GROWTH AND DEVELOPMENT OF MANUFACTURING SECTOR IN INDIA

SINCE LIBERALISATION
]

CONTENTS

CHAPTER- I

INTRODUCTION OF MANUFACTURING SECTOR

Introduction
Statement of Problem
Review of Literature
Need For the Study
Objectives of the Study
Scope of the Study
Research Methodology
Limitations of the Study

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INTRODUCTION

Manufacturing growth in India in recent years presents somewhat of a mixed picture.

After a period of recession between 1990-91 and 2008-09, India’s manufacturing sector
is currently recording fast rates of growth of output (see Figure 1). A number of Indian
manufacturing firms in fields such as automobiles and pharmaceuticals are attracting
global attention, best exemplified in a recent headline from the Fortune magazine,
‘Manufacturing takes off in India’.1 India is gaining a reputation as a centre for
manufacturing design and innovation. At the same time, however, India’s manufacturing
sector is showing signs of weaknesses too. Most recently, the appreciation of Indian
Rupee has significantly reduced the competitiveness of many export-oriented industries
in the country such as textiles and engineering. Tirupur, the largest source of exports of
knitwear garments from India, has been badly hit. Job retrenchments in this textile town
have crossed 7000 and, according to some reports, will further rise to 50,000 by the end
of the current financial year (that is, by March 2008) if the trend of Rupee appreciation is
not reversed.2 This paper finds that India’s manufacturing sector is showing signs of
dichotomous growth. While one segment of Indian manufacturing is, as noted above,
growing at fast rates and achieving international technological standards, a large part of
the country’s manufacturing sector is lagging behind in growth. While economic reforms
have helped the international ambitions of a group of fast growing Indian firms, certain
features of the reform process have been harmful to the interests of large numbers of
relatively small firms in the country. This paper analyses India’s financial sector reforms
and how they have contributed to this dichotomy in manufacturing sector growth in India.
Since 1991 the Indian government is undertaking major economic reforms in order to
facilitate higher inflow of foreign direct investment (FDI) and boost trade. It is also trying
to facilitate higher inflows of technology. Earlier studies was done on the impact of
reforms on the economy show that higher FDI has led to export diversification and
improved productivity growth in the Indian manufacturing sector. The studies also show
that FDI has led to substantial export and productivity spillovers.
However, a concern that remains in the minds of some is the effect of liberalisation on
Indian labour markets and in particular, on wages and employment. Given inflexible
labour laws and the influence of the government on wage movements in India, this issue
assumes even greater importance. This paper empirically estimates the impact of three
important components of liberalisation, i.e., FDI, trade and technology on wages and
employment in the organized manufacturing sector of India in the post reforms period.
The results show that FDI, trade and technological progress have differential impact on
wages and employment. While higher extent of FDI in an industry leads to higher wage
rate in the industry, it has no impact on its employment. On the other hand, higher export
intensity of an industry increases employment in the industry but has no effect on its
wage rate. Technological progress is found to be labour saving but does not influence the
Wage rate. Further, the results show that domestic innovation in terms of research and
development intensity has been labour utilizing in nature but import of technology has
unfavorably affected employment. An immediate policy direction that emerges from the
study is that to improve the employment potential of the economy trade should be
encouraged and the impediments to export-oriented FDI should be removed. Also, as the

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economy opens up, cost adjustments become increasingly important and flexibility in
labour laws is essential to facilitate such adjustments. An SEZ law with flexible labour
regime will promote these Objectives.
The structure of the Indian economy has undergone a remarkable change after its
independence in 1991. It has been transformed from an agriculture-based economy
heavily reliant on production of primary commodities for exports, to a manufacturing
sector based economy. The share of the agriculture sector in the Gross Domestic Product
(GDP) dropped from 42 per cent in 1980’s to 32 per cent in 1990’s and decreased to
26per cent in 2005. On the other hand, the share of the manufacturing sector jumped
from21 per cent in 1980’s 24 per cent in1990’s and increase to 26 per cent in 2005.
The manufacturing sector has now become the main contributor to the Indian Gross
Domestic Product (GDP) superseding the agricultural sector. Accordingly, the structure
of employment has changed from concentration on agricultural activities to
manufacturing industries and from high labour intensive industries to highly capital
intensive industries.

1 See the report ‘Manufacturing takes off in India’ by John Elliot, Fortune, 19 October,
2007.
2 See the report ‘Tirupur Exporters Seek More Sops’, 25 November, 2007, in
www.newindpress.com

STATEMENT OF PROBLEM
In the process of economic development, industrial sector especially
manufacturing sector plays an important role. It has been recognized that the share of
manufacturing sector in Gross Domestic Product rises as the economy developed.
Further, it has been observed that the structural transformation in India has made the
industrial sector as remarkable growth over the years.
The liberalisation process started in 1991 had given an opportunity to the Indian
industries to expand their operations beyond Indian boundaries establishing place of
business outside India. After a decade of reforms, the manufacturing sector is now
gearing up to meet challenges. Investment in Indian companies reached record levels and
many multinational decided to setup shop in India to take advantage of the improved
financial climate. In an effort to provide a further boost to the industrial manufacturing
sector, Foreign Direct Investment has been permitted through the automatic route for
almost all the industries with certain restrictions. Structural reforms have been undertaken
in the exercise duty regime with a view to introduce a single rate and simplicity.
Companies in the manufacturing sector have consolidated around their area of core
competence by typing up with foreign companies to acquire new technology,
management expertise, and access to foreign markets. Exports can also act as motive
power growth for a rapidly developing Indian economy by promoting investment
including foreign direct investment, particularly in the manufacturing sector. Hence, to
identify the impact of reforms, an attempt was made in this paper to analyse the
productivity performance of manufacturing sector in India.

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Manufacturing sector in India is still facing a number of problems which are adversely
affecting its growth challenges faced by the Indian manufacturing warrant appropriate
responses from both the govt. as well as the industry for improving the competitiveness
of the sector. There are a few areas where both the govt. and the industry need to put in
efforts through a well-designed Public-Private partnership mode:

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

(ii) The first essentiality for ensuring manufacturing competitiveness is

macroeconomic stability.

(iii) Lowering the cost of manufacturing and improving the quality are essential
for competitiveness

(iv) The inverted duty structure caused by FTAs as well as in all cases even
otherwise needs to be rectified.

(v) Domestic indirect taxes are often singled out as a major reason why Indian
manufacturing is uncompetitive.

(vi) Each labour legislation has a separate inspector and visits of inspectors are
not synchronized across all labour enactments.

• Procedures connected with export incentives/ subsidies continue to be

cumbersome. These need to be simplified on a priority basis.

• Enough Steps have not been taken to attract FDI. There is no denying that India
has underperformed in attracting FDI.

• High interest rates and availability of credit are problems which hinder growth of
the industry

• The manufacturing sector is critically dependent on the infrastructure facilities

particularly, in transportation sector - roads, railways, ports, airports etc. for
movement of goods.

• It is estimated that power shortage alone contributes to production loss of at least

one percent of GDP.

NEED FOR THE STUDY

Industrialisation of a developing economy provides the much needed break through by
providing productive employment to the work force that otherwise would be either

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unemployed or under employed. Diversion of these people from agriculture to other
occupation can increase the productive use of labour skills and generate higher levels of
aggregate output. The sound reason for industrialisation is that it can stabilize the income
through diversification of the productive sectors of the economy. From an initial stage of
producing goods which will be import substituting in their nature to sophisticated
industrial manufactures which because of their high tech quality can serve as potent
source of realizing higher volume of export of manufactured goods. It thus alters the
nature of the economy in the export sector from being primary products exporting to the
export modern industrial manufactures.
Manufacturing industry plays a crucial role in the economic development of a nation. In
India also, manufacturing industries play an important role in promoting national income
and economic development. However, studies on the different theoretical and empirical
aspects of industrial growth in Indian context have been quite limited. But significant of
such studies are not only of academic interest but hold promise to be useful in policy
formulation to direct future industrial pattern of industrial growth. Present study is a
humble attempt in this direction.

Objective of the study:

The objective of the present study is to study the impact of liberalisation on
manufacturing sector in India and examine their role in domestic growth and
development of India. In order to meet the objective of the study, the task can be split
into two separate tasks, viz

(1) To study the conceptual approach of manufacturing sector in India. This includes
the definition of manufacturing industries and different classifications of
manufacturing sector in India.
(2) To study the growth and development of manufacturing sector in India since
liberalisation and the government policies regarding the manufacturing sector in
India.
(3) To give suggestions and recommendations for the improvement of Indian
Manufacturing Sector.

Scope of the Study:

In this study of growth and development of manufacturing sector since liberalisation in
India, we have limited ourselves to the sector wise analysis of different manufacturing
Industries in India after 1991, when we have a LPG (Liberalisation, Privatization, and
Globalisation) policy in India. The sectors included are the following:-
1. Electronics
2. Automobile
3. Bio-technology & Pharmaceuticals
4. Chemical
5. Textiles
6. Steel
7. Food processing
8. Gems and Gwellery

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9. Aluminium
10. Cement

LIMITATIONS OF THE STUDY

1. The main limitation of this study is that the analysis is done on the basis of the
Secondary data only.

2. This study mainly takes into consider the period of twenty four years from 1990-
91to 2004-05.

3. This study is only confirmed to the supply side of the manufacturing sector.

4. The given time period for completing the task was limited.

REVIEW OF LITERATURE

This chapter deals with the review of earlier studies on manufacturing sector in particular.
Bain1 in his study on “Industrialisation Differences in Industrial Countries: Eight Nations
in 1950’s” analysed the structural composition of the manufacturing industries in the
eight nations viz., the United States, the U.K,(United Kingdom) Canada, Sweden, France,
Italy, Japan and India during the early 1950’s. He observed that United States has
attained a fairly well balanced diversification in manufacturing activities. The U.K was
heavily skewed on the transport equipments, non-electrical manufacturing and textile
industries. Sweden revealed disproportionate emphasis in the manufacturing of
nonelectrical machinery and paper products. Canada has a similar heavy development in
the non-ferrous metals, wood, paper and food products. France had a well developed base
in the textiles and fabricated metal products manufacturing. The study also found that
Japan, Italy and especially India have a heavy concentration in the manufacture of
textiles.
Chaudhuri2 in his study on “Structural Changes and Fluctuation in Manufacturing
Sector: A disaggregate Analysis 1959-60 to 1984-85” attempted to examine the structural
changes and fluctuations in manufacturing factor sector industries of India. For the
purpose of analysis he used the Annual Survey of Industries data published by the Central
Statistical Organization (CSO). He Categorized the manufacturing value added using
industrial classification at two-digit, three-digit and use-based classification, it
approached from two and three digit level industrial classification reveled increasing
share in the aggregate net value added in the economy. The results at three-digit level
have revealed the Electrical machinery registering the highest rate of growth at 14.08 per
cent per annum. In the two digit level, the chemical products category was found
registering the highest growth (19 per cent). From the use based classification, he
concluded that the contribution of capital goods was lower compared to consumer and
intermediate goods.
Ahluwalia3 attempts to analyses the long-term trends in total productivity and partial
productivities in the organised manufacturing sector in India over the period from1959-
60 to 1985-86. The role of factor input growth and total factor productivity growth in

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accounting for the growth in value added is also explored. The analysis conducted at a
detailed level of disaggregation for 63 constituent industry groups at the three-digit level
of as well as for the four use-based sectors of manufacturing, i.e., intermediate goods,
consumer non-durables, consumer durables and capital goods. For as many as 36
industries accounting for over 50 per cent of the total value added in manufacturing in
1970-71, however, the contribution of total factor productivity growth was negative. The
more important among these industries were food manufacturing except sugar, iron and
steel and non-ferrous metals. For almost all of the 63 industries, capital intensity showed
a strong and significant positive growth for fewer industries accounting for 64 per cent of
the valued added in manufacturing. There were a few industries which even experienced
a decline in labour productivity. The trend in capital productivity was dominantly
downward.
M.Chandrasekaran and Bahavani Sridharan4 studied the productivity trends in cotton
industry in India. The data were obtained from the Annual Survey of Industries. This
study was done during the period from 1973-74 to 1986-87, that is 14 years. It was
noticed that the productivity indices deflated value of net value added, the total
emoluments and the net fixed assets were used. The partial productivity and total factor
productivity and Cobb-Douglas production functions were applied in this study. The total
factor productivity was calculated by using Kendrick’s index. The productivity measures
were used in index forms so as to facilitate the comparison over the time. Rate of growth
of the aforesaid partial and total factor productivities and capital intensity was planned
out to capture the trends in those measures. The growth rate was arrived at by using a
semi-log linear equation with regard to the time. For the purpose of finding out the
estimates o input elasticity, natural technical progress and returns to scale, the Cobb-
Douglas (CD) production function in log linear form, Constant Elasticity Substitution
(CES) production function and Variable Elasticity Substitution (VES) production
functions were followed in this study. Results of the estimates revealed that the labour
productivity in the cotton industry had increased at a higher rate than the capital
productivity and contributed to the growth of output and efficiency achievement. There
was no technical process in the industry during the study period. The industry was
operating under the increasing returns. At last, the author concluded that, lower capital
productivity found out in this study could be due to the managerial factors. Further the
organisational factors like managerial skill, commitments, morale and motivation of the
workforce and systems etc., contribute for better utilisation of capital and labour.

(1) Bain, J.s, Industrialisation Differences in Industrial Countries: Eight Nations

in 1950’s, Yale University Press, New Delhi, 1966.

(2) Chaudhuri, S, “Structural Changes and Fluctuation in Manufacturing

Factor Sector: A disaggregative Analysis 1959 to 1984-85”, Indian Institute
of Management, Calcutta, 1989.

(3) Ahluwalia, Isher Judge, “Productivity and Growth in Indian Manufacturing

– Trends in productivity and growth”, Oxford University Press New York,
New Delhi, 1991.

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 (4) M. Chandrasekaran and Bhavani Sridharan, “ Productivity Trends in
Cotton Industry in India” The Indian Economics Trend, Vol. 41, No.2,
October – December 1993, pp.61-70.

RESEARCH METHODOLGY:
For the purpose of establishing various facts about manufacturing industry and its trend
both in back years and upcoming years, we went through different literary works done by
the said authors, different magazines based on manufacturing industry. Moreover we
derive some of the conclusions from the statistical data released both by national and
international community for manufacturing such as Manufacturing council of India as
well as data acquired from the Economic surveys of India which proves the relevancy of
the facts. In addition to that we browsed out data and facts from web based services and
various abstracts available to us. We also got the survey report from magazine

Secondary Data

The sources of secondary data for solve the problems are:-

· Company Annual Report
· Company Internal Data
· Internet-Websites

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 Chapter II

GROWTH OF MANUFACTURING SECTOR IN INDIA

Manufacturing is the use of machines, tools and labor to make things for use or
sale. The term may refer to a range of human activity, from handicraft to high tech, but is
most commonly applied to industrial production, in which raw materials are transformed
into finished goods on a large scale. Such finished goods may be used for manufacturing
other, more complex products, such as household appliances or automobiles, or sold to
wholesalers, who in turn sell them to retailers, who then sell them to end users - the
"consumers". Manufacturing takes turns under all types of economic systems. In a free
market economy, manufacturing is usually directed toward the mass production of
products for sale to consumers at a profit. In a collectivist economy, manufacturing is
more frequently directed by the state to supply a centrally planned economy. In free
market economies, manufacturing occurs under some degree of government regulation.
Modern manufacturing includes all intermediate processes required for the production
and integration of a product's components. Some industries, such as semiconductor and
steel manufacturers use the term fabrication instead.

The manufacturing sector is closely connected with engineering and industrial

design. Examples of major manufacturers in the United States include General Motors
Corporation, Ford Motor Company, Chrysler, Boeing, Gates Rubber Company and
Pfizer. Examples in Europe include Airbus, Daimler, BMW, Fiat, and Michelin Tires.
Any industry that makes products from raw materials by the use of manual labour or
machines and that is usually carried out systematically with a division of labour. In a
more limited sense, manufacturing is the fabrication or assembly of components into
finished products on a fairly large scale. Among the most important manufacturing
industries are those that produce aircraft, automobiles, chemicals, clothing, computers,

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consumer electronics, electrical equipment, furniture, heavy machinery, refined
petroleum products, ships, steel, and tools. See also factory; mass production.
IN BRIEF: Making of goods or ware by manual labor or by machinery especially
on a large scale; producing artificially or inventing.Manufacturing is the application of
tools and a processing medium to the transformation of raw materials into finished goods
for sale. This effort includes all intermediate processes required for the production and
integration of a product's components. Some industries, like semiconductor and steel
manufacturers use the term fabrication instead.

The Secondary sector of the economy includes those economic sectors that
create a finished, usable product: manufacturing and construction. This sector generally
takes the output of the primary sector and manufactures finished goods or where they are
suitable for use by other businesses, for export, or sale to domestic consumers. This
sector is often divided into light industry and heavy industry. Many of these industries
consume large quantities of energy and require factories and machinery to convert the
raw materials into goods and products. They also produce waste materials and waste heat
that may pose environmental problems or cause pollution.

Some economists contrast wealth-producing sectors in an economy such as

manufacturing with the service sector which tends to be wealth-consuming. Examples of
service may include retail, insurance, and government. These economists contend that an
economy begins to decline as its wealth-producing sector shrinks. Manufacturing is an
important activity to promote economic growth and development. Nations which export
manufactured products tend to generate higher marginal GDP growth which supports
higher incomes and marginal tax revenue needed to fund the quality of life initiatives
such as health care and infrastructure in the economy. The field is an important source for
engineering job opportunities. Among developed countries, it is an important source of
well paying jobs for the middle class to facilitate greater social mobility for successive
generations in an economy.

Divisions of this sector include:

• Aerospace manufacturing
• Automobile industry
• Brewing industry
• Chemical industry
• Textile industry
• Consumer electronics
• Energy industry (petroleum industry, natural gas industry, electricity industry)
• Industrial equipment
• Metalworking
• Steel production
• Tobacco industry

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 HISTORY AND DEVLOPMENT

One can trace the origins of modern manufacturing management to the advent of
agricultural production, which meant that humans didn't constantly have to wander to
find new sources of food. Since that time, people have been developing better techniques
for producing goods to meet human needs and wants. Since they had additional time
available because of more efficient food sources, people began to develop techniques to
produce items for use and trade. They also began to specialize based on their skills and
resources. With the first era of water-based exploration, trade, and conflict, new ideas
regarding product development eventually emerged, over the course of the centuries,
leading to the beginning of the Industrial Revolution in the mid-eighteenth century. The
early twentieth century, however, is generally considered to mark the true beginning of a
disciplined effort to study and improve manufacturing and operations management
practices. Thus, what we know as modern manufacturing began in the final decades of
the twentieth century.

The late 1970s and early 1980s saw the development of the manufacturing
strategy paradigm by researchers at the Harvard Business School. This work focused on
how manufacturing executives could use their factories' capabilities as strategic
competitive weapons, specifically identifying how what we call the five P's of
manufacturing management (people, plants, parts, processes, and planning) can be
analyzed as strategic and tactical decision variables. Central to this notion is the focus on
factory and manufacturing trade-offs. Because a factory cannot excel on all performance
measures, its management must devise a focused strategy, creating a focused factory that
does a limited set of tasks extremely well. Thus the need arose for making trade-offs
among such performance measures as low cost, high quality, and high flexibility in
designing and managing factories.

The 1980s saw a revolution in management philosophy and the technologies used
in manufacturing. Just-in-time (JIT) production was the primary break through in
manufacturing philosophy. Pioneered by the Japanese, JIT is an integrated set of
activities designed to achieve high-volume production using minimal inventories of parts
that arrive at the workstation "just in time." This philosophy—coupled with total quality
control (TQC), which aggressively seeks to eliminate causes of production defects—is
now a cornerstone in many manufacturers' practices.

As profound as JIT's impact has been, factory automation in its various forms
promises to have an even greater impact on operations management in coming decades.
Such terms as "computer-integrated manufacturing" (CIM), "flexible manufacturing
systems" (FMS), and "factory of the future" (FOF) are part of the vocabulary of
manufacturing leaders. Another major development of the 1970s and 1980s was the
broad application of computers to operations problems. For manufacturers, the big
breakthrough was the application of materials requirements planning (MRP) to
production control. This approach brings together, in a computer program, all the parts

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that go into complicated products. This computer program then enables production
planners to quickly adjust production schedules and inventory purchases to meet
changing demands during the manufacturing process. Clearly, the massive data
manipulation required for changing the schedules of products with thousands of parts
would be impossible without such programs and the computer capacity to run them. The
promotion of this approach by the American Production and Inventory Control Society
(APICS) has been termed the MRP Crusade.

The hallmark development in the field of manufacturing management, as well as

in management practice in general, is total quality management (TQM). Although
practiced by many companies in the 1980s, TQM became truly pervasive in the 1990s.
All manufacturing executives are aware of the quality message put forth by the so-called
quality gurus—W. Edwards Deming, Joseph M. Juran, and Philip Crosby. Helping the
quality movement along was the creation of the Baldrige National Quality Award in 1986
under the direction of the American Society of Quality Control and the National Institute
of Standards and Technology. The Baldrige Award recognizes up to five companies a
year for outstanding quality management systems. The ISO 9000 certification standards,
issued by the International Organization for Standardization, now play a major role in
setting quality standards, particularly for global manufacturers. Many European
companies require that their vendors meet these standards as a condition for obtaining
contracts.

The need to become or remain competitive in the global economic recession of

the early 1990s pushed companies to seek major innovations in the processes used to run
their operations. One major type of business process reengineering (BPR) is conveyed in
the title of Michael Hammer's influential article "Reengineering Work: Don't Automate,
Obliterate." The approach seeks to make revolutionary, as opposed to evolutionary,
changes. It does this by taking a fresh look at what the organization is trying to do, and
then eliminating non-value-added steps and computerizing the remaining ones to achieve
the desired outcome.

The idea is to apply a total system approach to managing the flow of information,
materials, and services from raw material suppliers through factories and warehouses to
the end customer. Recent trends, such as outsourcing and mass customization, are forcing
companies to find flexible ways to meet customer demand. The focus is on optimizing
those core activities in order to maximize the speed of response to changes in customer
expectations.

Based on the work of several researchers, a few basic operations priorities have
been identified. These priorities include cost, product quality and reliability, delivery
speed, delivery reliability, ability to cope with changes in demand, flexibility, and speed
of new product introduction. In every industry, there is usually a segment of the market
that buys products— typically products that are commodity-like in nature like sugar, iron
ore, or coal—strictly on the basis of low cost. Because this segment of the market is
frequently very large, many companies are lured by the potential for significant profits,
which they associate with the large unit volumes of the product. As a consequence,

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competition in this segment is fierce—and so is the failure rate. Quality can be divided
into two categories: product quality and process quality. The level of a product's quality
will vary with the market segment to which it is aimed because the goal in establishing
the proper level of product quality is to meet the requirements of the customer. Over-
designed products with too high a level of quality will be viewed as prohibitively
expensive. Under designed products, on the other hand, will result in losing customers to
products that cost a little more but are perceived as offering greater benefits.

Process quality is critical since it relates directly to the reliability of the product.
Regardless of the product, customers want products without defects. Thus, the goal of
process quality is to produce error-free products. Adherence to product specifications is
essential to ensure the reliability of the product as defined by its intended use. A
company's ability to deliver more quickly than its competitors may be critical. Take, for
example, a company that offers a repair service for computer-networking equipment. A
company that can offer on-site repair within one or two hours has a significant advantage
over a competing firm that only guarantees service only within twenty-four hours.
Delivery reliability relates to a firm's ability to supply the product or service on or before
a promised delivery due date. The focus during the 1980s and 1990s on reducing
inventory stocks in order to reduce cost has made delivery reliability an increasingly
important criterion in evaluating alternative vendors.

A company's ability to respond to increases and decreases in demand are another

important factor in its ability to compete. It is well known that a company with increasing
demand can do little wrong. When demand is strong and increasing, costs are
continuously reduced because of economies of scale, and investments in new
technologies can be easily justified. Scaling back when demand decreases may require
many difficult decisions regarding laying off employees and related reductions in assets.
The ability to deal effectively with dynamic market demand over the long-term is an
essential element of manufacturing strategy.

Flexibility, from a strategic perspective, refers to a company's ability to offer a

wide variety of products to its customers. In the 1990s companies began to adjust their
processes and outputs to dynamic and sometimes volatile customer needs. An important
component of flexibility is the ability to develop different products and deliver them to
market. As new technologies and processes become widespread, a company must be able
to respond to market demands more and more quickly if it is to continue to be successful.

Manufacturing strategy must be linked vertically to the customer and horizontally

to other parts of the enterprise. Underlying this framework is senior management's
strategic vision of the firm. This vision identifies, in general terms, the target market, the
firm's product line, and its core enterprise and operations capabilities. The choice of a
target market can be difficult, but it must be made. Indeed, it may lead to turning away
business—ruling out a customer segment that would simply be unprofitable or too hard to
serve given the firm's capabilities. Core capabilities are those skills that differentiate the
manufacturing from its competitors.

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 In general, customers' new-product or current-product requirements set the
performance priorities that then become the required priorities for operations.
Manufacturing organizations have a linkage of priorities because they cannot satisfy
customer needs without the involvement of R&D and distribution and without the direct
or indirect support of financial management, human resource management, and
information management. Given its performance requirements, a manufacturing division
uses its capabilities to achieve these priority goals in order to complete sales. These
capabilities include technology, systems, and people. CIM, JIT, and TQM represent
fundamental concepts and tools used in each of the three areas.

Suppliers do not become suppliers unless their capabilities in the management of

technology, systems, and people reach acceptable levels. In addition, most manufacturing
capabilities are now subjected to the "make-or-buy" decision. It is current practice among
world-class manufacturers to subject each part of a manufacturing operation to the
question: If we are not among the best in the world at, say, metal forming, should we be
doing this at all, or should we subcontract to someone who is the best? The main
objectives of manufacturing strategy development are (1) to translate required priorities
into specific performance requirements for operations and (2) to make the necessary
plans to assure that manufacturing capabilities are sufficient to accomplish them.
Developing priorities involves the following steps:

1. Segment the market according to the product group.

2. Identify the product requirements, demand patterns, and profit margins of each
group.
3. Determine the order winners and order qualifiers for each group.
4. Convert order winners into specific performance requirements.

It has been said that America's resurgence in manufacturing is not the result of
U.S. firms being better innovators than most foreign competitors. This has been true for a
longtime. Rather, it is because U.S. firms are proving to be very effective copiers, having
spent a decade examining the advantages of foreign rivals in product development,
production operations, supply chain management, and corporate governance then putting
in place "functional equivalents" that "incrementally improve" on their best techniques.
Four main adaptations on the part of U.S. firms underscore this success:

1. New approaches to product-development team structure and management have

resulted in getting products to market faster, with better designs and
manufacturability.
2. Companies have improved their manufacturing facilities through dramatic
reductions of work-in-process, space, tool costs, and human effort, while
simultaneously improving quality and flexibility.
3. New methods of customer-supplier cooperation, which borrow from the Japanese
keiretsu (large holding companies) practices of close linkages but maintain the
independence of the organizations desired by U.S. companies, have been put in
place.

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 4. Better leadership—through strong, independent boards of directors that will
dismiss managers who are not doing their jobs effectively—now exists.

In sum, the last few decades of the twentieth century witnessed tremendous change and
advancement in the means of producing goods and the manner of managing these
operations that have led to higher levels of quality and quantity as well as greater
efficiency in the use of resources. In the new millennium, because of global competition
and the expansive use of new technologies, including the Internet, a successful firm will
be one that is competitive with new products and services that are creatively marketed
and effectively financed. Yet what is becoming increasingly critical is the ability to
develop manufacturing practices that provide unique benefits to the products. The
organization that can develop superior products, sell them at lower prices, and deliver
them to their customers in a timely manner stands to become a formidable presence in the
marketplace.

In its earliest form, manufacturing was usually carried out by a single skilled
artisan with assistants. Training was by apprenticeship. In much of the pre-industrial
world the guild system protected the privileges and trade secrets of urban artisans. Before
the Industrial Revolution, most manufacturing occurred in rural areas, where household-
based manufacturing served as a supplemental subsistence strategy to agriculture (and
continues to do so in places). Entrepreneurs organized a number of manufacturing
households into a single enterprise through the putting-out system. Toil manufacturing
is an arrangement whereby a first firm with specialized equipment processes raw
materials or semi-finished goods for a second firm.

LIBERALISATION

Before we proceed further, it will be useful to clarify the two terms, liberalization
and Globalization that have come to dominate the discourse in development economics.
In simple words, liberalization refers to the freeing of trade, investment and capital flows
between countries. It implies the simplifying procedures of business, i.e. merchandise
trade, foreign investments, and trade in services, etc., so that countries can do business
without hassles. It underlines the less interventionist and more cooperative role of the
government in facilitating international business. The core of trade liberalization is
reduction in import tariff (i.e. custom duties) and non tariff blamers. The liberalization of
investment underscores the fact that the private domestic and foreign investors can
participate either in production activities or in management of manufacturing /service
sector companies as per the procedures laid down by the government. The liberalization
of capital flows implies an investor (domestic and foreign) can bring in or withdraw his
investment on short term current as well as long term capital account at any point of time.

Globalization, on the other hand, is relatively a broader term which encompasses

a wide range of phenomena. It refers both to the integration of production facilities
indifferent countries under the aegis or ownership of the multinational corporations
(MNCs) and to the integration of product and financial markets facilitated by

15
liberalization. In simple words, globalization means expansion of economic activities
across the political boundaries of nation states. It underlines the increasing economic
openness and growing economic interdependence between countries. Another term that
has gained currency in recent years is privatization. It indicates the disinvestment of state
assets (i.e. stocks/shares) in government owned enterprises. By doing so, the ownership
of public enterprises get transformed to private entrepreneur. Under privatization, private
participation is permitted in management of public sectors undertaking (PSU).

The word liberalization is mainly used to denote that the Government is

moving from licensing of commerce to de-licensing. Even though normally associated
with Government ownership of Government in business entities, the real direction of
liberalization is moving away from planned economy to market economy. The growth of
business is dictated more as per the demand and supply in the market than decided by
Government. The main causes of liberalizing the economy are that, it is an attempt to
ensure regular international fund flow into the economy and more of political in nature. If
you mean the effect of liberalization, the invisible gains are that the individual is opening
up to be an entrepreneur than a pen pusher. The visible gains are more foreign investment
and growth in services sector. The real gain will be felt only if the manufacturing and
agricultural sectors show growth and profits.

In general, liberalization refers to a relaxation of previous government restrictions,

usually in areas of social or economic policy. Liberalization of autocratic regimes may
precede democratization (or not, as in the case of the Prague Spring). In the arena of
social policy it may refer to a relaxation of laws restricting for example divorce, abortion,
homosexuality or drugs. Most often, the term is used to refer to economic liberalization,
especially trade liberalization or capital market liberalization although economic
liberalization is often associated with privatization, the two can be quite separate
processes. For example, the European Union has liberalized gas and electricity markets,
instituting a system of competition; but some of the leading European energy companies
(such as EDF and Vattenfall) remain partially or completely in government ownership.
Liberalized and privatized public services may be dominated by just a few big
companies, particularly in sectors with high capital costs, or high sunk cost, such as
water, gas and electricity. In some cases they may remain legal monopolies, at least for
some part of the market (e.g. small consumers). Liberalization is one of three focal points
(the others being privatization and stabilization) of the Washington consensus's trinity
strategy for economies in transition. An example of Liberalization is the "Washington
Consensus" which was a set of policies created and used by Argentina. There is a distinct
difference between liberalization and democratization, which are often thought to be the
same concept. Liberalization can take place without democratization, and deals with a
combination of policy and social change specialized to a certain issue such as the
liberalization of government-held property for private purchase, whereas democratization
is more politically specialized that can arise from a liberalization, but works in a broader
level of government.

16
LIBERALISATION IN INDIA

India launched massive economic reforms in July 1991 to overcome the economic crisis
which has set in the economy because of shortage of foreign exchange (forex) reserves.
The forex reserves since the beginning of 1990 was in bad shape mainly because of rising
import bill, fall in exports and meagre inflows of FDI. Severe strain on forex reserves
was placed by the high levels of imported raw material component in India's exports.
Especially the import of oil and petroleum products amounts to about 20 per cent of total
import bill; The US-Iraq Gulf War of 1990-91 which led to sharp increase in international
oil prices affected India directly and forex reserves began to decline from US$ 1.1 billion
in August 1990 to US$896 million in January 1991. The Gulf War also affected India's
exports to Iraq, Kuwait, and other West Asian countries following United Nations trade
embargo on Iraq and tense situation in the Arabian Sea. Besides, the remittances of the
Indian labour working in Kuwait ceased to flow in as they were evacuated and shifted
back to India following the War.

