Sectors of Indian Economy - Industry

Overview:

Industry - set of enterprises and organizations involved in Raw Material to Finished Goods.

Industrialisation - is the period of social and economic change that transforms a human group
from an agrarian society into an industrial society.

Contributing 31% to India's GDP (2012-21) on average. Employing close to 25% of the
workforce.

Relevance and Importance:

● Agriculture - Disguised Unemployment, Services - Jobless Growth, Industrial Sector the

savior.
● Standard of living
● Import Bill and Dependence
● Augment Exports
● Government Exchequer
● Backbone and Driver of the Economy Growth
● Defence Self Sufficiency

Classification and Categorisation:

● Based on Products
○ Capital Goods Industry
○ Intermediate Goods Industry

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 ○ Consumer Goods Industry
● Based on Ownership
○ Public Sector
○ Private Sector
● Scale of Investment
○ Large Industries
○ Medium Industries
○ Small Scale
○ Village and Cottage Industries
● Method of Production
○ Capital Intensive
○ Labour Intensive

Industrial Policies (1947 - 1991)

Industrial Policy Resolution of 1948:

● In 1948, the Industrial Policy Resolution declared the Indian economy as a mixed
economy. It emphasized the significance of small-scale and cottage industries. Foreign
investments were restricted, and industries were categorized into four groups. The
central government had an exclusive monopoly over certain sectors like arms, atomic
energy, and railways. The state was responsible for industries like coal, iron, and steel,
among others. Some industries of vital importance were regulated by the government,
while the remaining sectors were open to private enterprise, individuals, and
cooperatives.

Industrial Policy Resolution of 1956:

● The 1956 Industrial Policy Resolution, also known as the Economic Constitution of India,
outlined the foundational framework for India's industrial policy. It categorized industries
into three sectors: Schedule A for the public sector (17 industries), Schedule B for the
mixed sector (public and private participation, covering 12 industries), and Schedule C
for private industries. This policy addressed public sector development, small-scale
industries, and foreign investment. It was subject to modifications in 1973, 1977, and
1980 to adapt to changing challenges.

Industrial Policy Statement of 1977:

● The 1977 Industrial Policy Statement extended the principles of the 1956 policy. It aimed
to generate employment opportunities for the economically disadvantaged and reduce
wealth concentration. This policy prioritized decentralization and gave special attention
to small-scale industries, introducing a category called "Tiny Units." It also imposed
restrictions on multinational companies (MNCs).

Industrial Policy Statement of 1980:

● The Industrial Policy Statement of 1980 aimed to promote competition in the domestic
market, modernization, selective liberalization, and technological advancement. It eased

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 licensing requirements and allowed for automatic capacity expansion. This policy led to
the introduction of the MRTP Act (Monopolies Restrictive Trade Practices) and FERA
Act (Foreign Exchange Regulation Act, 1973). Its objective was to enhance industrial
productivity and competitiveness, laying the foundation for a more competitive export-
oriented sector and encouraging foreign investment in high-technology areas.

New Industrial Policy 1991 - LPG Reforms

Events leading to the 1991 Economic Crisis:

● Balance of Payment Crisis - Trade Deficit, Import Exceeds Exports, Dwindling Forex
Reserves.
● Fiscal Deficit - high public spending, subsidy burden, inefficient state owned enterprises.
● External Debt Burden - high interest payments accumulated l.
● Stagnant Industry Growth - lower foreign investment.
● Political Instability - Incapacity to implement Reforms.
● Gulf War Impact - disrupted oil prices, higher price, increase in import bills.
● Credit Rating Agencies - downgraded ratings, global investors hesitant and
pulled/holded back investments.

Liberalisation:
● Dismantling Licence Raj - except Alcohol, Tobacco, Hazardous Chemicals, Explosives,
Electricals.
● Trade Liberalisation - Reduce Imports tarrif, Export Promotion, Encourage Foreign
Trade.
Privatisation:
● Privatisation - except Atomic Energy, Railway, Defence
● Disinvestment
Globalization:
● Opening of Sectors
● FDI Limits

Multidimensional Assessment of LPG Reforms:

1. Economic Growth:
- Positive: The reforms led to a significant acceleration of India's economic growth, increasing
GDP growth rates and fostering economic stability.
- Negative: Disparities in income and wealth also widened during this period, leading to
income inequality.

