Industry - Indian Economy Notes

Sunil Kumar D
May 23, 2023
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An industry is a collection of companies that are linked by their primary business

activities. There are dozens of industry classifications in today's economies.
Typically, industrial classifications are grouped into larger categories known
as sectors. As it leads to largely distinct categories with simple relationships,
industrial classification is useful for economic analysis. It is a crucial topic in the
Economy syllabus for the UPSC Examination. The article explains Industry in all
possible aspects of the UPSC Examination.

Industrial Sector
What is an Industrial Sector?
• The industrial sector is a sector of the economy that is made up of companies
that help other companies manufacture, ship, or produce their goods.
• The industrial sector is classified as a secondary sector because the goods
and services it provides are sold to other businesses rather than to
consumers directly.
• Since this industrial sector is reliant on purchasing from other businesses,
supply and demand in other sectors often drive its growth or contraction.

Other Relevant Links

Industrial Policies MSME Sector
Disinvestment Ease of Doing Business
Make in India Startup India
Index of industrial Manufacturing Sector in
production India
Industrial Policies
Industrial Policies
• Industrial Policy is a formal declaration undertaken by the Government that
outlines the government’s general policies for industries.
• It is characterized by actions and policies of the government which impact the
industrial development of a country.
 • The Industrial Policy Resolution of 1948 outlined the broad policy roles of
the state in industrial development both as an entrepreneur and authority.

Industrial Policy Resolution, 1948

• Industrial Policy Resolutions 1948 tells about the broad contours of the
policy, which outlined the role played by the state in industrial development
both as an entrepreneur and authority.
• It led to the development of India as a mixed economic model.
• It led to the classification of large industries into four categories as Strategic
Industries, Basic / Key industries, Important Industries and other industries
which were called Public Sector; Public-cum-Private Sector; Controlled
Private Sector, and Private & Cooperative sector.
• This policy was also known as the socialization of vacuum because it
pictured that the state would invest resources only in those sectors of the
economy which were unoccupied (partially or fully) by the private sector.

Industrial Policy Resolution, 1956

• The Industrial Resolution Policy 1956 was developed due to the changes
that occurred due to the economic and political developments in different
spheres that called for changes in industrial policy in a short period of
operation of the 1948 Industrial Policy.
• It was based upon the Mahalanobis Model of growth which advocated that
emphasis should be laid on the heavy industries, which can increase the
economic output of the country.
• Mahalanobis' model suggested the dominance of the heavy industries.
• It laid the foundation for India’s second five-year planand Industrial policy
Resolution 1956, which paved the way for the development of the Public
Sector and licence raj.

Industrial Policy Resolution, 1980

• Industrial Policy Resolution of 1980 intended to promote the concept of

economic federation.
• It focused on raising the efficiency of the public sector and reversing the
trend of industrial production of the past years and
• It believed in faith in the Monopolies and Restrictive Trade Practices (MRTP)
Act and the Foreign Exchange Regulation Act (FERA).

Industrial Policy Resolution, 1985 & 1986

 • The government passed the industrial policy resolutions in 1985 and 1986 in
order to diversify and open the Indian market.
• Both of these policies loosened foreign investment rules and altered the
MRTP Act by simplifying the industrial licensing process.

New Industrial Policy, 1991

• The Government of India announced its new industrial policy 1991 on July
24, 1991, with the goal of correcting the distortions and weaknesses in the
country's industrial structure that had developed over four decades, raising
industrial efficiency to international levels, and accelerating industrial
growth.
• Government monopoly was reduced by decreasing the number of industries
reserved for the public sector from 17 (as per 1956 policy) to 8 industries
such as arms and ammunition, atomic energy, coal, mineral oil, mining of iron
ore, manganese ore, gold, silver, mining of copper, lead, etc.
• The Industrial Licensing Policy abolished the industrial licensing given to all
industries except for the 18 industries, which was further reduced to 6
industries in 1999.

Disinvestment
Disinvestment
• When governments or organizations sell or liquidate assets or subsidiaries,
this is known as disinvestment.
• Divestment or a reduction in capital expenditures (CapEx) are both examples
of disinvestment.
• Disinvestment is done for a variety of reasons, including strategic, political,
and environmental considerations.

Disinvestment

• A company's assets are sold off as part of a sale

of assets, which is done to increase the
company's value and efficiency.
• Many businesses will use divestment to sell off
non-core assets, allowing management teams to
refocus on their core business.

Types of Disinvestment
Types of Disinvestment
Disinvestment can be classified into the following types :
Minority Disinvestment

• It is a type of disinvestment where the government retains a majority stake in

the company, mostly greater than 51%, and ensures that the management
control stays with the government.
• Minority disinvestment of institutions started in the early and mid-90s.

Majority Disinvestment

• It is a type of disinvestment where the government, post disinvestment,

retains a minority stake in the company, and completely it sells off its
majority stake.
• Generally, majority disinvestments have always included strategic partners.
• These partners could be other CPSEs themselves, such as BRPL to IOC, and
KRL to BPCL.

Current Disinvestment Policy

• The government brought in the New Public Sector Enterprise (“PSE”) Policy
for Atmanirbhar Bharat to decrease its presence in the PSEs across all
sectors of the economy.
• As of January 24, 2022 government has received Rs 9,330 crore from the
disinvestment of CPSEs through the Offer for Sale (OFS) route and the sale
of shares through the stock exchange.
• The government has revised its disinvestment estimate for 2021-2022 to
₹78,000 crores.

MSME Sector
MSME Sector
• The MSME sector forms the core of the Indian economy and has always
acted as the bulwark for the Indian economy, providing it strength and
resilience to tolerate global economic shocks and adversities.
• This sector’s contribution to the economy includes 6.11% of the
manufacturing GDP and 24.63% of the GDP from service activities as well as
33.4% of India’s manufacturing output.
• Throughout the country, it has around 63.4 million units. The MSME sector
constitutes around 45% of the overall exports from India and provides
employment to around 120 million persons.