The impact of all these factors was multiple on the Indian economy and it
disrupted industrial production, accelerated inflation to peak level of 16.7 per cent in
August 1991 and sharp decline in real GDP growth rate to 2.5 per cent. Amidst all this
economic chaos, there was political instability at the national level and a caretaker
Central government was in the office. The elections were declared and the new
government assumed office in June 199 1. Immediately, the new government took series
of corrective measures to rejuvenate economy. The short-term measures were aimed at
crisis management such as devaluation of the Indian currency to boost up exports. The
long-term measures were of structural reforms, aimed at improving efficiency and
productivity. To correct imbalance in the BOPs, the government borrowed huge loans
from the IMF. The devaluation of the Indian currency helped to curb nonessential
imports. These measures helped to overcome the problem of forex reserves crisis (on
Bops) as exports began to pick up. Along with these measures, the government launched
large-scale economic reforms in July 1991 as per the guidelines provided by the IMF and
the World Bank. The process of these reforms is still continuing. The principal thrust of
'First Generation Reforms' of 1990s was opening the economy to foreign producers and
investors. The reforms were initiated in the following four areas:

i) Fiscal Correction

Under fiscal correction the principal concern was macro-economic stability by

bringing government expenditure under control. As maintained here, the government
financial position was in bad shape in 1990-9 1 mainly because the expenditure was
much higher than income. To meet the increasing need of the expenditure the government
often borrowed heavily from abroad (mostly from IMF) and this over-borrowing led the
situation to debt-trap. The mounting pressure of external debt and limited mobilization of

17
domestic income created serious trouble in the management of the economy. To come out
of the situation and reduce the expenditure, a suggestion was put forward to abolish
various subsidies, including export subsidy. Another suggestion was to increase fertilizer
prices, keep non-plan expenditures (including defense expenditure) in check. The
government applied these measures and brought macro-economic situation under control.

ii) Trade Policy Reforms

The thrust of the trade policy reforms was to provide stimulus to exports. The
pursuit of 'import-substitution policy' since independence adversely affected exports.
Under the new trade policy it was decided to pursue 'pro-active export policy' by
reducing the degree of regulation and licensing control. The first task was to improve
price competitiveness of exports by devaluing the currency (i.e. rupee). For encouraging
the competition in the domestic market tariff barriers to imports were reduced. The high
tariff level of 150 per cent in 1991 was brought down to 35 per cent in 2001 and to 20 per
cent in the Budget of 2003-4. Quantitative restrictions on imports were also phased out.
Trade liberalization opened the gates for large-scale foreign products in the indigenous
market.

iii) Industrial Policy Reforms

The revamping of industrial sector was another important item on reform agenda.
The dismal performance of industrial and manufacturing sector (both in private and
public sector) was a matter of serious concern. The slow down of public and private
sectors had badly affected employment opportunities. To enhance private and foreign
participation, the government decided to deregulate industry. For doing so the industrial
licensing was abolished for all projects except in industries where strategic or
environmental concerns are paramount. Now about 80 per cent of industry has been taken
out of the licensing framework. Besides, areas reserved for the public sector have been
narrowed down, and greater participation by private sector is permitted in core and basic
industries. With the opening up of the industrial sector, the foreign investment is flowing
in the economy. The joint ventures and collaborations (between the Indian and foreign
industry) are rising. Even defense (production) industry is opened up to private domestic
and foreign investors and upto 26 per cent foreign investment is permitted (subject to
licensing). And for the Indian private sector (participation), the defense industry is
opened upto 100 percent, subject to licensing.

iv) Public Sector Reforms

One of the principal thrusts of the reform process is to re-structure public sector
enterprises. Over the years, the public sector units incurred huge losses. To run them
involved huge investment with no hope for adequate returns. Under the reform process a
sizeable number of public units have been either partially privatized or fully sold out. The
process of disinvestment has been continuing and the government is offering equity to

18
private and foreign investors. Rather the disinvestment of public sector is on top priority
under the agenda of 'Second Generation Reforms' which have launched in 2001.
Currently the government is showing great interest in opening the economy further by
liberalization of equity limits for private domestic and foreign investors, for example,
petroleum refining (under public sector) should be opened up 100 per cent; civil aviation
49 per cent, pipeline (oil and gas) 100 per cent, real estate (complexes) 100 per cent, etc.
So far, the economy has shown the mixed-result of the process of liberalization and
SAPs. Initially, after launching the process in July 1991 the exports rose rapidly. This rise
was mainly because of currency devaluation. Similarly, between 1991 and 1996 the GDP
growth rate was impressive. The FDI inflows and the forex reserves improved to a
comfortable level. However, the process lost momentum because of two reasons: first,
the political instability between mid 1996 and October 1999 at the central government
level created uncertainty about the continuity of the process. Secondly, the Asian
Financial Crisis of July 1997 affected India's exports adversely and the value of rupee
(vis-à-vis US dollar) deteriorated to new low, affecting the sentiments of the foreign
investors. Since October 1999 the political instability as well as the Asian financial crisis
has ended. The government in the subsequent period has been showing commitment to
widening the scope of reform process. The result of this determination is quite evident as
the FDI inflow has increased to about US$3 billion per annum. Exports have also picked
up again.

CLASSIFICATION OF MANUFACTURING SECTOR.

Manufacturing industries can be classified into Small Scale Industries (SSI),

Heavy Industries, and Medium Scale Industries.

Heavy industry
Heavy industry does not have a single fixed meaning as compared to light
industry. It can mean production of products which are either heavy in weight or in the
processes leading to their production. In general, it is a popular term used within the
name of many Japanese and Korean firms, meaning 'construction' for big projects.
Example projects include the construction of large buildings, chemical plants, the H-IIA
rocket and also include the production of construction equipment such as cranes and
bulldozers. Alternatively, heavy industry projects can be generalized as more capital
intensive or as requiring greater or more advanced resources, facilities or management.

Heavy industry is often defined by governments and planners in terms of its

impacts on the environment. These definitions concentrate on the seriousness of any
capital investment required to begin production or of the ecological effect of its
associated resource gathering practices and by-products. In these senses, the
semiconductor industry is regarded as "heavier" than the consumer electronics industry
even though microchips are much more expensive by weight than the products they
control. Heavy industry is also sometimes a special designation in local zoning laws.
Many pollution control laws are based on heavy industry, since heavy industry is usually
blamed for pollution more than any other economic activity, rightly or not.

19
HEAVY INDUSTRY IN INDIA

Heavy Industry in India comprises of the heavy engineering industry, machine

tool industry, heavy electrical industry, industrial machinery and auto-industry. These
industries provide goods and services for almost all sectors of the economy, including
power, rail and road transport. The machine building industry caters the requirements of
equipment for basic industries such as steel, non-ferrous metals, fertilizers, refineries,
petrochemicals, shipping, paper, cement, sugar, etc.

Performance of Industry

The industrial sector recorded a growth of 9.2% (measured in terms of the Index
of Industrial Production) during the period April- Nov. 2007-08 over and above the
growth of 11.6 % achieved in 2006-07. Capital goods sector, which posted a robust
growth of 17.4 % in April-Nov. 2006-07, has maintained its growth momentum during
the current year as well. According to the Index of Industrial Production, capital goods
sector posted a growth of 20.8% during April–Nov. 2007-08. The growth trends during
April– Nov.2007-2008 as compared to April–Nov. 2006-07 are given in the table below:

Sector Wise Growth Rates (in %)

Weight 2006-07 2006-07 2007-08
(Apr- Nov.) (Apr-Nov.)
General 100.0 11.6 10.9 9.2
Mining and 10.5 5.4 4.2 4.9
Quarrying
Manufacturing 79.4 12.5 11.8 9.8
Electricity 10.2 7.2 7.3 7.0
Use-Based Classification
100.0 11.6 10.9 9.2
Basic Goods 35.6 10.3 9.4 8.4
Capital Goods 9.3 18.2 17.4 20.8
Intermediate 26.5 12.0 11.1 10.1
Goods
Consumer 28.7 10.1 9.9 5.2
Goods
I) Durables 5.4 9.2 12.4 -1.7
II) Non- 23.3 10.4 8.9 7.8

20
durables

Source: Central statistical Organization

Production and growth rates of some of the industries being dealt within the Department
of Heavy Industry for the period April-November 2007-08 as compared to April-
November 2006-07 are given below:

Production
2006-07 2007-08 Growth
Industry Unit
Rate (%)
Apr-Oct Apr-Oct
Industrial Machinery Rs. lakhs 165758.67 227031 36.97
Machine Tools Rs. lakhs 173127.12 178830.14 3.29
Boilers Rs. lakhs 302659.04 444265.17 46.79
Turbines (Steam/Hydro) Rs. lakhs 66959.39 115110.98 71.91
Electric Generators Rs. lakhs 69130.34 79597.60 15.14
PowerDistribution
Mill.KVA 44.14 42.32 -4.13
Transformers
Telecommunication Tables Mill. Mtr. 5276.85 4567.64 -13.44
Commercial Vehicles Numbers 325475 339458 4.30
Passenger Cars Numbers 793765 917343 15.57

Source: Department of IPP

International Cooperation

The Department endeavors to promote international cooperation in the field of

Heavy Machineries, Heavy Industries, Capital Goods and Auto Sectors and keeps itself
abreast with WTO matters, bilateral/multilateral agreements and other issues concerning
the Department. To promote economic co-operation at international level, meetings are
arranged at senior officers/Minister level. India has Free Trade Agreements (FTAs) with
various Organizations/Countries such as ASEAN, BIMSTEC, Singapore, Thailand and
EU etc. The Department protects the interests of concerned industries by suggesting the
retention of relevant items in the Negative List. Recently, suggestions were made for
retention of certain items relating to Auto and Machine Tools in finalization of India’s
Negative List for Free Trade Area (FTA) with EU; ASEAN; India- Thailand FTA; and
India Singapore Comprehensive Economic Cooperation Agreement (CECA). The views
on Machinery and Auto Sector for the meeting of Committee on Rules of Origin (ROO)
in WTO, Geneva have also been conveyed to the Department of Commerce.

21
 A formal Indo-Czech Joint Working Group (JWG) has been constituted in terms
of Protocol of Indo-Czech Joint Committee Meeting (JCM) of Department of Commerce
and Joint Secretary, Heavy Industries as Co-chairman of JWG from Indian side. A
beginning has been made and Heavy Engineering Corporation Ltd., Ranchi (HEC), has
sought assistance from M/s Viktovice Heavy Machinery, Prague for submitting offer to
Bokaro Steel Plant against their tender for manufacture and supply of 8 Nos. Ladle Cars.
HEC will also be participating in various tenders in India on the basis of technology and
association of companies of Czech Republic viz M/S Skoda Machine Tools; M/S TOS
Varnsdorf and M/S Unexon, on case to case basis and their association will be sought
before submitting the bids.

As per the agreed minutes of 10th Session of India-Libya Joint Commission held
on 12th July,2007, based on BHEL offer, General Electric Company of Libya (GEFOL)
have signed a contract with ECCO (An Indian Libyan Joint Venture) for the Mountain
Extension Project and in turn, ECCO and BHEL also signed a contract for execution of
the project by BHEL.

Government policies regarding Heavy Industries

The Ministry of Heavy Industries and Public Enterprises, a branch of

Government of India, administers 48 Central Public Sector Enterprises (PSEs) and assists
them in their effort to improve capacity utilisation & increase profitability, Generate
resources and Re-orient strategies to become more competitive. The department serves as
an interface between PSEs and other agencies for long term policy formulation. The
department also encourages restructuring of PSEs to make their operations competitive
and viable on a long term and sustainable basis.

Objectives

The Ministry of Heavy Industries and Public Enterprises created during the
year is responsible for the development and growth of capital goods and engineering
industries in the country besides framing policy guidelines for Central Public Sector
Enterprises (PSEs) and administratively dealing with 48 operating PSEs. The
Ministry comprises of Department of Heavy Industry and the Department of Public
Enterprises.

Policy Framework

Vision

To establish a globally competitive Automotive Industry in India and to double its

contribution to the economy by 2010.

Objectives

22
This policy aims to promote integrated, phased, enduring and self-sustained growth of the
Indian automotive industry. The objectives are to:-

(i) Exalt the sector as a lever of industrial growth and employment and to achieve a high
degree of value addition in the country;

(ii) Promote a globally competitive automotive industry and emerge as a global source
for auto components;

(iii) Establish an international hub for manufacturing small, affordable passenger cars and
a key center for manufacturing Tractors and Two-wheelers in the world;

(iv) Ensure a balanced transition to open trade at a minimal risk to the Indian economy
and local industry;

(v) Conduce incessant modernization of the industry and facilitate indigenous design,
research and development;

(vi) Steer India's software industry into automotive technology;

(vii) Assist development of vehicles propelled by alternate energy sources;

(viii) Development of domestic safety and environmental standards at par with

international standards.

Small Scale Industries

The small scale industries are playing an important role in the GDP of India. The
small scale industries have nearly 40% share in the total industrial output and 35% share
in exports. The definition of small scale industries have changed from time to time.
Earlier they were classified under two categories:

• Using power with less than 50 employees.

• Using no power, but strength of employees is more than 50, less than 100.

However according to the latest definition a industry is said to be a small scale

industry if its investment in fixed assets like plants and equipments either held on
ownership terms or on lease or on hire purchase is less than Rs 10 million. And it is also
essential that the unit is not controlled by any other industrial unit.

Traditional and Modern Small Scale Industries and Their Products

The traditional small scale industries are more labour intensive than capital
intensive whereas the modern small scale industries are more capital intensive. The

23
traditional small scale industries use old machinery and their output is also very low. But
the modern small scale industries use the modern machinery and the quality of their
output is also very good. Some of the traditional small scale industries are that of Khadi
and Handloom, coir, village industries etc. The modern small scale industries are that of
garments, leather products etc. But in today's scenario, most of the small scale industries
in India are modern small scale industries. The products manufactured by these small
scale industries are electrical items, hardware, sports goods, stationary items, clocks,
watches, automobile parts, chemical products etc. They are also helped by the business
enterprises in India in their production.

Small Scale Industrial Undertakings requirements

• The following requirements are to be complied with by an industrial undertaking

to be graded as Small Scale Industrial undertaking w.e.f. 21.12.1999

• An industrial undertaking in which the investment in fixed assets in plant and

machinery whether held on ownership terms on lease or on hire purchase does not
exceed Rs. 10 million.

(Subject to the condition that the unit is not owned, controlled or subsidiary of any
other industrial undertaking)

Explanation: For the purpose of this note:-

a. "owned" shall have the meaning as derived from the definition of the expression
"owner" specified in clause (1) of section 3 of the said Act;

b. "subsidiary" shall have the same meaning as in clause (47) of section 2, read with
section 4, of the Companies Act, 1956 (1 of 1956);

c. the expression "controlled by any other industrial undertaking" means as under:-

i. where two or more industrial undertakings are set up by the same person as a
proprietor, each of such industrial undertakings shall be considered to be
controlled by the other industrial undertaking or undertakings,

ii. where two or more industrial undertakings are set up as partnership firms under
the Indian Partnership Act, 1932 (1 of 1932) and one or more partners are
common partner or partners in such firms, each such undertaking shall be
considered to be controlled by other undertaking or undertakings,

iii. where industrial undertakings are set up by companies under the Companies Act,
1956 (1 of 1956), an industrial undertaking shall be considered to be controlled by
other industrial undertaking if:-

24
 a. the equity holding by other industrial undertaking in it exceeds twenty four
percent of its total equity; or

b. the management control of an undertaking is passed on to the other industrial

undertaking by way of the Managing Director of the first mentioned undertaking
being also the Managing Director or Director in the other industrial undertaking
or the majority of Directors on the Board of the first mentioned undertaking being
the equity holders in the other industrial undertaking in terms of the provisions of
the following items (a) and (b) of sub-clause (iv);

(iv) the extent of equity participation by other industrial undertaking or undertakings in

the undertaking as per sub-clause (iii) above shall be worked out as follows:-

a. the equity participation by other industrial undertaking shall include both foreign
and domestic equity;

b. equity participation by other industrial undertaking shall mean total equity held in
an industrial undertaking by other industrial undertaking or undertakings, whether
small scale or otherwise, put together as well as the equity held by persons who
are Directors in any other industrial undertaking or undertakings even if the
person concerned is a Director in other Industrial Undertaking or Undertakings;

c. equity held by a person, having special technical qualification and experience,

appointed as a Director in a small scale industrial undertaking, to the extent of
qualification shares, if so provided in the Articles of Association, shall not be
counted in computing the equity held by other industrial undertaking or
undertakings even if the person concerned is a Director in other industrial
undertakings or undertakings;

(v) where an industrial undertaking is a subsidiary of, or is owned or controlled by,

any other industrial undertaking or undertakings in terms of sub-clauses (i); (ii); or
(iii) and if the total investment in fixed assets in plant and machinery of the first
mentioned industrial undertaking and the other industrial undertaking or undertakings
clubbed together exceeds the limit of investment specified in paragraphs (1) or (2) of
this notification as the case may be, none of these industrial undertakings shall be
considered to be a small scale or ancillary industrial undertaking.

Note-2

In calculating the value of plant and machinery for the purposes of paragraphs (1) and
(2) of this notification, the original price thereof, irrespective of whether the plant and
machinery are new or second hand, shall be taken into account.

In calculating the value of plant and machinery, the following shall be excluded,
namely:-
25
 i. the cost of equipments such as tools, jigs, dies, moulds and spare parts for
maintenance and the cost of consumable stores;

ii. the cost of installation of plant and machinery;

iii. the cost of research and development equipment and pollution control equipment;

iv. the cost of generation sets and extra transformer installed by the undertaking as
per the regulations of the State Electricity Board;

v. the bank charges and service charges paid to the National Small Industries
Corporation or the State Small Industries Corporation;

vi. the cost involved in procurement or installation of cables, wiring, bus bars,
electrical control panels (not those mounted on individual machines), oil circuit
breakers or miniature circuit breakers which are necessarily to be used for
providing electrical power to the plant and machinery or for safety measures;

vii. the cost of gas producer plants;

viii. transportation charges (excluding of sales tax and excise) for indigenous
machinery from the place of manufacturing to the site of the factory;

ix. charges paid for technical know how for erection of plant and machinery;

x. cost of such storage tanks which store raw materials, finished products only and
are not linked with the manufacturing process; and

xi. Cost of fire fighting equipments.

(c) In the case of imported machinery, the following shall be included in calculating the
value, namely:-

i. import duty (excluding miscellaneous expenses as transportation from the port to

the site of the factory, demurrage paid at the port);

ii. the shipping charges;

iii. customs clearance charges; and

iv. Sales tax.

Every industrial undertaking which has been issued a certificate of registration

under section 10 of the said Act or a license under sections 11, 11A and 13 of the said
Act by the Central Government and are covered by the provisions of paragraphs (1) and
(2) above relating to the ancillary or small scale industrial undertaking, may be

26
registered, at the discretion of the owner, as such, within a period of one hundred and
eighty days from the date of publication of this notification in the Official Gazette.

Investment Limits

The definition of small scale industries has undergone changes over

the years in terms of investment limits in the following manner:-

YEAR INVESTMENT LIMITS ADDITIONAL

CONDITIONS
1950 Upto Rs 5 lacs in fixed assets Less than 50/100
persons with
or without power
1960 Upto Rs 5 lacs in Plant & No condition
Machinery
1966 Upto Rs 7.5 lacs in Plant & No condition
Machinery
1975 Upto Rs 10 lacs in Plant & No condition
Machinery
1980 Upto Rs 20 lacs in Plant & No condition
Machinery
1985 Upto Rs 35 lacs in Plant & No condition
Machinery
1991 Upto Rs 60 lacs in Plant & No condition
Machinery
1997 Upto Rs 100 lacs in Plant & No condition
(Dec) Machinery

Items Reserved For Small Scale Industries in India

Small Scale Industries (SSI) has played a vital role in strengthening the industrial
structure of the country. They facilitate the tapping of resources for productive purposes
with minimum amount of capital investment. SSI have contributed greatly in bringing
down regional imbalance; generating employment opportunities, output, and exports,
fostering entrepreneurship and in accelerating economic development.
As per the government definition an industrial undertaking in which the investment in
fixed assets in plant and machinery whether held on ownership terms on lease or on hire
purchase does not exceed Rs 10 million, can be categorized as small scale undertaking.
To encourage the growth of small scale industries in India, Government has reserved
certain products for manufacture in the small scale sector in areas where there is techno-
economic justification for such an approach. Large/Medium units can, however,

27
manufacture such reserved items provided they undertake to export 50% or more of their
production.

As on 10 October 2008, following items are reserved for exclusive manufacture by

micro and small enterprise sector:

• Food and Allied Industries: Pickles & Chutneys, Bread, Mustard Oil (except
solvent extracted), Ground nut oil (except solvent extracted).
• Wood and Wood Products: Wooden furniture and fixtures
• Paper Products: Exercise books and registers
• Injection Moulding Thermo Plastic Product: PVC Pipes, including conduits
upto 110 mm dia, Fittings for PVC pipes
• Other Chemicals & Chemical Products: Wax candles, Laundry soap, Safety
matches, Fire works, Agarbatties
• Glass & Ceramics: Glass Bangles
• Mechanical Engg. Excluding Transport Equipment: Steel almirah, Rolling
shutters, Steel chairs – all types, Steel tables – all other types, Steel furniture – all other
types, Padlocks, Stainless steel utensils, Domestic utensils - Aluminum

Advantages associated with Small Scale Industries

A. This industry is especially specialized in the production of consumer

commodities.
B. Small scale industries can be characterized with the special feature of adopting the
labor intensive approach for commodity production. As these industries lack
capital, so they utilize the labor power for the production of goods. The main
advantage of such a process lies in the absorption of the surplus amount of labor
in the economy that was not being absorbed by the large and capital intensive
industries. This, in turn, helps the system in scaling down the extent of
unemployment as well as poverty.
C. It has been empirically proved all over the world that Small Scale Industries are
adept in distributing national income in more efficient and equitable manner
among the various participants in the process of good production than their
medium or larger counterparts.
D. Small Scale Industries help the economy in promoting balanced development of
industries across all the regions of the economy.
E. This industry helps the various sections of the society to hone their skills required
for entrepreneurship.
F. Small Scale Industries act as an essential medium for the efficient utilization of
the skills as well as resources available locally.

Small Scale Industries enjoy a lot of help and encouragement from the government
through protecting these industries from the direct competition of the large scale ones,
provision of subsidies in the form of capital, lenient tax structure for this industry and
many more.

28
Need to Boost Small Scale Industries

Realizing the importance of small scale industries in Indian economy, the

government is trying to develop this industry keeping in mind the following aims:

• To increase employment.
• To prevent unequal distribution of income.
• To develop capital investment.

Small Scale Industries in India: An Evaluation of Performance in the Post-

Liberalized Scenario

Small Scale Industries (SSI) facilitates the tapping of resources for productive
purposes with minimum amount of capital investment, which in turn helps to strengthen
the industrial structure of a nation. SSIs existed in India for a long time in various sectors
and contributed significantly in bringing down regional imbalance; generating
employment opportunities, output, and exports; fostering entrepreneurship; in
accelerating economic development. It occupies a position of prominence in India and
contributes over 50% of the industrial production in terms of value-addition. This sector
plays a key role in the industrialization process and accounts for one-third of exports, and
employs the largest manpower next to agriculture. The process of liberalization,
privatization and globalization (LPG) has opened up new opportunities and challenges
for this sector. This paper examines the role and importance of small scale industries in
India, problems they encounter and performance in terms of their contribution to the
overall growth of the Indian economy
The small scale sector has emerged as a dynamic and vibrant sector of the Indian
economy. It has contributed significantly to the realisation of the socio-economic
objectives of growth in employment and exports, fostering entrepreneurship and ensuring
industrial dispersal. During 1999-2000, the production from SSIs was estimated at Rs.
5,78,470 crores and provided employment to more than 177 lakh persons in the 32 lakh
SSI units spread throughout the country. Exports from SSIs have been estimated at Rs.
48,979 crores in 1998-99. The Small Scale Sector has been contributing about 40% of
industrial production and 35% of total direct exports. This sector has been maintaining,
by and large, a higher growth than the industrial sector as a whole. The share of this
sector in employment generation is next only to agriculture. The ongoing process of
liberalisation warrants due attention to be given to the medium and long term interests of
the small scale sector. This sector, nurtured hitherto in a protective framework, needs to
be enabled to take on the challenges posed to it by the process of liberalisation and
globalisation.

The Government is conscious of the role and importance of Small Scale Industries in
strengthening our economic performance and is therefore committed to putting in place a
policy framework that would address the problems of this sector and help it become
internationally competitive. In recognition of the importance of the SSI sector and to give

29
focused attention Government has created a separate Ministry for Small Scale Industries
and Agro & Rural Industries in October 1999.

Performance of Small Scale Industries

• Employment
• Production
• Exports
• Opportunities
• Economic Indicators

Employment Generation

Small scale sector in India creates largest employment opportunities for the Indian
populace, next only to Agriculture. It has been estimated that a lakh rupees of investment
in fixed assets in the small scale sector generates employment for four persons.

According to the SSI Sector survey conducted by the Ministry and National Informatics
Centre with the base year of 1987-88, the following interesting observations were made
related to employment in the small scale sector.

Generation of Employment- Industry Group-wise

Food products industry has ranked first in generating employment, providing

employment to 4.82 lakh persons (13.1%).
The next two industry groups were Non-metallic mineral products with employment of
4.46 lakh persons (12.2%) and Metal products with 3.73 lakh persons (10.2%).
In Chemicals & chemical products, Machinery parts and except Electrical parts, Wood
products, Basic Metal Industries, Paper products & printing, Hosiery & garments, Repair
services and Rubber & plastic products, the contribution ranged from 9% to 5%, the total

30
contribution by these eight industry groups being 49%.
In all other industries the contribution was less than 5%.

Per unit employment

Per unit employment was the highest (20) in units engaged in Beverages, tobacco &
tobacco products mainly due to the high employment potential of this industry
particularly in Maharashtra, Andhra Pradesh, Rajasthan, Assam and Tamil Nadu.

Next came Cotton textile products (17), Non-metallic mineral products (14.1), Basic
metal industries (13.6) and Electrical machinery and parts (11.2.) The lowest figure of
2.4 was in Repair services line.

Per unit employment was the highest (10) in metropolitan areas and lowest (5) in rural
areas. However, in Chemicals & chemical products, Non-metallic mineral products and
Basic metal industries per unit employment was higher in rural areas as compared to
metropolitan areas/urban areas.
In urban areas highest employment per unit was in Beverages, tobacco products (31
persons) followed by Cotton textile products (18), Basic metal industries (13) and Non-
metallic mineral products (12).

Rural
Non-metallic products contributed 22.7% to employment generated in rural areas. Food
Products accounted for 21.1%, Wood Products and Chemicals and chemical
productssharedbetweenthem17.5%.

Urban
As for urban areas, Food Products and Metal Products almost equally shared 22.8% of
employment. Machinery and parts except electrical, Non-metallic mineral products, and
Chemicals & chemical products between them accounted for 26.2% of employment.

In metropolitan areas the leading industries were Metal products, Machinery and parts
except electrical and Paper products & printing (total share being 33.6%).

State-wise Employment Distribution

Tamil Nadu (14.5%) made the maximum contribution to employment.

This was followed by Maharashtra (9.7%), Uttar Pradesh (9.5%) and West Bengal
(8.5%) the total share being 27.7%.

Gujarat (7.6%), Andhra Pradesh (7.5%), Karnataka (6.7%), and Punjab (5.6%) together
accounted for another 27.4%.

Per unit employment was high - 17, 16 and 14 respectively - in Nagaland, Sikkim and

31
Dadra & Nagar Haveli.

It was 12 in Maharashtra, Tripura and Delhi.

Madhya Pradesh had the figure of 2. In all other cases it was around the average of 6.

Production

The small scale industries sector plays a vital role for the growth of the country. It
contributes 40% of the gross manufacture to the Indian economy.

It has been estimated that a lakh rupees of investment in fixed assets in the small scale
sector produces 4.62 lakhs worth of goods or services with an approximate value addition
of ten percentage points.

The small scale sector has grown rapidly over the years. The growth rates during the
various plan periods have been very impressive.

The number of small scale units has increased from an estimated 8.74 lakhs units in the
year 1980-81 to an estimated 31.21 lakhs in the year 1999.

From the year 1990-91 this sector has exhibited a comparatively lower growth trend
(though positive) which continued during the next two years. However, this has to be
viewed in the background of the general recession in the economy. The transition period
of the process of economic reforms was also affected for some period by adverse factors
such as foreign exchange constraints, credit squeeze, demand recession, high interest
rates, shortage of raw material etc.

When the performance of this sector is viewed against the growth in the manufacturing
and the industry sector as a whole, it instills confidence in the resilience of the small
scale sector. The estimates of growth for the year 1995-96 have shown an upswing. The
growth of SSI sector has surpassed overall industrial growth from 1991 onwards. The
positive trend is likely to strengthen in the coming years. This trend augurs a bright
future for the small scale industry.

32
Export contribution

SSI Sector plays a major role in India's present export performance. 45%-50% of the
Indian Exports is being contributed by SSI Sector. Direct exports from the SSI Sector
account for nearly 35% of total exports. The number of small scale units that undertake
direct exports would be more than 5000.

Besides direct exports, it is estimated that small scale industrial units contribute around
15% to exports indirectly. This takes place through merchant exporters, trading houses
and export houses. They may also be in the form of export orders from large units or the
production of parts and components for use for finished exportable goods.It would
surprise many to know that non traditional products account for more than 95% of the
SSI exports.The exports from SSI sector have been clocking excellent growth rates in
this decade. It has been mostly fuelled by the performance of garment, leather and gems
and jewellery units from this sector.

The lucrative product groups where the SSI sector dominates in exports are sports goods,
readymade garments, woolens garments and knitwear, plastic products, processed food
and leather products.

Opportunities

Small industry sector has performed exceedingly well and enabled our country to achieve
a wide measure of industrial growth and diversification.

33
By its less capital intensive and high labour absorption nature, SSI sector has made
significant contributions to employment generation and also to rural industrialisation.
This sector is ideally suited to build on the strengths of our traditional skills and
knowledge, by infusion of technologies, capital and innovative marketing practices.

The opportunities in the small scale sector are enormous due to the following factors :

- Less Capital Intensive

- Extensive Promotion & Support by the Government

- Reservation for Exclusive Manufacture by small scale sector

- Project Profiles

- Funding

- Finance & Subsidies

- Machinery Procurement

- Raw Material Procurement

- Manpower Training

- Technical & Managerial skills

- Tools & Tools utilisation support

- Reservation for Exclusive Purchase by Government

- Export Promotion

34
- Growth in demand in the domestic market size due to overall economic growth

- Increasing Export Potential for Indian products

- Growth in Requirements for ancillary units due to the increase in number of Greenfield
units coming up in the large scale sector.

So this is the opportune time to set up projects in the small scale sector. It may be said
that the outlook is positive, indeed promising, given some safeguards. This expectation is
based on an essential feature of the Indian industry and the demand structures. The
diversity in production systems and demand structures will ensure long term co-existence
of many layers of demand for consumer products / technologies / processes. There will
be flourishing and well grounded markets for the same product/process, differentiated by
quality, value added and sophistication. This characteristic of the Indian economy will
allow complementary existence for various diverse types of units.

The promotional and protective policies of the Govt. have ensured the presence of this
sector in an astonishing range of products, particularly in consumer goods. However, the
bug bear of the sector has been the inadequacies in capital, technology and marketing.
The process of liberalisation will therefore, attract the infusion of just these things in the
sector.

Economic Indicators

The Small Scale Industry today constitutes a very important segment of the Indian
economy. The development of this sector came about primarily due to the vision of our
late Prime Minister Jawaharlal Nehru who sought to develop core industry and have a
supporting sector in the form of small scale enterprises.

Small Scale Sector has emerged as a dynamic and vibrant sector of the economy.

- Today, it accounts for nearly 35% of the gross value of output in the manufacturing
sector and over 40% of the total exports from the country.

- In terms of value added this sector accounts for about 40% of the value added in the
manufacturing sector.

- The sector's contribution to employment is next only to agriculture in India. It is

therefore an excellent sector of economy for investment.

