Industrial Sector

Industrial Sector- Growth and recent trends

Trends in Industrial growth

Phase one

Which had laid the basis for industrial development in the future. The second plan, basedon Mahalanobis model, emphasized the development of capital goods industries and basic industries. Accordingly huge investments were made in industries like iron andsteel, heavy engineering etc the same pattern continued in the Third plan as well. Thereoccurred a noticeable acceleration in the compound growth rate of industrial productionover the first three plan periods up to 1965 from 5.7 per cent in the First Plan to 7.2 per cent in the Second Plan and further to 9.0 per cent in the Third Plan .

Phase Two

Which cover the period 1965 to 1976 was marked by a sharp deceleration industrialgrowth. The rate of growth fell steeply from 9.0 per cent per annum during the Third Planto a mere 4.1 per cent per anum during the 1965-1976.

Phase Three

Which cover the period of 1980’s can broadly be termed as a period of industrial recovery. The rate of industrial growth was 6.4 per cent per annum during 1981-85, 8.5 per cent per annum during the Seventh Plan and 8.3 per cent per annum in 1990-91.

Phase four

The year 1991 ushered in a new era of economic liberalization fall under Phase Four.Major liberalization measures designed to affect the performance of the industrial sector were – wide-scale reduction in the scope of industrial licensing, simplification of  procedural rules and regulations, reductions of areas etc.,

The average annual growth rate of industrial production which was 7.8 per cent in the pre-reform decade fell to 5.7 per cent during period 1990-2000. The Post-Reform periodwas marked by considerable fluctuations and thus showed a total lack of consistency inindustrial growth performance.


Phase Five

The period of the Tenth Plan 2002-2007 has witnessed revival of industrial growth. Therate of growth of industrial production was 5.7 per cent in 2002-03 and picked upconsiderably to 7.0 per cent in 2003-04, 8.4 per cent in 2004-05, 8.2 per cent in 2005-06and to as high as 11.5 per cent in 2006-0. For the Plan as a whole the average rate of growth of industrial production comes out average rate of growth of industrial productioncomes out to be 8.2 per cent per aurum. Yet it marks a considerable increase over earlier  plans. In fact the rate of growth in industrial production at 11.5 per cent in the last year of the plan, 2006-07 is the highest growth achieved since 1995-96.

Recent trends

Sectorwise trends


In the backdrop of a slowing world economy and over capacity in production of steel, India witnessed rising imports of cheap steel from countries like China, South Korea and Ukraine into Indian markets at low prices since early 2014-15. This dumping of cheaper steel imports adversely affected domestic producers. In order to address this, apart from raising customs duty and imposition of anti-dumping duty, Minimum Import Price (MIP) on a number of items was introduced in February 2016 with a sunset clause of one year. These measures helped the domestic producers and exports recovered since February 2016 until March 2017.

Textiles and Apparels

The Textiles and Apparels sector has tremendous potential for growth in exports and employment, particularly, women’s employment. The sector witnesses a historic opportunity with China losing market share in clothing exports due to rising labour costs. However, India has not been able to leverage this opportunity due to India’s competitors i.e. Bangladesh, Vietnam, Ethiopia having duty free access to markets of EU and USA; high domestic taxes on manmade fabrics vis a vis cotton fabrics; stringent labour laws; and high logistics cost.

To address some of these constraints, the Cabinet announced a `6000 crore package for the apparel sector on 22nd June 2016. Major components of the package included enhanced subsidy under Amended Technology Upgradation Fund Scheme for concessional import of machinery from 15 per cent to 25per cent (conditional on firms generating requisite employment); implementation of Rebate of State Levies on Export( RoSL) for state levies which were not refunded through duty drawback earlier; Government to bear 12 per cent of the employers’ contribution of the full EPFS for new workers; increasing overtime caps in line with ILO norms; and introduction of fixed term employment.

Leather sector

Like the clothing sector, leather sector is also highly labour intensive sector (as discussed in Economic Survey 2016-17, Vol 1, Chapter 7). Going by global market trend, it is a favourable time to promote the footwear industry. However, challenges persist. The global demand for footwear is moving towards non leather footwear, while Indian tax policies favour leather footwear production. India also faces high customs tariffs in a number of developed country markets of leather goods and non-leather footwear. The issues in labour and employment have been recently addressed.

Gems and Jewellery

India is one of the largest exporters of gems and jewellery. The industry is found to play a vital role in the contribution to total foreign reserves of the country. It is one of the fastest growing sectors and is export oriented and labour intensive. As per the 68th round of NSSO, the sector employed 20.8 lakh persons in 2011-12. Exports of the sector have risen from 0.7 per cent in 2014-15 to 12.8 per cent in 2016-17.

MSME Sector

The share of MSME Sector in the country’s Gross Value Added (GVA) is approximately 32 per cent. MSMEs in India play a crucial role in providing large scale employment opportunities at comparatively lower capital cost than large industries and also in industrialization of rural & backward areas. As per the National Sample Survey (NSS) 73rd round, for the period 2015-16, there are 633.8 lakh unincorporated non-agriculture MSMEs in the country engaged in different economic activities providing employment to 11.10 crore workers.

Foreign Direct Investment  

Foreign Direct Investment (FDI) has been an important source of financing for the economy. FDI policy reforms announced in 2016 brought most of the sectors under automatic approval route, except a small negative list. Total FDI inflow grew by 8 per cent i.e. US$ 60.08 billion in 2016-17 in comparison to US$ 55.56 billion of the previous year. It is the highest ever for a particular financial year. In 2017-18, till September, the inflow of total FDI was to the quantum of US$ 33.75 billion.

In terms of share in FDI Equity inflows, Mauritius, Singapore and Japan have been top three countries in India contributing 36.17 per cent, 20.03 per cent and 10.83 per cent of the total FDI Equity Inflows during 2016-17. In terms of the Sectors receiving FDI Equity inflows, Services (Finance, Banking, Insurance etc.), Telecommunications and Computer Software & Hardware have been the top three sectors with a share of 19.97 per cent, 12.80 per cent and 8.40 per cent respectively.


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