.0
5.6

Source: CSO
68.
There was an improvement in manufacturing growth during 1980s but it was during 90s
that a major shift in manufacturing growth took place on account of onset of liberalization and
gradual globalization of the economy.

19

Post 1991- Paradigm Shift in Industrial Policy and Manufacturing

69.
Industrial Policy since 1991 has been more for facilitating industrial development rather
than anchoring it through permits and controls. Industrial licensing was abolished for most of the
industries and there are only 5 industries related to security, strategic and environmental
concerns where an industrial license is currently required.
70.
Along with the removal of the industrial licensing, reforms were initiated in areas of
reservation of products for exclusive production in the small scale sector. By virtue of
reservation of a product for production in small scale sector, entry of a domestic large scale
player was not permitted though the product could still be imported. Government has also
enacted the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006 stepping
up the investment limit to Rs.5 crore for small enterprises and Rs. 10 crore for medium
enterprises so as to reduce the regulatory interface with the majority of the industrial units.
71.
Manufacturing grew at an average growth rate of 7% during nineties and at 7.4 % during
first decade of millennium century as seen from the table -5 below:
Table 5. Phases of Manufacturing Growth in India
Sectors
Manufacturing
Registered
Unregistered
Industry
GDP
Source: CSO

1992-93 to 2000-01
7.0
7.4
6.4
6.2
6.2

2001-02 to 2011-12
7.4
9.1
5.7
7.4
7.5

72.
To sum up, the industrial growth can be characterized with two trends; one, industry had
been generally growing faster than the economy as a whole, and second, within manufacturing,
registered manufacturing was outperforming the unregistered.
Structural changes in manufacturing
73.
Table-6, gives an analysis of structural changes in industry subgroups as reflected from
the National Accounts Statistics.

20

Table 6. Structural Changes in Manufacturing Sector

Description
Food Products
Beverages and Tobacco Products
Textile Products
Leather & Fur Products
Wood and Wood Products, Furniture,
Fixtures Etc
Paper and Printing Etc.
Rubber, Petroleum Products Etc.
Chemical and Chemical Products
Non-Metallic Products
Basic Metals
Metal Products and Machinery
Electrical Machinery
Other Manufacturing
Transport Equipment
Gross Domestic Product in manufacturing
Source: National Accounts Statistics

195051
25.3

195556
23.0

196566
15.2

197980
9.1

198990
10.8

200001
9.5

200910
8.2

1.3

1.2

1.5

2.3

2.3

2.7

2.8

21.6

23.2

18.7

18.0

15.2

16.1

14.0

1.4

1.1

0.9

2.1

1.7

1.9

1.3

47.0

42.6

42.3

26.3

11.3

6.0

3.9

1.6

1.7

2.3

3.3

4.0

2.8

2.9

1.7

2.6

2.6

5.7

10.1

10.5

11.3

3.6

3.5

4.6

6.5

8.5

12.0

13.0

1.5

1.6

2.5

4.3

5.7

6.6

7.3

13.2

11.5

19.1

11.4

11.0

13.1

10.3

1.9

2.7

5.8

11.3

11.7

10.3

11.8

0.2

0.2

0.7

1.4

2.8

3.3

6.4

7.9

7.9

7.3

3.3

5.5

5.2

5.3

3.6

4.8

5.4

5.5

5.8

6.6

8.2

100

100

100

100

100

100

100

74. The Table shows that structural changes in manufacturing have taken place since 1950s
wherein the relative share in manufacturing GDP, of traditional industries like food products,
textiles, wood etc have show a decline while modern industries like machinery, transport
equipment
,
chemicals,
metal
products
etc
has
improved
its
share.

21

SECTION -IV
MANUFACTURING TRENDS IN THE LAST FIVE YEARS - 2007-08 to 2011-12
Index of Industrial Production (IIP)
75.
The most well known and most quoted indicator of manufacturing is the Index of
Industrial Production (IIP) which is compiled on a monthly basis by Central Statistical Office
(CSO). Since IIP uses a fixed weight frame, fixed base index, it is revised on a decadal basis to
realistically reflect the industrial performance and capture the structural shifts in this sector.
CSO has revised the base year of IIP from 1993-94 to 2004-05 and the new series was launched
in June 2011. The new series has an enlarged with more representative basket to better capture
the industrial scenario. The weighting diagram for the new series has also been redrawn in line
with the relative importance of the sectors in GDP and is based on the National Accounts.
76.
The new series of IIP with 2004-05 as its base covers the broad sectors of industry, viz.,
mining, manufacturing and electricity. The IIP is also categorized by Use Based Classification.
The table -7 below indicates the sectoral and used based growth rate for the last five years.
Table 7. Index of Industrial Production (IIP) Growth Rates (Base: 2004-05)
Groups

2007-08

Mining & Quarrying

Manufacturing
Electricity
General Index
Use Based
Basic goods
Capital goods
Intermediate goods
Consumer goods
i) Consumer Durables
ii) Consumer Non
Durables
Source: Central Statistics Office

2008-09

2009-10

2010-11

2011-12

4.6
18.4
6.3
15.5

2.6
2.5
2.7
2.5

7.9
4.8
6.1
5.3

5.2
9.0
5.5
8.2

-2.0
3.0
8.2
2.9

8.9
48.5
7.3
17.6
33.1
10.2

1.7
11.3
0.0
0.9
11.1
-5.0

4.7
1
6.0
7.7
17
1.4

6.0
14.8
7.4
8.6
14.2
4.3

5.5
-4
-0.8
4.4
2.6
5.9

77.
The industrial growth measured in terms of IIP, witnessed significant growth of 15.5 % in
2007-08 but moderated to 2.9% in 2011-12. Manufacturing grew at 18.4 % in 2007-08.The
global crisis led to a severe moderation in growth rate to 2.5 % in 2008-09. However, the
manufacturing sector showed a swift recovery from the global slowdown in the last two years by

22

registering
growth rates at 4.8 % and 9% % respectively in 2009-10 and 2010-11.
Notwithstanding the recovery in 2010-11, the manufacturing started decelerating in 2011-12 with
a meager growth rate of 3%.
78.
The Capital Good and Intermediate Goods which forms the core investment for
manufacturing has moved into the negative trajectory during 2011-12 and decelerated at -4.0 %
and -0.8 % respectively. The Consumer Goods especially Consumer Non- Durable has
performed relatively better with a 5.9 % growth rate in the same year. Table -8 captures the
growth rate in 22 major industry groups of Manufacturing.
Table 8. IIP Growth Rate- by industry Groups (in %)
Cumulative figures
(Apr-Aug)
Description

Weights

200607
15.9
1.8
7.8
20.3

Food products and beverages

72.8
Tobacco products
15.7
Textiles
61.6
Wearing apparel; dressing and dyeing of fur
27.8
Luggage, handbags, 22oderni, harness &
footwear; tanning and dressing of leather
5.8
14.4
products
Wood and products of wood & cork except
10.5
18.0
furniture; articles of straw & plating materials
Paper and paper products
10.0
4.4
Publishing, printing & reproduction of recorded
10.8
8.0
media
Coke, refined petroleum products & nuclear
67.2
11.9
fuel
Chemicals and chemical products
100.6
9.3
Rubber and plastics products
20.2
6.6
Other non-metallic mineral products
43.1
10.9
Basic metals
113.4
14.7
Fabricated metal products, except machinery &
30.8
19.9
equipment
Machinery and equipment n.e.c.
37.6
19.7
Office, accounting & computing machinery
3.1
7.0
Electrical machinery & apparatus n.e.c.
19.8
12.7
Radio, TV and communication equipment &
9.9
155.0
apparatus
Medical, precision & optical instruments,
5.7
9.9
watches and clocks
Motor vehicles, trailers & semi-trailers
40.6
25.3
Other transport equipment
18.2
15.2
Furniture; manufacturing n.e.c.
30.0
-3.9
5.2
Mining
141.6
15.0
Manufacturing
755.3
7.3
Electricity
103.2
12.9
General
1000.0
*Industry codes are as per National Industrial Classification 2004
Source: Central Statistics Office, (CSO)

200708
12.5
-4.4
6.6
9.3

200809
-8.2
4.4
-3.6
-10.2

200910
-1.4
-0.6
6.1
1.9

2010
-11
7.0
2.0
6.7
3.7

201112
15.4
5.4
-1.3
-8.5

5.8

-5.1

1.3

8.1

17.5

4.9

3.1

-2.2

2011-12

2012-13

16.5
-3.6
-1.6
-8.9

-0.1
-6.0
7.6
-3.5

3.7

6.2

4.1

1.8

-4.4

-2.9

1.4

4.8

2.6

8.6

5.0

5.4

-0.1

14.2

1.6

-6.0

11.2

29.6

9.1

14.7

6.2

3.2

-1.3

-0.2

3.5

5.9

3.5

7.2
13.4
9.3
17.9

-2.9
5.1
3.3
1.7

5.0
17.4
7.8
2.1

2.0
10.6
4.1
8.8

-0.4
-0.3
4.8
8.7

0.7
-1.1
2.9
15.5

1.5
3.5
3.2
1.4

7.8

0.1

10.2

15.3

11.2

14.5

2.2

22.6
6.0
183.5

-7.6
-9.7
42.3

15.8
3.8
-13.5

29.4
-5.3
2.8

-5.8
1.6
-22.2

-1.7
12.0
2.0

5.1
-5.7
-32.7

93.1

20.3

11.3

12.7

4.3

1.1

14.3

6.3

7.5

-15.8

6.8

10.9

-5.3

12.6

9.5
-2.9
18.7
4.6
18.4
6.3
15.5

-8.7
3.8
7.4
2.6
2.5
2.7
2.5

29.8
27.7
7.1
7.9
4.8
6.1
5.3

30.2
23.2
-7.5
5.2
9.0
5.5
8.2

10.8
11.9
-1.8
-2.0
3.0
8.2
2.9

15.5
17.4
1.8
-0.5
6.0
9.5
5.6

-3.0
-1.8
-7.7
-0.6
0.0
4.8
0.4

23

79.
As seen from the table above , the low growth in the manufacturing sector during 2011-12
was primarily driven by the steep fall in industry groups like Electrical machinery & apparatus (22.2%), Machinery & Equipment (-5.9%), Textiles (-1.4%), Wearing Apparel (-8.5%), Chemical
(-0.4%) and Furniture Manufacturing (-1.8%). In the current year the cumulative industrial growth
during April August, 2012-13, recorded at 0.4 % as compared with 5.6 % growth during
corresponding period of the last year so as the manufacturing recorded no growth and 6%
respectively.
Trends in Growth of Eight Core Industries
80.
The growth of the eight core sector industries has been fluctuating as seen from the Table
9 below:
Table 9. Growth in the production of Eight Core Industries (average annual growth in %)
Sector
Coal
Crude Oil
Natural Gas
Refinery
Products
Fertilizers
Steel
Cement
Electricity
Overall
Index

