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Key Drivers of India's Industrial Boom and Its Impact on Economic Growth

Writer's picture: Dinesh ShettyDinesh Shetty

What have been the key factors driving the development of India's industrial sector, and how has this growth impacted the country's overall economic progress?  



 

Answer:

India’s industrial sector is an important part of the economy, contributing significantly to GDP and employment. There has been tremendous growth and development in this sector, driven by a combination of government initiatives, private sector participation and programs focused on small and medium enterprises.

  • Industrial Sector Overview:

    • India has a mixed economy with both public and private sectors playing important roles.

    • Public Sector: Major public sector enterprises like Bharat Heavy Electricals Limited (BHEL) and Indian Oil Corporation (IOC) are owned and operated by the government.

    • The industrial sector contributes approximately 27.06% to India's GDP (2021-22) and employs over 17% of the workforce, ranking 14th globally in factory output. This sector includes manufacturing, mining, quarrying, and utilities like electricity, water, and gas.

  • Performance of the Industrial Sector:

    • In the first half of FY 2022-23, the industrial sector's Gross Value Added (GVA) grew by 3.7%, exceeding the average growth of the last decade. Factors such as strong private consumption, export demand, and improved investment have fueled this growth.

    • The Purchasing Managers' Index (PMI) for manufacturing remained in expansion for 18 months, and the Index of Industrial Production (IIP) showed robust growth.


  • Credit growth to MSMEs and large industries has also been positive, supporting sectoral expansion.

  • Small-Scale Industries:

    • Contribution: Small-scale industries, including MSMEs, account for over 80% of manufacturing sector employment, contributing significantly to industrial production (39%) and exports (34%).

    • Economic Impact: These industries are labour-intensive, effectively utilising local resources and promoting regional economic balance by mitigating wealth inequalities and spreading economic activities across regions.

    • MSME Classification:

      • Micro-enterprises: Investment up to ₹1 crore; turnover up to ₹5 crores.

      • Small enterprises: Investment up to ₹10 crores; turnover up to ₹50 crores.

      • Medium enterprises: Investment up to ₹50 crores; turnover up to ₹250 crores.





  • Large-Scale Industries:

    • Large-scale industries, such as those in automobiles and heavy machinery, require higher capital investments and advanced technology. The Production-Linked Incentive (PLI) schemes have been instrumental in boosting large-scale manufacturing, particularly in electronics and consumer goods. For instance, India's electronics exports tripled, and the country became the second-largest mobile phone manufacturer globally.

  • Government Initiatives and Schemes:

    • 'Make in India': This initiative continues to drive both domestic and international companies to manufacture in India, enhancing the country's global competitiveness.

    • PLI Schemes: These schemes have attracted significant investments, achieving 106% of the designated targets in FY22.

    • MSME Support: The government has expanded the Credit Guarantee Scheme for MSMEs and reduced over 39,000 compliances to ease doing business.

    • FDI Growth: The pharma industry saw a quadrupling of FDI flows, highlighting the sector's growing importance and the effectiveness of the government's industrial policies.




Indian manufacturing is a key pillar of the country's economy, contributing significantly to GDP and employment, and the government's active strategies to promote this growth including the 'Make in India' policy, production linked incentive (PLI) schemes and support a including MSMEs has been imperative As the region expands, a sustained focus on small and medium enterprises, including sustainable practices, will be needed to ensure balanced local development, reduce wealth differences and has positioned India as a global manufacturing hub.


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