Press Information Bureau

Government of India

Ministry of Finance

15-March-2012 12:46 IST

Economic Survey Pegs Industrial Growth at 4-5% in the Current Financial Year

Survey Calls for Boosting of Business Sentiments, Encouraging Investment and Identifying Bottlenecks

Industrial Sector Expected to Rebound During Next Financial Year

The Economic Survey 2011-12 tabled in the Lok Sabha here today by the Finance Minister, Shri Pranab Mukherjee has projected the industrial-sector growth during the current financial year to be between 4 to 5%. At this rate, says the Survey the annual growth rate will be less than the annual growth rates achieved in the recent past and far below the potential growth rate.

The Survey has said that the challenge for the sector in the short term would be to shore up of business sentiments, spur investment in productive activities and identify bottlenecks that can be removed in a reasonably short period of time. With the easing of headline inflation, moderation in commodities prices in the international market, and revival of manufacturing performance in recent months in the major economies, India’s industrial sector is expected to rebound during the next financial year.

According to the Survey, the long term average annual growth of industries comprising mining, manufacturing and electricity has in general remained aligned with the overall GDP growth rate during the post reform period between 1991-92 and 2011-12, averaging 6.7% as against GDP growth of 6.9%. The share of industry (including construction) and manufacturing in GDP remained generally stable at 28% and in the 14-16% range respectively during this period. The share of industry in total employment, however, increase from 16.2% in 1999-2000 to 21.9% in 2009-10 largely on account of expansion of employment opportunity in the construction sector from 17.5 million in 1999-2000 to 44.2 million in 2009-10.

The Survey has highlighted that the industrial growth, measures in terms of Index of Industrial Production (IIP) during April-December 2011 reached 3.6% compared to a growth of 8.3% in the corresponding period of previous year. There was a contraction in production in the mining sector, particularly in the coal and natural gas segments. The electricity sector witnessed and improvement in its growth in the current year. Growth also moderated in the manufacturing sector from 9.0% in April-December 2010 to 3.9% in April-December 2011. The Survey also points out that the basic goods and non-durables goods had a relatively better growth at 6.1% compared to the growth in the corresponding period of previous year. There was a moderation in growth in other segments of IIP and negative growth was observed in capital goods and intermediates segments.

As per the Economic Survey 2011-12, the share of Gross Capital Formation (GCF) in industry as percent to the overall GCF, after peaking to a level of 54.9% in 2007-08, moderated to 48.3% in 2010-11 the manufacturing GCF growth rate declined to 7% in 2010-11 from 42% in 2009-10. In the current year, the rate of growth of banking sector credit flow to industries moderated significantly. On year-on-year basis, credit growth to industry decelerated to 19.8% in December 2011 from 31.6% in December 2010. Moderation in rate of growth of credit was particularly large for the infrastructure and manufacturing sectors.

The Survey has stated that in medium to long term several challenges remains for the sector. The Planning Commission has projected growth rates of 9.8% and 11.5% in manufacturing sector required to achieve 9 % and 9.5% economy growth respectively. Commenting on the National Manufacturing Policy (NMP) which has envisaged even higher growth of 14% per annum so as to take the share of manufacturing in GDP to 25% and increase the absorption of labour in this sector from 50 million as of today to more than 150 million by 2022. The Survey notes that to achieve this policy objectives, several policy measures will have to be pursued simultaneously such as resolving issues of land availability and infrastructure for the proposed national investment and manufacturing zones (NIMZs); strengthening backward and forward linkages of manufacturing sector with agriculture and services sectors respectively; acquiring depth in manufacturing sector by focusing on high value addition industries; and prompting FDI to fill the saving-investment gap etc.

DSM:RM:MC:CP

Industrial growth outlook signals need to boost business sentiment and investment to restore manufacturing momentum. The Economic Survey projects below trend industrial growth for the current year due to weak business sentiment, reduced investment, moderated banking credit and sectoral bottlenecks. IIP slowed with contractions in mining, moderated manufacturing growth and negative capital goods performance, while basic and non durable goods fared better. The Survey notes a fall in manufacturing's share of gross capital formation and a marked deceleration of credit to industry. It recommends boosting business sentiment, removing short term bottlenecks, ensuring land and infrastructure for investment zones, strengthening sectoral linkages, encouraging higher value added manufacturing and promoting FDI to bridge saving investment gaps.