Weight
4.379
5.216
1.708
5.939

200506
6.6
-5.2
1.4
2.1

200607
5.9
5.6
-1.4
12.9

200708
6.3
0.4
2.1
6.5

200809
8
-1.8
1.3
3

200910
8.1
0.5
44.6
-0.4

201011
-0.2
11.9
10
3

201112
1.2
1
-8.9
3.2

1.254
6.684
2.406
10.316
37.903

0.6
7
12.4
5.1
3.9

3.1
12.8
9.1
7.3
8.4

-7.9
6.8
8.1
6.3
5.2

-3.9
1.9
7.2
2.7
2.8

12.7
6
10.5
6.2
6.6

0
13.2
4.5
5.6
6.6

0.4
7
6.7
8.1
4.4

April- August
2011-12 2012-13
-2.3
6.3
6.1
-0.6
-8.9
-12.1
4.7
4.3
1.2
9.9
4.1
9.4
5.5

-7.9
2.7
5.4
4.9
2.8

Source: Office of the Economic Adviser, DIPP

81.
The growth declined to its lowest level to 2.8% in 2008-09, the crisis year compared to
better growth of preceding years at 5.2% in2007-08 and 8.4% in 2006-07. The growth of the
core sector was improved to 6.6 % during two subsequent years i.e. 2009-10 and 2010-11, before
declined to 4.4 % in 2011-12. The poor growth in Coal production during 2010-11 and 2011-12
has been a cause of concern. Besides, low growth in Crude Oil during last five years except
2010-11; negative growth in natural Gas in 2011-12; and negative or low growth in fertilizers
except 2009-10. Among the core industries the Steel, Cement and Electricity has performed
relatively better. During April to August, 2012-13 the growth rate of core sector industries is
recorded at 2.8 % compared to 5.5% during corresponding period of previous year.
Trends in Employment in Manufacturing
82.
The NSSO conducts periodical surveys estimates inter alia sector wise share of
employment based on Usual Principal and Subsidiary Status of employment. Principal activity
status is one on which the person spends relatively longer time during the 365 days preceding the
date of survey and Subsidiary Status refers to the same person who may have pursued some

24

economic activity during the reference period of 365 days. The Table-10 below shows the
sectoral share of employment as compiled from various NSSO rounds, 1987-88 onwards to
2009-10.
83.
During past two decades there has been about 13 percentage point reduction in the
employment share in agriculture despite no increase in manufacturing share in employment. In
fact there has been a decrease in the share of employment in manufacturing between 2004-05
and 2009-10. Though industry (comprising of manufacturing, electricity, mining and
construction), as a sector has shown an increase in employment between the same period, this is
mainly on account of construction, which has grown from 2.3 % in 1987-88 to 11.4 % in 200910. However, service sector has registered a significant increase in employment of about 7
percentage points between 1987-88 and 2009-10 (table-10).
Table 10. Sectors Share in Employment
NSSO Rounds
Reference Year
Agriculture
th
66
(2009-10)
51.8
61st
(2004-05)
56.5
55th
(1999-00)
60.1
th
50
(1993-94)
64.3
43rd
(1987-88)
64.5
Source: Computed from various rounds of NSSO

Manufacturing
11.4
12.2
11.0
10.5
11.2

Industry
21.9
18.7
16.3
14.8
16.1

Services
26.3
24.8
23.6
20.9
19.4

The table-11 below shows the trends in rural and urban employment
NSSO Rounds
66th
61st
55th
50th
43rd
38th
32nd
NSSO Rounds
66th
61st
55th
50th
43rd
38th
32nd

Table 11. Manufacturing ( number of persons employed in Millions)

Reference Year
Rural
Urban
(2009-10)
24.12
28.23
(2004-05)
27.76
28.30
(1999-00)
22.99
21.99
(1993-94)
19.55
17.90
(1987-88)
19.73
19.16
1983
15.84
14.65
(1977-78)
14.47
15.34
Share of manufacturing in Total Employment
Reference Year
Rural
Urban
(2009-10)
7.2
23.0
(2004-05)
8.1
24.5
(1999-00)
7.4
22.7
(1993-94)
7.0
23.6
(1987-88)
7.2
26.1
1983
6.8
26.9
(1977-78)
6.2
28.0

Source: Computed from various rounds of NSSO

Total
52.35
56.06
44.98
37.45
38.88
30.49
29.82
Total
11.4
12.2
11.0
10.5
11.2
10.6
10.4

25

84.
As seen from the table -11, the decline of number of persons employed in manufacturing
from 56 million in 2004-05 to 52 million in 2009-10 implies that about 4 million workers have
withdrawn from the manufacturing sector during this period despite 6.8 % average growth in
manufacturing during the 11th plan. Of this, rural employment accounts for 98 % of the total
workers who have left manufacturing. This is also reflected in the decline in rural employment
in absolute numbers, which has fallen from 28 million to 24 million in this period.
85.
Some of the reasons for the decline in rural manufacturing employment may be the
sluggish global demand for major export items like textiles, handicrafts, leather which are labour
intensive. The massive rural employment generation by MGNREGS might have bearing on
withdrawal of workers from rural manufacturing. A research study on Tradeoff of workers
between MGNREGS and Manufacturing shows that the vocationally educated persons in rural
sector or those who have an acquired skill by hereditary are more likely to work under
MGNREGS. This could also be a contributory reason for the fall in the manufacturing
employment in the rural sector.
86.
The Plan document indicates that a major decline was observed in labour intensive
industries which account for 68 % of the total employment in manufacturing in 1999-2000. The
industries that showed decline between 1999-00 and 2004-05 to 2009-10 are given below in
table- 12:
Table 12. Change in Employment Across manufacturing (figure in Millions)
1999-00 to
Sectors
2004-05
Food products and beverages
-0.3
Tobacco products
0.25
Textiles
2.25
Wearing apparel; dressing and dyeing of fur
5.26
Recycling
0.07
Wood and products of wood & cork except furniture; articles of straw & plating
materials
0.7
Paper and paper products
0.36
Publishing, printing & reproduction of recorded media
Coke, refined petroleum products & nuclear fuel
-0.28
Chemicals and chemical products
0.24
Rubber and plastics products
Other non-metallic mineral products
1.07
Basic metals
-0.12
Fabricated metal products, except machinery & equipment
0.53
Machinery and equipment n.e.c.
Office, accounting & computing machinery
Electrical machinery & apparatus n.e.c.
-0.21
Radio, TV and communication equipment & apparatus
Medical, precision & optical instruments, watches and clocks
0.83
Motor vehicles, trailers & semi-trailers
0.5
Other transport equipment
Furniture; manufacturing n.e.c.
0.6
Total Manufacturing Employment Change
11.7
Source: Planning Commission 12th Plan Draft (computed from NSSO various Rounds)

2004-05 to
2009-10
-0.15
-0.52
-1.7
-1.62
0.01
-1.62
-1.15
1.1
-0.84
-0.39
0.70
-0.16
0.37
-2.01
1.6
0.1
0.05
0.2
-3.14
-0.42
0.8
2.89
-5.07

26

SECTION V
FACTORS AFFECTING MANUFACTURING GROWTH
Some Determinants of Manufacturing
87.
There are long and short term factors operating which determine the performance of the
manufacturing. While some factors are domestically generated, there are others which are global
in nature.
Investment
88.
The average annual growth of new investment in industrial sector has been 11.8 % (200410), as against the growth of GDP which averaged 8.6 % during this period. The rate of growth
of gross capital formation (GCF) for mining, registered manufacturing and electricity sector was
even higher. There was a decline in the rate of growth of GCF in 2008-09, which could be
considered as an abnormal year because the global economic meltdown had affected the investor
sentiments resulting in lesser investment and also deferment of investment decisions. The
internal accruals of the corporate sector were also adversely affected. A decline in stock market
indices also affected valuation gains and a combined effect of these factors led to a decline in
GCF in industry (table-13).
Table 13. Gross Capital Formation (GCF) in Industry (Rs in crore at 2004-05 prices)
Mining
Manufacturing (Registered)
Manufacturing (Unregistered)
Electricity
Total
Total GCF
Share of GCF in Industry

2004-05
37,322
2,45,984
98,533
53,300
4,35,139
10,11,178
43.0

2005-06
52,260
3,42,671
62,376
64,673
5,21,980
11,83,485
44.1

2006-07
60,412
3,80,294
91,929
76,366
6,09,001
13,65,019
44.6

2007-08
68,470
5,21,967
89,502
85,040
7,64,979
16,06,013
47.6

2008-09
59,266
3,81,056
36,915
95,533
5,72,770
15,42,642
37.1

2009-10
96,079
4,77,202
86,431
98,908
7,58,620
17,31,209
43.8

CAGR
20.8
14.2
-2.6
13.2
11.8
11.4

Source: Central Statistical Office (CSO)

89.
The parameters that drive growth have also witness moderation in the last three years. As
given in the table-14 below, there has been a decline in the rate of growth of Private Final
Consumption Expenditure and Gross Fixed Capital Formation (GFCF). High inflation and rising
interest rates has lowered growth in private final consumption expenditure to 5.5 % in 2011-12
from 8.1 % in 2010-11. Gross Fixed Capital Formation grew at 5.5 % in 2011-12 compared to
7.5 % in 2010-11. The under performance of the construction sector, which is the lead indicator
of capital formation, also contributed to the moderation of GFCF. A decline in the rate of growth
of capital formation and consumption expenditure has affected the demand for both capital goods

27

and consumer goods. Industry outlook and business perception parameters also indicate of
moderate expectations.
Table 14. Rate of growth of Select Macroeconomic parameters (%)
Macroeconomic Parameters
2007-08 2008-09 2009-10 2010-11 QE 2011- 12 RE
Private Final Consumption Expenditure
9.4
7.2
7.2
8.1
5.5
Gross Fixed Capital Formation
16.2
3.5
6.8
7.5
5.5
Industry
9.7
4.4
8.4
7.2
3.4
Manufacturing
10.3
4.3
9.7
7.6
2.5
Construction
10.8
5.3
7.0
8.0
5.3
GDP at Factor Cost
9.3
6.7
8.4
8.4
6.5
Source: Central Statistics Office (CSO)
Investment Intentions
90.
While GCF indicates actualization of investment, investment intentions indicated in the
Industrial Entrepreneurs Memoranda (IEM) filed are sort of lead indicators of likely investment
flows to industry and of entrepreneurs perception. The investment intentions also provide the
sectoral preferences of investors and shifts in these preferences over time.
91.
During 2001-2011, overall investment indicated in the IEMs filed increased at an average
annual rate of 36.9 % (table-15). Metals, machinery, cement, chemicals and auto sector continue
to dominate as the preferred industries. There was, as expected, a decline in investment
intentions in 2011 indicating the subdued business sentiments.
Table 15. Investment indicated in the IEMs filed (Rs in crore)

