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INDIAN ECONOMY 1
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INDEX
Evolution of the Indian economy

Planning in India

Industrial Development in India

1. First Phase: 1950-1966

2. Second Phase: 1966-1980

3. Third Phase: 1980-1990

4. Fourth Phase: 1991- 2018

New Economic policy

Post LPG measure in continuation of NEP policy

● De-Reservation

● Disinvestment

● National Investment Fund

● FDI policy

Structure of Indian Economy

● Introduction

● The pattern of Structural changes in developed Country

● Reason for structural changes

● Structural changes in India Economy

● Why manufacturing Matters?

● Why India lags in the development of secondary Sector?

● Reason for dominance of Service Sector in India

● Government Measures to improve Secondary Sector

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EVOLUTION OF THE INDIAN ECONOMY

The economic history of India shows number of distinct phases from the time it fell under the colonial
control to the modern times when it embarked on economic reforms. Before onset of the British
colonial rule in India, India was among the richest countries of the world. According to some estimates
during the Mughal period, India was the second largest economy having a share of almost 25 percent of
the world economy.

Two centuries of the exploitative British rule led to India's wealth being drained away and the process
of 'deindustrialisation' taking a heavy toll on the people of India. The great nationalist leaders like
Dadabhai Naoroji, R. C. Dutt highlighted economic exploitation of India.

At the time of independence, India inherited a stagnant economy. Between 1900-1950, the real GDP
growth rate of India was almost zero. The independent India embarked on a process of economic
reconstruction and growth by adopting the model of Five-year planning. The beginning was made with
the Mahalanobis Feldman model which aimed to build the capital goods industry to lay the foundation
for self-reliant growth in India.

In the Initial year of planning, country achieved great success. The nation which was once dependent
on food grain imports to feed her citizen attained self-sufficiency in food production by embracing
Green Revolution. However, in the beginning of 1980s, India realised that its growth rate, sarcastically
dubbed as the 'Hindu growth rate' of around 3 percent annually, was far too low to sustain the
expanding aspirations of its people. The distortion in the planned economic process was glaringly
reflected in the 'license-permit raj' that empowered the rent seeking class of bureaucrat-contractor-
politician to extract surplus from the system.

This was the period when need of economic reforms was severely felt. The process of economic reforms
picked up momentum by the early 1990s. India had to undergo structural adjustment in order to avoid
defaulting on its international obligations towards debt repayment. The reforms moved apace to
include opening up of the economy, decontrol and significant changes in the financial and banking
sectors. The transition from the public sector attaining the 'commanding heights of economy' to the
'market driven open economy' has been a complex and multi-layered process. The transition has indeed
resulted in an accelerated GDP growth rate of above 5 percent for the period 1991-92 to 2003-04 and
above 6 per cent for the period 2003-04 to 2011-12. Fall in the poverty ratio, improvement in the FDI
and better forex reserves have also been noticeable achievements of this period.

However, this period has also been marked by an increase in the level of inequality in the country.
According to a study 'in both the early 1990s and the early 2000s the wealthiest 10 percent of wealth-
holders held at least 50 per cent of total assets, while the least wealthy 10 percent held at most 0.4 per
cent of total assets'. It needs to be highlighted that inequality in resource endowment also culminates

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into inequalities of opportunity which defeats the purpose of inclusive development that India has
adopted as a stated objective of its economic policy.

There has also been a serious concern about employment generation in the period of economic reforms.
The robust growth rate has not really been accompanied with improvement in the employment
generation. Share of manufacturing sector in the GDP has also been quite low at 16 per cent, putting a
structural constraint on the future prospect of growth with employment. Many experts believed that
India’s shift directly from Indeed agriculture sector is not conducive for sustaining the growth in the
long run.

In the last decade India witnessed splendid economic journey, earning title of “the fastest growing
major economy”. Thanks to expansionary policy of the government, India was least affected country
due to global slowdown of 2008. Even during the recessionary period, the country touched the growth
rate above 6%.

Realising the potential of India’s Demographic dividend government has launched several programmes
like Skill India to improve human capital resources. Lately, country has started focusing manufacturing
sector and the programmes like Make in India has been launched to give a “big push” to manufacturing
sector.

For any country tax structure is one of the key element of economic growth. A simplified tax structure is
beneficial for both the taxpayers as well as tax authority. In order to simplified the indirect taxes in the
country several indirect tax has been reduced to a single and simplified tax; Goods and Service Tax.

Efforts have been made to attract the Foreign Investment. Ease of doing business regime has been
fastened and single window system for all clearance has been facilitated. Owing to government’s
efforts, India’s Ease of Doing business rank has significantly improved from 130th in 2016 to 77th in
2018.

In the present situation almost all International Institutions are optimistic about high growth rate of
India in future. However, for sustaining the present growth and touching the double digit growth will
require serious scrutiny of the present economic problems.

Today country is facing problem of agrarian distress, banking sector is also facing serious issue of Non-
Performing Assets. Corporate sector is also facing stress on their balance sheet. Overall resulting into
twin balance sheet problem. The government’s efforts like Recapitalisation Bond, Reformation of
Agriculture market is in right direction in this regard.

J. M. Keynes famously said that it is necessary to distinguish the important from urgent. At this juncture
when India is aspiring to become leading economy of the world, it is imperative for the government to

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Create Opportunity and Reduce Vulnerability by embracing the concept of “Sustainable and Inclusive
Economic Growth”.

PLANNING IN INDIA
The objective of India’s development strategy has been to establish a socialistic pattern of society
through economic growth with self-reliance, social justice and alleviation of poverty. India initiated
planning for national economic development with the establishment of the Planning Commission by a
Resolution of the Government of India in March 1950.

Planning Commission was chaired by Prime Minister with a Minister in charge to transact its business
and a Deputy Chairman with Cabinet rank and full time Members of MOS rank and Cabinet Ministers as
ex-officio Members.

