Industrial Sector in India Performance & Challenges

7/28/2019 Industrial Sector in India Performance & Challenges

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Industrial Sector In IndiaPerformance & Challenges

Group 7:11PT2-56 - Rajeev Kumar Singh

11PT2-57 Ranjan Birla

11PT2-59 Renuka Dabas

11PT2-60 Sachin Anand

11PT2-61 Satyabrata Pati

11PT2-62 Sayak Chakrabarti

11PT2-63 Shakti Tandon


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Agenda

Introduction : Industrial Sector Industrial groups

Growth Stages

Indian Industrial Policy 1991

Index of Industrial Production Performance : Indian Industries

Challenges : Indian Industries

Recommendation

Q & A

Group 72


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Industrial Sector - Introduction

The industrial sector of the economy is one that make finished productswhich can then be utilized viz. construction and manufacturing industry.

Industrial sector is also known as secondary sector.

Industrial sector usually accepts the primary sector end product and thenapplies them to construct completed products that are then either purchased

by the end user or sent for further processing or fabrication. The industrial or secondary sector can be classified into two types:

- Heavy Industry.

- Light Industry.

Large quantities of energy are consumed to run the process.

Manufacturing industry creates wealth compared to the service sector. Countries that export manufactured goods are usually found to have higher

marginal GDP growth.

3 Group 7


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Industrial Sector - Divisions

Automobile industry Chemical industry

Consumer electronics

Industrial equipment

Steel production

Tobacco industry

Aerospace manufacturing

Brewing industry

Textile industry

Energy industry viz.electricity industry, natural gas industry,petroleum industry Metal working

Telecommunications

4 Group 7


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Industrial Sector-Growth Stages

5% of total Budget plan outlay was allocated for the industries. Small Scale Industriesdevelopment as prime focus (1951-56)

Development of Basic & Capital goods industries-60 Industrial estates and 1000 smallUnits & Steel plants were setup (1956-61)

Expansion of heavy industries automobile, diesel engines, cement and heavychemical units made considerable progress. (1961-66)

The prime aim was to focus on green revolution. Industrial development took a backseat. (1966-69)

Development of Large Scale industries, Number of Industries increased to 465(1969-74)

Development of export industries, mass consumption goods, backward regions andapplication of modern technology in industries(1974-79)

Date Author Title5


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Industrial Sector-Growth Stages

Increase in installed capacity of industries in the public and private sectors not only toproduce mass consumption goods but also intermediary and capital goods. (1980-85)

Increase in production of consumer goods across industries(1985-90)

Annual Plans 3 Fold Strategy-Liberalization, Privatization, Globalization (1990-92)

Modernization of Industries& Entry of Foreign companies and their industrialproducts(1992-97)

Development of Private Sector & Backward Regions(1997-2002)

Industry became competitive, R&D, modernization and technological up gradationinfrastructure development, power generation, development of roads,railways, air-ports etc(2002-2007)

Date Author Title6


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Index of Industrial Production (IIP)

Index of Industrial Production (IIP) is a composite indicator that measuresthe short-term changes in volume of production of a basket of industrial

products during a given period with respect to that in a chosen base period.

I = (WiRi)/ Wi.

where I is the index, Ri is the production relative of the ith item for the month

in question and Wi is the weight allotted to it. Base year needs to be decided on the basis of which all the index figures

would be arrived at.

Base year has been fixed at 1993-94 hence the same would be equivalent to100 Points but now it changed its based year to 2004-2005.

Weight is generally determined on the basis of Gross value added from thatindustrial activity.

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Index of Industrial Production (IIP)

Covers No of Item from different divisions as follows based on newseries with base 2004-05

- Mining & Quarrying 61 Items with weightage of 14.16%.

- Manufacturing 620 items with weightage of 75.53%

- Electricity 1 item with weightage of 10.32%.

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Indian Industrial Policy 1991

A major shift in the industrial policy was made by the Congress (I) Government led byMr. P.V. Narasimha Rao on July 24, 1991.

Liberalization: it refers to procedural simplification, removal of restrictions,delicensing and removal of unnecessary bureaucratic hurdles.

Privatization: It refers to opening the economy for privatization. In privatization, theareas earlier reserved for public sector public sector were made open for privatesector. The private sector was given the main importance.

Globalization: It refers to opening of the domestic economy for foreign enterprises.Import duties were reduced.

The average annual growth rate was 4.4% per annum.

Date Author Title9


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Major Growth Drivers

Economic Growth

Infrastructure Development

Government Initiatives.

Increasing Presence of Multinationals.

Outsourced Manufacturing.

Date Author Title10


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Performance : Indian Industries

Group 711 Source : Ministry of Statistics and Programme Implementation


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IIP(May12) YoY-

Group 712 Source : Ministry of Statistics and Programme Implementation

-6

-4

-2

0

2

4

6

8

Sep'11 Oct'11 Nov'11 Dec'11 Jan'12 Feb'12 Mar'12 Apr'12 May'12

IIP Growth (%)

Index for Industrial Production grew 2.4% in

May12 as against the revised growth of -0.9% inApr12 & 6.2% in May11. This is mainly

attributed to a contraction in capital goods &

mining output.

IIP Data reveals a decline in capital goods output

which declined 7.7% in May12 against 6.2% in

May11. Consumer durables production showed

a faster growth rate of 9.3% in May12 as against

5.1% in May11.


