Industrial Growth Pattern in India (4 Phases)

The industrial growth pattern in India can be divided into four phases as explained below:
1. First Phase (1951-65): Strong Industrial Base:
The first phase of industrial growth consists of the first three plan periods which had build a
strong industrial base in India. During this phase, huge investments were made in major
industries like iron and steel, heavy engineering and machine building industries. The annual
compound growth rate of industrial production during the first three plan periods moved between
5.7 per cent to 9.0 percent.

The capital goods industries had registered its annual average compound growth rate between 9.8
per cent to 19.6 per cent during this period. Again the annual rate of growth of basic industries
moved between 4.7 per cent to 12.1 per cent over the same period. Thus, a strong industrial base
was laid during the first phase covering the first three plan periods.

2. SECOND PHASE (1965-80): DECELERATION AND RETROGRESSION:

The second phase of industrial growth covers the period of three ad-hoc annual plans, fourth plan
and fifth plan. The annual compound growth rate in industrial production declined from 9.0 per
cent during the third plan to only 4,1 per cent covering the period of 1965 to 1976. In 1976-77,
the annual rate of growth of industrial output was 6.1 per cent. In 1979-80, a negative annual
growth rate of (—) 1.6 per cent was recorded in respect of industrial outputs as the index of
industrial production in this year (base 1970 = 100) has declined to 148.2 as compared to 150.7
in 1978-79.

The industrial sector faced a structural retrogression during the second phase. The capital goods
industries registered its annual average growth rate of only 2.6 per cent during the second phase
fifth plan recorded the annual growth rate of 5.7 per cent which was far below as compared to
that of first three five year plans. For, basic industries, the annual growth rate during the second
phase was far below as compared to that of third plan. Thus basic industries were engaged in the
production of ferrous metal groups, construction materials, mechanical engineering industries
etc.

CAUSES OF DECELERATION AND RETROGRESSION:

The causes of deceleration and structural retrogression during the second phase are;

1. The wars of 1962, 1965 and 1971. During this period investment was made into
unproductive uses. Successive droughts of 1965-67 and 1971-73, and oil crisis of 1973
was also responsible for supply constraints.
2. considerable slackening of real investment;
3. unequal distribution of income in favour of the rich followed by stagnation in demand for
consumer goods;
4. unsatisfactory performance of the agricultural sector;
5. policy constraints and bureaucratic obstacles on industrial growth;
6. Conflicts in the dominant coalition between proprietary classes, capitalist class and the
class representing rich agricultural farmers.

3. THIRD PHASE: INDUSTRIAL RECOVERY IN EIGHTIES (1981 TO 1991):

The third phase of industrial growth covers the period of eighties consisting of both sixth and
seventh plan. This period of eighties experienced industrial recovery. During the period 1981-85,
the average annual rate of growth of industrial production was accelerated to 7.0 per cent which

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further increased to 8.6 per cent during 1985-90. In 1990-91 also, the annual rate of industrial
growth was registered at 9.0 per cent.

The growth rate for consumer durable goods increased to 16.9 percent in 1985-89. In 1981-90,
there was a set back as the segment recorded only 1.7 per cent growth rate and then the same rate
again shot up to 14.8 per cent in 1990-91.

The basic goods industries maintained the annual average growth rate of 8.8 and 8.9 per cent
during 1980-85 and 1985-89 respectively. But gradually declined to 5.4 per cent and 3.8 per cent
in 1989-90 and 1990-91 respectively. The capital goods industries recorded 6.3 per cent annual
rate of growth during 1980-85 which experienced increase in its growth rate of 13.0 per cent in
1985-89 and then significantly 24.0 percent in 1989-90. The growth rate of capital goods was
17.4 per cent in 1990-91.

Thus during this third phase, there is a clear shift in the pattern of industrialization in the country.
Looking at the growth of different product group in the manufacturing sector, chemicals,
petrochemicals and allied industries recorded a faster rate as compared to others. During this
period, the production of chemicals and chemical product industries, expanded at an annual
average rate of 11.19 per cent as compared to that of only 5.47 per cent in machine building
sector.

Moreover, during this period, iron and steel, basic metal and alloys and metal products recorded
only 5.15 percent 4.94 per cent and 3.95 per cent. It shows a clear shift in the growth pattern of
the industrial sector during eighties (third phase) as compared to two earlier phases.