2. Foreign Direct Investment (FDI):

- Positive: FDI inflows increased significantly, bringing in capital, technology, and expertise to
various sectors.
- Negative: Some argued that excessive reliance on FDI could compromise economic
sovereignty.

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3. Industrial and Technological Advancement:
- Positive: The reforms encouraged modernization and technological upgradation across
industries.
- Negative: Certain traditional sectors faced challenges in adapting to the rapid changes.

4. Employment:
- Positive: Economic growth created job opportunities across sectors.
- Negative: The informal sector still accounts for a significant portion of employment, with
issues like job security and social security.

5. Inflation:
- Positive: Price stability was generally maintained, but inflationary pressures occasionally
arose.
- Negative: Inflation could affect the purchasing power of lower-income groups.

6. Poverty Alleviation:
- Positive: Economic growth contributed to poverty reduction by creating income opportunities.
- Negative: Income inequality and disparities persisted, affecting the equitable distribution of
benefits.

7. Infrastructure Development:
- Positive: Investment in infrastructure improved connectivity and logistics, supporting
economic activities.
- Negative: Infrastructure development remains uneven across regions, leading to regional
disparities.

8. Global Competitiveness:
- Positive: India's global competitiveness improved as it integrated into the global supply
chain.
- Negative: Increased competition put pressure on domestic industries to innovate and
become more efficient.

9. Healthcare and Education:

- Positive: Economic growth allowed for increased investment in healthcare and education.
- Negative: Access to quality healthcare and education remains unequal.

10. Environmental Impact:

- Positive: Economic growth led to increased environmental awareness and investments in
cleaner technologies.
- Negative: Rapid industrialization posed environmental challenges, including pollution and
resource depletion.

11. Political Stability:

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 - Positive: Stable economic growth contributed to political stability.
- Negative: Some economic policies faced political opposition, leading to occasional policy
paralysis.

12. Global Positioning:

- Positive: India's global standing as an emerging economic power improved.
- Negative: The country also faced global economic volatility and dependency on international
markets.

Public Sector Undertakings in India :

Overview:

● Public sector companies, which are established and owned by the Government of India
or State governments of India. Also called government-owned enterprises or
government-owned corporations or statutory corporations or nationalized corporations.

● Central Public Sector Undertakings (CPSUs) are wholly or partly owned by the
Government of India, while State Public Sector Undertakings (SPSUs) are wholly or
partly owned by state or territorial governments.

● No. Of PSUs under GOI in 1951 - 5 and in 2019 - 365

As of 31st March 2019,
● Total Investment - 16.4 lakh crores
● Total Paid Up Capital - 200 lakh crores

● The central government is likely to receive a record equity dividend of ₹63,056 crore
from 67 listed public-sector undertakings (PSUs).

● V. Krishnamurthy is known as the "Father of Public sector undertakings in India" for

his leadership and successful contribution in turning around Bharat Heavy Electricals
Limited (BHEL), Maruti Udyog Limited (MUL), Steel Authority of India Limited (SAIL),
and GAIL (India) Limited (GAIL) into the most profit making industry in India and globally.
● In 1969, Indira Gandhi's government nationalized fourteen of India's largest private
banks, and an additional six in 1980.

Categorisation of PSUs - to give Financial Autonomy to the companies :

PSUs in India are also categorized based on their special non-financial objectives and are
registered under Section 8 of Companies Act, 2013