Food
Fermentation
industries
Textiles
Wood
Paper
Leather
Chemicals
Rubber
Cement
Metals
Machinery
Transport
Others
Fuel
Total

2005

2006

2007

2008

2009

2010

2011

40098

62845

10520

15924

15637

19663

30848

2012
(JanJune)
7925

2888

8008

5171

8230

4566

3139

6644

3582

1.9

21605
163
5473
209
28350
1102
11800
101730
87340
2059
25707
25432
353956

26325
8199
148
45722
2403
42406
144128
165227
10688
48669
23782
588550

22193
105
4649
266
34352
1191
76906
180973
375276
11314
69583
35001
827500

10730
622
5841
106
155756
2867
125948
364978
556635
24862
207842
42225
1522566

9200
96
6037
106
27661
2118
53742
254285
503651
5048
95958
61743
1039848

26566
122
6264
161
56110
5819
101318
391805
955091
12290
80368
73015
1731731

26174
488
5315
474
57097
8292
81406
268895
815030
9695
218777
8575
1537710

4743
32
3366
0
77083
877
22843
60040
114220
17551
36748
1708
350718

24.9
37.9
19.3
40.7
34.9
42.1
37.5
57.1
66.1
39.7
40.1
-16.0
36.9

Source: DIPP

CAGR
(2001-11)
18.4

28

Foreign investment
92.
The foreign investment in a year in Indian manufacturing has doubled from USD 12
billion in 2007-08 to USD 24 billion in 2011-12. The total foreign investment is therefore added
to USD 102 billion up to 2011-12 in manufacturing. The foreign investment is not uniformly
coming in all manufacturing whereas the targeted manufacturing activities are Machinery &
Equipment, Chemicals, Telecommunication, Power and other Manufacturing and Transport &
Equipment etc.
Table 16. FDI Inflows Industries (US$ million)
1991-2002 2002-07

2007-08

2008-09

2009-10

2010-11

2011-12

Total EquityShare
flows(%)

Food products

972.6

392.2

80.7

150.5

348.7

246.9

239.67

2431.32

2.4

Fermentation Industries

51.1

216.3

270.1

144.7

112

57.7

69.7

921.57

0.9

Textiles

249.2

327.2

186

157.4

150.6

129.8

164.74

1364.9

1.3

Wood Products

0.1

0.6

0.4

11.3

6.5

1.6

29.6

49.98

0.0

Paper

327.2

139

104.2

310.1

86.9

44

454.74

1466.07

1.4

Leather

43.4

16.8

7.5

3.3

5.1

9.3

8.3

93.63

0.1

Chemicals

1810.4

1934.1

582.3

992.5

616.1

734

10745.5

17406.45 17.0

Rubber, Plastic & Petroleum Products (including 342.1

oil exploration)
464.7

1441.9

497.2

289.7

573.6

389.42

4006.93

3.9

Non Metallic Minerals

515.8

877.9

143

944.2

43.8

657.3

309.99

3492.02

3.4

Metals and Metal Products

223

548.7

1176.9

960.9

419.9

1098.1

1786.14

6213.64

6.1

Machinery and Equipments

5232.8

8360.3

3907.1

5086.5

2592.9

1846.7

4147.45

23707.65 23.2

Transport Equipments

431.1

1130.8

674.8

1151.7

1214.8

1286.1

922.99

6812.26

6.7

Others Manufacturing

2834.2

1184.7

704.3

1566.1

1177.9

1495.3

850.47

9812.88

9.6

Mining (including mining services)

7.8

55.8

458.3

34.4

174.4

79.5

142.65

953.02

0.9

Power

1885.8

398.5

1011.2

1070.1

1894.3

1464.4

2104.55

9828.75

9.6

Telecommunication

2140.4

1505.9

1261.5

2558.4

2539.3

1664.5

1997.24

13667.1

13.4

Total

17066.9

17553.5

12010.2

15639.3

11672.9

11388.7

24363.15 102228.2 100.0

Source: DIPP excludes services and other FDI inflows such as RBI-NRI schemes, Acquisition of
shares and advance inflows.
Inflation in Manufacturing Sector
93.
The inflation rate as per WPI for manufacturing sector has shown an increase from 5.7%
in 2006-07 to 7.3 % 2011-12. The product groups which have shown an increase in inflation in
2011-12 as compared to 2010-11 include Food Products, Beverages, and Tobacco Products,
Basic Metals and Alloys, Wood and Wood Products, Leather and Leather Products, Chemical

29

and Chemical Products, non-metallic Mineral Products, machinery and machine tools as shown
in Table-17.
Table 17. Rate of Inflation (WPI) in Manufacturing

(i)
(ii)

(iii)
(iv)
(v)
(vi)
(vii)
(viii)
(ix)
(x)

(xi)
(xii)

All Manufactured products

Food products
Beverages, tobacco & tobacco
products
Textiles
Wood & wood products
Paper & paper products
Leather & leather products
Rubber & plastic products
Chemicals & chemical products
Non-metallic mineral products
Basic metals, alloys & metal
products
Machinery & machine tools
Transport, equipment & parts

Weig
ht
64.97
9.97

200506
2.4
1.2

200607
5.7
5.3

200708
4.8
3.5

200809
6.2
8.7

200910
2.2
13.5

201011
5.7
3.7

201112
7.3
7.1

1.76
7.33
0.59
2.03
0.84
2.99
12.02
2.56

4.7
-1.1
5.7
3.6
4.3
1.9
3.8
3.4

5.1
1.9
5.8
4.6
8.0
5.6
5.0
11.6

6.5
0.7
6.7
3.0
3.1
4.3
3.6
11.2

9.5
1.6
9.5
4.2
5.5
4.5
4.6
2.6

6.1
3.4
9.6
2.2
4.9
0.7
-0.3
7.0

7.4
12.1
4.0
5.3
-1.0
6.7
5.3
2.7

11.7
7.5
8.1
5.4
2.3
6.0
8.6
5.7

10.75
8.93
5.21

2.2
3.6
2.7

9.3
6.3
2.2

10.3
3.7
2.5

12.0
2.9
5.4

-6.1
0.5
3.1

8.7
2.8
3.0

11.1
3.1
3.5

Source: Office of the Economic Adviser, DIPP

Monetary Policy
94.
Monetary policy plays crucial role in maintaining the liquidity in the economy through
growth of bank credit to the industry and keeping the costs of borrowings at competitive rate.
RBI needs to reduce its policy rate to induce investment. The current focus on controlling
inflation through a tight monetary policy should be balanced with the requirements for
investment & growth. Savings to be encouraged to flow into financial systems like bank
deposits, pension and insurance funds as it helps investment and capital formation; Encourage
substitution of investment in gold with other financial investment options that can divert savings
into productive channels.
Trends in Deployment of Gross Bank Credit (GBC)
95.
The table -18 shows the industry wise GBC deployment in absolute terms and in terms of
Compound Annual growth rate (CAGR).

30

Table18. Industry-wise Deployment of Gross Bank Credit (Rupees Billion)

Year
1 . Coal
2. Mining and Quarrying including Coal
3 . Iron and Steel
4 . Other Metal and Metal Products
5 . All Engineering
Electronics
6 . Electricity
7 . Cotton Textiles
8 . Jute Textiles
9 . Other Textiles
10 . Sugar
11 . Tea
12 . Food Processing
13 . Vegetable Oils (including vanaspati)
14 . Tobacco and Tobacco Products
15 . Paper and Paper Products
16 . Rubber and Rubber Products
17 . Chemicals, Dyes, Paints,etc.
Drugs and Pharmaceuticals
Fertilisers
Petro-Chemicals
18 . Cement
19 . Leather and Leather Products
20 . Gems and Jewellery
21 . Construction
22 . Petroleum
23 . Automobiles including Trucks
24 . Computer Software
25 . Infrastructure
Power
Tele communications
Roads and Ports
Other Infrastructure
26 . Other Industries
Industry (Small, Medium and Large) of which :

Source: RBI

2005
21.4
41.5
357.4
112.7
289.3
91.1
227.8
9.1
194.5
69.3
16.3
240.3
35.9
19.4
68.6
39.7
390.2
123.4
81.7
71.8
80.1
32.6
141.6
83.2
152.6
120.5
27.6
727.0
429.6
129.6
167.8
845.1
4231.4

2006
41.5
77.0
509.9
149.1
348.8
110.0
297.8
10.5
245.8
87.8
18.5
309.5
50.8
40.0
91.5
72.5
486.4
162.7
105.7
69.7
78.0
44.9
205.6
133.0
251.5
186.3
36.4
1128.3
601.3
184.6
197.0
145.5
809.8
5504.4

2007
77.0
75.8
637.4
199.9
437.6
135.1
380.5
9.7
358.1
115.5
23.4
400.1
61.1
47.7
115.9
92.5
559.0
186.5
98.4
83.2
94.1
47.7
238.5
200.0
358.9
208.6
51.6
1429.9
733.0
196.2
250.5
250.2
979.8
6973.4

2008
122.8
827.0
249.0
158.4
544.4
477.5
10.8
422.9
160.8
24.8
494.0
72.4
134.7
112.1
87.8
235.0
625.6
91.9
125.4
57.4
251.0
279.5
420.7
293.2
2053.3
950.8
382.8
344.8
375.0
907.0
8583.4

2009
142.4
991.6
296.0
658.1
189.1
513.1
14.7
435.2
173.1
27.3
537.8
67.6
159.8
135.9
755.6
297.6
142.7
87.8
192.2
61.5
285.4
385.1
681.5
346.4
2699.9
1244.5
503.3
470.6
481.6
1020.3
10543.9

2010
180.8
1274.6
354.7
738.2
221.0
612.3
13.8
471.0
192.6
20.0
656.8
103.8
190.7
156.2
857.1
359.8
138.5
100.5
247.2
62.3
317.5
442.2
785.8
387.8
3798.9
1878.4
593.6
735.7
591.2
1248.2
13114.5

2011
228.6
1631.9
467.1
933.7
249.9
741.4
15.7
582.1
250.8
23.7
849.3
133.7
211.4
219.2
945.3
415.7
105.4
123.7
285.6
71.2
394.3
501.4
575.7
444.9
5266.1
2692.0
1004.3
925.7
644.2
1507.1
16208.5

2012
325.0
1927.5
628.8
1135.7
319.9
810.4
13.9
660.5
311.6
23.2
1024.1
143.5
251.1
257.5
1125.0
472.0
151.9
184.4
371.9
74.5
503.7
567.0
700.6
516.1
6190.9
3288.6
935.9
1143.8
822.5
2204.1
19659.8

1990-99
35.8
0.0
36.4
21.5
9.5
24.8
32.5
19.1
16.4
24.0
31.5
6.3
28.5
25.3
17.6
13.9
14.1
19.7
31.9
22.2
38.2
21.8
18.2
22.6
15.3
85.1

