Industrial growth in India

By
ANAND AGARWAL
B.Tech (IIT Delhi)

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What is an Industry all about?
• Industry refers to a group of similar businesses.
• The automobile industry makes cars and car parts.
• The food service industry prepares food and delivers it to hotels,
schools, and other big facilities.
• So any economic activity concerned with the processing of raw
materials and manufacture of goods in factories.

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Examples of Indian Industry
• Tea Industry
• Jute Industry
• Cement Industry
• Sugar Industry
• Paper Industry
• The Engineering Industry
• Food Processing Industry
• Information Technology and Electronics Industry
• Automobile Industry.

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Importance of the Industry
1. Structural transformation
2. Source of employment
3. Infrastructural growth
4. National income
5. Export, trade and foreign exchange
6. Source of mechanized farming process
7. Have forward and backward linkages

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Relevant data
• Currently, it is contributing around 29.6 % of the Indian GDP (at
current prices) in 2018-19.
• The overall industrial sector growth is estimated to be 2.5% in 2019-
20 as compared to 6.9% growth in 2018-19.
• Manufacturing sector is estimated to grow at 2.0% during 2019-20. In
2018-19, share of the Industry sector in GVA was 29.6%.
• In the first four months of FY21, India's factory output shrank
29.2% compared with 3.5% growth in the year-ago period.

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• Index of Industrial Production Growth (IIP) is 0.6% during 2019-20
(April-November).
• IIP is a measure of industrial performance. It assigns a weight of 78%
to manufacturing followed by 14% to mining and 8% to electricity.

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• Manufacturing activities were subdued due to a decrease in domestic
demand for key sectors such as automotive and pharmaceuticals.
• Exports of labour-intensive sectors such as jewellery, basic metals,
leather and textile also underperformed during the current financial
year. Liquidity crunch due to reduced lending by NBFC also had an
adverse impact.
• The National Infrastructure Pipeline (NIP) has projected an
investment of Rs 100 lakh crore over five years (2020-25) in various
projects. Financing of the NIP will be a challenge.

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Core Industries

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IIP and PMI
• The Index of Industrial Production (IIP) is an index that shows the growth
rates in different industry groups of the economy in a fixed period of time.
• It is compiled and published monthly by the National Statistical Office
(NSO), Ministry of Statistics and Programme Implementation.
• IIP is a composite indicator that measures the growth rate of industry
groups classified under:
• Broad sectors, namely, Mining, Manufacturing, and Electricity.
• Use-based sectors, namely Basic Goods, Capital Goods, and Intermediate
Goods.
• Base Year for IIP is 2011-2012.
• The eight core industries of India represent about 40% of the weight of
items that are included in the IIP.

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The IIP is compiled using data received from 16
sources agencies
1. Department of Industrial Policy
and Promotion,
2. Indian Bureau of Mines
3. Central Electricity Authority
4. Joint Plant Committee
5. Ministry of Petroleum and Natural
Gas
6. Office of Textile Commissioner
7. Department of Chemicals and
Petrochemicals
8. Directorate of Sugar
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9. Department of Fertilizers
10. Directorate of Vanaspati,
Vegetable oils and Fats
11. Tea Board
12. Office of Jute Commissioner
13. Office of Coal Controller
14. Railway Board
15. Office of Salt Commissioner
16. Coffee Board
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Significance of IIP

• IIP is the only measure on the physical volume of production

• It is used by government agencies including the Ministry of Finance,
the Reserve Bank of India, etc, for policy-making purposes
• IIP remains extremely relevant for the calculation of the quarterly and
advance GDP estimates.

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Industry 4.0

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Issues with Industrial growth in the country
1. Regional Concentration
2. Loss in Public Sector Industries
3. Industrial Sickness
4. Lack of Infrastructure
5. Improper Location Base
6. Lack of Capital
7. Shortage of Industrial Raw Material
8. Higher Cost of Production and Low Quality of Goods
9. Delayed Environmental clearances
10. Lack of skilled labour

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Industrial sickness : Causes
(i) deficient management,
(ii) under-utilisation of capacity due to shortage of raw materials, coal
and power and transport,
(iii) obsolete machinery, equipment and production techniques,
(iv) uneconomical scale of production,
(v) faulty choice of products and processes,
(vi) difficulties in selling the products,
(vii) diversion of funds to new units under same ownership, and
(viii) conflict between different interest groups among the owners.