MEDIUM SMALL SCALE INDUSTRY

THERE will be a clearly demarcated "medium-scale sector" soon, with the

Ministry of Small-Scale Industry (SSI) having given its stamp of approval to the Small
Industries Development Bank of India's (SIDBI) proposal for a new definition for

35
medium industries. Under the new definition, a medium-scale industry will be one with
investment in plant and machinery of Rs 1 crore to Rs 10 crore. The definition has to be
notified by the SSI Ministry for it to become operational. "The proposal for having a
definition for medium industry has been accepted by the SSI Ministry," a top Finance
Ministry official said. The Finance Ministry had already agreed to the SIDBI suggestion.
SIDBI had moved the proposal through the Ministry of Finance that had subsequently
taken up the issue with the SSI Ministry. Though the term `small and medium enterprises'
(SMEs) have been a common usage in both Government as well as business circles, till
date, there is no definition available for industries that do not fall under the small-scale
sector. A small-scale industry has been defined as those units that have investment in
plant and machinery of up to Rs 1 crore.

The absence of the definition had led to a situation where funds dedicated
ostensibly for the SME sector, such as the Rs 10,000-crore SME fund announced by the
NDA Government, could not be utilised for funding the companies that would now fall
into the medium sector after the new definition comes into play. The SME fund is being
operationalised by SIDBI. Thus, it is felt that having a definition for industries falling
under the medium-scale sector would enable the Government and other authorities to
work out definite plans for funding and promoting the industries falling under the
category and nurturing them to grow into stronger and larger entities in the long run.
Finance Ministry officials, however, said that no decision had yet been taken on SIDBI's
request for being allowed to act like a commercial bank by extending working capital
assistance to units that are to be funded by it. The request is part of SIDBI's plans to
become a one-stop-shop for the funding needs of the SME sector. "We are still examining
the proposal (for SIDBI to extend working capital). It is a recent proposal from them. We
have yet to take a decision," officials said. Under the SIDBI charter, if the institution has
to divert from the mandate specified for it under the memorandum of association it can
only do so with the approval of the Government.

36
 Chapter III

PERFORMANCE OF MANUFACTURING SECTOR IN INDIA

The previous chapter was devoted to study the development of manufacturing

sector in India. The following chapter is deals with the performance of manufacturing
sector in India. Manufacturing growth in India in recent years presents somewhat of a
mixed picture. After a period of recession between 1990-91 and 2008-09, India’s
manufacturing sector is currently recording fast rates of growth of output (see Figure 1).
A number of Indian manufacturing firms in fields such as automobiles and
pharmaceuticals are attracting global attention, best exemplified in a recent headline from
the Fortune magazine, ‘Manufacturing takes off in India’.1 India is gaining a reputation
as a centre for manufacturing design and innovation. At the same time, however, India’s
manufacturing sector is showing signs of weaknesses too. Most recently, the appreciation
of Indian Rupee has significantly reduced the competitiveness of many export-oriented
industries in the country such as textiles and engineering. Tirupur, the largest source of
exports of knitwear garments from India, has been badly hit. Job retrenchments in this
textile town have crossed 7000 and, according to some reports, will further rise to 50,000
by the end of the current financial year (that is, by March 2008) if the trend of Rupee
appreciation is not reversed.2 This paper finds that India’s manufacturing sector is
showing signs of dichotomous growth. While one segment of Indian manufacturing is, as
noted above, growing at fast rates and achieving international technological standards, a
large part of the country’s manufacturing sector is lagging behind in growth. While
economic reforms have helped the international ambitions of a group of fast growing
Indian firms, certain features of the reform process have been harmful to the interests of
large numbers of relatively small firms in the country. This paper analyses India’s
financial sector reforms and how they have contributed to this dichotomy in
manufacturing sector growth in India.

Since 1991 the Indian government is undertaking major economic reforms in

order to facilitate higher inflow of foreign direct investment (FDI) and boost trade. It is
also trying to facilitate higher inflows of technology. Earlier studies was done on the
impact of reforms on the economy show that higher FDI has led to export diversification
and improved productivity growth in the Indian manufacturing sector. The studies also
show that FDI has led to substantial export and productivity spillovers. However, a
concern that remains in the minds of some is the effect of liberalisation on Indian labour
markets and in particular, on wages and employment. Given inflexible labour laws and
the influence of the government on wage movements in India, this issue assumes even
greater importance. This paper empirically estimates the impact of three important
components of liberalisation, i.e., FDI, trade and technology on wages and employment
in the organized manufacturing sector of India in the post reforms period. The results
show that FDI, trade and technological progress have differential impact on wages and
employment. While higher extent of FDI in an industry leads to higher wage rate in the
industry, it has no impact on its employment. On the other hand, higher export intensity
of an industry increases employment in the industry but has no effect on its wage rate.
Technological progress is found to be labour saving but does not influence the Wage rate.

37
Further, the results show that domestic innovation in terms of research and development
intensity has been labour utilizing in nature but import of technology has unfavorably
affected employment. An immediate policy direction that emerges from the study is that
to improve the employment potential of the economy trade should be encouraged and the
impediments to export-oriented FDI should be removed. Also, as the economy opens up,
cost adjustments become increasingly important and flexibility in labour laws is essential
to facilitate such adjustments. An SEZ law with flexible labour regime will promote these
Objectives.

The structure of the Indian economy has undergone a remarkable change after its
independence in 1991. It has been transformed from an agriculture-based economy
heavily reliant on production of primary commodities for exports, to a manufacturing
sector based economy. The share of the agriculture sector in the Gross Domestic Product
(GDP) dropped from 42 per cent in 1980’s to 32 per cent in 1990’s and decreased to
26per cent in 2005. On the other hand, the share of the manufacturing sector jumped
from21 per cent in 1980’s 24 per cent in1990’s and increase to 26 per cent in 2005.
The manufacturing sector has now become the main contributor to the Indian Gross
Domestic Product (GDP) superseding the agricultural sector. Accordingly, the structure
of employment has changed from concentration on agricultural activities to
manufacturing industries and from high labour intensive industries to highly capital
intensive industries.
As Table 1 (col 2) shows, manufacturing growth rate has fluctuated in the post-
reforms period – after registering a decline in early years, growth rate picked up but
decelerated in the late 1990s. Growth has recovered since 2001-02. In fact the compound
annual rate of growth (CARG) has been 8.8 % between 2001-02 and 2007-08.
The un-registered manufacturing sector has performed worse than its registered
counterpart. But growth behaviour has been similar in the last few years (Table 1, cols 3
and 4).
In Table 2 we have taken a longer term perspective. In terms of the level of rate of
growth attained, the entire period between 1951-52 and 2007-08 can be classified into
periods of high and low growth. The pattern of manufacturing growth observed before
1991 was that periods of high growth were invariably followed by periods of low growth.
The experience after 1991 has made no difference to this trend.
One of the targets of reforms has been to accelerate the growth rate compared to the past.
Taking the manufacturing sector as a whole, the (compound annual) rate of growth
between 1991-92 and 2007-08 (7.18 %) is only marginally higher than that attained
during the first three plans periods (6.45%) (Table 3). The gap is even less for the
registered manufacturing sector (7.58% compared to 7.48%). In fact the growth rate
during 1952-53 to 1964-65 (8.87%) and during 1980-81 to 1990-91 (8.29%) was higher
than that in the post-reforms period (between 1991-92 or 1992-93 and 2006-07) (Table
3).
As Table 4 shows, the manufacturing sector growth has been decelerating since the early
2007. The drop is sharp particularly in the second half of 2008. From 5.76% in June
2008, growth has declined to 4.91% in September 2008 and -0.68% in December 2008.

38
This may be because of the impact of the US financial crisis. The reforms process has
deliberately tried to make India more outward-oriented. Hence such downturns are only
to be expected. Home market in India’s planning strategy was emphasized precisely to
minimize the negative influences due to economic (and political) problems in the rest of
the world.

EMPLOYMENT IN ASI FACTORY SECTOR

The White Paper issued by the Government of India in 1993 (Economic Reforms:
Two Years after and the Tasks Ahead) contended that the pattern of industrialization will
be “sufficiently labour intensive” to absorb labour and reduce poverty. However the
expectation has not materialized. The employment situation in fact is quite dismal. As
Table 5 shows, employment in the Annual Survey of Industries factory sector did
increase from 5.46 million in 1991-92 to 6.54 million in 1995-96. But since then there
has been a sharp decline to 5.91 million in 2003-04. The employment figure in 2003-04 is
in fact about 10% lower than what it was in 1995-96. Employment in the factory sector
has been declining despite the acceleration of the growth rate of output since 2000-01
(col 4 of Table 1).

EXPORTS AND IMPORTS OF MANUFACTURED GOODS

Merchandise exports have been increasing quite rapidly in recent years (Table 6).
Between 2001-02 and 2007-08 manufactured exports have increased at the compound
annual rate of growth (CARG) of 20%. But the share of manufactured goods in total
exports has declined from 73.6% in 1991-92 to 63.6% in 2007-08. The growth in exports
has been interpreted as a success of the reforms process since 1991. But as Table 7
shows, more than 50% of the growth of exports during 1991-92 to 2007-08 has been
accounted for by engineering goods (39.1%) and chemicals and related products (15.2%).
Again within these two sectors, the products for which exports have been expanding
rapidly are primary & semi-finished iron & steel (CARG 26.88% between 1991-92 and
2007-08), Iron & steel bar/rods (20.85%), Machinery & instruments (18.39%), Drugs,
pharmaceuticals & fine chemicals (16.45%) etc (Table 8).

These are precisely the industries which were created and developed in the pre-
reforms period through active state intervention. Consider, for example drugs &
pharmaceuticals. This industry is considered to be one of the success stories of
independent India. A conscious industrial policy worked behind the development of the
pharmaceutical industry in India. Among the instruments used were regulation of foreign
capital, promotion of indigenous enterprises, patent reforms, public investments in
manufacturing and R&D. When discussing the impact of import liberalization and the
withdrawal of the state from industrial policy, it is important to make a distinction
between existing developed industries and the new ones which can be potentially
developed.

39
Import liberalization may help existing exporters, as for example in pharmaceuticals.
Access to cheaper Chinese active ingredients and intermediates does make India more
competitive. But macro-economically, the negative influence of import liberalization
must be compared with export expansion to find out the net effect. As we will see in the
next section, net export intensity has been positive for pharmaceuticals (and few other
well developed industries in India). But for most of the other products as well as for the
corporate sector as a whole, net export intensity has been negative. This suggests that
while the rise in exports has provided a stimulus to growth, the net expansionary impact
has been negative.
But is import liberalization the proper policy for the development of new
industries? India’s exports have been rising as we have noted above. But India’s exports
of high-technology products have been minimal as pointed out by the September 2008
report of a Group constituted by the Prime Minister (Measures for Ensuring Sustained
Growth of the Indian Manufacturing Sector, p. 69) (accessed from the website of the
National Manufacturing Competitiveness Council, www.nmcc.nic.in). India is ranked
quite low in the production of Advanced Technology Products (ATPs). Can such
industries be developed by passively relying on markets forces? Those aware of how new
industries have been developed in different countries will agree with the
recommendations of the Group that state intervention with appropriate industrial policies
are necessary (p. 72). According to the Group, currently about 50% of the capital goods
requirements are imported (p. 123). DGCI&S export figures show that India imported
capital goods worth US$ 37294 million in 2007-08 (23.5% of the India’s total imports
excluding petroleum, oil and lubricants) and the compound annual rate of growth
between1993-94 and 2007-08 has been 15%. Capital goods imported include high
technology equipments such as telecommunications and upper-end IT and electronic
hardware. Another sector with significant imports is electronic goods (12.8% share in
2006-07). The imports of these goods increased at CARG of 25% between 1993-94 and
2007-08.

CORPORATE SECTOR – EXPORT, IMPORT AND NET EXPORT INTENSITY

The main data source used is the Prowess corporate sector database (version 2.6)
of the Centre for Monitoring Indian Economy (CMIE). Prowess covers mainly organized
large and medium companies in India in industries, financial and other services and
banking. The more than 20,000 companies covered in Prowess account for about 75 per
cent of all corporate taxes and over 95 per cent of excise duty collected by the
Government of India (www.cmie.com). The company-wise data are provided on diverse
subjects including the background of the company and financial variables.

Prowess lists more than 5100 companies in the manufacturing sector. But information
are not available/provided for all the variables for all the companies for all the years. On
the basis of the information available (for example for 3400 companies for 2006-07), we
have prepared Table 9 relating to different ratios on exports, imports and R&D as defined
below:

40
 • Export intensity: Exports as a percentage of Sales

• Import intensity: Expenditure on raw materials in foreign exchange as a percentage

of value of production. (Value of production is calculated as Sales +/- Change in
stocks).

• Net export intensity: (Total earnings in foreign exchange – total expenditure in

foreign exchange) as a percentage of Sales.

• R&D intensity: Total R&D expenditure as a percentage of Sales.

Table 9 shows that import intensity has increased from 9.13% in 1991-92 to
22.29% in 2006-0 for the CMIE manufacturing corporate sector. The logic of the policy
of import liberalization is that it will provide access to capital goods and raw materials at
internationally competitive prices and also improve efficiency due to international
competition leading to more exports. Did export intensity rise for the corporate sector?
More important, did net export intensity grow?

Table 9 shows that export intensity did increase. But the growth from 5.24% in
1991-92 to 14.98% in 2006-07 was not significant enough to counter the rise in import
intensity. The net export intensity has not only remained negative: it has increased from
-7.37% to -12.59%. This shows as we have noted earlier that the net impact of the
opening up of the economy has not been positive. (It may be noted from Table 9 that,
even if we exclude the high import intensive sectors of refineries and gems & jewellery,
the net export intensity remains negative but steady at around -3.5%).

Tables 10 to 12 provide a more disaggregated picture. Table 10 shows that growth

of output has been more in the capital and consumer goods than in the intermediate goods
particularly since 2001-02. We focus on some of the capital goods and consumer durables
in Table 11 for import intensity and in Table 12 for net export intensity. Import intensity
has declined in two-three wheelers from 2.29% in 1991-92 to 1.35% in 2006-07 and in
domestic electrical appliances from 4.535 to 3.19%. The ratio is reasonably low and
steady in products such as commercial vehicles (2.71% in 2006-07), and miscellaneous
electrical machinery (3.71%). But import intensity has increased sharply and is quite high
in ACs and refrigerators (11.39% in 2006-07), communications equipment (17.01%),
computer hardware (28.01%), consumer electronics (11.23%), electronic components
(19.66%), electronic equipments (15.87%), industrial machinery (10.45%), passenger
cars (10.91%), steel tubes & pipes (22.5%) etc (Table 11).

Import intensity has increased for pharmaceuticals. But the rise in exports has
been sharper leading to a positive net export intensity of 14.76% for this sector in 2006-
07. The other major sectors with positive net export intensity are industrial machinery

41
(7.39%), miscellaneous electrical machinery (16.08%) and commercial vehicles ((1.38%)
(Table 12).

All the other sectors listed in Table 12 have net export intensity, some of them with a
ratio as high as -22.08% (communications equipment) and -21.8% (computer hardware).
A major problem with India’s Balance of Payments has been the sharp rise in trade
deficit. It has increased from -1% of GDP in 1991-92 to -6.9% in 2006-07. Corporate
manufacturing sector’s net exports of Rs -234592 crores in 2006-07 constitutes about
97.5% of India’s total trade deficit (Table 13). In other words if only corporate sector’s
leakage could be controlled by increasing exports or by reducing imports, an important
economic problem could have been tackled.India’s initial planners stressed import
substitution to control imports. Manufacturing corporate sector’s negative exports raise
doubts about the efficacy and sustainability of the policy of import liberalization.

FOREIGN CAPITAL

Liberalizing inflows of foreign capital has been one of the most important aspects of
the reforms process. The rationale has been that greater freedom to foreign capital will
provide access to:

• Foreign finance

• International markets and

• Technological

By historical standards, substantial capital has flowed in from abroad after reforms.
Foreign direct investment (FDI) alone added US $ 72.9 million to India’s foreign
exchange reserves between April 1991 and September 2008. This has been roughly the
amount of India’s total current account deficit of US $ 74.1 million during the same
period (Table 14). But international experience suggests that the more important role that
FDI can play is by providing access to international markets and by contributing to
technological development. As Table 14 shows, there have been substantial capital
inflows other than through FDI (or foreign institutional investment). In fact capital
inflows have been much more than the current account deficits, resulting in huge foreign
exchange reserves from which India has not been able to benefit much. Let us now see
what have been the export, net export and R&D intensity of the foreign companies in
India.

We have considered as Foreign companies all those identified by CMIE as belonging

to Foreign groups, such as Unilever or those which are "Private (Foreign)" companies.
(Matrix Laboratories, Ambuja Cement, ACC and Shree Digvijay Cements which have
recently been taken over by foreign companies have been treated by us as Indian
companies for the purpose if this analysis).

42
Out of the 3400 companies for which sales, export, imports etc are available from the
CMIE Prowess data base for 2006-07, 193 companies are foreign companies.

The export intensity of the foreign companies has increased but not significantly
from 7.44% in 1991-92 to 10.69% in 2006-07. Indian companies (except refineries and
gems & jewellery) have performed much better. Starting with an export intensity lower
than that of foreign companies (5.39% in 1991-92), Indian companies have now an
export intensity which is higher (16.2% in 2006-07). Not only because of the inferior
export performance but also because of greater outflows due to dividends etc, the net
export intensity of foreign companies is higher (-7.45% in 2006-07) than that of Indian
companies (-2.51%). Perhaps it is important to make a distinction between the foreign
companies which have been operating in India at the time of reforms and those which
entered India in response to reforms in 1991. Did the more congenial environment make
any difference to the performance of the foreign companies which entered India after
reforms?

Out of the 193 foreign companies, 145 companies were set up before 1991 and 48
companies in 1991 and later. The export intensity of the post 1991 foreign companies is
significantly higher (20%) than that of that of the older foreign companies (9% in 2007-
07) (Table 9). But the import intensity has also been significantly higher. The net export
intensity of the newer foreign companies, as a result is also higher (-13%) compared to
older companies (-6.42% in 2006-07). Thus foreign companies have failed to provide the
stimulus expected of it.

Table 1 Annual Rate of Growth of Manufacturing, 1991-92 to 2007-08 (per cent)

INDUST MANUFACTU MANUFACTU MANFACTU INDEX OF
RY RING RING RING INDUSTRI
REGISTERED UNREGISTR AL
ED PRODUCTI
ON
(Manufactur
ing)
199 0.26 -2.4 -1.26 -4.31 -0.84
1-
92
199 3.31 3.09 2.06 4.87 2.43
2-
93
199 5.81 8.59 11.24 4.13 5.86
3-
94
199 9.28 10.82 13.04 6.83 9.08
4-
95
199 11.58 15.46 15.93 14.56 14.14
5-

43
96
199 6.68 9.5 10.74 7.12 7.34
6-
97
199 3.71 0.05 -2.61 5.35 6.61
7-
98
199 4.14 3.13 3.47 2.51 4.40
8-
99
199 4.57 3.22 4.01 1.76 7.16
9-
200
0
200 6.35 7.75 7.84 7.56 5.35
0-
01
200 2.72 2.54 4.58 -1.33 2.85
1-
02
200 7.06 6.81 7.59 5.25 6.02
2-
03
200 7.38 6.63 7.15 5.57 7.38
3-
04
200 10.34 8.65 9.08 7.75 9.13
4-
05
200 10.15 8.98 9.16 8.61 9.15
5-
06
200 10.99 12 11.99 12.01 12.52
6-
07
200 8.55 8.78 8.98
7-
08

Sources: CSO, National Accounts Statistics (for cols 2 to 5); RBI, Handbook of
Statistics on Indian Economy (for col 6).

44
Table 2 Annual Rate of Growth of Manufacturing, 1951-52 to 2007-08 (per cent)
Year Manufacturing Manufacturin
g registered
1951-52 3.16 2.63
1952-53 3.48 0.46
1953-54 7.74 4.4
1954-55 7.01 11.14
1955-56 7.83 12.25
1956-57 7.51 11.15
1957-58 3.85 4.67
1958-59 4.95 2.88
1959-60 6.79 10.09
1960-61 8.3 12.73
1961-62 8.54 8.33
1962-63 7.28 9.74
1963-64 9.46 11.31
1964-65 6.91 8.25
1965-66 0.93 3.28
1966-67 0.79 0.09

45
1967-68 0.39 -3.26
1968-69 5.54 6.76
1969-70 10.73 17.37
1970-71 2.35 2.38
1971-72 3.27 1.81
1972-73 3.92 3.18
1973-74 4.45 4.93
1974-75 2.92 1
1975-76 2.11 1.01
1976-77 8.77 12.49
1977-78 6.22 6.71
1978-79 12.35 10.91
1979-80 -3.22 -2.1
1980-81 0.19 -1.61
1981-82 8.17 8.62
1982-83 3.29 8.1
1983-84 10.23 15.25
1984-85 4.21 7.63
1985-86 3.19 2.76
1986-87 5.49 4.91
1987-88 5.6 6.68
1988-89 8.5 11.7
1989-90 8.84 12.15
1990-91 4.77 5.63
1991-92 -2.4 -1.26
1992-93 3.09 2.06
1993-94 8.59 11.24
1994-95 10.82 13.04
1995-96 15.46 15.93
1996-97 9.5 10.74
1997-98 0.05 -2.61
1998-99 3.13 3.47
1999-2000 3.22 4.01
2000-01 7.75 7.84
2001-02 2.54 4.58
2002-03 6.81 7.59
2003-04 6.63 7.15
2004-05 46 8.65 9.08
2005-06 8.98 9.16
2006-07 12 11.99
2007-08 8.78
Source: CSO, National Accounts Statistics

Table 3 Compound Annual Rate of Growth of Manufacturing (per cent)

Period Manufacturing Manufacturing –
registered
1951-52 to 1965-66 6.45 7.48
1952-53 to 1964-65 7.17 8.87
1980-81 to 1990-91 6.2 8.29
1991-92 to 2007-08 7.18 7.58
1992-93 to 2007-08 7.46 7.99
Source: CSO, National Accounts Statistics.
Note: For the registered manufacturing sector the period for the last two rows are
1991-92 to 2006-07

Table 4 Annual Rate of Growth of Manufacturing, March 2007 to December 2008 (per
cent)
Quarter Index of Industrial
Production
(Manufacturing)
Mar-07 13.52
Jun-07 11.11
Sep-07 8.94
Dec-07 8.90
Mar-08 7.26
Jun-08 5.76
Sep-08 4.91
Dec-08 -0.68
Source: Business Beacon database of CMIE
Note: Growth rate for March 2007 is the growth rate over the index a year back
(March 2006) and so on.

Table 5 ASI Registered Manufacturing Sector Employment

Workers Persons Engaged
Total Growth rate of col 2 Total Growth rate of col 2
Nos. (%) Nos. (%)
1991-92 5469244 7124677
1992-93 5768038 5.46 7568065 6.22
1993-94 5740659 -0.47 7548975 -0.25
1994-95 5996593 4.46 7844172 3.91
1995-96 6543577 9.12 8648914 10.26

47
1996-97 6466705 -1.17 8434393 -2.48
1997-98 6466304 -0.01 8393780 -0.48
1998-99 6188081 -4.30 8352444 -0.49
1999- 6073337 -1.85 7903435 -5.38
2000
2000-01 5958403 -1.89 7753248 -1.90
2001-02 5783089 -2.94 7512735 -3.10
2002-03 5983970 3.47 7699819 2.49
2003-04 5912030 -1.20 7631696 -0.88
Source: Annual Survey of Industries, 1973-74 to 2003-04: A Data Base on the
Industrial Sector in India (Vol II), EPW Research Foundation

Table 6 Exports of Manufactured Goods (US $ million and %)

Year All commodities Mfrg goods Mfrg goods Mfrg goods
Growth rate of col 3 Share of col 2
1991-92 17998.3 13245.3 73.59
1992-93 17436.9 13166.8 -0.59 75.51
1993-94 22213 16636.9 26.36 74.90
1994-95 26337.5 20410 22.68 77.49
1995-96 31841.9 23782.4 16.52 74.69
1996-97 33498 24634.2 3.58 73.54
1997-98 35048.7 26578.6 7.89 75.83
1998-99 33211 25785.7 -2.98 77.64
1999- 36759.5 29750.6 15.38 80.93
2000
2000-01 44147.4 34391.2 15.60 77.90
2001-02 43957.5 33469.3 -2.68 76.14
2002-03 52823.5 40323.9 20.48 76.34
2003-04 63886.5 48525.4 20.34 75.96
2004-05 83501.6 60705.7 25.10 72.70
2005-06 103075 72552.1 19.51 70.39
2006-07 126276 84863.4 16.97 67.20
2007-08 159089 101151 19.19 63.58
Source: DGCI&S from “India Trades” database of CMIE.

Table 7 Sectoral Sources of Growth of Exports of Manufactured Goods

48
 Sector Exports Exports Contribution
1991-92 2007-08 (1991-92 to 2007-
US $ US $ 08)*
million million %
Leather & leather manufactures 1278.2 3433.38 2.45
Chemicals & related products 1581.3 14944.95 15.20
Engineering goods 2256.57 36619.31 39.09
Textiles (excluding readymade 2512.46 9528.17 7.98
garments)
Readymade garments 2215.54 9496.69 8.28
Other manufactured goods 3401.17 27128.86 26.99
Manufactured goods 13245.25 101151.4 100.00
Source: Calculated from DGCI&S data obtained from “India Trades” data base of
CMIE.
Note: * Sectoral contribution has been calculated as the change of exports between
1991-92 and 2007-08 of the sector as a percentage of the change in total
manufactured exports in the same period.

Table 8 Growth Rate of Exports of Selected Manufactured Products

Product group Exports Exports CARG, 1991-92
1991-92 2007-08 to 2007-08 (%)
US $ million US $ million
Primary & semi-finished iron & 92.21 4157.51 26.88
steel
Non-ferrous metals 105.38 3055.71 23.42
Iron & steel bar/rods 62.43 1293.04 20.85
Ferro alloys 72.53 1113.99 18.62
Machinery & instruments 585.76 8724.77 18.39
Manufactures of metals 487.81 7027.5 18.14
Transport equipment 500.11 7029.16 17.96
Inorganic/organic/agro 201.88 2733.95 17.69
chemicals
Electronic goods 267.21 3230.73 16.86
Residual chemicals & allied 79.2 934.29 16.68
products
Drugs, pharmaceuticals & fine 633.46 7241.44 16.45
chemicals
Dyes intermediates & coal tar 319.31 2699.12 14.27
chemicals
Paints/enamels/varnishes 91 657.21 13.15
Project goods 18.85 128.34 12.74
Machine tools 47.79 300.14 12.17

49
 Residual engineering items 16.49 89.34 11.14
Cosmetics/toiletries 256.45 678.93 6.27
Source: Calculated from DGCI&S data obtained from “India Trades” data base of
CMIE.

Table 9 Export, Import, Net Export and R&D Intensity of Manufacturing Corporate
Sector in India (per cent)
1991-92 1992-93 2005-06 2006-07
All companies (3400 in 2006-07)
Total import intensity 9.13 10.51 22.48 22.29
Total export intensity 5.24 6.08 12.88 14.98
Total net export intensity -7.37 -8.05 -14.64 -12.59
Total R&D intensity 0.12 0.20 0.45 0.40
All companies except refineries and gems & jewellery (3373 in 2006-07 )

Total import intensity 5.30 6.27 12.67 12.80

Total export intensity 5.45 6.41 13.07 14.57
Total net export intensity -3.81 -4.00 -4.47 -3.39
Total R&D intensity 0.15 0.24 0.67 0.59
All Indian companies except refineries and gems & jewellery (3180 in 2006-07)

Total import intensity 5.72 6.67 13.67 13.34

Total export intensity 5.39 6.52 14.82 16.28
Total net exp intensity -4.26 -4.40 -3.84 -2.51
Total R&D intensity 0.15 0.21 0.69 0.61
All foreign companies (193 in 2006-07)
Total import intensity 3.30 4.64 11.10 10.46
Total export intensity 7.44 7.41 11.04 10.69
Total net export intensity -0.03 -0.68 -6.44 -7.45
Total R&D intensity 0.13 0.40 0.45 0.36
All foreign companies before 1991 (145)
Total import intensity 3.29 4.58 8.84 8.32
Total export intensity 7.45 7.43 9.09 8.98
Total net export intensity -0.01 -0.57 -5.74 -6.42
Total R&D intensity 0.13 0.40 0.49 0.39
All foreign companies 1991 and later (48)
Total import intensity 40.42 32.29 22.93 21.84
Total export intensity 0.00 0.00 21.28 19.88
Total net export intensity -58.83 -58.83 -10.12 -12.94
Total R&D intensity 0.00 0.00 0.21 0.21

50
Source: Calculated from company-wise data obtained from Prowess data base,
version 2.6 of CMIE.

Table 10 Sectoral Annual Rates of Manufacturing Growth (per cent)

Basic Capital Intermediate Consumer Consumer Consumer
Goods Goods Goods Goods Durables Non-
Durables
1992- 2.74 4.42 4.60 5.07 -0.13 6.28
93
1993- 9.29 -4.65 11.68 3.93 15.58 1.36
94
1994- 9.55 9.16 5.32 12.11 16.20 11.21
95
1995- 10.78 5.35 19.33 12.81 25.77 9.83
96
1996- 3.02 11.44 8.12 6.21 4.64 6.62
97
1997- 6.83 5.77 8.03 5.46 7.81 4.85
98
1998- 1.70 12.64 6.12 2.20 5.57 1.11
99
1999- 5.51 6.96 8.79 5.70 14.15 3.23
2000
2000- 3.89 1.73 4.66 7.97 14.57 5.85
01
2001- 2.42 -3.38 1.56 6.00 11.46 4.11
02
2002- 4.83 10.50 3.88 7.07 -6.27 12.03
03
2003- 5.46 13.59 6.37 7.16 11.61 5.76
04
2004- 5.52 13.95 6.08 11.70 14.34 10.82
05
2005- 6.70 15.73 2.51 12.03 15.30 10.94
06
2006- 10.27 18.24 12.01 10.09 9.16 10.43
07
2007- 6.96 18.02 8.93 6.06 -1.05 8.54
08
1991- 5.93 8.51 7.29 7.55 9.64 7.00
92 to
2007-
08*
2001- 6.00 12.15 5.85 8.56 7.51 8.91
02 to

51
 2007-
08*
Source: RBI, Handbook of Statistics on Indian Economy*
Note: * CARG

Table 11 Import Intensity of Selected Manufactured Products (per cent)

1991- 1992- 2005- 2006-
92 93 06 07
ACs and refrigerators 3.66 3.05 10.36 11.39
Auto ancillaries 3.76 4.48 7.29 7.96
Commercial vehicles 2.26 3.15 2.94 2.71
Communications Equipment 12.98 14.14 25.56 17.01
Computer hardware 17.05 12.07 30.72 28.01
Consumer electronics 7.12 6.03 7.75 11.23
Domestic electrical appliances 4.53 6.67 4.42 3.19
Drugs & Pharmaceuticals 8.53 10.00 12.88 13.40
Electronic components 16.42 26.30 19.60 19.66
Electronic equipments 5.98 6.70 10.83 15.87
Industrial machinery (other than textiles & 1.69 2.06 9.46 10.45
chemicals)
Misc Electrical machinery 2.26 4.60 4.45 3.71
Passenger cars and multi utility vehicles 1.60 5.83 12.38 10.91
Steel Tubes & pipes 5.35 5.51 22.36 22.50
Textile machinery 2.44 8.70 10.86 9.97
Two & three wheelers 2.29 1.95 0.48 1.35
Source: Calculated from company-wise data obtained from Prowess data base,
version 2.6 of CMIE.

Table 12 Net Export Intensity of Selected Manufactured Products (per cent)

1991-92 1992-93 2005-06 2006-07
AC and refrigerators -3.00 -2.36 -5.22 -6.27
Auto ancillaries -0.85 -2.49 -3.94 -2.70
Commercial vehicles 2.35 1.40 -2.94 1.38
Communications -17.41 -24.55 -30.85 -22.88
Equipment
Computer hardware -16.04 -12.61 -23.38 -21.80
Consumer electronics -8.29 -7.23 -3.78 -8.05
Domestic electrical -4.21 -5.81 -5.31 -4.92
appliances
Drugs & 0.01 -2.39 10.46 14.76
Pharmaceuticals

52
Electronic components -15.11 -34.73 -8.53 -5.32
Electronic equipments -19.26 -9.30 -5.87 -9.32
Industrial machinery 0.20 -5.16 -8.61 7.39
(other than textiles &
chemicals)
Misc Electrical 5.71 7.48 -21.48 16.08
Machinery
Passenger cars and -5.81 -8.74 -7.68 -7.70
multi utility vehicles
Steel Tubes & pipes -3.84 -2.83 -1.41 -3.52
Textile Machinery -3.23 -8.38 -3.58 -3.55
Two-three wheelers -4.92 -0.61 -2.28 -2.65
Source: Calculated from company-wise data obtained from Prowess data base,
version 2.6 of CMIE.

