Q12. “Industrial growth rate has lagged behind in the overall growth of Gross-Domestic-Product(GDP) in the post-reform period” Give reasons. How far are the recent changes in Industrial Policy capable of increasing the industrial growth rate?

Model Answer:

Introduction

In the post-reform period, India has witnessed substantial economic growth, yet the industrial growth rate has lagged behind the overall growth of Gross Domestic Product (GDP). This discrepancy can be attributed to several factors, while recent changes in industrial policy aim to address these challenges and stimulate growth in the industrial sector.

Body

Reasons for the Lag in Industrial Growth Rate

  1. Structural Challenges
    • The Indian manufacturing sector has faced structural challenges, including outdated technology, inadequate infrastructure, and a lack of skilled labor. These issues hinder productivity and innovation, preventing industries from scaling up effectively.
  2. Heavy Regulation and Bureaucracy
    • Despite liberalization efforts, certain industries still face heavy regulations and bureaucratic hurdles. These complexities can deter investment and slow down the growth of industries.
  3. Global Competition
    • Increased globalization has exposed Indian industries to intense competition from countries with advanced manufacturing capabilities, making it challenging for domestic players to compete on price and quality.
  4. Focus on Services Sector
    • India's economic policies have historically favored the services sector, which has seen rapid growth. This shift has resulted in less emphasis on the industrial sector, contributing to the disparity in growth rates.
  5. Investment Shortfalls
    • Insufficient investment in key sectors, particularly in manufacturing and infrastructure, has limited growth opportunities. Foreign direct investment (FDI) inflows have been inadequate in several crucial industries.

Recent Changes in Industrial Policy

  1. Make in India Initiative
    • Launched in 2014, this initiative aims to encourage domestic and foreign companies to manufacture products in India. By simplifying processes and enhancing infrastructure, it seeks to boost manufacturing output and attract investment.
  2. Production-Linked Incentive (PLI) Schemes
    • The introduction of PLI schemes in various sectors provides financial incentives to boost production and encourage domestic manufacturing. This is expected to enhance competitiveness and create jobs.
  3. Skill Development Programs
    • Recent policies emphasize skill development to address the shortage of skilled labor. Initiatives like the Skill India Mission aim to equip the workforce with necessary skills to meet industry demands.
  4. Improvement in Infrastructure
    • Significant investments in infrastructure, including roads, ports, and logistics, are aimed at reducing operational costs for industries. This is expected to enhance the ease of doing business and attract investments.
  5. Digitalization and Technology Adoption
    • The push for digitalization and technology adoption through initiatives like the Digital India campaign is expected to improve efficiency and productivity in the industrial sector.

Conclusion

While the industrial growth rate has lagged behind overall GDP growth in the post-reform period due to structural challenges, regulatory hurdles, and investment shortfalls, recent changes in industrial policy show promise in addressing these issues. The focus on initiatives like Make in India, PLI schemes, skill development, and infrastructure improvement could potentially revitalize the industrial sector, leading to higher growth rates and a more balanced economic development trajectory. Continued monitoring and support are essential to ensure that these policies translate into tangible industrial growth in the coming years.

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