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Role of state in industrial development. WHY?
1. Lack of capital with the private entrepreneurs and requirement of
huge capital
2. Socialistic pattern of economic development
3. Lack of incentive among private investors
4. For the same various industrial policies resolutions were made
5. First made in 1948, the first economic policy of India
6. Industries divided into central list, state list and others
7. Review after 10 years

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Industrial Policy resolution 1948
• First Industrial Policy
• Decide the model of Mixed Economy (Mostly on papers)
• Industries are classified into 3 lists Central, State and left for private
sector investment.
• To be reviewed after 10 years.

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Industrial policy resolution 1956
• IPR 1956 laid resolution of the 2nd five year plan, a pattern for
socialistic economic model.
• Nehru ji termed PSUs as the “Temples of modern India”
• Following were the principal elements of IPR 1956
1. Three fold classification of Industry
2. Industrial licensing : Provision of compulsory licensing for all
Industries in Schedule B and C. led to LQP raj.
3. Expansion of public sector
4. Emphasis on small industries
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• Three fold classification stands for classifying Industries into Group A,
B and C.
• Group A consists of 17 industries under the Union government such
as Atomic energy, Steel and Iron, Heavy power plants Aircraft etc.
• Group B : 12 industries with the state government like manufacture of
drugs, dyes, fertilisers, chemical etc.
• Group C : Left out from above groups for private sector subject to
licensing and regulation.

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Other Policies
• Industrial Policy 1969 : MRTP Act was passed
• Industrial Policy 1973 : A new classification of core industries was
created such as Coal, crude oil, Electricity etc.
• Industrial Policy 1980
• New industrial Policy 1991

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New Industrial Policy, 1991
• Faced with balance of payment crisis in 1991, India needed new industrial
model which was proposed in the NIP, 1991 and the major highlights are as
follows
1. De-reservation of Industries : Industries reserved for the central list was
cut down to 8.
2. De-licensing of the Industries : compulsory industrial licensing was
lowered.
3. Abolition of the MRTP limit : replaced by Competition commission in
2002.
4. Promotion of the foreign investment
5. FERA replaced by FEMA

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New manufacturing Policy, 2011
• To boost manufacturing, NMP was unveiled in 2011 and the major
objectives are :
1. Enhance the share of manufacturing in the GDP to 25% from 16%
and create 100 million new jobs by 2022.
2. Focus on employment intensive industries and give trainings
3. Setup NIMZs, the clusters
4. Incentives for PPP also given
5. Incentives for MSMEs

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Make in India, 2014
• The 'Make in India' program is an initiative launched to encourage
companies to increase manufacturing in India.
• This not only includes attracting overseas companies to set up shop in
India, but also encouraging domestic companies to increase
production within the country.
• 'Make in India' aims at increasing the GDP and tax revenues in the
country, by producing products that meet high quality standards, and
minimizing the impact on the environment.

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• Fostering innovation, protecting intellectual property, and enhancing
skill development are the other aims of the program.
• Make in India is to encourage multi-national, as well as national
companies to manufacture their products in India.

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Policies under 'Make in India' initiative
• There are 4 major policies under the 'Make in India' program:
1. New Initiatives: This initiative is to improve the ease of doing business in India, which
includes increasing the speed with which protocols are met with, and increasing
transparency.
2. Foreign Direct Investment (FDI):
• The government has allowed 100% FDI in all the sectors except Space(100%), Defence
(49%) Now 74% (September 19, 2020) and News Media (26%).
• FDI restrictions in tea plantation has been removed.
3. Intellectual Property Facts:
• The government has decided to improve and protect the intellectual property rights of
innovators and creators by upgrading infrastructure, and using state-of-the-art
technology.
• The main aim of intellectual property rights (IPR) is to establish a vibrant intellectual
property regime in the country.

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4. National manufacturing:
• to increase manufacturing sector growth to 12-14% per annum over the medium
term.
• to increase the share of manufacturing in the country’s Gross Domestic Product
from 16% to 25% by 2022.
• to create 100 million additional jobs by 2022 in manufacturing sector.
• to create appropriate skill sets among rural migrants and the urban poor for
inclusive growth.
• to increase the domestic value addition and technological depth in
manufacturing.
• to enhance the global competitiveness of the Indian manufacturing sector.
• to ensure sustainability of growth, particularly with regard to environment.