Table 13 India’s and Corporate Manufacturing Sectors Net Exports (Rs crores and per
cent)
INDIA 2006-07
Merchandise Exports 571779
Trade balance (merchandise exports minus imports) -286276

Export/GDP 15.1
Trade balance/GDP -6.9
CMIE Sample companies
Exports 279020
Net exports (total foreign exchange earnings minus -234592
expenditure)
Export intensity 14.98
Net exp intensity -12.59
Export (India/CMIE) 48.80
Net exports (India/CMIE) 97.5
Source: RBI, Handbook of Statistics on Indian Economy and Prowess data base,
version 2.6 of CMIE.

Table 14 Sources of Accretion to Foreign Exchange Reserves since 1991

April 1991 to September 2008 (US $ million)
Current Account -74.1
Capital Account, of which 341.8
(i) Foreign investment, of which 160.8
(a) FDI 72.9
(b) FII 60.0
(ii) NRI deposits 30.8

53
 (iii) External assistance 16.9
(iv) External commercial borrowings 60.1
(v) Others 73.2
Source: RBI, Half Yearly Report on Foreign Exchange Reserves, 2008-09 (covering
the period up to September 2008).

References:

1 See the report ‘Manufacturing takes off in India’ by John Elliot, Fortune, 19 October,
2007.
2 See the report ‘Tirupur Exporters Seek More Sops’, 25 November, 2007, in
www.newindpress.com

54
 Chapter IV

MANUFACTURING SECTOR IN INDIA: AN INDUSTRY-

WISE CLASSIFICATION
In the preceding

ELECTRONIC SECTOR IN INDIA

The electronics industry is center stage in today’s transforming and globalized
market. As such, improving and even accelerating high‐technology innovation, while
ensuring its propriety, will be instrumental if the world is to maintain its competitive
advantage for continued economic prosperity and indispensable national security.
India is the fifth largest economy in the world and has the second largest gross
domestic product among the emerging economies. Owing to its large population, the
potential consumer demand is ever increasing and consequently under appropriate
conditions, strong growth performance can be expected. The liberalization of the
Indian economy that began in 1991 has started changing regulatory, financial, and
monetary policies leading to a higher pace of growth. The software industry in India
is already a world leader. Electronics and Information Technology is the fastest
growing segment of Indian industry both in terms of production and exports. Today,
the electronics industry is completely delicensed with the exception of aerospace and
defence electronics, and along with the liberalization in foreign investment and
export‐import policies of the entire economy, this sector is attracting considerable
interest not only as a vast market but also as potential production base by
international companies.

Background:
The electronics industry started its first production during early 1930’s and has
grown rapidly in the recent years, with sales increasing by a factor of 15 since the
early 1960’s. Electronic sales, which were $120 billion in 1986, has increased over
$1 trillion with an average annual rate of 12% in United States. The main impetuses

55
 for such phenomenal market growth are the intrinsic pervasiveness of electronic
products and the continued technological breakthroughs in integrated circuits. With
the upcoming of VLSI technology 105 components per chip has been achieved by
which size of electronic devices has drastically decreased. With decrease in size the
complexity of device has increased which accounts for its slowed growth in recent
years because of difficulties in defining, designing and processing complicated
chips.1
The Indian Electronics industry dates back to the 1960s, was driven mainly by the state
and was initially restricted to the development and maintenance of fundamental
communication systems including radio broadcasting, telephonic and telegraphic
communications and augmentation of defense capabilities. Main players were public
sector giants like Bharat Electronics Ltd and Indian Telephone Industries Ltd. The late
1980s and 90s saw the liberalization and globalization of the Indian economy and the
electronics industry too witnessed a boom, mainly in the consumer electronics area,
driven by a growing middle class with larger disposable incomes. The 1980s saw growth
rates in excess of 30%, which had slowed down to 7% by 2001‐02, due to various factors
such as slowdown in the Indian economy, saturation of demand in products such as TVs
and increasing competition from cheaper imports due to a fall in customs duties.2

Purpose:
1. We focus on the electronics sector for several reasons. Firstly, it is a sector which
is expanding rapidly and whose effects are permeating the production structures
of virtually every activity in the manufacturing and service sectors. Secondly, it is
a sector which in principle has a high level of globalization potential. Its
production is effectively footloose, being virtually independent of resources other
than capital, for which there is now a global market, and labour, both skilled and
unskilled. Thirdly, because of the relative weightlessness of many of the products
of the sector, transportation costs, which can often play a vital role in linking
production to consumption, are a trivial part of total costs. For these reasons,
differences in factor costs, effectively the costs of skilled and unskilled labour,
can drive the global production location decisions for different fragments in the
production process.

2. Indian Electronic Industry today accounts for very feeble parts of total GDP. ST
Microelectronics, Perrot Communication, Sasken are some of the very few
indigenous electronic firm that are involved in research and development in the
field of electronics. Today, 60 years after independence as Indian economy
continues to beat many a odds but till date no electronic firm has an electronic
manufacturing facility in India. Being a student of Electronics Engineering, we
would like to purpose the detailed study and analysis of every aspect of
Electronics industry so as to utilize our resources to the fullest.

56
 3. We propose to discuss all the governmental policies that have been implemented
by the state to encourage the electronic industry and those which are still lying on
the table to get recommendations.

4. We would like to highlight some of the major milestones of this industry with the
help of some case studies that we have done. We have chosen the companies that
are dominating the world market and the Indian Territory.

5. Finally we would like show how Indian company that have its market
concentrated in its domestic territory, is not little influenced by the recession and
what are the counterparts faced by the multinational company. We have specially
highlighted about the BEL which is a government Enterprise, has least affect of
this recession.

6. We would like to summarize the current thinking on intermediation and

disintermediation, extract candidate drivers for this cycle, capture the expert
opinions on what is driving the cycle and determine the quantitative and
qualitative conclusions related to the electronics industry supply network
integration and requirements for its success.

Market Overview:
The global electronics industry is growing rapidly. From an estimated size of US$ 950
billion in 2005, it is estimated to grow to nearly US$ 2100 billion by 2010. The market is
dominated by Asian countries such as China, Taiwan, Singapore and South Korea. The
industry is characterized by rapid innovation and speed to market, short product life
cycle, highly automated manufacturing to give consistent quality at low cost, high
volume production, continuous improvement in capabilities for reducing costs and profit
accrual through volumes. India’s electronics industry is nascent by global standards.
Despite a population of over one billion, India has a relatively small electronics market. It
is ranked twenty-sixth worldwide in terms of sales and twenty-ninth in terms of
production. The total size of the industry in 2004-05 was US$11 billion.

Electronics industry in India: A snapshot

57
India’s Electronics sector has six key segments:
1. Consumer electronics
2. Industrial electronics
3. Computers
4. Strategic electronics
5. Communication and Broadcasting equipment
6. Electronic components.
The consumer electronics sector dominates the industry with 33.8 per cent share and has
benefited from a large and expanding market. The industrial electronics and computer
sector each has a share of over 15 per cent.

Consumer Electronics

58
Consumer electronics consists of products that are directly consumed by end‐users,
such as televisions, VCD/MP3 players, microwave ovens, etc. This segment has a
large manufacturing base, and is quite competitive, with presence of several global
players in India.
Industrial Electronics
The Industrial electronics segment includes products that are used by other industries,
such as process control instrumentation, automation systems, Test and measuring
(T&M) instruments and medical instruments.
Computers
This segment includes personal computers, servers, workstations, supercomputers,
data processing equipment and peripherals such as monitors, keyboards, disk drives,
printers, plotters, digitisers, SMPS, modems, networking products and add‐on cards.
Strategic Electronics
The strategic electronics segment covers Satellite base communications, navigation
and surveillance, underwater electronics and infra red based detection, disaster
management and GPS based Vehicle tracking systems. The segment has a number of
manufacturing units both in the public and private sectors.

59
Communication and Broadcasting Equipment
The communication and broadcasting equipment segment includes digital exchanges
(EPABX, RAX, TAX and MAX), Transmission equipment such as
HF/VHF/Microwave trans‐receivers, satellite communication terminals, optical fiber
communication equipment, troposcatter equipment, two‐way radio communication
equipment, etc.

Electronics Components
The electronics components segment caters to the requirements of consumer
electronics, telecom, defense and information technology sectors. The components in
production in India at present include TV picture tubes (black & white and color),
monitor tubes, diodes and transistors, power devices, ICs, hybrid microcircuits,
resistors, capacitors (plastic film, electrolytic, tantalum, ceramic), connectors,
switches, relays, magnetic heads, DC micro motors and tape deck mechanism, PCBs,
crystals, loudspeakers and hard and soft ferrites. The consumer electronic sector in
general and the color television (CTV) industry in particular is the growth engine for
electronic components.

India’s electronics industry has been growing at approximately 11 per cent CAGR over
the past 5 years, and was worth US$ 11 billion in 2004‐05.

Contribution towards GDP:

India is the fifth largest economy in the world has the second largest GDP among
emerging economies. Its middle class is 300 million strong and growing. In 2006‐07, the
performance of the Information Technology Enabled Services–Business Process
Outsourcing (ITES‐BPO) industry was marked by double‐digit revenue growth, steady
expansion into newer service lines and increased geographic penetration and an
unprecedented rise in investments by multinational corporations (MNCs). Total export

60
revenues of IT‐ITES industry have grown from US$ 23.6 billion in 2005‐06 to US$ 31.3
billion in 2006‐07, a growth of 32.6 per Cent. A total of 90 Indian IT companies were
certified at SEI CMM Level 5 by December 2006. Majority of the Fortune 500 and
Global 2000 corporations are sourcing IT‐ITES from India. Over the last two‐three years,
a number of reputed companies in electronics/IT/telecom hardware manufacturing like
Nokia, Motorola, Foxconn, Flextronics, Aspocomp, Samsung, LG, Elcoteq, Ericsson,
Alcatel, Tessolve and DELL have either set up their units or are in the process of
investing in the country. India is rapidly becoming an R&D hub. All the top 10 global
fabless design companies have operations in India and 17 of the top 25 semiconductor
companies worldwide have a strong presence in India. The total number of professionals
employed in the IT‐ITES sector grew from an estimated 12,87,000 in 2005‐06 to
16,21,000 in 2006‐07. In addition, IT‐ITES is estimated to have helped create an
additional 60 lakh job opportunities through indirect and induced employment in telecom,
power, construction, facility management, IT transportation, catering and other services.
Growth of production and exports in electronics industry

Policy developments and new initiatives by Indian government:

• The Government has played a supporting role in enabling the industry to realise
the potential of the Indian electronics industry. India has made the transition from being
a sort of controlled economy to a free market. Foreign investment up to 100 per cent is
possible in the Indian electronics industry to set up units exclusively for exports. It is
now possible to import duty‐free all components and raw materials, manufacture
products and export it. Some of key initiative taken by the government is as:
1
• EHTP (Electronic Hardware Technology Park) is an initiative to provide benefits to
companies that are replacing certain imports with local manufacturing. EHTP benefits
include export credits, no duties on imported components or capital equipment,
business tax incentives, and an expedited import‐export process.

61
• Customs duty on ITA‐1 items (217 items) has been abolished from March 2005. All
goods required in the manufacture of ITA‐1 items are exempt from customs duty.

• Customs duty on specified raw materials / inputs used for manufacture of electronic
components or optical fibres / cables has been removed.

• Customs duty on specified capital goods used for manufacture of electronic goods has
been abolished.

• Excise duty on computers has been removed. Microprocessors, hard disc drives,
floppy disc drives and CD ROM drives continue to be exempt from excise duty.

• The Special Incentive Package Scheme (SIPS) to encourage investments for setting
up semiconductor fabrication and other micro‐ and nano‐technology manufacturing
industries was announced in March 2007. The incentives admissible would be 20 per
cent of the capital expenditure during the first 10 years for units located in Special
Economic Zones (SEZs) and 25 per cent for units located outside SEZs.

• Recently, government of India took a decision to stop the inflow of Chinese made
electronic gadgets such as toys, cell phones etc. as researchers suggests that these low
cost goods are very hazardous for health especially for children.

References:
1. 1987 Electronic Market Data Book, Electronic Industries Association,
Washington D.C.

2. Net Profits in the domestic electronics industry 1991 ‐ 2001: “A comparative

analysis of the new and the old companies”, Nitin Kumar, Anand
Pandey, August 2003.

3. Gartner survey website, ( www.gartner.com )

4. Electronics For You, January 2009.

5. India Brand Equity Foundation (“IBEF”), ( www.ibef.org )

6. Ministry of Communication and Information Technology, Government of

India. (www.mit.gov.in)

7. Trinity Economic Papers Series, Trinity collage Dublin, ( www.tcd.ie )

8. Industry Association (SIA), Industry Facts and Figures, ( www.semichips.org

)

62
9. Electronics industry Information System, a software based to collect data
base of company, data bank and information division, Electronic Niketan,
New Delhi.

10. EE Times India, (www.eetindia.co.in)

11. ISA and Frost & Sullivan survey website.

12. http://money.rediff.com/companies/

13. Official sites of the following companies:

• Bharat Electronics Limited

• Hindustan Computers Limited

• Array Technologies Incorporated

• Intel Corporation
• Videocon Industries Limited
• Nokia Corporation
• Samsung Electronics
• Integrated Device Technology

14. http://intc.client.shareholder.com/
15. http://files.shareholder.com/
16. http://www.moneycontrol.com/
17. http://www.icicidirect.com/

63
2. PHARMACEUTICAL SECTOR

The Indian pharmaceutical market is the 15th largest individual market by sales.
Accounting for two percent of the world's pharmaceutical market, the Indian
pharmaceutical sector has an estimated market value of about US $8 billion. It's at 4th
rank in terms of total pharmaceutical production and 13th in terms of value. It is growing
at an average rate of 7.2 % and is expected to grow to US $ 12 billion by 2010.

Over the last two years the pharmaceutical market value has increased to about US $ 355
million because of the launch of new products. According to an estimate, 3900 new
generic products have been launched in the past two years. These have been by and large
launched by big brands in the pharma sector. And in the year 2005 Indian pharmaceutical
companies captured around 70% of the domestic market. At present, a large number of
Indian pharmaceuticals companies are looking for tie-ups with foreign firms for in-
license drugs. GlaxoSmithKline is among the top choices for the firms that wish to
launch their product in India, but do not have any branch over here.

Contract research and pharmaceutical outsourcing are the new avenues in the
pharmaceutical market. Contract manufacturing is growing at a very fast pace and is
estimated to grow to US $30billion, whereas contract research is estimated to reach
US$6-10 billion.

Industry Strengths:

 Capital Investment in Technology: Owing to the availability of advanced technology

at low costs, the companies can produce drugs at lower costs.
 Cost Effective: The filing cost of ANDAS and DMFs is comparatively low for the
Indian companies.
 Manpower: There is a large pool of technical experts available at modest salaries.
 Contract Research & Contract Manufacturing: There is a good scope for contract
research and contract manufacturing.
 Infrastructure: There is a well-developed infrastructure for the pharmaceutical
industry.

 Generic Drugs: In the last few years, the generic drug-manufacturing segment has
received huge investments, in the process making it more competitive and efficient.

Investment

• Domestic investment in the Pharmaceuticals sector is estimated at Rs. 31.43

thousand crores which is equivalent to US $ 7.14 billions (Source: Ministry of
Commerce & Industry). · The Pharmaceuticals sector has been able to attract
FDI amounting to US $ 1401.60 million in the sector during 2000-01 to 2008-09

64
 (upto September), of which, there has been an inflow of US $ 125.30 million
during the first half of 2008-09 (Source: Ministry of Commerce & Industry).
• · There has been an upward trend in FDI inflows in the sector. In 2007-08, the
FDI inflow at US $ 334.09 million (Rs. 13264.28 million) has been the highest
(Source: Ministry of Commerce & Industry).
• In so far as domestic industrial proposals between August 1991-March 2008 are
concerned, total IEMs filed including LOI & DIL add upto Rs. 31257 crores in
Drugs & Pharmaceutical Sector (Source: Ministry of Commerce & Industry).
• The Pharmaceutical sector is estimated to have created 2.20 lakh employment
opportunities (Source: Ministry of Commerce & Industry).
• The aggregate sectoral income grew by 18.9% during the quarter ending June
2008 while the growth in net profits during 2007-08 was 8.2% (Source: CMIE).
• Several new investments have materialized including Hindustan Latex Limited’s
integrated vaccine complex at Chengalpattu (near Chennai, T.N.), Rubicon
Research Clinical trial drug manufacturing facility at Ambernath (Maharashtra)
and Ban Labs’ manufacturing facility at Ponta Sahib (H.P.), Eisai India in Pharma
Pack at Vizag. Pharma CPSUs are also actively engaged in setting up new
facilities like Cephalesporin plant (with WHO GMP) by HAL, Pimpri at an
approx. cost of Rs. 20.00 crores, expansion by KAPL, Bangalore at a cost of Rs.
22.00 crores, expansion by RDPL, Jaipur at a cost of Rs. 8.00 crores. BCPL,
Kolkata has also started setting up new plant facilities for tablets, liquids & home
products at an estimated cost of about Rs. 145 crores provided by DoP as part of
its rehabilitation package.

Pharma Growth

• The domestic pharma industry has shown resilience, recording a growth of 6.8%
in November 2008, after a drop of 1.2% in October. During the 12 month period from

65
December 2007– November 2008, the domestic retail market grew by 10.3%, according
to ORG-IMS as quoted by the “Times of India” (TOI)(December 25, 2008).
• Growth in November 2008 could have been higher if anti-invectives and
respiratory segments had recorded a better growth, according to experts as quoted by the
TOI (December 25, 2008).
• Clinical trials in India can cost less than 50% of those conducted in western
countries. Therefore, clinical research in India attract outsourcing work from western
countries and the market for the purpose is projected to expand two-fold from US$ 176
billion in 2008 to 356 billion in 2012 as exhibited in Graph-1(Source: IMS Health,
McKinsey, ABLE, as quoted by the “Financial Express” dated 29.12.08).

• The size of Indian pharmaceuticals industry is poised to grow from Rs.30,200

crores in 2007 to Rs.33,500 crores in 2008 and further to Rs.140,000 crores in
2020 as exhibited in Chart-2 (Source: IMS Health, McKinsey, ABLE, as quoted
by the Financial Express 29.12.08).

66
 • The world contract research market is expected to grow monotonously from 19%
in 2005 to 29% in 2008 and further to 47% in 2011 as depicted in the Graph-3
(Source: IMS Health, McKinsey, ABLE, as quoted by the Financial Express
29.12.08).

Exports and Imports of Pharma Products

• Pharmaceuticals exports (valued in US dollar terms) registered an impressive

growth rate at 30.7% terms during April-October, 08 compared to the

67
 corresponding period of the last year. This growth further increase to 38.5%
when valued in rupees terms (Source: Quick Estimates of DGCIS).
• Imports on account of pharmaceutical products (valued in US dollar terms) grew
by 3.4% during April-October, 08 compared to the corresponding period of the
last year. When imports are valued in rupees terms, the growth further increases
to 9.5% (Source: Quick Estimates of DGCIS).
• Exports on account of Pharmaceuticals have been consistently outstripping the
value of corresponding imports during 1996-97 to 2007-08. The trade balance
increased from Rs. 2157 crores in 1996-97 to Rs. 13893 crores in 2007-08.
Exports of pharmaceuticals registered a growth at the rate of 16.22% during 2007-
08 (Source: Quick Estimates of DGCIS).
• The share of exports of Pharmaceuticals products to the total national exports
have been in excess of 2% during each of last 12 years ending 2007-08. It has
exhibited a long term upward trend from 2.01% in 1996-97 to 2.55% in 2007-08
(Source: DGCIS).
• The share of imports of Pharmaceuticals products compared to national imports
fluctuated in a band of 0.16% (in 1996-97) to 0.39% (in 2002-03). In 2007-08,
imports constituted 0.28% of the total national imports compared to 0.35% in the
previous year. Lower share of imports, ceteris paribus, signifies more self
reliance and can therefore be construed as a positive sign for the economy in
general and for the pharma sector in particular in the long run.
• While Pharmaceutical products are exported mainly to USA, Germany, Russia,
UK, Brazil, India’s imports emanate primarily from China, Switzerland, USA &
Italy.

Government Initiative

The Government has taken various policy initiatives for the pharmaceutical sector

• Government has offered tax-breaks to the pharmaceutical sector. Units are

eligible for weighted tax deduction at 150 per cent for the R&D expenditure
incurred.
• Steps have been taken to streamline procedures covering development of new
drug molecules, clinical research etc.

68
 • Government has launched two new schemes—New Millennium Indian
Technology Leadership Initiative and the Drugs and Pharmaceuticals Research
Programmed—especially targeted at drugs and pharmaceutical research.

In a bid to promote new drug research in the country, the government is mulling creating
special purpose vehicles (SPV) with insurance cover which will be used to fund new drug
research. The Department of Pharmaceuticals is also toying with the idea of creating drug
research facilities and centers that can be used by private companies for such research
work on a pay-and-use basis

Future Outlook

Early results for September 2008 quarter indicate that aggregate sales grew by 28.2%,
aggregate sectoral PAT by 18.4% and PAT margin to 15.1%, according to CMIE. For the
year ending March 2009, net sales are expected to grow by 19.2% compared to 19.7% in
the preceding year (Source: CMIE).
Notwithstanding fears of a global recession, pharma exports are expected to grow by
25.2% while pharma imports are likely to register a growth rate of 31.8% in 2008-09,
according to CMIE.

From August, 1991 to July 2008 (Based on IEMs filed).

1. Industrial Entrepreneur Memorandum

2. Letter of Intent
3. Direct Industrial Licenses

3. CHAMICAL SECTOR OF INDIA

The chemicals industry in India constitutes about 2.8 per
cent of the country’s GDP. The Indian chemical industry has a strong and diversified
base encompassing many areas such as organic and inorganic chemicals, plastics, fibres,
dye stuffs and dye intermediates, paints, pesticides, insecticides, specialty chemicals,
drugs and pharmaceuticals. The growth in this sector has consistently shown higher
average growth rate than that of the manufacturing sector in India. Chemical industry is
one of the oldest industries in India. It not only plays a crucial role in meeting the daily
needs of the common man, but also contributes significantly towards industrial and
economic growth of the nation.

INDUSTRY SENERIO

69
 Chemical sector of India is one of the oldest industrial
sectors in India. It has contributed significantly towards the phenomenal growth of Indian
industry and economy. The chemical sector of India directly or indirectly acts as a
supplier of many of the commodities of daily use. It is extremely scientific in its approach
and facilitates the provision of many of the important chemicals which are the basic
materials for end-products like paper, leather, paint, varnish, textile, and so on. The
chemical sector in India stands as the keystone of the agrarian and industrial development
which provides support for other industries.

The chemical sector of India is one of the major industries in the Indian economy. It is
estimated to be worth around US$ 35 billion in size in 2006-07, which is almost 3% of
the country's gross domestic product. The investment in chemical sector of India is
around US$ 60 billion. It generates employment of about 1 million. The chemical sector
of India provides around 13-14% of total exports and its total imports are about 8-9%. It
is ranked 12th globally and 3rd in Asia. The per capita consumption of chemical industry
products in India is .01% of the global average. The industry manufactures more than
70,000 products. Exports stood at over US$ 17 billion in 2006-07 (14 per cent of total
exports from India).It has transformed itself into an innovative and successful industry
from being merely a chemical producer once upon a time.

The chemical sector in India constitutes of small and large companies. There is a spree of
restructuring activities in the chemical sector. With the emphasis on branch building,
environmental friendliness, and product innovation, the chemical sector has increasingly
moved towards customer orientation. Though India revels in the ample supply of basic
materials, it would have to improve on the technological aspects and the capabilities of
proper marketing to confront the global competition.

The per capita consumption of products of chemical industry is about one-tenth of the
global average. As such, the prospects for the Indian chemical industry appear bright.

The industries using chemicals as raw materials:

• Petrochemicals
• Inorganic Chemicals
• Organic Chemicals
• Fine and specialties
• Bulk Drugs
• Agrochemicals
• Paints and Dyes

Further, it is highly fragmented and widely dispersed. Western India accounts for about
45-50 per cent of total Indian chemical Industry. Large players deal in bulk chemicals.
Both large and small players exist in Fine and Specialty chemicals. With abundant
reserves of ingredients such as limestone and salt deposits, basic chemical processing is
easily one of the best developed processes in India.

70
FACTS OF INDIAN CHEMICAL INDUSTRY
13% of the total export
13% of the total industrial output & 7% of the GDP
10 % - 12 % growth per annum
2% of global chemical industry
Indian pharmaceutical industry ranks 4th in volume & 13th in term of value in the
world.
India – a strong player in the generic pharmaceutical market.
India – 2nd largest producer of agrochemicals in Asia.

INDIAN PETROCHEMICALS
Domestic market size – US$700 million.
Fastest growing sector at 15%.
Reliance – key player in this market.

INORGANIC CHEMICALS
Market size – US$260 million.
Growth rate – 9%.
4.5% of global market.
Mainly used in detergent, glass, soap, fertilizer and alkalis.

PHARMACEUTICALS
India ranks 4th In terms of volume & 13th in terms of value.
Domestic market size – US$450 million
Indian market is 1.6% of the global market
Domestic market growth rate – 8 to 9%
Strong player in generic market--several of the world’s leading drug companies are
based in Indian.
Significant export led growth

AGRO CHEMICALS AND FERTILISERS

Domestic market size – US$88 million
Domestic market growth rate – 10% annually
2.5% of the global market.
In India, insecticide commands major share 76%.
Globally, herbicides commands major share 48% & insecticide only 29%.
India is largest manufacture of basic pesticide chemicals among South Asia & Africa,
next only to Japan.

SPECIALITY & FINE CHEMICALS

Market size – US$860 million
Major used in textile, leather, paper, detergent, rubber, Paints, polyester, oil & gas.
Growth rate at 10-12%.

71
DYES & PAINTS
Market size – US$110 million.
Growth rate – 12%
Indian market is 6% of the global market
Major used in
Paints, inks, textiles, polymers.
Highly fragmented market
25 large & medium players holding 50% of the market.
Remaining 50% is with another small 2000 un-organized players.

Production
According to a report from Cygnus Business Consulting and Research,

• Petrochemicals sector is a major sector of the Indian chemical industry which has
been growing at almost 13 per cent per annum.

• 1 billion-dollar industry covering a wide range of chemicals such as methanol,

with units concentrated mostly in the Western India.

• Bulk drugs constitute a large market due to large population with large exports
(US$ 600-800 million), which are around 6-8 per cent of global drugs market.
Total market is US$ 3 Billion per annum. 475 drugs are used of which, 425 are
locally produced. Over 350 units in the organised sector and many more in the
unorganised sector. Bulk drug units are concentrated around Bombay –
Ankleshwar, Hyderabad – Madras and Chandigarh.

• The fine chemicals that end up as medicines are termed bulk drugs/ APIs.

• India very strong in reverse Engineering, molecular chemistry and because

patents not on products but on process.

• Dyestuffs and dye intermediates contribute to textiles, leather, paper, plastics,

rubber sectors majorly. India has emerged as a global supplier of dyestuffs
particularly for reactive, acid, vat and direct dyes. India accounts for almost 6 per
cent of the world production. Growth in basic chemicals and its products was 9.8
per cent against 12.6 per cent in manufacturing and 11.6 per cent in overall Index
of Industrial Production (IIP) during 2006-07.
6000
6200
6400
6600
6800
7000
7200
7400
7600

72
7800
2002‐03 2003‐04 2004‐05 2005‐06 2006‐07
Figures in 1000 MT
Year
Production of Total Major
Chemicals
Source: Annual Report 2007-08, Department of Chemicals & Petrochemicals

Exports
During the period 2002-03 to 2006-07, exports of the chemicals sector increased from Rs
35362 crores (US$ 7.25 billion) to Rs 75532 crores (US$ 15.49 billion). Share of exports
in total national exports showed a marginal decline from 13.9 per cent in 2002-03 to 13.2
per cent in 2006-07. Growth in exports has been led by organic chemicals (29.54 per
cent) followed by pesticides (20.48 per cent) during 2001- 02 to 2006-07 period.
Chemical fertilizers and pesticides contribute a major chunk to exports and the favoured
destinations are USA, UK, France, etc. 60 technical grade pesticides are manufactured
indigenously by 125 large and medium producers.

Group-wise Exports from Indian Chemicals Industry

Investment Scenario
According to CMIE data, at the end of the March ’08 quarter, the chemicals industry had
projects under implementation worth US$ 55.46 billion, with another US$ 56.62 billion
in proposed investments. The foreign direct investment (FDI) inflows into the chemicals
sector (other than fertilizers) has been Rs 920 crores (US$ 229 million) in 2007-08
(April- March), Rs 1,823 crores (US$ 428 million) in 2008-09 (April – Oct.) with
cumulative inflows of Rs 7,963 crores (US$ 1,812 million) in April 2000 to Oct. ’08, i.e.,
2 per cent to total Inflows (In terms of rupees). FDI into fertilizers has been US$ 96.59
million in the period April 2000-Oct. 2008.

S.n Segments Actual investment in chemicals from

o Aug 1991-October 2007 in Rs Crores
(US$ million)

1. Chemicals & 43676 (8958.26)

Petrochemicals
2. Soaps, Cosmetics 1334 (273.50)
&
Toiletries
3. Dyes & Dye stuffs 52 (10.66)
4. Drugs & 3295 (675.55)
Pharmaceuticals
5. Fertilizers 3705 (759.05)
Source: Annual Report 2007-08, Department of Chemicals & Petrochemicals

73
The investment in R&D will also play a vital role in this sector. The chemical industry
has diverse categories like commodity chemicals (inorganic and organic), drugs and
pharmaceuticals, plastics and petrochemicals, dye and pigments, fine and specialty
chemicals, pesticides, agrochemicals and fertilisers.

Of these segments, Indian players seem to have a special attraction for specialty
chemicals, as these are high-value added chemicals, generally produced in smaller
quantities, and used in industries ranging from pharmaceuticals to plastics. Therefore,
capital outlay is smaller and entry barriers relatively lower.

The central government has given approval for the proposed petroleum, chemical and
petrochemical investment region (PCPIR) being set up in Nayachara island and adjoining
areas of Haldia in West Bengal. Indonesia's Salim Group, Delhi-based realty firm
Unitech Ltd and Universal Success floated by NRI entrepreneur, Prasoon Mukherjee, will
set up a chemical hub at the Nayachara island. Indian Oil Corporations will be the anchor
investor and has signed an agreement with the Bengal government.

Mitsui Chemicals Inc (MCI) and Prime Polymer Co Ltd plan to expand annual
polypropylene compound production capacity to a combined annual total of 73,000
tonnes. This move will entail a capacity hike in North America, Thailand and China by
24 per cent, to ensure MCI can respond to growing demand from the automotive sector.
Combined with new 15,000 tonnes capacity in India, MCI plans to increase capacity by
29 per cent to 88,000 tonnes within the next two years.

Germany's BASF will build a new engineering plastics plant near Mumbai to service the
rapidly growing automotive industry. The company's Indian operations are run by BASF
India Ltd and six other subsidiaries which are involved in making various specialty
chemicals.

Government Initiatives

• Fiscal concessions granted to small scale sector in mid-eighties has led to the
establishment of many units producing chemicals. These units thrive upon
abundant basic raw materials. The country’s strength also lies in its trained
scientific manpower being utilized in the R&D segment.

• 100 per cent FDI under the automatic route is allowed for all chemical items
except hazardous chemicals where government/FIPB approval and license to
manufacture are required

• Petroleum, Chemicals and Petrochemical Investment Regions (PCPIR) policy

aimed at developing India as a hub for these sectors.

• Investment regions with an area of around 250 sq. km are also allowed to set up.

74
 • Plans are underway to set up port based chemical parks in SEZs to encourage
clustering, provide infrastructure and enable tax concessions.

• Downstream SEZs have been planned to use the output of Chemical Parks.

• The related drugs and pharmaceuticals and paints & allied industries have been
exempted from compulsory licensing in this fiscal.