Goals of Five Year Plans

The goals of the five year plans were: growth, modernisation, self-reliance and equity. This does not
mean that all the plans gave equal importance to all these goals. Due to limited resources, a choice has
to be made in each plan about which of the goals is to be given primary importance. Nevertheless, the
planners have to ensure that, as far as possible, the policies of the plans do not contradict these four
goals:
● Growth: It refers to increase in the country’s capacity to produce the output of goods and
services within the country. It implies either a larger stock of productive capital, or a larger size
of supporting services like transport and banking, or an increase in the efficiency of productive
capital and services. It is necessary to produce more goods and services if the people of India
are to enjoy a more rich and varied life.
● Modernisation: To increase the production of goods and services the producers have to adopt
new technology. Adoption of new technology is called modernisation. However, modernisation
does not refer only to the use of new technology but also to changes in social outlook such as
the recognition that women should have the same rights as men. In a traditional society,
women are supposed to remain at home while men work. A modern society makes use of the
talents of women in the workplace — in banks, factories, schools etc. — and such a society will
be more civilised and prosperous.
● Self-reliance: A nation can promote economic growth and modernisation by using its own
resources or by using resources imported from other nations. The first seven five year plans
gave importance to self-reliance which means avoiding imports of those goods which could be
produced in India itself.
● Equity: Now growth, modernisation and self-reliance, by themselves, may not improve the kind
of life which people are living. A country can have high growth, the most modern technology
developed in the country itself, and also have most of its people living in poverty. It is

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important to ensure that the benefits of economic prosperity reach the poor sections as well
instead of being enjoyed only by the rich.

1. FIRST FIVE-YEAR PLAN : 1951-1956

● It is also known as Harrod and Domar model.
● Harrod and Domar model helps to explain how growth has occurred and how it may
occur again in the future. Growth strategies are the things a government might
introduce to replicate the outcome suggested by the model.
● Basically, the model suggests that the economy's rate of growth depends on:
1. The level of national saving (S)
2. The productivity of capital investment (this is known as the capital-
output ratio)
● Based on the model therefore the rate of growth in an economy can be increased in one
of two ways:
1. Increased level of savings in the economy
2. Reducing the capital output ratio
● In this plan, major focus was given on Development of Agriculture and allied sectors.
● The government established Dams and Irrigation projects e.g DVC,Bhakra dam.
● Establishment of IITs and UGC to foster higher education.
● The growth target was set at 2.1%(although India achieved 3.6%).

2. SECOND FIVE-YEAR PLAN : 1956-1961

● It is also called Mahalanobis model. The strategy suggests in order to reach a high
standard in consumption, investment in building a capacity in the production of capital
goods is firstly needed. A high enough capacity in the capital goods sector in the long-
run expands the capacity in the production of consumer goods.
● Therefore, the focus was given on development of Rapid industrialization in the country
● Government established steel plants at Bhilai, Durgapur, and Rourkela with joint
investment from Russia and Germany.
● The target for Growth was set at- 4.5% (although only 4.2% achieved).

3. THIRD FIVE-YEAR PLAN: 1961-1966

● It was based on John Sandy and Sukhamoy chakravarty model
● It is sometimes also called Gadgil Yojana
● This plan emphasized on becoming a self-reliant and self-sustained economy
● During Third FYP, growth rate of only 2.6% was achieved although target was 5.6%.

4. ROLLING PLANS : 1966-1969

Due to war with China (1962) and Pakistan (1965), the production growth was in turmoil and
total loss due to one reason or another has been estimated at Rs. 92,400 crores (at current
prices) or roughly the income generated during the whole of the third plan. The average rate of

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growth of GNP has been of the order of 3.5 per cent per year as against the plan target of 5 to
5.5. per cent. Thus, emphasis was given on employment creation, in contrast to Nehru Model
which has led to concentration of power, widening inequality and mounting poverty.
● New plans were made and implemented on annual basis based on changing economic
demands.
● It is also known as plan holidays.

5. FOURTH FIVE-YEAR PLAN : 1969-1974

● It was based on Allen S manne and Ashok Rudra model
● Government gave emphasis on means to attain self-reliance and Growth with stability.
● A major thrust was given to GREEN REVOLUTION under the supervision of M.S
Swaminathan
● To make availability of finance more inclusive the government Nationalized 14 major
Banks in 1969
● The growth target was set at 3.6%(also called Hindu rate of Growth) though the
economy achieved only of 5.6%.

6. FIFTH FIVE-YEAR PLAN : 1974-1979

● It was formed as Minimum Needs programme under D.P Dhar
● Government gave major emphasis was on Poverty eradication and strengthening agri-
production.

7. ANNUAL PLANS: 1978-1979

● During this period, Plans kept changing due to political confrontations and change of
government.
● Junta Party win post Emergency era (1975-1977) led to slew of changes in planning
process and economic goals were more leaned toward social equality.
● New government introduced Rolling Plans to revive the economy from low growth.

8. SIXTH FIVE-YEAR PLAN : 1980-1985

● A new institution-based Planning commission model was framed which gave special
emphasis on economic liberalization
● Government policies gave emphasis on employment generation
● Several steps were taken towards ending license price control regime
● The commission set a target 5.2% although growth target of 5.6% was achieved.

9. SEVENTH FIVE YEAR PLAN : 1985- 1990

● It gave emphasis on establishing India as a self-sufficient economy
● Target was to Modernize economy for productive employment
● Government pursued Idea of Social Justice in its schemes.
● It was the beginning of liberal approach towards private sectors

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● Economy was in gloom and financial indiscipline led to steep surge in inflation and
Balance of Payments.

10. ANNUAL PLANS : 1990-1991,1991-1992

● Disintegration of USSR and Balance of Payment(BoP) crisis led to Political crisis in
homogeneity of consensus.
● The government was forced to take steps for opening of Indian economy to
Liberalization-Privatization-Globalization.

11. EIGHTH FIVE YEAR PLAN : 1992-1997

● It gave major thrust on development of Human Resource for productive employment
● Government followed policies for modernization of industries- New Economic
Policy,1991
● Major emphasis on developing Indian information industry
● Opening of economy led to India becoming member of World Trade Organization(WTO)
● The growth rate was of 6.8% as against a target of 5.6%

12. NINTH FIVE YEAR PLAN : 1997-2002

● The emphasis was given on Growth and social Justice
● Government took efforts for poverty alleviation and employment creation
● It also structured Special Action Plans (SAPs) in area of agriculture, information
technology, social infrastructure and Water policy
● The achieved GDP growth rate was of 5.4% as against a target of 6.5%

13. TENTH FIVE YEAR PLAN : 2002-2007

● The objective was for Growth with emphasis on increasing literacy rates
● Government took steps to attain GDP growth of 8%
● Several measures were taken to reduce poverty and double per-capita income-20-point
program

14. ELEVENTH FIVE YEAR PLAN: 2007-2012

● It was Planned by C. Rangarajan with objective of ‘Fast and inclusive growth’
● The plan gave focus to incorporate factors of Environmental sustainability
● Government pursued Skill development goals and steps to increase agricultural growth
rate to 4%
● Government also took steps for reducing Total Fertility Rate(TFR) to 2.1%

15. TWELFTH FIVE YEAR PLAN : 2012- 2017

● The objective of plan was to give emphasis on Sustainable Growth
● Government set target of electrification of all Indian villages
● Several steps were taken to reduce social and gender gap in education

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● On economic footage, the target was set for penetrating Banking services to 90% of
households.