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MSMEs

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 Growth and Performance
• In recent years the MSME sector has consistently registered higher growth rate compared
to the overall industrial sector in India.
• 6.3 crores MSME as per NSSO survey 73rd round (68 lakh registered on UAM)
• 30% to the GDP and 11 crore jobs
• During the first 4 years of XII Plan, MSME Sector exhibited a growth rate of 13% on an
average, an impressive performance compared to most of the other sectors.
• It is estimated that in terms of value, MSME sector accounts for about 45% of the
manufacturing output and around 49.91% (2019-20) of the total export of the country.
• The major advantage of the sector is its employment potential at low capital cost

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Opportunities
1. Less Capital Intensive
2. Extensive Promotion & Support by Government
3. Reservation for Exclusive Manufacture by small scale sector
4. Funding - Finance & Subsidies
5. Reservation for Exclusive Purchase by Government
6. Export Promotion
7. Growth in demand in the domestic market size due to overall economic
growth
8. Increasing Export Potential for Indian products
9. Growth in Requirements for ancillary units due to the increase in number
of green field units coming up in the large scale sector

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Problems
(i) lack of adequate capital
(ii) Poor infrastructure
(iii) Access to modern technology
(iv) Access to markets
(v) Getting statutory clearances related to power, environment, labour
etc.

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UAM
1. UAM is a one-page registration form which constitutes a self-
declaration format under which the MSME will self-certify its
existence, bank account details, promoter/owner’s Aadhaar details
and other minimum information required.
2. There shall be no fee for filing the Udyog Aadhaar Memorandum.
On submission of the form, Udyog Aadhaar Acknowledgement shall
be generated and mailed to the email address provided in the
Udyog Aadhaar Memorandum which shall contain unique Udyog
Aadhaar Number (UAN).

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• Prime Minister’s Employment Generation Programme (PMEGP)
• PMEGP is the flagship programme of the government offering credit
linked subsidy to establish new enterprises for generating continuous
and sustainable employment opportunities in Rural and Urban areas
of the country.
• A Scheme for Promotion of Innovation, Rural Industry and
Entrepreneurship (ASPIRE) : ASPIRE has been launched on
16.03.2015 with an objective to set up a network of technology
centers, incubation centres to accelerate entrepreneurship and also
to promote start-ups for innovation and entrepreneurship in rural and
agriculture based industry with a fund of Rs.210 crores.

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• Scheme of Fund for Regeneration of Traditional Industries (SFURTI) : The
objectives SFURTI is to organize the traditional industries and artisans into
clusters to make them competitive and provide support for their long term
sustainability by way of enhancing the marketability of products, improving
the skills of artisans, making provision for common facilities and
strengthening the cluster governance systems.
• Credit Guarantee Trust Fust for Micro and CGTMSE Scheme : CGTMSE
was set up to strengthen credit delivery system and facilitate flow of credit
to the MSE sector. The Credit Guarantee under CGTMSE seeks to reassure
the lender that, in the event of a MSE unit, which availed collateral free
credit facilities, fails to discharge its liabilities to the lender; the CGMSE
would make good the loss incurred by the lender up to 85 per cent of the
credit facility.
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Solutions
1. Credit Guarantee Scheme,
2. Credit Linked Capital Subsidy Scheme,
3. Cluster Development Programme and
4. National Manufacturing Competitiveness Programme etc.
5. Furthermore, the Ministry has been interacting with various
concerned Ministries/Departments/State Governments/Banks and
other stake-holders to streamline the mechanism for grant of loans,
6. simplify labour laws and other procedures to facilitate the growth
of MSME units

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Infrastructure

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• Refers to such core elements of economic and social change which
serve as a support system to production activity in the economy
• Without these core elements production activity can at best yield
subsistence but can not generate surplus to achieve higher levels of
living.
• These are core elements of economic and social change

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Categorisation of infrastructure
• Economic and social infrastructure
Economic infra : refers to all such elements of economic changes e.g.
power, transport, communication which serve as a support system to
the process of economic growth
Social infra : core elements of social change e.g schools, colleges,
hospitals
Social infra focuses on human resource development which aims at
social development

