Introduction:
The industrial sector, constituting 27.6% of India’s GDP, plays a pivotal role in the economy. Despite the expectations that the 1991 LPG (Liberalisation, Privatisation, Globalisation) reforms would significantly boost India’s industries, the industrial growth rate has lagged behind, remaining at 2-3%, compared to the robust 6-7% growth witnessed in India’s overall GDP.
Body:
Factors contributing to slower industrial growth:
- Inadequate Infrastructure: India faces a significant deficit in physical infrastructure, requiring an estimated investment of $1 trillion for development. The World Bank’s Logistics Performance Index ranks India 44th out of 160 countries, indicating a need for substantial improvement.
- High Logistics Cost: Poor industrial infrastructure results in elevated logistics costs, making Indian goods less cost-competitive globally. India’s logistics spending is 2-3 times more than its competitors, reaching around 14% of its GDP.
- Restrictive Labour Laws: Complex, rigid, and confusing labour laws in India create challenges for businesses, ranking the country 163rd out of 190 in the World Bank’s Doing Business Report, indicating difficulties in the regulatory environment.
- Complicated Business Environment: A convoluted tax system with high compliance costs adversely affects manufacturing competitiveness. India ranks 63rd out of 190 countries in the Ease of Doing Business 2022 report.
- Low Investment in Technology: Outdated technologies contribute to low productivity and higher costs. India’s spending on research and development (R&D) is around 0.7% of GDP, lower than the global average.
Recent changes in Industrial Policy:
- Policy Goals: The National manufacturing policy aims to increase the manufacturing sector’s GDP share to 25% by 2025, and the foreign trade policy for 2015-20 targets doubling India’s exports.
- Investments in Technology: The new policy seeks to attract $1.3 trillion in FDI annually, emphasizing attracting and retaining investments for technology access.
- Targeting Sectors: The policy focuses on leveraging strengths in sectors like automobiles, electronics, renewable energy, and banking, targeting the creation of globally scaled and commercially viable sectors.
- Tax Benefits: New manufacturing units benefit from a reduced corporate tax rate of 15%.
- Enhance Labor Market Flexibility: The policy aims at boosting job creation in the formal sector, focusing on enhancing labor market flexibility with performance-linked tax incentives.
Conclusion:
Recent changes in industrial policy demonstrate a promising shift towards addressing issues with strategic goals, increased investment targets, and targeted sectoral development. As these policy changes unfold, they hold the potential to reshape India’s industrial landscape and foster sustained economic development.
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