The industrial growth rate has lagged behind the overall growth of GDP in the post-reform period due to several reasons. The recent changes in industrial policy aim to address these issues and increase the industrial growth rate.
Reasons for lagging industrial growth:
- Inadequate infrastructure: India’s physical infrastructure suffers from capacity and efficiency deficits, leading to high logistics costs and reduced competitiveness of Indian goods in global markets.
- Restrictive labor laws: Overly protective labor laws in the formal sector discourage employers from hiring workers regularly and may lead to entrepreneurs avoiding labor-intensive sectors.
- Complicated business environment: Complex and time-consuming business processes and clearances act as disincentives for businesses.
- Slow technology adoption: Indian industry has been slow to adopt new and advanced technologies, resulting in low productivity and higher costs.
- Low productivity: Productivity in Indian manufacturing is only one-third of that in China, with workers predominantly employed in low productivity and low wage activities.
- Challenges for trade: Manufacturing, especially exports, faces challenges from stagnant/shrinking global demand and rising protectionist tendencies worldwide.
Recent changes in Industrial Policy:
The new Industrial Policy aims to increase the industrial growth rate by:
- Clear vision, strategic objectives, and intent: Developing a shared vision for a globally competitive Indian industry with skill, scale, and technology.
- Establishing global linkages: Encouraging FDI and technology transfer to increase domestic value addition, strengthen linkages, and enable brand building.
- Enhancing industrial competitiveness: Reducing the cost of infrastructure, easing regulatory/compliance burden, reducing the cost of capital, and improving labor productivity.
- Employing a growing workforce: Focusing on skill development and job creation in high-potential sectors.
- Ensuring sustainability and responsible industrialization: Promoting green technologies and environmentally friendly practices.
- Enabling ecosystem for technology adoption and innovation: Encouraging R&D investments and fostering a culture of innovation.
In conclusion, the recent changes in Industrial Policy aim to address the constraints that have hindered industrial growth and create a conducive environment for increasing the industrial growth rate.