● Miniratna Category-I

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 ○ Eligibility - Have made profits continuously for the last three years or earned a
net profit of ₹30 crores or more in one of the three years
○ Investment - up to ₹500 crore or equal to their net worth, whichever is lower.
○ Examples - Airports Authority of India, ONGC Videsh, Antrix Corporation etc.
● Miniratna Category-II
○ Eligibility - Have made profits continuously for the last three years and should
have a positive net worth.
○ Investment - up to ₹300 crores or up to 50% of their net worth, whichever is
lower.
○ Examples - Artificial Limbs Manufacturing Corporation of India,Bharat Pumps &
Compressors,Broadcast Engineering Consultants India Limited etc.
● Navaratna
○ Eligibility - A score of 60 (out of 100), based on six parameters which include net
profit, net worth, total manpower cost, the total cost of production, cost of
services, PBDIT (Profit Before Depreciation, Interest, and Taxes), capital
employed, etc., AND
■ A PSU must first be a Miniratna and have 4 independent directors on its
board before it can be made a Navratna.
○ Investment - up to ₹1,000 crore or 15% of their net worth on a single project or
30% of their net worth in the whole year (not exceeding ₹1,000 crores).
○ Examples - Bharat Electronics Limited, Container Corporation on India,
Engineers India Limited etc.
● Maharatna:
○ Eligibility - Three years with an average annual net profit of over ₹2,500 crores,
OR
■ The average annual Net worth of ₹10,000 crores for 3 years, OR
■ Average annual Turnover of ₹20,000 crore for 3 years (against Rs 25,000
crore prescribed earlier)
○ Investment - ₹1,000 crore – ₹5,000 crores, or free to decide on investments up to
15% of their net worth in a project.
○ Examples - Oil and Natural Gas Corporation, Bharat Heavy Electronics
Limited,Indian Oil Corporation Limited, Oil India Limited etc.

● Currently there are 12 Nationalised Banks in India (Government Shareholding power is

denoted in %, as of 30 October 2022):
○ State Bank of India (57.52%)
○ Bank of Baroda (63.97%)
○ Union Bank of India (83.49%)
○ Punjab National Bank (73.15%)
○ Canara Bank (62.93%)
○ Punjab & Sind Bank (98.25%)
○ Indian Bank (79.86%)
○ Bank of Maharashtra (90.97%)
○ Bank of India (81.41%)

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 ○ Central Bank of India (93.08%)
○ Indian Overseas Bank (96.38%)
○ UCO Bank (95.39%)

● The public sector undertakings are headed by the head of board of directors, who are
Group 'A' gazetted officers appointed by the President of India in case of central public
sector undertakings, its subsidiaries & its divisions. Appointed by the Governor of
States of India in case of state public sector undertakings, its subsidiaries & its
divisions.

● The Committee on Public Undertakings (COPU) is one of three financial standing

committees within the Parliament of India, composed of selected members of Parliament
with the stated purpose of examining the reports and accounts of public sector
undertakings (PSUs). This committee, alongside the Public Accounts Committee (PAC)
and the Estimates Committee (EC), are the three financial standing committees of the
Parliament of India.

MSME Sector ( Micro, Small and Medium Enterprises ) - Backbone of Indian Economy

Significance of MSMEs :
● Employment - Close to 120 million jobs i.e. 20-22% of total employment.
● GDP Contribution - 33%
● Exports - 45%
● Inclusive Growth and Financial Inclusion
● Rural Development
● Make in India

Challenges and Constraints :

Access to Finance
● Limited access to credit and funding.
● According to a report by the International Finance Corporation (IFC), 81% of MSMEs in
India are not able to access formal credit.

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Technology Adoption
● Low technology adoption and digitalization.
● A survey by the Confederation of Indian Industry (CII) indicated that only about 20% of
Indian MSMEs had adopted digital technologies by 2020.

Regulatory Burden
● Cumbersome regulatory compliance and red tape.
● An estimate suggests that an average MSME in India spends around 120 hours per year
dealing with regulatory requirements.

Infrastructure Deficiency
● Inadequate infrastructure, including transportation and logistics.
● A World Bank report noted that logistics costs in India account for 13-14% of the GDP,
much higher than developed countries.

Market Access
● Limited access to domestic and international markets.
● A study by the Small Industries Development Bank of India (SIDBI) found that only about
17% of Indian MSMEs export their products.

Skilled Labor Shortage

● Lack of skilled labor and workforce development.
● As per the National Skill Development Corporation (NSDC), around 80% of India's
workforce lacks formal vocational skills.

