“Industrial growth rate has lagged behind in the overall growth of Gross-Domestic-Product (GDP) in the post-reform period” Give reasons. How far the recent changes in Industrial Policy are capable of increasing the industrial growth rate?. (UPSC IAS Mains 2017 General Studies Paper – 3)
Industrial policy 1991 set out directions for industrialisation in an economy that began its journey in liberalisation. It dealt with liberalising licensing and measures to encourage foreign investments. However, Industrial growth rate could not match the pace with the overall growth of GDP.
Constraints to industrial growth
- Inadequate infrastructure:Physical infrastructure in India suffers from substantial deficit in terms of capacities as well as efficiencies. Lack of quality of industrial infrastructure has resulted in high logistics cost and has in turn affected cost competitiveness of Indian goods in global markets.
- Restrictive labour laws:The tenor of labour laws has been overly protective of labour force in the formal sector.
- Complicated business environment:A complex multi-layered tax system, which with its high compliance costs and its cascading effects adversely affects competitiveness of manufacturing in India.
- Slow technology adoption:Inefficient technologies led to low productivity and higher costs adding to the disadvantage of Indian products in international markets.
- Inadequate expenditure on R&D and Innovation:Public investments have been constrained by the demands from other public service demands and private investment is not forthcoming as these involve long gestation periods and uncertain returns.
Recently Department of Industrial Policy and Promotion (DIPP) has proposed various changes in industrial policy that will focus on increasing the industrial growth rate in following manner -
- The new policy aims to attract $100 billion of FDI in a year, up from $60 billion in 2016-17, it will also aim at retaining investments and accessing technology.
- The policy aims to harness existing strengths in sectors like automobiles and auto-components, electronics, new and renewable energy, banking, software and tourism.
- The policy also aims to create globally scaled-up and commercially viable sectors such as waste management, medical devices, renewable energy, green technologies, financial services to achieve competitiveness.
- The policy will also push for reforms to enhance labourmarket flexibility with an aim for higher job creation in the formal sector and performance linked tax incentives.
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