Causes of industrial recovery:

The main factors which were responsible for the industrial recovery during eighties are described
as under:

(a) introduction of new industrial policy and liberal fiscal period.

(b) higher contribution of agricultural sector in some of the regions in the country which helped
in raising the demand for industrial inputs used for agricultural production.

(c) revival of investment in the infrastructure sectors and its effects in raising the degree of
efficiency of the industrial sector.

4. Fourth phase: industrial retrogression followed by an upturn and downturn nineties (1991-92
to 1997-98):

The fourth phase of industrial growth covers the early part of nineties, i.e., from 1991-92 to
1997-98. This short period experienced a sharp industrial retrogression followed by an
immediate upturn in the industrial growth of the country.

During 1991-92, the country had a bitter experience of negative growth rate of (—) 0.10 per cent
as compared to that of 8.5 per cent in 1990-91. This is the clear evidence of sharp industrial
retrogression in the country.

But after that in 1995-96 the country experienced an industrial upturn trend as annual growth rate
during this year stood at 11,7 per cent, during the year 1996-97 industrial output has increased by
7.1 per cent and further 8.6 per cent in 1997-98.

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The industrial growth rates by use-based industrial classification again showed downward trend
from April to Feb. 1997 to 7.2 and 10.2 per cent in april to feb. 1998. The growth rate of
consumer non- durables decreased to 4.2 per cent and 2.4 per cent during april-feb. 1996-97 and
1997-98 respectively. The growth rate of capital goods industry declined to 7.2 per cent in 1996-
97 and to 1.8 per cent in 1997-98. During the same period, the general growth rate of industrial
production declined from 7.7 per cent in 1996-97 to only 4.7 per cent in 1997-98.

Causes of industrial slow down:

The factors responsible for industrial slow down in the fourth phase are summarized as below:

(a) decline in the growth of export to 4.6 per cent in the first eight months between april and
november 1997.

(b) the impact of the tight money policy followed in 1995-96 when the monetary expansion was
about 13.7 per cent;

(c) significant build up industrial capacity in the first phase of liberalization;

(d) in some cases the rate of demand growth was overestimated.

Signs of sustained industrial recovery in 1999-2000:

The acceleration of growth rates in various sectors of the economy underline the significance of
industrial recovery in the current year and cyclical downturn.

However, following are some of the major indicators of industrial recovery in recent years:

(a) overall industrial output of the country i.e. 6.2 per cent in april-december 1999 as compared
to that of only 3.7 per cent in april-december 1998.

(b) the position of electricity generation remained much better in 1999-2000.

(c) manufacturing segment of industrial sector has grown by 6.7 per cent in april to december
1998.

(d) as per use based classification, basic goods, intermediate goods and consumer goods, are
having higher growth in 1999- 2000.

(e) non-metallic mineral products, machinery and equipment, wool, leather, paper and basic
chemicals are some of the industries growing at more than 10 percent during 1999-2000.

(f) industries like electricity, crude oil, coal, steel and cement having a weight of 26.7 per cent in
overall iip, grew at 8.2 per cent in april-december 1999.

(g) better corporate performance in 1999-2000 compared to previous year.

Industrial slowdown since 2001:

In recent years, the country is experiencing a serious phase of industrial slowdown during 2000-
01 and in 2001- 02. The overall industrial growth during april- december 2001-02 at 2.3 per cent,
is substantially lower than the 5.8 per cent achieved during the corresponding period of 2000- 01.

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In fact, the growth rate of the industrial sector during the first nine months of 2001-02 is
considered as the lowest during the last ten years.

Industrial slowdown was recorded in all broad sectors such as manufacturing, electricity and
mining an all end use based groups such as capital goods, intermediate goods, consumer goods
both durables and non-durables. However, the reasons for slowdown in industrial growth during
this period is due to a number of structural and cyclical factors.

The other reasons are explained below:

1. The adjustment process is industry in response to increased competition in the form of mergers
and acquisitions is taking longer time than expected.

2. Infrastructural bottlenecks and high costs.

3. Unreliable supply of services in transport, communications and power sector.

4. Low levels of productivity due to low economies of scale, out-dated technology and restricted
labour laws’.

5. Lower speculative demand for sectors like automobiles and real estate due to expectation of
lower prices and reduction of taxes and duties in the short term period.

6. High interest rates.