21.5
22.2

CAGR (%)
2000-2005
13.7
27.3
13.7
12.4
4.6
12.2
-14.3
0.4
8.4
12.6
9.5
32.0
4.0
14.4
16.9
14.0
10.7
16.7
12.3
3.0
17.2
4.1
21.2
24.9
11.2
24.5
22.0
58.6
67.2
45.4
53.6
0.0
17.7
16.2

2006-12
-27.1
24.8
27.1
21.7
19.5
-18.2
4.8
17.9
23.5
3.8
22.1
18.9
-18.3
23.5
15.0
19.4
6.2
17.6
29.7
8.8
16.1
27.3
18.6
18.5
-32.8
32.7
31.1
34.1
33.5
18.2
23.6

31

96.
It is seen that both in terms of absolute outflow of credit the GBC has increased from Rs.
4231.4 billion in 2005 to Rs. 19659.8 billion in 2012, which is over 4.5 times increase in last
seven years. In terms of CAGR credit deployment to industry increased from 16.2 during 200005 to 23.6 in the period 2006-12. However, certain industries such as food processing, Fertilizer,
Gems & Jewellery and Automobiles etc. reflected a decline in credit growth.
97.
There has been hardening of interest rates from February 2010 to October, 2011, the
Reserve Bank of India revised the policy rates 13 times resulting in an increase in the policy
rates. This increase in the policy rates considerably raised the interest cost of financing new
projects. Further since the inflation is expected to be moderated in next six months, with a likely
moderation in interest rates, there has been a significant postponement of investment.
98.
Not only there has been an increase in the cost of capital, tight monetary policy pursued
by RBI has also resulted in moderation in the rate of growth of flow of credit to industry. This is
reflected in the flow of GBC in the last two years as given in the table 19 below.
Table 19. Growth rate in Gross Bank Credit Industry-wise
Variation (Year-on-Year)
Aug 26, 2011 / Aug
Aug 24, 2012 / Aug 26,
27, 2010
2011
%
%
2.1
Mining & Quarrying (incl. Coal)
39.7
38.0
2.2
25.5
16.5
Food Processing
2.3
30.4
14.3
Beverage & Tobacco
2.4
18.9
7.5
Textiles
2.5
18.3
7.2
Leather & Leather Products
2.6
Wood & Wood Products
23.0
20.3
2.7
Paper & Paper Products
17.5
20.3
2.8
6.8
-3.0
Petroleum, Coal Products & Nuclear Fuels
2.9
Chemicals & Chemical Products
12.5
21.4
2.10
34.6
23.4
Rubber, Plastic & their Products
2.11
Glass & Glassware
0.1
25.7
2.12
Cement & Cement Products
16.9
17.8
2.13
35.2
16.4
Basic Metal & Metal Product
2.14
All Engineering
26.3
24.6
2.15
Vehicles, Vehicle Parts & Transport Equipment
26.8
22.6
2.16
32.6
16.5
Gems & Jewellery
2.17
Construction
9.8
20.3
2.18
Infrastructure
23.0
15.1
2.18.1
Power
35.8
19.1
2.18.2
Telecommunications
-5.3
-2.3
2.18.3
Roads
27.2
17.6
2.18.4
Other Infrastructure
15.0
17.1
2.19
Other Industries
27.2
13.4
2
Industries Total
23.6
15.8
Note: Data are provisional and relate to select banks which cover 95 % of total non-food credit extended by all
scheduled commercial banks.
Sr.No

Industry

Source: RBI

32

99.
As can be seen from the Table-19 above, the year on year growth rate of deployment of
credit to industry between August 2010 over August, 2011 was 23.6 % which has declined to
15.8 % in August, 2011 over 2012. During the same period decline in credit was observed in
employment intensive sectors like Textiles, food processing industry, Tobacco, Leather & leather
products, gems and jewellery, rubber etc.
Fiscal policy & Industrial Growth
100. The process of fiscal consolidation is reducing fiscal deficit through expenditure
management, debt management, and tax reforms. The rationalization of subsidy; (option of direct
cash transfers to be examined) early implementation of GST); measures to control black
money; implementation of Direct Tax Code, fine tuning the policy on Service tax and
implementation of GST are high on the agenda.
101. The fiscal consolidation process has significant bearing on industrial growth. Tax
Reforms with respect to implementation of GST /DTC should be expedited. More importantly,
the subsidy regime needs a relook, so that it does not distort the market forces in determining the
prices of goods and commodities especially diesel, petrol, fertilizer etc. The quantum of subsidy
provided under the above sectors during 2010-11 and 2011-12 as well as amount allocated for
2012-13 is given in the table -20 below:
Table 20. Central Government Expenditure on Subsidy (in Rupees crore)
1
i
ii
iii
2
3
i
ii
iii

Total Fertilizer Subsidy

Imported fertilizers
Indigenous fertilizers
Sale of decontrolled fertilizers with
concessions to farmers
Food Subsidy
Petroleum Subsidy
Subsidy to LPG and Kerosene for PDS
Subsidy to Oil Companies for supply of
Natural Gas to North East Region
Compensation to Oil Companies for Under
Recovery on Account of sale of Diesel and
PDS Kerosene and LPG
Total

Actual
2010-2011
62301.21
6453.91
15080.73
40766.57

Revised
2011-2012
67198.94
13883.00
19108.00
34207.94

Budget
2012-2013
60974.10
13398.00
19000.00
28576.10

63843.79
38348.99
2904.26
444.73

72823.00
68458.00
3000.00
458.00

75000.00
43554.00
3050.00
504.00

35000.00

65000.00

40000.00

164493.99

208479.94

179528.1

Source: Budget Document 2012-13

102. As can be seen from the table above there has been an increase in subsidies from Rs.
164493 crore in 2011-12 to Rs. 179528 crore in 2012-13. In addition if costs of providing
subsidized food grains under the proposed National Food Security Bill 2011 to general and
priority households in rural and urban areas, is also taken into account, and estimated
additional amount of Rs. Rs.95000 crore per annum needs to be added to the subsidy bill. Also,

33

schemes like MGNREGA which are basically cash transfers without commensurate addition to
productive assets also cost the exchequer at least Rs. 30000- 40000 crore per annum.
103. In view of the huge outflows to subsides and the growing fiscal deficit , the need to
adopt alternative means to reach the more marginalized sections of the population need to be
explored like direct assistance through transfer of money rather than through subsidy which has
the risk of distorting market forces /pricing mechanism and encouraging corruption.
Quality Standards & Manufacturing Growth
104. The measurable quality of the product is an important aspect of competition in the
domestic and international market. The domestic manufacturing may not necessarily have any
incentive for the self disclosure of the information about quality, safety and environment
compliance unless it is costless or the per unit profit from the disclosure is more than nondisclosure. The ignorant and price conscious consumer is another reason for the manufacturer not
to voluntary discloses the quality information.
105. Conforming to the WTO rules, the tariff barriers for all products are being progressively
decreased in India. This has opened the Indian market for the imported goods. The increase in
import to GDP ratio clearly indicates that the declining tariffs have considerably increased the
import to India. The national treatment clause under WTO makes compulsory country to give
national treatment to the imported goods once it enters into Indian Territory. In the absence of
the quality standards for the domestic products it is almost impossible to regulate the imports of
the sub-standard products to India. The growing imports from China in sectors like
Pharmaceuticals, Chemicals, electrical equipment etc are a serious threat to domestic industry.
This is evidenced by the increasing complaints of the dumping of such products. The antidumping and safeguards measures can only play a limited role to arrest this trend.
106. The trade losses that can accumulate to a country which has not imposed quality
standards can be significant. If a country imposes high domestic standards it can avert the import
of substandard by putting appropriate quality restrictions. Conversely, a country having no
domestic standards cannot object the substandard imports domestically. Therefore a country
without standards suffers by not able to restrict substandard imports and suffers losses exports
due to quality restrictions by a better domestic standard country. The high quality standards of
industrial goods are imposed on the Indian exports by US and European countries, therefore the
quality standards, safety, environmental etc. non-tariff barrier become a hurdle for Indian exports
to these countries. However, the low quality standards or missing domestic quality standards for
industrial goods in India make it helpless in stopping substandard Chinese imports.
107. India is in the process of notifying the standards for the domestic manufacturing. This
time lag between developed and developing countries in the development and enforcement of the

34

standards for the manufacturing will certainly give an edge to the developed countries to cut
down the imports from developing countries and to dump their sub-standard products. The
NTMs including health, safety and environmental in the form of sanitary and phyto-sanitary
(SPS) and technical barriers to trade (TBT), are being used by trading partners.
108. For mandatory standards, a notification can be issued under Section 14 of the Bureau of
Indian Standards Act, 1986 which empower the Central Government, after consulting the
Bureau, that if necessary in the public interest the Government may notify any article or process
of any scheduled industry which shall conform to the Indian Standard. The expression scheduled
industry shall have the meaning assigned to it in the Industries (Development & Regulation) Act,
1951. However, there are many industries other outside the ambit of Scheduled Industries of
Industries (Development and Regulation) Act, 1956, therefore cannot be mandated for standards
compliance e.g. toys etc. There is an amendment proposed in Section 14 of the Bureau of Indian
Standards Act, 1986, to authorize the Government to issue notification making the standards
mandatory with respect to any article or processes thereby widening the scope beyond the items
included in the first Schedule to the Industries (Development & Regulation) Act, 1951. The
standards can be voluntary also. For the voluntary disclosure and compliance the quality
standards can be notified without any amendment to the BIS act.
Trade Policy and Industrial Growth
109. With increasing levels of globalization comes the increasing dependency of the export
sector for fuelling economic growth. A significant amount of exports is provided by Micro Small
and Medium Enterprises (MSMEs) which is second largest employment generator after
agriculture and therefore foreign trade policies and agreements has to factor in this determinant
to make country s growth inclusive. Table 21 shows the trends of export and import and balance
of trade.
Table 21. Exports, Imports & Balance of Trade(Value in US $ billion)
Year
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
2011-12

Merchandise
Exports
52.7
63.8
83.5
103.1
126.4
163.1
185.3
178.8
251.1
303.7

Growth Rate
(%)
16.9
21.1
30.9
23.5
22.6
29.0
13.6
-3.5
40.4
21.0

Merchandise
Imports
61.4
78.1
111.5
149.2
185.7
251.6
303.6
288.4
369.8
488.6

Growth Rate (%)

16.3
27.2
42.8
33.8
24.5
35.5
20.7
-5.0
28.2
32.1

Balance of
Trade
-8.7
-14.3
-28
-46.1
-59.3
-88.5
-118.3
-109.6
-118.7
-184.9

Source: Department of Commerce

110. As seen from the Table 21, the growth of merchandise export was 29% in 2007-08 but
moderated to 13.6 % in 2008-09 and moved into negative growth rate of -3.5 % in 2009-10