MSME Credit Gap

● Credit gap for MSMEs.
● The credit gap for MSMEs was estimated to be around $250 billion in 2020, according to
a report by the International Finance Corporation (IFC).

Informal Sector Dominance

● A significant portion of MSMEs operates in the informal sector.
● Approximately 90% of India's MSMEs are in the informal sector, limiting their access to
formal support and benefits.

Delayed Payments
● Delayed payments from larger companies.
● According to the Ministry of Micro, Small and Medium Enterprises, the delayed payment
problem affects about 50% of MSMEs in India.

Environmental Compliance
● Meeting environmental regulations.
● A study by the Centre for Science and Environment (CSE) reported that many MSMEs in
India struggle to comply with environmental norms.

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Governmental Initiatives for MSMEs :

● Prime Minister Employment Generation Programme (PMEGP) - Setup with an aim to

create employment opportunities for MSMEs in the country, the PMEGP is implemented
by Khadi and Village Industries Commission (KVIC) at the national level while at the
state and districts level, it is implemented by State KVIC Directorates, State Khadi and
Village Industries Boards (KVIBs), District Industries Centres (DICs) and banks.
● Credit Guarantee Trust Fund for Micro & Small Enterprises (CGTMSE) - Established
by M/o MSME and Small Industries Development Bank of India (SIDBI) to provide
collateral free loans (up to INR 1 cr) to individual Micro and Small Enterprises (MSEs).
● Financial Support to MSMEs in ZED Certification Scheme - Supporting the ‘Make in
India’ initiative, the aim of the scheme is to inculcate Zero Defect & Zero Effect (ZED)
practices in manufacturing done by Indian MSMEs. Under the scheme, the Government
of India (GoI) provides up to 80% subsidy to MSMEs.
● A Scheme for Promoting Innovation, Rural Industry & Entrepreneurship (ASPIRE) – The
main objectives of the scheme are to:
○ Create new jobs
○ Promote entrepreneurship
○ Boost economic development at grass root level
○ Facilitate innovative business solutions
○ Promote innovation
● National Manufacturing Competitiveness Programme (NMCP) - An umbrella scheme
which aids MSMEs through the following sub schemes:
○ Credit Linked Capital Subsidy for Technology Upgradation (CLCSS)
○ Financial Assistance on GS1
○ Barcodes for Micro Enterprises
○ Lean Manufacturing Competitiveness for MSMEs
○ Design Clinic for Design Expertise to MSMEs
○ Technology and Quality Upgradation Support to MSMEs
○ Entrepreneurial and Managerial Development of SMEs through Incubators
○ Enabling Manufacturing Sector to be Competitive through Quality Management
Standards (QMS) and Quality Technology Tools (QTT)
○ Building Awareness on Intellectual Property Rights (IPR)

Constraints :

● Regulatory uncertainty: Regulatory risks and policy uncertainty in the past have dented
investor confidence.
● Investment: There has been a cyclical slowdown in fresh investment since 2011-12.
● Technology adoption: The adoption of new technologies like artificial intelligence, data
analytics, machine-to-machine communications, robotics and related technologies,
collectively called “Industry 4.0”, are a bigger challenge for SMEs than for organized

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 large-scale manufacturing. Data security, reliability of data and stability in
communication/transmission also pose challenges to technology adoption.
● Exports and insufficient domestic demand: There has been no export driven
industrial growth. Domestic demand alone may not be adequate for sustained, high
value manufacturing.
● Challenges to doing business: Despite recent improvements in our global EODB rank,
it continues to be a drag on the system. This is also true of investment conditions in the
states. Getting construction permits, enforcing contracts, paying taxes, starting a
business and trading across borders continue to constrain doing business.