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• While economic infrastructure fosters economic growth, social
infrastructure fosters human growth
• Economic infrastructure accelerates process of growth, social infra is
for human development.
• Earlier were Traditional infra, and now is modern infra.
• Main components are Transport such as road, railways, ports, Energy
• Emerging concepts are urban infra, renewable infra

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Link of infrastructure and development
• Impacts productivity : industrial, transport, agriculture, irrigation,
marketing, energy production, distribution etc.
• Attracts investment
• Generates linkages in production
• Increases consumption and market size
• Increases employment

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Major infra projects in India
1. Delhi Mumbai Industrial Corridor ($90bn) :aims to create seven smart
cities.
2. The smart cities will be evenly distributed along a dedicated freight
corridor between the two large Indian cities Delhi and Mumbai.
3. Once completed Delhi Mumbai Industrial Corridor is supposed to be
developed as a Model Industrial Corridor of international standards.
4. There will be an emphasis on expanding the manufacturing and services
base and develop DMIC as the ‘Global Manufacturing and Trading Hub’.
5. The project is expected to generate three million job opportunities in
manufacturing, processing and services sectors.

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DFC

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• Charanka Solar Park ($280m) is a 2,000-hectare plot of land
developed near Charanka village in Patan district of northern Gujarat.
• It hosts about 19 different projects by different developers.
• The Charanka Solar Park will host 500 MW of solar power systems.
The solar park is expected to save around 900,000 tonnes of natural
gas annually.
• The Bogibeel Bridge is a Railway Project

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1. The Bogibeel Bridge Railway Project
2. Banihal-Qazigund tunnel ($282m) The Banihal-Qazigund section
includes the 11.2km Pir Panjal tunnel and offers reduced travel distances
between the two towns, from the current 35km by road. The section
connects the Jammu region to the 119km Kashmir Valley line between
Qazigund, Srinagar and Baramulla.
3. Setu Bharatam project, which is worth Rs 50,800-crore aims to ensure
safety in highways without railway crossings by 2019. It has plans to
overhaul of 1,500 British-era bridges. By 2019, at an estimated cost of Rs
20,800 crore the project will replace 208 railway crossings with rail over
bridges (ROBs). The project aims to overhaul 1,500 bridges of the British
era that will be restructured and reconstructed for around Rs 30,000
crore.

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• Inland waterways project has been planned in rivers like Ganga,
Brahmaputra and Mahanadi. 106 inland waterways are to be developed for
transport of cargo and passengers in the next 2-3 years. The government
has allocated 4,000 crores for the development of waterway facilities in
Ganga.
• Bharatmala
• 35,000km highways across 16 states, including 9,000km of economic
corridors
• intended to improve connectivity, enable faster movement of goods, create
22 million jobs and decrease supply chain costs from the current average
18% to 6%
• planned completion by 2022

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• Sagarmala
• modernize 12 major ports and 185 minor ports along the entire
7,500km coastline of India
• intended to stimulate trade, create 10 million new jobs, provide
logistic costs savings of over Rs. 35,000 crore ($5 billion) per year and
potential GDP increase by 2%
• similar port modernization since 1978 at Shenzhen in China, helped
create seven million jobs and city’s GDP grew by 50 times to $180
billion

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• Bullet Train (High Speed Rail) on Mumbai-Ahmedabad route
• 508km high speed track, including 7km undersea tunnel
• train speed of 320km/h, will reduce travel time between business-
critical cities of Mumbai and Ahmedabad from 7 hrs to 2 hrs
• planned to be operational by 2022

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Some stats
1. As of May 1, 2019, 1,332 projects were being monitored in the country;
of these, 253 projects are running behind their original project
implementation schedule
2. The power sector tops the charts with 61 delayed projects followed by
railways with 46 delayed projects and coal with 35.
3. The total original cost of implementation of 1,332 projects was
16, 26,675.5 crore and their anticipated completion cost is likely to be Rs.
18, 49,766.91 crore = extra of Rs. 2,23,091.39 crore (13.71 per cent of
original cost).
4. The expenditure incurred on these projects till April 2018 is Rs
6, 63,109.75 crore, which is 35.85 per cent of the anticipated cost of the
projects.