PLANNING COMMISSION was dissolved by the government in 2014 and replaced with NITI Aayog.

INDUSTRIAL DEVELOPMENT IN INDIA

Modern industry in this country began about the 1850s, when the first cotton and jute mills were
opened and a railway line of Bihar and Bengal railway was inaugurated and road transportations
experienced a considerable growth which greatly influenced the economic and social life of the
country.
After independence, India was at the crossroads, where it had to decide what would be the ‘Prime
Moving force’ of the Indian economy, which could deal with the legacies of British colonialism i.e.
worsened Social and Economic conditions. After analysing the various national and international
factors, it was decided that industrial sector with the state control would be that force, which may lead
to inclusive economic and social growth of India.
Rapid industrial development was seen as a solution for extreme poverty, illiteracy, a ruined
agriculture and industry and the structural distortions created by colonialism in the Indian
economy and society. Bombay plan in 1945 saw absence of indigenous capital goods industries as
cause of India’s dependence on advanced countries and therefore self-reliance in capital goods
industry was necessary. Hence, to industrialize the country, India too, framed industrial policy which
was amended, modified and reoriented several time. First among these policies was Industrial Policy
Resolution of 1948.

Industrial Policy Resolution of 1948

Industrial Policy Resolution of 1948 was India’s first economic policies launched before start of 5-year
plans. It laid foundation for the mixed economy. Following are the salient features of the policy:
● This policy contemplated a mixed economy, reserving a sphere for the private sector and
another for the public sector.
● It divided industries into various categories: -
o Industries with exclusive monopoly of central government: Arms and ammunition,
atomic energy, ownership and management of railway transport.
o Industries reserved for states: Coal, Iron and steel, aircraft manufacturing, ship building,
manufacturing of telephones, telegraphs and wireless apparatus etc.
o Third category was made of the basic industries that if central government feels
necessary, would plan and regulate. Participation of private sector was also allowed.
o Industries open for private sector: Industries other than in above categories were left
open for private sector.
Significance
● Most significant part of this resolution was that it established India as a mixed economy.

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● Policy emphasized that state must play a progressively active role in the development of
Industries.
● It provided a clear framework in which both public and private sector could operate.
● Resolution accepted the importance of small and cottage industries.

INDUSTRIAL POLICIES DURING PLANNED ECONOMY

FIRST PHASE: 1950-1966
● First phase of industrial growth ushered an Era of Public Infrastructure.
● Government inclinations towards Socialism resulted in pro-industry but with focus on public
sector.
● Second Five-Year plan gave high priority to the development of industries with a particular
emphasis on basic and capital goods industries.
● Several Institutes and agencies like Industrial Finance Corporation and the State Finance
Corporation were established to support industrial growth.
● The factors which led to expansion of private sector were mainly because of -
o Profitability of investment
o Permitted entry of foreign capital especially in Iron and steel industries.
o Expansion of existing industries by entrepreneurs in neutral environment.

Factors affected 1956 industrial policy:

Since Industrial Policy Resolution of 1948, many developments took place in the country which had
impact on the New Industrial Policy Resolution,1956:
● The constitution of India has been enacted which necessitated gainful employment, removal of
disparity and improving living standards and working conditions for the masses.
● To fulfil above stated objectives, state led high economic growth by development of heavy
industries and machine making industries was required.
● First 5-year plan was completed.
● Parliament had accepted the socialist pattern of society which required that all industries of
basic and strategic importance, or in the nature of public utility services, should be in the public
sector.

Industrial Policy Resolution,1956

● It divided industries into three categories A, B, and C, having regard to the part which the State
would play in each of them:
o Category A: Industries under exclusive responsibility of the States.
▪ atomic energy, electrical, iron and steel and others (In total 17 industries).
o Category B: Industries that will progressively be taken over by the state but with
supplement from private sector.
▪ E.g. road and sea transportation, machine tools, aluminium, chemicals including
plastics and fertilizers, and certain types of mining.
o Category C: remaining industries

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▪ These industries will be left for private sectors

● Provisions of license for all schedule A industries and a number of schedule C industries were
issued.
● Small scale industries as well as Khadi and Village industries were also emphasized.
● Resolution also stressed on removing regional disparity.

Criticisms of the policy:

The first phase faced following challenges: -
● Private sector had less scope as major industries were reserved for the public sector.
● Poor institutional set-up as it was heavily under government control.
● labour force grew more rapidly than the increase in employment.
● Unemployment increased from 5 to 10 million and increasing the unemployment rate from 2.6
to 3.8 per cent.
● Rural-urban disparity widened.
● Industrial Sickness became widespread, badly affecting many big public industries.
● Growth of industrial output could not cross 3-4 per cent per annum on the average.

Achievements of the policy

● The Policy gave direction to the development of industry till 1973 which resulted in sound base
of industrial development in the country. During the first three plan periods a strong base for
industrial development was laid.
● Structure of Indian industry changed in favour of basic and capital goods sector: their share rose
between 1959 and 1970 from 50% of productive capital to about 79%, from 25% of industrial
employment to 43%, from 37% of industrial value added to 56%.
● Rate of industrial production shown a noticeable acceleration from 5.7 percent in the First Plan
to 7.2 percent in the Second Plan and further to 9.0 percent in the Third Plan.

SECOND PHASE: 1966-1980

This period of 1965 to 1980 was marked by a sharp deceleration in industrial growth. The industrial
growth which was achieved during the Second and the Third Five Year Plan periods could not be
sustained due to chain of events:
● Major wars with China in 1962 and with Pakistan in 1965 and 1971 crippled economy and
resource mobilization.
● Agriculture and livelihood were plagued by draughts in 1965 and 1966
● Balance of payment (BoP) was in crisis again due to steep rise in oil prices in 1973 (first ‘oil’
shock).
● Government followed policies of import substitution i.e. industries were setup to replace
imported goods which was costly as well was short sighted for development of indigenous
manufacturing sector.
● Lack of public sector finances resulted in decline in the private sector growth
● Draught led to weak performance of agriculture- effect on demand for industrial goods

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● In the late 1960s, government took slew of steps to make Indian agriculture self-sufficient in
food production.

However, this phase is important for success of Green Revolution which helped India to become self-
sufficient in terms of agricultural production. The country which had to import foodgrain under PL 480
of USA, became net exporter of food grains in few years to come, Thanks to Green Revolution under
leadership of M. S. Swaminathan.
National Dairy Development Board (NDDB) launched Operation Flood in 1970s. Under the futuristic
guidance of Dr Verghese Kurien (who is also known as the Father of the White Revolution in India) the
AMUL cooperative was created. It was the world's biggest dairy development program which placed
India at the top of milk producing nations.

