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“Industrial growth rate has lagged behind in the overall growth of Gross-Domestic-Product (GDP) in the post-reform period.” Give justifications. To what extent may the latest developments in the industrial sector accelerate the rate of industrial growth?
Model Answer
Introduction
The industrial growth rate in India has lagged behind the overall growth of Gross Domestic Product (GDP) in the post-reform period. While the industrial sector contributes significantly to the economy, accounting for 27.6% of GDP, its growth has remained stagnant at around 2-3%, compared to GDP growth rates exceeding 6-7%.
Reasons for Lagging Industrial Growth
The industrial sector suffers from a significant deficit in physical infrastructure, necessitating an investment of $1 trillion to improve capacities and efficiency.
Poor quality of industrial infrastructure has led to high logistics costs, making Indian goods less competitive globally. India spends 2-3 times more on logistics than its competitors.
Complex and rigid labour laws create challenges for employers, often leading to legal complications that hinder industrial growth.
A multi-layered tax system with high compliance costs adversely affects the competitiveness of manufacturing. India ranks poorly in regulatory aspects according to the Ease of Doing Business (EoDB) 2020 report.
The reliance on inefficient and outdated technologies results in low productivity and higher costs, further disadvantaging Indian products in international markets.
Recent Changes in Industrial Policy
The Department of Industrial Policy and Promotion (DIPP) has introduced several initiatives aimed at revitalizing industrial growth:
While these initiatives are long-term measures, they are expected to positively impact industrial growth in the future.
Conclusion
The industrial growth rate in India has lagged due to various structural challenges. However, recent policy changes by the DIPP aim to address these issues and stimulate growth in the industrial sector.
Introduction
In the post-reform period, India’s industrial growth rate has lagged behind the overall Gross Domestic Product (GDP) growth. This disparity has been a concern for policymakers aiming to boost industrial sector performance.
Reasons for Lagging Industrial Growth
Despite economic reforms, regulatory hurdles and bureaucratic red tape have impeded industrial growth. For instance, complex labor laws and inconsistent tax policies have created an unfriendly environment for business expansion.
Inadequate infrastructure such as poor transportation networks, unreliable power supply, and inefficient logistics has constrained industrial efficiency and competitiveness. The Logistics Performance Index for India highlights persistent issues in this area.
Access to finance remains a challenge for many industries, particularly small and medium enterprises (SMEs). High-interest rates and stringent lending norms have restricted their ability to invest in new technologies and expand operations.
Many Indian industries have been slow to adopt modern technologies and innovative practices, which has affected their productivity and global competitiveness. This is evident in the relatively lower research and development (R&D) expenditure compared to global standards.
Recent Changes and Their Impact
The PLI scheme introduced for sectors like electronics, pharmaceuticals, and textiles aims to boost manufacturing by offering incentives based on incremental production. For instance, the scheme has attracted significant investments in the electronics sector, leading to job creation and technological advancements.
The NIP aims to improve infrastructure, with an investment of ₹111 lakh crore in areas like transportation, energy, and urban development. Enhanced infrastructure is expected to reduce logistical costs and improve industrial efficiency.
Initiatives like Startup India and Make in India focus on fostering innovation and attracting foreign direct investment (FDI). These policies have led to increased entrepreneurial activity and foreign investment in industrial sectors.
The government has implemented reforms to improve the ease of doing business, such as simplifying tax regulations and reducing compliance burdens. These reforms are designed to make the industrial environment more conducive to growth.
Conclusion
While industrial growth has lagged behind overall GDP growth due to regulatory, infrastructural, and financial challenges, recent changes like the PLI scheme, NIP, and ease of doing business reforms hold promise. If effectively implemented, these measures could significantly boost the industrial growth rate and enhance India’s global competitiveness.