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Friday, June 05, 2015

Premature Deindustrialisation in India-paper by Sudip Chaudhuri

Though improving the performance of the industrial sector was a major objective of the Reforms of 1991, the share of manufacturing in GDP has stagnated around 15-16% since 1991. This is in contrast to countries such as South Korea and China which have been able to achieve a much higher manufacturing growth. The share of manufacturing in GDP is 31% in Korea and 30% in China. In contrast to the post reforms period, the manufacturing share in GDP went up from 9% in 1950-51 to 15.2% in 1989-90. In fact much of the increase took place during the late 1950s and the early 1960s . This was the period of India’s Second and Third Five Year Plans when concrete steps were taken to develop basic and heavy industries. The planning strategy succeeded in widening the industrial base of the economy. In the early 1950s, just four industries (food products, textiles, wood & furniture and basic metal)accounted for more than two thirds of production. By the early 1990s, their contribution reduced to less than a third. The structure of manufacturing changed in favour of new industries. The share of the machinery sector (comprising electrical and non-electrical machinery), for example increased from 1.2% in the early 1950s to about 12.7% in the early 1990s. The other industries which have significantly gained in importance are chemicals, petroleum refining, transport equipment and non-metallic mineral products.
  The hope in 1991 was that dismantling of trade barriers will create a competitive environment to enhance efficiency and promote growth. But what followed was a surge in net imports rather than efficient manufacturing growth. In sectors such as electronic hardware, the performance both in terms of output and productivity deteriorated. We have seen above how net imports have exploded in both high tech products such as aircraft, telecommunications equipment, optical instruments and also in medium tech products such as electrical machinery, watches and clocks, household equipments.

  The question: will Make-In-India reverse the trend and increase manufacturing share to    30% of GDP?

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