2018-CGS-29: Mains Revision-17: Secondary Sector of Economy

Economic Growth in Post-Reforms Period

Indian growth story in the post reform period is criticised for not being inclusive. The various loopholes of the post-reform growth strategy are

  • The pattern of development has aggravated inter-state inequality, widened rural-urban disparity and worsened intra-rural and intra-urban inequality.
  • In the growth story led by private sector investment increased from 28 per cent in 1991-92 to 41 per cent in 2007-08, while the share of the public sector declined from 43 per cent to 24 per cent.
  • The study of Michael Walton, a Senior Visiting Fellow at the Centre for Policy Research, which revealed that the private corporate sector led growth, was associated with the rent seeking, under-pricing of public sector assets in the process of the privatisation of the public sector and transfer of public and private lands to the corporate sector.

Why the growth story was not inclusive?

Increase in casual labour
  • In the post reform period the employment increased at a low rate of 1.3 per cent per annum where as the growth rate was at an average of 7.1 per cent a year.
  • The growth of the labour-intensive manufacturing sector has been slow and has been lagging behind the service sector, which is less labour intensive.
  • A high growth in the post-liberalisation period has been accompanied by increased informalisation and de-unionisation of workforce.
  • Economically and socially deprived sections of society were mostly employed as casual labour.
  • There were an unacceptably high number of 270 million of poor in 2011-12. This apart, 80 per cent of the poor continued to be in rural India.
Widening Inequalities
  • Poorer states gained less from economic reforms and continued to remain poor till 2014-15 while developed states other than Punjab gained the most.
  • Among the major states, Assam, Uttar Pradesh, Jammu & Kashmir, Jharkhand and Madhya Pradesh lagged far behind on level of GSDP per capita as well as growth.
  • Kerala, Andhra Pradesh, Uttrakhand, Gujarat, Haryana and Himachal Pradesh witnessed impressive growth.
Way forward:
  • If the worsening of inequalities persists growth would be affected and “may also lead to social disarticulation”.
  • For inclusive economic growth, labour-intensive process of development is vital. It could be achieved by incentivising the small and medium sized firms or farms, in the formal and informal sectors, and imparting education and skills to the people so that they could take advantage of opportunities created by small and medium enterprises. [The Hindu]

Inverted Duty Structure and Its Impact On Manufacturing Sector

Inverted duty structure is a situation where import duty on finished goods is low compared to the import duty on raw materials that are used in the production of such finished goods.

Impact of inverted duty structure on manufacturing sector

The Inverted duty structure will provide an advantage for the imported goods over the locally manufactured goods. As a result the domestic manufacturing sector takes a hit. IDS affects manufacturing sector because

  • It gives the imported finished goods an advantage on cost competitiveness over the domestically manufactured goods. Thus reduced demand for domestic products.
  • In the post reform period the MSME sector which was the large contributor of the industrial output withered due to the inverted duty structure favoring imported finished goods.
  • The inverted duty structure handicapped India’s chances to break its entry into global value chain.
  • Asian Tiger economies and China which had liberalized their economy much earlier already had an advantage. With the added advantage of IDS Indian market was flooded with goods from these countries and the local manufacturing units could not stand against the tide of imported goods.
  • The labour intensive industries could not sustain against Chinese products.
  • Indian Hardware sector was unable to kick off. As a result even today IT upper power India imports large chunk of its hardware components.
  • IDS gave preference to imported finished goods rather than local value addition resulting in decline of local manufacturing sector.

In the post reform period the manufacturing sector failed to take off and the contribution of industries to GDP has been stagnated. The union budget’s corrective action to address the inverted duty structure will give fillip to make in India and aid in securing a place for India in the global value chain. [The Hindu]

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