GOVERNMENT EFFORTS TO PROMOTE INDUSTRIAL DEVELOPMENT :

● Make in India initiative: ‘Make in India’ is an initiative which was launched on 25th
September 2014 to facilitate investment, foster innovation, build best in class
infrastructure and make India a hub for manufacturing, design and innovation. It was one
of the unique single, vocal for local initiative that promoted India’s manufacturing domain
to the world. ‘Make in India’ initiative is not the state/district/city/area specific initiative,
rather it is being implemented all over the country.
● Industrial Corridor Development Programme: In order to accelerate growth in
manufacturing, Government of India (GoI) has adopted the strategy of developing
Industrial Corridors in partnership with State Governments. The objective of this
programme is to develop Greenfield Industrial regions/areas/nodes with sustainable
infrastructure & make available Plug and Play Infrastructure at the plot level. As part of
National Industrial Corridor Program, 11 Industrial Corridors are being developed in 4
phases.
● Ease of Doing Business: The objective is to improve Ease of Doing Business and Ease
of Living by Simplifying, Rationalizing, Digitizing and Decriminalizing Government to
Business and Citizen Interfaces across Ministries/States/UTs. The key focus areas of
the initiative are simplification of procedures, rationalization of legal provisions,
digitization of government processes, and decriminalization of minor, technical or
procedural defaults.
○ India jumps 79 positions from 142nd (2014) to 63rd (2019) in 'World Bank's Ease
of Doing Business Ranking 2020 by World Bank group.
● National Single Window System: The setting up of National Single Window System
(NSWS) was announced in the Budget 2020-21 with the objective to provide “end to
end” facilitation and support to investors, including pre-investment advisory, provide
information related to land banks and facilitate clearances at Centre and State level.
Envisioned as a one-stop shop for investor related approvals and services in the
country, the National Single Window System (NSWS) was soft-launched on 22nd
September, 2021 by Hon’ble Commerce & Industry Minister. Large number of
States/UTs Single Window Systems have been linked with the NSWS Portal thereby
providing access to approvals of these States/UTs to be applied through NSWS.
● PM Gati Shakti National Master Plan (NMP): PM Gati Shakti National Master Plan
(NMP), a GIS based platform with portals of various Ministries/Departments of

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 Government, was launched in October, 2021. It is a transformative approach to facilitate
data-based decisions related to integrated planning of multimodal infrastructure, thereby
reducing logistics cost. Empowered Group of Secretaries (EGoS) and Network Planning
Group (NPG) have been created as institutional arrangement. About 2000 data layers of
various Central Ministries/Departments/State Governments have so far been uploaded
on the NMP.
○ For enhanced capital expenditure by states for infrastructure development, the
Ministry of Finance, Department of Expenditure through the “Scheme for Special
Assistance to States for Capital Investment for 2022-23” on 6th April 2022 has
made a additional provision of Rs. 1,00,000 crore for disbursement among the
states as long term loans at a zero interest rate. Out of this, under Part II of the
scheme Rs 5,000 crore are specifically provided for PM GatiShakti related
expenditure.
● National Logistics Policy: National Logistics Policy (NLP) was launched on 17th
September 2022, that aims to lower the cost of logistics and lead it to par with other
developed countries. It is a comprehensive effort to address cost inefficiency by laying
down an overarching interdisciplinary, cross-sectoral, and multi-jurisdictional framework
for developing entire logistics ecosystem. This would boost economic growth, provide
employment opportunities, and make Indian products more competitive in the global
market.
● Production Linked Incentive scheme: Keeping in view India’s vision of becoming
‘Atmanirbhar’, Production Linked Incentive (PLI) Schemes for 14 key sectors have been
announced with an outlay of Rs. 1.97 lakh crore to enhance India’s Manufacturing
capabilities and Exports. These schemes have potential for creation of high production,
economic growth, exports and significant employment over the next five years and more.
● North East Industrial Development Scheme (NEIDS), 2017: To promote
industrialization in NE States and to boost employment and income generation, a new
Scheme namely North East Industrial Development Scheme (NEIDS), 2017, came into
force w.e.f. 01.04.2017 for a period of five years. The scheme covered the
manufacturing and service sector.
● FAME-India Scheme (Faster Adoption and Manufacturing of (Hybrid &) Electric
Vehicles): In order to promote manufacturing of electric and hybrid vehicle technology
and to ensure sustainable growth of the same, FAME-India Scheme- Phase-I [Faster
Adoption and Manufacturing of (Hybrid &) Electric Vehicles in India] was implemented
from 1st April 2015 for a period of two years which was subsequently extended upto 31st
March, 2019. Total outlay of Phase-I of the FAME-India Scheme has been enhanced
from Rs. 795 Crore to Rs. 895 Crore.
○ The Phase-II of FAME-India scheme proposes to give a push to electric vehicles
(EVs) in public transport and seeks to encourage adoption of EVs by way of
market creation and demand aggregation.
● Udyami Bharat Scheme: ‘Udyami Bharat’ is reflective of the continuous commitment of
the government, right from day one, to work towards the empowerment of Micro Small
and Medium Enterprises (MSMEs). The government has launched several initiatives
from time to time like MUDRA Yojana, Emergency Credit Line Guarantee Scheme,