35

mainly on account of global slowdown. Though the exports revived substantially to 40.4% in
2010-11, it has again moderated to 21 % in 2011-12. As regards merchandise imports, the
growth has been quite significant except in 2009-10 where it dipped to -5%. However, it has
picked up to 28 % and 32% respectively in 2010-11 and 2011-12. The reasons for this are
slowdown I global demand and also depreciation of rupee against dollar. The balance of trade
has accordingly reflected these trends with USD -184.9 billion in 2011-12 compared to USD118.7 billion in 2010-11.
111. The slowing down in the Indian export growth along with the more costly inelastic
imports (such as crude oil, fertilizer, defence procurement etc.), primarily due to substantial
depreciation in the Rupees against Dollar, has contributed in the rise of Current Account Deficit
(CAD) to uncomfortable level. However, the high foreign exchange reserves and better FDI
scenario are the major factor for the confidence as a policy stance to breath well even if the
foreign Debt situation deteriorates further. The high CAD along with high fiscal deficit has
created the situation of twin deficit. The only way forward of from this situation is to remove the
inefficiencies in the economy, most efficient use of each penny of public money, curbing the
menace of corruption, targeting subsidies and efficient implementation and timely completion of
the existing projects.
112. Causes of uncertainty in the Indian export growth are slowing down world GDP growth,
shrinking import demands in the major export markets of India i.e. US and European Union,
violent fluctuation in the international currency market therefore grim scenario of export credit,
stalled international trade negotiations, along with weakening policy coordination among
countries. Domestically, the prolonged high interest rate regime leaded the crippling the export
competitiveness, the erratic & violent capital flights from India are drying down the industry
finance in India,
low investment sentiments in industry are some prominent reasons for
slowdown in the export sector.
113. The inverted duty structure, if exists, reverses the effective rate of protection to the
domestic industry against imports. The effective rate of protection is inversely associated with
duty on imported input and the share of the imported input in the value of product (finished
product). A high input tariff relative to finished product adds in cost of production, and cuts
competitiveness of the domestically produced product vis a vis the imported finished product.
Therefore inverted duty structure promotes the import of finished products at the cost of
domestic industry. In a way it takes employment opportunities away from the country and would
be responsible for decline in value addition in domestic industry, if not corrected.
114. The Tariff Commission report and the FICCI survey has found evidences of inverted duty
structure in the products like Naphtha , and sectors such as Pumps for liquids under machinery

36

& Mechanical Appliances , Technical Textiles , Electronic hardware , Electrical Equipments ,

Aluminum and articles , Medical Instruments , and Tyre Sector .
115. In an in-house research study titled Impact of the Surge in Chinese Import on Indian
Manufacturing Sector analysis the trends in imports and corresponding domestic production of
268 items of IIP for which DIPP compiles information. These products accounted for 23 % of
the total Import to India in 2010-11. As per the study it is estimated that the import index has
been growing consistently faster than the index of corresponding domestic production and their
Exports. There is a surge in the import growth in 2010-11.

116. When the imports from China was analyzed it was found that the Chinese import index
for these 268 items has grown to 4718.4 in 2010-11 over the base of 100 in 2005-06, which is
even faster when compared to overall Import index.. The Chinese import share of these items in
the total Chinese imports to India jumped to 41.3% in 2010-11 from 26.3% in 2005-06. This
indicates that India is progressively sourcing imports of these items from China and domestic
production is increasingly being replaced by Chinese imports in these selected items.
117. As mentioned in the earlier section on Quality Standards the lack of quality standards
or weak quality standards makes the country vulnerable to substandard imports which is
causing injury to domestic industry and a situation of dumping in the domestic market. . The
problem is worsened by the fact that other countries impose strict quality standards and therefore
a mass producer like China will search for markets like India which are easy to penetrate due to
lack of quality standards.

37

Labour preferences and Manufacturing

118. The prevalence of rigidities in labour market not only restrains employing more labour, it
also promotes R&D preferences towards development of the technology cutting labour cost. The
skewed education expenditure pattern towards higher education, and better returns for skilled
service worker compared to manufacturing, have moved labour preferences towards services
sector. Broadly the play inter-sectoral dynamics has been reflected in terms of high and rising
share of the services in GDP.
119. Most services such as transportation, insurance, communication etc, are primarily a part
of transaction costs, which facilitates the production and exchanges in the economy. The high
and rising share of the services could also reflect the increasing formalization and
commercialization of the existing services in the economy whereas the relatively decreasing
production structure (includes industry and agriculture), which alerts about the declining
production base. The declining share of production structure is also indicative of increasing
distributive activities, rather than production activities. Since, the services bank upon industry
and agriculture to provide their services, unless these sectors too develop and expand their base,
to sustain the services activities, the growth of the services sector is likely to decline in the
coming years.
120. A question often posed is that why has manufacturing employment declined over the
years. There are many studies which cite different reason to explain these unexpected
employment trends in manufacturing in India. One strands of the literature blames the rigid
institutional structure e.g. rigid labour laws, demographic, technology, social and cultural factors
while other strand of literature highlights the rising cost of labour, substitution of capital for
labour, rising labour productivity etc.
121. The increasing informalization of the organized manufacturing sector itself,
subcontracting temporary and contract workers has created a dichotomy between casual worker
in manufacturing and regular worker. It is argued that labour market reforms tend to increase the
creation of regular jobs, while import competition tends to raise casual employment among
workers with education above primary. The results also show that education enhances the
probability of getting a regular job (Goldar, B. and Suresh Aggarwal, C., 2010). According to
Tendulkar S. D., it is essential to upgrade the skill and education base of the growing working
age population and raise their work participation to reap the benefits of the demographic
dividend for rapid economic growth.
122. The long winding labour regulations area another reason for preferring casual labour to
regular workers. For example, as per the Industrial Disputes Act(IDA) (1947), establishments
employing more than 100 employees have to seek permission from the government in case of

38

layoffs, retrenchments and closures. Hence, in order to retrench a single worker, the employer
has to seek the permission of the labour commissioner. Regarding any dispute between
employers and employees the labour commissioner is expected to be informed (Nagaraj (2007).
The protection of interest of the worker by State would lower their output, investment and
employment and led to poverty (Besley and Burgess, 2004). However, IDA is only applicable to
the 6% of the labour force which is in the organized sector and not on the 94 % unorganized
sector.
123. Other factors that impact manufacturing are skill availability and the need for skilling the
population. The present strategies for supply of qualified human resources to meet demand of
additional job creation- need to be relooked with private sector participation through PPP for
skill development; improving ITIs etc.
Conducive Business environment
124. The creation of a conducive business environment is another crucial factor that boosts
manufacturing. World Bank Report 2012 on Doing Business in a more Transparent World has
ranked India at 132 out of 183 countries in 2012 as compared to 139 in 2011. Further analysis
shows that India has slipped ranks between 2011 and 2012 in 5 indicators viz. registration of
property, getting credit, protecting investors, trading across borders, resolving insolvency. The
Report also shows that India features in the lowest quartile for two sectors dealing with
construction permits (181 rank) and enforcing contracts (182 rank) mainly on account of large
number of procedures and time taken.
.

39

SECTION VI
INITIATIVES TO BOOST MANUFACTURING IN THE LAST FIVE
YEARS
125. Manufacturing has shown a fluctuating growth trend measured in terms of the Index of
Industrial Production in the last few years while there has been both moderation and decline
growth, (IIP), in the last few months as shown in the previous sections.
126. Government has taken a number of initiatives and confidence building measures for
improving the industrial climate and boosting manufacturing in the country. Government had
approved the National Manufacturing Policy (NMP) in October, 2011 with the objectives of
enhancing the share of manufacturing in GDP to 25% by 2022 and creating additional 100
million jobs. One of the instruments in the NMP is the creation of National Investment and
Manufacturing Zones (NIMZ) as planned integrated industrial townships. Nine NIMZs have
been announced, eight of which are along the Delhi Mumbai Industrial Corridor (DMIC). Other
measures for facilitation of industrial investment include promotion of foreign direct investment
through consolidation of press notes into a single document; development of industry relevant
skills and regular meetings with industry associations and stakeholders to fast track
implementation of industrial projects. The details of some of the measures taken are below:
National Manufacturing Policy

127.
The Government of India notified the National Manufacturing Policy on 4th November,
2011 with the objective of enhancing the share of manufacturing in GDP to 25% within a decade
and creating 100 million jobs. It also seeks to empower rural youth by imparting necessary skill
sets to make them employable. Sustainable development is integral to the policy and
technological value addition in manufacturing has received special focus. The policy is based on
the principle of industrial growth in partnership with States. The Central Government will create
the enabling policy frame work, provide incentives for infrastructure development on a Public
Private Partnership (PPP) basis through appropriate financing instruments, and State
Governments will be encouraged to adopt the instrumentalities provided in the policy. The
proposals in the policy are generally sector neutral, location neural and technology neutral except
incentivisation of green technology.
128.
One of the instruments in the NMP is the creation of National Investment and
Manufacturing Zones (NIMZ) as planned integrated industrial townships. Nine NIMZs have been
announced, eight of which are along the Delhi Mumbai Industrial Corridor (DMIC). Approval, in

40

principle, has been secured for setting up of the ninth NIMZ at Nagpur. Apart from NIMZs, NMP
also applies to manufacturing industry throughout the country including wherever industry is able
to organize itself into clusters and adopt a model of self-regulation as enunciated.
129.
Policy instruments for manufacturing industry are applicable to both NIMZ and Clusters.
These include Rationalization/simplification of business regulations; simple/expeditious exit
mechanism for non viable units; Technology development, including green technologies;
Industrial training and skill upgradation measures; Incentives for MSMEs; Special Focus Sectors;
Leveraging infrastructure deficit and Government procurement; and Trade Policy.
130.
Major feature of NMP is the rationalization and simplification of regulations based on the
basic tenet of self regulation of industry to the extent possible. The Central/State Governments
will suspend operation of particular provisions wherever such powers exist subject to an
alternative mechanism, annual audits by concerned departments and third party certification.
Other features include delegation of powers to a single body in case of other provisions,
Combined application forms and common registers as far as possible and Systematization of
inspections through third party certification.
131. Some of the important initiatives undertaken/ being undertaken under NMP, include
formulation of a scheme on Job Loss Policy; simplification of forms / register / returns under 13
central Labour Laws into 3 Forms; setting up of Technology Acquisition and Development Fund
(TADF) for acquisition of appropriate technologies including environment friendly technology.
132. For the effective implementation of the NMP, a number of institutional structures have
been constituted. These include Manufacturing Industry Promotion Board (MIPB), under the
Chairmanship of Commerce & Industry Minister; High Level Committee (HLC) under the
Chairmanship of Secretary, DIPP; Board of Approval (BOA) under the concerned Joint
Secretary. In addition Green Manufacturing Committee (GMaC) has also been set up to promote
green technology for manufacturing under NIMZ.