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Problems in infrastructural development
1. Land acquisition
2. Clearances from multiple agencies e.g. environment
3. Funds, capital as government already has high fiscal deficit.
4. India needs 4-5 trillion dollars of investment in the next 10 years
5. TBS
6. Under developed bond market
7. Inflation increases the cost
8. Global climate
9. Banks credit not sufficient due to already high NPA and tight monetary policy of the central
bank.
10. Power sector: fuel shortage
11. In 2018, India ranked 44th out of 167 countries in World Bank's Logistics Performance Index
(LPI) 2018.

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Solutions/Steps
• Announcements in Union Budget 2018-19 and 2019-20:
• NIP 2020
• Massive push to the infrastructure sector by allocating Rs 5.97 lakh
crore (US$ 92.22 billion) for the sector.
• Railways received the highest ever budgetary allocation of Rs 1.48
trillion (US$ 22.86 billion)
• Rs 16,000 crore (US$2.47 billion) towards Sahaj Bijli Har Ghar Yojana
(Saubhagya) scheme. The scheme aims to achieve universal
household electrification in the country

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• Rs 4,200 crore (US$ 648.75 billion) to increase capacity of Green
Energy Corridor Project along with other wind and solar power
projects
• Allocation of Rs 10,000 crore (US$ 1.55 billion) to boost telecom
infrastructure.
• A new committee to lay down standards for metro rail systems was
approved in June 2018. As of August 2018, 22 metro rail projects are
ongoing or are under construction.
• Rs 2.05 lakh crore (US$ 31.81 billion) will be invested in the smart
cities mission. All 100 cities have been selected as of June 2018.
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• The Government of India is working to ensure a good living habitat for
the poor in the country and has launched new flagship urban mission,
the Pradhan Mantri Awas Yojana (Urban).
• In May 2018, construction of additional 150,000 affordable houses
was sanctioned under Pradhan Mantri Awas Yojana (PMAY), Urban.
• Monitor : PRAGATI
• Propose various models
• PPP, VGF, EPC, HAM
• NIIF
• NCLT, Dispute resolution
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Investment Models
• 1. Public Investment
• 2. Private Investment
• 3. Public-Private investment
• BOT (build–operate–transfer).
• BOOT (build–own–operate–transfer).
• BOO (build–own–operate).
• DBFOT (design–build–finance–operate-Transfer).
• DBOT (design–build–operate–transfer).
• DCMF (design–construct–manage–finance).

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Recommendations
• Vijay Kelkar Committee Report on Revisiting and Revitalising PPP Model
• Finance Minister in the Union Budget 2015-16 announced that the PPP
mode of infrastructure development has to be revisited and revitalised.
• Key recommendations of the committee:
• Contracts need to focus more on service delivery instead of fiscal benefits.
• Better identification and allocation of risks between stakeholders
• Prudent utilization of viability gap funds where user charges cannot
guarantee a robust revenue stream.

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• Improved fiscal reporting practices and careful monitoring of performance.
• Cost effectiveness of managing the risk needs to be evaluated.
• An Infrastructure PPP Adjudication Tribunal (“IPAT”) chaired by a Judicial
Member (former Judge SC/Chief Justice HC) with a Technical and/or a Financial
member, where benches will be constituted by the Chairperson as per needs of
the matter in question.
• Projects that have not achieved a prescribed percentage of progress on the
ground should be scrapped. Re-bid them once issues have been resolved or
complete them through public funds and if viable, bid out for Operations and
Maintenance.
• Sector specific institutional frameworks may be developed to address issues for
PPP infrastructure projects.
• Umbrella guidelines may be developed for stressed projects that provide an
overall framework for development and functioning of the sector specific
frameworks.
• Unsolicited Proposals ("Swiss Challenge") to be discouraged to avoid information
asymmetries and lack of transparency.

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• Amend the Prevention of Corruption Act, 1988 to distinguish between genuine
errors in decision-making and acts of corruption.
• An institutionalized mechanism like the National Facilitation Committee (NFC) to
ensure time bound resolution of issues.
• Ensure adoption of principles of good governance by the Special Purpose Vehicle
(SPV).
• Discourage government participation in SPVs that implement PPP projects unless
strategically essential.
• Ministry of Finance to allow banks and financial institutions to issue Zero Coupon
Bonds which will also help to achieve soft landing for user charges in
infrastructure sector.
• Ensure integrated development of infrastructure with roadmaps for delivery of
projects.

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