The Economic Survey of 2021-22 suggests strong recovery in the industrial sector after the pandemic. The various supply side measures and reforms by the government for industry and infrastructure sector will set in motion a virtuous cycle of growth in industry and economy.
Among several sectors, the manufacturing sector was also hit by the pandemic induced disruptions when it shrank by 7 per cent in 2020-21. In response, as discussed in the Economic Survey, 2021, the government implemented a series of measures easing supply-side bottlenecks, bolstering demand and boosting infrastructure firmly setting the manufacturing sector on the path of recovery. The advanced estimates by National Statistics Office (NSO) suggest a complete recovery of the sector, estimating growth of 12.5 per cent in 2021-22.
A growth of 17.4 per cent in the Index of Industrial Production (IIP) during April-November of 2021, with all sub-sectors showing a pick-up, further portends full recovery of the manufacturing sector. In response to the impetus provided by the growth of manufacturing sector, the core industries comprising steel, natural gas, electricity and coal have also seen their output in November 2021 go past the pre-pandemic level of November 2019. The Survey discusses the policy measures taken in recent past that will further drive the growth of the industrial sector.
The Survey discusses the all-encompassing Production Linked Incentive scheme for sectors like pharmaceuticals, solar modules, electronics, automobiles, giving manufacturers the incentive to achieve economies of scale. Larger scale of production will make manufacturers and exporters more price competitive in global markets and resilient to external shocks, establishing them as global export champions. Further in the Survey, various measures introduced to strengthen the business ecosystem for micro, small and medium enterprises have been discussed including the changed definition of MSMEs.
These are aimed at expansion of small enterprises in order to overcome the “dwarf” phenomenon that has long inhibited the growth of MSMEs. Earlier, there used to be apprehensions about increasing the scale of operations due to the fear of losing government incentives like market support, export promotion and preferential procurement in the public sector available to these enterprises. The modified definition, however, addresses these apprehensions by allowing the incentives to continue even upon capacity expansion beyond the earlier limit. Other measures like targeted credit and clustered manufacturing will help the enterprises to innovate, expand the scale of production and save costs, thereby increasing their export competitiveness.
The government’s presence in business is often justified as necessary to increase output levels in the economy constrained by market failures on account of informational asymmetry, externalities, huge investment requirements, among others. The industrial policy resolution of 1956 was thus a result of a policy mindset that could not fathom the private sector building infrastructure and setting up industries.
However, government owned enterprises that were set up as an alternative to private initiative have by and large delivered sub-optimal output in absence of profit maximisation as an objective. The Survey discusses how pro-privatisation policies have now taken the centrestage in government’s plans. Steps like strategic disinvestment policy, disinvestment in Air India, opening up of coal mining for private sector, liberal policies for foreign direct investment, reforms in the telecom sector, incentives for strengthening regional air connectivity and monetisation of public sector assets are clear expositions of the government's full support for the private players to operate freely and bring in efficiencies, investments and innovation, to spur growth.
The government however has not yet fully stepped out from the economic space marking its critical presence in the development of the country’s physical infrastructure. In this regard the Survey discusses the National Infrastructure Plan (NIP) as an investment guide for public-private partnerships and the PM Gati Shakti plan that coordinates planning and execution of infrastructure projects.
The government has also increased its capex to plug the gaps in infrastructure and connectivity including a significant upturn in road construction. An integrated logistics ecosystem built on the basis of sturdy infrastructure will cut down the logistics cost for industries. It will further assist local producers to expand their businesses through exports and e-commerce for which last-mile-multi-modal connectivity is crucial.
India’s industrial policy now and its enumeration in the Survey recognises that a private sector driven industrialised economy is a developed economy. Inclusive and sustainable industrial growth supported with infrastructure, market access, technology and an enabling regulatory environment, therefore has the potential to drive the overall economic recovery in the post pandemic period and unleash the economic forces that generate greater employment and higher income in due course.
The series of extensive reforms being undertaken to address the stumbling blocks in business ecosystem will set in motion a virtuous cycle of positive business confidence, investments, innovation, capacity expansion, economies of scale in production, commerce, demand and growth in the industries, and thus in the economy as well.
The writer is an Indian Economic Service officer, working as an Assistant Director in Department of Economic Affairs, Ministry of Finance. Views expressed are personal.