Delhi Mumbai industrial corridor (DMIC)

133. As part of the Japan India Special Economic Partnership Initiative for developing
requisite infrastructure and facilitating investment , DMIC Project was conceptualized to take
benefit of the high quality rail and road connectivity offered by 1483 km long Delhi Mumbai
Dedicated Rail Freight Corridor (DFC), existing rail passenger- cum- freight corridor and
National Highways. The vision of DMIC is to create strong economic base on both the sides of
the Dedicated Freight Corridor with globally competitive environment and state-of-the-art

41

infrastructure to activate local commerce, enhance foreign investments and attain sustainable
development.
134. The Government of India accorded in principle approval to the project outline of DMIC
Project in August, 2007.
Twenty four Investment Regions/ Industrial Areas across the six
States of Uttar Pradesh, Haryana, Madhya Pradesh, Rajasthan, Gujarat and Maharashtra were
identified for development in DMIC. An institutional framework with a dedicated Special
Purpose Vehicle (SPV) viz. Delhi Mumbai Industrial Corridor Development Corporation
(DMICDC) was set up for project development, coordination and implementation of the
numerous projects.
135.
As the Master Plans progressed, it was felt necessary and essential that new industrial
cities must be created on the back of world class trunk infrastructure i.e. drainage, sewage, solid
waste, water supply, internal roads. Without the trunk infrastructure the development of PPP
projects in Greenfield cities was not feasible and may lead to real estate development without
trunk infrastructure and a developed backbone. The Government of India, therefore, in
September, 2011 restructured the DMIC Project with an Implementation Fund of Rs.17,500 crore
to be utilized over a period of five years and an additional project development Fund of Rs.1000
crore. The land for the new industrial cities will be the contribution of the State Government.
The Japanese Government have also announced their financial support for DMIC project to an
extent of US $ 4.5 billion for projects with Japanese participation in the first phase of the project.
136.
Looking at the magnitude and diversity, the entire project has been planned to be
implemented in phases. Initially, the following industrial cities have been taken up for
development as industrial cities:
(i) Ahmedabad-Dholera Investment Region, Gujarat;
(ii) Shendra-Bidkin Industrial Park city near Aurangabad, Maharashtra;
(iii) Manesar-Bawal Investment Region, Haryana;
(iv) Khushkhera-Bhiwadi-Neemrana Investment Region, Rajasthan;
(v) Jodhpur-Pali-Marwar Industrial Area, Rajasthan;
(vi) Pithampur-Dhar-Mhow Investment Region, Madhya Pradesh;
(vii) Dadri-Noida-Ghaziabad Investment Region, Uttar Pradesh;
(viii) Dighi Port Industrial Area, Maharashtra.
(ix) In addition one more NIMZ is being considered near Nagpur.
137. The overall perspective plan for the entire DMIC Region has been completed. The
Master Planning of the first six industrial cities mentioned above have been completed. The
concerned State Governments have initiated the process of Land pooling/ procurement/
acquisition for the industrial cities as well as for the Early Bird Projects. Project Development of
four (04) Gas Based Power Projects is complete including the final Environmental clearance

42

Promotion of Business environment

Promoting FDI
138. Significant changes have been made in the FDI policy regime in the recent times to
ensure that India remains increasingly attractive and investor-friendly. Some of the main changes
have been as follows:
Consolidation
139. For ease of reference, all existing regulations on FDI were integrated into one
consolidated document. The consolidation involved integration of 178 Press Notes, covering
various aspects of FDI policy since 1991, as also other regulations governing FDI. The document
was released as Circular 1 of 2010 , effective 1 April, 2010.
Rationalization and liberalization
140. In order to make the FDI policy more liberal and investor-friendly, further rationalization
and simplification has been carried out since. Accordingly, a number of clarifications were
issued on various subjects, including interalia the concepts of controlled conditions for FDI in
Agriculture/Animal Husbandry etc., value-addition in case of mining and mineral separation of
Titanium bearing minerals and introduction of a specific provision for downstream investment
through internal accruals .
141. Subsequently, significant policy changes were introduced in Circular 1 of 2011
effective from 1.4.2011. These include: (i) flexibility in fixing pricing of convertible instruments
through a formula, rather than upfront fixation (ii) Inclusion of fresh items for issue of shares
against non-cash considerations, including import of capital goods/ machinery/ equipment and
pre-operative/ pre-incorporation expenses (iii) Removal of the condition of prior approval in case
of existing joint ventures/technical collaborations in the same field (iv) simplification and
rationalization of guidelines relating to down-stream investments and (v) development and
production of seeds and planting material, without the stipulation of having to do so under
controlled conditions . FDI has also recently been permitted in Limited Liability Partnerships
(LLPs), subject to specified conditions.
Recent Announcements
142. Recently on 14.9.2012, the Government has decided the following to boost FDI inflows
to the country:

43

(i) Permitting foreign investment, up to 49 percent (FDI & FII) [FDI limit of 26 per cent and
FII limit of 23 per cent of the paid-up capital], in Power Exchanges, in compliance with
SEBI Regulations; Central Electricity Regulatory Commission (Power Market) Regulations,
2010; and other applicable laws/ regulations; security and other conditionalities.
(ii) Liberalising the policy on foreign investment, for companies operating in the broadcasting
sector, as below:
Teleports (setting up up-linking HUBs/Teleports): Direct to Home (DTH); Cable Networks
(Multi-System-Operators operating at National or State or District level and undertaking
upgradation of networks towards digitalization and addressability): Currently, foreign
investment, up to 49 percent, is permitted in these activities. It has been decided to now
increase the foreign investment limit from 49 percent to 74 percent.
Mobile TV: There was no specific dispensation under FDI policy for mobile TV. It has now
been decided to permit Foreign Investment (FI) up to 74 percent.
In both the cases FDI, up to 49 percent, will be permitted under the automatic route and FDI
beyond 49 percent and up to 74 percent will be permitted under the Government route.
(iii) Permitting foreign airlines to make foreign investment, up to 49 percent in scheduled and
non-scheduled air transport services.
(iv) Permitting FDI, upto 51%, under the Government approval route, in multi-brand retail
trading, subject to specified conditions.
143. Amendment of the existing policy on Foreign Direct Investment in Single-Brand Product
Retail Trading, with a view to aligning it with the global practices being followed by Single-brand
retailers
e

Biz in line single window

144. In order to enable businesses and investors to save time and costs and in order to improve
the business environment in the country, an online single window was conceptualized in the
form of the eBiz Mission Mode Project under the National eGovernance Plan. This project aims
to create a business and investor friendly ecosystem in India by making all business and
investment related regulatory services across Central, State and Local governments available on
a single portal, obviating the need for the investor or the business to visit multiple offices or a
plethora of websites. It is envisaged that eh services offered on eBiz will eventually cover the
entire life cycle of a business right from the its establishment, through its ongoing operations,
to even its possible closure.

44

145. The core value of this transformational project lies in radical shift in the Governments
service delivery approach from being department-centric to customer-centric. eBiz will not only
create a 24x7 facility for information and services, but will also offer joined-up services where a
single application submitted by a customer, for a number of permissions, clearances, approvals
and registrations, will be routed automatically across multiple governmental agencies in a logical
manner. An inbuilt automated payment gateway will also add value by allowing the all
payments to be collected at one point and then apprortioned, split and routed to the respective
heads of account of Central / State / Parastatal agencies along with generation of challans and
MIS reports. At present 22 services are ready to go live and more services across States and
Central Government Departments are being integrated. The project is expected to go live in
September, 2013 with the Andhra Pradesh Single Window consisting of 24 State Services, 8
Central Services and an inbuilt payment gateway.
Other Ministries engaged in manufacturing
146. There are number of Ministries/ Departments which implement various policies,
programme, schemes that contribute to growth of manufacturing. These include Ministry/
Departments of Micro Small & Medium Enterprises, Heavy Industry, Steel, Textiles, Food
Processing Industries, Chemical & Petro Chemicals, Fertilizers, Pharmaceuticals, Petroleum &
Natural Gas, Defence Production, Electronic & IT, Shipping etc. On an estimate about 30
schemes relating to manufacturing are being implemented by these Ministries/ Depts.
147. Efforts are on to discuss with these Ministries/ Departments, feasible measures to reverse
the current slow down on manufacturing and achieve the goals of the NMP. Efforts are also on
to build databanks of schemes/ programmes, training institutes / agencies, R&D and centres of
excellence to provide a common knowledge platform and enable sharing of common facilities/
resources/ inputs.
148. MSMEs play a crucial role in driving growth of manufacturing, export and creating
employment. Traditional labor intensive sectors like textiles, leather, manufactures, handicrafts
and carpets have huge potential in this regard. Manufacturing sector needs a boost with special
emphasis given to SMEs. Besides NIMZ, SEZs are key tools for facilitating the growth in the
manufacturing sector. Annexure gives an illustrative list of the Ministry / Departments/ Schemes
engaged in manufacturing.

45

SECTION- VII
ROAD MAP TO BOOST MANUFACTURING
149. Based on the analysis of manufacturing trends and factors impacting it s growth and
taking into account the initiatives and other confidence building measures undertaken by the
Government, a road map for boosting manufacturing is proposed. The road map will involve
addressing crucial determinants for manufacturing growth such employment and skill
development, improving business environment, deepening technology in manufacturing, systems
for convergence, monitoring and tracking of projects, inter ministerial schematic coordination
etc.
I.

Skill Building and human resource development

India has a strong demographic dividend where 65% of the population is estimated to be
in the working age group by 2022. Some of the initiatives that can be taken include:
Industrial Training and skill upgradation skill building of minimally educated workers;
vocational training through it is including PPP mode ;
specialized skill development through poly techniques ;
Establishment of instructors training in NIMZ.
Leveraging the training institutions under different Ministries/ Depts. To coordinate skill
development
Inducing job creation by reducing the cost of generating employment Companies may be
allowed to retrench employees with a fair severance benefits; reform process of engaging
labour, simplify labour laws etc.
Providing social protection to low income work force-through unemployment benefits and
increasing penetration of existing schemes.
Improving industry work force relationship.
II.

Shifting employment from informal sector to manufacturing

Creation of appropriate skill sets for rural migrant and urban poor to make growth
inclusive
Increase domestic value addition and technological depth in manufacturing of traditional
products
Skill building amongst minimally educated workforce including Farm to Work and
School to work programmes targeted towards the workforce entering non agricultural
sector for the first time and seeking seasonal employment .Skill gaps will be identified

46

low skill categories as loaders, cleaners, skills on basic operations on the shop floor, basic
machine operations, etc
Skill building will also cover behavioral aspects urban industrial work culturetimeliness, reporting ability to work in organized set up ;Training in simple user friendly
local languages
Short term training courses based on modular employable skills so that opportunity cost
of being away from productive work opportunities is minimized during training period
Scaling up efforts Private sector through their non profit arms to undertake skill
upgradation through provision of incentives and infrastructural support ,
In National Industrial Manufacturing Zones , SPV will provide skill upgradation with
preference for local residents ; undertake adequate awareness an publicity campaign ;
provide boarding and lodging, transport to trainees.
III.

