Industrial Growth to be Revived by Corporate Sector Investment, Pushing Ahead Critical Reforms and Removal of Infrastructure Bottlenecks

Noting that the industrial growth has slowed down considerably in the recent years, the Economic Survey highlights the need for revival of corporate sector investment, pushing ahead with critical reforms and removal of infrastructure bottlenecks . These key steps would revive industrial growth.

The main highlights of the Economic Survey relating to industrial performance are as below:-

• The latest gross domestic product (GDP) estimates show that industry grew by just 1.0 per cent in 2012-13 and slowed further in 2013-14, posting a modest increase of 0.4 per cent. The key reasons for poor performance have been contraction in mining activities and deceleration in manufacturing output. Manufacturing and mining sector GDP declined by 0.7 per cent and 1.4 per cent respectively in 2013-14. The underlying cause of the poor performance of these two sectors has been considerable deceleration in investment particularly by the private corporate sector during 2011-12 and 2012-13.
• Further, slowdown in construction activities has resulted in capacity underutilization in the steel and cement sectors. Steel and cement consumption rose by just 0.6 per cent and 3.0 per cent respectively in 2013-14. As per the use-based industrial classification of IIP, the index of capital goods declined by 6.0 per cent in 2012-13 and further by 3.6 per cent in 2013-14. Continuing slowdown has impacted the performance of the corporate sector. Sales growth of the corporate sector particularly in respect of listed manufacturing companies for the private sector, declined considerably from 25.3 per cent in Q1 of 2011-12 to 5.0 per cent in Q4 of 2013-14.
• As per the latest data available on gross capital formation by industry of use at constant (2004-05) prices, a sharp decline in the growth rates of the fixed investment of mining, manufacturing and private corporate sector has been estimated. The decline is far steeper in case of unregistered manufacturing pointing towards paucity of funds available to the informal sector businesses. During 2013-14, FDI inflow (including equity inflows, reinvested earnings and other capital) was US$ 36.4 billion. Net FDI inflows had been $ 21.6 billion during 2013-14. Overall gross bank credit flow to industry has increased by 14.9 per cent in 2013-14, lower in comparison with 20.9 per cent growth achieved in 2011-12 and 17.8 per cent growth in 2012-13. Credit flow to mining remained near stagnant as it increased by mere 0.05 per cent during 2013-14.
• In order to boost manufacturing sector, the government has already announced setting up of sixteen national investment and manufacturing zones (NIMZs). Of these, eight are along the Delhi Mumbai Industrial Corridor (DMIC). Besides, eight other NIMZs have been given in-principle approval, viz (i) Nagpur in Maharashtra, (ii) Chittoor in Andhra Pradesh, (iii) Medak in Andhra Pradesh (now Telengana), (iv) Prakasam in Andhra Pradesh; (v) Tumkur in Karnataka; (vi) Kolar in Karnataka; (vii) Bidar in Karnataka; and (viii) Gulbarga in Karnataka. The government has also been monitoring progress of Delhi-Mumbai Industrial Corridor (DMIC), Chennai Bangalore Industrial Corridor (CBIC), Bengaluru-Mumbai Economic Corridor (BMEC), East Coast Economic Corridor (ECEC) including Vizag-Chennai Industrial Corridor (VCIC) and Amritsar-Kolkata Industrial Corridor (AKIC).
• In view of the ongoing industrial slowdown, the policy focus now needs to target key growth drivers in the short term. One of the crucial drivers can be revival of the private corporate sector investment. The current industrial sector downturn presents an opportunity to push ahead with critical reforms and removal of infrastructure bottlenecks. Industrial policy needs to focus on labour-intensive and resource-based manufacturing in informal sector to rejuvenate small businesses. In the medium term, challenge for the Indian manufacturing is to move from lower tech to higher tech sectors, from lower value-added to higher value added sectors and from lower productivity to higher productivity sectors.
• The near term industrial outlook is conditional on continued improvements in the policy environment and quick return to peak investment rate. With the improvement in overall macroeconomic environment, industry is expected to revive and growth can accelerate gradually over the next two years.