Major events that took place in this phase

Monopolies and Restrictive Trade Practices (MRTP) Act, 1969
● This act was introduced to enable the Government to effectively control concentration of
economic power.
● The act classified the business houses with assets of Rs. 20 Crore and above as large industries.
● All large companies were declared as MRTP companies, eligible to participate in industries not
reserved for government or Small-Scale Sector.

Industrial Policy Statement 1973

● In 1973, the definition of large industrial houses for industrial licensing restrictions was
adopted in conformity with that in the Monopolies and Restrictive Trade Practices Act (MRTPA)
1969.
● A consolidated list of industries that were of basic, critical and strategic importance for the
growth of the economy were specified in Appendix. I
● MRTP companies and foreign concerns were eligible to participate in Appendix. I

Industrial policy statement 1977

Though some elements of the Industrial Policy Resolution of 1956 still remained valid, 1977 statement
was release to tackle the distortions that have crept in the system. The Policy emphasized on
decentralization and growth of small-scale industries.
Some of the salient features of the policy were:
● The list of industries exclusively reserved for the small-scale sector was expanded from 180
items to more than 500 items.
● It classified small sector into 3 categories:
o Cottage and household industries which provided self-employment on a wide scale.
o Tiny sector with investment in machinery and equipment up to Rs.1 lakh.
o Small Scale industries comprising industrial units with an investment up to Rs. 10 lakh.
● The list of industries exclusively reserved for the small-scale sector was expanded from 180
items to more than 500 items.

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● A District Industries Centre would be set up to provide, under a single roof, all the services and
support required by small and village entrepreneurs.
● Foreign companies that diluted their foreign equity up to 40% under the Foreign Exchange
Regulation Act (FERA), 1973 would be treated on par with Indian companies
● Policy delineated following areas for setting up large scale industry:
o Basic Industries Such as steel, cement etc.
o Capital goods industries for machine requirements
o High technology industries

Significance of the policy

● This policy encouraged small scale industries on the one hand and reduction in disparities on
the other hand.
● This policy adopted a selective approach to deal with sick industrial units.

Criticisms
● This policy failed to reallocate the production of ordinary items such as bread, biscuit, toffees,
footwears, leather products etc. to small scale sector.
● This policy left large industries with fund crunch by suggesting them that large units would
have to rely on their own internally generated resources for new projects.
● Due to the change of government, this policy could not come into practice.

THIRD PHASE: 1980-1990

Infrastructure investment and efficient management of the infrastructural facilities resulted in
improvement in the rate of growth and pattern of gross domestic capital
● This phase ushered an era of recovery and revival-liberal policies and attempt to consolidate
fiscal miscarriages
● Government took steps at loosening of controls and greater freedom to import technology
resulted in flow of foreign private capital facilitating modernisation of the manufacturing sector
● All resulted in Manufacturing sector share in the distribution of the GDP moved up from 24.3
per cent in 1980-81 to 26.95 per cent in 1989-90.

Industrial policy statement, 1980

 Policy statement of July 1980 was based as the Industrial Policy Resolution of 1956.
 It envisaged promoting competition in domestic market, technology upgradation and
modernization. The policy laid the foundation for increasing competitive export base and for
encouraging foreign investment in high-technology areas.
 It simplified the procedure for regularization of installed capacity beyond the licensed capacity.
 It provided a provision, in which the sick units, which showed adequate potential for revival
would be encouraged to merge with healthy units.
 Industrial processes and technologies aimed at optimum utilization of energy or the
exploitation of alternative sources of energy would be given special assistance.

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 The MRTP limit was revised upwards to Rs. 50 crores.

 It made provision for the development of industry in backward areas and attain economic
federalism through restructuring the locational policy
 It redefined the definition of small-scale industries and increased the limits:
o In case of tiny units from Rs. 1 lakh to 2 Lakhs.
o In case of small-scale units from Rs. 10 Lakhs to 20 Lakhs.
o In case of ancillaries from Rs. 15 Lakhs to 25 Lakhs.

Criticism
 The facility for regularization of installed productive capacity in excess of licensed capacity was
highly prone for misuse.
 Although It provided priority to small scale sector in allocation of raw material, but in actual
practice this sector was given a residuary treatment.
 It focused on the capital-intensive part of the development and ignored employment objective.
 Policy of encouraging dispersal of industries in industrially backward areas did not materialized,
these units remained concentrated in developed States like Maharashtra, Tamil Nadu, West
Bengal and Gujarat.

Significance of the policy

● It laid the foundation of an increasingly competitive export base and for encouraging foreign
investments in high- technology areas.
● It created a climate for rapid industrial growth, thus a basic broad-based infrastructure was built
up by 7th five-year plan.
● A high degree of self-reliance in a large number of items - raw materials, intermediates,
finished goods - had been achieved.

Critical evaluation of the Pre-NEP industrial policies

Failures
● The share of industry in national income which was 17% in 1948-49 was only around 18% in
1984-85.
● In 1956 employment provided by industries was only 2% of labor force increased by only 6%
during 1960-65 and by 1.3% during 1965-70.
● The share of the secondary sector in total workforce increased from 10.7% in 1951 to only
13.5% in 1981.
● An evidence of concentration of industrial development is that about 7.5% of the factories
employed about 89% of total capital (in all factories) and contributed nearly 80% of net value
added.
Achievements
● The 8% rate of growth of industrial production till 1965 signified that the industrial growth
strategy based on the Mahalanobis model had a degree of success.

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● Basic goods like mining and metallurgy, chemical and petrochemical, fertiliser, etc. and heavy
capital goods like steel mills, fertiliser plants, chemical plants, etc. saw considerable progress.
● Besides heavy and basic goods, there has been substantial growth in the infrastructure
necessary for industrial growth-fuel, irrigation, railways, highways, telecommunications,
banking, capital market, etc.
● Planned phase enabled India to sustain future growth of the economy without many imports or
much foreign aid.
Why Industrial development could not gather steam before 1990s?
● Slowdown in the agricultural sector led to:
o insufficient supply of wage-goods leading to inflationary conditions.
o insufficient generation of domestic demand leading to stagnancy in the level of
economic activity
● Slowdown in public investment.
● Policy of protection in the first phase led to low productivity and inefficient production
methods.
● Public sector did not evolve any socialistic feature as intended Instead it was used to provide
subsidized inputs to the private sector.
● While private sector was suffering from bureaucratization, licensing, MRTP, leading to under-
utilization of its potential.
● The consequent emergence and growth of the black economy led to the diversion of investible
funds to non-productive avenues like speculation, hoarding, smuggling, residential
construction.

