India’s Industrial Sector

India’s vision of a USD 5 Trillion Economy will significantly depend on the growth of the Industrial sector. There are eight industrial sectors that are considered the core in India.

The core sector makes up 40% of the Index of Industrial Production (IIP), making it a lead indicator of industrial activity. The core sector reported 8% growth in June 2022 from the Covid level, with a healthy performance from all the sectors, except steel and crude oil.

With Industry 4.0 fast approaching, it is important to acknowledge the hurdles that exist in India's industrial development, especially the core sector, since demand is exceeding the supply.

What is the Index of Industrial Production (IIP)?

• It is an indicator that measures the changes in the volume of production of industrial products during a given period. Base Year- 2011-2012.
• It is compiled and published monthly by the National Statistical Office, Ministry of Statistics and Programme Implementation.
• It is a composite indicator that measures the growth rate of industry groups classified under:
  • Broad sectors: Mining, Manufacturing, and Electricity.
  • Use-Based Sectors: Basic Goods, Capital Goods, and Intermediate Goods.
• Index of Eight Core Industries (ICI): This is an index of the eight most fundamental industrial sectors of the Indian economy and comprises 40.27% of the weight in IIP.
  • The monthly Index of Eight Core Industries (ICI) measures collective and individual performance of production in eight core industries.
  • The eight core sector industries in decreasing order of their weightage:
    • Refinery Products> Electricity> Steel> Coal> Crude Oil> Natural Gas> Cement> Fertilizers.

What are the Challenges Associated with the Industrial Sector in India?

• Lack of Efficient Infrastructure and Manpower: High technology based Infrastructure especially for transportation and skilled manpower are crucial for enhancing manufacturing competitiveness in the globalized economy.
  • Telecom communication facilities are mainly confined to big cities. Most of the State Electricity Boards are running in loss and are in deplorable condition.
  • Rail transport is overburdened while road transport suffers from a variety of problems.
• Maintaining a Level Playing Field: The MSME sector seems to be relatively less favorably placed in terms of credit availability and credit cost of working capital as compared to the medium and large scale industrial and services sectors. This persistent bias needs to be corrected.
• Reliance on Foreign Imports: India is still dependent on foreign imports for transport equipment, machinery (electrical and non-electrical), iron and steel, paper, chemicals and fertilizers, plastic material etc.
  • In India, the total industrial production of consumer goods contributes 38% In newly industrialized countries like Singapore, South Korea and Malaysia this percentage is 52, 29 and 28 respectively.
  • This shows that import substi­tution is still a distant goal for the country.
• Improper Location Base: Industrial locations, in several instances, were established without reference to cost-effective points. Each state clamors for the establishment of major industries in the public sector within its boundaries, and the location decisions are often politically motivated.
• Loss in Public Sector Industries: Owing to focus on the socialistic pattern of de­velopment, investment under public sector industries increased phenomenally during early five year plans.
  • But due to ineffective policy implementation characterized by red-tape and strained labor-management relations most of these public sector enterprises are running in loss.
  • Every year the government has to incur huge expenditure to cover up this loss and meet obligations of paying wages to the employees.

What Should be the Way Forward ?

• Public-Private Partnership Projects: There is a strong case for enhancing public investment and building PPP projects that will increase efficiency and transparency.
  • The first line of Mumbai Metro between Ghatkopar and Versova was built on PPP model.
• Removal of Infrastructural Bottleneck: Slow rate of capacity addition in physical infrastructure sectors is constricting industrial sector growth. Capacity addition in core sectors and removal of infrastructure bottlenecks would spur industrial sector output in the medium to long term.
• Optimum Use of India’s Demographic Dividend: With increasing share of young working population in the total population, India can achieve its full manufacturing potential as it looks to benefit from its demographic dividend and a large workforce over the next two to three decades.
• Improving Research and Development: Industrial research and development needs to be strengthened in general and industrial sector-specific in particular, so that the industrial sector can become more demand-driven.
• Potential to become a Global Hub: India’s manufacturing industry is already moving in the direction of Industry 4.0 where every datapoint will be connected and analyzed.
  • With a large pool of engineers, a young labor force, wages that are half that of China's, strengthens India to be a global powerhouse.
• Reforms in Industrial Policy: Over the medium to long term, to sustain double-digit output growth and reduce the vulnerabilities of the core sector, there is a need to put in place an effective industrial policy framework for embarking on another round of multifaceted reforms.

Drishti Mains Question What are the major roadblocks for the development of the Industrial Sector in India. How Gati Shakti National Master Plan can help India to improve its core sector.