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 Scheme of Fund for Regeneration of Traditional Industries (SFURTI) etc. to provide
necessary and timely support to the MSME sector, which has helped benefit crores of
people across the country. ‘Raising and Accelerating MSME Performance’ (RAMP)
scheme with an outlay of around Rs 6000 crore, aims to scale up the implementation
capacity and coverage of MSMEs in the States, with impact enhancement of existing
MSME schemes.
● PM Mega Integrated Textile Region and Apparel (PM MITRA): In order to have world-
class industrial infrastructure which would attract cutting age technology and boost FDI
and local investment in the textiles sector, Ministry of Textiles issued notification to set
up 7 Mega Integrated Textile Region and Apparel (PM MITRA) Parks with a total outlay
of Rs. 4,445 crore. These parks will offer an opportunity to create an integrated textiles
value chain right from spinning, weaving, processing/dyeing and printing to garment
manufacturing at one location.PM MITRA scheme aspires to position India strongly on
the Global textiles map.

Way Forward:

Demand Generation, Augmentation of Industrial Infrastructure, and Promotion of

MSMEs:
○ The government should promote domestic manufacturing capabilities by
leveraging public projects such as Sagarmala, Bharatmala, industrial corridors,
and the Pradhan Mantri Awas Yojana (PMAY).
○ Export strategies should be designed based on sector competitiveness and
resource strengths.
● Encouraging Foreign Direct Investment (FDI) in manufacturing is crucial to realize
India's ambition of becoming the world's workshop.
● Streamlining discretionary powers vested at different levels of governance by adopting
digitized processes and making all approvals electronic in a transparent, time-bound
manner is essential.
● There's a need for stronger collaboration between the government, industry, and
academia to identify evolving manufacturing requirements and prepare a skilled
workforce.
● E-commerce is poised to drive overall economic growth, so it's imperative to enhance
internet access, digitize payment systems, and improve transportation and logistics.
● Harmonizing Indian quality standards with global norms is essential to boost Indian
exports and fully leverage trade agreements.

Industry 4.0:
● A significant push should be given to encourage industries to adopt Industry 4.0, which
can greatly impact sectors like automobile, pharmaceuticals, chemicals, and financial
services by enhancing operational efficiencies, cost control, and revenue growth.
● Specialized training programs should be developed for 'Smart manufacturing' to address
the shortage of high-tech human resources.

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 ● Incentives could be directed towards MSMEs involved in manufacturing products like
sensors, actuators, drives, synchronous motors, communication systems, computer
displays, and auxiliary electromechanical systems.

Ease of Doing Business:

● Introduce a "single window" system to facilitate all required licenses and approvals,
providing a single point of contact between investors and the government.
● Adopt Geographic Information System (GIS) for geographical planning and
streamlined environmental clearances.
● Ensure seamless integration of the Shram Suvidha portal with state agencies' portals
for efficient labor administration.

Shram Suvidha Portal:

● The portal, launched by the Government of India in October 2014 under the Ministry of
Labor and Employment, has several key features:
○ Allots Labor Identification Number (LIN) for effective, efficient, and real-time labor
administration.
○ Promotes transparency and accountability in enforcing labor laws through the
Online Inspection System and Online Inspection Report filing.
○ Offers common online registration and simplified single online annual return filing
for multiple labor laws, reducing compliance complexity.

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