FOURTH PHASE: 1991- 2018 and New Economic Policy (NEP)

● It is also called an Era of NEW ECONOMIC POLICIES
● Several steps were taken by government on major fronts of Liberalization-Privatization-
Globalization (LPG) of economy.
● Steps were taken for Accelerated industry and trade policy reforms
● The share of agriculture in GDP has been sharply declining- 15.3% (2018)
● Over the years, Services have emerged as the major sector contributing in GDP- almost 59%

Need for NEP, 1991

Industrial growth Deceleration in industrial growth rate towards the end of the eighties due to:
● reduction in public expenditure,
● fall in effective demand due to inflationary pressure,
● inflation peaking at nearly 17 percent.
● Sharp decline in the private remittances from overseas Indian workers
● rise in cost of imports due to changes in cash reserve requirements
● Some immediate factors, such as
o India met with an economic crisis relating to its external debt in 1991.
o Government was not able to repay its borrowings from abroad

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o Foreign exchange reserves (mainly used to import crude oil) fell to a level, that was not
sufficient even for a fortnight.
o The crisis was further compounded by rising prices of essential goods.

Such planning strategies were dethroned in July 1991 by P.V. Narasimha Rao-Manmohan Singh model
of planning strategy against the backdrop of unprecedented Balance of Payment (BoP) crises.

Path to the New Economic policy

Due to financial crisis in the late 1980s, India had to approach the International Bank for
Reconstruction and Development (IBRD), popularly known as World Bank and the International
Monetary Fund (IMF) to meet its import requirements especially oil and essential consumption
commodities. India received a conditional loan of $7 billion to manage its balance of payment (BoP)
crisis.

For availing the loan, these international agencies expected India to liberalise and open up the
economy by removing restrictions on the private sector, reduce the role of the government in many
areas and remove trade restrictions between India and other countries.
India agreed to the conditionalities of World Bank and IMF and announced the New Economic Policy
(NEP). The New Economic Policy was an attempt to alter the basic parameters of economic policies
since Independence and to restructure the economy drastically.

All the above factors led the government to introduce a new set of policy measures which changed the
direction of our developmental strategies. The landmark change brought about by the Industrial Policy
of 1991 in Indian economy was entirely a new chapter which enforced a total open economic system as
compared to the earlier mixed system.
New Industrial Policy also known as Liberalization, Privatization and Globalization(LPG) in Indian
Economy and towards this end, the Government introduced three sets of reforms: -
● For liberalization: Deregulation, delicensing, decontrol and de-bureaucratization of industrial
licensing system;
● For Privatisation: Disinvestment in Public sector
● For Globalisation: Facilitating Foreign Direct Investment (FDI) inflows, liberalization of foreign
trade and currency transactions.

Major steps taken under NEP, 1991:

Industrial Licensing
● Industrial licensing was abolished for all industries irrespective of their level of investment
except specified industries.
● These 18 specified industries continued to be subject to compulsory licensing for reasons
related to security and strategic concerns, social concerns, problems related to safety and
environmental issues, manufacture of products of hazardous nature and articles of elitist
consumption.

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● Industries where licensing is compulsory are in Annex II.

● But gradually many of these industries were delicensed. For ex. entertainment and electronic
industry was delicensed in 1996.

Foreign Investment
● Policy prepared a specified list of high technology and high investment priority industries;
wherein automatic permission was to be made available for direct foreign investment up to 51
percent foreign equity.
● Foreign equity up to 51 per cent was also allowed in trading companies primarily engaged in
export activities.
● During 1991-2000, the government decided to pull all items under the automatic route for
foreign direct investment/ NRI & OCB investment except for a small negative list, which
includes all proposals requiring industrial license.

Foreign Technology Agreement

● Government will provide automatic approval for technology agreement related to high priority
industries within specified parameters.
● Indian companies will be free to negotiate the terms of technology transfer with their foreign
counterparts according to their own commercial judgment.
● Hiring of foreign technicians and foreign testing of indigenously developed technologies, will
also not require prior clearance.

Public Sector Policy

● The 1956 Resolution had reserved 17 industries for the public sector. The 1991 industrial policy
reduced this number to 8.
● Even the industries left reserved were DE reserved gradually.
● Public enterprises which are chronically sick and which are unlikely to be turned around will be
referred to the Board for Industrial and Financial Reconstruction (BIFR).
● Rationalization of the loss-making public sector either through internal efficiency or by semi-
privatization, i.e. participation of the private sector in its equities and management.
● In order to raise resources and encourage wider public participation, a part of the government’s
shareholding in the public sector would be offered to mutual funds, financial institutions,
general public and workers. This policy gave rise to India’s disinvestment policy.

MRTP Act
● Under MRTP act, all firms with the assets above Rs. 100 crores since 1985 were classified as
MRTP firms.
● Policy removed the threshold limit in assets in respect of MRTP companies. This eliminates the
requirements of prior approval of the Central Government in respect of the activities concerning
expansion, new undertakings etc.
● Provisions of the MRTP Act will be strengthened in order to enable the MRTP Commission.

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Abolition of phased manufacturing programme

● In order to force the pace of indigenization in manufacturing sector, Phased Manufacturing
Programmes have been in force. The new policy abolished such programmes and provided the
private sector with an opportunity to grow.

Achievements of NEP

Some of the immediate achievements of NEP in Indian Economy:

● There has been substantial reduction in the Central Government fiscal deficit from 8.4% of the
GDP in 1990-91 to 4.6% of GDP in 1993-94(Present 3.4%,2018)
● It has led to sharp reduction in inflation to less than 6% in mid-1993(Present- 4.74%)
● Steps has been taken to put ceiling on Government borrowing from the Reserve Bank by
authorising the Reserve Bank to auction Treasury Bills at market rates- introduced fiscal
discipline in economy.
● Trade and payments system market have shifted to market determined exchange rate within a
framework of considerable liberalisation on the trade account.
● Financial sector reforms have led to Reallocation of resources.
● Incorporating Basel Committee standards has helped in bringing financial discipline in Banking
sector.
● Opening of Banking sector to private has promoted financial penetration and competition.
● Steps taken to reform the movement of agricultural commodities by elimination of restrictions
has helped in stabilizing commodities prices
● Foreign exchange reserves have increased from $1.2 billion (1991) to over $15 billion (1994)-
Current: $393.71 Billion
● Indian Exports grown by almost 21% in the first ten months of 1993-94.

