[Solved] “Industrial growth rate has lagged behind in the overall growth of Gross-Domestic- Product(GDP) in the post-reform period” Give reasons. How far the recent changes is Industrial Policy are capable of increasing the industrial growth rate? UPSC GS-3 Mains 2017)
India’s GDP growth rate in post- 1991 era stands at around 7% while touching 10.26% once in 2010 while industrial growth has lagged behind a lot standing at around 3-4% only.
Challenges that have restricted industrial growth are:
• Inadequate infrastructure
• Restrictive labour laws: Though labour protection and security are required, the flipside is that it discourages employers from hiring workers on a regular basis.
• Slow technology adoption: Inefficient technologies led to low productivity and higher costs adding to the disadvantage of Indian products in international markets.
• Complicated business environment due to bureaucratic red-tape.
• Low productivity
• Challenges for trade
• Inadequate expenditure on R&D and Innovation
The recent changes in the industrial policy aim towards- Transform, Reform and Perform. Their ability to increase the industrial growth rate depend on the following parameters-
• Establishing global linkages- The long-term objective would be to establish complete value chains, within India or across countries, in select sunrise sectors like renewable energy, food processing, electronics, etc.
• This would depend on integration of MSME sector with the global world and infusing modern technology in them.
• Enhancing industrial competitiveness-by improving labour productivity, leveraging presence of a large public sector in core sectors and the forward and backward linkages created over the decades provides for captive source for investments and efficiency improvements.
• Creating a predictable taxation regime
• Enabling ecosystem for technology adoption and innovation by encouraging start-ups and thriving innovation ecosystem that provides appropriate support at the right stage of innovation A comprehensive, actionable, outcome oriented industrial policy will enable Industry to deliver a larger role in the economy; to fulfil its role as the engine of growth and to shoulder the responsibility of adding more value and jobs.
Industrial policy 1991 set out directions for industrialisation in an economy that began its journey in liberalisation. It dealt with liberalising licensing and measures to encourage foreign investments. However, Industrial growth rate could not match the pace with the overall growth of GDP.
Constraints to industrial growth
- Inadequate infrastructure:Physical infrastructure in India suffers from substantial deficit in terms of capacities as well as efficiencies. Lack of quality of industrial infrastructure has resulted in high logistics cost and has in turn affected cost competitiveness of Indian goods in global markets.
- Restrictive labour laws:The tenor of labour laws has been overly protective of labour force in the formal sector.
- Complicated business environment:A complex multi-layered tax system, which with its high compliance costs and its cascading effects adversely affects competitiveness of manufacturing in India.
- Slow technology adoption:Inefficient technologies led to low productivity and higher costs adding to the disadvantage of Indian products in international markets.
- Inadequate expenditure on R&D and Innovation:Public investments have been constrained by the demands from other public service demands and private investment is not forthcoming as these involve long gestation periods and uncertain returns.
- Recently Department of Industrial Policy and Promotion (DIPP) has proposed various changes in industrial policy that will focus on increasing the industrial growth rate in following manner The new policy aims to attract $100 billion of FDI in a year, up from $60 billion in 2016-17, it will also aim at retaining investments and accessing technology.
- The policy aims to harness existing strengths in sectors like automobiles and auto-components, electronics, new and renewable energy, banking, software and tourism.
- The policy also aims to create globally scaled-up and commercially viable sectors such as waste management, medical devices, renewable energy, green technologies, financial services to achieve competitiveness.
- The policy will also push for reforms to enhance labourmarket flexibility with an aim for higher job creation in the formal sector and performance linked tax incentives.
- Since the commencement of reforms in 1992 the GDP has grown and consistently maintaining the trajectory of growth. But the industrial growth is lower than the overall growth rate because of importance give to service sector. Service sector growth contributed major share to the overall growth. In the recent changes made to industrial policy aimed at improving the industrial growth.
- Under the make in India program manufacturing sector is given importance. The aim of those is to increase the percentage of this sector to 25% GDP by 2022. The govt is so ambitious about creating 10 million jobs, which also part of this policy. This is certainly done by attracting the foreign investments and encourage domestic investments.
- Under the Startup India scheme innovation is given more importance. Once startups comes it will generate employment and added revenue. Small and medium sector is also given importance. Domestic content requirement in foreign investment, given priority to MSME sector in government departmental procurement, creating manufacturing hubs, NIMZs, coastal economic zones all are aimed at increasing the industrial growth rate. Along with necessary structural reforms, ease of doing business, political will bring the desired results.
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