Enabling jobs/ employment

Support to employment intensive industries- textiles, garments, leather footwear, food
processing , gems and jewellery etc
Small and medium enterprises growth over diverse geographies ; skill development,
employment opportunities for self employment and jobs;
Policy intervention in SME in areas like manufacturing management , accelerated
adoption of IT; skill development ; access to capital; marketing ; procedural simplification
and governance reform IT; access to capital etc
National Manufacturing Competiveness program being implemented by MSME be
strengthened and efforts to be made for creation of a separate fund with SIDBI,
strengthening of NSIC. Modification of lending norms and inclusion of MSMEs under
priority sector .

IV.

Supporting Unorganized Sector

More than 94% of MSMEs are unregistered with most of them in the
informal/unorganized sector. There is need to address issues such as marketing, raw
material access, credit, technology upgradation etc. It should also focus on providing
social security to unorganized workers in terms of the mandate of Unorganized Workers
Social Security Act.

V.
Technology upgradation, systems for transfer of technology, incentivizing and green
production and R&D
NMP guidelines - leverage existing schemes / incentives to introduce green mechanisms
and incentives ;

47

Technology Acquisition and Development Fund;

enabling systems for transfer of technology to industries by existing institutes of research/
excellence ( coordination with D/Science and Technology,)
FDI to be used an enabling instrument for transfer of technology
VI.

Credit Access
For SME initiatives of venture capital funds; liberalization of RBI norms for this ;
creation of a separate fund in SIDBI ;
making SME a priority sector lending; relief on capital gains tax on sale of residential
property for startup SMEs ( has been included in budget 2012-12 )
Linking up with Self Help Groups / federations already engaged in economic activity to
upscale them into small industries.
Regulation of micro lending institutions to make them viable instruments of lending

VII.

Exploring new areas of manufacturing - Defence offsets

Private sector is eligible for defence offsets of 30% of capital acquisitions for Buy (
global) or Buy and Make with Transfer of Technology
A multiplier provision of 1.50 is being made for micro, small and medium industries in the
newly announced Defence Offset guidelines

VIII. Domestic production capital goods

core investment

DIPP has pursued for promotion of domestic capital goods production. COS has decided
that import of second hand machinery may be prohibited under TUFS, EPCG. Hence the
import of machinery more than five years old may be disallowed unless permitted by
DOC in consultation with the Ministries.
Specific measures are needed to boost the sales and exports of Heavy commercial
Vehicles
Incentives to increase sale of domestically produced textiles , cement and sugar
machinery
IX.
Suggested measures to be taken by Ministries/ Departments engaged in
manufacturing
Setting up of databanks (to provide a common knowledge platform and enable sharing of
common facilities/ resources/ inputs )
List of schemes/ programmes which directly deal with manufacturing activities or provide
the requisite infrastructure or technological inputs to improve the competitiveness of

48

manufacturing. Annexure gives the illustrative list of schemes of different ministries

engaged in manufacturing
listing all the training institutes / agencies under Ministries/ Departments
list of R&D and centres of excellence
X.

Systems for convergence, monitoring and tracking

A convergence mechanism to be developed for manufacturing schemes dealt in different
Ministries/Departments. NMCC may formulate the mechanism along with monitoring
system.
Specific Action plan formulated with monitorable indicators by the concerned Ministries/
Departments in consultation with the Industry Associations/ stakeholders to address the
problems of industries which show a declining production trend in the last two years.
Expeditious Implementation of big ticket projects to be identifies by each Ministry/
Department

XI.

Promotion of Business environment

Schemes for Investment Promotion Invest India to provide guidance to investors; e Biz
under the National e-governance Plan to act an online single window for service delivery.
FDI in multi brand retail for back end infrastructure such as cold chains to be revived.

XII.

Business regulatory framework

The key objectives of business regulatory framework are to reduce compliance cost for
business, simplify existing regulatory systems and ensure fair competition. For this it is
necessary to Rationalization and simplification of regulations
Basic philosophy: Industry to self regulate to the extent possible.
Central/State Governments to suspend operation of particular provisions wherever such
powers exist subject to an alternative mechanism, annual audits by concerned departments
and third party certification.
Delegation of powers to a single body in case of other provisions.
Combined application forms and common registers as far as possible.
Systematization of inspections third party certification
Promotion of Clusters and providing technical assistance to State Governments in cluster
formation and develop strategies for different types of clusters for different sectors. It should also
expand the scope of capacity building by improved market linkages, access to credit, quality etc.

49

to develop monitoring systems to monitor the performance of clusters and share best practices
across them.
XIII. Boosting Manufacturing Export
The key strategies to provide world class infrastructure, reduction of transaction cost for
exporters, simplifying export procedures, addressing non-tariff barriers etc. The FTA processes
need to be further reformed in consultation with stake holders; provision of fiscal incentives to
exporters; attracting FDI in the country; focusing on unexplored markets and products; building
a brand promotion strategy for export products; focus on moving towards high-tech exports from
current low-tech exports.
XIV. Reforming the role and management of Public Sector Enterprises (PSEs)
Some of the recommendations include disinvestment in areas where private sector is capable
of producing the same product/service; man power planning exercise to identify skill and
talent requirement, streamlining the governance structure especially at the board level.
PSEs should also be encouraged partner in joint ventures and PPP with private sector.
Investment in Physical infrastructure (Power, road, railway, port), Social infrastructure
(health, sanitation, education, skill development) and investment in Agriculture (power
supply, irrigation, R&D, cold storage, supply chain, marketing, horticulture, development of
mega food parks, agro-processing etc.) will help in providing forward and backward
linkages to boost the overall economy of the country
XV.

Others (including policy measures)

Closely monitor status of implementation of important infrastructure projects by the
Committee on Infrastructure
To encourage and facilitate FDI inflow through appropriate policy initiatives
Measures to contain inflation through increased production; reduction in transaction costs;
efficient supply chains ; fiscal policy measures of reducing fiscal deficit through reduction
in subsidy;( option of direct cash transfers to be examined) rationalization of direct(DTC)
and indirect taxes (GST) ; measures to control black money;
RBI to focus not only on inflation as a barometer for rate cuts but also focus on the equally
important need of promoting industrial investment.

50

Annexure:
Schemes for the Manufacturing Growth implemented by Ministries/ Departments
1.

Ministry of Food Mega Food Parks

The primary objective of the MFPS is to provide
Processing
Scheme (MFPS)
adequate / excellent infrastructure facilities for food
Industries
processing along the value chain from the farm to
market. It will include creation of infrastructure near
the farm, transportation, logistics and centralized
processing centers. The main feature of the scheme is a
cluster based approach. The scheme will be demand
driven; pre marketed and would facilitate food
processing units to meet environmental, safety and
social standards.
The expected outcome is increased realization for
farmers, creation of high quality rural processing
infrastructure, reduction in wastage, capacity building
of the producers and processors and creation of an
efficient supply chain along with significant direct and
indirect employment generation.

2.

Ministry
Textile

Cold Chain, Value

Addition
and
Preservation
Infrastructure
Scheme for Setting
up/ Up-gradation of
Quality
Control/
Food
Testing
Laboratory/
R&D
and
Promotional
Activity
of Comprehensive
The guiding principles underlying the design of
Powerloom Cluster clusters would be to create world class infrastructure
Development
and to integrate the production chain in a manner that
Scheme (CPCDS)
caters to the business needs of the local Small and
Medium Enterprises (SMEs) to boost production and
export. In brief, the main objective of setting up these
mega clusters is to assist the entrepreneurs to set up
world-class units with modern infrastructure, latest
technology, and adequate training and Human Resource
Development (HRD) inputs along with appropriate
market linkages. SPV is designed in such a way, which
will have Standard Models of units of SSI, SME with
infrastructure that is customized to give a competitive
edge and these centers have greater potential to become
globally competitive.
Comprehensive
The objective is to develop Mega Handloom
Handloom
Cluster Clusters that are located in clearly identifiable
Development
geographical locations that specialize in specific

51
Scheme (CHCDS)
products, with close linkages and inter dependents
Mega
Handloom amongst the key players in the cluster by improving the
Cluster
infrastructure facilities, with better storage facilities,
technology up-gradation in pre-loom/on-loom/postloom operations, weaving shed, skill up-gradation,
design inputs, health facilities etc. which would
eventually be able to meet the discerning and changing
market demands both at domestic and at the
international level and raise living standards of the
millions of weavers engaged in the handloom industry.
Comprehensive
The objective is to develop these two clusters
Handicrafts Cluster with world-class infrastructure. The guiding principle
Development
behind the design of clusters would be to create worldScheme (CHCDS)
class infrastructure that caters to the business needs of
the local artisans & SMEs to boost production and
export. In brief, the main objective of setting up these
clusters is to assist the artisans & entrepreneurs to set
up world-class units with modern infrastructure, latest
technology, and adequate training and HRD inputs,
coupled with market linkages and production
diversification. SPV is designed in such a way, which
will have Standard Models of units of SSI and SME
with infrastructure that is customized to give a
competitive edge and these centers have greater
potential to become globally competitive.
Technology
Upgradation Fund
Scheme (TUFS)

The Scheme for

Integrated Textile
Parks (SITP)

Ministry of Textiles has launched a Technology

Upgradation Fund Scheme (TUFS) for Textile and Jute
Industries, w.e.f. 1.4.1999 for a period of 5 years, i.e.,
up to 31st March 2004 which was subsequently
extended upto 31.3.2007, i.e., till the end of tenth five
year plan.
Benefits under the scheme:
5% interest reimbursement of the normal interest
charged by the lending agency on RTL.
Or
5% exchange fluctuation (interest & repayment) from
the base rate on FCL.
Or
15% credit linked capital subsidy for SSI sector.
Or
20% credit linked capital subsidy for powerloom sector
(An option for
front ended subsidy provided w.e.f. 1st October,
2005).
Or
5% interest reimbursement plus 10% capital subsidy
for specified Processing machinery.
The Scheme for Integrated Textile Parks
(SITP) was launched by merging two schemes;
namely, Apparel Parks for Exports Scheme (APES)

52
and the Textiles Centre Infrastructure Development
Scheme (TCIDS).
1.2 Primary objective of the SITP is to provide the
industry with world-class infrastructure facilities for
setting up their textile units. The scheme would
facilitate textile units to meet international
environmental and social standards.
1.3 SITP would create new textile parks of
international standards at potential growth centres. This
scheme envisages engaging of a panel of professional
agencies for project identification and execution.

3.