Some Long-term achievements of NEP

● The average growth rate in the ten-year period from 1992-93 to 2001-02 was around 6.0
percent, as shown in Table 1, which puts India among the fastest growing developing countries
in the 1990s.
● Growth of tertiary sector: Service industry grown tremendously in India and to a great extent
LPG has contributed to its success. It is contributing around half of country’s GDP.
● The policy now allows 100 percent foreign ownership in a large number of industries.
Procedures for obtaining permission were greatly simplified by listing industries that are
eligible for automatic approval up to specified levels of foreign equity (100 percent, 74 percent
and 51 percent).
● India is setting out a successful example of PPP projects and encouraging private participation
in key development projects. There are various models of PPP and the ones primarily followed
in India are: -
o build-operate transfer (BOT), example – Mumbai Metro rail undertaken by Anil Ambani
group

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o build-own-operate-transfer build-own-operate (BOOT), example – Rajiv Gandhi

International airport, Hyderabad
o concession
o design-build-finance operate
o management contract
o asset sale
● During the five-year period (1990-91 to 1995-96), exports increased from $ 18,266 million in
1991-92 to $ 32,111 million in 1995-96, indicating a growth rate of 11.8 per cent. Growth of
net invisibles have been able to wipe out most of Trade deficits.
● Foreign direct investment figures show that it has been increasing gradually from just $ 97
million in 1990-91 to $ 8901 million in 2005-06 and further to $ 12,585 in 2010-11.

Failures of New Economic Policy

Share of manufacturing in GDP: In 1989-90,

the share of manufacturing in the gross
domestic product was 16.4%; in 2015-16,
after myriad new manufacturing policies, its
share was at 16.2%. Although in terms of
value it has grown but it’s share has
remained almost same over the period.

Fiscal deficit of centre and states: One of the

major factors behind 1991 crisis was
uncontrolled government borrowings. By
2000-01, the combined fiscal deficit of the
centre plus the states, as a percentage of
GDP, had risen beyond the 1991 level. In
2014-15, the combined fiscal deficit, as a
percentage of GDP, was higher than it was
in 1995-96.

India’s Tax to GDP ratio: India’s tax to GDP

ratio remained low as compared to 1991
level. While it was 11 in 1991, it is still
hovering almost at the same level.

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Average employment per non-agricultural

establishment: Liberalisation has not been able
to provide decent jobs to the masses, as it has
always been one of the main reasons for
promoting manufacturing in any country. It was
an average of 2.39 employees per establishment
in the 2013 economic census, compared to 3.01
persons in the 1980 economic census.

It shows that major jobs have been created by

informal sector, which cannot be called as a
factor of growth.

Distribution of employment according to size

of employment: Trends are showing that
informal sector has grown tremendously
over the time. In 1991 liberalization, 37.11%
of employees used to work in
establishments employing 10 or more
workers. Instead of increasing, that
proportion has been steadily coming down
and in 2013, only 21.15% of employees
worked in establishments employing 10 or
more workers.

Public Sector reforms: Public sector reform sought to reduce the activities of the public sector, facilitate
the closure of loss-making units and ease the burden on the exchequer on account of the public sector.

But it was mostly about closure of loss-making units and ease the burden on the exchequer, while
increasing their efficiency and their restructuring was simply neglected.

Poverty level remained high: Despite growth in GDP, poverty could not be tackled. In 2011–12, at least
25%, possibly 30%, of 1.2 billion people live in absolute poverty below the critical minimum in terms of
food and clothing.

If we were to use a higher poverty line that allows for other basic needs such as appropriate shelter,
adequate healthcare and education, it is estimated that about 75% of the population lives in absolute
poverty.

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Foreign Portfolio Investment: FPI, which is generally considered hot money is prone to fluctuations
depending upon the economic environment has been increasing to a great extent since liberalisation,
even more than the FDI did.

Employment elasticity remains low: An employment elasticity of 1 denotes that employment grows at
the same rate as economic growth. In fact, between 2004–05 and 2011–12, employment elasticity of
output in agriculture (-0.42) and in manufacturing (0.13) plummeted, as compared to the 1983 to 1993–
94 periods when it was much higher in both agriculture (0.49) and manufacturing (0.47) (IHD 2014).

Rising inequality: Between 1990 and 2010, the Gini coefficient of consumption inequality in India
(estimated from the National Sample Survey Office [NSSO] data) rose from 29.6 to 36.8.

Physical infrastructure: The physical infrastructure—power, roads, transport, ports, and

communications—is grossly inadequate.

Social infrastructure: As concluded in report by PRATHAM, India’s learning outcomes are not at all
satisfactory. Some of the leading Higher Education rankings has shown a poor performance of what
ought to be India’s top educational institutions.

India does not have adequate medical infrastructure to provide facilities to masses.

Post LPG measure in continuation of NEP policy

Repeal of MRTP act and enactment of competition act, 2002
MRTP act was repealed and replaced by the Competition Act 2002. Act provides for the establishment
of a Commission i.e. Competition Commission of India, to:
● prevent practices having adverse effect on competition,
● promote and sustain competition in markets,
● protect the interests of consumers and
● ensure freedom of trade carried on by other participants in markets in India
Act provides commission to take up the following functions:
● Prohibition of anti-competitive agreements;
● Prohibition of abuse of dominant position;
● Regulations of Combinations; and
● Competition advocacy.
The Act does not discriminate between public and private enterprises as far as the competition law
enforcement is concerned.

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De-Reservation
Indian government has abolished compulsory Industrial licensing for most of the industries and there
are only 4 industries at present related to security, strategic and environmental concerns, where an
industrial license is currently required:
● Electronic aerospace and defence equipment: all types.
● Industrial explosives including detonating fuses, safety fuses, gunpowder, nitrocellulose and
matches.
● Specified Hazardous chemicals i.e. (i) Hydrocyanic acid and its derivatives; (ii) Phosgene and its
derivatives and (iii) Isocyanates & Disocyanates of hydrocarbon, not elsewhere specified
(example Methyl Isocyanate).
● Cigars and cigarettes of tobacco and manufactured tobacco substitutes.