Future Opportunities

• The chemicals industry is projected to grow to a US$70 billion industry by 2012

• Growth rate of over 15 per cent per annum projected over the next 5 years

• Share of the global industry could increase from 1.9 per cent (2007) to 2.6 per
cent (2012).

• India is expected to be the third largest polymer consumer by 2010.

Further, as per latest estimates of the Department of Chemicals and Petrochemicals, the
share of the chemical industry in total proposed investment in the country is about 11.70
per cent and basic chemicals and petrochemicals may account for 9.66 per cent of the
total proposed investment.

International pharmaceutical companies are today more willing to tie up with Indian
companies to outsource fine chemicals for drugs in the pipeline. As more drugs lose
patent protection in the next few years, Indian companies are positioning themselves to
become preferred partners and suppliers to MNCs.

Source: Indian MSME Ecosystem.

www.imsme.org

75
 4. STEEL SECTOR IN INDIA:

DEVELOPMENT OF INDIAN STEEL SECTOR

The economic reforms initiated by the Government since 1991 have added
new dimensions to industrial growth in general and steel industry in particular.
Licensing requirement for capacity creation has been abolished, except for certain
location restrictions. Steel industry has been removed from the list of industries reserved
for the public sector. Automatic approval of foreign equity investment upto 100% is now
available. Price and distribution controls have been removed from January, 1992, with a
view to make the steel industry efficient and competitive. Restrictions on external trade,
both in import and export have been removed. Import duty rates have been reduced
drastically. Certain other policy measures such as reduction in import duty of capital
goods, convertibility of rupee on trade account, permission to mobilise resources from
overseas financial markets and rationalisation of existing tax structure for a period of
time have also benefited the Indian Steel Industry.

HIGHLIGHTS
STEEL SECTOR TRENDS
• India remained the fifth largest producer of crude steel in the world during 2008.

• India also maintained its lead position as the world’s largest producer of direct
reduced iron (DRI) or sponge iron with nearly 20 million tonnes production in
2008-09.

• As per the revised estimates, the country is likely to achieve a steel production
capacity of nearly 124 million tonnes by the year 2011-12.

76
 • The steel sector is expected to generate additional employment of around 4
million by 2020 for production of around 295 million tonnes of crude steel by
2019-2020.

• 222 MoUs have been signed with various States for planned capacity of around
276 million tonnes.

• Major investment plans are in the States of Orissa, Jharkhand, Chattisgarh, West
Bengal, Karnataka, Gujarat and Maharashtra. The details of the break-up of the
MoUs signed by the State Governments of Orissa, Chattisgarh, Jharkhand and
Other States are given in the table below:

Highlights of 2008-09
• Crude steel production was at 54.52 million tonnes, a growth of 1.23% over last
year with capacity utilisation at 89% during the year. It grew at more than 9%
annually from 38.72 million tonnes (MT) in 2003-04.

• Production for sale of total finished steel was at 56.39 million tonnes, a growth of
0.6% as compared to last year. As against 40.71 MT in 2003-04, an average
annual growth of 7.3% was registered.

• Total finished steel exports decreased by 26 % as it reached an estimated 3.75

million tones while imports were at an estimated 5.77 million tonnes, a decline of
18 %. At 51.85 million tonnes, domestic consumption of total finished steel
declined marginally by 0.53%.

• The growth was driven by capacity expansion from 43.91 million tonnes per
annum (MTPA) in 2003-04 to 64.40 MTPA in 2008-09.

• The induction furnace route accounted for 32% of total crude steel production
during 2008-2009.

Production of Iron & Steel

(a)Finished Carbon Steel Production

The total production of finished carbon steel in the country has been 59.02 million tonnes
in 2008-09 as compared to 14.33 million tonnes in 1991-92. The high share of the
secondary sector in finished steel production is largely due to substantial supplies of
semis, the basic feed material from the main producers for conversion to needed shapes
by rolling.

77
 PRODUCTION OF FINISHED CARBON STEEL (In million tonnes)

Main Secondary Grand % of share of

Year
Producers Producers Total Secondary Producers
1991-1992 7.96 6.37 14.33 14.5%
1992-1993 8.41 6.79 15.20 44.7%
1993-1994 8.77 6.43 15.20 42.3%
1994-1995 9.57 8.25 17.82 46.3%
1995-1996 10.59 10.81 21.40 50.6 %
1996-1997 10.54 12.18 22.72 53.6 %
1997-1998 10.44 12.93 23.37 55.32 %
1998-1999 9.86 13.24 23.82 57.32 %
1999-2000 11.20 15.51 26.71 58.07 %
2000-2001 12.51 17.19 29.7 57.88 %
2001-2002 13.05 17.58 30.63 57.40 %
2002-2003 14.39 19.28 33.67 57.27 %
2003-2004 15.19 21.00 36.19 58.03 %
2004-2005 15.61 24.44 40.05 61.02 %
2005-06 (Prov.) 16.236 26.400 42.636 61.92 %
2006-2007 17.390 37.756 55.146 68.46 %
2007-2008 17.765 40.565 58.233 69.54 %
2008-2009 17.020 42.000 59.02 71.16 %
2009-2010 4.295 10.500 14.795 70.97 %
(Apr-June) (Partly estimated)
(Prov)

(b)Pig Iron Production

The total production of Pig Iron was 5.289 million tonnes in 2008-09 as compared to 1.59
million tonnes in 1991-92. Earlier Pig Iron was produced primarily by the integrated steel
plant of SAIL and RINL. Of late, the share of stand-alone pig iron units has increased
significantly.

78
 PRODUCER - WISE PRODUCTION OF PIG IRON (In million tonnes)

Main Secondary Grand %age share of the

Year
producers producers total Secondary Producers
1991-1992 1.49 0.10 1.59 6.3%
1992-1993 1.68 0.17 1.85 9.2%
1993-1994 1.98 0.27 2.25 12.0%
1994-1995 2.01 0.78 2.79 28.0%
1995-1996 1.74 1.06 2.80 37.9%
1996-1997 1.73 1.57 3.30 47.5%
1997-1998 1.70 1.68 3.39 49.5%
1998-1999 1.37 1.60 2.97 53.87%
1999-2000 1.24 1.94 3.18 61.08%
2000-2001 0.96 2.15 3.11 69.13%
2001-2002 1.02 3.05 4.07 75.04 %
2002-2003 1.11 4.18 5.29 79.05 %
2003-2004 0.97 4.25 5.22 81.48 %
2004-2005 0.625 2.603 3.228 80.63 %
2005-06 (Prov) 1.006 2.850 3.856 73.91 %
2006-2007 0.860 4.133 4.993 82.77%
2007-2008 0.936 4.378 5.314 82.38 %
2008-2009 0.589 4.700 5.289 88.86 %
2009-2010 0.149 1.215 1.364 89.07 %
(Apr-June)
(Prov)

(c) DRI Production

The production of DRI has increased from 1.31 million tonnes in 1991-92 to 20.800
million tonnes in 2008-09. India has emerged as the second largest producer of DRI in
the world after Venezuela.

79
 PRODUCTION OF DRI (In million tonnes)
Year Production % increase
1991-1992 1.31 -
1992-1993 1.60 22.1%
1993-1994 2.40 50 %
1994-1995 3.39 41.3%
1995-1996 4.34 28.02%
1996-1997 5.05 16.4 %
1997-1998 5.32 5.34%
1998-1999 5.12 (-)3.8%
1999-2000 5.34 4.30%
2000-2001 5.44 1.90%
2001-2002 5.40 (-) 0.70 %
2002-2003 6.91 27.96 %
2003-2004 8.08 16.93 %
2004-2005 10.296 -
2005-06 12.50 21.4 %
(Apr-Dec)
2006-2007 18.345 -
2007-2008 20.376 -
2008-2009 20.800 -
2009-2010
5.150 -
(Apr-June)

Import and Export of Iron & Steel

IMPORT OF IRON AND STEEL (In '000 tonnes)

80
 Total Value
Steel
Year Pig Iron (Pig Iron + Steel)
TOTAL(CARBON)
(Rs. In Crores)
1991-1992 152 1043 1441.32
1992-1993 73 1115 1676.00
1993-1994 21 1153 1613.00
1994-1995 1 1936 2536.00
1995-1996 8 1864 3181.00
1996-1997 15 1822 3053.00
1997-1998 3 1815 2904
1998-1999 2 1637 N.A.
1999-2000 3 2200 N.A.
2000-2001 2 1632 N.A.
2001-2002 2 1375 N.A.
2002-2003 1 1510 N.A.
2003-2004 2 1650 .N.A.
2004-2005 8 2109 N.A.
2005-06 (Prov) 3 3765 N.A.
2006-2007 3 4436 N.A.
(Partly Estimated)
2007-2008 11 6581 N.A..
2008-2009 8 5149 N.A.
(Partly Estimated)
2009-2010 1 1329 N.A.
(Apr-June) (Partly Estimated)

Although India started exporting steel way back in 1964, exports were not regulated and
depended largely on domestic surpluses. However, in the years following economic
liberalisation, export of steel recorded a quantum jump.

81
 EXPORT OF IRON AND STEEL (In '000 Tonnes)
Finished Total Total Value
Year Pig Iron Semis
Carbon Steel Steel (Rs. Crores)
1991-1992 - 5 368 373 283
1992-1993 16 154 741 895 708
1993-1994 620 585 1020 1605 1678
1994-1995 466 399 873 1272 1438
1995-1996 502 395 925 1320 1939
1996-1997 451 300 1622 1922 2231
1997-1998 785 503 1880 2383 2512
1998-1999 281 174 1770 1944 N.A.
1999-2000 290 328 2670 2998 N.A.
2000-2001 230 195 2805 3000 N.A.
2001-2002 242 270 2730 3000 N.A.
2002-2003 629 460 4506 4966 N.A.
2003-2004 576 701 5221 5922 N.A.
2004-2005 393 261 4381 4903 N.A.
2005-06
300 350 4350 4700 N.A.
(Prov)
2006-2007
707 665 4893 5558 N.A.
(Partly Estimated)
2007-2008 560 373 4627 5000 N.A.
2008-2009
350 554 3482 4036 N.A.
(Partly Estimated)
2009-2010
(Apr-June) 55 55 622 677 .N.A.
(Partly Estimated)

82
Apparent Consumption of Finished Carbon Steel

Apparent consumption (i.e. production + imports - exports +/- variation in stocks) of

finished steel, year-wise, has been shown below. Apparent consumption represents the
actual demand of steel in a particular period/year. It has increased from 14.84 million
tonnes in 1991-92 to 54.833 in 2008-09.

APPARENT CONSUMPTION OF THE FINISHED STEEL(CARBON)

(in million tonnes)
Year Apparent Consumption of Finished Steel
1991-1992 14.84
1992-1993 15.00 (1.2 %)
1993-1994 15.32 (2.0 %)
1994-1995 18.66 (21.8 %)
1995-1996 21.43 (14.8 %)
1996-1997 22.12 (3.2%)
1997-1998 22.63(2.3%)
1998-1999 23.15(2.3%)
1999-2000 25.01(8.03%)
2000-2001 26.87(7.44%)
2001-2002 27.350 (3.1%)
2002-2003 28.897 (5.32%)
2003-2004 31.169 (7.88%)
2004-2005 34.389 (10.33%)
2005-06 (Prov) 38.151 (10.9%)
2006-2007 49.777 (30.47%)
2007-2008 55.174
2008-2009 54.833
2009-2010 13.642

83
 (Apr-June)
(Prov)

(The figures in brackets indicate the percent increase over the previous
year/corresponding period.)

Current Investments
A host of steel companies forecasted expanding consumer market and likelihood of
receiving huge domestic and foreign investments. Therefore they invested as follows:

• Bhushan Steel plans to invest US$ 5.72 billion for building 12 million tonne-
capacity in the states of West Bengal, Jharkhand and Orissa.

• Non-ferrous metals giant, Vedanta Resources, plans to invest around US$ 4.79
billion in a 5 million tonne steel plant in Keonjhar district of Orissa and envisages
its commissioning by 2012–13.

• Tata Steel is also planning to build a 5 million tonne plant in Chhattisgarh with an
investment of around US$ 3.59 billion. The steel major is setting up greenfield
projects in Jharkhand, Orissa and Chhattisgarh. While in Jharkhand it is likely to
invest about US$ 8.38 billion for a 12 million tonne integrated steel plant, in
Orissa it plans to pour in almost US$ 4.39 billion for a six million tonne capacity
plant.

• Mesco Steel plans to invest US$ 2.20 billion for expansion of two of its steel
plants in Orissa.
• Reliance Infrastructure, (part of the Reliance Anil Dhirubhai Ambani Group)
plans to build a 12-million tonne steel plant in Jharkhand, which is likely to be
completed by 2012.

• Indian Railways plans to invest around US$ 437.25 million per annum to raise its
consumption of stainless steel for adding new alloy-made wagons and coaches to
its portfolio.

• Welspun Gujarat Stahl Rohren, (one of the largest steel pipe makers in India),
plans to increase the capacity of its pipe plant by 75 per cent to 1.75 million
tonnes with an investment of US$ 222.52 million.

• The JSW group plans an outlay of US$ 40 billion for steel and power projects.
These projects will be completed by 2020.

• Visa Steel has lined up a US$ 1.51 billion – US$ 2.02 billion integrated steel
project in Chhattisgarh.

84
 • Sarralle India, a subsidiary of Sarralle Equipos of Spain and one of the largest
designers of steel plant equipment, has decided to set up a manufacturing base in
Uluberia in West Bengal.

• Interarch Building Products Private, (the largest player in pre-engineered steel

buildings space) plans to set up its Greenfield manufacturing facility in Gujarat by
2009–10.

Furthermore, the Confederation of Indian Industry (CII) plans to start six new small and
medium enterprises clusters for steel companies in Visakhapatnam. It will also set up a
steel task force to propel growth in the steel clusters.

Government Initiative

Subsequent to the recent fall in international prices of commodities and to protect Indian
producers, the Indian government has announced some changes in customs duty rates,
which were effective from November 2008.

The government has removed full exemption of customs duty on some industrial and
agricultural commodities. Iron and steel products like pig iron, spiegeleisen, semi-
finished products, flat products and long products are now subject to a basic custom duty
of 5 per cent ad valorem.

The Indian government plans to invest over US$ 350 billion in industries related to
infrastructure and construction which will give a fillip to the steel sector.

Moreover, in the Union Budget 2009-10, the government has made a 23 per cent hike in
allocation for highway development and US$ 1.034 billion increase in budgetary support
to Railways which will further promote the steel industry.

Usefull Links
www.ibef.org
www.economy watch.org
www.india maps .com
www.steel authority of India.org
www.equitymaster.com

Biblography
Annual report of ministry of steel
ASSOCHAM 3rd India Steel Summit, New Delhi, July 08, 2009

85
 5. FOOD PROCESSING SECTOR IN INDIA:

Present Status and Future Prospects of Indian Food Processing Industries:

The food processing sector is highly fragmented industry, it widely comprises
of the following sub-segments: fruits and vegetables, milk and milk products, beer
and alcoholic beverages, meat and poultry, marine products, grain processing,
packaged or convenience food and packaged drinks. A huge number of
entrepreneurs in this industry are small in terms of their production and operations,
and are largely concentrated in the unorganized segment. This segment accounts for
more than 70% of the output in terms of volume and 50% in terms of value. Though
the organized sector seems comparatively small, it is growing at a much faster pace.

Source: D&B Research

Overview of the Food Processing Sector

86
The contribution of agriculture to India’s GDP at the time of Independence was 70% and
it accounted for 85% of total employment. The share of agriculture in the country’s GDP
has been gradually declining since then. At present, the contribution of agriculture to
GDP is about 25%, but it still engages about 70% of the population. The annual average
rate of growth of agricultural GDP has also declined from around 3.5% during mid
eighties to mere 1.5 % during 2006-07.
The increase in agricultural production has been achieved largely through increase in per
hectare yield (about 70-75 %). In spite of these achievements in yield, productivity of
many crops has been stagnating over the years, affecting production. The productivity of
many crops is much lower than international standards with the exception of a few crops.
It is estimated that if the country has to maintain a GDP growth rate of over 8%, the
agricultural sector has to grow at the rate of at least 4%. Thus, the agriculture sector
continues to have a profound influence on the economic growth. The need to accelerate
agricultural growth is also important to address issues of food security, nutrition
adequacy, and generation of income and employment in rural areas.
The country has a huge potential for growth in agriculture with about 160 million
hectares of arable land and diverse agro climatic conditions, suitable for cultivation of a
wide variety of crops.
While the productivity needs a definite improvement to keep pace with increasing
demand for agriculture and horticulture produces by the growing population, agriculture
development in the country will depend heavily on the agro/food-processing sector. It is
increasingly becoming evident that only a vibrant food processing sector can lead to
increasing farm gate prices and thus increasing income levels, reduction in wastages and
increasing employment opportunities.
India currently produces about 50 million tonnes of fruits, which is about 9% of the
world’s production of fruits and 90 million tonnes of vegetables, which accounts for 11%
of the world’s vegetable production.
Though India has a strong raw material base, it has been unable to tap the potential for
processing and value addition in perishables like fruits and vegetables. Only about 2
percent of the fruits and vegetables in India are processed, which is much lower when
compared to countries like USA, China and others (Fig).

Even, within the country, share of fruits and vegetables processed is much less when
compared to other agricultural products such as milk (35%) and Marine Products (26%).
More importantly the lack of processing and storage of fruits and vegetables results in
huge wastages estimated at about 35%, the value of which is approximately Rs.33,000
Crore annually.
A developed food processing industry would not only reduce the wastages, but would
also increasingly fetch remunerative income to farmers which is another problem before
the agriculture sector at present.
At present the food processing sector employs about 13 million people directly and about
35 million people indirectly. In 2004-05, food processing sector contributed about 14% of
manufacturing GDP with a share of Rs 280,000 Crores. Of this, the unorganized sector
accounted for more than 70% of production in terms of volume and 50 % in terms of
value.

87
On the export front, India has 1.5% (INR 360 Bn. in 2003-04) share of global agricultural
exports (approximately USD 522 Bn. or INR 24,000 Bn.), despite its leadership in
agricultural production (see Fig below).

Food Processing Units in Organized Sector (numbers).

Source: Ministry of Food Processing Industries, Annual Report 2003-04

Industry Sub-Segments

Fruits & Vegetables

The installed capacity of fruits and vegetables processing industry has doubled from 1.1
mn tonnes in January 1993 to 2.1 mn tonnes in 2006. Presently, the processing of fruits
and vegetables is estimated to be around 2.2% of the total production in the country. The
major processed items in this segment are fruit pulps and juices, fruit based ready-to-
serve beverages, canned fruits and vegetables, jams, squashes, pickles, chutneys and
dehydrated vegetables. The new arrivals in this segment are vegetable curries in
retortable pouches, canned mushroom and mushroom products, dried fruits and
vegetables and fruit juice concentrates.

The fruits and vegetable processing industry is rather fragmented. A large number of
units are in household and small-scale sector, having low capacities of up to 250 tonnes
per annum. From the year 2000 onwards the industry has seen a significant growth in
ready-to-serve beverages, pulps and fruit juices, dehydrated and frozen fruits and

88
vegetable products, pickles, processed mushrooms and curried vegetables, and units
engaged in these segments are export oriented.
Exports of Processed Fruits & Vegetables (Quantity in MT, Value in Rs Mn)

Source: Ministry of Food Processing Industries, Annual Report 2005-06

Milk and Milk Products

India is with highest livestock populations in the world, it accounts 50% of the buffaloes
and 20% of the world’s cattle population, most of which are milch cows and milch
buffaloes. India’s dairy industry is considered as one of the most successful development
industry in the post-Independence era.

In 2005-06 total milk productions in the country was over 90 million tonnes with a per
capita availability of 229 gms per day. During 1993-2005, the dairy industry recorded an
annual growth of 4%, which is almost 3 times the average growth rate of the dairy
industry in the world. The total milk processing in India is around 35%, of which the
organized dairy industry accounts for 13% while remaining is either consumed at farm
level, or sold as fresh, non-pasteurized milk through unorganized channels.

In an organized dairy industry, dairy cooperatives account for the major share of
processed liquid milk marketed in India. Milk is processed and marketed by 170 Milk
Producers’ Cooperative Unions, which federate into 15 State Cooperative Milk
Marketing Federations. Over the years, several brands have been created by cooperatives
like Amul (GCMMF), Vijaya (AP), Verka (Punjab), Saras (Rajasthan). Nandini
(Karnataka), Milma (Kerala) and Gokul (Kolhapur).

89
The milk surplus states in India are Uttar Pradesh, Punjab, Haryana, Rajasthan, Gujarat,
Maharashtra, Andhra Pradesh, Karnataka and Tamil Nadu. The manufacturing of milk
products is very much concentrated in these states due to the availability of milk in huge
quantity.

According to the Ministry of Food Processing Industries, exports of dairy products have
been growing at the rate of 25% per annum in terms of quantity and 28% in terms of
value since 2001. Significant investment opportunities exist for the manufacturing of
value-added milk products like milk powder, packaged milk, butter, ghee, cheese and
ready-to-drink milk products.

Meat & Poultry

Since 1995, production of meat and its products has been significantly growing at a rate
of 4% per annum. Presently the processing level of buffalo meat is estimated at 21%,
poultry is estimated at 6% while marine products are estimated at 8%. But only about 1%
of the total meat is converted into value added products like sausages, ham, bacon,
kababs, meatballs, etc. Processing of meat is licensed under the Meat Food Products
Order, 1973. Presently the country has 3,600 slaughterhouses, 9 modern abattoirs and 171
meat-processing units licensed under the meat products order.

Poultry industry is also among the faster growing sectors rising at a rate of 8% per year. It
is observed that the vertical integration of poultry production and marketing has lowered
costs of production, consumer prices of poultry meat and marketing margins. There are
eight integrated poultry processing units in the country, which of course hold a significant
share in the industry.

90
Exports of Meat and Meat Products (Quantity in MT, Value in Rs Mn)

Source: Ministry of Food Processing Industries, Annual Report 2005-06

Meat export is largely driven by poultry, buffalo, sheep and goat meat, which is growing
at close to 30% per annum in terms of quantity. It is considered that the growing number
of fast food outlets in the country has and will have a notable impact on the meat
processing industry.

Marine Products

India is the largest fish producing country in the world it is the third largest fish producer
in the world while ranks second in inland fish production. Categorically India’s potential
for fishes, from both inland and marine resources, is supplemented by the 8,000 km
coastline, 3 mn hectares of reservoirs, 50,600 sq km of continental shelf area, 1.4 mn
hectares of brackish water and 2.2 mn sq km of exclusive economic zone.

Processing of marine produce into canned and frozen forms is carried out fully for the
export market. With regards to infrastructure facilities for processing of marine products
there are 372 freezing units with a daily processing capacity of 10,320 tonnes and 504
frozen storage facilities for safe storage with a capacity of 138,229.10 tonnes, besides
there are 11 surimi units, 473 pre-processing centers and 236 other storages.

91
Processed fish products for export include conventional block frozen products, individual
quick frozen products (IQF), minced fish products like fish sausage, cakes, cutlets,
pastes, surimi, texturised products and dry fish etc.

Exports of marine products have been inconsistent and on a declining trend which can be
owed to the adverse market conditions prevailing in the European and American markets.
The anti-dumping procedure initiated by the US Government has affected India’s shrimp
exports to the US.

Fish Production & Exports

Source: Ministry of Food Processing Industries, Annual Report 2005-06

Grain Processing

Processing of grain includes milling of wheat, rice and pulses. In 1999-00, there were
more than 91,000 rice hullers and 2,60,000 small flourmills which were engaged in
primary milling. There are 43,000 modernized rice mills and huller-cum-shellers. Around
820 large flourmills in the country convert about 10.5 mn tonnes of wheat into wheat
products. Also there are 10,000 pulse mills milling about 75% of pulse production of 14
mn tonnes in the country.

Primary milling of grains is the considered to be the important activity in the grain-
processing segment of the industry. However, primary milling adds little to shelf life,
wastage control and value addition. Around 65% of rice production is milled in modern
rice mills. However, the Sheller-cum-huller mills operating give low recovery. Wheat is
processed for flour, refined wheat flour, semolina and grits. Apart from the 820 large
flourmills, there are over 3 lakh small units operating in this segment in the unorganized
sector. Dal milling is the third largest in the grain processing industry, and has about
11,000 mechanised mills in the organised segment. Oilseed processing is another major
segment, an activity largely concentrated in the cottage industry. According to estimates,
there are approximately 2.5 lakh ghanis and kolus which are animal operated oil

92
expellers, 50,000 mechanical oil expellers, 15,500 oil mills, 725 solvent extraction plants,
300 oil refineries and over 175 hydrogenated vegetable oil plants.

Indian Basmati rice has gained international recognition, and is a premium export
product. Branded grains as well as grain processing is now gaining popularity due to
hygienic packaging.

Beer & Alcoholic Beverages

When discussed on alcoholic beverages, India is considered to be the third largest market
for alcoholic beverages in the world. The domestic beer and alcoholic beverage market is
largely dominated by United Breweries, Mohan Meakins and Radico Khaitan. The
demand for beer and spirits is estimated to be around 373 million cases per year. There
are 12 joint venture companies having a licensed capacity of 33,919 kilo-litres per annum
for production of grain based alcoholic beverages. Around 56 units are manufacturing
beer under license from the Government of India.

Country liquor and Indian Made Foreign Liquor are the two segments in liquor; both
cater to different sections of society. The former is very much consumed in rural areas
and by low-income groups, while the middle and high-income groups consume the latter.

Liquor license outlets in India figures approximately 23,000 with another 10,000 outlets
in the form of bars and restaurants. Regulations in this sector differ state-wise in terms of
excise and custom duty. In Tamil Nadu, Kerala and Andhra Pradesh, the distribution is
controlled by the state government, and any change XVIII in the ruling party has a direct
impact on the availability of alcohol.

The wine industry in India has come into prominence lately and has been receiving
support from the Government as well, to promote the industry,. The market for this
industry has been estimated to be growing at around 25% annually. Maharashtra has
emerged as an important state for the manufacture of wines.

Consumer Foods

This segment comprises of packaged foods, aerated soft drinks, packaged drinking water
and alcoholic beverages.

Packaged / Convenience Foods

Consumer food industry mainly consists of ready-to-eat and ready-to-cook products,

salted snacks, chips, pasta products, cocoa based products, bakery products, biscuits, soft
drinks, etc.

There are around 60,000 bakeries, several pasta food units and 20,000 traditional food
units and in India. The bakery industry is among the few processed food segments whose
production has been increasing consistently in the country in the last few years. Products
of bakery include bread, biscuits, pastries, cakes, buns, rusk etc. This activity is mostly

93
concentrated in the unorganized sector. Bread and biscuits constitute the largest segment
of consumer foods with an annual production of around 4.00 million tonnes. Bread
manufacturing is reserved for the small-scale sector. Out of the total production of bread,
40% is produced in the organized sector and remaining 60% in the unorganised sector, in
the production of biscuits the share of unorganized sector is about 80%.

Cocoa Products

Cocoa products like chocolates, drinking chocolate, cocoa butter substitutes, cocoa based
malted milk foods are highly in demand these days, 20 production units are engaged in
their manufacture with an annual production of about 34,000 tonnes.

Soft drinks

After packed tea and packed biscuits the soft drink segment is considered to be the 3rd
largest in the packaged foods industry. Over 100 plants are engaged in aerated soft drinks
industry and provide huge employment. It has obviously attracted one of the highest FDI
in the country. Strong forward and backward linkages with glass, plastic, refrigeration,
sugar and the transportation industry further strengthen the position of the industry. Soft
drink segment has a huge potential in the Indian market, as a vast portion of the market is
still to cover.
Exports of Consumer Foods (Quantity in MT, Value in Rs Mn)

Source: Ministry of Food Processing Industries, Annual Report 2005-06

Investments
Between 1991 to November 2006 the total inflow of foreign direct investment in the food
processing sector accounts Rs 52.7 bn (US$ 1.2 bn). The highest investment towards the
food-processing sector in a single year was recorded in 2001-02 amounting to Rs 10 bn.
During the last five years, FDI witnessed an inflow of over Rs 24 bn of foreign
investment.

During the last five years Maharashtra received the highest share of FDI in food
processing. The dairy and consumer industries received FDI worth Rs 2.7 bn each as
foreign investment. Countries of European Union such as Netherlands, Germany, Italy

94
and France contribute nearly 30% of FDI in food-processing sector. Perfetti, Cadbury,
Godrej-Pilsbury, Nutricia International, Manjini Comaco are some of the successful
ventures from EU countries.

Major Food Processing Companies in India

Major MNCs Major Indian Companies Indian MNCs likely to enter

Nestle, Pepsi,Coke, Kelloggs,
Conagra, Unilever,Perfetti, ITC, Dabur, Britannia,
Reliance, Bharti Group,
Glaxo Smithkline, Heninz, Parle, Amul, Haldiram,
Tatas, Wipro, Thapars etc.
Wyeth, Ajinomoto, Nissin met, Godrej, Venky's
Walmart

With the advent of the multinational companies in the Indian market the competition in
food processing industry has increased. These multinational companies are facing tough
competition from strong Indian brands. Such competition has obviously increased
innovations. It has also facilitated a sustained growth of the sector and improved global
competitiveness. The emerging new growth phase of the sector is just in its initial stages
with the potential for India to emerge as a leading food supplier to the world.

Total Exports

There has been an encouragement for new processing capacities for agro-food products
through its various policy initiatives and plan schemes providing financial incentives for
setting up of new units and modernization of existing units from the Ministry of Food
Processing Industries.

Export of Processed Food products (2004-05)

Items Quantity Value

Processed Fruits and Vegetables
Dried and Preserved Vegetables 351034.32 765.75
Mango Pulp 90988.6 300.86
Pickle and Chutney 67193.29 120.58
Other Processed fruits and Vegetables 80760.5 275. 53
Total for Processed Fruits and Vegetables 589976.71 1462.72

95
Animal Products
Buffalo Meat 306970.81 1615.59
Sheep/ Goat Meat 8885. 28 79.36
Poultry Products 264607.54 154.11
Dairy Products 48426.79 389.14
Animal Casings 552.33 12.57
Processed Meat 107.45 1.56
Total for Animal Products 629550.2 2252.33
Other Processed Foods
Groundnuts 177114.96 503.00
Guargum 129648.47 664.28
Jaggery and Confectionary 35549.29 77.00
Cocoa Products 2273.85 27.30
Cereal Preparations 49486.85 277.77
Alcoholic and Non- Alcoholic Beverages 30045.49 113.78
Miscellaneous Preparations 52513.73 224.36
Milled Products 140123.27 144.85
Total for Other Processed Food 616755.91 2032.34
Grand Total 1836282.82 5747.39

Employment Generation
Food processing sector generates significant employment. The multiplier effect of
investment in food processing industry on employment generation is 2.5 times than in
other industrial sectors, higher than any other sector. Even within food processing
industry, the employment intensity is significantly higher in the unorganised sector as
compared to the organized sector for the same level of investment.
Comparison of employment in organized vs. unorganised sector in F&V processing
ORGANISED UNORGANISED
Fixed Investment Rs10 Million Rs 0.2 Million
Output per year 500 tonnes 120 tonnes
Total Employment 140 21
Total employment for 140 1050
Rs. 10 Million of
Investment

Estimated Impact on Employment Generation and

Growth

96
The present proposal envisages an outlay of about Rs. 5000 Crores including Rs. 3700
Crores for infrastructure development. A matching private sector investment means a
total provision for investment in infrastructure to Rs. 7400 Crore.

Assuming a leveraging ratio of 2.5, a total investment of Rs. 7400 Crores in infrastructure
can lead to an investment of about Rs. 20,000 Crores in processing units.

Assuming creation of 140 jobs per Crore of investment in the organized sector, an
investment of Rs. 20,000 Crore will lead to creation of 2,800,000 additional jobs. Further
assuming a reasonable investment turnover ratio of 2, a total investment of Rs. 20,000
Crores over the Plan period would lead to an aggregate turnover/value of production of
Rs. 40,000 Crores over the Plan period.

Thus, against the projected output of Rs. 3,09,200 Crores (at the existing long term
growth rate of 7 % p.a. for the sector) at the end of XIth Plan period, the proposed
interventions would lead to an output of Rs. 3,55,279 Crores.

This would enhance the growth rate of the Food & Beverages Industry from the present
7% to around 10.01% over the next plan period.