Ministry of Small
Scale & Medium
Enterprises
(MSME)

Scheme of Fund for

Regeneration
of
Traditional
Industries (SFURTI)

Guidelines
of
International
Cooperation Scheme
-

1.4 Each Integrated Textile Park (ITP) would normally

have 50 units. The
Government has recently launched the Scheme
of Fund for Regeneration of Traditional Industries
(SFURTI) under which 100 traditional industry clusters
(of khadi, village industry and coir) would be taken up
for comprehensive development over 5 year. The
KVIC and the Coir Board are the nodal agencies for the
Scheme, which will be the first comprehensive
initiative for regeneration of the khadi and village
industries sector, based on the cluster development
methodology.
Technology infusion and/or upgradation of
Indian micro, small and medium enterprises (MSMEs),
their 52odernization and promotion of their exports are
the principal objectives of assistance under the
International Cooperation Scheme.
To provide infrastructure support for individual
units to upgrade their production, quality, skills,
marketing,

Rural
Industries
Service
Centre
(RISC)
Scheme for
Assistance to
The Scheme envisages financial assistance for
Training Institutions establishment of new institutions (EDIs), strengthening
the infrastructure of the existing EDIs and for
supporting entrepreneurship and skill development
activities. The main objectives of the scheme are
development of indigenous entrepreneurship from all
walks of life for developing new micro and small
enterprises, enlarging the entrepreneurial base and
encouraging self-employment in rural as well as urban
areas, by providing training to first generation
entrepreneurs and assisting them in setting up of
enterprises. The assistance shall be provided to these
training institutions in the form of capital grant for
creation/strengthening of infrastructure and programme
support for conducting entrepreneurship development

53
and skill development programmes.
Rajiv Gandhi
Udyami Mitra
Yojana (RGUMY)

Marketing
Assistance Scheme
through National
Small Industries
Corporation (NSIC)

The objective of scheme is to provide handholding

support and assistance to the potential first generation
entrepreneurs, who have already successfully
completed EDP/SDP/ESDP or vocational training from
ITIs, through the selected lead agencies i.e. Udyami
Mitras , in the establishment and management of the
new enterprise, in dealing with various procedural and
legal hurdles and in completion of various formalities
required for setting up and running of the enterprise
Ministry of Micro, Small & Medium Enterprises, interalia, through National Small Industries Corporation
(NSIC), a Public Sector Enterprise of the Ministry, has
been providing marketing support to Micro & Small
Enterprises (MSEs) under Marketing Assistance
Scheme.
To enhance marketing capabilities & competitiveness
of the MSMEs.
3.2 To showcase the competencies of MSMEs.
3.3 To update MSMEs about the prevalent market
scenario and its impact on their activities.
3.4 To facilitate the formation of consortia of MSMEs
for marketing of their products and services.
3.5 To provide platform to MSMEs for interaction
with large institutional buyers.
3.6 To disseminate/ propagate various programmes of
the Government.
3.7 To enrich the marketing skills of the micro, small
& medium entrepreneurs

Prime Minister s
Employment
Generation
Programme
(PMEGP)

Implemented by Khadi and Village Industries

Commission
(KVIC)
Objectives
9. To generate employment opportunities
in rural as well as urban
areas of the country through setting up of new selfemployment
ventures/projects/micro enterprises.
(ii) To bring together widely dispersed traditional
artisans/ rural
and urban unemployed youth and give them selfemployment
opportunities to the extent possible, at their place.
(iii) To provide continuous and sustainable
employment to a large

54
segment of traditional and prospective artisans and
rural and
urban unemployed youth in the country, so as to help
arrest
migration of rural youth to urban areas.
(iv) To increase the wage earning capacity of artisans
and contribute
to increase in the growth rate of rural and urban
employment
National
Manufacturing
Competitiveness
Programme (NMCP)
Under Xi Plan

Micro
&
Small
Enterprises Cluster
Development
Programme
(MSE-CDP)

S.No.

Name of the Sub-Scheme

Marketing Support/Assistance to
MSMEs(Bar Code)

Support for Entrepreneurial and Managerial

Development of SMEs through Incubators

Enabling Manufacturing Sector to be

competitive through Quality Management
Standard & Quality Tech. Tools (QMS/QTT)

Building Awareness on Intellectual Property

Rights (IPR) for MSME

Lean Manufacturing Competitiveness

Scheme for MSMEs

Mini Tool Rooms proposed to be set up by

Ministry of MSME (MTR)

Design Clinic Scheme for design expertise to

MSMEs Manufacturing sector (DESIGN)

Marketing Assistance & Technology Upgradation Scheme in MSMEs.

Technology and Quality Upgradation

Support to MSMEs

10

Promotion of ICT in Indian Manufacturing

Sector (ICT)

The Ministry of Micro, Small and Medium

Enterprises (MSME), Government of India
(GoI) has adopted the cluster development
approach as a key strategy for enhancing the
productivity and competitiveness as well as
capacity building of Micro and Small
Enterprises (MSEs) and their collectives in the
country. Clustering of units also enables
providers of various services to them, including

55

banks and credit agencies, to provide their

services more economically, thus reducing costs
and improving the availability of services for
these enterprises.
Objectives of the Scheme:
i. To support the sustainability and growth
of MSEs by addressing common issues
such as improvement of technology,
skills and quality, market access, access
to capital, etc.
ii. To build capacity of MSEs for common
supportive action through formation of
self help groups, consortia, upgradation
of associations, etc.
iii. To
create/upgrade
infrastructural
facilities in the new/existing industrial
areas/ clusters of MSEs.
iv. To set up common facility centres (for
testing, training centre, raw material
depot, effluent treatment, complementing
production processes, etc).
Credit
Linked The Scheme was launched in October, 2000 and
Capital
Subsidy revised w.e.f. 29.09.2005. The revised scheme aims at
Scheme
for facilitating Technology Upgradation of Micro and
Technology
Small Enterprises by providing 15% capital subsidy
Upgradation
(12% prior to 2005) on institutional finance availed by
them for induction of well established and improved
technology in approved sub-sectors/products. The
admissible capital subsidy under the revised scheme is
calculated with reference to purchase price of Plant and
Machinery. Maximum limit of eligible loan for
calculation of subsidy under the revised scheme is also
been raised Rs. 40 lakhs to Rs. 100 lakh w.e.f. 2909.2005.
Credit
Guarantee
Collateral free loans upto a limit of Rs.50 lakhs
Schemefor individual MSEs.
Purchase and Price This is administered through the Single Point
Preference Policy
Registration Scheme of NSIC. Under this, 358 items
are reserved for exclusive purchase from MSME by
Central Government. Other facilities include tender
documents free of cost, exemption from earnest money
and security deposit and 15% price preference in
Central Government purchases for individual MSMEs
4.

Department

of Research &

To set up World class infrastructure to test vehicles and

56
Heavy Industry

5.

Department
Chemical
Petrochemicals

6.

Department
Fertilizer

7.

Development in
Automotive
Industry
Implementation
of National
Automotive and
R&D
Infrastructure
Project
(NATRIP)
Various Schemes for
capacity
Augmentation of
plants & Machinery
of Scheme for Setting
& Up of Plastic Parks

Public Sector
Undertakings
Capital Subsidy
for conversion
Investments for Joint
Ventures abroad
Revival of Closed
Units
Department
of Central Public Sector
Pharmaceuticals
Undertakings

components against existing and emerging standards

mandated by the Govt. to significantly enhanced
vehicular safety, performance and ameliorated its
impact on public health.
Deepening of automotive manufacturing in India,
promoting larger value addition and thereby
significantly enhancing employment generation in this
sector.
India s emergence as a global outsourcing base for
automobiles and auto Components in furtherance of
Auto Policy.

1. Increase the competitiveness, polymer absorption

capacity and value addition in the domestic
downstream plastic processing industry through
adoption of modern, research and development led
measures.
2. Increase investments in the sector through
additions in capacity and production, creating quality
infrastructure and other facilitation to ensure value
addition and increase in exports.
3. Achieve environmentally sustainable growth
through innovative methods of waste management,
recycling, etc.
4. Adopt a cluster development approach to achieve
the above objectives owing to its benefits arising due
to optimization of resources and economies of scale.

of

There are five Central Public Sector Undertakings

(CPSUs) viz Indian Drugs and Pharmaceuticals
Limited (IDPL), Hindustan Antibiotics Limited (HAL),
Bengal Chemicals and Pharmaceuticals Limited
(BCPL), Bengal Immunity Limited (BIL) and Smith
Stanistreet Pharmaceuticals Limited(SSPL). Earlier
Karnataka Antibiotics & Pharmaceuticals Limited.
(KAPL) was a joint venture between Hindustan
Antibiotics Limited (HAL) and State Government of
Karnataka and Rajasthan Drugs and Pharmaceuticals
Limited (RDPL) was a joint venture of Indian Drugs
and Pharmaceuticals Limited (IDPL) and the State

57

8.

10.

Ministry
of Exploration and
Petroleum
& Production of the Oil
Natural Gas
& Natural Gas
Department
of Defence Offset
Defence
Policy
Production
Department
of Scheme of
Electronics and Manpower
Information
Development for
Technology
Software Export
Industry

R&D
Funding Scheme
Technology
Incubation and
Development of
Entrepreneurs
Multiplier
Grants Scheme
Support
International Patent
Protection in
Electronics & IT
(SIP-EIT) Scheme
STPI
Scheme
Special
Economic Zones
(SEZ) Scheme
Electronics
Hardware

Government of Rajasthan. But in order to sustain the

growth & development of KAPL & RDPL,
Government
has approved de-linking of both these companies from
HAL & IDPL respectively
ONGC, Oil India Limited

The Projects under the scheme are aimed to create

course contents, generate mentors & quality faculties
and skilled graduates in the information Technology
sector at various locations across India with a view to
increasing the employability of the students. The
Scheme covers Training of the Trainer s Program,
Enhancement of quality of IT education in colleges,
Virtualization of Technical Education, conducting
specialized short term courses in IT/ITES sector,
Setting up of National On-line Test System for
Graduates Engineers in Information technology, etc.
The duration of the above projects varies from 18
months to 3 years:

58
Technology Park
(EHTP) Scheme
Export
Oriented Unit (EOU)
Scheme
Export
Promotion Capital
Goods (EPCG)
Scheme
Duty
Exemption and
Remission Schemes
11.

Ministry
Shipping

of

12.

Ministry of Steel

Promotion of
Shipbuilding
Industry
Capacity
Augmentation of
major Ports
SHIPBREAKING
Public Sector
Undertakings (PSUs)
under the
administrative
control of the
Ministry

promotion of
Research &
Development in Iron
and Steel sector

Steel Authority of India Ltd., (SAIL), New Delhi

2. Rashtriya Ispat Nigam Ltd.(RINL), Visakhapatnam
3. NMDC Ltd., Hyderabad
4. MOIL Ltd., Nagpur
5. KIOCL Ltd, Bangalore
6. Hindustan Steelworks Construction Ltd. (HSCL),
Kolkata
7. MECON Ltd., Ranchi
8. MSTC Ltd., Kolkata
9. Ferro Scrap Nigam Ltd. (FSNL), Bhilai, (A
subsidiary of MSTC Ltd.)

59

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