Disinvestment
Some facts on disinvestment
● As on 11th December, 2018, the Government has realised Rs. 34,005.05 crores as disinvestment
proceeds against the BE of Rs. 80,000 crores during the current financial year (2018-19).
● Total disinvestment proceeds during 2017-18 was Rs. 1,00,056.91 crore vis-a-vis the revised
target of Rs. 1,00,000 crores.
● VSNL was the first CPSE to be divested by way of a Public Offer in 1999-2000.
● Government realised Rs. 285 crores by Strategic Divestment of HSCC (India) Ltd.
Disinvestment Policy
In consonance with the announcement during 1991 NEP that a part of the government’s shareholding in
the public sector would be offered to mutual funds, financial institutions, general public and workers.
Government is following a comprehensive disinvestment policy, which envisages:
● Listing of profitable CPSEs on stock exchanges to unlock the value of the company, improve
efficiency and promote ''people’s ownership'' by encouraging public participation in CPSEs;
● Disinvestment through ''minority stake sale'' in listed CPSEs to achieve minimum public
shareholding norms of 25 per cent. In pursuance of policy of divestment through ''minority
stake sale'', the Government will retain majority shareholding, i.e. at least 51% and
management control of the Public Sector Undertakings;
● Strategic disinvestment by way of sale of substantial portion of Government shareholding in
identified CPSEs up to 50 per cent or more, along with transfer of management control.
Disinvestment department
The Department of Disinvestment was set up as a separate Department on 10th December, 1999 and
was later renamed as Ministry of Disinvestment form 6th September, 2001.
The Department of Disinvestment has been renamed as Department of Investment and Public Asset
Management (DIPAM) from 14th April, 2016.
1. Following are the mandate of the department:
o All matters relating to management of Central Government investments in equity
including disinvestment of equity in Central Public Sector Undertakings.

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o All matters relating to sale of Central Government equity through offer for sale or
private placement or any other mode in the erstwhile Central Public Sector
Undertakings.
2. Department will take decisions on the recommendations of Administrative Ministries, NITI
Aayog, etc. for disinvestment including strategic disinvestment.
3. It will advise the Government in matters of financial restructuring of the Central Public Sector
Enterprises and for attracting investment in the said Enterprises through capital market.

National Investment Fund

The Govt. of India constituted the National Investment Fund (NIF) on 3rd November, 2005, into which
the proceeds from disinvestment of Central Public Sector Enterprises were to be channelized.
The Govt. on 17th January, 2013 approved restructuring of the National Investment Fund (NIF). Now
disinvestment proceeds will be credited to the existing ‘Public Account’. It would be utilized for the
following purposes:
● Subscribing to the shares being issued by the CPSE including PSBs and Public Sector Insurance
Companies to ensure 51% ownership of the Govt.
● Recapitalization of public sector banks and public sector insurance companies.
● Investment by Govt. in RRBs/IIFCL/NABARD/Exim Bank.
● Equity infusion in various Metro projects.
● Investment in Bhartiya Nabhikiya Vidyut Nigam Limited and Uranium Corporation of India
Ltd.
● Investment in Indian Railways towards capital expenditure.

FDI policy
Since 1991, the regulatory environment in terms of foreign investment has been consistently eased to
make it investor-friendly.
During the year 2014-15, total FDI inflows received were US $ 45.15 billion as against US $ 36.05
billion in 2013-14. During 2015-16, country received total FDI of US $ 55.46 billion. In the financial
year 2016-17, total FDI of US $ 60.08 billion received.
The Department of Industrial Policy & Promotion is the nodal Department for formulation of the policy
of the Government on Foreign Direct Investment (FDI).
To attract higher levels of FDI, Government has put in place a liberal policy on FDI, under which FDI up
to 100%, is permitted, under the automatic route, in most sectors/activities.
Some of the recent FDI policy measures include:
● 49% FDI under automatic route permitted in Insurance and Pension sectors.
● 100% FDI under automatic route for Single Brand Retail Trading.
● FDI up to 100% under automatic route permitted in Teleports, Direct to Home, Cable Networks,
Mobile TV, Headend-in- the Sky Broadcasting Service.
● FDI limit of 100% (49% under automatic route, beyond 49% government route) for defence
sector.
● 100% FDI under automatic route in Construction Development

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● Foreign airlines allowed to invest up to 49% under approval route in Air India
● FIIs/FPIs allowed to invest in Power Exchanges through primary market

STRUCTURE OF INDIAN ECONOMY

Introduction:
● The process of development requires structural change. The structural change of an economy
takes place mainly along two dimensions: one is the changing sector-wise shares in GDP and
the second is the changing share of the labour force engaged in each sector.
● Study of economic evolution of developed countries, shows that as a first step, the agriculture
sector loses its importance with a simultaneous growth of the manufacturing sector and/or
tertiary sector.
● Many Economist argue that there is close relationship between the development of economy on
the one hand, and occupational structure on the other.
● A high average per capita income is always associated with a high proportion of the working
population engaged in secondary and tertiary sector while low per capita income is always
associated with a low proportion of working population engaged in secondary and tertiary
sectors.
● Economic theory suggests that in every progressive economy there has been a steady shift of
employment and Investment from the essential Primary activities to Secondary sector and then
to tertiary sector.

Pattern of Structural changes in developed Country:

● A historical pattern of economic development of the present developed countries shows
that, they all have followed a common developed pattern in their structural
transformation.

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● An analysis of developmental pattern of some of the developed countries reveals that,

higher per capita income is inversely correlated with the proportion of active population
engaged in agriculture.
● The advanced countries like the U.S.A., U.K., Germany and Japan with a low proportion
of active population dependent on agriculture reveal a higher per capita income.
● Moreover, as the level of per capita income improves over the years the proportion of
labour force dependent on agriculture declines but that on industry and services
increases.
● The following table supports that with greater economic development and rise in
national and per capita incomes, there is a shift in occupational pattern from primary to
secondary and then to tertiary sectors.

● The most common pattern of structural changes (as evident from the data), follows a sequence
of a shift from agriculture to industry and then to services.
● Data from some developed countries substantiate the above argument of structural changes.
The contribution of agriculture and labour employment in this sector is very less while
contribution of services sector and its share in employment percentage is maximum.

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Reason for structural changes:

● The basic argument in support of structural changes in national product is that as income level
increases, the proportion of income spent on food shows a decline and that on non-food items
shows a relatively higher increase. At still higher level of income, there is a high proportion of
income spent on services.
● The other reason for this structural shift is that, low income elasticity of demand for agricultural
products, tend to shift the pattern of production in favour of manufactures and then which have
subsequently higher income elasticity of demand.

