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Poor Industrial Growth in India: Factors and Solutions

30 days, 30 NMAT by GMACTM

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"Poor Industrial Growth in India: Factors and Solutions"

Some economists believe that industrial production has bottomed out and is likely to make a slow recovery

General awareness on current topics is essential as not only you will be getting questions on   GK in various MBA entrance exams but it will be useful for Essay writing test and WAT also.

Today, you will read General Awareness Topic:  Poor Industrial Growth in India: Factors and Solutions

In July 2012, decline in manufacturing sector growth pulled down the overall industrial expansion to just 0.1 percent. Moreover, Growth in factory output, as measured by the index of industrial production (IIP), during the April-July period contracted by 0.1 percent. 

The worst performer has been the manufacturing sector, which constitutes over 75 percent of the index, showing a decline of 0.7 percent in July, and 0.9 percent in the April-July period. Among the different industrial segments, production of capital goods, this refers to the equipment used by industry to produce consumer items, declined by 5 percent.
 
 During the April-July period, the output of the sector contracted by 16.8 percent. Mining sector output dipped by 0.7 percent in July, as against the growth of 0.7 percent in the same month in year 2012. Consumer goods production was up 0.7 percent in July as compared to 6.4 percent growth in the same month last year. 
 
In all, only 8 of the 22 industry groups in the manufacturing sector showed positive growth in July 2012. Consumer durables production showed a decline in growth rate as this segment increased by 1.4 percent in July, compared to 9 percent in the same month last year. 
 
The consumer non-durables output growth declined to 0.1 percent in July, as against a growth of 4.1 percent in the same month last year. The basic goods production growth slowed to 1.5 percent in July, compared to 10 percent a year ago.
 
 Power generation too witnessed a dip in growth rate as it declined to 2.8 percent during July, compared to 13.1 percent in the same month a year ago. Thus negative sentiments prevailed in almost all the sectors of industry.
 
The industrial sector has been under stress for a significant period due to stubborn inflation, rising input costs, high interest rates and delay in implementation of projects and policy rollout. A Confederation of Indian Industry (CII) also considers rupee's depreciation, high inflation and fiscal deficit as the likely causes of downfall in industrial growth. 
 
The recession has hit many European countries like Greece like hell. The recent meltdown of those economies points to the fact that there will be fewer corporate investments from the foreign sector in Indian market some time to come. This low investment had affected the growth rate and will continue to affect the rate. The lack of demand from Western countries due to the slowdown has affected the export based industries of the country.
 
Moreover, depreciation of rupee fuels inflationary tendencies which on one hand reduces consumers demand for industrial goods, while on the other make import of intermediate goods used in industrial production costlier. 
 
High fiscal deficit due to populist policies of the central government is also doing harm as it is causing inflation apart from crowding out the private sector from institutional finance. When government increasingly borrows from the market, funds available for the market are reduced, thus making them expensive for the private sector.
 
The Reserve Bank of India (RBI) has raised interest rates 13 times since March 2010 to tame high inflation. Rise in interest rate is helpful in taming inflation but it adversely affects investment thus put downward pressure on growth. 
 
Corruption has its own role in the dent over growth. As demand for land and land prices increased, corruption became rampant, with some politicians, industrialists and bureaucrats using the lack of transparency in land ownership and zoning to misappropriate assets.
 
India’s corrupt elites had moved from controlling licenses to cornering newly valuable resources such as land. As a result, industrial, mining and infrastructure projects have ground to a halt. Increased incidents of corruption, lack of transparency in administration have their due share. 
 
Some economists believe that industrial production has bottomed out and is likely to make a slow recovery. But the recovery would depend on how government policies pan out in the months ahead and the global economic situation. 
 
Thus there are host of internal as well as external, economic as well as non-economic factors responsible for low growth of the secondary sector and therefore requires host of measures, economic as well as non-economic are required to reverse the trend. 
 
India's New Manufacturing Policy (NMP) aims to create 100 million jobs in 15 years; grow manufacturing about 3% faster than GDP so that its contribution to GDP can increase from 16% to 25%; and increase technological depth and value addition in India's manufacturing to enable India to improve its trade balance which has been deteriorating with increases in imports. But NMP has been a pipedream till now.
 
Sound industrial policy is the process of accelerating learning within a country's industrial eco-system that enables enterprises within it to improve their competitiveness faster than enterprises in other countries. Good industrial growth is considered better than primary and tertiary sector because it is not virtual like that of services and gives better returns compared to the agriculture sector. 
 
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