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GDP Q4 FY11-12 Manufacturing Sectorslows down

Group 713 Source: MOSPI, Times of India dt 31stMay12,

-2

0

2

4

6

8

10

GDP at Factor Cost Agriculture, Forestry &Fishing

Mining & Quarrying Manufacturing Construction

Q4 2010-11 Q4 2011-12

GDP in Q4 FY2011-12 slipped to 5.3%, lowest in 9years mainly due to poor performance of

manufacturing & farm sectors.

Growth in Manufacturing sector decreased to -0.3% in Q4 FY2011-12 as compared to 0.6% in Q3

FY2011-12.

Construction sector has also experienced a fall in growth to 4.8% in Q4 FY2011-12 as compared to

6.6% in Q3 FY2011-12.

Forecasts hold that Indias economy will expand by 7.6% in 2012-13.


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Capital Goods sector

Group 714 Source: MOSPI, Money Control dt 13 thjun12

-6

-4

-2

0

2

4

6

8

Sep'11 Oct'11 Nov'11 Dec'11 Jan'12 Feb'12 Mar'12 Apr'12 May'12

IIP Growth (%)

Index for Industrial Production grew 2.4% in

May12 as against the revised growth of -0.9% in

Apr12 & 6.2% in May11. This is mainly

attributed to a contraction in capital goods &

mining output.

IIP Data reveals a decline in capital goods output

which declined 7.7% in May12 against 6.2% in

May11. Consumer durables production showed

a faster growth rate of 9.3% in May12 as against

5.1% in May11.


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IIP(May12) YoY- Mining sector shrinks

Group 715 Source: MOSPI, Moneycontrol dt 13thJul12

-3.0

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

Mining Manufacturing Electricity

May'11(%) May'12(%)

The growth of Industrial Production for

Mining, Manufacturing & Electricity sectors

stand at -0.9%, 2.5% & 5.9% respectively in

May12.

Manufacturing Output, having the highest

weight in IIP grew at 2.5% in May12, betterthan the growth of 0.1% witnessed during the

previous month. 12 out of 22 industry groups

in manufacturing sector have shown positive

growth during May12.

Mining Growth, forming 14% of the indexdeclined to -0.9%, owing to bans & restrictions

due to scandals over illegal mining in several

states.

Electricity output grew at 5.9% in May12 as

compared to 5.2% in Mar11. Thermal electricitygeneration expanded by 8.5% in May12 while

hydro electricity generation contracted by 12.3%.


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Core Sectors (May12) YoY FertilizerProduction falls

Group 716 Source: MoC & I, & www.ecofin-surge.co.in

-20.0

-15.0

-10.0

-5.0

0.0

5.0

10.0

15.0

Coal CrudeOil

NaturalGas

Pet RefProd

FertProd

Steel Cement Elect

Core Infra SectorsMay'11 May'12

Growth of core sectors grew at 3.8% in

May12 as against 2.2% in Apr12 & 5.8%

in May11. During Apr11-May12 the

growth rate slowed down to 3.4% as

compared to 5.0% during Apr10-May11.

Coal Production witnessed a growth of

8.0% in May12 as against 1.3% in May11.

Growth in coal production will help the

power sector as about 55% of Indias

Power generation capacity is based on

thermal coal.

Output of Fertilizer Production saw the highest

decline from 7.3% in May11 to -15.1% inMay12. Natural gas also experienced a

slowdown from -9.6% in May11 to -10.8% in

May12.


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Automobile Sales (May12) Slowest in sevenmonths

Group 717 Source: SIAM, Times of India dt 12thJun12 & ET dt 11thJun12

0

400,000

800,000

1,200,000

1,600,000

P V C V Cars 2 W 3 W

May'12 May'11

Car Sales grew 2.8% in May12, lowest in

seven months attributed to increased petrol

prices & high interest rates. Two wheeler

sales, continued to grow, led by market leader

Hero Motocorp.

Passenger Vehicle Sales in India rose 7.54% in May12

to 221,135 units. In the past few months on-road price

of cars has also gone up by Rs 30,000 to Rs 1 lakh. The

demand for diesel cars has not picked up in spite a rise

in petrol prices.

Commercial Vehicle & 3 W sales rose 9.12% &

2.78% in May12 to 62,025 units & 37,184

units. The dwindling sales have forced the

auto makers to reduce its annual sales

forecast to 10%-12% for the current fiscal.


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Challenges Ahead

Land Acquisition. Higher input costs for the Indian manufacturing sector as a result of

cascading effect of indirect taxes on selling prices of commodities, higher

cost of utilities like power, railway transport, water, higher cost of finance and

high transactions costs puts the sector at a severe disadvantage.

The manufacturing sector needs to access the vast market possibilitiesavailable at the bottom of the income pyramid in the country.

The first essentiality for ensuring manufacturing competitiveness ismacroeconomic stability.

Lowering the cost of manufacturing and improving the quality are essential

for competitiveness. The inverted duty structure caused by FTAs as well as in all cases even

otherwise needs to be rectified.

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Challenges Ahead

Domestic indirect taxes are often singled out as a major reason whyIndian manufacturing is uncompetitive.

Each labor legislation has a separate inspector and visits ofinspectors are not synchronized across all labor enactments.

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Recommendation

Indian manufacturers lag behind their global peers in productionplanning, supply chain management, quality, and maintenance areas

that contribute to their lower productivity.

Improve Labor Productivity

Improve Capital Productivity

Education of Trade Unions & Industrial Workers

Joint Ventures: Public &Private Sector

Investment in Infrastructure

Development of Backward Regions

Building of Techno Parks

Targeted Skilled Development

Development of Public Sector

Govt Role as Economist & Strategist

Group 720


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Date Author Title21

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Industrial Sector in India Performance & Challenges