The income levels of the farmers participating in the scheme are also expected to go up
by 20% over a period of 5 years by the way of better realization, value addition and
integration of the supply chain. A variety of traders and industries are likely to be
incentivised in the building of the supply chain, such as transporters, cold chain
specialists, farmer groups, marketing and processing units and retailers.

Constraints & Drivers of Growth

Changing lifestyles, food habits, organized food retail and urbanization are the key
factors for processed foods in India, these are post-liberalization trends and they give
boost to the sector.

There has been a notable change in consumption pattern in India. Unlike earlier, now the
share and growth rates for fruits, vegetables, meats and dairy have gone higher compared
to cereals and pulses. Such a shift implies a need to diversify the food production base to
match the changing consumption preferences.

Also in developed countries it has been observed that there has been a shift from
carbohydrate staple to animal sources and sugar. Going by this pattern, in future, there
will be demand for prepared meals, snack foods and convenience foods and further on the
demand would shift towards functional, organic and diet foods.

Some of the key constraints identified by the food processing industry include:

97
 • Poor infrastructure in terms of cold storage, warehousing, etc
• Inadequate quality control and testing infrastructure
• Inefficient supply chain and involvement of middlemen
• High transportation and inventory carrying cost
• Affordability, cultural and regional preference of fresh food
• High taxation
• High packaging cost

Policy Initiatives

• Most of the processed food items have been exempted from the purview of
licensing under the Industries (Development and regulation) Act, 1951, except
items reserved for small-scale sector and alcoholic beverages.
• Automatic approval for foreign equity upto 100 percent is available for most of
the processed food items except alcohol, beer and those reserved for small-scale
sector subject to certain conditions.
• Food processing industries were included in the list of priority sector for bank
lending in 1999.
• In the budget of 2001-2002, excise duty on processed fruit and vegetables has
been brought down from 16 percent to zero level in the budget.
• In the 2004-2005 budget, income tax holiday and other concessions announced
for certain food processing of India sectors.
• Licensing powers delegated to regional offices under Full Product Order, 1955.

Bibliography

www.ministry of food processing of India.org

report on the working group of food processing

98
6. Indian Automobile Sector:
The Indian economy has grown at an annual rate of more than 8% over the last five years
and the industrial production has made an outstanding contribution to this growth. Auto
industry was licensed, controlled and restricted in the early years of independent India
and had a limited contribution to the economy. But post delicensing in 1991 the industry
has grown at an average rate of 17%. The industry currently contributes about 5% of the
GDP and it is targeted to grow five fold by 2016 and account for over 10% of India’s
GDP. Automotive mission plan (AMP) expects the industry to reach a turnover of $150-
200 billion in the next ten years from the current $45 billion levels. Over the last five
years the production of four wheelers in India has increased from 9.3 lakh units in 2002-
03 to 23 lakh units in 2007-08 reporting a CAGR of 20%. Vehicle manufacturers are
increasingly adopting an outward looking approach and exploring new markets &
territories, ranging from Middle East, Europe, South Africa, Algeria, Latin America,
Russia, etc. Exports have increased immensely from 84,000 units in 2002-03 to 280,000
units in 2007-08. Crisil estimates the passenger vehicle exports to cross 7 lakh units by
2011-12.

Overview:
The automotive sector, comprising of the automobile and auto component sub sectors, is
one of the key segments of the economy having extensive forward and backward linkages
with other key segments of the economy. It contributes about 4 per cent in India's Gross
Domestic Product (GDP) and 5 per cent in India's industrial production. The well
developed Indian automotive industry ably fulfils this catalytic role by producing a wide
variety of vehicles like passenger cars, light, medium and heavy commercial vehicles,

99
multi-utility vehicles such as jeeps, scooters, motorcycles, mopeds, three wheelers,
tractors etc. The auto component industry, which is an important part of automotive
sector, comprises about 500 firms in the organized sector and more than 10,000 firms in
the small and unorganized sector has been one of the fastest growing segments of Indian
manufacturing. It has the capability to manufacture the entire range of auto parts and has
rapidly added to its capacity base. Indian auto components industry has an important
place at the global level.

Advantage India:
India holds huge potential in the automobile sector including the automobile component
sector owing to its technological, cost and manpower advantage. Further, India has a well
developed, globally competitive Auto Ancillary Industry and established automobile
testing and R&D centers. The country enjoys natural advantage and is among the lowest
cost producers of steel in the world. The Indian automobile industry today boasts of being
the second largest two wheelers manufacturers in the world, second largest tractor
manufacturer in the world, and fifth largest commercial vehicle manufacturer in the
world and fourth largest Car market in Asia. World largest Motorcycle manufacturer is in
India. India has largest three wheeler market in the world, second largest two wheeler
market in the world, fourth largest passenger vehicle market in Asia, fourth largest tractor
market in the world, and fifth largest commercial vehicle market in the world. India
became fastest growing car market in the world in 2004.

GDP and Automobile Industry

In absolute terms, India is 16th in the world

in terms of nominal factory output. The
service sector is growing rapidly in the past
few years. This is the pie- chart showing
contributions of different sectors in Indian
economy. The per capita Income is near
about Rs 38,000 reflecting improvement in
the living standards of an average Indian.
Today, automobile sector in India is one of
the key sectors of the economy in terms of
the employment. Directly and indirectly it employs more than 10 million people and if
we add the number of people employed in the auto-component and auto ancillary
industry then the number goes even higher. As the world economy slips into recession
hitting the demand hard and the banking sector takes conservative approach towards
lending to corporate sector, the GDP growth has downgraded it to 7.1 percent for 2008-
09 and predicted it to be 6.5 per cent for FY 2009-10 Mr. Montek Singh (Planning
Commission of India). Following is the graph showing a trend of Indian GDP trend in
past 3 years.

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The market value of Automobile Industry is more than US$8 bl. and Contribution in
Indian GDP is near about 5% and will be double by 2016. The automotive industry in
India grew at a computed annual growth rate (CAGR) of 11.5 percent over the past five
years, but growth rate in last FY2008-09 was only 0.7% with passenger car sales shows
1.31% growth while Commercial Vehicles segment slumped 21.7%.

Installed Capacity:
The automobile industry including passenger cars, over a period of time and particularly
after liberalization, has installed a robust capacity in different segments of automobile
industry is as under:
Segment Installed Capacity
(Nos.)
Four Wheelers 1,590,000
Two & Three 7,950,000
Wheelers
Total 9,540,000

Investment Opportunities:

In India, lots of investment opportunities exist in the following areas:

• Establishing Research and Development Centers

• Establishing Engineering Centers
• Passenger Car Segment
• Two Wheeler Segment
• Heavy truck Segment

Total production:
The automobile industry produces a wide variety of vehicles including 17 lakh four
wheelers and over 80 lakhs two and three wheelers in 2005-06. The turn over of auto

101
components industry has grown from US $3.1 billion to US $10 billion between 1997-98
and 2005-06.

Production trend:
Installed capacity of this sector has been growing at a compound annual rate of over 16
per cent since 2001-02. Automobile industry grew by 14.83 per cent in April 2006-
Feburary 2007.Cumulative growth of some important segments in April 2006-December
2007 was
• Passenger Vehicles: 22.91%
• Passenger cars: 24.76%
• Utility Vehicles: 12.69%
• Multi Purpose Vehicle: 28.38%
• Commercial Vehicle: 36.12%
• Medium and heavy Commercial Vehicle: 36.74%
• Light Commercial Vehicle : 35.25%

Automobile Production
Category 2000- 2001- 2002- 2003- 2004- 2005- 2006-07
01 02 03 04 05 06 (tillSept'06)
Passenger 513 564 609 842 961 1046 594
Cars
Multi 128 106 112 146 249 263 144
Utility
Vehicles
Commercial 157 163 204 275 350 391 237
Vehicles
Two 3759 4271 5076 5625 5527 7600 4155
Wheelers
Three 203 213 277 341 374 434 264
Wheeler
Total 4759 5316 6280 7229 8461 9735 5394
Growth in -2 11.7 18.6 15.12 16.8 14.97 18.04
per cent
*Source: Ministry of Heavy Industries & Public Enterprises (Department of Heavy
Industries), Government of India.

Some of the major companies:

There are 15 manufacturers of passenger cars and multi utility vehicles, 9 manufacturers
of commercial vehicles, 14 of two-three wheelers and 14 of tractors besides 5
manufacturers of engines. In passenger car segment, Maruti Udyog Ltd. Is on the top,
followed by Hyundai and Tata Motors. Some of the major players of Automobile
industry are:

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 • Maruti Udyog Ltd.
• M/s Hyundai
• Tata Motors
• General Motors India
• Ford India Ltd.
• Eicher Motors
• Bajaj Auto
• Daewoo Motors India
• Hero Motors
• Hindustan Motors
• Hyundai Motor India Ltd.
• Royal Enfield Motors
• Telco
• TVS Motors
• DC Designs
• Swaraj Mazda Ltd

Total investment & turnover:

The automobile industry had an investment of nearly 50,000 crore in 2002-03 and it is
estimated to go up to Rs. 80,000 crore by the year 2007.The turnover of this sector
exceeded Rs. 144,000 crore in 2003-04 including nearly 92,500 crore of automobile
industry. In 2004 05, total turnover of this sector was estimated to exceed Rs. 1,65,000
crore.

FDI’s.
In India FDI up to 100 percent, has been permitted under automatic route to this sector,
which has led to a turnover of USD 12 billion in the Indian auto industry and USD 3
billion in the auto parts industry. India enjoys a cost advantage with respect to casting and
forging as manufacturing costs in India are 25 to 30 per cent lower than their western
counterparts the Investment Commission has set a target of attracting foreign investment
worth US$ 5 billion for the next seven years to increase India's share in the global auto
components market from the existing 0.9 per cent to 2.5 per cent by 2015. FDI inflows in
Automobile Industry 2008-09 was Rs.5,212 Cr an increase of 47.25% compare to 2007-
08, while in April-May 2009 it was around Rs.497 Cr.
Source- FDI Statistics Govt. of India

Employment Generated:
This sector has generated about 4.5 lakh of direct employment and about one crore of
indirect employment. The auto component and ancillary industry has huge forward and
backward linkages in terms of employment generated. Huge number of firms in auto
component and ancillary industry in India are in small scale and unorganized sector
employing large number of human resources.

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Exports:
Society of Indian Automobile Manufacturers (SIAM), automobile sales (including
passenger vehicles, commercial vehicles, two-wheelers and three-wheelers) in the
overseas markets increased to 1.53 million units in 2008-09 from 1.23 million units in
2007-08. Export of passenger vehicles increased from 218,401 in 2007-08 to 335,739
units in 2008-09.

SOURCE- Society of Indian

Automobile Manufacturers (SIAM)

There is a continuous increase in the export of automobiles since the financial year 2002-
03, except for the decline in the export of commercial vehicles in the financial year 2008-
09, which may be attributed to the global economic recession.
Despite recession, the Indian automobile market continues to perform better than most of
the other industries in the economy in coming future; more and more MNC’s coming in
India to setup their ventures which clearly shows the scope of expansion.

Current Scenario of Automobile Industry in Economy

With the latest available data Indian Automobile Industry is expected to grow at 9%-10%
in near future, Two wheeler segment sales grew up by 12.8% with the modest 2.6%
growth rate, under this segment the market leader Hero Honda registered growth of 12%
in its domestic sales where as Bajaj Auto disappointed as sales plunging by 23%, on the
other hand car sales has been grew up by a healthy 22.7% in last February and
Commercial Vehicles reported slower sales. It is assumed that in coming festive season to
meet demand, carmakers going to produce 70000units/month more over the average
1.3lac/month with help of 5000 new hands.
Source: Economic Times

Government support:
• Current Industrial Policy: The New Industrial Policy of 1991 delicensed the
Automobile Industry in India, but passenger car was delicensed in 1993. Now, no
license is required for setting up of any unit for manufacture of Automobiles
except in some special cases. Further, 100 per cent Foreign Direct Investment
(FDI) is permissible under automatic route in this sector including passenger card
segment. The import of technology or technological upgradation on the royalty

104
 payment of 5 per cent without any duration limit and lump sum payment of US $
2 million is also allowed under automatics route in this sector. This liberalization
has helped this sector to restructure itself, absorb newer technologies, and keep
pace with the global developments realizing its full potential.

• Exim Policy: Removal of Quantitative Restrictions (QRs) from April 1, 2001 has
allowed the import of vehicle, including passenger car segment freely subject to
certain conditions notified by DGFT. To protect India from becoming a dumping
ground for old and used vehicles produced abroad, the custom duty on the import
of second hand vehicles including passenger cars has been raised to 105 per cent.
The custom duty rate on new Completely Built Units (CBUs) has also been
increased to a level of 60 per cent to allow Indian countries to a fully competitive
environment.

Recent policy initiatives:

• In order to develop and realize the growth potential of this sector both at domestic
and global level, and to optimize its contribution to the national economy, the
Department of Heavy Industry has decided to draw up a 10 year Mission Plan for
the development of Indian Automotive Sector and creation of global hub.

• To put Indian Auto Industry at the global map, National Automotive Testing and
R&D Infrastructure Project (NATRIP) at the total cost of Rs. 1718 crore has been
initiated.
This project principally aims to:
1. Create critically needed automotive testing infrastructure to enable the
government in ushering in global vehicular safety, emission and
performance standard,

2. deepen manufacturing in India, promote larger value addition and

performance standards and facilitates convergence of India's strength and
IT and electronics with automotive engineering,

3. Enhance India's abysmally low global outreach in this sector by debottle

necking exports, and

4. Provide basic product testing, validation and development infrastructure

so that Indian automotive sector would not face any export obstacle in the
foreign market
In the Union Budget 2007-08, import duty on raw material had been reduced to 5-
7.5 per cent from the earlier 10 per cent.

105
BIBLIOGRAPHY
www.bseindia.com
www.googlefinance.com
www.yahoofinance.com
www.google.co.in
www.moneycontrol.com
www.worldfact.com
FDI statistic government of India
Economic Times

7. TEXTILE SECTOR IN INDIA:

The textile sector has been thriving in India for decades. The traditional textile industry
of India had virtually decayed during the colonial regime. However, in the nineteenth
century, the industry was revived with the establishment of textile mills in Calcutta (now
Kolkata) in 1818. Cotton textile industry had begun functioning in Bombay (now
Mumbai) in 1850s and the first cotton textile mill in the city was established in 1854 by a
Parsi cotton merchant.

The Indian Textiles Industry has an overwhelming presence in the economic life of the
country. Apart from providing one of the basic necessities of life, the textiles industry

106
also plays a pivotal role through its contribution to industrial output. Employment
generation and the export earnings of the country. Currently, it contributes about 14 per
cent to industrial production, 4 per cent to the GDP, and 16.63 per cent to the country's
export earnings. It provides direct employment to over 35 million people, which includes
a substantial number of SC/ST, and women. The Textiles sector is the second largest
provider of employment after agriculture. Thus, the growth and all round development of
this industry has a direct bearing on the improvement of the economy of the nation.

The Indian textiles industry is in a stronger position than it was in the last six decades.
The industry which was growing at 3-4 per cent during the last six decades has now
accelerated to an annual growth rate of 16 per cent in value and should reach the level of
US $ 115 billion (exports US $ 55 billion; domestic market US $ 60 billion) by 2012.

This is manifested by consistent increase in production of fabric and per capita

availability of cloth. During 2006-07, the total production of fabric is estimated at 53
billion sq meters, compared to 50 billion sq meters in 2005-06 and 45 billion sq meters in
2004-05. During 2006-07, the per capita availability of cloth was 39.60 sq meters,
compared to 36.10 sq meters in 2005-06 and 33.10 sq meters in 2004-05.

The catalyst for this exponential growth is a buoyant domestic economy, substantial
increase in cotton production, a conducive policy environment provided in the
Government, and the end of the Multi Fibre Agreement (MFA), on December 31, 2004.
The rationalization of fiscal duties undertaken during the last three years has also
provided a level playing field in all segments of the industry, resulting in the holistic
growth of the industry. A strong foundation for industry has been laid on which world
class manufacturing units can realize their full potential and make a mark in the
international economy.

Structure
The Indian apparel and textile industry is a thriving sector within the Indian economy
with an annual growth rate of 9 to 10 per cent. Over the years, the industry has made a
significant contribution to national output, employment and exports. The industry
provides direct employment to almost 35 million people and another 56 million through
allied activities, and by 2012, is expected to become worth US$ 115 billion, growing at
16 percent (in value terms). The industry has several segments such as hosiery and ready-
made garments and is divided into the organised and the un-organised sector, with
players from both sectors often grouped together in export oriented clusters. Some of the
important textile clusters are based in places such as Bhilwara, Sanganer, Panipat, Palli,
Jetpur, Jodhpur, Surat, Sambhalpur, Mysore and Bhiwandi.
www.imsme.org
Updated on February 06, 2009
Growth trends
Production of Yarn in India
The cloth production during 2006-07 was 53,389 mn. sq. mtr. The sectorwise compound
annual growth rate during the last five years works out to 6.20%The total production of
cloth by all sectors i.e. mill, power loom, handloom, hosiery and khadi, wool and silk is

107
anticipated to be 57,491 million sq. mtrs, during 2007 2008. During April-December
2007 production of cloth was 41,203 mn. sq. mtr.(Provisional), compared to 39,860 mn.
sq. mtr. during same period of the previous year

0
500
1000
1500
2000
2500
3000
3500
4000
2003‐04 2004‐05 2005‐06 2006‐07 2007‐08
Quantity (Million Kgs)
Year
Production of Yarn in India
Source: Ministry of Textiles
Exports
The Indian textile industry is estimated to be around US$ 52 billion and is likely to reach
US$ 115 billion by 2012. The domestic market is likely to increase from US$ 34.6 billion
to US$ 60 billion by 2012. It is expected that India's share of exports to the world would
also increase from the current 4 per cent to around 7 per cent during this period. India's
textile exports have shot up from US$ 18.71 billion in 2006– 07 to US$ 20.25 billion in
2007–08, registering a growth of over 8 per cent.

Table-2: India’s share of Textile and Clothing Export in World T&C Export
Textile Export Clothing Export Total T&C Export
World India China
Year India (% China (% India (% China (%
World (US$ (US$ (US$
(US$ bn)
Share) Share) Share) Share)
bn) bn) bn)
1995 133 2.91 8.98 141 2.63 16.86 7.53 35.55
1996 152 2.86 9.14 158 2.6 15.19 8.47 37.97
1997 153 3.23 7.93 166 2.54 15.07 9.15 37.15
1998 156 3.37 8.88 178 2.45 17.91 9.59 45.63
1999 150 3.04 8.55 186 2.57 16.16 9.34 42.87
2000 146 3.48 8.92 185 2.79 16.29 10.24 43.12
2001 159 3.78 10.17 198 3.12 18.21 12.18 52.21
2002 149 3.6 11.27 194 2.83 18.91 10.86 53.48
2003 156 3.87 13.19 206 2.93 20.03 12.07 61.86
2004 175 3.92 15.41 234 2.83 22.24 13.47 78.96

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 2004 196 3.58 17.1 261 2.55 23.74 13.64 95.28
2006 205 4.13 18.71 278 3.31 26.68 17.67 115.21
2007 219 4.27 20.25 311 3.27 30.63 19.52 144.07
Source: Authors calculation, data from World Trade Organization, values at current
price, bn = Billion, T&C= Textile & Clothing. http://stat.wto.org

India’s textiles exports (US$ Million)

0
5000
10000
15000
20000
2005-06 2006-07 2007-08 (April to
October)
Values (US$ Million)
Year
Source: Ministry of Textiles
Updated on February 06, 2009 Page 3 of 6
• India is the largest exporter of yarn in the international market and has a share of
25 per cent in world cotton yarn exports.

• India accounts for 12 per cent of the world's production of textile fibers and yarn.

• In terms of spindle age, the Indian textile industry is ranked second, after China,
and accounts for 23 per cent of the world's spindle capacity.

• The country has the highest loom capacity, including handlooms, with a share of
61 per cent in world loom age.

• India is the largest producer of jute in the world.

• It is the second largest producer of silk and the only country to produce all four
varieties of silk – Mulberry, tusar, eri and muga.

India is the fifth largest producer of synthetic fibers/yarn. Indian textiles, handlooms and
handicrafts are exported to more than a 100 countries, Europe continues to be India's
major export market with 22 per cent share in textiles and 43 per cent in apparel, the US
is the single largest buyer of Indian textiles and apparel with 19 per cent and 32.6 per cent
share, respectively. Other significant countries in the export list include the UAE, Saudi
Arabia, Canada, Bangladesh, China, Turkey and Japan. Readymade garments (RMG) are
the largest export segment, accounting for almost 45 per cent of total textile exports and
8.2 per cent of India's total exports. This segment has benefited significantly with the
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termination of the Multi-Fiber Arrangement (MFA) in January 2005. RMG exports from
India were worth US$ 8.51 billion in FY 2008. They are expected to touch US$ 14.5
billion by 2009–10 with a cumulative annual growth of 18 to 20 per cent, according to
the Apparel Export Promotion Council.
Another segment in which India has excelled in the export market is carpets. Exports of
carpets have increased from US$ 654.32 million in 2004–05 to US$ 806.71 million in
2007–08.
Significantly, apparel is the second largest retail category in India. It accounts for about
10 per cent of the US$ 37 billion Indian retail market, and with the continuing boom in
consumer demand is estimated to grow at the rate of 12–15 per cent annually. In fact,
reflecting the huge opportunity in this segment, AT Kearney's 'Retail Apparel Index'
ranks India as the third most attractive market destinations for apparel retailers.

EMPLOYMENT:
The Rural Employment Generation Programme (REGP), is implemented through the
Khadi and Village Industries Commission (KVIC), to help eligible entrepreneurs to set
up village industry units and thus create employment opportunities in villages including
small towns with population upto 20,000. Under this programme, entrepreneurs can
establish village industries by availing of margin money assistance from KVIC and loans
from public sector scheduled commercial banks, selected regional rural banks,
cooperative banks, etc., for projects with a maximum cost of Rs. 25 lakh. Under REGP,
banks appraise the projects as per the scheme and take credit decision.
The amounts allocated and spent under REGP, during the last three years are given
below:
Year Amount allocated Amount utilized

(Rs. lakh) (Rs. lakh)

2004-05 34401.50 29239.95

2005-06 36669.09 32095.75

2006-07 (Provisional) 36291.73 34979.35

The estimated number of people benefited under REGP, during the last three years is
given below:

Year People benefited (lakh persons)

(estimated)

110
2004-05 5.30
2005-06 5.68
2006-07 (Provisional) 5.95

This was stated by the Minister for Micro, Small & Medium Enterprises, Shri Mahabir
Prasad in a written reply to a question in Rajya Sabha today.

Constraints
As per the estimates projected by Confederation of Indian Textiles Industry (CITI), the
sector should have witnessed a tremendous growth in the next two years, but with global
recession setting in, the growth in the sector got hampered. The association has given the
estimation of nearly 1.2 million job would be lost in the next five years. The Ministry of
Textile also released statement that ruled out positive growth in the sector.
The Indian garment industry projected to incur losses of over 120 billion rupees per
month due to forced cuts in production caused by the slowdown in local and global
markets. With more than 60 percent exports from the sector sent to markets such as
United States, EU and Japan, the sector is expected to be hit adversely with recession
setting in. Rising prices of raw cotton has also become one of the main points of concern.
With cotton costs rising by 30 percent in 2008, cotton textiles and garments are being
priced out of international markets. A number of textile mills have begun ‘voluntary
retirement schemes’ for workers. As per Union commerce and industry ministry, in the
month of March 2008, nearly 800,000 garment and textile employees lost their jobs with
more than two thirds of them from the export oriented industries. The knitwear industry,
based in the southern town of Tirupur, which exports most of its production to the U.S.,
has been especially hard hit by the global crisis.

Investment Scenario
India's liberalised policies and the government's decision to allow 100 per cent FDI in the
emerging textiles industry has led to an increase in the investment inflows into the sector.
The Ministry of Textile is targeting to attract more than $8 billion foreign direct
investment (FDI) in textile and garment sectors over the next five years. The ministry is
in the process of firming a strategy to identify potential investors in Europe, the US and
China. They are also working on an incentive package to woo potential investors to set up
manufacturing units in India. The ministry would also invite leading private equity funds
and foreign banks to invest in the domestic textile sector. They are also attracting foreign
designer houses and garment manufacturers. The ministry is targeting about $20 billion
domestic investments in the sector.
The government is likely to deregulate handloom sector by bringing flexible labour laws
to attract more foreign direct investment into the sector. Industry associations have
suggested complete deregulation of India's handloom sector with flexibility in labour
laws to help textile economy attract FDI, upgrade technology and generate employment,
replicating china, which spurred spectacular growth in its apparel export industry. The
total foreign direct investment in the past 15 years in the textile sector stood at Rs 40
billion (US$ 821.70 million), of which less than Rs 3 billion (US$ 61.63 million) was
approved until recently.

111
Future Opportunities
The Ministry of Textile expects a growth of at least 15 per cent in exports during 2008-
09. The textiles sector witnessed a spurt in investments, which were Rs 1,08,531 crore
(US$ 22.30 billion) between 2004- 08 and were expected to touch Rs 1,50,600 crore
(US$ 30.94 billion) by the year 2012. This enhanced investment is expected to generate
17.37 million jobs by 2012. Nearly 40 textiles parks are being set up throughout the
country under the Scheme for Integrated Textile Parks (SITP), which is stated to attract
an investment of Rs 21.502 crore (US$ 4.42 million) and create employment, both direct
and indirect for 9.08 lakh workers and produce goods worth Rs 38.115 crore (US$ 7.82
million) annually.
With the launch of Technology Mission on Cotton (TMC) and introduction of Bt Cotton
seed, the production of cotton had radically improved. The production which was 231.15
million bales in the cotton season of 2007-08, is estimated to reach a record level of 32.30
million bales, in the cotton season of 2008-09, of which of Punjab will contribute 2.2
million bales.
There are plans by the government to set up 10 jute parks by the year 2012, of which four
parks have already been short-listed, three in West Bengal and one in Rajasthan. Despite
the global economic slowdown, Crisil estimate that domestic market is estimated to grow
in double digits in the next four years. Although, garment industry in the country would
be the biggest loser, the textile industry can diversify into niche markets. It can diversify
into technical textiles, engineering textiles, furnishing textiles and hosiery textiles. It is
estimated that textile companies are likely to face trouble in 2009, since demand from
major exports markets such as the US and Europe may decline further. The margins
continued to remain under pressure due to high cotton prices and slump in demand. As
per ICRA, some of the big textile units are now working for just 15 days in a month.
Around 6 lakh workers in the industry have lost their jobs in the recent past. Exports of
textiles and garments from India to the US in the January-August period came down from
US$ 3.9 billion to US$ 3.8 billion. The overall drop in value terms was 1.6 per cent, with
the drop in exports of garments a much higher 4.8 per cent. Some of the city’s major
garments making companies, which create 400,000 jobs in the Ludhiana alone, have
suffered more than a 50 percent loss in sales, specifically exports, over the last year.

Government initiatives
The government had announced a stimulus package on December 7, 2008, which
included an interest subvention of two per cent up to March 2009 for pre and post-
shipment export credit for labour-intensive exports (textiles, leather, marine products)
and SME sector. Seeking further help from the Government, the Clothing Manufacturers
Association of India has asked for two per cent interest subvention, removal of income
tax on exports, an increase in duty drawback rate and changes in the labor law. In an
effort to increase India's share in the world textile market, the Government has introduced
a number of progressive steps.

• 100 per cent FDI allowed through the automatic route.

112
• Technology up-gradation Fund Scheme (TUFS) which was launched to facilitate
the modernization and up-gradation of the textiles industry in 1999 has been given
further extension till 2011–12.

• Scheme for Integrated Textile Park (SITP) has been started to provide world class
infrastructure facilities for setting up textile units through the Public Private
Partnership model.
• 50 textile parks are being established to enhance manufacturing capacity and
increase the Industry’s cost competitiveness.
• Current exchange rate 1 US$ = 48.6896 INR

• To ensure the growth of the Indian textile industry at 16 percent per annum in
value terms, to US$ 115 billion (export of US$ 55 billion and domestic market of
US$ 60 billion) from present level of US$ 47 billion, by the end of the Eleventh
Five Year Plan.

• To secure a 7 percent share in global textile trade by the end of the Eleventh Five
Year Plan.

• Create 12 million new jobs in the Textile Sector;

• To build world class, state-of-the-art, manufacturing capacities and achieve a

predominant global standing in manufacture and export of textiles and clothing.

• To enable Textiles Small & Medium Enterprises (SMEs) to achieve

competitiveness to face the global scenario with confidence.

• To provide a conducive policy environment which will encourage innovation,

augment R&D efforts, and enhance productivity through the upgradation of
technology, manufacturing processes and the development of human resources.

• Make an additional investment of Rs. 1,50,600 crore for modernization and

consolidating the Textile Industry to make it globally competitive.

• Encourage the private sector to set up world class environment friendly,

integrated textile complexes and textile processing units in different parts of the
country.

• Strengthen and encourage the handloom industry to produce value added items.

• Facilitate the growth and strengthen HRD Institutions including NIFT (National
Institute of Fashion Technology) on innovative lines.

113
 • Re-design and revamp the Schemes and Programmes initiated in the decentralised
sectors to ensure better returns for those belonging to the disadvantaged
categories, and the North East and other backward regions of the country.

• The target for textile exports for the current year 2007-08 has been fixed at US$
25.06 billion. Exports had reached US$ 17.5 billion in 2005-06, an increase of
about 25% over the previous financial year. During the year 2006-07 exports of
textiles and clothings reached US$ 18.71 billion thereby registering a growth of
about 7% over the financial year 2005-06.

REFRENCES
www.imsme.org
www.ibef.org
www.indiantextilejournal.com
www.indiagovt.in

• Rural Employment Generation Programme

• CII (Indian msme ecosystem)

8. GEMS AND GWELLERY SECTOR

Gems and Jewellery in India

Gems and Jewellery is one of the most important and fast growing sector's in the Indian
economy. India is the largest consumer of gold and is the biggest centre for processing
diamonds in the world (cutting and polishing). The sector is one of the largest export
earners for India. INDIA is the largest consumer of gold in the world to be followed by
China and Japan. India is emerging as world's largest trading centre of this commodity
with a target of US$ 16 billion set for 2010. According to a World Gold Council press
statement, in terms of tonnage, overall consumer demand in India in 2005 witnessed 17
percent growth over 2004. In rupee terms, this was equivalent to a 25 percent increase
bringing the value of gold demand in India to a second successive annual record.
Jewellery demand also experienced a second successive annual record of over 20
percent in rupee terms over 2004. In terms of tonnage, the increase was 14 percent
accounting 589 tonne.

114
According to WGC report, net retail investment was less affected by the upward price
movement and set a new annual record in tonnage terms, with a massive 34 percent
increase over 2004.

A consumer survey carried out for the WGC at the end of 2005 reveals the underlying
strength of Indian gold demand remains robust and is underpinned by a strong economy
and favourable demographics in gold’s key target markets. While Jewellery demand
may have been constrained in the first weeks of 2006, a period of price stability is
likely to see a strong level of buying once again.

STRUCTURE OF THE MARKET:

The Indian gems and Jewellery sector is largely unorganised at present. There are over
15,000 players across the country in the gold processing industry, of which only about
80 players have a turnover of over $4.15 million (Rs 200 million). There are about
450,000 goldsmiths spread throughout the country. India was one of the first countries
to start making fine jewellery from minerals and metals and even today, most of the
jewellery made in India is hand made. The industry is dominated by family jewellers,
who constitute nearly 96 per cent of the market. Organised players such as Tata with its
Tanishq brand, have, however, been growing steadily to carve a 4 per cent market
share.

Precious Metals:

Gold
The current consumption of gold in India is estimated at over 900 tonnes, used mostly in
20/22 carat jewellery. Nearly 95 per cent of gold is used to manufacture gold jewellery
for the domestic markets and the remaining 5 per cent is exported. Gold consumption in
India is primarily aimed at investment.
Silver
India annually consumes around 4,000 tonnes of silver. Silver jewellery and other articles
for personal use, account for the bulk of the sales especially in the rural areas. India is
also the third largest industrial user of silver in the world, after the US and Japan.

Platinum
Platinum or white gold, targeted at the premium jewellery segment, is gaining preference
among designers and consumers globally. While India's share in the global platinum
jewellery market is growing by 19 per cent annually, it continues to be less than one per
cent in the global platinum jewellery market. Given the global growth and the maturing
of the Indian market to international trends, this represents an area of potential growth in
India.