Structural changes in India Economy:

● With a history of more than 65 years of development, since independence Indian economy has
seen transformation in the composition of sectoral output as well as the distribution of labour
among different economic activity.
● At the dawn of independence, India was predominantly an agrarian economy with nearly 72
percent of the worker population and approximately 55 percent of the GDP being engaged in
agriculture sector.
● The implementation of planning (five-year plan) in India was meant to change economic
structure with help of low but positive growth rate and reallocation of economic resources.
● The below two table summarizes the economic structural changes of India:

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Table 3: Percentage share of GDP

Year → 1950-51 1970-71 1980-81 1990-91 2008-09

Primary 57.2 46.5 40.0 32.7 16.1

Secondary 16.3 22.3 24.2 28.0 25.0

Tertiary 26.5 31.0 35.8 39.4 58.8

Table 4: Occupational Distribution of working Population in India

Year → 1951 1961 1971 1981 1991 2001

Primary 72.1 71.8 72.1 68.8 66.8 56.7

Secondary 10.7 12.2 11.1 13.6 12.7 18.2

Tertiary 17.2 16.0 16.8 17.6 20.5 25.1

Sources- CSO Statistical Pocket Book

● From the above two table it is evident that the structural changes of India do not characterise
the structural changes pattern of the developed countries. In case of developed countries, it is
seen that as a first step the agricultural sector loses its importance with a simultaneous growth
of the manufacturing sector and after crossing a threshold are now experiencing a shift from
manufacturing sector to the services sector.
● In case of India it is observed that India directly shifted from agriculture to service sector. The
secondary sector has not experienced growth pattern of those of developed countries.
● It is clear that the economic growth of India in last few decade has been propelled by the
service sector. Therefore, growth of India is called “Service led growth “.
● However, in recent years, concerns have been expressed about the Indian economy's reliance
on the services sector. It is felt that there is a need to build a larger manufacturing sector.

Why manufacturing Matters ?

● Despite the massive progress of service sector, the service led growth has attracted concern of
many economists on the following ground -
I. Although the service sector contributes 58.8% of GDP, its share in total employment is
not satisfactory. Consequently, agriculture absorbs the around 50% of workforce, while
its contribution in GDP is around 14%. This has resulted agrarian distress.
II. Service sector uses capital intensive technology and thus it is creating problem of
unemployment.

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III. Labour migration from primary sector to secondary sector requires less knowledge
upgradation as compare to migration of labour from primary sector to directly tertiary
sector.
● Strong secondary sector gives push to both primary sector as well as tertiary sector.
● Various studies have shown convincingly that no other sector does more to generate broad-
scale economic growth and, ultimately, higher standards of living than manufacturing.
● The secondary sector has strong linkage with other sectors of the economy. The substantial
links with dozens of other sectors throughout the economy ensures that output of secondary
sector, stimulates more economic activity across the wider economy than any other sector. This
is called as the multiplier effect of manufacturing.
On the basis of above arguments, it can be said that there is a need for a strong manufacturing
sector in the country. Secondary sector is potentially capable of absorbing excess labour from
agriculture sector.

Why India lags in development of secondary Sector ?

India’s secondary sector has not developed at desirable level, before developing tertiary sector. The
following are some reasons due to which India’s secondary sector lags behind -
1. India was a power deficient country, there were no proper Power, logistics and transport
facilities readily available for the development of manufacturing sector.
2. The country had surplus in labour but rarely the labour were skilled, this can be accounted
mainly due to focus on academics and lack of practical knowledge.
3. The stringent labour laws in India were also acted as a barrier for the development of secondary
sector.
4. Lack of transparency on processes and clearances
5. Lack of investment in R&D and strategic planning. Most of goods finished products have to be
imported. Arms, cosmetics, etc.
6. Innumerable Taxes and laws for setting up projects
7. Finally, the monster corruption and scams that fends off global investors.
8. Lack of incentives to small scale industries - to upgrade. If most case if a small scale industry
upgraded to medium one, then probably it will lose all their benefits from the government. That
discourage the small scale industries to upgrade.
9. Obsolete machines and technology - lessen the competitive
10. Low “Ease of doing business “
11. Investment Regulation in the form of restricted FDI and FII.

Reason for dominance of Service Sector in India:

Following reasons can be attributed for the India’s shift directly from agriculture sector to service
sector, bypassing manufacturing sector:
1. Increasing affluence(wealth): Here with the increasing affluence, there has been an increase in
the demand for those services, which the customers used to perform by themselves. For
example, service provided by the gardener, servants, car driver etc

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2. More leisure (free time): This factor has lead to an increase in those services which are related
to entertainment, because of increase in leisure time in today's people life. For example,
tourism industry has grown because of more leisure time available to the people.
3. Greater life expectancy(hope) With increase in the average life of the people, there has been an
increase in the service which is related to field of health care, for example medical services,
pathology laboratory, nursing homes. Health care services etc.
4. Greater complexity of the product: With the growing complexity of the product, there has been
an increase in the services which are indirectly supporting the maintenance of these complex
products. For example, Air-conditioner, car, computer, and other complex products require
service every yearly of every half yearly.
5. Higher percentage of working women: With the passage of the time, there has been an increase
in the working women. This has indirectly leaded to increase in the growth in the services such
as, domestic servants, baby sittings, etc.
6. Increasing complexity of life: This has lead to an increase in the services of marriage bureau,
legal service, income –tax consultants, placement services, etc.

Government Measures to improve Secondary Sector

Realising the importance of secondary sector, government has taken a number of steps to ameliorate
the secondary sector in general and manufacturing sector in particular. Some of the measures
undertaken by the government are as follows.
1. National Manufacturing policy 2011: In order to give boost to the manufacturing sector
government has come up with the National Manufacturing policy with objectives to increase
the sectoral share of manufacturing in GOP to at least 25% by 2022; to increase the rate of job
creation so as to create 100 million additional jobs by 2022; and to enhance global
competitiveness, domestic value addition, technological depth and environmental sustainability
of growth.
2. Make in India: Make in India is a new national program designed to transform India into a
global manufacturing hub. It contains lot of proposals designed to urge companies — local and
foreign — to invest in India and make the country a manufacturing powerhouse. The focus of
Make in India programme is on creating jobs and skill enhancement in 25 sectors of the
secondary sector.
3. Labour Law Reform has been carried out by the government. The Union Government as part of
labour law reforms has undertaken drive to rationalize 38 Labour Acts by framing 4 labour
codes viz Code on Wages, Code on Social Security, Code on Industrial Relations and Code on
occupational safety, health and working conditions. The codification of labour Laws remove the
multiplicity of definitions and authorities leading to ease of compliance without compromising
wage security and social security to workers
4. Ease of doing business improvement through single window clearance system. India did make
starting a business easier by integrating multiple application forms into a general incorporation
form. It enforced GST, for which the registration process is faster. Many other indicators of ease
of doing business has been simplified. Consequently, India has jumped 23 place to rank 77th in
World Bank’s ease of doing business report 2019.

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