Ease of Doing Business

Ease of Doing Business
 • The Ease of Doing Business is an index that is published by the World Bank
that measures aggregate figures that include different parameters which
define the ease of doing business in a country.
• India has emerged as one of the most appealing countries, not only for
investments but also for doing business.
• In the 'World Bank's Ease of Doing Business Ranking 2020,' India leaped
from 142nd (2014) to 63rd (2019).
• Following an examination into "data inconsistencies" in its 2018 and 2020
editions (published in 2017 and 2019, respectively) and suspected "ethical
problems" involving bank staff, the World Bank announced it will stop
publishing the "Doing Business report."

Make in India
Make in India
• Make in India is a government-led initiative to encourage companies to
develop, manufacture, and assemble products in India, as well as to
incentivize dedicated manufacturing investments.
• The Department for Promotion of Industry and Internal Trade (DPIIT),
Ministry of Commerce and Industry, Government of India, is leading the
initiative.

Start up India
Start up India
• The Startup India scheme was first announced by Prime Minister Narendra
Modi in 2015.
• It focuses on three core areas such as simplification and handholding,
funding support and incentives, industry-academia partnership, and
incubation.

Index of Industrial Production

Index of Industrial Production (IIP)
• The Index of Industrial Production (IIP) is a composite indicator that
compares the volume of production of a basket of industrial products during
a particular period to that of a base period.
• The first official attempt to compute the Index of Industrial Production (IIP)
was made in India long before the first international advice on the issue.
• The responsibility for compiling and publishing IIP was given to the Central
Statistical Organisation (now known as National Statistics Office (NSO))
when it was established in 1951.
Core industries
Core industries
• Core Industries (core sectors) of the economy are the main or the key
industries in the economy.
• There are eight such sectors in India.
• The industries included in the eight-core sectors are coal, crude oil, natural
gas, refinery products, fertilizer, steel, cement, and electricity.

Manufacturing Sector
Manufacturing Sector in India
• The manufacturing sector in India is significantly important for a developing
nation like India that depends on manufacturing from growth and
development.
• The top sub-sectors of the Indian economy that form the bulk of the
manufacturing sector are food products, basic metals, rubber and
petrochemicals, chemicals, and electrical machinery.
• The manufacturing sector in India has underperformed in recent decades as
compared to other countries, accounting for only 16-17% of GDP.

Importance of Manufacturing Sector

• Manufacturing industries not only contribute to the modernization of

agriculture, which is the backbone of our economy, but they also help to
minimize people's heavy reliance on agricultural income by creating jobs in
secondary and tertiary sectors.
• Industrial development is a prerequisite for our country's unemployment and
poverty to be eradicated. In India, public sector industries and joint ventures
were founded on this principle.
• It also attempted to reduce regional inequalities by building industries in
tribal and underdeveloped areas.

Challenges of Manufacturing Sector

• Increased rigidity in the manufacturing labor market and strict labor laws has
created disincentives for employers to create jobs.
• According to the World Bank, the Industrial Disputes Act has resulted in
lowering employment in organized manufacturing by about 25%.
• The highest contributor to GDP growth is the service sector but it employs
less than 30% of the workforce, whereas the agriculture sector, employs
45% of the population but contributes only 15% to the GDP growth.
Significance
Significance of Industrial Sector
• The economy undergoes structural change as a result of industrial
development.
• It means that our economy's reliance on agriculture will be reduced.
• The Indian economy has a large skilled workforce that is currently
unemployed.
• The establishment of industries creates the capability of generating large-
scale employment opportunities.
• As industrialization progresses, the capital goods industry begins to thrive as
well.
• This promotes investment and growth while also assisting in furthering
economic growth.
• As industrialization spreads, the demand for economic infrastructures such as
roads, dams, banking, insurance, and communication facilities grows,
resulting in their expansion.
• As people's quality of life improves, so does the demand for social
infrastructures, such as health and education facilities, which leads to their
development.
• Industries contribute to the country's GDP. The industrial sector's share of
GDP has risen steadily over the years, from 16.6% in 1950-51 to around
30% in 2011-12. (at constant prices).
• Industries contribute to the economy in the following ways:
o As the capital goods industry develops, the country will be able to
produce a variety of goods in large quantities at a low cost.
o It aids in the construction of infrastructure goods such as dams,
railways, and other items that cannot be imported.
o The industrialization has aided our country's defense goods self-
sufficiency.

Performance
Performance of Industrial Sector
• The leading indicator for industrial performance in the country is the index of
industrial production (IIP), which has the base year of 2011-12.
• The current IIP series, which is based on 399 products/product groups and is
compiled on a monthly basis, is divided into three broad categories: mining,
manufacturing, and electricity.
• As an index, the IIP measures both production and growth.
 • India's industrial production increased 1.3 percent year over year in January
2022, up from a downwardly revised 0.7 percent increase in December, but
fell short of market expectations of 1.5 percent growth.
• Manufacturing output and mining output increased at a faster rate.
• On the other hand, Industrial output growth stalled to a halt in January after
a 7.8% increase in December 2020.
• Production increased 23.5 percent year over year from April to September in
2021.

Conclusion
Conclusion
India is a desirable location for manufacturing investments from around the world.
Several mobile phones, luxury, and automobile brands, among others, have
established or are considering doing so in the country. India's industrial sector has
the potential to reach $1 trillion in revenue by 2025. With a GDP of US$ 2.5 trillion
and a population of 1.32 billion people, the implementation of the Goods and
Services Tax (GST) will turn India into a common market, attracting investors.