Gemstones

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Due to the popularity of gemstone studded jewellery across the globe, India's gemstone
industry has been growing with an estimated turnover of $0.22 - 0.26 billion.

Jewellery
The Indian jewellery market is one of the largest in the world, with a market size of $13
billion. It is second only to the US market of $ 40 billion and is followed by China at $11
billion. The gold jewellery market is growing at 15 per cent per annum and the diamond
jewellery market at 27 per cent per annum.

The emergence of branded jewellery is a new trend that is shaping the Indian jewellery
market. Branded jewellery is a relatively new concept in the sector, and has positioned
itself on the quality, reliability and wearability factors. The branded jewellery market in
India is estimated at $111.6 million per annum. Trends also show that traditional
handcrafted jewellery is slowly giving way to machinemade jewellery.

Exports

According to the figures released by the Gem & Jewellery Export Promotion Council
(GJEPC), India's gem and jewellery exports posted a modest growth of 1.45 per cent
during 2008-09 at US$ 21.1 billion, primarily driven by gold jewellery exports, including
medallions and ornaments. The country exported US$ 20.8 billion of gem and jewellery
in 2007-08.

Gems and jewellery worth US$ 17.79 billion was exported during April 2008 to February
2009. Significantly, rough diamond exports stood at US$ 712.09 million, an increase of
43 per cent over the corresponding period last year.

The United Arab Emirates (UAE) was the largest importer of gems and jewellery from
India in 2008-09, with a share of 31 per cent. This was followed by Hong Kong with 25
per cent and the US with 20 per cent. The gem and jewellery sector accounted for 13 per
cent of India’s total merchandise exports.

The export industry mainly comprises of small-to-large units based in various special
economic zones (SEZs) supplying primarily diamond-studded jewellery.

Gems and Jewellery Export Items for India (2007 v/s 2008)

Gems and Jewellery Jan-Dec Share in % Growth

Export Items 2007 2008 2007 2008 rate in %

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 USD Million
Cut & polished 990.34 261.6 5.02 1.23 -73.58
diamonds (bonded)

Gold Jewellery 5444.03 5398.93 27.58 25.47 -0.83

Coloured Gemstones 267.91 295.8 1.36 1.40 10.41
Pearls 3.44 4.01 0.02 0.02 16.57
Non-Gold Jewellery 215.8 212.38 1.09 1.00 -1.58
Synthetic Stones 0.99 1.11 0.01 0.01 12.12
Grand Total 19737.8 21200.1 100.00 100.00 7.41

Source: Gems and Jewellery Export Promotion Council (GJEPC)

Raw material Import Items for Gems and Jewellery (2007 v/s 2008): India

Gems and Jan-Dec Share in % Growth

Jewellery Import 2007 2008 2007 2008 rate in
Items USD Million %
Rough diamonds 9582.69 9423.06 57.11 46.78 -1.67
(total)
Rough coloured 156.25 98.23 0.93 0.49 -37.13
gemstones
Raw pearls 10.11 7.15 0.06 0.04 -29.28
Rough synthetic 11.39 5.33 0.07 0.03 -53.20
stones
Gold Bar 2322.14 2494.31 13.84 12.38 7.41
Silver Bar 20.14 23.06 0.12 0.11 14.50
Gold Jewellery 398.01 325.85 2.37 1.62 -18.13
Non-Gold Jewellery 8.51 32.39 0.05 0.16 280.61
GRAND TOTAL 16780.61 20143.4 100.00 100.00 20.04

Source: Gems and Jewellery Export Promotion Council (GJEPC)

REFRENCES

• Assocham Eco Pulse Study (Email: nusrat.ahmad@assocham.com)

• Virtus Global Partners
• Ibef report
• Indian Chamber of Commerce

www.researchandmarkets.com/reports/682397

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www.ibef.org

www.virtusglobal.com

www.economywatch.com

9. ALUMINIUM SECTOR IN INDIA

Aluminium Industries in India is one of the leading industries in the Indian economy. The
growth of the aluminum Metal industry in India would be sustained by the diversification
and exploration of new horizons for the industry. India has huge deposits of natural
resources in form of minerals like copper, chromite, iron ore, manganese, bauxite, gold,
etc. The India aluminum industry falls under the category of non iron based which
include the production of copper, tin, brass, lead, zinc, aluminum, and manganese.
The main operations of the of the India aluminum industry is mining of ores, refining of
the ore, casting, alloying, sheet, and rolling into foils. At present, Hindalco and Nalco are
one of the most economical in the production of aluminum in the world. For the
sustenance of the growth the aluminum industry in India has to develop research and
development units to assist the production and improve on the quality measures to keep a
stringent quality control.
The India aluminum Metal Industries sector in the previous decade experienced
substantial success among the other industries. The India aluminum industry is
developing fast and the advancement in its technologies is boosting the growth even
faster. The utilization of both international and domestic resources was significant in the
rapid development of the India aluminum industry. This rapid development has made the
India aluminum industry prominent among the investors. The India aluminum industry
has a bright future as it can become one of the largest players in the global aluminum
market as in India the consumption is fairly low, the industry may use the surplus
production to cater the international need for aluminum which is used all over the world
for several applications such as aircraft manufacturing, automobile manufacturing,
utensils, etc.

Indian Aluminium market

The Indian market for aluminium has expanded and is directing to-wards further growth
in the coming years. Both the public and the private sector are engaged in the production
of alumina and aluminium. With the change in time, the industry has witnessed drastic
changes. Earlier, the government played an important role in fixing the regulations in
trading of aluminium as it had monopoly in the production of the metal. But, today, it has
lost control over the price and distribution due to the emergence of the private sector.
With the takeover of INDAL in the year 2000, HINDALCO has emerged as the largest
producer of aluminium in India.
India is the fifth largest producer of aluminium in the world. India has 5 per cent of the
total bauxite deposits in the world, which can last for approximately 350 years at the
present consumption rate. The consumption of this metal is also rising, with the figure
estimated to have touched 0.78 million tonne mark in 2007.

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In early 1990s when the Indian economy was liberalised, India identified its export
potential and emerged as a net exporter of aluminium. It exports around 82,000 tonnes
annually and the major importing countries of Indian aluminium are Bangladesh, Sri
Lanka, Egypt and Iraq.

The companies under the India aluminum industry:

• Hindalco (Hindalco Industries Ltd)

• Indal (Indian Aluminum Co Ltd)
• Nalco (National Aluminum Co Ltd)
• Balco (Bharat Aluminum Co Ltd)
• Malco (Madras Aluminum Co Ltd)

Production of aluminium in India

India is considered to be the fifth largest producer of aluminium in the world. It accounts
for around 5 per cent of the total deposits and produces about 0.8 million tonne of
aluminium in a year. It is estimated that if the country’s aluminium consumption rate
maintains, it would be having the reserves for over 350 years. India has confirmed 3
billion tonnes of bauxite reserves out of the global reserves of 65 billion tonnes. The
worldwide alumina production competence is around 58 million tonnes, of which India
has 2.7 million tonnes. Most of the bauxite mines lie in Bihar, Karnataka and Orissa.
Table II shows the production of aluminium in India. In India, the production of
aluminium is highly, concentrated in the hands of the following four companies: Bharat
Aluminium Co. Ltd (BALCO), National Aluminium Co. Ltd (NALCO), Hindustan
Aluminium Co. Ltd (HINDALCO) and Madras Aluminium Co. Ltd (MALCO). BALCO
and NALCO represent the public sector, and HINDALCO and MALCO represent the
private sector of the country. Earlier, a company named INDAL was also engaged in the
production of aluminium independently but in year 2000, it was taken over by
HINDALCO and now it works as a subsidiary of the parent company.
India is the eighth leading producer of primary aluminium in the world. The Ministry of
Mines, Government of India puts the production target for the year 2007-08 at 1,237 KT,
an increase of 84 KT from previous year's 1,153 KT. The production of aluminium in
India has grown substantially in last five years. Production got a boost due to adding of
extra smelting capacity in recent years and rising domestic demand emanating from
packaging, construction, automobiles and electrical sectors. India's contribution in global
aluminium production is less than 5 per cent despite having 7.5 per cent of the world's
total bauxite deposits and 7 per cent of bauxite production.

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Consumption
The consumption of aluminium in India was very low at 0.7 kg per person in 2005 in
keeping with the country’s low GDP. However, the low per capita consumption of
aluminium in India is, in fact, an opportunity for growth in aluminium consumption
against the backdrop of fast-growing economic conditions in India.
Aluminium consumption increased 12.6 per cent in 2006 to around 1.08 mt.
Consumption is estimated to have increased to a 5-year CAGR of 12.9 per cent.
Secondary aluminium demand also shot up to 0.6 mt.

Sector-wise aluminium consumption.

Aluminium is used in various sectors such as transportation, packaging,
building/construction and electricity. However, the usage pattern differs significantly for
India and the rest of the world. Globally, automotive, packaging and construction sectors
are the major end users of aluminium, while in India the power sector consumes most
followed by automotive and housing sectors.
The sector-wise consumption break-up follows: electrical-64 per cent, transport-18 per
cent, construction- 7 per cent, and packaging-4 per cent, industrial machinery-3 per cent,
consumer durables-3 per cent, and steel sweetening, power and chemicals-11 per cent.
The transportation sector will be a major driver of aluminium consumption in the future
where the onus of growing consumption lies with the industry. The automotive industry
has attracted major global producers to set up their manufacturing facilities in the
country. All these manufacturers are now engaged in bringing out high-quality, fuel-
efficient cars for Indian as well as global markets. Besides cars, there are commercial
vehicles which have also witnessed quantum growth over the years.Use of aluminium as
an alternative to steel has huge potential in the railways.
The government has taken note of this and started working towards that. Aluminium
castings are primarily used in transport and automotive sectors. The global casting is
currently estimated at 7.4 million tonnes. Against that, consumption in India is only
around 110,000 tonnes. The country’s share in the global downstream sector is low
compared to other developed countries.

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Casting of aluminium alloys is a versatile process that offers greater degree of flexibility
than other methods of manufacture. It can be done by various methods like in sand, in
metallic dies, under gravity or pressure, and cast by modern methods like low-pressure
die-casting, investment casting and squeeze casting. No other metal can be cast under
such a wide range of processes and sizes varying from a few grams to 100 kg.

Investment Rationale
1. Primary aluminium consumption rose by 9.9%in Aug to 103705 tonnes; in
cumulative terms it increased by 11%to 5.1 lakh tonnes. It is expected that
primary aluminium production shall grow by 5.3% to 12.1 lakh tonnes. In recent
past among the downstream aluminium products; production of extrusions, foils
and collapsible tubes grew at 3.6 % and 1.3% respectively, output of the rolled
products increased by 15% than the year ago level. .

2. Aluminium products manufacturers are expected to post healthy growth in sales

and improvement in profits. The consumption is also expected to remain buoyant
in the current fiscal keeping in mind the huge capacities in the pipeline.
According to the present levels, 2.2 mn tonnes of capacity addition is required
every year.

3. Investment in hand stood at Rs 53449 crores spread across 37 projects at the end
of Sep 07, which when successfully implemented, will make the smelting
capacities rise from 18 to 29 lakh tonnes, along with increase in the refinery
capacities.

4. In the terms of demand and supply, the situation has not only been self sufficient,
but it also has had exporting potential on a competitive basis. India’s annual
export is over 82000 tonnes. Aluminium demand tends to push back the supply
owing to the global increase in the aluminium production. In near future it is
expected that China will become the chief importer owing to the robust growth in
its consumption, western countries also do not lie behind since there has been an
increased use of aluminium in the European cars.

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 5. The growing demand of aluminium would also be supported by the govt’s
electricity generation programme where the metal is used in overhead high power
transmission wires; the govt sector consumes about 31 % of the total aluminium
produced and is estimated to grow at 10%. Recent govt initiatives and the power
capacity addition to the tune of 68869MW have prompted the aluminium
requirement to 1.6 MT in the coming years.

6. The construction, automotive &consumers durables sectors consume about 40%

of total aluminium production where the automotive sector is the second largest
consumer of aluminium. Automotive production has been increasing significantly
and India is emerging as the global hub for auto components, which is likely to
fuel demand further. A double-digit growth in aluminium castings, extrusions and
wire rods is seen, they are consumed mainly in transportation, building and
electrical segments respectively; where building and construction sector is poised
to grow further.

Imports and exports

Although domestic aluminium production exceeds the domestic demand, India imports,
on an average, 15-20 per cent of the total supply of aluminium. Imports are necessary due
to the shortage of domestically produced ingots. India’s imports of aluminium and
products primarily comprise unwrought items like ingots, billets, scrap, bars and rods.
Imports of primary aluminium products account for less than 10 per cent of domestic
consumption. India also exports aluminium products such as scrap, powder and flakes,
bar rods, foil, pellets, sheets, tubes and pipes. Exports figure hovers around 82,000 tonnes
annually and the major importer countries of Indian aluminium are Bangladesh, Sri
Lanka, Egypt and Iraq.

The way to go
India’s aluminium consumption is much less than global users. With the growth in
infrastructure, India will need huge amounts of metal. However, production can be
increased only with new power sources and their competitive prices. India has large
bauxite reserves but not enough power to convert these into even alumina.
High energy prices are greatly affecting aluminium production in the country. Therefore
the government and the industrialists should come forward to take steps to increase the
production of aluminium and export the same in order to earn huge amount of foreign
exchange reserve.

References:
1. www.commoditywatch.com
2. www.metalworld.co.in

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3. www.equitymaster.com
4. www.crnindia.com
5. www.nalco.com
6. www.hindalco.com
7. www.vedantaresources.com
8. www.indiainfoline.com
9. London Metal Exchange Website
10. International aluminium Institute website.
11. Annual Reports of HINDALCO, NALCO and Vedanta (Sterlite Industries)

10. INDIAN CEMENT INDUSTRY:

Cement Industry in India is on a roll at the moment. Driven by a booming real estate
sector, global demand and increased activity in infrastructure development such as state
and national highways, the cement industry has witnessed tremendous growth.
Production capacity has gone up and top cement companies of the world are vying to
enter the Indian market, thereby sparking off a spate of mergers and acquisitions. Indian
cement industry is currently ranked second in the world.

The origins of Indian cement industry can be traced back to 1914 when the first unit was
set-up at Porbandar with a capacity of 1000 tonnes. Today cement industry comprises of
125 large cement plants and more than 300 mini cement plants. The Cement Corporation
of India, which is a Central Public Sector Undertaking, has 10 units. There are 10 large
cement plants owned by various State Governments. Cement industry in India has also
made tremendous strides in technological upgradation and assimilation of latest
technology. Presently, 93 per cent of the total capacity in the industry is based on modern
and environment-friendly dry process technology. The induction of advanced technology
has helped the industry immensely to conserve energy and fuel and to save materials
substantially. Indian cement industry has also acquired technical capability to produce
different types of cement like Ordinary Portland Cement (OPC), Portland Pozzolana
Cement (PPC), Portland Blast Furnace Slag Cement (PBFS), Oil Well Cement, Rapid

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Hardening Portland Cement, Sulphate Resisting Portland Cement, White Cement etc.
Some of the major clusters of cement industry in India are: Satna (Madhya Pradesh),
Chandrapur (Maharashtra), Gulbarga (Karnataka), Yerranguntla (Andhra Pradesh),
Nalgonda (Andhra Pradesh), Bilaspur (Chattisgarh), and Chandoria (Rajasthan).

Cement industry in India is currently going through a consolidation phase. Some

examples of consolidation in the Indian cement industry are: Gujarat Ambuja taking a
stake of 14 per cent in ACC, and taking over DLF Cements and Modi Cement; ACC
taking over IDCOL; India Cement taking over Raasi Cement and Sri Vishnu Cement; and
Grasim's acquisition of the cement business of L&T, Indian Rayon's cement division, and
Sri Digvijay Cements. Foreign cement companies are also picking up stakes in large
Indian cement companies. Swiss cement major Holcim has picked up 14.8 per cent of the
promoters' stake in Gujarat Ambuja Cements (GACL). Holcim's acquisition has led to the
emergence of two major groups in the Indian cement industry, the Holcim-ACC-Gujarat
Ambuja Cements combine and the Aditya Birla group through Grasim Industries and
Ultratech Cement. Lafarge, the French cement major has acquired the cement plants of
Raymond and Tisco. Italy based Italcementi has acquired a stake in the K.K. Birla
promoted Zuari Industries' cement plant in Andhra Pradesh, and German cement
company Heidelberg Cement has entered into an equal joint-venture agreement with S P
Lohia Group controlled Indo-Rama Cement.

INDUSTRY OVERVIEW:
Cement is the preferred building material in India. It is used extensively in household and
industrial construction. Earlier, government sector used to consume over 50% of the total
cement sold in India, but in the last decade, its share has come down to 35%. Rural areas
consume less than 23% of the total cement. Availability of cheaper building materials for
non-permanent structures affects the rural demand. The Indian Cement industry is the
second largest cement producer in the world. The industry has undergone rapid
technological upgradation and vibrant growth during the last two decades, and some of
the plants can be compared in every respect with the best operating plants in the world.
The industry is highly energy intensive and the energy bill in some of the plants is as high
as 60% of cement manufacturing cost. Although the newer plants are equipped with the
latest state-of-the-art equipment, there exists substantial scope for reduction in energy
consumption in many of the older plants adopting various energy conservation measures.
There are around 11 different types of cement that are being produced in India. The
production of all these cement varieties is according to the specifications of the BIS
(Bureau of Indian Standards). Some of the various types of cement produced in India are:
• Clinker Cement
• Ordinary Portland Cement (OPC)
• Portland Blast Furnace Slag Cement (PSC)
• Portland Pozzolana Cement (PPC)
• Rapid Hardening Portland Cement

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 • Oil Well Cement
• White Cement
• Sulphate Resisting Portland Cement

The production of PPC and PSC are based on Fly Ash and Blast furnace slag, the waste
product of Thermal Power Plant and Steel Plant respectively.

Sector structure/Market size:

India is the world's second largest producer of cement after China, with cement
companies adding nearly eight million tonnes (MT) capacity in April 2009, taking the
total installed capacity to 219 MT. A few of the leading manufacturers are the
UltraTech/Grasim combine, Dalmia Cements, India Cements, Holcim etc.

With the boost given by the government to various infrastructure projects, road networks
and housing facilities, growth in the cement consumption is anticipated in the coming
years. According to Jyotiraditya Scindia, Minister of State, Ministry of Commerce and
Industry, cement production could rise to 236.16 MT in FY11 and touch 262.61 MT in
FY12.

With almost total capacity utilisation levels in the industry, cement dispatches have
maintained a 10 per cent growth rate. Total dispatches grew to 170 MT during 2007–08
as against 155 MT in 2006–07.

Moreover, cement dispatches were 15.95 MT in July 2009, showing a growth of 9.92 per
cent as compared to 14.51 MT in July 2008. During July 2009, cement production was
16.23 MT, registering a growth of 10.63 per cent as compared to 14.67 MT in July 2008.
Between April to July 2009, cement production totaled 66.38 MT while cement
dispatches totaled 65.80 MT.

Production & Dispatches (Region-wise):

During the month of December 2008 the cement industry posted excellent growth in
production mainly from the northern and the eastern region of the country. The demand
continued to be strong as can be evident from the capacity utilization levels in all the
major regions. Increase in installed capacities by some players also contributed to
improved production growth.
• The central region of the country achieved the highest capacity utilization rate of
98%.
• The northern region and the eastern region had a capacity utilization rate of 93%
respectively.
• The western region and the southern region had a capacity utilization level of
95% and 86% respectively.

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The overall cement production and dispatches increased by 11% to 15.82 million metric
tonnes and 15.81 million metric tonnes respectively during the month of December 2008
as compared to the same period last year. Excess dispatch implies that there is strong
demand as inventories are being disposed off quickly. The production and dispatches
were higher by 10% and 11% respectively as compared to the previous month. The
following graph gives a clear indication of the increase in production (Region wise) in
December in comparison to the previous month.

Table 1: Region-wise production of cement:

Region Increase % Production in million

tonnes
Central 13 2.31
Northern 22 3.74
Southern 9 4.94
Western 2 2.51
Eastern 9 2.32

The cement industry is a key infrastructure sector of the Indian economy. In 2007–08, the
industry enhanced its installed capacity by 30 mn tonnes to reach a total capacity of 198
mn tonnes. The capacity has further been added in the year 2008- 09; the aggregate
industry capacity stands at 206.96 mn tonnes as on December 31, 2008. The cement
production has been 15.82 mn tonnes in the month of December 2008 (as compared to
the production level of 14.13 mn tonnes in the corresponding month of previous year),
while total production has touched 131.20 mn tonnes during April–December 2008 (as
compared to the production level of 122.33 mn tonnes during the corresponding period of
previous year).
In India, about 25% of the cement production is in the form of Ordinary Portland Cement
(OPC), 66% is Portland Pozzolana Cement (PPC), 8% is Portland Blast Furnace Slag
Cement (PBFC) and the remaining 1% is special cement.
Growth in infrastructure and construction activities has been ensuring growth in demand
for cement. Consequently, as per latest figures released by the Cement Manufacturers’
Association (CMA), cement dispatches (including exports) have been about 16.01 mn
tonnes in the month of December 2008 (as against 14.28 mn tonnes in the month of
December 2007), with total dispatches being 130.69 mn tonnes during April–December
2008 (as compared to total dispatches of 121.59 mn tonnes during April-December
2007).

Trends in Capacity & Production of Cement (Mn Tonnes)

Year Capacity
Production

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 2003-04 142.20 117.44
2004-05 150.13 127.57
2005-06 157.15 141.80
2006-07 165.55 155.66
2007-08 198.03 168.31
2008-09 (Forecast) 220.03 179.60
Source: Cement Manufacturers Association

CONSUMPTION:
Southern region continued its trend of higher consumption with the total consumption
reaching a level of 4.58 million tonnes thus registering a YoY growth rate of 9.3%.
Andhra Pradesh and Tamil Nadu were the dominant consumers in the southern region
accounting for 1.59 and 1.3 million tonnes respectively. Following South is the Western
region with a consumption of 3.02 million tonnes. The following graph gives a clear
indication of the region wise consumption and their YoY growth percentage.
Table 2 : Region-wise Cement Consumption
Table 2 : Region-wise Consumption YoY growth %
Cement Consumption
Region
Central 2.38 25
Northern 3.21 11.7
Southern 4.58 9.3
Western 2.46 14.1
Eastern 3.02 8.3

(Source: PL Research)

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 Export of cement from India
The Indian cement industry exported around 6 mt of cement during FY2006, accounting
for around 4% of the total production. There has been a significant year on year variation
in the export trend, implying that Companies rely on cement exports to balance out the
domestic demand supply situation. As seen from above there is excess production, so the
difference in supply and demand is met by exporting. The export of Indian cement has
increased over the years, giving a boost to the Indian cement industry.
The demand for cement in the foreign countries is a derived demand, for it depends on
industrial activity, real estate, and construction activity. Since growth is taking place all
over the world in these sectors, Indian export of cement is also increasing.
The cement industry in India has around 300 mini cement plants and 130 large cement
plants. The total production capacity of these plants is around 167.36 million tons. The
India cement industry is technologically very advanced, as a result of which the quality of
Indian cement is now considered the second best in the world. This has given a major
boost to the Indian export of cement. The production of cement in India is not only able
to meet the domestic demand, but large amounts are also exported. A fair amount of
clinker and cement by-products are also exported by India. As the quality of Indian
cement is very good, its demand in the international market is always high.
Exports of cement from India have declined from 2.92 mn tonnes during April -
December 2007 to 2.15 mn tonnes in December 2008, a decrease of over 26%. The fall in
exports is mainly attributed to capacity additions in Middle East countries (which is a
large export market for India) and healthy demand pattern in the domestic market.
Government of India had banned the cement exports in May 2008 as part of efforts to
increase local supplies and check rising prices and subsequently there was a partial lift in
the ban, which permitted cement exports only from the Gujarat ports. In the past few
months, construction activity had slowed down as high interest rates trimmed demand for

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new homes while companies deferred expansion plans due to a credit crunch. India has
recently lifted the ban on cement exports as price pressures eased and domestic demand is
depressed due to the slowdown in construction activity. India’s cement exports are
primarily in the form of portland cement, cement clinkers, white cement, limestone flux
and refractory cements, mainly exported to Middle East countries like Qatar, Iraq, UAE
and Yemen.

Major Export Destinations of Cement (US $

Million)
Country/Year 2004-05 2005-06 2006-07 2007-08
World 228.81 251.88 253.04 204.30
Qatar 18.09 26.12 13.95 58.41
Nepal 34.49 34.51 43.92 48.87
Iraq 0.22 56.58 70.85 41.97
Yemen 3.24 10.2 30.52 17.74
UAE 54.10 7.93 29.95 6.04
Djibouti 0.00 0.71 0.19 5.09
Sri Lanka 22.51 21.85 18.59 5.03
Somalia 1.23 1.68 0.29 3.34
Tanzania 0.03 0.03 0.37 3.33
Source: DGCIS, GOI

Government Policies
Government policies have affected the growth of cement plants in India in various stages.
Their control on cement for a long time and then partial decontrol and then total
decontrol has contributed to the gradual opening up of the market for cement producers.

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The stages of growth of the cement industry can be best described in the following
stages:
Price
 and Distribution Controls (1940-1981):

During the Second World War, cement was declared as an essential commodity under the
Defence of India Rules and was brought under price and distribution controls which
resulted in sluggish growth. The installed capacity reached only 27.9 MT by the year
1980-81.
Partial
 Decontrol (1982-1988):

In February 1982, partial decontrol was announced. Under this scheme, levy cement
quota was fixed for the units and the balance could be sold in the open market. This
resulted in extensive modernization and expansion drive, which can be seen from the
increase in the installed capacity to 59MT in 1988-89 in comparison with the figure of a
mere 27.9MT in 1980-81, an increase of almost 111%.
Total
 Decontrol (1989):

In the year 1989, total decontrol of the cement industry was announced. By decontrolling
the cement industry, the government relaxed the forces of demand and supply. In the next
two years, the industry enjoyed a boom in sales and profits. By 1992, the pace of overall
economic liberalization had peaked; ironically, however, the economy slipped into
recession taking the cement industry down with it. For 1992-93, the industry remained
stagnant with no addition to existing capacity.

Government Controls
The prices that primarily control the price of cement are coal, power tariffs, railway,
freight, royalty and cess on limestone. Interestingly, all of these prices are controlled by
government. It is now encouraging the use of wastes such as slag and fly ash as a
substitute to limestone concerning environmental issues which helps in reducing
pollution.

REASONS FOR THE GROWTH OF CEMENT INDUSTRY:

The domestic cement industry is highly insulated from global
cement markets. Exports have been constant at about 6% of total cement demand for past
few years. With the Government of India intervention, making cement duty free, cement
is being imported from neighboring countries. However, due to logistics issues and lack
of port handling capabilities imports of cement will remain negligible and do not pose a
threat to domestic industry. Earlier government sector used to consume over 50% of the
total cement sold in India but in the last decade, its share has come down to 35%.
Demand for cement is linked to the economic activity in any country. Broadly, it can be
categorized into demand for housing construction (homes, offices etc.) and infrastructure
creation (ports, roads, power plants etc). The real driver of cement demand is creation of
infrastructure; hence cement demand in emerging economies is much higher than
developed 21 countries where the demand has reached a plateau. In India too, the demand
for cement will be affected by spending on infrastructure (including housing). Housing

130
and infrastructure sectors constitute a major part of the total demand for cement in India.
These two sectors have been further analyzed.

REFRENCES:

www.mapsofindia.com

www.ibef.org

www.iloveindia.com

• Birla Gold Cement report on Cement Industries.

• Networth Stock Brocking Report on Cement Industries.

CHAPTER 4

DEVELOPMENT OF MANUFACTURING SECTOR

As Table 1 (col 2) shows, manufacturing growth rate has fluctuated in the post-reforms
period – after registering a decline in early years, growth rate picked up but decelerated in

131
the late 1990s. Growth has recovered since 2001-02. In fact the compound annual rate of
growth (CARG) has been 8.8 % between 2001-02 and 2007-08.
The un-registered manufacturing sector has performed worse than its registered
counterpart. But growth behaviour has been similar in the last few years (Table 1, cols 3
and 4).
In Table 2 we have taken a longer term perspective. In terms of the level of rate of
growth attained, the entire period between 1951-52 and 2007-08 can be classified into
periods of high and low growth. The pattern of manufacturing growth observed before
1991 was that periods of high growth were invariably followed by periods of low growth.
The experience after 1991 has made no difference to this trend.
One of the targets of reforms has been to accelerate the growth rate compared to the past.
Taking the manufacturing sector as a whole, the (compound annual) rate of growth
between 1991-92 and 2007-08 (7.18 %) is only marginally higher than that attained
during the first three plans periods (6.45%) (Table 3). The gap is even less for the
registered manufacturing sector (7.58% compared to 7.48%). In fact the growth rate
during 1952-53 to 1964-65 (8.87%) and during 1980-81 to 1990-91 (8.29%) was higher
than that in the post-reforms period (between 1991-92 or 1992-93 and 2006-07) (Table
3).
As Table 4 shows, the manufacturing sector growth has been decelerating since the early
2007. The drop is sharp particularly in the second half of 2008. From 5.76% in June
2008, growth has declined to 4.91% in September 2008 and -0.68% in December 2008.
This may be because of the impact of the US financial crisis. The reforms process has
deliberately tried to make India more outward-oriented. Hence such downturns are only
to be expected. Home market in India’s planning strategy was emphasized precisely to
minimize the negative influences due to economic (and political) problems in the rest of
the world.

EMPLOYMENT IN ASI FACTORY SECTOR

The White Paper issued by the Government of India in 1993 (Economic Reforms: Two
Years after and the Tasks Ahead) contended that the pattern of industrialization will be
“sufficiently labour intensive” to absorb labour and reduce poverty. However the
expectation has not materialized. The employment situation in fact is quite dismal. As
Table 5 shows, employment in the Annual Survey of Industries factory sector did
increase from 5.46 million in 1991-92 to 6.54 million in 1995-96. But since then there
has been a sharp decline to 5.91 million in 2003-04. The employment figure in 2003-04 is
in fact about 10% lower than what it was in 1995-96. Employment in the factory sector
has been declining despite the acceleration of the growth rate of output since 2000-01
(col 4 of Table 1).

EXPORTS AND IMPORTS OF MANUFACTURED GOODS

Merchandise exports have been increasing quite rapidly in recent years (Table 6).
Between 2001-02 and 2007-08 manufactured exports have increased at the compound

132
annual rate of growth (CARG) of 20%. But the share of manufactured goods in total
exports has declined from 73.6% in 1991-92 to 63.6% in 2007-08.

The growth in exports has been interpreted as a success of the reforms process since
1991.

But as Table 7 shows, more than 50% of the growth of exports during 1991-92 to 2007-
08 has been accounted for by engineering goods (39.1%) and chemicals and related
products (15.2%). Again within these two sectors, the products for which exports have
been expanding rapidly are primary & semi-finished iron & steel (CARG 26.88%
between 1991-92 and 2007-08), Iron & steel bar/rods (20.85%), Machinery &
instruments (18.39%), Drugs, pharmaceuticals & fine chemicals (16.45%) etc (Table 8).

These are precisely the industries which were created and developed in the pre-reforms
period through active state intervention. Consider, for example drugs & pharmaceuticals.
This industry is considered to be one of the success stories of independent India. A
conscious industrial policy worked behind the development of the pharmaceutical
industry in India. Among the instruments used were regulation of foreign capital,
promotion of indigenous enterprises, patent reforms, public investments in manufacturing
and R&D.

When discussing the impact of import liberalization and the withdrawal of the state from
industrial policy, it is important to make a distinction between existing developed
industries and the new ones which can be potentially developed.
Import liberalization may help existing exporters, as for example in pharmaceuticals.
Access to cheaper Chinese active ingredients and intermediates does make India more
competitive. But macro-economically, the negative influence of import liberalization
must be compared with export expansion to find out the net effect. As we will see in the
next section, net export intensity has been positive for pharmaceuticals (and few other
well developed industries in India). But for most of the other products as well as for the
corporate sector as a whole, net export intensity has been negative. This suggests that
while the rise in exports has provided a stimulus to growth, the net expansionary impact
has been negative.
But is import liberalization the proper policy for the development of new industries?
India’s exports have been rising as we have noted above. But India’s exports of high-
technology products have been minimal as pointed out by the September 2008 report of a
Group constituted by the Prime Minister (Measures for Ensuring Sustained Growth of
the Indian Manufacturing Sector, p. 69) (accessed from the website of the National
Manufacturing Competitiveness Council, www.nmcc.nic.in). India is ranked quite low in
the production of Advanced Technology Products (ATPs). Can such industries be
developed by passively relying on markets forces? Those aware of how new industries
have been developed in different countries will agree with the recommendations of the
Group that state intervention with appropriate industrial policies are necessary (p. 72).
According to the Group, currently about 50% of the capital goods requirements are

133
imported (p. 123). DGCI&S export figures show that India imported capital goods worth
US$ 37294 million in 2007-08 (23.5% of the India’s total imports excluding petroleum,
oil and lubricants) and the compound annual rate of growth between 1993-94 and 2007-
08 has been 15%. Capital goods imported include high technology equipments such as
telecommunications and upper-end IT and electronic hardware. Another sector with
significant imports is electronic goods (12.8% share in 2006-07). The imports of these
goods increased at CARG of 25% between 1993-94 and 2007-08.

CORPORATE SECTOR – EXPORT, IMPORT AND NET EXPORT INTENSITY

The main data source used is the Prowess corporate sector database (version 2.6) of the
Centre for Monitoring Indian Economy (CMIE). Prowess covers mainly organized large
and medium companies in India in industries, financial and other services and banking.
The more than 20,000 companies covered in Prowess account for about 75 per cent of all
corporate taxes and over 95 per cent of excise duty collected by the Government of India
(www.cmie.com). The company-wise data are provided on diverse subjects including the
background of the company and financial variables.

Prowess lists more than 5100 companies in the manufacturing sector. But information are
not available/provided for all the variables for all the companies for all the years. On the
basis of the information available (for example for 3400 companies for 2006-07), we
have prepared Table 9 relating to different ratios on exports, imports and R&D as defined
below:

• Export intensity: Exports as a percentage of Sales

• Import intensity: Expenditure on raw materials in foreign exchange as a percentage

of value of production. (Value of production is calculated as Sales +/- Change in
stocks).

• Net export intensity: (Total earnings in foreign exchange – total expenditure in

foreign exchange) as a percentage of Sales.

• R&D intensity: Total R&D expenditure as a percentage of Sales.

Table 9 shows that import intensity has increased from 9.13% in 1991-92 to 22.29% in
2006-0 for the CMIE manufacturing corporate sector. The logic of the policy of import
liberalization is that it will provide access to capital goods and raw materials at
internationally competitive prices and also improve efficiency due to international
competition leading to more exports. Did export intensity rise for the corporate sector?
More important, did net export intensity grow?

134
Table 9 shows that export intensity did increase. But the growth from 5.24% in 1991-92
to 14.98% in 2006-07 was not significant enough to counter the rise in import intensity.
The net export intensity has not only remained negative: it has increased from -7.37% to
-12.59%. This shows as we have noted earlier that the net impact of the opening up of the
economy has not been positive. (It may be noted from Table 9 that, even if we exclude
the high import intensive sectors of refineries and gems & jewellery, the net export
intensity remains negative but steady at around -3.5%).

Tables 10 to 12 provide a more disaggregated picture. Table 10 shows that growth of

output has been more in the capital and consumer goods than in the intermediate goods
particularly since 2001-02. We focus on some of the capital goods and consumer durables
in Table 11 for import intensity and in Table 12 for net export intensity.

Import intensity has declined in two-three wheelers from 2.29% in 1991-92 to 1.35% in
2006-07 and in domestic electrical appliances from 4.535 to 3.19%. The ratio is
reasonably low and steady in products such as commercial vehicles (2.71% in 2006-07),
and miscellaneous electrical machinery (3.71%). But import intensity has increased
sharply and is quite high in ACs and refrigerators (11.39% in 2006-07), communications
equipment (17.01%), computer hardware (28.01%), consumer electronics (11.23%),
electronic components (19.66%), electronic equipments (15.87%), industrial machinery
(10.45%), passenger cars (10.91%), steel tubes & pipes (22.5%) etc (Table 11).

Import intensity has increased for pharmaceuticals. But the rise in exports has been
sharper leading to a positive net export intensity of 14.76% for this sector in 2006-07.
The other major sectors with positive net export intensity are industrial machinery
(7.39%), miscellaneous electrical machinery (16.08%) and commercial vehicles ((1.38%)
(Table 12).

All the other sectors listed in Table 12 have net export intensity, some of them with a
ratio as high as -22.08% (communications equipment) and -21.8% (computer hardware).

A major problem with India’s Balance of Payments has been the sharp rise in trade
deficit. It has increased from -1% of GDP in 1991-92 to -6.9% in 2006-07. Corporate
manufacturing sector’s net exports of Rs -234592 crores in 2006-07 constitutes about
97.5% of India’s total trade deficit (Table 13). In other words if only corporate sector’s
leakage could be controlled by increasing exports or by reducing imports, an important
economic problem could have been tackled.

India’s initial planners stressed import substitution to control imports. Manufacturing

corporate sector’s negative exports raise doubts about the efficacy and sustainability of
the policy of import liberalization.

FOREIGN CAPITAL

135
Liberalizing inflows of foreign capital has been one of the most important aspects of the
reforms process. The rationale has been that greater freedom to foreign capital will
provide access to:

• Foreign finance

• International markets and

• Technological

By historical standards, substantial capital has flowed in from abroad after reforms.
Foreign direct investment (FDI) alone added US $ 72.9 million to India’s foreign
exchange reserves between April 1991 and September 2008. This has been roughly the
amount of India’s total current account deficit of US $ 74.1 million during the same
period (Table 14).

But international experience suggests that the more important role that FDI can play is by
providing access to international markets and by contributing to technological
development. As Table 14 shows, there have been substantial capital inflows other than
through FDI (or foreign institutional investment). In fact capital inflows have been much
more than the current account deficits, resulting in huge foreign exchange reserves from
which India has not been able to benefit much.

Let us now see what have been the export, net export and R&D intensity of the foreign
companies in India.

We have considered as Foreign companies all those identified by CMIE as belonging to

Foreign groups, such as Unilever or those which are "Private (Foreign)" companies.
(Matrix Laboratories, Ambuja Cement, ACC and Shree Digvijay Cements which have
recently been taken over by foreign companies have been treated by us as Indian
companies for the purpose if this analysis).

Out of the 3400 companies for which sales, export, imports etc are available from the
CMIE Prowess data base for 2006-07, 193 companies are foreign companies.

The export intensity of the foreign companies has increased but not significantly from
7.44% in 1991-92 to 10.69% in 2006-07. Indian companies (except refineries and gems
& jewellery) have performed much better. Starting with an export intensity lower than
that of foreign companies (5.39% in 1991-92), Indian companies have now an export
intensity which is higher (16.2% in 2006-07).

Not only because of the inferior export performance but also because of greater outflows
due to dividends etc, the net export intensity of foreign companies is higher (-7.45% in
2006-07) than that of Indian companies (-2.51%).

136
Perhaps it is important to make a distinction between the foreign companies which have
been operating in India at the time of reforms and those which entered India in response
to reforms in 1991. Did the more congenial environment make any difference to the
performance of the foreign companies which entered India after reforms?

Out of the 193 foreign companies, 145 companies were set up before 1991 and 48
companies in 1991 and later. The export intensity of the post 1991 foreign companies is
significantly higher (20%) than that of that of the older foreign companies (9% in 2007-
07) (Table 9). But the import intensity has also been significantly higher. The net export
intensity of the newer foreign companies, as a result is also higher (-13%) compared to
older companies (-6.42% in 2006-07).

Thus foreign companies have failed to provide the stimulus expected of it.

Table 1 Annual Rate of Growth of Manufacturing, 1991-92 to 2007-08 (per cent)

INDUST MANUFACTU MANUFACTU MANFACTU INDEX OF
RY RING RING RING INDUSTRI
REGISTERED UNREGISTR AL
ED PRODUCTI
ON
(Manufactur
ing)
199 0.26 -2.4 -1.26 -4.31 -0.84
1-
92
199 3.31 3.09 2.06 4.87 2.43
2-
93
199 5.81 8.59 11.24 4.13 5.86
3-
94
199 9.28 10.82 13.04 6.83 9.08
4-
95
199 11.58 15.46 15.93 14.56 14.14
5-
96
199 6.68 9.5 10.74 7.12 7.34

137
6-
97
199 3.71 0.05 -2.61 5.35 6.61
7-
98
199 4.14 3.13 3.47 2.51 4.40
8-
99
199 4.57 3.22 4.01 1.76 7.16
9-
200
0
200 6.35 7.75 7.84 7.56 5.35
0-
01
200 2.72 2.54 4.58 -1.33 2.85
1-
02
200 7.06 6.81 7.59 5.25 6.02
2-
03
200 7.38 6.63 7.15 5.57 7.38
3-
04
200 10.34 8.65 9.08 7.75 9.13
4-
05
200 10.15 8.98 9.16 8.61 9.15
5-
06
200 10.99 12 11.99 12.01 12.52
6-
07
200 8.55 8.78 8.98
7-
08

Sources: CSO, National Accounts Statistics (for cols 2 to 5); RBI, Handbook of
Statistics on Indian Economy (for col 6).

Table 2 Annual Rate of Growth of Manufacturing, 1951-52 to 2007-08 (per cent)

Year Manufacturing Manufacturin
g registered
1951-52 3.16 2.63
1952-53 3.48 0.46

138
1953-54 7.74 4.4
1954-55 7.01 11.14
1955-56 7.83 12.25
1956-57 7.51 11.15
1957-58 3.85 4.67
1958-59 4.95 2.88
1959-60 6.79 10.09
1960-61 8.3 12.73
1961-62 8.54 8.33
1962-63 7.28 9.74
1963-64 9.46 11.31
1964-65 6.91 8.25
1965-66 0.93 3.28
1966-67 0.79 0.09

139
1967-68 0.39 -3.26
1968-69 5.54 6.76
1969-70 10.73 17.37
1970-71 2.35 2.38
1971-72 3.27 1.81
1972-73 3.92 3.18
1973-74 4.45 4.93
1974-75 2.92 1
1975-76 2.11 1.01
1976-77 8.77 12.49
1977-78 6.22 6.71
1978-79 12.35 10.91
1979-80 -3.22 -2.1
1980-81 0.19 -1.61
1981-82 8.17 8.62
1982-83 3.29 8.1
1983-84 10.23 15.25
1984-85 4.21 7.63
1985-86 3.19 2.76 Source: CSO,
1986-87 5.49 4.91 National
1987-88 5.6 6.68 Accounts
1988-89 8.5 11.7 Statistics
1989-90 8.84 12.15
1990-91 4.77 5.63
1991-92 -2.4 -1.26 Table 3
1992-93 3.09 2.06 Compound
1993-94 8.59 11.24 Annual Rate of
1994-95 10.82 13.04 Growth of
1995-96 15.46 15.93 Manufacturing
1996-97 9.5 10.74 (per cent)
Period
1997-98 Manufacturing
0.05 Manufacturing
-2.61 –
1998-99 3.13 registered
3.47
1951-52 to 1965-66
1999-2000 3.22 6.45 4.01 7.48
1952-53
2000-01 to 1964-65 7.75 7.17 7.84 8.87
1980-81
2001-02 to 1990-91 2.54 6.2 4.58 8.29
1991-92
2002-03 to 2007-08 6.81 7.18 7.59 7.58
2003-04 6.63 7.15
2004-05 140 8.65 9.08
2005-06 8.98 9.16
2006-07 12 11.99
2007-08 8.78
1992-93 to 2007-08 7.46 7.99
Source: CSO, National Accounts Statistics.
Note: For the registered manufacturing sector the period for the last two rows are
1991-92 to 2006-07

Table 4 Annual Rate of Growth of Manufacturing, March 2007 to December 2008 (per
cent)
Quarter Index of Industrial
Production
(Manufacturing)
Mar-07 13.52
Jun-07 11.11
Sep-07 8.94
Dec-07 8.90
Mar-08 7.26
Jun-08 5.76
Sep-08 4.91
Dec-08 -0.68
Source: Business Beacon database of CMIE
Note: Growth rate for March 2007 is the growth rate over the index a year back
(March 2006) and so on.

Table 5 ASI Registered Manufacturing Sector Employment

Workers Persons Engaged
Total Growth rate of col 2 Total Growth rate of col 2
Nos. (%) Nos. (%)
1991-92 5469244 7124677
1992-93 5768038 5.46 7568065 6.22
1993-94 5740659 -0.47 7548975 -0.25
1994-95 5996593 4.46 7844172 3.91
1995-96 6543577 9.12 8648914 10.26
1996-97 6466705 -1.17 8434393 -2.48
1997-98 6466304 -0.01 8393780 -0.48
1998-99 6188081 -4.30 8352444 -0.49
1999- 6073337 -1.85 7903435 -5.38
2000
2000-01 5958403 -1.89 7753248 -1.90
2001-02 5783089 -2.94 7512735 -3.10
2002-03 5983970 3.47 7699819 2.49

141
2003-04 5912030 -1.20 7631696 -0.88
Source: Annual Survey of Industries, 1973-74 to 2003-04: A Data Base on the
Industrial Sector in India (Vol II), EPW Research Foundation

Table 6 Exports of Manufactured Goods (US $ million and %)

Year All commodities Mfrg goods Mfrg goods Mfrg goods
Growth rate of col 3 Share of col 2
1991-92 17998.3 13245.3 73.59
1992-93 17436.9 13166.8 -0.59 75.51
1993-94 22213 16636.9 26.36 74.90
1994-95 26337.5 20410 22.68 77.49
1995-96 31841.9 23782.4 16.52 74.69
1996-97 33498 24634.2 3.58 73.54
1997-98 35048.7 26578.6 7.89 75.83
1998-99 33211 25785.7 -2.98 77.64
1999- 36759.5 29750.6 15.38 80.93
2000
2000-01 44147.4 34391.2 15.60 77.90
2001-02 43957.5 33469.3 -2.68 76.14
2002-03 52823.5 40323.9 20.48 76.34
2003-04 63886.5 48525.4 20.34 75.96
2004-05 83501.6 60705.7 25.10 72.70
2005-06 103075 72552.1 19.51 70.39
2006-07 126276 84863.4 16.97 67.20
2007-08 159089 101151 19.19 63.58
Source: DGCI&S from “India Trades” database of CMIE.

Table 7 Sectoral Sources of Growth of Exports of Manufactured Goods

Sector Exports Exports Contribution
1991-92 2007-08 (1991-92 to 2007-
US $ US $ 08)*
million million %
Leather & leather manufactures 1278.2 3433.38 2.45
Chemicals & related products 1581.3 14944.95 15.20
Engineering goods 2256.57 36619.31 39.09
Textiles (excluding readymade 2512.46 9528.17 7.98
garments)
Readymade garments 2215.54 9496.69 8.28
Other manufactured goods 3401.17 27128.86 26.99
Manufactured goods 13245.25 101151.4 100.00
Source: Calculated from DGCI&S data obtained from “India Trades” data base of
CMIE.
142
Note: * Sectoral contribution has been calculated as the change of exports between
1991-92 and 2007-08 of the sector as a percentage of the change in total
manufactured exports in the same period.

Table 8 Growth Rate of Exports of Selected Manufactured Products

Product group Exports Exports CARG, 1991-92
1991-92 2007-08 to 2007-08 (%)
US $ million US $ million
Primary & semi-finished iron & 92.21 4157.51 26.88
steel
Non-ferrous metals 105.38 3055.71 23.42
Iron & steel bar/rods 62.43 1293.04 20.85
Ferro alloys 72.53 1113.99 18.62
Machinery & instruments 585.76 8724.77 18.39
Manufactures of metals 487.81 7027.5 18.14
Transport equipment 500.11 7029.16 17.96
Inorganic/organic/agro 201.88 2733.95 17.69
chemicals
Electronic goods 267.21 3230.73 16.86
Residual chemicals & allied 79.2 934.29 16.68
products
Drugs, pharmaceuticals & fine 633.46 7241.44 16.45
chemicals
Dyes intermediates & coal tar 319.31 2699.12 14.27
chemicals
Paints/enamels/varnishes 91 657.21 13.15
Project goods 18.85 128.34 12.74
Machine tools 47.79 300.14 12.17
Residual engineering items 16.49 89.34 11.14
Cosmetics/toiletries 256.45 678.93 6.27
Source: Calculated from DGCI&S data obtained from “India Trades” data base of
CMIE.

Table 9 Export, Import, Net Export and R&D Intensity of Manufacturing Corporate
Sector in India (per cent)
1991-92 1992-93 2005-06 2006-07
All companies (3400 in 2006-07)
Total import intensity 9.13 10.51 22.48 22.29
Total export intensity 5.24 6.08 12.88 14.98
Total net export intensity -7.37 -8.05 -14.64 -12.59
Total R&D intensity 0.12 0.20 0.45 0.40

143
 All companies except refineries and gems & jewellery (3373 in 2006-07 )

Total import intensity 5.30 6.27 12.67 12.80

Total export intensity 5.45 6.41 13.07 14.57
Total net export intensity -3.81 -4.00 -4.47 -3.39
Total R&D intensity 0.15 0.24 0.67 0.59
All Indian companies except refineries and gems & jewellery (3180 in 2006-07)

Total import intensity 5.72 6.67 13.67 13.34

Total export intensity 5.39 6.52 14.82 16.28
Total net exp intensity -4.26 -4.40 -3.84 -2.51
Total R&D intensity 0.15 0.21 0.69 0.61
All foreign companies (193 in 2006-07)
Total import intensity 3.30 4.64 11.10 10.46
Total export intensity 7.44 7.41 11.04 10.69
Total net export intensity -0.03 -0.68 -6.44 -7.45
Total R&D intensity 0.13 0.40 0.45 0.36
All foreign companies before 1991 (145)
Total import intensity 3.29 4.58 8.84 8.32
Total export intensity 7.45 7.43 9.09 8.98
Total net export intensity -0.01 -0.57 -5.74 -6.42
Total R&D intensity 0.13 0.40 0.49 0.39
All foreign companies 1991 and later (48)
Total import intensity 40.42 32.29 22.93 21.84
Total export intensity 0.00 0.00 21.28 19.88
Total net export intensity -58.83 -58.83 -10.12 -12.94
Total R&D intensity 0.00 0.00 0.21 0.21
Source: Calculated from company-wise data obtained from Prowess data base,
version 2.6 of CMIE.

Table 10 Sectoral Annual Rates of Manufacturing Growth (per cent)

Basic Capital Intermediate Consumer Consumer Consumer
Goods Goods Goods Goods Durables Non-
Durables
1992- 2.74 4.42 4.60 5.07 -0.13 6.28
93
1993- 9.29 -4.65 11.68 3.93 15.58 1.36
94
1994- 9.55 9.16 5.32 12.11 16.20 11.21
95
1995- 10.78 5.35 19.33 12.81 25.77 9.83
96

144
 1996- 3.02 11.44 8.12 6.21 4.64 6.62
97
1997- 6.83 5.77 8.03 5.46 7.81 4.85
98
1998- 1.70 12.64 6.12 2.20 5.57 1.11
99
1999- 5.51 6.96 8.79 5.70 14.15 3.23
2000
2000- 3.89 1.73 4.66 7.97 14.57 5.85
01
2001- 2.42 -3.38 1.56 6.00 11.46 4.11
02
2002- 4.83 10.50 3.88 7.07 -6.27 12.03
03
2003- 5.46 13.59 6.37 7.16 11.61 5.76
04
2004- 5.52 13.95 6.08 11.70 14.34 10.82
05
2005- 6.70 15.73 2.51 12.03 15.30 10.94
06
2006- 10.27 18.24 12.01 10.09 9.16 10.43
07
2007- 6.96 18.02 8.93 6.06 -1.05 8.54
08
1991- 5.93 8.51 7.29 7.55 9.64 7.00
92 to
2007-
08*
2001- 6.00 12.15 5.85 8.56 7.51 8.91
02 to
2007-
08*
Source: RBI, Handbook of Statistics on Indian Economy*
Note: * CARG

Table 11 Import Intensity of Selected Manufactured Products (per cent)

1991- 1992- 2005- 2006-
92 93 06 07
ACs and refrigerators 3.66 3.05 10.36 11.39
Auto ancillaries 3.76 4.48 7.29 7.96
Commercial vehicles 2.26 3.15 2.94 2.71

145
 Communications Equipment 12.98 14.14 25.56 17.01
Computer hardware 17.05 12.07 30.72 28.01
Consumer electronics 7.12 6.03 7.75 11.23
Domestic electrical appliances 4.53 6.67 4.42 3.19
Drugs & Pharmaceuticals 8.53 10.00 12.88 13.40
Electronic components 16.42 26.30 19.60 19.66
Electronic equipments 5.98 6.70 10.83 15.87
Industrial machinery (other than textiles & 1.69 2.06 9.46 10.45
chemicals)
Misc Electrical machinery 2.26 4.60 4.45 3.71
Passenger cars and multi utility vehicles 1.60 5.83 12.38 10.91
Steel Tubes & pipes 5.35 5.51 22.36 22.50
Textile machinery 2.44 8.70 10.86 9.97
Two & three wheelers 2.29 1.95 0.48 1.35
Source: Calculated from company-wise data obtained from Prowess data base,
version 2.6 of CMIE.

Table 12 Net Export Intensity of Selected Manufactured Products (per cent)

1991-92 1992-93 2005-06 2006-07
AC and refrigerators -3.00 -2.36 -5.22 -6.27
Auto ancillaries -0.85 -2.49 -3.94 -2.70
Commercial vehicles 2.35 1.40 -2.94 1.38
Communications -17.41 -24.55 -30.85 -22.88
Equipment
Computer hardware -16.04 -12.61 -23.38 -21.80
Consumer electronics -8.29 -7.23 -3.78 -8.05
Domestic electrical -4.21 -5.81 -5.31 -4.92
appliances
Drugs & 0.01 -2.39 10.46 14.76
Pharmaceuticals
Electronic components -15.11 -34.73 -8.53 -5.32
Electronic equipments -19.26 -9.30 -5.87 -9.32
Industrial machinery 0.20 -5.16 -8.61 7.39
(other than textiles &
chemicals)
Misc Electrical 5.71 7.48 -21.48 16.08
Machinery
Passenger cars and -5.81 -8.74 -7.68 -7.70
multi utility vehicles
Steel Tubes & pipes -3.84 -2.83 -1.41 -3.52
Textile Machinery -3.23 -8.38 -3.58 -3.55
Two-three wheelers -4.92 -0.61 -2.28 -2.65

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Source: Calculated from company-wise data obtained from Prowess data base,
version 2.6 of CMIE.

Table 13 India’s and Corporate Manufacturing Sectors Net Exports (Rs crores and per
cent)
INDIA 2006-07
Merchandise Exports 571779
Trade balance (merchandise exports minus imports) -286276

Export/GDP 15.1
Trade balance/GDP -6.9
CMIE Sample companies
Exports 279020
Net exports (total foreign exchange earnings minus -234592
expenditure)
Export intensity 14.98
Net exp intensity -12.59
Export (India/CMIE) 48.80
Net exports (India/CMIE) 97.5
Source: RBI, Handbook of Statistics on Indian Economy and Prowess data base,
version 2.6 of CMIE.

Table 14 Sources of Accretion to Foreign Exchange Reserves since 1991

April 1991 to September 2008 (US $ million)
Current Account -74.1
Capital Account, of which 341.8
(i) Foreign investment, of which 160.8
(a) FDI 72.9
(b) FII 60.0
(ii) NRI deposits 30.8
(iii) External assistance 16.9
(iv) External commercial borrowings 60.1
(v) Others 73.2
Source: RBI, Half Yearly Report on Foreign Exchange Reserves, 2008-09 (covering
the period up to September 2008).

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 CHAPTER 5

CONCLUSIONS

Manufacturing sector in India has been exhibiting some degree of dichotomy in growth in
recent years. While a small segment of this sector is growing in technological capabilities
and attracting global attention, large numbers of relatively small industrial firms in India
are lagging behind. In particular, generation of employment and growth of new firms
have slowed down in India’s factory sector in the post-1980 period. The expansion of
unregistered manufacturing has lagged behind that of registered manufacturing (largely
the factory sector), and the divergence in growth between the two has been widening.
This paper attempts to understand how financial sector reforms have contributed to such
growth divergences in Indian manufacturing.

As part of the reform process, new measures were introduced to liberalize the money and
credit markets in the country. An important objective of the reform process was to
improve allocative efficiency in financial markets and increase credit availability in the
economy. However, irrespective of the reforms, credit disbursed by scheduled
commercial banks showed a deceleration in growth between 1996-97 and 2001-02. At the
same time, banks’ investments in government securities continued to be high, as they
accounted for 37.3 per cent of deposits in March 2002 – almost 12 percentage points
above the statutory requirements. Credit channeled to the industrial and agricultural
sectors as well as priority sectors including small scale industry as a share of total bank
credit declined in the post-1990 period. During the same period, however, the share of
credit allocated for personal loans and especially housing loans showed a significant
increase.

It may be remembered here that an important factor behind the revival of India’s
economic growth from the late 1970s was the increase in private and public investment
after the mid-1970s. Policies from the late 1960s beginning with the bank nationalization
in 1969 helped the process of financial deepening in the country, which in turn triggered
the rise in investments. Policies for allocation of credit to the priority sectors particularly
small scale industry have given a boost to small-scale industrial production in the
country.

There has been a ‘creeping movement’ from the late 1990s in the direction of capital
account convertibility, and this has increased the vulnerabilities faced by the economy.

148
Portfolio investments, external commercial borrowings and bank deposits by NRIs, all
highly volatile in nature, account for a high proportion of total capital flows to India in
recent years. Studies have noted that the recent surge in capital flows have not made any
significant positive contribution to economic growth in the country. On the other hand,
large capital flows have resulted in accumulation of foreign exchange reserves. In turn,
this has led to appreciation of the Indian Rupee and reduction in competitiveness of
India’s manufactured exports. At the same time, policies for financial sector liberalization
have resulted in a loss of autonomy for the government in the determination of interest
rates. Consequently, the reforms have not led to a reduction in interest rates and fall in the
cost of capital for industry.

FINDINGS ABOUT THE INDIAN MANUFACTURING SECTOR

• All India Level factories increased at the rate of 1.84 per cent per annum during
the overall study period. It had increased at the rate of 1.16 per cent and 0.95 per
cent per annum in pre liberalisation and after liberalisation respectively. This
indicates that there was no significant increase in the number of factories after
liberalisation compared to the pre liberalisation period.

• The growth rate of gross fixed capital was 49.07 per cent per annum during the
overall study period. There was a higher growth rate in pre liberalisation period
(27.51 per cent per annum) compared to the after liberalisation period (12.82 per
cent per annum). The growth rate of fixed capital is higher than the number of
factories during the study period. This implies that the factory size increased
during the period.

• The growth rate of number of workers was 0.35 per cent per annum during 1981-
82 to 2004-05. There was a low growth at 0.11 per cent per annum in pre
liberalisation period. But, it recorded decreasing trend to -0.89 per cent per annum
in after liberalisation period. When compared the growth rate gross fixed capital
and number of workers during the two sub periods and overall periods, the growth
rate of number of workers was very low in relation to gross fixed capital. This
indicates that Indian manufacturing sector was continuing a capital intensive
industry during the entire study period.

• The total emoluments have recorded an overall growth rate of 2.75 per cent per
annum during the overall study period. For the break up period, the rate was 4.72
per cent per annum in pre liberalisation period and 0.14 per cent per annum in
after liberalisation period. So, it shows that there was considerable decrease in the

149
 total emoluments after liberalisation. As compared to the total emoluments and
number of workers in All India level manufacturing sector during the overall
period and two sub periods, total emoluments is increased as compared to the
number of worked during the period. This indicated that there was increasing
trend in the emoluments per worker (wage) in overall study period and two sub
periods.

• The growth rate of fuels consumed was 4.83 per cent per annum during the
overall study period. For the break up period, it has growth rate of 13.83 per cent
per annum in pre liberalisation and -2.25 per cent per annum in after
liberalisation. This implies that the fuels consumed decreased particularly after
liberalisation as compared to the pre liberalisation period.

• The growth rate of materials consumed was 15.01 per cent per annum during the
overall study period. It recorded the growth rate of 17.95 per cent per annum in
pre liberalisation and after liberalisation respectively.

• This implies that materials consumed also did not increase impressively after
liberalisation as compared to the pre liberalisation period.

• The growth rate of gross output was 16.85 per cent during the study period. The
growth rate was 8.92 per cent per annum and 7.67 per cent per annum in pre
liberalisation and after liberalisation respectively. This indicated that the gross
output did not impressively increase after liberalisation.

• The growth rate of gross value added was 22.06 per cent per annum during the
overall study period. It had increased at the rate of 2.90 per cent per annum in pre
liberalisation period and impressively increased to 7.86 per cent per annum in
after liberalisation period. There was remarkable growth in gross output and gross
value added during the study period. This indicate that the growth in past is
guarantee for the healthy situation for the future perspective of the Indian
manufacturing sector.

150
• Labour productivity and capital intensity grow at the rate of 20.95 per cent per
annum and 46.77 per cent per annum respectively. Capital productivity and total
faction productivity declined at the rate of -1.52 per cent per annum and -1.36 per
cent per annum respectively in All India level manufacturing sector during the
study period.

• Labour productivity accelerated at the rate of 17.90 per cent per annum, capital
intensity at 43.10 per cent per annum. Capital productivity decreased at the rate or
-1.80 per cent per annum and total factor productivity at -1.40 per cent per annum
in the Southern zone manufacturing sector during the entire study period.
• Labour productivity and capital intensity increased at the rate of 18.38 per cent
per annum and 44.26 per cent per annum respectively. But capital productivity
and total factor productivity decreased at the rate of -1.85 per cent per annum and
-1.73 per cent per annum respectively during the study period in the Eastern zone
manufacturing sector.

• Labour productivity increased at the rate of 22.01 per cent per annum, capital
intensity at 42.17 per cent per annum. But, capital productivity decreased at the
rate of -0.97 per cent per annum and -0.76 per cent per annum during the overall
study period in the Northern zone manufacturing sector.

• The performance of the Northern Zone is encouraging in terms of total factor

productivity during the study period.

• Labour productivity increased at 25.00 per cent per annum, capital intensity at
46.77 per cent per annum during the study period. But, capital productivity
decreased at -1.54 per cent per annum and total factor productivity at 1.59 per
cent per annum during the entire study period in the Western zone manufacturing
sector.

• The growth rate of total factor productivity was mainly because of efficient
utilisation of labour than capital in all zones and All India.

151
• There was improvement in total factor productivity particularly after liberalisation
in all zones and All India.

• Increase in capital was not efficiently utilized in pre liberalisation period in all
zones and All India.

• Capital deepening did not help to increase the capital efficiency in all
zones and All India.

• Increase in capital and labour was efficiently utilised particularly after

liberalisation in all zones and All India.

• Factory size and managerial skill were the most significant variables to influence
the labour productivity in the order of their priority at the southern zone, the
Western zone and All India level manufacturing sector during the study period.
But managerial skill influences more in obsolete terms for augmenting the labour
productivity.

• All the selected variables i.e. Technology, managerial skill, factory size and wage
rate were the most significant variable to influence the labour productivity in
order of their priority in the Eastern zone manufacturing sector.

• Technology, managerial skill and factory size were significantly influence the
labour productivity at the Northern zone manufacturing sector during the study
period on the basis of its priority.

• Managerial skill showed high contributory ability to increase the labour

productivity at All India level and four zone level.

SUGGESTIONS FOR INDIAN MANUFACTURING SECTOR

• Manufacturing sector should increase the factory size through increase the capital
than number of factories in all zones and All India.

• The capital should be used efficiently to increase the gross value added through
efficient management in all zones and All India.

• The industry should enhance its technology through the capital than labour in the
Eastern zone and the Northern zone manufacturing sector.

152
 • The factors that influence the productivity of the manufacturing sector vary. To
improve the productivity and reduce the variations in productivity in the four
zones, the Government should be framed separate policy for every zones.

• Government has to enhance research and development activities to increase the

gross value added in the Indian manufacturing sector.

From the foregoing summary and findings of the study, the following important
conclusions have emerged. Manufacturing sector in India is a capital intensive industry.
The growth of total factor productivity was mainly because of growth in labour
productivity. The performance of the Northern zone was good as compared to the other
zones. Efficient utilisation of labour and capital was attributed in Indian manufacturing
sector particularly after liberalisation. Hence, to develop the Indian manufacturing sector,
there is a need to increase the capital. Moreover, capital has to be efficiently utilized to
increase the gross value added. There is also need to strengthen Research and
Development to increase the gross value added in Indian manufacturing sector.

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